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A Return To Political Economy
, January 29, 2012
This review is from: Why Nations Fail: The Origins of Power, Prosperity, and Poverty (Hardcover)
Why are some nations rich and others poor? The question has occupied economists since Adam Smith wrote An Inquiry into the Nature and Causes of the Wealth of Nations. As Nobel laureate Robert Lucas said, once you start thinking about that question, "it is hard to think about anything else." Daron Acemoglu and James Robinson have been thinking hard about it, and Why Nations Fail provides their answer.
Their main thesis is "that while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has" (page 43). That the right economic institutions are vital has long been recognized; what Acemoglu and Robinson do is emphasize the critical role of politics. They argue that an inclusive political system will allow for an inclusive economic system. Such a system provides incentives for people to acquire skills, work hard, save, invest, and, most importantly, innovate. In contrast, an extractive political system exists for the benefit of a narrow elite, and creates an extractive economic system. The masses cannot influence the political system, and have no incentives to exert themselves creating wealth that will be taken from them by the political elites. Extractive economic systems can achieve growth for a short while, but cannot achieve persistent growth. That is because they cannot generate significant technological change and because there will be infighting over the system's spoils.
The authors provide a wealth of historical examples from all over the world and from ancient to modern times. The numerous examples allow the authors to illustrate their ideas with concrete examples. It also allows them to debunk many of the popular explanations for why some nations are rich and others are poor: geography, culture, and ignorance. After you read this book, you will wonder why you ever thought those ideas made any sense at all.
Overall, this is an excellent, informative, and thought-provoking book. My major complaint is that it could have used a good editor. It is repetitive in places. The authors also sometimes get carried away discussing irrelevant historical details. For example, do we really need to know that Geiseric, king of the Vandals, had his first marriage annulled and sent his ex-wife home, but not before he cut off her ears and nose? Nevertheless, this is a book worth reading by anyone interested in alleviating global poverty. I especially recommend it to the Don Quixotes who think that just a little more aid will make poor countries rich.
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