I have not yet finished Why Nations Fail, the blockbuster book by Daron Acemoglu and James Robinson, but could not resist reading Francis Fukuyama’s review. He makes many points, but three criticisms caught my attention. I agree with each of them.
First, the thesis is not original.
[Acemoglu and Robinson (henceforth AR)] argue that bad institutions are the product of political systems that create private gains for elites in developing countries, even if by doing so they impoverish the broader society. … Doing the “right thing” would take away the rents they receive, which is why no amount of hectoring or threats to withhold the next loan tranche has much effect on their behavior. They are making almost the identical point to the one made in the 2009 book Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast (NWW), who argue that most underdeveloped societies are what they term “limited access orders” in which a rent-seeking coalition limits access to both the political and economic system. Indeed, I see no real difference between the “extractive/inclusive” distinction in AR and the “limited/open” access distinction in NWW.
Second, AR make a sharp and unwarranted distinction between “inclusive” and “extractive” institutions. In reality, all economic and political institutions are a mixture of both, and neither feature is always good or always bad.
Since each of these broad terms … encompasses so many possible meanings, it is very hard to … falsify any of their historical claims. ….
There is in fact a lot of reason to think that expansion of the franchise in a very poor country may actually hurt state performance because it opens the way to clientelism and various forms of corruption. The Indian political system is so inclusive that it can’t begin major infrastructure projects because of all the lawsuits and democratic protest, especially when compared to the extractive Chinese one. ….
Third, related to the second point, AR fail to explain the remarkable growth of contemporary China.
China today according to them is more inclusive than Maoist China, but still far from the standard of inclusion set by the US and Europe, and yet has been the fastest growing large country over the past three decades. The Chinese restrict access to the market, engage in financial repression, fail to secure property rights, have no Western-style rule of law, and are ruled by a non-transparent oligarchy called the Communist Party. How to explain their economic success? Rather than see this as a threat to their model (i.e., more inclusion, more growth) AR pull a slight of hand by arguing that Chinese growth won’t last and that their system will eventually come crashing down (like Rome did, after about 200 years?). I actually agree that China will eventually crash. But even if that happens, a theory of development that can’t really explain the most remarkable growth story of our time is not, it seems to me, much of a theory.
Francis Fukuyama, “Acemoglu and Robinson on Why Nations Fail”, Democracy, Development, and the Rule of Law, 26 March 2012.
Stanford political scientist Francis Fukuyama (born 1952) is author of The End of History and the Last Man (Free Press, 1992). His most recent book is The Origins of Political Order: From Prehuman Times to the French Revolution (Farrar, Straus and Giroux, 2011).
Why Nations Fail has shortcomings, but is a fabulous book. (I am two-thirds through it.) It is written for a general audience – with no equations, no tables, no graphs, and no footnotes – yet attracts attention from experts like Professor Fukuyama. It is a delight to read. My pace is slow only because each page makes me think. Now, back to the book!
HT Arnold Kling