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Chapter 4
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 this chapter’s first section, “I’ve Seen the Future,” Acemoglu and Robinson note that most societies have had extractive economic and political institutions but have still managed to achieve some economic growth. However, this growth is based on existing technologies, while growth in inclusive societies is based on technological change.
While Acemoglu and Robinson believe that extractive institutions limit economic growth, this doesn’t mean that the economy can never grow under them. However, growth under extractive institutions is always limited and unsustainable, because it’s not based on innovation. Moreover, its benefits go only to elites, while under inclusive institutions, growth benefits a wider slice of the population.
Themes
After World War One, the US sent the journalist Lincoln Steffens to interview Lenin and learn about the Soviet Union’s economic plans. When he returned, he announced, “I’ve seen the future, and it works.” And briefly, it did. But in 1928, Lenin’s successor, Stalin, collectivized all farmland and hiked up taxes to fund the Soviet economy’s industrialization. While this caused a severe famine and killed millions, the Soviet Union still grew quickly.
Acemoglu and Robinson suggest that Steffens was wowed by the Soviet Union’s early years of incredibly rapid growth. Of course, the Soviet Union only created this growth because it rapidly transferred millions of people from inefficient agricultural jobs to more productive industrial ones. But it imposed this transition on the population so fast that it killed numerous people and devastated the agriculture industry. Acemoglu and Robinson imply that inclusive institutions would have made this transition more smoothly.
Themes
State-controlled economies never allocate resources as efficiently as free markets, but they can still grow if the state invests in the most productive industries. Just like Caribbean slave societies grew by investing in sugar, the Soviet Union grew by investing in industry, which helped it catch up to Western Europe technologically and grow rapidly from the 1920s to the 1960s. This spectacular growth even convinced many American politicians and economists that the Soviet economic model was superior. But then, it abruptly stopped in the 1960s.
Like most economists, Acemoglu and Robinson believe that free, open markets are the most efficient way to allocate limited resources because they allow everyone to pursue and fulfill their individual preferences. In contrast, while centrally-planned economies can excel in certain sectors, they can’t meet the economy’s overall needs. However, unlike many economists, the authors also emphasize that building effective markets doesn’t mean keeping the government out of the economy—instead, governments actually have to create free markets through economic institutions that give people the means to innovate and invest.
Themes
Acemoglu and Robinson argue that extractive economic institutions can’t generate long-term growth because they don’t incentivize innovation and they give elites the power to stop creative destruction. This is why the Soviet economy just stopped growing after it finished reallocating untapped resources from agriculture to industry.
The authors reiterate that inclusive institutions create economies based on innovation, which grow because the people who participate in them have incentives to succeed. In other words, the engine of growth is within the economy itself, which is why this growth is sustainable. On the other hand, extractive institutions create economies based on coercion, which only grow because elites reshape them.
Themes
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The Soviet economy failed to incentivize innovation. Citizens couldn’t trust Stalin’s constantly changing economic plans, and officials avoided making decisions because they knew Stalin could kill them if they made mistakes. The government tried to increase productivity by rewarding workers who met production targets with monthly bonuses. But actually, these bonuses ultimately punished both risk-taking and success. Similarly, Stalin let successful firms keep their profits, but this didn’t incentivize innovation because the government set all prices. This gave companies an incentive to produce whatever the government priced highly, not whatever was most needed in the market.
The Soviet Union understood the importance of innovation and took many steps to spur it along—but these attempts failed. Because Stalin’s whims controlled the economy, the authors suggest, citizens expected instability in the Soviet Union’s economic future. As a result, they couldn’t trust that their investments would be safe or that they’d be rewarded for their efforts or innovations. In fact, the authors argue that Stalin’s policies actually punished innovation and hampered creative destruction. This further supports the authors’ belief that extractive institutions are inherently hostile to innovation and stifle long-term economic growth.
Themes
Stalin also tried to spur innovation by compensating inventors for their creations, but these bonuses were either too small or tied to an invention’s profitability instead of its true usefulness. Finally, Stalin tried to improve productivity by punishing ineffective workers with fines and hard labor, but this didn’t turn them into innovators. Ultimately, the Soviet Union’s extractive institutions—and not these failed policies—were responsible for its lack of innovation and sustainable growth.
The authors argue that only the free market can properly reward innovation—and not government compensation schemes, which can’t even measure true innovation to begin with. Thus, they conclude that Stalin could never truly promote innovation unless he willingly gave up power over the economy. But, like most elites, he chose power for himself over prosperity for everyone else.
Themes
Next, in the section “On the Banks of the Kasai,” Acemoglu and Robinson describe the differences between the Lele and Bushong people, who live on opposite banks of the Kasai River in the Congo. Although the two groups are extremely similar, the Bushong are far richer, more economically productive, and more technologically advanced than the Lele.
The Lele and Bushong provide a kind of natural experiment, much like North and South Korea or the two halves of Nogales. The only difference is that neither of them have inclusive institutions. Still, they share practically the same culture and geography, but neither of these factors can explain why the Bushong have a more prosperous economy.
Themes
The reason for this inequality is that, in the 1600s in present-day Bushong territory, the king Shyaam created the absolutist, extractive Kuba Kingdom. Shyaam imposed new farming techniques that doubled food production, and he forced men to spend fewer years fighting and more working in the fields. Thus, Shyaam centralized and organized society enough to create an economic surplus—which he then extracted and kept for himself. This shows how extractive institutions can create some prosperity, and how this can have long-term effects.
The Kuba Kingdom shows that extractive institutions still produce more growth than no institutions at all. While extractive institutions don’t incentivize growth in general, they do give elites an incentive to increase growth—as long as that growth doesn’t interfere with their power. After all, the more surplus there is, the more elites can extract and keep for themselves. Shyaam’s policies exemplify this: he restructured society so that the people he ruled would make more of what he wanted. Even though his kingdom collapsed, it left a lasting legacy among the Bushong.
Themes
In the next section, Acemoglu and Robinson explain how “The Long Summer”—a period of rapid planetary warming around 9600 BC—drove the Neolithic Revolution, early humans’ transition from nomadic hunting-gathering to sedentary farming and herding. This depended on domestication, a crucial innovation that allowed people to produce much more food. The Neolithic Revolution began with the Natufian people in the Hilly Flanks region of the Middle East, but archaeological evidence suggests that the Natufians became sedentary before they started domesticating animals and plants. Moreover, it shows that they formed a complex, unequal society before becoming sedentary.
The question Acemoglu and Robinson raise here—whether the Natufians settled down or started farming first—might seem like an esoteric archaeological debate. However, it has profound implications for the authors’ theory. If the Natufians started farming before they settled in one place, this would suggest that their economic activities determined the social structure of their society. But because the evidence suggests that they became sedentary first, it seems that, in reality, their social organization—or their institutions—caused their economic system to change—an idea that clearly supports the authors’ thesis.
Themes
Jared Diamond argues that people created permanent settlements and formed complex institutions in response to the “Long Summer,” which made animals and plants more abundant and easier to domesticate. But the Natufian archaeological evidence suggests that Diamond actually has it backwards. While the Neolithic Revolution relied on the critical juncture of the Long Summer, Acemoglu and Robinson argue, societies’ development depended on institutional differences—like the Natufians’ centralized, hierarchical society. But Natufian society didn’t create long-term prosperity, since its institutions were extractive instead of inclusive, meaning that they likely promoted infighting among elites.
Diamond’s explanation fits with his belief in the geography hypothesis: he thinks the climate caused people to farm, which caused them to settle down. While Acemoglu and Robinson agree that the climate might have influenced the Natufians’ path, they don’t view it as the sole cause behind their decision to build a sedentary society. Based on the archaeological evidence, they instead portray the “Long Summer” as a critical juncture that made institutional transformation easier. They also use this evidence to draw conclusions about the institutions that structured Natufian society.
Themes
Under the heading “The Unstable Extraction,” Acemoglu and Robinson cite Maya city-states to explain how extractive institutions ultimately limit growth by creating political instability. The greatest Maya city-states collapsed around the year 800. They weren’t part of the same empire, but they shared many institutions, like a common writing system and calendar. Based on inscriptions and analysis of obsidian rock, archaeologists know that Maya city-states were highly centralized, extractive societies led by kings and aristocratic elites. This system led to rapid economic expansion, labor specialization, and trade between city-states.
According to the archaeological evidence, Maya city-states had all the classic features of extractive institutions: their leaders appear to have held unrestricted power and used that power to seek wealth and glory for themselves. Of course, this shows that the pattern the authors identify has determined nations’ fate for thousands of years. The fact that all these city-states collapsed around the same time demonstrates how, even though each side hopes to win and gain more for itself during a war, in reality, political instability can actually bring down all parties that participate in it.
Themes
But after Maya city-states formed, their technology barely advanced. Instead of innovation, the Maya focused on war. More powerful city-states dominated smaller ones. Around 800, the city-states’ political system started collapsing: kings and aristocracies were overthrown, probably because of inter-city war, elite infighting, and popular rebellions. The Maya show that extractive institutions are unsustainable because their elites fight to control the resources they extract from the masses.
In extractive societies, Acemoglu and Robinson repeatedly argue, power is the primary road to wealth and status, so leaders tend to be overly preoccupied with increasing and protecting their power. The archaeological record suggests that Maya leaders focused all their energy on war (and none of it on innovation), which is clearly consistent with the authors’ theory.
Themes
Acemoglu and Robinson summarize their argument in the chapter’s final section, “What Goes Wrong?” When elites set up extractive political and economic institutions, they invest and spur economic growth so that they can extract a surplus from the masses who create it. This process often creates powerful centralized institutions, like Shyaam’s kingdom and the first settlements of the Neolithic Revolution. But extractive institutions don’t incentivize innovation or progress, and their elites tend to fight over power. While extractive polices can spur spectacularly fast growth—as evidenced by the progress made by present-day China—they’re unlikely to be sustainable in the long term.
The authors link together all of the conclusions that they have reached in this chapter so far. Extractive institutions can create a very specific, limited form of economic progress. In particular, they are very effective at uniting disorganized peoples and territories, then directing them toward the goals of a single ruler or small group of elites. This explains why all of the earliest complex societies were extractive and gave rulers nearly unfettered power. But it also explains why most of them were eventually overthrown by other extractive institutions.
Themes
