Question: Why do Nations Fail?

Answer: Because they have extractive institutions, say Daron Acemoglu and James Robinson.

Political and economic institutions can be inclusive (democracy, wide private property) or extractive (autocracy, monopolies and rents for the elite).

True, nations can succeed temporarily with extractive institutions.

We emphasize that growth under extractive institutions is especially feasible, as in China today, when it can proceed rapidly by importing existing technologies from other economies. One of our central arguments is that inclusive institutions are necessary for sustained innovation, but import of technology can sometimes take place under extractive institutions.

We also go to pains to discuss how, when they feel threatened, rulers and elites in Ming and Qing China, the Ottoman Empire, and 19th-century Russia and Austria-Hungary have opposed the diffusion of technologies. The point we make is that innovation does require inclusive institutions but extractive institutions, though they sometimes allow the use of existing technologies, will often also block the import of technology because this too can be threatening to existing power-holders.

So, there can be extractive growth, for a while, but there will not be extractive innovation.

My take: This perspective if fine as far as it goes but, like all good ideas, raises more questions: What sets some countries on the inclusive path and others on the extractive? And how hard or easy is it to shift paths from one to the other? Is there some X factor that gives rise to both inclusivity and innovation or some Y factor that causes both exclusiveness in institutions and lack of innovation in wealth-generation?


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