Why Nations Fail: The Origins of Power, Prosperity, and Poverty, first published in 2012, is a book by Turkish-American economist Daron Acemoglu and British-American economist James A. Robinson, who in 2024 jointly received the Nobel Memorial Prize in Economic Sciences (alongside Simon Johnson) for their contribution in comparative studies of prosperity between nations. The book applies insights from institutional economics, development economics, and economic history to understand why nations develop differently, with some succeeding in the accumulation of power and prosperity and others failing. The authors present a wide range of historical case studies from all over the world.
Context
Background The book is the result of a synthesis of many years of research by Daron Acemoglu, on the theory of economic growth, and James Robinson, on the economies of Africa and Latin America, as well as research by many other authors. It contains an interpretation of the history of various countries, both extinct and modern, from the standpoint of a new institutional school. The central idea of many of the authors' works is the defining role of institutions in the achievement of a high level of welfare by countries. An earlier book by the authors, The Economic Origins of Dictatorship and Democracy, is devoted to the same, but it did not contain a large number of various historical examples.
Polemic against geographic economic theory The authors enter into an "indirect polemical dispute with the authors of other theories explaining global inequality": Jeffrey Sachs and Jared Diamond's geographical economical theory Abhijit Banerjee and Esther Duflo's theory of ignorance of the elites, Seymour Martin Lipset and his modernization theory, As well as various cultural theories: that of David Landes about the special cultural structure of the inhabitants of Northern Europe, David Fischer about the positive influence of British culture, Max Weber about the influence of Protestant ethic on economic development.
They most harshly criticized geographical theory as "unable to explain not only global inequality, in general," but also, the fact that many countries have been in stagnation for a long time, and then, at a certain point in time, began a rapid economic growth, although their geographical position did not change.
Content The book consists of 15 chapters.
Conditions for sustainable development Comparative studies Beginning with a description of the border towns Nogales, Arizona, and Nogales, Sonora, the authors question the reasons for the dramatic difference in living standards on either side of the Mexican-American border separating the two cities. The book focuses on how some countries have managed to achieve high levels of prosperity, while others have consistently failed at sustainable development.
Causes Sustainable development is accompanied by a constant change and improvement of technologies — a process called scientific and technological progress. In search of the reasons why this occurs in some countries and not in others the authors come to the conclusion that for scientific and technological progress, it is necessary to protect the property rights of a wide strata of society and the ability to receive income from their enterprises and innovations including from patents for inventions. But as soon as a citizen receives a patent, he immediately becomes interested in that no one else patented a more perfect version of his invention, so he can receive income from his patent, forever. Therefore, for sustainable development, a mechanism is needed that does not allow him to do this, because, together, with the patent, he receives substantial wealth. The authors come to the conclusion that such a mechanism is pluralistic political institutions that allow wide sections of society to participate in governing the country. In this example, the inventor of the previous patent loses, but everyone else wins.
Pluralistic institutions With pluralistic political institutions, a decision is made that is beneficial to the majority, which means that the inventor of the previous one will not be able to prevent a patent for a new invention and, thus, there will be a continuous improvement of technologies. The interpretation of economic growth, as a constant change of goods and technologies, was first proposed by Joseph Schumpeter, who called this process creative destruction. In the form of an economic model, this concept was implemented by Philippe Aghion and Peter Howitt in the Aghion–Howitt model, where the incentive for the development of new products is the monopoly profit from their production, which ends after the invention of a better product. Since only pluralistic political institutions can guarantee that the owners of existing monopolies, using their economic power, will not be able to block the introduction of new technologies, they, according to the authors, are a necessary condition for the country's transition to sustainable development. Another prerequisite is a sufficient level of centralization of power in the country, because, in the absence of this, political pluralism can turn into chaos. The theoretical basis of the authors' work is presented in a joint article, with Simon Johnson, and the authors also note the great influence of Douglass North's work on their views.
The authors support their position by analyzing the economic development of many modern and already disappeared countries and societies: the USA; medieval England , the Glorious Revolution and the British Empire; France; the Venetian Republic; the Roman Republic, and the Roman Empire; Austria-Hungary; Russian Empire, USSR and modern Russia; Spain and its many former colonies: Argentina, Venezuela, Guatemala, Colombia, Mexico and Peru; Brazil; colonial period of the Caribbean region; Maya civilization; Natufian culture; the Ottoman Empire and modern Turkey; Japan; North Korea and South Korea; the Ming and Qing empires, and modern China; the sultanates of Tidore, Ternate and Bakan, the island state of Ambon and other communities on the territory of modern Indonesia, and the consequences of the impact of the Dutch East India Company on them; Australia; Somalia and Afghanistan; the kingdoms of Aksum and modern Ethiopia; South Africa, Zimbabwe and Botswana; the kingdoms of the Congo and Cuba, and the modern Democratic Republic of the Congo; the states of Oyo, Dahomey and Ashanti, and modern Ghana; Sierra Leone; modern Egypt and Uzbekistan. Reviewers unanimously note the wealth of historical examples in the book.
Analysis of the economic development of different countries In fifteen chapters, Acemoglu and Robinson try to examine which factors are responsible for the political and economic success or failure of states. They argue that the existing explanations about the emergence of prosperity and poverty, e.g. geography, climate, culture, religion, race, or the ignorance of political leaders are either insufficient or defective in explaining it.
Acemoglu and Robinson support their thesis by comparing country case studies. They identify countries that are similar in many of the above-mentioned factors, but because of different political and institutional choices become more or less prosperous. The most incisive example is Korea, which was divided into North Korea and South Korea in 1953. Both countries' economies have diverged completely, with South Korea becoming one of the richest countries in Asia while North Korea remains among the poorest. Further examples include the border cities Nogales, Sonora in Mexico and Nogales, Arizona in the United States. By referencing border cities, the authors analyze the impact of the institutional environment on the prosperity of people from the same geographical area and same culture.
Acemoglu and Robinson's major thesis is that economic prosperity depends above all on the inclusiveness of economic and political institutions. Institutions are "inclusive" when many people have a say in political decision-making, as opposed to cases where a small group of people control political institutions and are unwilling to change. They argue that a functioning democratic and pluralistic state guarantees the rule of law. The authors also argue that inclusive institutions promote economic prosperity because they provide an incentive structure that allows talents and creative ideas to be rewarded.
In contrast, the authors describe "extractive" institutions as ones that permit the elite to rule over and exploit others, extracting wealth from those who are not in the elite. Nations with a history of extractive institutions have not prospered, they argue, because entrepreneurs and citizens have less incentive to invest and innovate. One reason is that ruling elites are afraid of creative destruction—a term coined by Joseph Schumpeter—the ongoing process of annihilating old and bad institutions while generating new and good ones. Creative destruction would fabricate new groups which compete for power against ruling elites, who would lose their exclusive access to a country's economic and financial resources.
The authors use the example of the emergence of democratic pluralism, in which Parliament's authority over the Crown was established in Great Britain after the Glorious Revolution in 1688, as being critical for the Industrial Revolution. The book also tries to explain the recent economic boom in China using its framework. China's recent past does not contradict the book's argument: despite China's authoritarian regime, the economic growth in China is due to the increasingly inclusive economic policy by Deng Xiaoping, the architect of China's opening-up policy after the Cultural Revolution.
According to Acemoglu and Robinson's framework, economic growth will change the economic resource distribution and thus affect political institutions. Therefore, despite the current rapid growth, if China does not improve political balance, China is expected to collapse like the Soviet Union did in the early 1990s.
Extractive and Inclusive institutions
The decisive role for the development of countries, according to the authors, is played by political and economic institutions — a set of formal and informal rules and mechanisms for coercing individuals to comply with these rules that exist in society. Acemoglu and Robinson divide institutions into two large groups: Political and economic. The first regulate the distribution of powers between the various authorities in the country and the procedure for the formation of these bodies, and the second regulate the property relations of citizens. The concept of Acemoglu and Robinson consists in opposing two archetypes: the so-called "extractive" ("extracting", "squeezing") and "inclusive" ("including", "uniting") economic and political institutions, which, in both cases, reinforce and support each other.
Inclusive institutions