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Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James Robinson

When Kurt Lewin observed that ‘there is nothing so practical as a good theory’, he must have had Acemoglu and Robinson in mind. Or perhaps, since Lewin died in 1947, Acemoglu and Robinson had Lewin in mind when they developed their grand theory about why nations succeed and why they fail. Certainly, their theory has proved to be practical, in the sense that, subliminally or otherwise, it has influenced thinking about governance and aid in developing countries. No less a figure than David Cameron, inter alia co-Chair of the High Level Panel on Post-2015 global goals, has developed a narrative about the ‘golden thread’ of strong institutions which, he says, enables open economies and societies to thrive. Acemoglu and Robinson say that this is ‘music to our ears’.

So what, exactly, is the theory? Is it grand? Is it right? And is David Cameron wise to tread this path?

Acemoglu and Robinson (henceforth AR) throw in a couple of caveats about the dangers of over-generalisation, but offer an explanation of progress which ranges from the Neolithic Revolution through to the present day, and around the world from East to West and North to South. Progress, they argue, happens when inclusive economic institutions, backed up by inclusive political institutions, enable the kind of innovation and economic transformation which allows for technical progress and for increases in the productivity of labour and capital. The economic institutions include property rights, patent law and anti-trust legislation. The political institutions include a strong and centralised state, held in check by pluralistic mechanisms such that political rights are broadly distributed and Government is accountable and responsible to citizens. Sometimes, growth happens for a time when these conditions are not met, when extractive institutions rule. Authoritarian growth has an ‘irresistible charm’ (Pg 437). Progress tends to peter out, however, because there are too few incentives for innovation, and because such societies are often riven by conflict, as one group challenges another for elite access to resources.

It might be thought that this analysis leads directly to a set of policy prescriptions. However, AR emphasise repeatedly that progress is shaped by what happens at ‘critical junctures’, with small changes becoming magnified over time, in a process they call ‘institutional drift’. Sometimes, these become virtuous circles, sometimes vicious circles: history is not destiny, but path dependency is strong, and circles, of either type, are resilient. In England, for example, the Black Death in the fourteenth century decimated the labour force and led to a strengthened voice for workers, which led eventually to greater pluralism, and to what AR describe as the ‘most important revolution of the past two millennia’ (Pg 362), the Glorious Revolution of 1688. This was significant because it created pluralistic political institutions which constrained the monarchy and provided the conditions for agricultural innovation and the industrial revolution.

Although ‘the predictive power of a theory where both small differences and contingency play key roles will be limited’ (Pg 434), AR think that the way forward is to empower a broad cross-section of society so that they will demand that institutions become more inclusive. Free media have an important to play in this process. Aid, on the whole, does not. Generally  (Pg 402) ‘either some pre-existing inclusive elements in institutions or the presence of broad coalitions leading the fight against the existing regime, or just the contingent nature of history can break vicious circles’. It is important to note, though, that gradual change is ‘more powerful (than revolution), harder to resist and ultimately more durable’ (Pg 318).

Does it all add up? It is hard not to be impressed by the range of evidence adduced. You would have to know more than I do about the Incas, the Aztecs, the Meiji or the Venetians to be confident of challenging the historical case studies. The modern cases in Africa, Asia and the Middle East are also rich in detail. To that extent, the argument works as a grand narrative, and is sufficiently subtle to avoid the clanking predictability of historical determinism. Just a few points, then.

First, a great variety of theories or propositions is not granted space at the table in this weltenschauung. Geographical explanations, associated with Jeff Sachs or Jared Diamond are dismissed, as are cultural explanations and simple policy failures. Modernisation theory is written off, too. The dual economy model of Arthur Lewis is a delusion. That is one reason to feel slightly uncomfortable. There is something to be said for being inclusive in theoretical terms, in a post-modern kind of way, allowing some cause to a variety of theories. Remember that the characteristic art form of post-modernism is collage. Why shouldn’t endemic malaria in West Africa (pace Jeff Sachs) be allowed a role alongside the role of foreign powers in decapitating inclusive indigenous institutions? Do inclusive governments (pace the World Bank) never make policy mistakes?

Second, an issue not much discussed is the extent to which progress in one country has been (and is?) at the expense of lack of progress in others. There is some discussion in the book of the pernicious effect of colonialism, especially by European powers, but it is more concerned with the costs to the institutional development of the colonies rather than the domestic economic benefits to the colonialists. Thus (Pg 250), ‘European expansion into the Atlantic fuelled the rise of inclusive institutions in Britain. But as illustrated by the experience of the Moluccas under the Dutch, this expansion sowed the seeds of underdevelopment in many diverse corners of the world, by imposing, or further strengthening existing, extractive institutions. . . . as a result, as industrialisation was spreading in some parts of the world, places that were part of European colonial empires stood no chance of benefiting from these new technologies.’ Similarly (Pg258) ‘the backwardness of the Transkei is not just a remnant of the natural backwardness of Africa - - - it was created by South African white elites in order to produce a reservoir of cheap labour’. This theme could usefully have been explored further, perhaps in the context of a discussion about who gains and who loses from modern forms of capitalism, and where the rents accrue in global supply chains.

Third, there’s a Fukuyama-like and somewhat unpalatable ‘end of history’ feel to the argument, especially as regards the US, Europe and other liberal democracies. This begins when the delights of Nogales, USA, are compared with the problems across the border in Nogales, Mexico, and continues throughout. The critical junctures and virtuous circles that have taken us to where we are accepted uncritically. I’m sure that Nogales, USA, is absolutely charming: high levels of social capital in which nobody ‘bowls alone’, brilliant state schools, excellent health care, a commitment to peace and security around the world, engagement with multilateral action on climate change, hosting multinationals which adhere to the highest standards of corporate social responsibility, and with a financial system which works entirely for the common good. Is it? Or is it perhaps the case that the virtuous circle still has a few pirouettes still to complete? If so, that would open up an interesting conversation. What gets ‘sorted’ in the AR model, and what does not?

Fourth, and highly relevant to the argument about a golden thread. it is easier said than done to trumpet ‘empowerment’ as the solution to governance problems, and may be theoretically suspect. David Booth, for example, summarising the results of a five year research programme on African Power and Politics, makes a compelling case that ‘good governance’ as traditionally conceived is a blind alley, and misrepresents the political problem in Africa as being a principal-agent issue rather than a failure of collective action:

‘our central proposition is that if the promise of ‘good fit’ is to be realised, African reformers and their international supporters need to abandon the straitjacket of principal-agent thinking. In that thinking, programmes divide between those that address the so-called ‘supply side’ of improving governance and those that emphasise the ‘demand side’. In the first case, the assumption – usually unstated but logically necessary – is that governments want and need help to deliver development honestly and effectively. In the second case, an alternative assumption is made: that, whilst the commitments of governments are open to question, their citizens have a definite and uncomplicated interest in holding them to account for their performance as agents of development. Reforms should be about stimulating this ‘demand’. This report disagrees with this framing of the choices facing governance reformers. It argues that governance challenges in Africa are not fundamentally about one set of people getting another set of people to behave better. They are fundamentally about both sets of people finding ways to act collectively in their own best interests.’

Finally, there is certainly more to be said for the role of aid than allowed by a couple of pages, mostly about high transactions costs, rent-seeking and corruption in Afghanistan. Within the terms of the AR argument, to go no further, how about looking at the aid-supported impact on the inclusivity of political and economic institutions: of mobile phones, for communication and money transfer; of medical research, to save lives and enhance ‘capabilities’; of the Green revolution, ditto; of investment in improved stoves and solar power? AR lay great emphasis on the role of technical change in delivering progress. They refer approvingly to Schumpeter’s ‘creative destruction’. They perhaps underestimate the extent to which globalisation dissolves the boundaries of the nation state.

Comments  

# RE: Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James RobinsonGuest 2012-11-11 12:28
A very nice review, as always. A couple of comments.

The book is clearly a good read, for its broad historical sweep and fascinating examples. A question I would ask, though, is what this book does better than North, Wallis and Weingast’s 2009 Violence and Social Orders, which has a similar scope and style. There is another way of telling the story of the Glorious Revolution and all that, one that incorporates the basic insights of new institutional economics but also embeds those in a story about power, rents and what some of us used to call primitive accumulation. There is a very good critique of the articles that preceded the AR book in Mustaq Khan’s excellent contribution to the book edited by Noman, Stiglitz and others, Good Growth and Governance in Africa, a good buy generally. In brief, settler colonies did better because they exterminated the indigenous population, not because initially they had better institutions. Khan now works with North et al, and there is a forthcoming fusion book involving all of them and Brian Levy.

My other comment is specifically about the section of your review which deals with the Africa Power and Politics Programme. I suppose the reason the APPP synthesis does not home in on Acemoglu & Robinson (or Cameron) is that they both represent a kind of thinking that was displaced from the advance-guard of governance research a decade ago or more. I was keen to address the leading edge of thinking (e.g. Levy, Khan, North/Weingast and Grindle, and now Pritchett and Andrews) and take it a further step forward. That meant skipping over the critique of the mainstream quickly at the beginning. It’s very nice to have the advert for the APPP synthesis, but the bit you quote presupposes that readers have already accepted that universal promotion of ‘best practice’ institutions (i.e. liberal-democra tic, Anglo-American capitalism) is unhistorical and that ‘good fit’ reforms are what is needed. So there is a missing link. The bits of the APPP booklet that speak more directly to the old orthodoxy that AR represent are on pp. 22-24, 20-21, 6-7 (preferably in that order). The APPP punch line, in this respect, is not the one about principal-agent and collective action perspectives, but the one that says that the leading edge of thinking moved on some time ago from ‘first get good governance’.
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# RE: Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James RobinsonSimon Maxwell 2012-11-11 22:22
I see Andy Norton, ODI's Director of Resarch, has also comemnted on the golden thread, picking up, inter alia, the argument about globalisation. He writes (odi.org.uk/.../...):

'The debate so far is missing one key element: it’s what Dani Rodrik calls the 'Globalization Paradox'. In short, sovereign democratic states seeking to build their own social contract will want to regulate markets for social ends. ‘Hyper-globalis ed’ markets become a problem at this point, because they can often prevent the nation state from doing this. Rodrik argues that you can’t have all three – sovereignty, democracy and economic hyper-globalisa tion. There is a real challenge to ‘golden thread’ logic here. Open, democratic societies may have been a good guarantee of sustainable economic growth in the past, but the conditions of the present challenge the models of the past.'
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# RE: Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James RobinsonSimon Maxwell 2012-11-21 08:39
Alina Rocha Menocal has written a commentary on the golden thread on the ODI website at www.odi.org.uk/.../. Among other things she says that

'there is a distinct feeling that we have been here before. This narrative echoes much of the ‘good governance’ agenda that has come to define development thinking and practice since the 1990s – which, as we know, has yielded disappointing results, despite considerable investment from the international assistance community. A big part of the problem has been that the standard package of institutional reforms (from institutions that set the rules of the game for economic and political interaction, to commissions intended to root out corruption, to organisations that manage administrative systems and deliver goods and services to citizens, to human resources that staff government bureaucracies, to the interface of officials and citizens in the political and bureaucratic arenas) is excessively normative and demanding, as well as strangely ahistorical. The long list of requirements may be far beyond what is needed (or even possible) at low levels of development, and it does not reflect the historical experiences of countries that can now be considered developed (e.g. in Western Europe, but also in parts of Asia and Latin America).'
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# RE: Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James RobinsonGuest 2013-02-11 14:11
I agree with your point Simon that different theories can play a part in the story simultaneously. I found the Jared Diamond thesis in Guns, Germs and Steel highly persuastive, whislt David Landes' Wealth and Poverty of Nations provided good insights on the role of Protestant religion amongst inclusive institutions. Prof Allen (voxeu.org/.../...) was very persusasive on the role of expensive labour and cheap energy as the particular trigger for England being the cradle of the industrial revolution. But I doubt that this could have happened without reasonable institutions, and if it had not happened here, it would surely have happened somewhere else a bit later, which might not have had quite such cheap energy nor quite such inclusive institutions.
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# RE: Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James RobinsonGuest 2013-05-27 14:00
Institutions change because incentives exist for actors to shift to a new equilibrium; an institution-cen tred view of foreign aid would have to be sensitive to how the provision of such flows affects incentives - both positively and negatively.

If A&R don't, in fact, give much attention to the role of aid I think it is simply because the evidence is so weak regarding the net effect (by contrast the institutional consequences of, say, colonial rule, are obvious and direct).

In theory donors could do a lot both to improve the demand side of governance - you give a couple of examples - and even offer some incentives on the supply side (varying aid flows based on recipient behaviour).

In practice, though, I think there would have to be root and branch change to the entire donor aid sector to really 'take incentives seriously': right now, the main incentive that most donors have is to clear their annual budget allocation before the funds expire. Insufficient incentives exist to ensure that funds are only allocated to market competitive projects with minimal overheads, while there is absence of coordination between donors to ensure sanction against governments or contractors that engage in malpractice; and little attempt to monitor actual project delivery after funds have been allocated.

But the more fundamental problem is not just bad incentives on the part of aid recipients, but also within the donor community itself: it would mean internal incentives to ensure that staff are rewarded for achieving goals while steadily reducing their budgets, refusal to allocate aid when minimal standards are not met, and negative consequences or donors who fail to exercise effective project oversight.

I'm not sure what kind of fundamental reform could do this though! These incentives exist to some extent in the context of a civil service in a parliamentary democracy or in a corporate bureaucracy, but the same accountability mechanisms are absent when the intended beneficiaries are not voters or consumers with a market choice.
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