By Peter Patten, Reference Librarian, Walsh Library

Why are some countries so much richer than others? Nogales, Arizona is richer than Nogales, Mexico, and South Korea is richer than North Korea. You would think, by this time, that historians and economists would have answered this question. Surprisingly, they have not.

Of course, they have theories. In his influential work Guns, Germs and Steel: The Fates of Human Societies, historian Jared Diamond argues that geography and climate are to blame for the economic inequality between countries. He suggests that Asia and Europe had greater access to a diverse range of useful plant and animal species, as well as more temperate climates, which gave them an agricultural advantage over regions like South America and Africa. Agricultural surpluses enabled population growth and further development. This is why technologies like iron and steelmaking developed in Europe before they did in the Americas,  and why Pizarro, with only 189 men armed with steel armor and weapons, conquered an Inca army of tens of thousands.

Most economists feel that the root cause of national poverty is bad policy decisions made by elites. As soon as these national elites learn to make better policy choices, their countries will be on the road to greater prosperity for all.

The authors of Why Nations Fail: The Origins of Power, Prosperity and Poverty, Daron Acemoglu and James Robinson, do not buy any of these arguments. If poverty is due to geography, why is North Korea so much poorer than South Korea? If it’s due to a weak work ethic, is there some mysterious reason that South Koreans work so much harder than North Koreans? If it’s due to bad policy, then why don’t the leaders of North Korea simply adopt the policies of South Korea?

Darron Acemoglu and James Robinson explore these questions in their book of extraordinary scope, ranging in time from the beginnings of the neolithic revolution to the present and in place, across every continent of the world. After years of research, they found an answer to why nations fail: nations fail because they have extractive institutions controlled by corrupt and unaccountable elites who monopolize political and economic power. On the other hand, nations succeed because they have strong inclusive institutions where power is widely dispersed, there are few barriers to entry, and everyone must abide by an independent legal system that protects the rights of all.

While not a new book, Why Nations Fail is of renewed interest because its two authors, along with one other, won the 2024 Nobel Prize in Economics. And it’s not hard to see why. Their book is both comprehensive in its detail and convincing in its argument.

History is full of events that tended to send some regions or countries in the direction of prosperity and others toward poverty. The bubonic plague of the 14th-century may have killed nearly half of all Europeans, but it also loosened their feudal ties by making labor more expensive and more mobile. In turn, peasants gained income and were able to move off the land and become independent of landowners. Eventually, the English Civil War and the Glorious Revolution of 1688 provided the necessary political and social conditions for the development of the Industrial Revolution. Skilled people had more opportunities. Scientific societies like the Royal Society in England encouraged people from humble backgrounds, like Michael Faraday, to develop the first applications of transformative technologies like electricity. Property rights, patents, and a strong legal system were also institutional reasons that England was the first country to industrialize, which economists agree is the essential first step toward prosperity.

However, if growth and prosperity require open and inclusive institutions, how can we explain the rapid growth of the Soviet Union between 1930 and 1970 and of China between 1980 and 2013. The authors believe these authoritarian countries achieved high growth rates in their early years because of strong centralized planning. But, they couldn’t sustain their growth because their elites could not or would not embrace the necessary destruction of old technologies. Acemoglu and Robinson attribute the slow down, especially in Russia but also now in China, to the lack of open institutions in authoritarian economies. To the authors’ credit, very few people predicted in 2012, when the book was written, that growth in China, which had been rapid,  would slow down as dramatically as it has in the past few years. Although, to be sure, the recent growth in Chinese technology in electric vehicles and artificial intelligence has been impressive and tends to undermine their argument.

While I believe the overall thesis of Why Nations Fail is largely correct, there are some obvious signs that the book needs updating. In 2012, the authors wrote that a free media “can play a key role in channeling the empowerment of a broad sector of society.” I remember this same sense of optimism during the rise of the internet in the 1990s. However, the development of social media has confounded the hopeful expectation that a free media would create a more informed population. Far from increasing information sharing, social media seems to be dividing people as never before and serving as a propaganda tool of elite agendas. If institutions become less inclusive and more authoritarian, if wealth and the power it buys become ever more concentrated, and if the rule of law is undermined, the inevitable consequence will be a less prosperous future for everyone. That is how nations fail.

Why Nations Fail: The Origins of Power, Prosperity and Poverty by Darron Acemoglu and James A. Robinson is available as an ebook from Fordham Libraries and in print from Walsh and Quinn libraries at HB74.P65 A28 2012.