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The causes of prosperity
Book review: Why Nations FailIf you are at all interested in international development, 'Why Nations Fail' is for you. Matthew Partridge reports.
By Daron Acemoglu and James A RobinsonPublished by Profile Books
This Goldman Sachs Business Book of the Year Award winner has just been released in paperback. "If you are interested in development, you should read it. I picked it up the week it was published and could not put it down", says the World Bank's Sina Odugembi.
The authors argue that private property ownership and economic freedom bring prosperity to the largest number of people. As Barron's Walter Block notes, the book attacks "the evils of serfdom, guilds, monopoly, Luddites, entry restrictions, government marketing boards, autarky, corn laws and Apartheid". For that alone, you "feel like giving [the authors] three cheers plus a standing ovation".
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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However, the authors then suggest that "political freedom is a precursor of economic freedom". Yet, as Block points out, many countries have delivered economic growth without having democracy first. "The clearest counter examples are furnished by Hong Kong, Singapore, China and South Korea."
Much of "the theoretical and empirical work on democracy" suggests that political liberty can happily coexist with corruption. Overall, it's for the failure to win this second set of arguments that this book gets only "two cheers".
Jeffrey Sachs, writing in Foreign Affairs, agrees. Some dictators may have stifled change to protect their own self-interest, but others "have acted as agents of deep economic reforms, often because international threats forced their hands".
Even if greater political freedom produces innovation, it may not also drive the importation of technology the other key way poorer countries can catch up with their richer counterparts. Indeed, "authoritarian political institutions, such as China's, can sometimes speed, rather than impede, technological inflows".
"There is no doubt that good institutions are important in determining a country's wealth," notes Jared Diamond in The New York Review of Books. But the book fails to explain "why some countries ended up with good institutions, while others haven't". This matters: "one can't just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history".
The book misses a key theme too that success in farming "was the prerequisite for the rise of governments". And that in turn was determined by climate. In short, geography trumps both politics and economics in development terms. Whether you agree or not, though, this is an "erudite and fascinating" book, says Paul Collier in The Observer.
Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A Robinson. Published by Profile Books (£9.99).
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