Why Nations Fail?

Hiya,

as the title says I've red the book "Why Nations Fail" by Darren Acemoglu and James Robinson. First of all I have to recommend this book for everyone who want's to understand how the world works. This book really gave valuable insight to the inner workings of societies. 

What did I learn that was so valuable? The main premise of the book was in all its simplicity that nations succeed or fail because of the political and economical institutions that are prevalent in that society. They dismissed theories that nations succeed or fail due to geographic position, natural resources, culture or other singular aspect of the nation. The book gave good examples why the theories above just wouldn't hold under greater scrutiny.

Why are the institutions then so valuable for the success of a nation? Institutions are things like education system, law & order, political system, finance system, etc.. According to the book there are two kinds of institutions - extractive and inclusive. Extractive institutions have been the prevalent system during most of history. Under these kinds of intitutions small elite holds all political and economical power in the expense of the many. Kings, aristocrats, dictators or communist parties are good examples of the benefitors of extractive instituitions. Inclusive instituitions on the other hand spread political and economical power more evenly across the society so wider range of people can benefit from wealth and the use of power. The recent social experiment called "democracy" has been the main contributor to the most widely spred inclusive institutions boom in history.

The book makes it quite clear that if a society wants to prosper in the long run it needs to adopt inclusive institutions and spread the power in society. This doesn't rule out the possibility that economical growth would be possible under extractive institutions. For example the Soviet Union had immense economical growth all the way until late 70s. They redistributed workers from low production agriculture to heavy industy and armament industry and adopted technologies from abroad which boosted GDP growth. The growth was so fast for decades that many people in the West thought that communism was superior social order to capitalism in order to create growth. 

Then the problems start to arise. Under extractive institutions there is no creative destruction and no intrinsic motivation to improve anything. The elite is always afraid of change since it would mean that their power might be challenged. New techologies always cause creative destruction sweeping away the old and replacing it with the new. This might cause shifts in political and economical power in a society. The elite has a tendency to dread these kind of shifts in fear of losing their position as the top dog of a society. Elite wants to uphold the status quo and therefore the society starts to stagnate in the long run.

How to create inclusive institutions into societys under extractive ones? This is no easy task by anymeans. Extractive institutions are very resilient and even if the elite is deposed somehow the institutions tend to remain. The new leaders soon become the elite and the vicious cycle takes another full turn. The empoverment of the people and transparency of the society are two key elements to break to vicious cycle in my opinion. Smartphones for example are a very empowering tool in many societies. It can rally mobs, record misconduct, connect the society as whole and report news.

Summa summarum the book was really worth my while. It gives good insight and completely new perspective to many poverty stricken societies. There's no magic bullet that would break the vicious cycle but this book at least gives a starting point to understand the disease so others can create the cure.