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

These notes are old and were written while reading — they don’t necessarily reflect my current views.

Acemoglu starts out with describing the strong differences between cities that are very close but divided by a national borders, like e.g. between the US and Mexico. This starts out as the fundament of his institutionalist point. In the second chapter he goes into detail about failed theories that tried to explain these difference. He makes quick process with geological factors and cultural theories that evolved from Weber. Coming back to his US Mexico example he explains the influence of the colonisers circumstances that lead to more stable governments in the north and more unstable ones in the south of the American continent.

He then goes on in his next chapter to talk about essential properties of government structure that create a prosperous society. In order to show these practically he makes the comparison between North and South Korea. He explains that a dependable and impartial justice system as well as clear property rights are the essential points that need to be fulfilled, as it creates incentives for the population to create and invest.

He then asks the questions why countries like North Korea and Somalia don’t choose such paths. In his opinion this is not due to irrationality of the leaders. On the contrary he argues, that it is often in the best interest of the ruling elite to not improve the living conditions in their countries by liberal policy. Elites often profit from extractive social policy that reallocates resources in the economy from one social class to the other and does not help overall productivity.

The chapter: I have seen the future and it works, tackles the Soviet Unions failure and traces it back to inefficient government planing. The central reallocation of resources from agriculture to industry gave the Soviets an early boost. This tho was due to them being able to eradicate even further inefficiencies in the Zar’s regime. This lead western scholars like Samuelson to believe that their economic system was superior to the West. Of course that was far from true, which is the reason why the state imploded.

He goes on to describe the downfall of the Maya empire, Venice and Rome. His main point is that the ruling elites had a fear of discontent in the population due to creative destruction. Therefore they inhibit it. This was also the case in England where many inventors came before the king, but were send away, because the kings thought the inventions would make the workers obsolete. But England had an advantage, from the end of the Roman Empire England had a monarchy which was slowly regulated by merchants. The merchants established a parliament and the Bill of Rights. They then strengthened property rights and build up business. When the state granted monopolies vanished, England prospered.

He points our that political centralisation is important, as it enables broader competition and structures that would not be possible at smaller scale.

Then he goes on to describe the virtuos cycle in England that lead to a more progressive society. The alliance against the power of the king was broad through all classes, therefore rule by law was established in order to make everyone from the elites to the peasants happy. When the elites then came into power, gradual change eroded it piece by piece. Bound to the rule of law they established them selfs and afraid of creating precedent to break it, they slowly gave more rights to the lower classes, which then lead to higher overall prosperity.

A similar situation actually happened in the US under the Roosevelt administration. First of all: Roosevelt was kind of an asshole; he tried to get the New Deal trough by any means necessary and attempted to stack the courts in his favour. He wanted to remove opposing judges with a bill that is nearly identical to the one that was implemented in Poland a couple of years ago. Roosevelt was the biggest threat to democracy that the US ever faced. The only thing keeping the US from this faith was the unwillingness of his party to break precedent the constitutional hurdles that had to be taken for such a step. The constitution is the gate which protects democracy. One of the examples where similar attempts were made without a strong constitution to stop it were Venezuela (Chavez) and Argentina (Perton).