Development economics is a morale-building discipline. Its practitioners get called upon to explain why certain peoples are rolling in wealth while others have to live with hookworm and kleptocracy. In such explanations optimism is mandatory, taboos are many and a bias towards progressive internationalism is assumed. Development economists are not expected to say that such-and-such a nation lacks the wisdom to rule itself or the get-up-and-go to prosper. In How Nations Fail, Daron Acemoglu of MIT and James Robinson of Harvard, both prolific economists, lay out an explanation for the causes of wealth and poverty that differs a bit from those of their colleagues.
What holds back the peoples of the equatorial regions, the authors think, is neither disease nor culture nor lack of agronomic know-how. Their problem, rather, is the political institutions that shape incentives. Technological changes—new products, new services, new ways of working—drive economic growth. Economist Joseph Schumpeter described this process as “creative destruction.” The creative part of it benefits everyone. The destruction of the old means of production is inflicted on the elites who control the old means of production.
And that is not something those elites take lying down. For most of history, control of political institutions by tight-knit groups has allowed potential economic losers to block progress. Result: stagnation. Only after England’s Glorious Revolution did another attitude become possible. A coalition took power that was broad enough to hold elites to account. Result: the rule of law, secure property rights, centralization of society’s political power in Parliament, and powerful incentives to further innovation and prosperity.
Thus, for Acemoglu and Robinson, England reclaims its traditional position as Top Nation—not for the 18th-century virtue of liberty but for the 21st-century one of diversity. They call old, stagnant institutions “extractive,” a term that comes from natural-resource management. They call the new, progressive institutions “inclusive,” a term that comes from personnel departments. Whether a country is rich or poor today, the authors argue, depends on whether it embraced or resisted the Industrial Revolution, and that, in turn, is a function of what institutions it had. “Inclusive” countries got rich, “extractive” ones missed the boat.
The authors give impressive examples of resistance to progress. Not until centuries after Gutenberg announced the invention of the printing press in 1445 was it first used in the Ottoman empire. Inventor William Lee showed Queen Elizabeth a “stocking frame” knitting machine in 1589 but she coldly refused to issue him a patent, saying that it would throw her subjects out of work. The boatmen of the Weser River smashed a steamboat invented by the Frenchman Dionysius Papin when he tried to sail it to the city of Münden in 1705. There are also some charming anecdotes here that illustrate exactly how modern extractive institutions function, particularly in Sierra Leone. “National television broadcasts stopped in 1987,” the authors write, “when the transmitter was sold by the minister of information.”
It is the usual view of development economists that the “legacy of colonialism” accounts for much of the gap between today’s rich countries and poor ones. The authors agree, but their account is not the usual one. For them, native elites are at least as big a problem as colonial exploiters. Slavery, for instance, was more deeply rooted in Africa than elsewhere in the world, even before the Atlantic slave trade began. But the globalization of the phenomenon made things worse. African leaders changed their penal codes to permit them to reap the profits of selling people. “No matter what crime you committed,” a contemporary observer recalled, “the penalty was slavery.” Because of its importance to African economic elites, slavery persisted in Africa long after its abolition in the West.
While Acemoglu and Robinson’s thesis is sensible enough, their book is overlong, disorganized, repetitive, and boring. Anyone inclined to read it should be prepared for paragraphs like this:
History is key, since it is historical processes that, via institutional drift, create the differences that may become consequential during critical junctures. Critical junctures themselves are historical turning points. And the vicious and virtuous circles imply that we have to study history to understand the nature of institutional differences that have been historically structured. Yet our theory does not imply historical determinism—or any other kind of determinism.
The authors may not be deterministic, but they simplify unduly. They rightly lay a lot of stress on the Spanish conquistadores’ perversion of South American Indians’ labor institutions to man the Andean silver mines. Yet the authors’ description of the situation the English settlers faced at Botany Bay (Sydney) and Jamestown is an indication that geography plays a bigger role in such matters than they are inclined to admit. In the English colonies, “the initial circumstances did not allow for the creation of extractive colonial institutions. Neither colony had dense populations of indigenous peoples to exploit, ready access to precious metals such as gold or silver, or soil and crops that would make slave plantations economically viable.” Institutions matter, but where a colony offers both a primary resource and an enslavable populace, the opportunity cost of creating “inclusive” institutions will appear high—especially in the eyes of the rough-and-ready scoundrels traditionally called on to settle the godforsaken parts of distant continents.
The authors’ rejection of culture as an explanation of backwardness must be understood as a concession to academic bien-pensance. They dismiss the idea that “national cultures” (sneer quotes theirs), such as the English one, might have something to do with the creation of prosperity: “Though this idea sounds initially appealing, it doesn’t work, either. Yes, Canada and the United States were English colonies, but so were Sierra Leone and Nigeria.” Wait a second. Canada and the United States grew out of communities of Englishmen planted on a different continent. Sierra Leone and Nigeria were groupings of, respectively, African refugees and African tribes, ruled and exploited by Englishmen. Surely no common cultural description will cover England’s North American colonies and its African ones.
The authors’ eagerness to dismiss cultural explanations is even harder to understand when we consider what they mean by “institutions.” Oxford University is an institution. So are the FBI and the local 4-H Club. But the institutions the authors write of are generally abstract—equal citizenship, for instance, or freedom of expression or rule of law. The importance of the Glorious Revolution for the worldwide spread of wealth and poverty lay less in any physical institutions set up in Parliament than in the assumptions about right and wrong carried around in the heads of individual American and Australian settlers. These assumptions were not—at least at first—in the heads of individual Sierra Leoneans and Nigerians. The authors’ rejection of any role for “culture” is disturbing. It shows either how wide a berth scholars feel they must give to anything that resembles a “ranking” of civilizations, or how helpless the discipline of economics is before anything multi-causal.
As far as the long arc of development is concerned, Acemoglu and Robinson are probably wrong to say that the absolutism of 19th-century China was “not so different from that in Africa or Eastern Europe.” If Spain, Ethiopia, Austria-Hungary, Russia, the Ottoman Empire, and China can all be lumped together as places where “extractive institutions choked economic incentives,” then maybe there is truth, after all, in the idea that the culture of the Anglo-Saxon world has something special about it.
The Acemoglu-Robinson scheme is less comprehensive than the culture- or technology-based accounts of Samuel Huntington, David Landes, or William McNeill. It is, however, flexible enough to prove almost anything the authors wish. Episodes that contradict it can be dismissed with what English journalists used to call a “to be sure” clause. In France, the Reign of Terror “was temporary and did not derail the path toward more inclusive institutions.” (Temporary for France. Permanent for those who lost their heads.) In Rome, “the transition from republic to empire increased extraction and ultimately led to…infighting, instability and collapse.” (Well, yes, “ultimately”—after about 500 years.) The authors might call this kind of growth unsustainable, but in the long run, we are all unsustainable. So are our political institutions.
Acemoglu and Robinson are interested in political institutions only as deliverers of economic innovation, not as repositories of public sentiments and values. Explaining why China shrank from its global role after the 15th century, a decision that permitted the less advanced Spaniards to take the lead in overseas exploration, the authors write: “International trade was potentially destabilizing as merchants were enriched and emboldened, as they were in England during the era of Atlantic expansion.” In other words, China’s rulers were not acting on behalf of Chinese society, only pre-empting rivals for leadership.
In the same way, the authors mention the regime of Venezuela’s strongman Hugo Chávez as having its “roots…firmly based in extractive regimes.” You don’t have to admire Chávez to see that his movement is about more than his own enrichment. His party has its roots in what is most modern about Venezuela, as well as what is most primitive. Chávez is the successor to the collapse of two technocratic parties that spent four decades following what seems to be the natural inclination of any “inclusive” two-party system. They drove the economy into the ground by trying to spare the electorate of this oil-rich nation the indignity of working too hard.
Though the authors are faithful students of Schumpeter’s views on development, they lack his sense of the way advanced economies can undermine advanced political systems. There can be such a thing as too much creative destruction. The businessman’s right to a profit can be won at the expense of the citizen’s right to know where the hell he is. When technologies supplant each other too rapidly, as they have done since the 1990s, they cease to be worth studying, mastering, or building a career in. Those who learn a skill in order to make themselves useful to society discover they have made themselves disposable. Sooner or later, the system meets resistance. Sometimes battles over creative destruction pit sybaritic dauphins and cigar-chomping overseers, jealous of their privileges, against public-spirited inventors. But probably the more common alignment is the one we see in our own day, when the privileged incumbents arrayed against The People include a large part of The People themselves, with their unions, vacations, retirement funds, medical benefits, and a sense of what the world owes them that is as unshakeable as it is unaffordable.