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

Why Nations Fail uncovers how inclusive institutions, not geography or culture, determine a nation’s success or failure—showing that power and prosperity are built from the ground up.

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.

StoryShot #5: Uninclusive Politics Breed Economic Stagnation

Inclusive politics lead to economic growth. Uninclusive or, as the authors call them, extractive institutions lead to the opposite. Institutions that exploit groups for their own gain tend to have stagnant economies.

The example used in Why Nations Fail is that of former colonies. First, colonizing countries exploited the local labor and resources for their own gain. Then, they left.

Today, you can see the legacy of these uninclusive policies in former colonies. Countries that used to exist under a faraway country’s rule still struggle to get their economies on track.

Why does this happen? After all, to the ordinary person, a prosperous country is a good thing.

But things change when you’re the sole member of a country’s ruling elite. What’s suitable for the people may go against your own interests.

The reverse is also true, though. What’s good for the ruling elite isn’t necessarily good for the economy. The same goes for the workers who keep the economy churning.

Here’s an example. When the printing press came about in 1445, the Ottoman Empire banned it. They continued to ban this invention up until the 18th Century.

Why? Because they feared it threatened their authority. In other words, they worried this invention would lead to more inclusive institutions.

Instead, the Ottoman Empire hurt itself. Its population fell behind other parts of Europe’s education. And this was all because they banned the printing press.

According to the book, only 3% of Ottomans were literate. Compare that to 40%–60% of Englishmen who were literate.

In sum, extractive policies can impact progress. And without economic advancement, countries’ wealth can suffer.

StoryShot #6: Uninclusive Politics Create an Economic Domino Effect

One uninclusive policy in a vacuum isn’t necessarily harmful. Yet, Acemoglu and Robinson argue that extractive policies cause a waterfall effect. So, an uninclusive country almost always becomes more extractive.

This phenomenon can have a major impact on the economy. First, remember that the ruling elite enforces uninclusive policies. They do so to keep themselves rich and powerful.

The effect is that their countries’ wealth suffers. Eventually, someone may have the opportunity to rise up. They may even be able to overthrow the extractive institution.

But these new regimes are also typically extractive.

Here, the example presented in the book is of American slavery. Americans invented slavery to extract labor from members of the African diaspora. Yet, this institution eventually led to more uninclusive policies.

Slavery ended in 1865 with the end of the Civil War. But unfortunately, the 13th Amendment didn’t actually end the exclusion of black Americans. People often ignored the Amendment’s provisions in favor of discluding black Americans from paid work.

Sharecropping and, ultimately, Jim Crow laws further reinforced the exclusion of black Americans. This group made some progress with the civil rights movement. But black Americans still face lingering uninclusive policies to this day.

StoryShot #7: Economies That Succeed Under Uninclusive Institutions Aren’t Sustainable

The next section of Why Nations Fail focuses on the exception to this rule. In other words, the book discusses extractive institutions with decent economies. China is exemplary of this idea.

China has a recent history of extreme authoritarian rule. Yet, China also has the fastest-growing economy in the world. Since 1978, China’s gross domestic production (GDP) has grown at an average rate of 10% per year.

Yet, there’s something special about the year 1978. This was the year that China began its “opening-up” policy. This policy allowed 800 million Chinese citizens to come out of poverty.

China seems to refute Acemoglu and Robinson’s argument. China historically has had uninclusive institutions. Yet, they eventually gave rise to more inclusive policies.

And all this happened after only one critical junction: the opening-up policy.

That’s all true until you consider the state of China’s economy today. China’s economy grew so much because it could manufacture and export goods very cheaply. It can do so because of the low wages companies pay workers.

Despite progress, China still employs extractive economic practices. And over the past couple of years, these practices have started to add up.

Labor force growth and productivity have declined. Meanwhile, investments are seeing diminishing returns. Experts believe this is due to a lack of participation from private investors.

Experts believe that China’s economy will eventually collapse.

Why? Because the uninclusive institutions still linger in China. And these institutions have created an unsustainable level of economic development.

China will eventually have to address its extractive institutions. If it doesn’t, Acemoglu and Robinson project that the country will ultimately fail. They believe China will follow in the Soviet Union’s footsteps.

Why Isn’t Growth Under Extractive Institutions Sustainable?

The book also speculates why countries with extractive policies can’t grow forever. They give two primary reasons:

1. Sustainable growth requires innovation
2. Innovation requires creative destruction

Creative destruction is another phrase for “out with the old; in with the new.” This process destroys old policies and frameworks. And this destruction must occur for innovation to take place.

Small groups of elites tend to head up extractive countries. It is in their best interests to keep the extractive institutions in place. So, they fear creative destruction and avoid innovation to maintain their power.

StoryShot #8: Uninclusive Institutions Can Become Inclusive With Time and Effort

The great thing about this book is that it does relay a lot of gloom and doom. But the final section offers a silver lining. Acemoglu and Robinson describe how a developing country can become rich.

First, the country must chip away at its extractive institutions. This requires critical junctures. And these critical junctures must push the government to create more inclusive policies.

One way to help countries do this is to give pressed individuals the means to fight back. Brazil is an example of this idea in action. Social unrest throughout the country led to a revolution in the 1980s.

Since the impoverished overthrew their dictators, the country’s economy has flourished.

And Brazil has continued to encourage more inclusive policies. This is especially true over the last few decades. These changes resulted in Brazil’s economy becoming one of the fastest-growing until 2012.

It’s important to note that, since the writing of Why Nations Fail, Brazil’s economy has taken a tumble. As a result, the country experienced a recession in 2014.

Experts believe the cause of the recession was a lack of private investment. Sound familiar? It should since this was one of the reasons China’s economy began to slow down.

Brazil has since started recovering from its recession. And the reason why should be no surprise to you now that you’ve read our Why Nations Fail summary.

Brazil has again started investing in more inclusive economic policies. This strategy has helped to increase productivity, private investment, and, thus, wealth.

Foreign Aid Doesn’t Help

Another word of advice Acemoglu and Robinson give is about foreign aid. The US, in particular, has a firm foreign aid policy. Yet, this aid usually does no good.

Why? Because as long as extractive institutions are still in place, the aid will benefit the elite, not the general public.

Countries must undergo a critical juncture to become more inclusive. Barring this kind of change, neither neoliberal nor micro-economic foreign aid will be beneficial. At least, that’s what the book argues.

Final Summary and Review of Why Nations Fail

Why Nations Fail is a great read for anyone interested in politics, economics, or foreign relations. This book lays out an argument that poor countries suffer from extractive institutions. And without overthrowing these intuitions, their economies will always lack growth.

It’s also an easy read. You won’t find much academic jargon, and the examples are straightforward and intriguing.

But before reading, you might want some background knowledge in economics. That’s because the authors don’t define some terms (e.g., monopolies on violence).

Before you go, here are the Why Nations Fail key takeaways you need to remember:

• Geography, Culture, and Knowledge Aren’t Enough to Explain Why Nations Fail
• Political Institutions Explain Why Some Nations Are Rich and Others Poor
• Critical Junctures Lead to Institutional Drift
• Inclusive Politics Breed Economic Growth
• Uninclusive Politics Breed Economic Stagnation
• Uninclusive Politics Create an Economic Domino Effect
• Economies That Succeed Under Uninclusive Institutions Aren’t Sustainable
• Uninclusive Institutions Can Become Inclusive With Time and Effort

Rating

How would you rate Why Nations Fail based on our summary?

---

Deep dive into the details by ordering the book or get the audiobook for free.

New to StoryShots? Get the audio and animated versions of this summary as well as hundreds of other bestselling nonfiction books in our free top-ranking app. It’s been featured #1 by Apple, The UN, and The Guardian.

Got feedback? Comment below or tweet to us @storyshots.

---

Related Book Summaries

• Freakonomics
• 1984
• Factfulness
• Nexus
• Principles
• On Tyranny
• The 48 Laws of Power
• Zero to One
• AI Superpowers
• Predictably Irrational
• Enlightenment Now
• How to Destroy America in 3 Easy Steps