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Chapter 12
Themes
Key
LitCharts assigns a color and icon to each theme in Why Nations Fail, which you can use to track the themes throughout the work.
Global Inequality and Economic Growth
History and Institutional Change
Cycles of Wealth and Poverty
Diversity, Pluralism, and Empowerment
Summary
Analysis
In the section “How to Win the Lottery in Zimbabwe,” Acemoglu and Robinson recount how Zimbabwean President Robert Mugabe won his country’s national lottery in 2000—while he was still president. This is evidence of how corrupt and extractive the country became under his rule. Wages and standard of living have plummeted in Zimbabwe since its independence.
Mugabe’s corruption shows that Zimbabwe—like so many other countries—remains stuck in a vicious circle of extractive institutions. This cycle hasn’t merely prevented Zimbabwe from growing: rather, it has actively made conditions worse. Acemoglu and Robinson have finished explaining their theory, and in this chapter, they examine the vicious circle’s consequences for nations like Zimbabwe today.
Themes
Zimbabwe was a British colony until 1965. Then it was an independent white apartheid state, similar to South Africa, until native African revolutionaries overthrew the government in 1980. Their leader, Robert Mugabe, rewrote the constitution to create a one-party regime. He violently suppressed the opposition and redirected the old government’s extractive economic policies to his own benefit. When economic crisis challenged his popularity in the 1990s, Mugabe tried to keep power by rigging elections and win favor by seizing white landowners’ farms. But instead, this ruined the agriculture industry and created a hyperinflation crisis. Mugabe’s rise to power is another example of the iron law of oligarchy. Acemoglu and Robinson reiterate that extractive political and economic institutions are always the real reason nations fail.
Zimbabwe’s history closely resembles Sierra Leone’s—and that of many other nations in sub-Saharan Africa. Mugabe’s rule is a reminder that inequality and institutional failure remain urgent problems in the 21st century. Yet these are the same timeless problems that all poor nations have faced throughout history. Their root cause is the fact that extractive institutions block economic growth, and the only way to fight this is through political change. Independence, globalization, and modern technology haven’t helped Zimbabwe break the vicious circle. Mugabe has left power and died since Acemoglu and Robinson published this book, but little has changed in Zimbabwe.
Themes
The next section is “A Children’s Crusade?” Acemoglu and Robinson explain how a militia tried to overthrow Sierra Leone’s government in 1991. After Siaka Stevens left office, his replacement let the government collapse. The national radio tower fell down, for instance, and government workers stopped receiving their salaries. The rebels claimed to want peace, stability, and an end to autocracy. But in reality, they started massacring civilians at random, recruiting child soldiers, and committing other atrocities. The government did the same. Like many failed states, Sierra Leone fell into a long civil war. This history clearly shows how extractive institutions create war and cause nations to fail. Extractive institutions have also led to conflict in numerous other African countries, including Angola, Mozambique, and Sudan, to name a few.
Stevens and his successor didn’t even keep basic state functions going in Sierra Leone. The nation’s collapsed radio tower and unpaid government workers are particularly dire symbols of how extractive institutions can further impoverish underdeveloped countries and eventually undermine the state itself. This is why Acemoglu and Robinson emphasize that many countries in sub-Saharan Africa are actually poorer today than they were decades or even centuries ago. The more wealth the government extracts and hoards, the less remains for the people. Meanwhile, both sides in the Sierra Leone Civil War clearly wanted power, not institutional change. It’s unsurprising, then, that the iron law of autocracy held, effectively trapping Sierra Leone in extractive institutions.
Themes
In “Who Is the State?,” Acemoglu and Robinson ask if any Latin American states have failed as badly as African ones. They point out that, despite being a democracy, Colombia has mainly extractive institutions and has long fought wars with armed paramilitary groups. One of these groups, the right-wing AUC, even works closely with politicians and fixes elections in rural areas by threatening voters. Paramilitaries occupy roughly a third of Colombian territory, have displaced millions of people, and control many local governments across the country.
Colombia shows that democracy isn’t enough to make a nation’s political institutions inclusive. While Colombians enjoy a far higher standard of living than Zimbabweans or Sierra Leoneans, they face similar political challenges—and therefore similar obstacles to economic development. Armed conflict stands in the way of solving these political challenges, so Acemoglu and Robinson are pessimistic about Colombians’ ability to establish legitimately inclusive institutions.
Themes
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While Colombia isn’t a failed state, it does lack government centralization and public services, especially in rural areas. This continues in a kind of vicious circle because national politicians, like Álvaro Uribe (who was president from 2002 to 2010), win over rural voters by promising an end to paramilitary violence—while they win support from those rural areas’ politicians by passing lenient laws against paramilitaries. Overall, Acemoglu and Robinson note that, while Colombia is becoming more inclusive, many aspects of the vicious circle still apply to it. Namely, its political institutions incentivize leaders to cooperate with paramilitaries that threaten the state, not create public services that support the population.
Across most of Acemoglu and Robinson’s case studies, poor countries’ political institutions are extractive because they’re absolutist (rather than pluralistic). But this isn’t Colombia’s problem. Instead, Colombia lacks the other key factor for inclusive institutions: state centralization. In most poor countries, absolutism feeds the vicious circle, as a small group of elites exercises total power and uses this power to prevent political and economic reform. But in Colombia, decentralization feeds the cycle. And winning power in this context would require compromising with paramilitaries, who usually override anyone who calls for inclusive institutions.
Themes
In the section “El Corralito,” Acemoglu and Robinson explain how President Carlos Menem pegged the Argentine peso’s value to the US dollar in 1991, which led citizens to put all their savings in dollars. He then forcibly converted everyone’s dollars and suddenly changed the exchange rate to reap the profits.
Menem effectively seized his citizens’ savings. This policy is a classic example of how extractive political institutions create extractive economic institutions. It deeply distorts citizens’ economic incentives because it gives them little reason to trust that their savings or investments will hold their value.
Themes
Argentina’s famously complex economy has been declining for decades because of its extractive institutions. From the mid-19th century to 1914, it grew rapidly because of heavy but unsustainable investment in agriculture. But for the next several decades, the country faced political instability and several military dictatorships. Eventually, it fell into the hands of the corrupt Peronist Party, which focused on buying votes and repeatedly violated property rights. While Argentina might seem very different from other Latin American countries, in reality, its institutions are very similar: they are democratic, but not pluralistic or inclusive. Centuries of extractive institutions have encouraged voters to choose more extreme candidates (even if they’re corrupt) and given such candidates an incentive to rule for their own benefit—as authoritarians.
Acemoglu and Robinson argue that Argentina is really just another poor country with extractive institutions. But this is easy to overlook because Argentina saw remarkable growth under extractive institutions in the late-19th and early-20th centuries (much like the Soviet Union did in the 1920s through the 1960s, or like China continues to do today). Thus, Argentina is an excellent case study for why growth under extractive institutions is temporary and unsustainable.
Themes
In the short section “The New Absolutism,” Acemoglu and Robinson explain how, in 2009, the North Korean government reformed its currency and then strictly limited the amount of old currency that citizens could convert to the new one. Intended to destroy the black market and limit opposition to the regime, it also eliminated the majority of people’s savings. Despite its communist politics, the North Korean regime loves to consume luxury goods. In fact, Acemoglu and Robinson argue, communist countries have not fulfilled Marx’s vision of an equal, humane society at all. Instead, they have persecuted their opponents, murdered civilians, and turned themselves into the new elite. Extractive political and economic institutions keep them in power.
The North Korean government’s currency scheme was remarkably similar to Carlos Menem’s. Namely, both countries tried to control the economy by eliminating citizens’ savings. This created distorted economic incentives that prevented both economies from growing (although, without the currency scheme, North Korea’s economy still probably wouldn’t have grown). The Kim family’s taste for luxury goods, like the Derg’s in Ethiopia, shows that they still put their personal profits above their communist ideology.
Themes
Next, in the section “King Cotton,” Acemoglu and Robinson explain how, after Uzbekistan gained independence from the Soviet Union in 1991, its government started forcing farmers to grow cotton and sell it back to the government. Worse still, the government forced children to plant and harvest the cotton instead of going to school for much of the year. Uzbek President Islam Karimov and his government were this policy’s main beneficiaries. After taking office, Karimov eliminated his opposition and focused on rigging future elections. While the majority of his country was extremely poor, Karimov became incredibly wealthy. Many other former USSR republics are just as extractive and repressive as Uzbekistan today.
Karimov essentially enslaved schoolchildren, so his policy is a particularly egregious example of how extractive political institutions create extractive economic ones that enrich elites. In fact, this policy is one of the most straightforward examples of extractive institutions in the entire book. The government directly redistributed wealth from impoverished peasants to the president. Clearly, this was part of a longer cycle that started with or before the Soviet Union. As in all other nations with extractive institutions, the only way to break the vicious circle in Uzbekistan is through political change.
Themes
In the section “Keeping the Playing Field at an Angle,” Acemoglu and Robinson explain that Egypt gradually transformed from a socialist society to a capitalist one in the second half of the 20th century. But elites allied with the state controlled virtually all private businesses. Many wealthy business leaders took jobs in the government, and many others convinced the state to protect their companies with tariffs and give them huge loans. Much like the process that enriched Carlos Slim in Mexico, Egypt sold state-owned monopolies to private businessmen, who profited handsomely. Egypt’s extractive political institutions have consistently driven its economic institutions toward extractive policies, too. This continued until the Arab Spring protests tumbled President Mubarak’s regime in 2011.
Just like Colombia proves that democracy isn’t enough to make political institutions inclusive, Egypt proves that capitalism isn’t enough to make economic ones inclusive. Markets need to be truly fair and competitive in order to spur innovation. When Acemoglu and Robinson published this book, the Arab Spring protests had recently ousted President Mubarak in Egypt, and they were far from over throughout the Middle East and North Africa. Like many of the successful revolutions that have built inclusive institutions in the past, these protests were focused on institutional change and led by a very broad coalition of people from all walks of life. However, like just as many of the revolutions that Acemoglu and Robinson profile throughout this book, the Arab Spring ultimately failed to create inclusive institutions in Egypt. The iron law of oligarchy held, as another authoritarian government took power in 2014.
Themes
In “Why Nations Fail,” Acemoglu and Robinson suggest that elites and extractive institutions look different in different countries. Sometimes the elite belongs to one party, like in Uzbekistan. But in other countries, like Colombia, the elite consists of many groups who fight violently over power. Sometimes citizens don’t have property rights, like in North Korea. But often they do, like in Egypt, which switched sides from communism to capitalism during the Cold War. And some countries are simply less extractive than others. (For instance, Argentina’s institutions are much less extractive than Sierra Leone’s.) Even after periods of collapse and civil war, the iron law of oligarchy can still hold—for instance, Siaka Stevens’s party won the election again in Sierra Leone in 2007.
While Acemoglu and Robinson have sharply distinguished between inclusive and extractive institutions throughout the entirety of their book, they’ve done so primarily in order to clearly present their theory. In real life, there isn’t such a hard-and-fast distinction—rather, it’s a spectrum. There are degrees of inclusiveness and extractiveness. After all, nations have to do many things right in order to build inclusive institutions and achieve sustainable economic growth, so there are many kinds of underdevelopment. For instance, Uzbekistan has a centralized state but lacks pluralism, while Colombia has a pluralistic democracy but lacks centralization. Ultimately, this all means that it’s important to push countries toward inclusiveness, even if they stand little chance of forming totally inclusive institutions. Even small reforms can make an important difference.
Themes
Most importantly, every country with extractive institutions today has been stuck in the vicious circle since the 19th century. Fixing failed nations requires breaking the circle and creating inclusive institutions in place of extractive ones. This is extremely difficult, but it’s possible. For instance, it happened during the Glorious Revolution.
In previous chapters, the authors argued that modern global economic inequality started after the Industrial Revolution, when small institutional differences led nations to diverge. In this chapter, they have explained why the countries with extractive institutions didn’t just build inclusive ones and start growing: because of the vicious circle. To truly fix inequality, then, poor countries need to break the vicious circle. This is the subject of the next chapter.
Themes
