THE book Why Nations Fail should be read by Members of Parliament, senators, politicians, community leaders and anyone who guides others. This is crucial for making Malaysia a prosperous country free from racial, religious or other divisive tendencies.
It should be translated into other languages to ensure widespread access. This book, grounded in extensive research, is essential for our leaders. They need a fresh mindset to navigate a world where the Earth is becoming one country and humanity its citizens.
Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A. Robinson explores the underlying reasons for the vast differences in wealth and development between nations. The authors argue that the key to understanding these disparities lies in the nature of a country’s institutions.
Below is a detailed summary of the main points and arguments presented in the book.
In the introduction, Acemoglu and Robinson pose a fundamental question – why are some nations rich and others poor? They argue against geographical, cultural and ignorance hypotheses, proposing instead that political and economic institutions are the primary drivers of national success or failure.
The book introduces the concepts of inclusive and extractive institutions. The inclusive institutions are characterised by property rights, an unbiased legal system and the provision of public services that create a level playing field. They encourage investment and innovation, leading to economic growth.
The extractive institutions are designed to extract resources from the majority to benefit a small elite. They discourage innovation and investment, leading to stagnation and poverty.
The authors use a range of historical examples to illustrate their points. The contrast between Nogales in Arizona and Nogales in Sonora is used to show how different institutions on either side of the US-Mexico border can lead to drastically different economic outcomes.
This comparison prompts us to consider the economic outcomes of Malaysia and Singapore in our geographical vicinity, which started as two separate countries with currency values that were initially equal.
The authors also analysed the impact of European colonisation on different parts of the world. They argue that where colonisers established extractive institutions (such as in much of Latin America), poverty ensued. In contrast, where they set up inclusive institutions (such as in the United States and Canada), prosperity followed.
The role of political institutions is crucial because they determine the structure of economic institutions. Inclusive political institutions distribute power broadly and create checks and balances. Extractive political institutions concentrate power and limit checks on authority.
Acemoglu and Robinson introduced the concept of “critical junctures” – significant events that disrupt the existing political and economic balance. These junctures provide an opportunity for countries to reform their institutions, either towards inclusivity or further extraction.
For example, “The Black Death”, the plague that led to a labour shortage in Europe, empowering workers and weakening the feudal system, eventually contributed to the development of more inclusive institutions in Western Europe.
Similarly, the Glorious Revolution in England established parliamentary supremacy over the monarchy, leading to more inclusive economic policies.
The authors discussed how institutions tend to persist over time due to the interests of those in power.
However, they also show how change can sometimes occur through revolutions and can overthrow extractive institutions, but often they only replace one elite with another as seen in many post-colonial states.
The authors also noted that sustainable changes often come through gradual reform and the development of a broad coalition demanding inclusivity.
Acemoglu and Robinson also examined contemporary examples, such as North and South Korea. Despite sharing a common cultural and historical background, these two countries developed vastly different political and economic institutions after World War II.
Botswana serves as a notable example of a country that, despite being in a region traditionally prone to extractive institutions, successfully established inclusive institutions after gaining independence. This shift has led to sustained economic growth.
The authors also addressed potential criticisms of their cultural hypothesis theory. They argued that cultural explanations for economic success are insufficient because cultures are not static and can change in response to institutions.
They challenged geographical hypotheses by providing examples of countries with similar geographies but differing economic outcomes due to variations in their institutions.
The authors also addressed the “ignorance hypothesis”, arguing that poor economic outcomes are not due to a lack of awareness of better policies but rather the result of deliberate choices by those in power to maintain control.
Finally, the authors discuss the policy implications of their findings, and that they advocate international efforts to support the development of inclusive institutions in poor countries.
They are skeptical of foreign aid and interventions that do not address the root institutional causes of poverty. They argue for policies that empower local populations and create broad-based coalitions for change.
Why Nations Fail concludes that the prosperity of nations is not a matter of geography, culture or policy ignorance but rather the result of the nature of political and economic institutions.
Inclusive institutions foster economic success, while extractive institutions lead to poverty and stagnation. The book calls for a focus on building inclusive institutions to promote global prosperity.
Although the book has made significant contributions to the discussion on economic development and the role of institutions, it has also sparked debate and criticism for its perceived oversimplifications, methodological limitations and the challenge of translating its findings into actionable policies.
