Why Nations Fail: The Origins Of Power, Prosperity, And Poverty, Acemoglu and Robinson - B

    The accumulation of wealth happens in societies where political rights are broadly dispersed, thus affording a wide swath of the community to prosper. 

    The discrepancies between the US and Canada and the rest of the hemisphere stem from the differences in their respective foundings. Throughout the colonies of Spain, the conquerors decapitated the local elites and began extracting tribute and wealth. The objective was exploitation of the land and the people. "After an initial phase of looting, the Spanish created a web of institutions designed to exploit the indigenous peoples." Whereas in Virginia, colonists were given land and the vote. They were incentivized to work and invest. Eventually, all thirteen colonies had governors and elected assemblies. America grew in the 19th century, while south of the border there was instability and uncertain property rights. The wide-open banking system and the industrial revolution brought prosperity in the US. The political process determines economic outcomes.

    Patterns of prosperity and poverty around the world have been marvelously consistent for over one hundred and fifty years. It is not geography, religion or culture."The great inequality of the modern world that emerged in the nineteenth century was caused by the uneven dissemination of industrial technologies and manufacturing production." The author's two recurring examples are Nogales, a city in Sonora and its compatriot in Arizona. They share everything except governing systems and have had radically different results. Similarly, East and West Germany and North and South Korea. Economic activity in the north of Korea is one-tenth of that in the south. Inclusive systems generate prosperity; extractive ones, failure. That said, extractive institutions can generate growth, but it is a growth based on existing technologies, and thus, has limits.  The planter elites in the Caribbean in the 18th and 19th centuries created vast wealth on the backs of slaves cultivating sugar. The prime example, though, is the first 50 years of the USSR. The Communist Party re-ordered and grew the economy. But, by the 1970's the Soviet system had stalled as a prelude to collapse, because there were no incentives or property rights. On the other hand, inclusive societies may achieve success, for example Venice, and then drift into failure. The sea-going trading nation was the richest place in the world in the early Middle Ages. Its legal system encouraged business partnerships which in turn created upward mobility. The Doge was selected by a general assembly. In the 14th century, Venice slowly succumbed to aristocratic control and "went from powerhouse to museum."

    The Industrial Revolution in England was the most important event in the transition of mankind from subsistence economies to today's technological-based system of vast wealth and improving public health around the world. By the 18th century, the UK had broad pluralistic political institutions and enforceable property rights, thus creating an environment for entrepreneurial growth. The fields of textiles and transportation were the first to be transformed. While England and northern Europe embraced change, the absolutist regimes rejected it, thus causing their societies to fall behind Europe's. Free societies invariably trump absolutist systems.  The US and Australia eagerly adopted the revolution and had inclusive institutions that embraced it.  The end of absolutism in France opened up that country as well. The Russian, Austro-Hungarian,  and Ottoman Empires retained absolutist systems and fell further behind. China remained both closed, i.e. it discouraged any foreign trade, and absolutist. Of course, today's China is a much different story. It has succeeded by offering economic freedoms, but not political ones. The authors believe that China's oppressive politics will eventually stall economic growth.

    The success of inclusive states is not assured in any sense. "They are often the outcome of significant conflict between elites resisting economic growth and political change and those wishing to limit the existing...power of the elites." But, when conflict leads to reforms and broad-based empowerment, it also invariably leads to further success. 

    This book was highly acclaimed when it was published in 2012. Indeed, it is a brilliant exposition of a compelling idea. Jared Diamond offered his constructive critique that it did not hew close enough to his geographic considerations, but that said, the concepts are not mutually exclusive. However, it is a challenge to read because each chapter travels far and wide, spatially and temporally. My thanks to Wendell Erwin for suggesting (I think twice) that I read it.