Why Nations Fail: The Origins of Power, Prosperity, and Poverty

by Daron Acemoğlu

The average citizen of the United States is seven times as prosperous as the average Mexican and more than ten times as the resident of Peru or Central America. She is about twenty times as prosperous as the average inhabitant of sub-Saharan Africa, and almost forty times as those living in the poorest African countries such as Mali, Ethiopia, and Sierra Leone.

Ultimately the good economic institutions of the United States resulted from the political institutions that gradually emerged after 1619.

Growth emerged slowly in the second half of the eighteenth century as the Industrial Revolution, based on major technological breakthroughs and their application in industry, took root. Industrialization in England was soon followed by industrialization in most of Western Europe and the United States. English prosperity also spread rapidly to Britain’s “settler colonies” of Canada, Australia, and New Zealand. A list of the thirty richest countries today would include them, plus Japan, Singapore, and South Korea. The prosperity of these latter three is in turn part of a broader pattern in which many East Asian nations, including Taiwan and subsequently China, have experienced recent rapid growth.

If you instead make a list of the poorest thirty countries in the world today, you will find almost all of them in sub-Saharan Africa. They are joined by countries such as Afghanistan, Haiti, and Nepal, which, though not in Africa, all share something critical with African nations,

less than $2,000 annually.

$20,000 or more.

So it is not just that the United States and Canada are richer than Latin America; there is also a definite and persistent divide between the rich and poor nations within Latin America.

Without oil, Middle Eastern countries are also all poor, though, like those in Central America and the Andes, not so poor as those in sub-Saharan Africa.

Many of these subsequently saw that growth go into reverse.

THE GEOGRAPHY HYPOTHESIS

One widely accepted theory of the causes of world inequality is the geography hypothesis,

Montesquieu

Jeffrey Sachs.

first, that tropical diseases, particularly malaria, have very adverse consequences for health and therefore labor productivity; and second, that tropical soils do not allow for productive agriculture.

The Aztecs had both money and writing, and the Incas, even though they lacked both these two key technologies, recorded vast amounts of information on knotted ropes called quipus.

Disease is largely a consequence of poverty and of governments being unable or unwilling to undertake the public health measures necessary to eradicate them.

Improved health and life expectancy were not the cause of England’s economic success but one of the fruits of its previous political and economic changes.

it is a consequence of the ownership structure of the land and the incentives that are created for farmers by the governments and institutions under which they live. We will also show that world inequality cannot be explained by differences in agricultural productivity.

Jared Diamond.

the differential availability of animal and plant species created differential intensities of farming, which led to different paths of technological change and prosperity across different continents.

This gap in incomes is closely connected to the uneven dissemination of modern industrial technologies, but this has little to do either with the potential for animal and plant domestication or with intrinsic agricultural productivity differences between Spain and Peru.

Diamond’s thesis does not tell us why these crucial technologies are not diffusing and equalizing incomes across the world

Inequality in the modern world largely results from the uneven dissemination and adoption of technologies,

Yet the orientation of continents cannot provide an explanation for today’s world inequality.

Diamond’s argument, which is about continental inequality, is not well equipped to explain variation within continents—an essential part of modern world inequality.

But their wide distribution suggests that inequality within Eurasia cannot be explained by a theory based on the incidence of the species.

it was the expansion and consolidation of the Ottoman Empire, and it is the institutional legacy of this empire that keeps the Middle East poor today.

Finally, geographic factors are unhelpful for explaining not only the differences we see across various parts of the world today but also why many nations such as Japan or China stagnate for long periods and then start a rapid growth process.

THE CULTURE HYPOTHESIS

Max Weber,

who argued that the Protestant Reformation and the Protestant ethic it spurred played a key role in facilitating the rise of modern industrial society in Western Europe.

in the sense that social norms, which are related to culture, matter and can be hard to change, and they also sometimes support institutional differences, this book’s explanation for world inequality. But mostly no, because those aspects of culture often emphasized—religion, national ethics, African or Latin values—are just not important for understanding how we got here and why the inequalities in the world persist. Other aspects, such as the extent to which people trust each other or are able to cooperate, are important but they are mostly an outcome of institutions, not an independent cause.

Yet these promising economic experiments were obliterated not by African culture or the inability of ordinary Africans to act in their own self-interest, but first by European colonialism and then by postindependence African governments.

The real reason that the Kongolese did not adopt superior technology was because they lacked any incentives to do so.

What about Max Weber’s Protestant ethic? Though it may be true that predominantly Protestant countries, such as the Netherlands and England, were the first economic successes of the modern era, there is little relationship between religion and economic success.

favorite area for the enthusiasts of the culture hypothesis: the Middle East.

religion matters?

After Ottoman rule collapsed, the Middle East was absorbed into the English and French colonial empires,

parts of the Middle East that temporarily broke away from the hold of the Ottoman Empire and the European powers, such as Egypt between 1805 and 1848 under Muhammad Ali, could embark on a path of rapid economic change.

Muhammad Ali

Nasser

Perhaps it is the influence of English culture that is important

The variation in prosperity within former English colonies is as great as that in the entire world.

European versus non-European.

In the same way, current Chinese growth has nothing to do with Chinese values or changes in Chinese culture; it results from a process of economic transformation unleashed by the reforms implemented by Deng Xiaoping and his allies,

THE IGNORANCE HYPOTHESIS

most economists,

Lionel Robbins

“economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

The ignorance hypothesis maintains that poor countries are poor because they have a lot of market failures and because economists and policymakers do not know how to get rid of them