Thursday, March 22, 2012

Why Nations Fail

From the New York Times Magazine, a piece on a book by two economists, Daron Acemoglu and James Robinson
According to Acemoglu’s thesis, when a nation’s institutions prevent the poor from profiting from their work, no amount of disease eradication, good economic advice or foreign aid seems to help. I observed this firsthand when I visited a group of Haitian mango farmers a few years ago. Each farmer had no more than one or two mango trees, even though their land lay along a river that could irrigate their fields and support hundreds of trees. So why didn’t they install irrigation pipes? …. But these farmers also knew that nobody in their village had clear title to the land they farmed. If they suddenly grew a few hundred mango trees, it was likely that a well-connected member of the elite would show up and claim their land and its spoils. What was the point?

If national institutions give even their poorest and least educated citizens some shot at improving their own lives — through property rights, a reliable judicial system or access to markets — those citizens will do what it takes to make themselves and their country richer.
Read the whole thing--it is worth the time.

The book that prompted the article is Why Nations Fail: The Origins of Power, Prosperity, and Poverty.

The book seems to agree with Hernando de Soto, who made a similar argument about economic development in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. I suspect that their arguments about economic decline share a lot with Mancur Olson's The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities.

(Also on the topic of property rights, I see a lot of buzz for the movie The Lorax. I doubt if more than one person in a thousand who reads the original book or watches the movie will think, "The problems here is poorly defined property-rights. If someone owned the trees, that person would speak for the trees." To understand the problem, one must know a bit about economics, a type of knowledge that is rare.)

Update: William Easterly reviews the book for the Wall Street Journal here.

 Update 2: Francis Fukuyama eviews it here He likes it, but has reservations. A couple quotes:
If growth is a byproduct not just of good policies like trade liberalization, which can in theory be turned on like a light switch, but rather of basic institutions, then the prospects of foreign aid look dim. ... Bad institutions exist because it is in the interests of powerful political forces within the poor country itself to keep things this way.