Why Nations Fail Summary and Review | Daron Acemoglu and James A. Robinson

Life gets busy. Has Why Nations Fail been gathering dust on your bookshelf? Instead, pick up the key ideas now.

We’re scratching the surface here. If you don’t already have the book, order the book or get the audiobook for free on Amazon to learn the juicy details.

About Daron Acemoglu

Daron Acemoglu and James A. Robinson co-wrote Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Here’s what you need to know about these authors.

Daron Acemoglu is a renowned economics professor. He currently teaches at MIT.

During his nearly 30-year tenure, he has authored dozens of research papers. His papers cover everything from online misinformation (i.e., “fake news”) to supply chain disruptions.

Acemoglu holds the prestigious Elizabeth and James Killian Professor of Economics title. In 2019, MIT also named him Institute Professor. This title is the highest honor a professor can receive at MIT.

James A. Robinson is also a professor of economics and political science. He teaches at the University of Chicago’s Harris School of Public Policy. He holds a Ph.D. in economics from Yale.

Robinson also formerly taught at Harvard, UC Berkeley, and USC.

Robinson specializes in foreign relations. He studies countries’ differences through the lens of economic institutions.

You can check out his other books if you’re looking for more reading. He also authored The Narrow Corridor and Economic Origins of Dictatorship and Democracy.

Introduction

Why are some countries poor while other nations prosper? This question is the central drive of Why Nations Fail’s narrative.

And it’s an important one to answer. Why? In the US alone, economic inequality has led to only 20% of US families making over 50% of the national income.

The wealth gap is even more significant when looking at the country-by-country stats. So, Acemoglu and Robinson take up the question of why there’s so much variation in wealth worldwide.

We’ll discuss their argument in our Why Nations Fail analysis below.

StoryShot #1: Geography, Culture, and Ignorance Aren’t Enough to Explain Why Nations Fail

Acemoglu and Robinson open Why Nations Fail with an interesting example. Nogales is a city that splits the border of Arizona and Sonora, Mexico. Despite their proximity, Nogales, Arizona is a much wealthier city than Nogales, Sonora. What’s the disconnect?

There are three theories that try to explain the differences in standards of living. These theories should show why some nations are more prosperous than others. The theories are:

• The Geography Hypothesis
• The Culture Hypothesis
• The Ignorance Hypothesis

Below, we’ll discuss what each of these theories means. Plus, we’ll provide real-world examples from the book. These examples help show why each theory doesn’t work.

Geography, Culture, and Ignorance Hypotheses Explained

The Geography Hypothesis claims that people in warmer countries are lazy. Meanwhile, workers in nations with more temperature climates are more productive.

Today, this theory has expanded to include factors like diseases. Many diseases ravage warmer-climate countries far more than temperate ones.

But Nogales directly disproves this theory. Inhabitants of both cities experience the same climate and the same diseases. So, why are the standards of living still so different?

Another prevailing theory is the Culture Hypothesis. This theory suggests that religion, specifically Protestant religions, confers a better work ethic.

Protestantism is more common in industrialized countries. Supposedly, this fact helps prove the culture theory.

Acemoglu and Robinson use Korea to argue against the Culture Hypothesis. Until the Korean War, these countries existed as one. They shared the same religion and culture.

But why then is South Korea thriving while North Korea’s economy is in the dumps?

The final theory put forward in this book is the Ignorance Hypothesis. The Ignorance Hypothesis claims that developing countries lack knowledge. Namely, they don’t know which policies would stimulate their economies.

Unfortunately, this theory doesn’t account for places like Africa and the Middle East. Western thought leaders have brought information to these regions. Yet, that knowledge has done little to improve their economies.

StoryShot #2: Political Institutions Explain Why Some Nations Are Rich and Others Poor

None of the prevailing theories on why some nations fail work. So, Acemoglu and Robinson put forward a fourth theory. They think there’s a more straightforward explanation.

The difference between rich and poor countries is their economic and political institutions.

Countries’ economic and political policies can generally fall into one of two camps:

1. Extractive
2. Inclusive

Extractive policies tend to exploit the income of one group. This group tends to be the lower class.

That income then gets redistributed to another group. This second group is usually a wealthy elite.

Contrast this with inclusive governments. Inclusive policies encourage widespread participation in the economy.

An example of a country with inclusive policies is the US. In the United States, most people work for a living and get to take home their wages as income. This participation then stimulates the economy.

Further, inclusive countries are pluralistic. Pluralism refers to an institution where every interest gets representation. This pluralism results in sharing of power, which prevents the concentration of wealth.

Conversely, North Korea is an extractive institution in action. The Kim dynasty has ruled North Korea for decades.

Experts define their political rule through the exploitation of the general public. And these governments exploit to benefit a small group of elite and wealthy families.

According to the book, this is the only theory that can explain global wealth inequality. The rest of the book lays out the argument for why this has to be the case.

StoryShot #3: Critical Junctures Lead to Institutional Drift

Acemoglu and Robinson lay out their points in the next section. But first, they explain how two similar countries can have such disparate institutions. This phenomenon hinges on critical junctures.

Critical junctures are events that cause two countries with similar institutions to diverge. For instance, the Black Death was a critical juncture in European history.

On the one hand, Western European peasants fought for better rights. They had the leverage to do so since the Black Death caused a decrease in labor supply. Ultimately, this even led to a more pluralistic political institution.

Eastern European peasants didn’t fare so well, though. Landowning nobles preyed on the situation. They demanded more taxes from the working class.

This situation led to an increase in feudalism. And Eastern European countries can still feel the effects of feudalism today.

So, why are critical junctures so crucial? You can see the answer from the above examples. These events can cause two similar nations to become politically and economically divided.

Economists call this institutional drift.

As more and more critical junctions occur, institutional drift increases. Eastern and Western Europe have two completely different political and economic ideologies today. And institutional drift can help explain why.

StoryShot #4: Inclusive Politics Breed Economic Growth

You may be wondering: why do critical junctures impact countries so differently? In other words, why did the Black Death lead to the end of feudalism in the West but not in the East?

Why Nations Fail has an answer for this question, too. The more inclusive a country is historically, the more likely it is to profit in the future.

Let’s use an example. The Black Death occurred in the 14th Century. A century before, in England, the Magna Carta went into effect.

This document was the first-ever checks-and-balances approach to government. It specified that English law didn’t just apply to regular citizens. The law applied to the King and his wealthy nobles, too.

The Magna Carta also put in place the first vestiges of the English Parliament. Elected members of Parliament made for a more pluralistic political institution.

So, Acemoglu and Robinson posit that the Black Death created more inclusive institutions. This occurred in Western Europe generally and England specifically.

Over the next six hundred years, England experienced a cascade of critical junctures. These events include the Revolution of 1688 and the establishment of the Bank of England. Tax reform and infrastructure improvements also contributed.

All these events paved the way for industrialization. Rapid industrialization further made way for capitalism. And capitalism is arguably the single most important driver of economic growth today.

Another point made in this section is that inclusive policies breed inclusive economies. Inclusive economies, in turn, create room for more inclusive policies.

In other words, putting inclusive institutions in place increases inclusive politics and economics. And this effect can last ad infinitum.

The Essential Qualities of Inclusive Institutions

Let’s discuss one thing before we move on to the next section. It’s essential to understand the characteristics of inclusive institutions.

First, inclusive institutions are pluralistic. Society as a whole must hold political power rather than a select, wealthy elite. The following also characterize inclusive institutions:

• The government incentivizes private individuals to invest and innovate
• There are laws protecting people’s rights to invest and innovate
• There is education and infrastructure in place to help people invest and innovate
• The government is pluralistic in nature
• Laws benefit all citizens, not just a wealthy elite
• The government upholds a monopoly on violence (i.e., they have the legal right to use force)

Now, let’s discuss the countries and institutions that don’t share the above qualities.

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