Why Nations Fail
What’s inside
Daron Acemoğlu and James Robinson, in their book, have analyzed and put forward theories to explain the world economy and development. It aims to highlight the factors responsible for the glaring disparities between developed and underdeveloped nations, which continue to grow in the modern world. The authors have studied many previous research works conducted by other scholars in the field and have attempted to synthesize them to form a coherent argument. In the process, they have rejected several approaches and have provided alternatives to them. The book revolves around the notion that differences in the patterns of political and economic institutions of various states lead to fundamental differences in economic and social developments. They trace the causes of disparities between national wealth and gross inequalities of income and living standards of the people. The book includes case studies and draws on historical examples to present a strong case in favor of the authors' arguments.
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Lesson 1 – The pattern of Economic Institutions determine the Levels of Development
Economic institutions refer to a set of well-established structures and agencies that deal with the financial transactions and economic administration among people and societies. There are two variants of economies that determine the levels of development of the nation-states, known as inclusive and extractive. These two variants are dependent on the pattern of economic institutions.
Inclusive economic institutions include market economy, safeguards to property rights, incentives, and reassurance to businesses. This institutional setup creates an environment where innovative and entrepreneurial ideas are encouraged and enable larger portions of the population to indulge in economic activities. And any hindrances to economic freedom are removed to allow for the introduction of new business and entrepreneurial activities. Long-term investments are encouraged by taking sufficient policy initiatives to incentivize risk-takers.
On the other hand, extractive economic institutions represent a drastic one-eighty degree turn from the inclusive economic institutions. These institutions are not conducive to economic growth as such. They lack a scheme of incentives and safeguards and stunt economic growth due to the conservative pattern of economic structures. The economic institutions serve to further the interests of the privileged, the few, or the elites. The elites exploit the wealth generated by the masses by appropriating it and seek power to maintain the status quo.
Inclusive economic institutions are marked by the possibility of transition from archaic modes of production to newer and efficient means of production. It is referred to as creative destruction, as exemplified by the Industrial Revolution. In an extractive institutional setup, the elites try to preserve the existing mode of production as their interests are vested in maintaining the status quo.
The introduction of new technologies and newer modes of economic structures generate the following categories of people:-
- Economic losers are those who will lose the economic monopoly that they previously enjoyed.
- Economic winners will constitute the larger masses who were previously deprived of pursuing economic ventures.
- Political losers include the elites and the monopolists of political power who had complete dictatorial control over the institutions of the state.
- Political winners constitute the masses who were deprived of political rights will now enjoy political freedom with appropriate rights attached to pursue their goals and make demands upon the state for support and protection.
Lesson 2 – Economy-Politics Nexus
Economic institutions and political institutions are intrinsically related to each other. The pattern of political power largely determines the design of economic structures
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Unlock Why Nations Fail Lessons!
- Lesson 1 – The pattern of Economic Institutions determine the Levels of Development
- Lesson 2 – Economy-Politics Nexus
- Lesson 3- Teachings of the Past
- Lesson 4- Minor Differences lead to Drastic Outcomes
- Lesson 5 – The Doom of the Vicious Circle
- Lesson 6 – Democratization and Institutional Change
- Lesson 7 – An Alternative Approach
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FAQs
In the summary of Why Nations Fail book, there are 7 key lessons. These lessons include:
- Lesson 1 – The pattern of Economic Institutions determine the Levels of Development
- Lesson 2 – Economy-Politics Nexus
- Lesson 3- Teachings of the Past
- Lesson 4- Minor Differences lead to Drastic Outcomes
- Lesson 5 – The Doom of the Vicious Circle
- Lesson 6 – Democratization and Institutional Change
- Lesson 7 – An Alternative Approach