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What makes countries rich or poor? Part IV and Final

Why Nations Fail offers case studies to illustrate these points: the economic rises and subsequent decline of the Soviet Union and the Ottoman Empire; the resistance of the tsarist Russia and the Habsburg Empire to building railroads, out of fear that they would undermine the landed aristocracy’s power and foster revolution, and, especially relevant today, the likely future trajectory of Communist China, whose growth prospects appear unlimited to many Western observers, but not to Acemoglu and Robinson, who write the China’s growth “is likely to run out of steam.”
In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resources curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why? Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on several of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior and on health threats to Europeans.

Two major factors that Acemoglu and Robinson do mention, only to dismiss them in a few sentences, are tropical diseases and tropical agricultural productivity: Tropical diseases obviously cause much suffering and high rates of infant mortality in Africa, but they are not the reason Africa is poor. Disease is largely a consequence of poverty and of governments being unable or unwilling to undertake the public health measures necessary to eradicate them … The prime determinant of why agricultural productivity-agricultural out put per acre-is so low in many poor countries, particularly in sub-Sahara Africa, has little to do with soil quality. Rather, it is a consequence of the ownership structure of the land and the incentives that are created for farmers by the governments and institutions under which they live.

These sweeping statements, which will astonish any one knowledgeable abut the sybjects, brush off two entire fields of science, tropical medicine and agricultural science. As I summarized above, the well-known facts of tropical biology, geology, and climatology saddle tropical counties with much bigger problems than temperate countries.

A second weakness involves the historical origins of what Mcemoglu and Robinson identify as inclusive economic and political institutions, with their consequences for wealth. Some countries, such as Britain and Japan, have such institutions, while other countries, such as Ethiopia and the Congo, don’t. To explain why, the authors give a just-so story of each country’s history, which ends by concluding that that story explains why that country either did or didn’t develop institutions. For instance, Britain adopted inclusive institutions, we are told, as a result of the Glorious Revolution of 1688 and preceding events; and Japan reformed its institutions after 1868; but Ethiopia remained absolutist. Acemoglu and Robinson’s view of history is that small effects at critical junctures have long-lasting effects, so it’s hard to make predictions. While they don’t say splicitly, this view suggests that good institutions should have cropped up randomly around the world, depending on who happened to decide what at some particular place and time.

But it’s obvious that good institutions, and the wealth and power that they spawned, did not crop up randomly. For instance, all Western European countries ended up richer and with better institutions than any tropical African country. Big underlying differences led to this divergence of outcomes. Europe has had a long history (of up to nine thousand years) of agriculture based on the world’s most productive crops and domestic animals, both of which were domesticated in and introduced to Europe from the Fertile Crescent, the crescent-shaped region running from the Persian Gulf through southeastern Turkey to Upper-Egypt. Agriculture in tropical Africa is only between 1,800 and 5,000 years old and based on less productive domesticated crops and imported animals. As a result, Europe has had up to four thousand year’s experience of government, complex institutions, and growing national industries, compared to a few countries or less for all of sub-Sahara Africa. Europe has glaciated fertile soils, reliable summer rainfall, and a few tropical diseases. Within Europe, Britain had the further advantages of being an island rarely at risk from foreign armies, and of fronting on the Atlantic Ocean, which became open after 1492 to overseas trade.

It should be no surprise that countries with those advantages ended up rich and with good institutions, while countries with those disadvantages didn’t. The chain of causation leading slowly from productive agriculture to government, state formation, complex institutions, and wealth involved agriculturally driven population explosions and accumulations of food surpluses, leading in turn to the need for centralized decision-making in societies much to populous for decision-making by face-to-face discussions involving all citizens, and the possibility of using the food surpluses to support kings and their bureaucrats. This process unfolded independently, beginning around 3400 BC, in many different parts of the ancient world with productive agriculture, including the Fertile Crescent, Egypt, China, the Indus Valley, Crete, the Valley of Mexico, the Andes, and Polynesian Hawaii.

The remaining weakness is the authors’ resort to assertion unsupported or contradicted by facts. An example is their attempt to expand their focus on institutions in order to explain the origins of agriculture. All humans were originally hunter/gatherers who independently became farmers in only about nine small areas scattered around the world. A century of research by botanists and archeologists has shown that what made those areas exceptional was their wealth of wild plant and animal species suitable for domestication (such as wild wheat and corn). 

While the usual pattern was for nomadic hunter/gatherers to become sedentary farmers, there were exceptions: some nomadic hunter/gatherers initially became nomadic farmers (Mexico and lowland New Guinea) while others never became farmers (Aboriginal Australia); some sedentary hunter/gatherers became sedentary farmers (the Fertile Crescent) while others never became farmers (Pacific Northwest Indians); and some sedentary farmers reverted to being nomadic hunter/gatherers (south Sweden about four thousand years ago).

My overall assessment of the authors’ argument that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensive to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.
Why Nations Fail should be required reading for politicians and anyone concerned with economic development. The authors’ discussions of what can and can’t be done today to improve conditions in poor countries are thought-provoking and will stimulate debate. Donors and international agencies try to “engineer prosperity” either by foreign aid or by urging poor countries to adopt good economic policies. But there is widespread disappointment with the results of these well-intentioned efforts. Acemoglu and Robinson pithily diagnose the cause of these disappointing outcomes in their final chapter: “Attempting to engineer prosperity without confronting the root cause of the problems-extractive institutions and the politics that keeps them in place-is unlikely to bear fruit.”                  

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