Why Nations Fail according to Daron Acemoglu
In 2012 Daron Acemoglu and James Robinson (AR) published a book titled Why Nations Fail. A large number of persons and organisations are recommending this book, among them 6 Nobel Laureates. The cover says that the book is shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award. Acemoglu is one of the honorary doctors of the Utrecht University School of Economics. Reason enough to look at the book carefully.
The main thesis of the text says that institutions are critical to the wealth of a nation, and that geography, culture and expert advice are not. On the basis of an overwhelming amount of historical cases the authors claim that an extractive political institutional framework is the principal barrier for nations, which suffer from poverty for a long time. Institutions are extractive if the economic and political elite collude and use their power to extract as many resources from the nation as possible for their own objectives.
There are no clear empirical indicators of the degree of extraction. But the book considers formal democracy with regular elections as a main characteristic of an inclusive political institutional framework. Thus the lack of political democracy is an indication of extraction. Unfortunately AR do not carefully define the concept of institution. Sometimes it is a legal rule; in other cases it is a set of practices or a strategy. The same holds for the concept of economic performance. The book is about inequality between nations, and takes the GDP per capita as the empirical indicator of economic success. But what if this indicator shows a high figure, together with high poverty and inequality, such as is the case in the USA? The book does not offer a theoretical analysis, which defines and interrelates the main concepts. This failure means that it is impossible to search for empirical indicators, since it is unclear what they should indicate.
Another disappointment is the lack of a serious account of alternative approaches. The book mentions three: the geography factor (1), the culture factor (2), and the ignorance thesis (3). The concept of geography is not defined; it seems equivalent with the presence of natural resources or raw materials. The presence, however, depends on the state of technology and the culture prevailing. So also here we need an analysis – not a few practical examples why geography should not matter. To illustrate the irrelevance of geography AR mention a town along the border that separates the USA from Mexico. One part of Nogales belongs to Mexico, while another part belongs to the USA. In terms of GDP per capita we see a significant difference: the American part is much richer than the Mexican part, while the geographical circumstances are the same. That also geography matters can be illustrated easily. Imagine a region with some vegetation. Herds and settlers get a living from it. Because of climatic changes the vegetation becomes increasingly scarce. The healthier part of the people is able to migrate to more fertile areas; the more immobile people stay and become poorer – why? Also because of the geography factor! Kenia is a good example in this case.
When discussing culture as a determinant of wealth the same problems are at stake. A bad definition of the concept of culture makes their argument flawed already. AR refer to some characteristics, such as food, drinks and religious rituals. But this is not culture in the scientific sense of the word. Alas, the book ignores sociological theory completely. When rejecting the Protestant Ethics thesis of Max Weber, AR show that they have no clue of what is meant by Protestantism. Moreover, they talk about the European culture as a candidate for the explanation of the difference in economic performance between North America and Latin America. Both areas are characterised or at least highly influenced by the European culture; nevertheless a significant difference. A sophisticated conceptualisation and empirical measurement of culture should AR have learned that there is a huge cultural difference between North Europe and ‘Latin’ When we apply this result to the economic differences between North and South in America, we get a great correlation between culture and economic performance, measured in the AR-way.
The same problem can be detected by the rejection of the ignorance thesis. When a neo-classically educated economist advices a bloody dictator, his problem is the lack of an adequate analysis of the situation. There is no dictator in his model, and the primary human motivations are not specified. So, actually the adviser is ignorant! It is impossible to advice with respect to the policies that must be implemented, if the adviser are unaware of what should be controlled. Bad advice is ineffective by definition, but an advice based on a realistic analysis of the situation, and given to the right persons, is always effective.
To promote a thesis by discussing alternative views in an inappropriate way is an unacceptable strategy. By not discussing carefully the knowledge structures that are competing with each other on the market of ideas and policy advices, and by not even explicitly presenting the own knowledge structure, the result cannot be accepted in the academic world. Every scientist should be honest and clarify the own preconceptions. This makes his work vulnerable for critique – but that is science!! This book does not offer any paradigm and analysis. It ignores psychology and sociology completely, making the economic part unrealistic. Especially for multidisciplinary economists, the results of the book are disappointing.
A last problem to be discussed in this short note is the following. Why do so many prominent economists, so many media and commercial organisations praise this book so much? The book is well-written and contains many interesting cases. It might be the smell of individual economic freedom and the focus on private property rights that sounds so attractive for many right-wingers. But then they should stick to Friedman’s book Free to Choose (1980). The AR-approach seems different, and it might even defend European Welfare state- like constructions as typical inclusive economic institutions. An analysis of Northern Continental Europe is missing, however.. Given the fact that many nations of this area are among the highest ranked in the Human Development Index this is a huge omission.
The authors are full professors from Harvard and MIT. The book is based on many articles published in so-called A-journals. It is shocking to see that status is not a guarantee for quality. This case is a striking illustration of the fact that economics as a science is in big trouble.
Piet Keizer
Associate Professor Economic Methodology
Utrecht University School of Economics
06-02-2014.
Pietkeizer.com 