Tuesday, February 26, 2013

Why Nations Fail

I recently had the pleasure of reading Why Nations Fail by Daron Acemoglu. It is an excellent book that I recommend to everyone interested in what makes some states wealthy and others poor and battle-torn.

I should state right at the outset that I am almost certainly biased towards the conclusions drawn by this book. It's not that I know the author, but rather that I already believed the conclusions the author had drawn (unbeknownst to me) before I had started reading. So reading this book was like a giant exercise in confirmation bias, as I wholeheartedly accepted concepts I already "know" to be true!

That's not to say I didn't learn anything. The book doesn't just offer up theories in a vacuum. Countless cases offering up the concise history of several nations is provided, helping the reader understand why certain political structures exist in some places and not others.

Some political structures (where the government is powerful enough to enforce laws, but weak/distributed enough not to become tyrannical) are more conducive to wealth creation by the population than others. Acemoglu digs into how these structures came into be in some countries but not in others, and how this has affected the success/failure of these nations.

Of course, there are many theories of why some nations are poor and others aren't. You probably have your own theory. One of the best parts of this book, in my opinion, is how Acemoglu points out the inconsistencies in the arguments of the other famous or respected theories.

One of the most prevalent themes throughout the book is how the presence of monopolies makes people poorer. Any time there are barriers to entry for new competition, a certain elite become wealthy while the rest of the citizenry loses to high prices and an economy that stagnates or regresses. Where there are an abundance of monopolies, one is sure to find countries with extremely wealthy elites and widespread poverty. These conditions lead to failure, as incentives for the citizenry switch from being productive workers (education, innovation etc) to fighting for power, since that is the only way to attain wealth.

Some of the histories of the many countries Acemoglu discusses are fascinating! Enjoy!

1 comment:

Taylor Conant said...

The government, as an institution, is a monopoly. (It's also the source of all other monopolies.) So it should seem to create the same economic problems you mentioned are caused by other monopolies according to the research.