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National Treasure

A new look at why countries are rich or poor
August 21, 2012

Grand narratives about the rise and decline of nations seem like the province of historians and political philosophers. But the most recent work on the topic to make a splash in intellectual circles comes from economics professor Daron Acemoglu. His book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, coauthored with Harvard’s James Robinson, has become a mainstream hit.

Why Nations Fail asks why some countries become wealthy and powerful while others remain stuck in poverty—and why some of those powers collapse. The answer, according to Acemoglu and Robinson, lies in their political systems. States with “inclusive” governments, which extend political and property rights and enforce laws, experience the greatest long-term growth. Those with “extractive” governments, which are controlled by a small elite and deny rights to their subjects, remain poor or fade after bursts of economic expansion.

“You need political equality to underpin economic prosperity,” says Acemoglu.

The authors contend that economic growth depends on technological innovation, and such advances are sustained only if countries ensure that certain economic and political rights are widely protected, giving more people the incentive to innovate. By contrast, entrenched elites resist technology-driven economic changes because the result is often “the replacement of the old with the new, and the destruction of [their] economic privileges and political power,” they write.

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The Small Worlds of Corporate Governance
Edited by Bruce Kogut, PhD ’83
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When America First Met China: An Exotic History of Tea, Drugs, and Money in the Age of Sail
By Eric Jay Dolin, PhD ’95
Liveright/W. W. Norton, 2012, $27.95

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By Hanna Rose Shell, associate professor in Science, Technology, and Society
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By Kai Borre and Gilbert Strang ’55, professor of mathematics
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Renaissance Literature and Postcolonial Studies
By Shankar Raman, professor of literature
Edinburgh University Press, 2011, $100/$32

Please submit titles of books and papers published in 2011 and 2012 to be considered for this column.

Many other scholars have argued that long-run prosperity stems either from cultural and religious habits or from environmental factors such as climate and resources. But Why Nations Fail, drawing mostly upon years of research by Acemoglu, Robinson, and MIT economist Simon Johnson, emphasizes that places with shared cultures, histories, and resources experience very different economic trajectories once their political systems diverge: witness South Korea and North Korea, or even the cities of Nogales, Arizona, and Nogales, Mexico. Likewise, in Africa, inclusive Botswana has grown in recent decades while extractive neighbors such as Zimbabwe have stagnated.

The authors acknowledge that extractive states like the Soviet Union have prospered temporarily thanks to “technological catch-up.” But with no way to encourage further progress, the Soviet Union collapsed. Ancient Rome grew as a relatively inclusive republic but stagnated after becoming an autocratic empire; Venice, an economic powerhouse of early modern Europe, withered after its elites choked off innovation while keeping the spoils for themselves.

Acemoglu brings a cosmopolitan outlook to his work. Born in Turkey, he received his PhD from the London School of Economics before joining the MIT faculty. In 2005, he won the prestigious John Bates Clark Medal.

Why Nations Fail, which landed on the New York Times best-seller list, owes its success in part to its relevance today. Acemoglu is cautious about China’s long-term prospects, “unless the country reforms itself,” but somewhat optimistic about the political upheaval in North Africa, where “people know they can have their voices be heard,” he says. “Once they have that emboldening, it’s much harder to keep a repressive, unresponsive regime going.”

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