Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James Robinson

When Kurt Lewin observed that ‘there is nothing so practical as a good theory’, he must have had Acemoglu and Robinson in mind. Or perhaps, since Lewin died in 1947, Acemoglu and Robinson had Lewin in mind when they developed their grand theory about why nations succeed and why they fail. Certainly, their theory has proved to be practical, in the sense that, subliminally or otherwise, it has influenced thinking about governance and aid in developing countries. No less a figure than David Cameron, inter alia co-Chair of the High Level Panel on Post-2015 global goals, has developed a narrative about the ‘golden thread’ of strong institutions which, he says, enables open economies and societies to thrive. Acemoglu and Robinson say that this is ‘music to our ears’.

So what, exactly, is the theory? Is it grand? Is it right? And is David Cameron wise to tread this path?

Acemoglu and Robinson (henceforth AR) throw in a couple of caveats about the dangers of over-generalisation, but offer an explanation of progress which ranges from the Neolithic Revolution through to the present day, and around the world from East to West and North to South. Progress, they argue, happens when inclusive economic institutions, backed up by inclusive political institutions, enable the kind of innovation and economic transformation which allows for technical progress and for increases in the productivity of labour and capital. The economic institutions include property rights, patent law and anti-trust legislation. The political institutions include a strong and centralised state, held in check by pluralistic mechanisms such that political rights are broadly distributed and Government is accountable and responsible to citizens. Sometimes, growth happens for a time when these conditions are not met, when extractive institutions rule. Authoritarian growth has an ‘irresistible charm’ (Pg 437). Progress tends to peter out, however, because there are too few incentives for innovation, and because such societies are often riven by conflict, as one group challenges another for elite access to resources.

It might be thought that this analysis leads directly to a set of policy prescriptions. However, AR emphasise repeatedly that progress is shaped by what happens at ‘critical junctures’, with small changes becoming magnified over time, in a process they call ‘institutional drift’. Sometimes, these become virtuous circles, sometimes vicious circles: history is not destiny, but path dependency is strong, and circles, of either type, are resilient. In England, for example, the Black Death in the fourteenth century decimated the labour force and led to a strengthened voice for workers, which led eventually to greater pluralism, and to what AR describe as the ‘most important revolution of the past two millennia’ (Pg 362), the Glorious Revolution of 1688. This was significant because it created pluralistic political institutions which constrained the monarchy and provided the conditions for agricultural innovation and the industrial revolution.

Although ‘the predictive power of a theory where both small differences and contingency play key roles will be limited’ (Pg 434), AR think that the way forward is to empower a broad cross-section of society so that they will demand that institutions become more inclusive. Free media have an important to play in this process. Aid, on the whole, does not. Generally  (Pg 402) ‘either some pre-existing inclusive elements in institutions or the presence of broad coalitions leading the fight against the existing regime, or just the contingent nature of history can break vicious circles’. It is important to note, though, that gradual change is ‘more powerful (than revolution), harder to resist and ultimately more durable’ (Pg 318).

Does it all add up? It is hard not to be impressed by the range of evidence adduced. You would have to know more than I do about the Incas, the Aztecs, the Meiji or the Venetians to be confident of challenging the historical case studies. The modern cases in Africa, Asia and the Middle East are also rich in detail. To that extent, the argument works as a grand narrative, and is sufficiently subtle to avoid the clanking predictability of historical determinism. Just a few points, then.

First, a great variety of theories or propositions is not granted space at the table in this weltenschauung. Geographical explanations, associated with Jeff Sachs or Jared Diamond are dismissed, as are cultural explanations and simple policy failures. Modernisation theory is written off, too. The dual economy model of Arthur Lewis is a delusion. That is one reason to feel slightly uncomfortable. There is something to be said for being inclusive in theoretical terms, in a post-modern kind of way, allowing some cause to a variety of theories. Remember that the characteristic art form of post-modernism is collage. Why shouldn’t endemic malaria in West Africa (pace Jeff Sachs) be allowed a role alongside the role of foreign powers in decapitating inclusive indigenous institutions? Do inclusive governments (pace the World Bank) never make policy mistakes?

Second, an issue not much discussed is the extent to which progress in one country has been (and is?) at the expense of lack of progress in others. There is some discussion in the book of the pernicious effect of colonialism, especially by European powers, but it is more concerned with the costs to the institutional development of the colonies rather than the domestic economic benefits to the colonialists. Thus (Pg 250), ‘European expansion into the Atlantic fuelled the rise of inclusive institutions in Britain. But as illustrated by the experience of the Moluccas under the Dutch, this expansion sowed the seeds of underdevelopment in many diverse corners of the world, by imposing, or further strengthening existing, extractive institutions. . . . as a result, as industrialisation was spreading in some parts of the world, places that were part of European colonial empires stood no chance of benefiting from these new technologies.’ Similarly (Pg258) ‘the backwardness of the Transkei is not just a remnant of the natural backwardness of Africa - - - it was created by South African white elites in order to produce a reservoir of cheap labour’. This theme could usefully have been explored further, perhaps in the context of a discussion about who gains and who loses from modern forms of capitalism, and where the rents accrue in global supply chains.

Third, there’s a Fukuyama-like and somewhat unpalatable ‘end of history’ feel to the argument, especially as regards the US, Europe and other liberal democracies. This begins when the delights of Nogales, USA, are compared with the problems across the border in Nogales, Mexico, and continues throughout. The critical junctures and virtuous circles that have taken us to where we are accepted uncritically. I’m sure that Nogales, USA, is absolutely charming: high levels of social capital in which nobody ‘bowls alone’, brilliant state schools, excellent health care, a commitment to peace and security around the world, engagement with multilateral action on climate change, hosting multinationals which adhere to the highest standards of corporate social responsibility, and with a financial system which works entirely for the common good. Is it? Or is it perhaps the case that the virtuous circle still has a few pirouettes still to complete? If so, that would open up an interesting conversation. What gets ‘sorted’ in the AR model, and what does not?

Fourth, and highly relevant to the argument about a golden thread. it is easier said than done to trumpet ‘empowerment’ as the solution to governance problems, and may be theoretically suspect. David Booth, for example, summarising the results of a five year research programme on African Power and Politics, makes a compelling case that ‘good governance’ as traditionally conceived is a blind alley, and misrepresents the political problem in Africa as being a principal-agent issue rather than a failure of collective action:

‘our central proposition is that if the promise of ‘good fit’ is to be realised, African reformers and their international supporters need to abandon the straitjacket of principal-agent thinking. In that thinking, programmes divide between those that address the so-called ‘supply side’ of improving governance and those that emphasise the ‘demand side’. In the first case, the assumption – usually unstated but logically necessary – is that governments want and need help to deliver development honestly and effectively. In the second case, an alternative assumption is made: that, whilst the commitments of governments are open to question, their citizens have a definite and uncomplicated interest in holding them to account for their performance as agents of development. Reforms should be about stimulating this ‘demand’. This report disagrees with this framing of the choices facing governance reformers. It argues that governance challenges in Africa are not fundamentally about one set of people getting another set of people to behave better. They are fundamentally about both sets of people finding ways to act collectively in their own best interests.’

Finally, there is certainly more to be said for the role of aid than allowed by a couple of pages, mostly about high transactions costs, rent-seeking and corruption in Afghanistan. Within the terms of the AR argument, to go no further, how about looking at the aid-supported impact on the inclusivity of political and economic institutions: of mobile phones, for communication and money transfer; of medical research, to save lives and enhance ‘capabilities’; of the Green revolution, ditto; of investment in improved stoves and solar power? AR lay great emphasis on the role of technical change in delivering progress. They refer approvingly to Schumpeter’s ‘creative destruction’. They perhaps underestimate the extent to which globalisation dissolves the boundaries of the nation state.