Society, Politics & Law

Why nations fail

Updated Wednesday 7th March 2012

Economics Lecturer Alan Shipman asks why are some nations richer than others, and why is it so hard for the less well-off to close the gap?

In Why Nations Fail: Historical Origins of Poverty (Profile, 2011) James Robinson joins a crowded contest to explain one of the world’s most important puzzles: why are some nations richer than others, and why is it so hard for the less well-off to close the gap?

His explanation rests on a self-reinforcing combination of economic and political factors that can lock nations into faster or slower development paths. ‘Extractive’ economic arrangements (classically, large landlords producing cash crops with indentured labour) typically lead to, and reinforce, ‘extractive’ political arrangements, under which the rich elite imposes policies and property rights that sustain its advantage. ‘Inclusive’ economic arrangements (usually starting with dispersed landholding and a freer peasantry) beget, and are buttressed by, ‘inclusive’ political arrangements, spreading property rights and making policymaking more pluralistic. 

Whereas an extractive economy is designed to stand still – delivering a stream of rent and profit to the elite from an unchanging production process – inclusive arrangements are unavoidably dynamic. People who own land or any other means of production will seek to improve it in order to earn more, buy more and live more easily. So the move to greater inclusion sparks the process of growth. North America, where land was parcelled out, industrialises while South America stays feudal. Western Europe, where the Black Death and inflation undermined extractive agriculture, moves ahead of the more resilient landed oligarchies further east. 

A nation that enters one of these mutually-reinforcing arrangements may find it very hard to break out. But if economic arrangements switch from extractive to inclusive, a matching shift to political pluralism appears hard to prevent. Robinson is bold enough to suggest that China’s economic liberalisation may destabilise its one-party political system - though supportive China scholars insist that there’s already pluralism within the party, while critics deny there’s anything inclusive about its present economic growth. 

Readers familiar with Robinson’s earlier Economic Origins of Dictatorship and Democracy (2006), also co-authored with Daron Acemoglu, will recognize Why Nations Fail as a complement to the earlier thesis. There, they theorise (and offer empirical evidence) that dictatorships get entrenched when an elite is enriched by exclusive control of economic resources and political power, and so has an incentive to keep control by heavy investment in repression. Democratisation occurs only when the discontented mass can threaten to impose such costs on the elite (through workplace or wider conflict) that the rulers are willing to make concessions (spreading wealth, widening the franchise) to keep the peace. But once democratic rights have been granted, they can be hard to retract, because people use their new political power to redistribute economic power. Any retreat from extractive political arrangements therefore starts to undermine extractive economic arrangements. 

Robinson’s work also has echoes of much existing economic history. He readily acknowledges Douglass North’s extensive research on the institutional factors behind economic growth as an early inspiration. David Landes’ cultural explanations for different development rates (mixed with historical factors in The Wealth and Poverty of Nations, 1999), and the ‘new economic geography’ advanced by (among others) Jared Diamond and Paul Krugman, are also compatible. Geography, culture and history are often inseparable as determinants of early economic arrangements (as, for example, when large tracts of Asian terrain are found appropriate for rice-growing, which requires large farm plots and centralised water management, which supports the emergence of strong political institutions that easily become extractive).

Respect for history also enables Robinson to move beyond Niall Ferguson’s currently vogueish argument (in Civilization, 2011) that six ‘killer apps’ (competition, science, medicine, property rights, work ethic and consumption) enabled the West to get ahead. While telling a story that’s plausible as far as it goes, Ferguson studiously ignores the less civilized, more literally killer apps chronicled ten years earlier by Kenneth Pomeranz. In The Great Divergence (2000), Pomeranz assembles awkward evidence that a Western will to exploit non-Europeans – through war, colonisation, expropriation and enslavement – played a vital role in promoting European and North American development and restraining it elsewhere. Robinson identifies the major impact of colonial intervention in creating or undermining extractive arrangements, especially in Asia and sub-Saharan Africa, and the different economic experiences that result. 

By arriving at economic history through economics, rather than history, Robinson advances his case through coherent processes and not just associations. History, and social practices shaped by it, may make it harder to reform growth-sapping institutions in a way that hungry populations and development agencies would like, but we are better off for knowing what the limiting-factors are. Given the rarity of chances to re-run history, that’s an important contribution. Economists may have failed to forecast the 2008 events that almost ended Western ascendancy, but they’re getting better at explaining how it began.  

 

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