Why Nations Fail

...is the title of the new book (and accompanying blog) from Daron Acemoglu and James Robinson.  I haven't read it (it isn't out until March 20) but am quite familiar with the work upon which this book is based.  In fact, I first met James Robinson in 1998 when I was a grad student and he was a young economist at USC and came to Cornell to give a talk. The topic was precisely this: the political economy of development.  Soon he would hook up with Daron Acemoglu (perhaps the most prolific economist ever born) and they would write a series of extremely influential and fascinating papers on the topic. [I've met Daron as well and I can say with confidence that both he and James are delightfully personable, kind and extremely smart - always nice to meet nice people in a profession that is often a bit lacking that category]

This book appears to be a culmination and summation of all of this work.  This is good news for two reasons: One, the work is very technical and dense and this is a popular press book that puts it all into plain language.  Two, it is based on work that is very technical and extraordinarily thorough, especially the empirical work.  So this is not a book of idle suppositions and possible links but a book based on theories that have been rigorously tested empirically and subjected to the intense scrutiny of peer-review.

But since I have not read it, I'll punt to the review of the book from The Economist:

THE rich world’s troubles and inequalities have been making headlines for some time now. Yet a more important story for human welfare is the persistence of yawning gaps between the world’s haves and have-nots. Adjusted for purchasing power, the average American income is 50 times that of a typical Afghan and 100 times that of a Zimbabwean. Despite two centuries of economic growth, over a billion people remain in dire poverty.

This conundrum demands ambitious answers. In the late 1990s Jared Diamond and David Landes tackled head-on the most vexing questions: why did Europe discover modern economic growth and why is its spread so limited? Now, Daron Acemoglu, an economist at MIT, and James Robinson, professor of government at Harvard, follow in their footsteps with “Why Nations Fail”. They spurn the cultural and geographic stories of their forebears in favour of an approach rooted solely in institutional economics, which studies the impact of political environments on economic outcomes. Neither culture nor geography can explain gaps between neighbouring American and Mexican cities, they argue, to say nothing of disparities between North and South Korea.

They offer instead a striking diagnosis: some governments get it wrong on purpose. Amid weak and accommodating institutions, there is little to discourage a leader from looting. Such environments channel society’s output towards a parasitic elite, discouraging investment and innovation. Extractive institutions are the historical norm. Inclusive institutions protect individual rights and encourage investment and effort. Where inclusive governments emerge, great wealth follows.

Britain, wellspring of the industrial revolution, is the chief proof of this theory. Small medieval differences in the absolutism of English and Spanish monarchs were amplified by historical chance. When European exploration began, Britain’s more constrained crown left trade in the hands of privateers, whereas Spain favoured state control of ocean commerce. The New World’s riches solidified Spanish tyranny but nurtured a merchant elite in Britain. Its members helped to tilt the scales against monarchy in the Glorious Revolution of 1688 and counterbalanced the landed aristocracy, securing pluralism and sowing the seeds of economic growth. Within a system robust enough to tolerate creative destruction, British ingenuity (not so different from French or Chinese inventiveness) was free to flourish.

This fortunate accident was not easily replicated. In Central and South America European explorers found dense populations ripe for plundering. They built suitably exploitative states. Britain’s North American colonies, by contrast, made poor ground for extractive institutions; indigenous populations were too dispersed to enslave. Colonial governors used market incentives to motivate early settlers in Virginia and Massachusetts. Political reforms made the grant of economic rights credible. Where pluralism took root, American industry and wealth bloomed. Where it lapsed, in southern slaveholding colonies, a long period of economic backwardness resulted. A century after the American civil war the segregated South remained poor.

Read the rest of the review at the Economist and then go out and buy the book when it is released on March 20.