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

by Daron Acemoğlu

On the face of it, the sustained economic decline that soon set in in Ghana after independence from Britain was caused by ignorance.

Tony Killick,

government of Kwame...

What drove the form the economic policies took was the fact that Nkrumah needed to use them to buy political support and sustain his undemocratic regime.

But why is the ignorance hypothesis wrong in the core of it? It is all mainly because of the market failure and the difference of explaining it is just the intent of the policies. In some examples, it is about the circumstances which made them take those decisions but still don't get why it is not a efficient way to explain.

it was the differences in the institutional constraints the countries’ presidents and elites were facing.

Ghana’s prime minister in 1971, Kofi Busia,

led a democratic government, he faced many of the same political constraints.

The policies were chosen because they were good politics, enabling Busia to transfer resources to politically powerful groups,

The immediate consequence of the currency’s devaluation was rioting and discontent in Accra, Ghana’s capital, that mounted uncontrollably until Busia was overthrown by the military, led by Lieutenant Colonel Acheampong, who immediately reversed the devaluation.

The ignorance hypothesis differs from the geography and culture hypotheses in that it comes readily with a suggestion about how to “solve” the problem of poverty:

Ignorance hypothesis does not work because of the irony? That the solution from it does not serve its purpose

the main obstacle to the adoption of policies that would reduce market failures and encourage economic growth is not the ignorance of politicians but the incentives and constraints they face from the political and economic institutions in their societies.

It explains neither the origins of prosperity around the world nor the lay of the land around us—for

It was politics that determined the switch from communism and toward market incentives in China, not better advice or a better understanding of how the economy worked.

They get it wrong not by mistake or ignorance but on purpose.

To understand this, you have to go beyond economics and expert advice on the best thing to do and, instead, study how decisions actually get made, who gets to make them, and why those people decide to do what they do.

economist Abba Lerner noted in the 1970s, “Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain.”

anticommunist Syngman Rhee, with significant support from the United States.

Both Rhee and his equally famous successor, General Park Chung-Hee, secured their places in history as authoritarian presidents. But both governed a market economy where private property was recognized, and after 1961, Park effectively threw the weight of the state behind rapid economic growth, channeling credit and subsidies to firms that were successful.

Kim Il-Sung, a leader of anti-Japanese communist partisans

introduced a rigid form of centrally planned economy as part of the so-called Juche system.

in just about half a century,

tenfold gap

EXTRACTIVE AND INCLUSIVE ECONOMIC INSTITUTIONS

To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new businesses and allow people to choose their careers.

Of the forty judges and justices of the peace on the island, twenty-nine of them were large planters. Also, the eight most senior military officials were all large planters.

Barbados did not have inclusive economic institutions, since two-thirds of the population were slaves

The state is thus inexorably intertwined with economic institutions, as the enforcer of law and order, private property, and contracts, and often as a key provider of public services.

extractive economic institutions—extractive because such institutions are designed to extract incomes and wealth from one subset of society to benefit a different subset.

Inclusive markets are not just free markets.

two other engines of prosperity: technology and education.

Today technological change requires education both for the innovator and the worker. And here we see the importance of economic institutions that create a level playing field.

Explaining why so many economic institutions fail to meet these simple objectives is the central theme of this book.

EXTRACTIVE AND INCLUSIVE POLITICAL INSTITUTIONS

When there is conflict over institutions, what happens depends on which people or group wins out in the game of politics—who can get more support, obtain additional resources, and form more effective alliances. In short, who wins depends on the distribution of political power in society.

absolutist,

pluralistic.

But the key to understanding why South Korea and the United States have inclusive economic institutions is not just their pluralistic political institutions but also their sufficiently centralized and powerful states.

Somali state’s lack of any kind of political centralization, or state centralization, and its inability to enforce even the minimal amount of law and order

widely accepted definition of the state, identifying it with the “monopoly of legitimate violence” in society.

political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions as extractive political institutions.

Extractive economic institutions under inclusive political institutions are unlikely to survive for long, as our discussion of Barbados suggests.

Either they will be transformed into extractive economic institutions to the benefit of the narrow interests that hold power, or the economic dynamism they create will destabilize the extractive political institutions, opening the way for the emergence of inclusive political institutions.

Congo experienced almost unbroken economic decline and mounting poverty under the rule of

Joseph Mobutu

between 1965 a...

Les Grosses Legumes (the Big Vegetables),

The fundamental problem is that there will necessarily be disputes and conflict over economic institutions.

Economic growth and technological change are accompanied by what the great economist

Joseph Schumpeter

creative dest...