I just finished Why Nations Fail: The Origins of Power, Prosperity, and Poverty, by Daron Acemoglu and James A. Robinson (2012).

First, it’s technically Acemoğlu. The ğ in this case just lengthens the previous vowel. However, he doesn’t seem to use the diacritic professionally, so I won’t either.

This is all about development economics, one of my fascinations… because it’s important for just about everything: why are some countries rich, how did they get that way, how do you make the poor countries richer, why is it so damn hard. My Almea+400 project can be said to be a rumination on the process for a fantasy world.

A&R’s book is a Theory of Everything, comparable to earlier attempts like Jared Diamond’s Guns, Germs, and Steel, or Graeber & Wengrow’s The Dawn of Everything and Jane Jacobs’s The Economy of Cities. Oh, and stuff like The Wealth of Nations (Smith), the Communist Manifesto (Marx & Engels), and De la démocratie en Amerique (de Tocqueville).

As it happens their thesis is not hard to explain; what takes them 464 pages is to tell stories to back them up. Their basic idea: the difference isn’t due to geography or culture or religion or (ugh) ethnicity, but to institutions. The basic distinction is between extractive and inclusive.

Well, really, there’s a third category, which we can call unorganized. It’s where you start before agriculture, as no one is in charge; also where you end up if the state doesn’t control its own territory, as in Somalia or Haiti or Afghanistan. This condition has its points in the ancestral environment, but in modern times it basically means that life is controlled by armed clans or gangs, unable to best each other but always trying.

An extractive country is strong enough to control its territory, and what it does is extract all its wealth for the benefit of a small elite. Historical examples: almost everyone, from the Mesopotamians to the Romans to the Chinese Empire to medieval Europe to the Incas. Every single colonial state, except for the ones with settlers (Australia, Canada, the US). In modern times it’s the norm in South America and Africa. The Russian Empire, the Soviet Union, modern China.

As some of these examples hint, thanks to what they call the “iron law of oligarchy”, when an extractive system is overthrown, a new one often takes its place, using the exact same systems to benefit a different class of people. Many an African nation went from extractive local elites, to extractive colonial administrations, to new extractive local elites. Similarly Peru went from extractive Incas to extractive Spaniards to extractive local criollos.

An inclusive country is one with broader political power. This can start on the small side; an example is medieval Venice, where junior traders could partner with senior ones, working their way up. (The Venetians later closed off this route… and declined.) If all goes well, the process continues: more and more people are allowed power, their property is safeguarded, they can work as they like, they can implement new ideas without their work being expropriated. Power is too broadly based for new extractive classes to emerge.

Their prototypical example is the Glorious Revolution of 1688 in England, basically a coalition of city merchants and manufacturers and landholders opposed to the absolute power of the king. There had already been one revolution, which had simply substituted the rule of Cromwell for that of the king. This one kept the (new) king’s head but greatly limited his power. Ideally a “virtuous circle” is set up, where reforms can gradually incorporate the whole population into the ruling class. (Britain took 240 more years to get to full adult suffrage.)

A&R are big fans of creative destruction… which elites hate, because it threatens their extractive power. The rulers of Austria-Hungary and Russia, for instance, resisted railroads even in the late 19th century. The same idea persists today: e.g. the dictator of Sierra Leone actually ripped up a railroad that led to his enemies’ homeland.

(The term derives from Joseph Schumpeter, who saw competition and innovation as a core part of capitalism. Ironically, the term is probably most popular today among people who want to create new rent-seeking monopolies— i.e. people who want to forestall competition and thus creative destruction happening to them.)

A&R emphasize that an inclusive system will always grow and develop. An extractive system may grow– indeed, it may produce a burst of wealth, as the Spaniards received in the New World, or the Soviets in the decades after the Revolution. You can always catch up, apply existing technology, be more efficient. But it always peters out, because the elites are satisfied with being filthy rich and terrified of anything that can threaten their position. They’d rather throttle development than open up the system.

They have a somewhat sad final chapter where they explain why so many development schemes fail. It’s because they are band-aids on an extractive system and don’t address the underlying problem. You can give aid, you can educate, you can implore the elite to stop being corrupt, but the country remains in stasis. Some countries do change course (Japan, South Korea, Botswana, Brazil), but it’s really really hard… and outsiders generally apply very simplistic solutions. (E.g. holding elections doesn’t by itself produce democracy. Nor does, say, creating an “independent central bank”; they mention the central banker of Sierra Leone, who was simply murdered when he ventured to criticize the president.)

I think these terms, like the 1%/10% given to us by the Occupy movement, are going to be extremely useful in analysis. The first question about any country is “who is in control”, but the second question is “are they extractive or inclusive?” It’s clarifying, for instance, about the program of the Republican Party since 1980, which is to reverse inclusivity in the US and return to the extractive policies and narrow elite of the Old South.

Did anyone still think colonialism was a benefit? Colonialism was a horror. Typical episode: Cloves were once found only in the Ambon islands; the native king extracted cloves from the growers by forced labor and sold them to traders. The Dutch took over the islands and the forced labor. This was typical of what all the European states tried to do.

Just to the south were the Banda islands, the only source of nutmeg and mace. (These are both products of the same nut.) The Dutch took them over, but there were no native polities to take over, no one to coerce. In 1621 the Dutch solved this problem by taking a fleet to Banda and massacring almost the entire population, at least 15,000 people, leaving only a few survivors who knew how to cultivate the nutmeg/mace tree. They divided the islands into estates and filled them with slaves to work the nutmeg plantations.

16th century adventurers only wanted to apply the Spanish model: come in, take over already-extractive native institutions, and reap the profits. Almost amusingly, the initial founding of Buenos Aires failed, because the local natives were not organized into kingdoms that could be taken over. The founders moved to take over Paraguay instead. This was the model the English attempted in Jamestown, too, and it was a complete failure: the Native Americans refused to work for the colonists, and since these were not the type to work, most of them starved. The English colonies only succeeded once settlers willing to work replaced the conquistador wannabes.

Some points to refine the theory:

• Societies changes in response to crises, what they call critical junctures. One was the Black Death, which killed half the population wherever it struck; the initial effect was to make labor more valuable.
• Small differences can turn into big ones. In Western Europe, the Black Death led to better treatment of workers; in Eastern Europe the extractors were more powerful and created serf-based empires. The English government was unable to establish a monopoly on the Atlantic trade, unlike the French and Spanish; this created an opening for entrepreneurs in England. The success of Botswana in Africa is partly due to it being extremely marginal during the period of British rule, and to the assignment of mineral wealth to the independent state– and a government inclusive enough to use the largesse to benefit the people rather than an elite.
• History is contingent— meaning that there is a certain random element.

Now, I have a few problems with the book.

They are very very good on the horrors of colonialism; they seem way less aware of the evils of neocolonialism. E.g., listing a long parade of extractive regimes in Guatemala, they write “Though [the dictator Ubico] was followed by a democratic regime in 1945, this was overthrown by a coup in 1954, leading to a murderous civil war.” Yes, that’s bad, but it’s not a matter of bad institutions in Guatemala, it’s because the US orchestrated that coup. They talk about dictators who took over after independence in Africa, without seeming to notice that it was the US and the Soviets who preferred dictators there and installed them routinely. This tragic farce mostly ended when the Cold War ended.

Or: they use Haiti as an example of an unorganized state. But Haiti wouldn’t be in the state it’s in if it weren’t for the crippling reparations to slaveowners demanded by France in 1825; Haiti was still paying this debt in 1947.

They’re generally pro-union and anti-monopoly, and mention the Civil Rights movement positively as a movement toward inclusivity; an unexpected hero of the book is Brazil’s Luiz Inácio Lula da Silva, who helped build the coalition that ended the military dictatorship, and is now President. But they don’t even bother to defend their main thesis against, say, democratic socialism. They’re down on communism– OK, authoritarian communism is bad, but that’s not the same thing. They consider Britain as a hero of inclusivity… well, what about the horrible conditions of the coal mines in the 1930s, as reported by Orwell? They could answer that it was a consequence of the Depression, or that it was a scandal that extractive institutions persisted that long, but they don’t even address it. (Acemoglu was born in 1967 and sometimes it seems like his idea of the UK and US is formed by the 1970-2000 period.) If absolutist leaders are a plague, what about absolutist CEOs?

The book was written in 2012, so it doesn’t address Trump. But there isn’t any discussion of the Reagan/Thatcher move toward plutocracy, or the Republican campaign against electoral reform, regulation, health care, progressive taxation, and education for Blacks; not a word about productivity gains since 1980 going only to the 10%. In short, the return to plutocracy, which in their own terms is extractive. There’s a whiff of centrism and Anglosphere exceptionalism here– maybe they didn’t want to lose those blurbs from Niall Ferguson and Steven Levitt. (Both Acemoglu and Robinson have been vocally anti-Trump, and warned that the US could fail based on his retreat from inclusivity, democracy, and economic openness. Great, but these GOP tendencies weren’t unknown in 2012 and they just ignore that.)

The most interesting parts of the book are the in-depth discussions of various African and South American countries. Their treatment of China is however perfunctory. They take Mao as a disaster, for instance, which is superficial and arguably wrong. The 1950s were a huge advance for China: as they themselves recognize, China was an extractive mess which was unable to reform as Japan and South Korea had. The elite and foreign incursion had to be broken, and the Nationalists simply were not doing it. Mao did, and the country quickly modernized in the 1950s… largely because Mao left day-to-day rule to others. His Great Leap Forward and Cultural Revolution were disasters, but on the larger scale they were far less disruptive than Stalin’s disasters and Brezhnev’s stagnation. And though I broadly agree that political liberalization has to come, the Chinese are showing innovation in AI and renewables that isn’t simply “catching up”.

How does this interact with Diamond, Graeber, Jacobs, Ha-Joon Chang, Hernando de Soto, and Marx? To some extent you should just read them all and make your own synthesis. How nations develop need not be due to single factors.

Jacobs, for instance, ties differences in development to import substitution. This is not at all incompatible with A&R’s point of view; it’s good to note, however, that import substitution is not going to happen in a highly extractive society. The Japanese could do it because their merchant class already had a high degree of independence. In most of modern Africa, if anyone tried it, their profits and probably their businesses would be seized.

A&R disagree with Diamond’s explanations based on geography, pointing out that (say) Mexico and the southwest US, or North and South Korea, developed very differently despite having identical climates. But Diamond is not talking at that level; he’s addressing the question of where (say) agriculture should develop. A&R address this, tying it to sedentism, and suggesting that hunter-gatherers had to be “forced to settle down.” This is the weakest part of the book. James Scott should be required reading here: there’s no evidence that these early sedentary villages were tyrannical, and you just can’t order hunter-gatherers around like that. The transition took from wandering to sedentism to agriculture to civilization took literally 8,000 years. We can’t reconstruct all the stages, but there were undoubtedly many, and state coercion was one of the last steps, not the first.

A&R’s message is also fairly compatible with Hernando de Soto of Peru, who advocating for incorporating the bustling informal economy into the formal one, which was supposed to provide access to capital. Actual attempts to do so in Peru do not seem to have worked very well; as one scholar noted, “Titling must be followed by a series of politically challenging steps. Improving the efficiency of judicial systems, rewriting bankruptcy codes, restructuring financial market regulations, and similar reforms will involve much more difficult choices by policymakers.” De Soto doesn’t even appear in A&R’s index, which is a pity, since his approach is indeed to change institutions, and he had actual influence in Peru, but didn’t achieve the results he foresaw.

An alert reader pointed me to this very interesting critique of A&R. Some points I agree with– e.g. A&R seem incorrect about literacy in premodern Africa. But the critic doesn’t seem to have read very closely; e.g. he thinks that A&R only talk about Kongo and Somalia, but there are also extensive discussions of Sierra Leone, Ethiopia, South Africa, Egypt, Ghana, Nigeria, and Botswana. The critic talks about the king of Kongo mostly selling slaves acquired as war captives outside his territory, without seeming to realize that this is exactly what A&R say about African kings.

The article also complains that African “agency” is not respected and that premodern kingdoms were not as absolutist as A&R seem to say. This strikes me as enormously missing the point. Sub-Saharan Africa in general was oriented toward selling slaves (first to Arabs, then also to Europeans); it was unable to resist colonization; and it turned European extractive systems into native extractive systems. We can try to think better of those premodern states, just as we can try to find the good in the Aztecs: besides the slavery and cannibalism and self-mutilation, they were nice people. But whatever good we find wasn’t enough to stop those evils; and “agency” does not mean exoneration; it may also mean complicity.

A better critique might be that people reading A&R might just give up: if poor countries have bad institutions we can’t really change that, can we, and why should we try? A&R are not optimistic about foreign aid, much of which is wasted or appropriated by extractors; on the other hand, as they say, a lot of it saves people from dying and some help is better than none. Attempts by the US or IMF to change institutions have done little good, largely because extractive elites are not really interested in reducing corruption, respecting property, or inviting more people to share power.

A&R should be a lot clearer, I think, about how Western institutions have failed against neocolonialism. The West actually promoted or established many of those extractive local leaders, and threw them out if they attempted a more inclusive system (see my list of interventions!). The West has also been happy selling luxuries and weapons to dictators, or building expensive but misguided factories (see my Jacobs page). China is now getting into that game too, and competition is good, but I see no evidence that Chinese investments are more inclusive than Western.

Studies on development often tell us not so much what to do as what not to do. The positive note here is that A&R give us more arguments for democracy, egalitarianism, the rule of law, and empowerment of workers. It’s also more hopeful if bad outcomes are based on institutions rather than “culture”, because institutions can be changed. But quick fixes and even changes of regime generally are not enough.