Why Nations Fail: The Origins of Power, Prosperity and Poverty is a provocative new book by MIT and Harvard economists, Daron Acemogu and James Robinson. It is getting a lot of commentary from, among others, Thomas Friedman in the NYT, Paul Collier in the Guardian, Martin Wolf in the FT and the Economist. It even is linked to a blog. It seems like a big deal which is why I bought it and read it.
Why is the book of interest to those concerned about the future of Zimbabwe? Lumped together with North Korea and Sierra Leone, Zimbabwe is used as an example to illustrate the basic argument that nations fail – and poverty results – because of poor institutions. A basic contrast is made between what they term inclusive and extractive political and economic institutions. Inclusive institutions result in prosperity, and are based on secure property rights, an unbiased legal system and the provision of public services that offer a level playing field for all to be able to participate in economic activity. They result in conditions where people innovate and invest with a sense of security. By contrast, extractive institutions are dominated by elites, and create privileges and patronage, reducing incentives for entrepreneurship and development.
The nearly 500 pages of the book make the case through a series of intriguing historical examples – from the Ottoman empire to the industrial revolution in England to post-independent Botswana. The array of cases is extraordinary, and it’s a fascinating and absorbing read. Applied to so many contexts and historical periods, the definitions of inclusive and extractive institutions become at times a bit flexible. Arguments for progressive, inclusive approaches are drawn from settings where slavery exists, or where political participation is minimal, for example. And the celebration of the US and Europe are sometimes a bit rich, given growing inequalities, deep poverty within nations and the severe limits of our own political institutions. Also, while the authors acknowledge that extractive institutional settings can result in growth and development – and clearly China is the contemporary example used – they argue that such conditions are fragile and will not persist, although the evidence for China’s decline seems currently limited.
Overall, it is a brave, big-picture argument. It emphasises history, path-dependency, contingency and uncertainty. And it makes politics and power central to the economic analysis. This is all very welcome. But it is of course not novel. Political economy analysis has long argued that politics matter, and power and class configurations, and patterns of inequality, are crucial to the assessment of economic fortunes. Karl Marx only gets two index entries, and Marxist thought no real discussion, which seems bizarre given this important heritage in economics.
So why is this particular book getting so much air time? The commendations from the great-and-the-good of development economics are certainly impressive, with a slew of Nobel Prize winners offering their endorsements. I guess it’s because the book is written by some well-known and respected academic economists. Once in a while mainstream economics ‘discovers’ things outside its narrow disciplinary confines. Remember the hullabaloo about ‘trust’ or ‘social capital’? Of course classical economics always addressed politics, and it is only in the relatively recent past that this was jettisoned in favour of a narrow focus. But if this is now mainstream, I am not going to complain. We spend so much time knocking at the door of the citadel of economics, that when the door is opened to debates well known outside, we should probably celebrate (even if a bit cynically).
But what does such a book imply for development? It has some harsh implications. Much of the ‘policy advice’ based on technocratic assumptions will, it suggests, simply not work. As William Easterly comments in his review in the Wall Street Journal, the basic conditions for development are not ones amenable to aid projects or technical advice, but require political and institutional transformation. This may take long periods, requiring the capturing of particular moments – ‘critical junctures’ – and often almost a revolutionary overturning of existing power structures and economic relations to provide the space for inclusive institutions to emerge. Because history matters, and is so difficult to escape, some transitions – for example from colonialism to independence – may not be enough to remove the shackles of extractive institutions. A more radical change may be required.
This is fighting talk, but what does this mean for somewhere like Zimbabwe? The usual stereotypes about Zimbabwe are trotted out in the book, and the sources used for the assessment of contemporary politics seem to be solely journalistic reports, but the basic prognosis is probably sound enough. Zimbabwe inherited a highly extractive political and institutional set up at independence. This was based on a highly unequal, racialised distribution of land and economic power. This was not challenged by the new leaders, and indeed became the basis of their own power, allowing a small group to emerge as a new black elite. Extractive institutions suited their ambitions, and they made full use of them. It is, of course, a well known, depressing tale.
The book does not dwell on Zimbabwe’s land reform, but comments on other reforms where elite privilege was overturned (a particularly evocative example is presented from the Roman empire). Such redistributive reforms allowed new institutions to emerge that spread the gains more widely. However, they only work if security is provided and inclusive political institutions co-evolve with new economic opportunities. The book hails ‘property rights’ as the solution, but this is presented in a rather uncritical and simplistic fashion, often echoing, although not referring to, the problematic analysis of Hernando de Soto. But actually it is security over property and the gains of economic activity and innovation that is critical, rather than any particular form of private property – and so is reliant on the wider political and institutional conditions prevailing.
So, following that other well-know political economist Vladimir Lenin, what is to be done? In Zimbabwe a ‘critical juncture’ was clearly the post 2000 land reform. While there was certainly elite capture, it has opened up potential economic opportunities for many, overturning long-standing historical inequalities. But there have as yet been no moves to establish inclusive political and economic institutions to support this. The GNU has failed, and western powers and others remain at arms’ length. The opportunity of this moment may have been lost, as the extractive tendencies of a powerful elite in trouble hold sway. Was land reform in Zimbabwe one of those historical moments that the book covers which did not result in the necessary institutional revolution: a tragically missed opportunity? Or is there still a chance?
This book, for all its flaws and simplifications, offers some interesting pointers to the way forward, and the urgent need in places like Zimbabwe to focus not on ‘development’ in the normal technocratic mould, but on some radical political and institutional transformations which will allow the land reform to realise its potential for economic change for the better. It’s a long shot, and it may be too late, but progressives across the divides should take heed.