And Understanding Their Decline and Fall

A new book, Why Nations Fail, argues that the wealth of a country is most closely correlated with the degree to which the average person can profit from his or her own initiative and effort.

In other words, claim the authors, Daron Acemoglu and James Robinson, it’s not about culture or climate or technological backwardness or, even, natural resources, as many economists since Adam Smith have argued.  It is about people having the opportunity to profit from their own work.

Adam Davidson, who writes “It’s the Economy” column for The New York Times Sunday Magazine, noted:  “According to Acemoglu’s thesis, when a nation’s institutions prevent the poor from profiting from their work, no amount of disease eradication, good economic advice or foreign aid seems to help.”   He added his own telling example of Haitian mango farmers.  “Each farmer had no more than one or two mango trees, even though their land lay along a river that could irrigate their fields and support hundreds of trees . . . .  But these farmers also knew that nobody in their village had clear title to the land they farmed. If they suddenly grew a few hundred mango trees, it was likely that a well-connected member of the elite would show up and claim their land and its spoils. What was the point?”  (See, “Why Some Countries Go Bust.”)

Why Nations Fail is closely reasoned and persuasive.  You might think it would also come across as common sense in an age where the logic of markets has triumphed over centralized planning and collectivism.  It’s the same logic that drives entrepreneurs, inventors, local businesses, micro-lenders, and merchant in the souks and bazaars around the world.  What might have kept us from seeing this point before?

No doubt the power of entrenched interests, the land-owners in Haiti, for example, the ones who have the power to take over a good thing when they see it, or to prevent a competitor from thriving.  Or “special interests” that get legislation passed on their behalf.  Or simply the forces of too much money, overwhelming competition, corrupt government, unequal protection under the law, and so on.

According to Acemoglu, the Tea Party and Occupy movements show that many Americans still believe that that the political process can make a difference.  “But, he quickly pointed out, what if Americans find their protests have no impact? What if the United States becomes a truly extractive nation, with violent repression of protest or — in some ways, worse — the grudging acquiescence of the beaten-down masses?”

Acemoglu is pessimistic.  According to The Times, the book’s “sections on ancient Rome and medieval Venice are particularly compelling, because they show how fairly open and prosperous societies can revert to closed and impoverished autocracies. It’s hard to read these sections without thinking about the present-day United States, where economic inequality has grown substantially over the past few decades. Is the 1 percent emerging as a wealth-stripping, poverty-inducing elite?”

If people believe they have the opportunity to prosper, they will work to succeed.  But if the opportunity isn’t really there, even if they try, they will fail — and stay poor.