A review of Why Nations Fail: The Origins of Power, Prosperity, and Poverty - Daron Acemoglu and James A. Robinson

Why Nations Fail: The Origins of Power, Prosperity, and Poverty is an influential book in the field of International Development, written by Daron Acemoglu and James A. Robinson. Published in 2012, the book delves into why some nations are prosperous and democratic while others suffer from poverty and dictatorship.

Daron Acemoglu received his PhD in economics from the London School of Economics. He is currently the Elizabeth and James Killian Professor of Economics at the Massachusetts Institute of Technology (MIT).[1] James Robinson received his PhD in economics from Yale University. He is currently a University Professor at the Harris School of Public Policy at the University of Chicago. [2] Acemoglu and Robinson are both associated with the new institutional economics school, which emphasizes the role of institutions in shaping economic and political outcomes. In this review, I will review their arguments as well as their critiques on other theories. Keep in mind that this book has 546 pages, and it will be impossible for me to discuss all arguments and cases, this review is rather meant to be a digestible critique of the central argument.

“Theories that don’t work.” According to Acemoglu & Robinson

International Development contains three dominant approaches that explain the bulk of development across the globe. In no particular order, those are approaches of geography, culture, and finally institutional theory. Acemoglu and Robinson staunchly argue against all of these approaches except their own.[3] The authors make a compelling case as to why geographical and cultural explanations for development differences do not work. The authors give examples like the divide between North-Korea and South-Korea, and the West-German state and the East-German state as proof that the vastly similar cultures and geographies cannot explain development.[4] New world examples include the Inca and Aztec empires in contrast to contemporary development distributions in the Americas. [5] The authors discuss a plethora of other examples that support their position that the dominant approaches lack explanatory power. Moreover, they fail to appreciate important factors in their analysis that help to understand the phenomenon they are explaining. More on this in the review section of this paper.

Why do nations fail? The central argument

The central argument of the book claims that differences in institutions between states is the main driver of global inequality.[6] They posit two types of institutions: inclusive institutions, which allow people to express their own talents, make their own choices, and reap the rewards of their talents and choices. Inclusive institutions are characterized by pluralism and encourage investment and innovation, they include “private property rights, an unbiased judicial system, as well as public services that give people equal chances on the commercial and financial market and with the signing of contracts” [7],[8]. Extractive institutions on the other hand benefit only a rent-seeking elite and do not secure similar economic opportunities for the broader population.[9] The authors differentiate between economic and political institutions, they argue that these two dimensions are mutually reinforcing.[10] The authors attribute an important role to path dependency, critical junctures, and feedback loops. Examples include societal implications of the black death in Europe, explaining how the diseases’ impact on demographic and geographic realities in different areas shaped institutional make-up.[11]

In the 11th and 12th chapter they discuss how institutional distribution of power creates feedback loops, where vicious cycles of development occur under extractive institutions, and positive economic spirals under inclusive institutions. In combination with the emphasis on critical junctures and path dependency we could conclude that the authors subject their theory to historical determinism.

A lack of attention to real-world complexity discredits an otherwise convincing premise.

The authors make valid critiques against some geographical and cultural arguments, but they take this intellectual victory over some arguments as proof that overarching paradigms do not have merit, which is a bold claim. The authors do not touch on credible theories like the resource curse also known as “Dutch disease”. They also ignore research (Hausmann, 2001, pp. 44-53) that provides empirical evidence that some countries are inherently geographically disadvantaged, where tropical countries have 1.5% slower growth rates per year while landlocked countries suffer 0.6% slower growth. Other arguments by Hausmann (2001, pp. 44-53) about the geographical reasons for US’s dominance are also ignored. Overall, the authors seem to disregard arguments that give credit to the other schools of thought.

Another problem with the level of analysis is that Acemoglu & Robinson focus on many cases ranging from prehistory to the modern day. Although it does not disqualify their argument completely, it does not take the evolution of the world economic system into account, and focusing solely on domestic institutions does not do justice the field of international political economy (IPE) and its complexities.

Adding to the critique of the disregard of complexities in IPE, Peer Vries (2012, p.6) made an important point about the disregard of the Heckscher-Olin model of international trade, as the authors focus mainly on ultimate causes rather than proximate causes of development. In his critique he mentions the early industrialisation of the West as a factor in the establishment of a modern-world-system as Wallerstein (2011) calls it (Vries does not explicitly mention this, but in this instance his argument resembles dependency theory and Wallerstein). The increase in population and purchasing power in the West increased demand for commodities from third world countries. Vries (2012, p. 7) notes that this does not necessarily invalidate the central argument, since institutional factors did play an important role in countries like the US and Canada that could have been “cursed” by their resources as well, Vries rather criticizes the authors for not even asking the question whether the “predicament” of third world countries was a “matter of basic economic mechanisms” (p.7). This already shows that institutional primacy is not possible, as in this case it is rather an interaction between geography, demographics, and institutions. I agree strongly with this critique, and it ties into my main critique of the book, which I will come to in my conclusion.

When criticizing their main argument, one could say that a simple dichotomy between "inclusive" and "extractive" institutions, does not capture the complexity and nuance of real-world institutions. For example, the authors name patents as an inclusive institution that encourages investment in expensive research in search of new technologies. [12] However, one could argue that patents are double edged swords, as they can also harm the consumer as well as innovation and preserve monopolies for stagnant industries with great lobbying power, barring future innovators from entering the game. From that perspective patents qualify as an extractive institution (Boldrin & Levine, 2013, p. 4). Finally, the authors basically ignore the largest part of cultural theories of development, as they only discuss the cultural hypothesis for a mere 7 pages, and in these pages, they focus on easily refutable theories. For a convincing rebuttal I would have expected more thorough arguments.

Why Nations Fail has been a very influential book for a good reason, the authors eloquently explain why institutions are one of the most significant factors when determining a state’s success. However, Why Nations Fail attempts to establish itself as the bible of international development theory, and in social-sciences it is best to be sceptical of grand-theories, as evidenced by the many critiques that can be made. It is a shame that the authors proclaim their theories’ superiority with such primacy and dichotomy because I do think that their core premisses and arguments explain a great deal of international development. If the authors had stuck to more modest claims the book would have come across as more scientific. Regardless, I would still recommend people interested in the field to read this book, as it does contain many valid points and observations about historical events and processes, the reader must just keep in mind that the world is more complex than the authors would like to claim it is.

[3] Acemoglu & Robinson (2012, pp. 52-75).

[4] These examples have been given earlier in the book but have been summarized on page 56 of the Dutch translation of the book.

[6] Acemoglu and Robinson (2012, pp. 78-87)

[7] Acemoglu & Robinson (2012, p. 79)

[8] Acemoglu & Robinson (2012, p 429 – 430)

[10] Acemoglu & Robinson (2012, pp. 84-87)

[11] Acemoglu & Robinson (2012, p. 104)

Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Profile Books.

Boldrin, M., & Levine, D. K. (2013). The case against patents. Journal of Economic Perspectives, 27(1), 3-22.

Hausmann, Ricardo (2001), "Prisoners of Geography", Foreign Policy, 122, pp. 44-53

Vries, P. (2012). Does wealth entirely depend on inclusive institutions and pluralist politics? A review of Daron Acemoglu and James A. Robinson, Why nations fail. The origins of power, prosperity and poverty. Tijdschrift voor sociale en economische geschiedenis. https://doi.org/10.18352/tseg.278

Wallerstein, I. (2011). The Modern World-System IV: Centrist Liberalism Triumphant, 1789–1914. Univ of California Press.