Why Nations Fail: FROM THE WINNERS OF THE NOBEL PRIZE IN ECONOMICS: The Origins of Power, Prosperity and Poverty

by Daron Acemoğlu

Second, he opposed the construction of railways, one of the key new technologies that came with the Industrial Revolution.

The reasoning of the Ming and Qing states for opposing international trade is by now familiar: the fear of creative destruction. The leaders’ primary aim was political stability.

The reason Ethiopia is where it is today is that, unlike in England, in Ethiopia absolutism persisted until the recent past. With absolutism came extractive economic institutions and poverty for the mass of Ethiopians,

But the most enduring implication of the absolutism was that Ethiopian society failed to take advantage of industrialization opportunities during the nineteenth and early twentieth centuries, underpinning the abject poverty of its citizens today. THE

Africa. The dual economy between the Transkei and Natal is in fact quite recent, and is anything but natural. It was created by the South African white elites in order to produce a reservoir of cheap labor for their businesses and reduce competition from black Africans.

The masses did not just want the vote for its own sake but to have a seat at the table to be able to defend their interests.

Inclusive economic institutions lead to a more equitable distribution of resources than extractive institutions.

Inclusive economic institutions provide foundations upon which inclusive political institutions can flourish, while inclusive political institutions restrict deviations away from inclusive economic institutions.

Inclusive economic institutions remove the most egregious extractive economic relations, such as slavery and serfdom, reduce the importance of monopolies, and create a dynamic economy, all of which reduces the economic benefits that one can secure, at least in the short run, by usurping political power.

extractive institutions create equally strong forces toward their persistence—the process of the vicious circle.

circle. Extractive political institutions lead to extractive economic institutions, which enrich a few at the expense of many.

Under extractive political institutions, there is little check against the exercise of power,

The reason that the economic and political trajectory of the South never changed, even though slavery was abolished and black men were given the right to vote, was because blacks’ political power and economic independence were tenuous.

When extractive institutions create huge inequalities in society and great wealth and unchecked power

The most common reason why nations fail today is because they have extractive institutions.

The insecurity of property rights wrought by Mugabe and ZANU-PF led to a collapse of agricultural output and productivity. As the economy crumbled, the only thing left was to print money to buy support, which led to enormous hyperinflation.

The economic and political failure in Zimbabwe is yet another manifestation of the iron law of oligarchy—

NATIONS FAIL TODAY because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate.

Countries become failed states not because of their geography or their culture, but because of the legacy of extractive institutions, which concentrate power and wealth in the hands of those controlling the state, opening the way for unrest, strife, and civil war.

This policy may have helped stabilize the economy, but it had one big drawback. It made Argentine exports very expensive and foreign imports very cheap.

1 peso=1$

The currency reform was designed to punish people who used these markets and, more specifically, to make sure that they did not become too wealthy or powerful enough to threaten the regime. Keeping them poor was safer.

many of the poorest regions of the world at the end of the twentieth century without understanding the new absolutism of the twentieth century: communism.

bukan unntuk equality tapi to create new elite

Nations fail economically because of extractive institutions. These institutions keep poor countries poor and prevent them from embarking on a path to economic growth.

The solution to the economic and political failure of nations today is to transform their extractive institutions toward inclusive

Deng argued, “No matter whether the cat is black or white, if it catches mice, it’s a good cat.” It did not matter whether policies appeared communist or not; China needed policies that would encourage production so that it could feed its people.

While the first level of our theory is about an institutional interpretation of history, the second level is about how history has shaped institutional trajectories of nations.

Small differences and contingency are not just part of our theory; they are part of the shape of history.

a “bird in a cage” analogy for the economy: China’s economy was the bird; the party’s control, the cage, had to be enlarged to make the bird healthier and more dynamic, but it could not be unlocked or removed, lest the bird fly away.

There was a real sense in 1989 that the Tiananmen Square demonstrations would lead to greater opening and perhaps even the collapse of the communist regime.

roots of Chinese success: a radical change in economic institutions away from rigidly communist ones and toward institutions that provide incentives to increase productivity and to trade. Looked

Different versions of modernization theory also claim that an educated workforce will naturally lead to democracy and better institutions.

growth under authoritarian, extractive political institutions in China, though likely to continue for a while yet, will not translate into sustained growth, supported by truly inclusive economic institutions and creative destruction.

International Monetary Fund, recognizes that poor development is caused by bad economic policies and institutions, and then proposes a list of improvements these international organizations attempt to induce poor countries to adopt.

Many politicians around the world were spending more than they were raising in tax revenue and were then forcing their central banks to make up the difference by printing money. The resulting inflation was creating instability and uncertainty.

Countries such as Afghanistan are poor because of their extractive institutions—which result in lack of property rights, law and order, or well-functioning legal systems and the stifling dominance of national and, more often, local elites over political and economic life.

started the process of forging inclusive political institutions with a political revolution.

england, france, japan

Many noncommunist, top-down reforms fared no better. Nasser vowed to build a modern egalitarian society in Egypt, but this led only to Hosni Mubarak’s corrupt regime,