Why Nations Fail | Daron Acemoğlu

Summary of: Why Nations Fail: The Origins of Power, Prosperity, and Poverty
By: Daron Acemoğlu

Introduction

Welcome to the riveting world of ‘Why Nations Fail’ by Daron Acemoğlu, a book that delves deep into the origins of power, prosperity, and poverty in our world. As you embark on this journey, you will discover the reasons behind the disparities between nations, with several compelling examples that debunk traditional hypotheses. Key highlights include the role of economic and political institutions, the categorization as extractive or inclusive, and insightful critical junctures in history that changed the course of nations. This summary is designed to deliver factual information and intriguing stories in an engaging way, connecting the dots between historical, political, and economic developments throughout the timeline of human civilization.

Beyond Geography and Culture

Nogales and international inequality: exploring theories beyond geography and culture

The town of Nogales, divided in half between Mexico and the United States, offers a unique perspective on global inequality. While Nogales, Arizona enjoys a higher standard of living, better healthcare and education, and lower crime rates, Nogales, Sonora struggles to provide for its citizens. While the geography hypothesis once explained such inequality, it fails to do so now. Ideas that place blame on cultural differences and ignorance also fall short. Instead, a more compelling theory points to the existence of borders as a cause of disparities. The splitting of South and North Korea, East and West Germany, and other countries supports this theory. Theories that explore the impact of diseases and soil quality also do not hold up. The book delves into Max Weber’s claim that Western Europe’s Protestant work ethic caused its high rate of industrialization and how it similarly cannot explain global inequality. Similarly, the ignorance hypothesis, which suggests that poverty results from a lack of knowledge regarding policies for economic growth, does not provide a solution. Ultimately, the author proposes a more comprehensive theory that accounts for international inequality.

The Role of Economic and Political Institutions in a Country’s Prosperity

The economic and political institutions of a country determine its prosperity. Economic institutions can be inclusive or extractive and are determined by property laws, public services, and access to finance. Inclusive economic institutions encourage economic participation and freedom, leading to innovation and wealth preservation, while extractive institutions benefit specific groups within society. Political institutions can also be inclusive or extractive, with inclusivity resulting in power-sharing and erasure of extractive economic policies, resulting in mutual economic benefits for all members of society.

The Black Death and Institutions

In the mid-fourteenth century, the Black Death devastated Europe, causing massive labor shortages that eventually led to the dissolution of feudalism and the establishment of less extractive institutions in Western Europe. This critical juncture resulted in institutional drift, whereby regions that were otherwise quite similar bifurcated in different directions. The expansion of global trade and the colonization of the Americas further accelerated this drift, highlighting the long-lasting effects of critical junctures on institutional landscapes.

How England Became the First Industrial Nation

England’s success in industrialization during the 17th to 19th centuries can be attributed to its already-existing political institutions that gave birth to inclusive economic institutions. The Glorious Revolution of 1688 allowed for the reduction of the monarchy’s power, while the British Parliament gained more power to serve the interests of landowners, which resulted in the creation of inclusive economic institutions. These institutions facilitated the establishment of legally enforceable property rights, stronger protection laws that incentivized investment and innovation, the establishment of the Bank of England to provide credits for investment, and the reformation of the tax system to stimulate the economy. England’s infrastructure improved radically, as canals and railways were constructed to facilitate transportation and mass production. These developments led to England’s economic boom, global dominance, and increasingly inclusive institutions.

England’s Pluralistic Political Institutions

Inclusive institutions result in inclusive economic reform, as seen in England’s political institutions during the nineteenth and twentieth centuries. As these institutions became more pluralistic, they were able to represent the economic interests of a greater share of people, leading to more inclusive economic institutions. Universal suffrage was achieved thanks to the concerted efforts of the disenfranchised, who used workers’ strikes, social unrest, petitioning, and campaigning as tools. The success of the disenfranchised was aided by the media, which ensured the self-fulfilling process of institutional political inclusivity kept running. The success of England’s institutions marked a shift toward more inclusivity and compromise-oriented institutions that benefitted both the elite and the disenfranchised.

The Curse of Self-Interest

This book discusses how political elites’ self-interest affects their countries’ development by inhibiting growth and progress. Examples like the Ottoman Empire’s ban on printing and Emperor Francis I of Austria’s opposition to industrialization are highlighted. The fear of creative destruction and the elites’ aspiration to maintain control over industries that favored them resulted in lost opportunities for development. As a consequence, some countries remained far behind others in terms of literacy, technological advancements, and economic growth. The book illuminates the curse of self-interest that has prevented leaders from choosing prosperity over poverty for their countries.

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