Previous
Chapter 14
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 “Historical Origins,” Acemoglu and Robinson reiterate that global living standards have become deeply unequal since the 1800s. This isn’t because of geography, culture, or ethnicity. It also wasn’t inevitable—this inequality could have been avoided.
Acemoglu and Robinson begin their concluding chapter with a summary of their book’s overall argument. First, they identify the problem that their theory seeks to explain: the profound economic divergence between nations since the Industrial Revolution. They reiterate that other theories don’t explain this inequality—only institutions can.
Themes
Acemoglu and Robinson explain that this book is their attempt to explain this divergence. Unlike most social scientists, they deliberately choose a simple explanation based on a single factor. While their theory isn’t perfect, it does explain the inner workings of successful and failed states. It does this in two ways: first, through the concept of inclusive and extractive institutions, and second, by explaining why people created inclusive institutions in certain times and places. Inclusive economic institutions create economic prosperity by securing property rights, promoting innovation, and making the economy fairer. Inclusive political institutions reinforce these inclusive economic institutions through pluralism and state centralization.
Many readers, scholars, and commentators have criticized Why Nations Fail for providing an overly simple account of inequality. But Acemoglu and Robinson agree that their theory is simple: they focus on institutions in order to make a clear, memorable, and actionable argument. While they believe that institutions can explain most inequality, they admit that they can’t explain all of it. Many other factors can influence inequality, but they usually do so by affecting a nation’s institutions. Meanwhile, a nation’s circumstances are also less important than the way its institutions respond to those circumstances. Therefore, the authors conclude that inclusive institutions are by far the most important factor when it comes to cultivating prosperity.
Themes
Extractive institutions can generate economic growth, Acemoglu and Robinson continue, but this growth isn’t sustainable. First, real growth depends on innovation and creative destruction, which elites resist. Second, under extractive institutions, the powerful inevitably become wealthy, so the elite tends to fight for power. This creates political instability and undermines growth.
Extractive institutions are hostile to economic growth, even if they don’t quite make it impossible. Therefore, the authors believe that inclusive institutions are still always preferable. In particular, they stress the distinction between short-term growth, which can be beneficial but deceptive, and long-term growth, which is truly necessary for prosperity. Short-term growth is possible under extractive institutions, but long-term growth requires inclusive economic institutions to remain fair and stable for decades or even centuries.
Themes
Extractive political and economic institutions reinforce each other in a vicious circle, while inclusive ones do the same in a virtuous circle. These circles are strong, but not unbreakable. For instance, a few societies have broken the vicious circle to establish inclusive institutions.
The vicious and virtuous circles explain why the global economic hierarchy has scarcely changed in the last 150 years. However, all nations started out with extractive institutions, so every rich country has beaten the odds and broken the vicious circle. But the authors suggest that this might have been far easier in the 1800s than it is today.
Themes
Get the entire Why Nations Fail LitChart as a printable PDF.
Institutions generally transform around disruptive historical events, or critical junctures. Different institutions respond to critical junctures in different ways—even, sometimes, by transforming themselves. And institutions become different in the first place due to “institutional drift”—or a long series of contingent, unpredictable changes that give certain groups more institutional power than others. Thus, institutions diverge slowly over time due to “institutional drift,” and then rapidly during critical junctures. For instance, small differences between the English, Spanish, and French monarchies in the 16th century allowed England to gain much more from transatlantic trade.
The authors summarize their theory of institutional change. This theory is based on three main concepts: critical junctures, historical contingency, and small institutional differences. All three of these concepts have deep implications for citizens, scholars, and policymakers who want to change their societies. These changemakers should recognize how every society’s institutions change slowly over time—after all, groups are always fighting for power, so the dynamics of their conflict constantly shift. Similarly, people interested in political change should also expect that, during periods of great turmoil, gradual institutional shifts can give way to abrupt and transformative ones.
Themes
History is key to institutional success or failure. But it’s not predetermined. For instance, Peru wasn’t destined to end up poorer than the US and Western Europe. Instead, it’s poorer because European colonialism created inclusive institutions in the US and Western Europe, but extractive ones in Peru. But this could have been different. If North America were as developed and densely populated as Peru in the 15th century, European elites would have probably developed more extractive institutions there. If the Inca Empire successfully fought off the Spanish, it could have modernized much faster, like Japan. And the Inca could have colonized the world instead. Europeans only did so because of many contingent events, like the Black Death and the rise of feudalism.
Acemoglu and Robinson’s most important advice for policymakers, activists, and everyday citizens is that historical processes are never predestined. Instead, they’re always very fragile, or contingent. This means that circumstances, human decisions, and even blind luck can determine their outcomes. This should give changemakers a reason to never stop fighting for change. It should also encourage everyone to see the equality between different countries (and the people who live in them). There is nothing inherently special or superior about the US that made it rich. Rather, if a few key historical events had gone differently, the US could have just as easily been poor, absolutist, or colonized by an entirely different people.
Themes
Acemoglu and Robinson admit that, because their theory depends on historical contingency and small institutional differences, it can’t predict the future. But no theory can: history is never predetermined. However, Acemoglu and Robinson’s theory can broadly explain global inequality, so it can also generally indicate which societies will grow in the future.
Historical contingency means that future events are inherently unpredictable because they’re random, highly contextual, or dependent on people’s free decisions. This might make theorizing about the future difficult, but it also makes acting to change the future all the more important.
Themes
Acemoglu and Robinson argue that the US and Western Europe will stay much richer than the rest of the world, although some poor countries will surely become rich by “breaking the mold.” Highly decentralized countries like Afghanistan, Haiti, and Somalia are unlikely to grow very much. But highly centralized poor countries like Rwanda, Ethiopia, Tanzania, Brazil, and Mexico will likely achieve some growth under extractive institutions. Still, this kind of growth isn’t sustainable, which means that nations like China will probably “run out of steam.” But much of the future is contingent. For example, Cuba, North Korea, and Myanmar could become more inclusive, or they could stay highly extractive and absolutist.
Acemoglu and Robinson’s very general prediction is based on the vicious and virtuous circles. These cycles have prevented most countries’ institutions from changing substantially over the last 150 years. Inclusive institutions generally foster the most growth, followed by extractive institutions in centralized states, followed by extractive institutions in weak and decentralized states. Still, the authors expect that plenty will change in the future and defy their predictions.
Themes
Acemoglu and Robinson warn that leaders shouldn’t try to look for policy recommendations in their book. The same policy can have opposite effects in different countries, depending on their institutions. Moreover, there’s no easy formula for turning extractive institutions into inclusive ones. Often, these attempts can fizzle out or backfire because of the vicious circle. However, this book can help leaders identify bad policies that won’t work because they’re based on a misunderstanding of how institutions function.
Acemoglu and Robinson recognize that political leaders frequently look to economists for policy advice, so these leaders probably hope there’s an easy, universal way to build inclusive institutions anywhere in the world. But there isn’t: the path to inclusive institutions depends entirely on a country’s history, circumstances, and existing institutions..
Themes
In the next section, “The Irresistible Charm of Authoritarian Growth,” Acemoglu and Robinson focus on one of these bad policy recommendations: Chinese-style growth under extractive institutions. They explain how the businessman Dai Guofang started a steel company, only to be arbitrarily arrested because the company would compete with state-owned businesses. Although the Chinese Communist Party has allowed the economy to expand, it still maintains rigid control over it and prefers to reserve all major projects for state-owned companies.
Authoritarian growth has an “irresistible charm” because it’s fast and coordinated. But Dai Guofang’s experience shows that extractive political institutions can never truly guarantee the inclusive economic institutions that are necessary for growth. Specifically, the authors argue that the Chinese Communist Party will always tilt the playing field and violate private property rights when its own interests are in play. Therefore, China’s economic institutions are only ever conditionally inclusive—the Party can shut people out of the system whenever it wishes.
Themes
While Chinese economic institutions have become much more inclusive, they’re still essentially extractive. There’s little innovation: China’s tech boom is based on copying existing technologies, not creating new ones. And property rights are still insecure: the Party can take away entrepreneurs’ businesses at any time. But by aligning themselves with the Party, businesses receive significant advantages—like exemptions from regulation.
Dai Guofang’s arrest shows that the Communist Party often punishes innovators instead of rewarding them. Thus, it’s no surprise that Chinese firms often resist innovation. Like the Soviet Union, China’s government distorts firms’ incentives by tightly controlling the market. Even if the market is somewhat inclusive, then, doing the government’s bidding is still far more profitable than innovating. This means that firms will flock to the government and support the status quo, rather than promoting the creative destruction that increases productivity.
Themes
As China’s economy has grown, its political institutions have actually become less inclusive, pluralistic, and democratic. For instance, the government closely controls the Internet and represses dissent. China’s growth likely won’t continue unless its political institutions become inclusive.
The authors return to their key principle that inclusive and extractive institutions tend to destabilize one another. They hypothesize that either China’s political institutions will become inclusive or its economic institutions will become extractive once again.
Themes
Many countries are trying to develop through Chinese-style authoritarian growth instead of opening up markets and trade. But Acemoglu and Robinson think leaders really choose this path to increase their own power. While it might lead to growth in the short term, authoritarian growth can’t create sustainable growth in the long term. The authors predict that China’s growth will end once it reaches middle-income living standards, especially if the Communist Party stays in power. It could also switch to more inclusive institutions and continue growing, but this seems unlikely.
The authors suggest that elites in many developing countries choose the Chinese model in an attempt to kill two birds with one stone. First, this model creates rapid growth in the short term, which wins leaders political points. Second, it lets leaders maintain power in extractive institutions, which is highly profitable for them. But while this is a great deal for self-interested leaders, it doesn’t significantly benefit the population in the long term. China’s living standards are certainly much higher than many other developing countries’, but the authors believe that they would improve much more if China followed the capitalist model of Singapore, Taiwan, and South Korea.
Themes
Social scientists often argue that authoritarianism is a “passing stage” on the road to modernization. These modernization theorists think growth automatically creates democracy and inclusive institutions. But there are plenty of counterexamples to this pattern, including China and Iraq. In reality, Acemoglu and Robinson argue, modernization theory has it backwards: it claims that growth creates inclusive institutions when, in reality, inclusive institutions create growth. Growth doesn’t make countries with extractive institutions more democratic. Plus, Germany, Japan, and Argentina have demonstrated that wealthy, developed countries with inclusive institutions can easily turn into extractive authoritarian regimes. The authors conclude that authoritarian growth is unsustainable and doesn’t lead to democracy, so developing countries shouldn’t pursue it.
Acemoglu and Robinson agree that growth can help inclusive institutions form in some situations—for instance, after the Industrial Revolution, urban factory workers organized to win greater political rights. However, they disagree with modernization theory’s premise that economic institutions are generally the foundation for political ones. Instead, they stick to their thesis that political changes tend to happen first, while economic changes are usually the result of those political changes. This debate is crucial because it dictates how societies should pursue greater inclusiveness. If Acemoglu and Robinson are right, then the key to economic growth is political reform. If, on the other hand, the modernization theorists are right, then any sort of growth—including authoritarian growth—is automatically good because it will eventually lead to democracy.
Themes
Next, in “You Can’t Engineer Prosperity,” Acemoglu and Robinson critique the idea that smart policy changes can fix poverty without accompanying institutional changes. For instance, the International Monetary Fund (IMF) often pressures developing countries to adopt liberal economic policies. But institutions and leaders in those countries can subvert the policies’ intent. For example, the IMF convinced Zimbabwe and Sierra Leone to make their central banks legally independent, but national leaders still controlled them.
Ultimately, attempts to engineer prosperity are really based on the misleading “ignorance” hypothesis (the idea that poor countries are poor because their leaders are ignorant or irrational). Acemoglu and Robinson aren’t opposed to good economic policies. Rather, they’re against policy change as a substitute for institutional change. In other words, they think that institutions have to change first in order for policy changes like the IMF’s to succeed later on. In Zimbabwe and Sierra Leone, the IMF tried to force inclusive economic policies on an extractive political system. Unsurprisingly, politicians simply distorted the IMF’s policy to make it extractive. This reinforces the authors’ principle that extractive political institutions almost always lead to extractive economic institutions—and building inclusive economic institutions almost always requires building inclusive political ones first.
Themes
Other policies try to engineer prosperity by targeting “small market failures.” But these failures aren’t the real problem: they’re just symptoms of deeper institutional failures. For instance, an Indian NGO tried to reduce absenteeism among government nurses by making them punch a time clock. But local health ministries simply found other ways to allow absenteeism. Ultimately, when institutions are the real problem, it’s impossible to engineer prosperity through better policy.
Policies that address “small market failures” miss the forest for the trees. They are too limited in scale, and more importantly, they get cause and effect backwards. Such policies assume that eliminating market inefficiencies will increase productivity, when really, distorted incentives are the root cause of poor productivity. When markets incentivize unproductive behavior, they will be full of failures and inefficiencies; Acemoglu and Robinson think it's impossible to fix these inefficiencies without fixing the incentives first.
Themes
In the next section, Acemoglu and Robinson examine “The Failure of Foreign Aid.” They look at how, after the US invasion of Afghanistan, NGOs and foreign governments pumped billions of aid dollars into the country. First, this money went to UN officials’ plane tickets and translators. Next, NGOs absorbed much of the rest. One village was promised millions of dollars but merely received a few useless wooden beams. In fact, 80 to 90 percent of foreign aid money usually goes to overhead costs, corruption, and extractive governments. Western attempts to fight global poverty through foreign aid inevitably fail because institutions are the root cause of this poverty.
Like policy fixes intended to “engineer prosperity,” foreign aid gets sucked into extractive institutions. As a result, it ends up enriching the privileged and wealthy—including Western NGOs and international institutions like the UN, which also function as extractive institutions in many of the places where they work. Unless foreign aid manages to bypass government institutions altogether, it’s unlikely to make either politics or the economy more inclusive.
Themes
The US has tried to make foreign aid conditional on institutional reform in the receiving country, but Acemoglu and Robinson argue that no amount of aid money will make dictators like Siaka Stevens give up the extractive institutions that enrich them. Still, Acemoglu and Robinson don’t argue that Western countries should eliminate foreign aid. Instead, they suggest that policymakers shouldn’t expect foreign aid to spur growth and should direct it to programs that make institutions more inclusive.
Acemoglu and Robinson point out two important contradictions. The first is that aid money can almost never influence foreign politics—the people who lead extractive institutions care primarily about their own power and wealth. After all, if they wanted to put their country first, they would implement reforms with or without foreign aid. Second, because inequality is so extreme in the modern world, foreign aid can still be a worthwhile investment even if extractive institutions steal or destroy the vast majority of it. Thus, the authors conclude that foreign aid is nearly useless, but just useful enough to justify the cost.
Themes
Finally, under the heading “Empowerment,” Acemoglu and Robinson describe how the metalworker and union activist Lula led a wave of strikes across Brazil in 1978. The next year, he helped found the Workers’ Party, which represented a broad coalition of unions, intellectuals, and poor people. The Workers’ Party grew and fought the military dictatorship by integrating with local activists. Eventually, in 2002, Lula won the presidency. The Workers’ Party succeeded because it brought different groups together into a broad coalition. During its rule, it significantly reduced poverty and inequality.
In the final section of their final chapter, Acemoglu and Robinson focus on “empowerment” because it’s the surest way for countries to break the vicious circle of extractive institutions and build inclusive ones instead. They view the Brazilian Workers’ Party as exactly the kind of diverse, democratic coalition that empowers people by amplifying their voices and organizing their demands. Crucially, the Workers’ Party coalition focused on both local and national issues. It empowered its members by dealing with their local political needs. But by bringing this grassroots base into national campaigns, it won power and reformed Brazil’s political system. This kind of pluralistic coalition can peacefully force extractive governments (like Brazil’s military dictatorship) to relinquish power and build inclusive institutions.
Themes
In the 1970s, Brazil overcame dictatorship and built inclusive institutions through broad coalitions like the Workers’ Party—not through clever policies, foreign aid, or modernization. While revolutions built inclusive institutions in England, France, and Japan, they also created cruel, extractive ones in countries like Russia, Cuba, and China. The first three revolutions succeeded because broad, empowered coalitions led them. The last three failed because narrow elites led them. Similarly, in the 1970s, the Workers’ Party didn’t just take power across Brazil: it also transformed government by empowering ordinary citizens. But this didn’t happen in other countries, like Venezuela, where democracy created a corrupt elite rather than a broad coalition.
Demanding democratic, inclusive political institutions is easy, but actually building them is very difficult. To do so, new leaders have to take power under extractive institutions, then give up most of their power by reforming those institutions. In the process, they have to avoid the temptations of their own authority in extractive institutions: limitless wealth, zero oversight, and utter impunity. Thus, it’s no surprise that diverse coalitions are more likely to form inclusive institutions: when they seize power, they can’t coordinate closely enough to abuse it. Brazil’s Workers’ Party succeeded because it built this kind of revolution from the bottom up. In contrast, the Russian, Cuban, and Chinese revolutionaries ended up keeping extractive institutions intact and ruling as new aristocracies instead—even though they called themselves communists and claimed to represent the common people.
Themes
In conclusion, Acemoglu and Robinson admit that there’s no formula for empowering citizens or creating inclusive institutions. Centralization, existing pluralistic institutions, and community organizations can all help empower people. In particular, the media can help citizens coordinate and demand reform. For instance, pamphlets helped drive the Glorious Revolution and French Revolution, while social media and the Internet drive political change today. This is why authoritarians try to control the media—for example, Peruvian President Alberto Fujimori bribed TV stations and newspapers for positive coverage, and the Chinese Communist Party tightly controls the media today. Unfortunately, the media can only help create inclusive institutions when citizens are already pushing for them.
Pamphlets, newspapers, and social media all empower ordinary citizens by helping them communicate independently, beyond the government’s control. In fact, this is another example of how economic change and technological innovation can feed political change as part of the virtuous circle. Moreover, media organizations can help build pluralistic and centralized institutions because they often serve as such institutions themselves. After all, the most effective media is pluralistic (because it represents multiple voices) and centralized (because it assembles these voices in a single, accessible place). However, Fujimori and the Chinese Communist Party show that states can also use the media’s centralized power to crush pluralism. Therefore, the media is just one more of the numerous contextual, contingent factors that can support or squash inclusive institutions.
Themes
