The Nobel Prize in Economic Sciences for 2024 was recently awarded to Simon Johnson, James A. Robinson, and Daron Acemoglu “for studies of how institutions are formed and affect prosperity.”
The laureates’ model for explaining the circumstances under which political institutions are formed and changed has three components. The first is a conflict over how resources are allocated and who holds decision-making power in a society (the elite or the masses). The second is that the masses sometimes have the opportunity to exercise power by mobilising and threatening the ruling elite; power in a society is thus more than the power to make decisions. The third is the commitment problem, which means that the only alternative is for the elite to hand over decision-making power to the populace.
According to Jostein Hauge, an economist at the University of Cambridge, the work by winners of the Nobel Prize in economics has been challenged by scholars like Yuen Yuen Ang, Mushtaq Khan, and Ha-Joon Chang.
Yuen, a political scientist from John Hopkins who did her PhD in political science at Stanford, congratulated the Nobel prize winners but noted that she didn’t agree with their idealised portrayal of institutions in Western development because “it is historically inaccurate, if not ideologised. Thus, not only do they struggle to explain China, they also can't explain why Western economies like the US prospered despite being as corrupt as China is today.”
According to Dr Mushtaq Khan at the University of London, who studied economics at Oxford and Cambridge, recent attempts to present settler colonies as examples of transitions driven by stable property rights and limited government are historical misrepresentations. Dr Khan maintains that “transitions in all countries required significant non-market activities by states and what is more, the degree of violence and injustice was significantly greater in the settler colonies.”
"Why Nations Fail: The Origins of Power, Prosperity, and Poverty" by Daron Acemoglu and James Robinson is a widely influential book that presents a theory about the roots of economic success and failure. Their central thesis is that political and economic institutions are the primary drivers of national prosperity. They argue that nations thrive when they develop inclusive institutions that allow broad participation and opportunity for the population, while nations fail when they are dominated by extractive institutions, which benefit a narrow elite at the expense of the wider population.
This sweeping narrative has sparked significant debate in academic and policy circles. While the book is celebrated for its ambition and clarity, it has also drawn substantial criticism from various scholars. Among them, critics like Yuen Yuen Ang and Jared Diamond have offered nuanced critiques of the book's theoretical framework, empirical analysis, and policy implications.
One of the book's key insights is that political power is essential to understanding economic performance. This perspective contrasts with purely economic explanations (e.g., geography or culture) and brings attention to how power is distributed and maintained
Strengths of the book
- Clear and coherent framework: Acemoglu and Robinson provide a clear and intuitive framework to explain why some nations prosper while others languish in poverty. By focusing on institutions, the authors bring attention to the political dynamics that shape economic performance. Their distinction between inclusive and extractive institutions is compelling because it offers a simple way to understand the divergence between prosperous and impoverished nations.
- The book makes extensive use of historical case studies to support its arguments. Examples range from the Glorious Revolution in England to the decline of the Roman Empire, to the success of South Korea and the stagnation of North Korea. These stories help to illustrate the long-term effects of institutions on economic development, making the book engaging for both scholars and general readers.
- One of the book's key insights is that political power is essential to understanding economic performance. This perspective contrasts with purely economic explanations (e.g., geography or culture) and brings attention to how power is distributed and maintained. By emphasising the role of political actors and institutions, the authors underscore the complex relationship between politics and economics in shaping outcomes.
Key criticisms
Reductionism and institutional determinism
Critics like Yuen Yuen Ang have argued that Acemoglu and Robinson's framework is overly deterministic, reducing the complex process of development to a single factor: the quality of institutions. According to Ang, the book presents an "institutional monotheism" that overlooks how various other factors—such as culture, geography, history, and international relations—interact to shape a country’s development path.
In her work "How China Escaped the Poverty Trap", Ang contends that development is more of a co-evolutionary process. She emphasises that institutions do not emerge in a vacuum but rather co-evolve with markets and societies. Ang’s work points out that countries like China have developed through what she calls “directed improvisation,” where institutions are not initially inclusive or fully developed but evolve over time to become more effective. China’s remarkable economic growth, despite having ostensibly “extractive” institutions, challenges the rigid institutional framework that Acemoglu and Robinson present.
Neglect of gradual institutional change
Acemoglu and Robinson emphasise sharp, revolutionary changes in institutions as necessary for development. However, critics argue that they underappreciate the role of gradual, incremental change. Many successful nations, including those in Europe, did not shift from extractive to inclusive institutions overnight. Instead, change was often slow and incremental, with political compromises along the way. This linear and binary model fails to capture the nuanced ways in which institutions can evolve in a non-linear fashion, with periods of both progress and regression.
Critics argue that culture can play a significant role in shaping institutions themselves. For example, trust, social capital, and norms of cooperation can influence the effectiveness of institutions, which is something the book glosses over
Yuen Yuen Ang's critique of China is particularly illustrative here. She argues that the Chinese Communist Party initially embraced extractive policies but gradually adapted and allowed economic experimentation, which led to remarkable growth. China’s case presents a paradox to Acemoglu and Robinson’s theory: a nation with ostensibly extractive institutions can still achieve rapid economic growth under certain conditions.
Overemphasis on institutions, underappreciation of geography and culture
Other critics, including Jared Diamond (author of Guns, Germs, and Steel), argue that Acemoglu and Robinson neglect the role of geography in shaping national success. Diamond suggests that factors such as access to trade routes, natural resources, and climate are important determinants of economic success, particularly in earlier stages of development. While Acemoglu and Robinson acknowledge geography as a factor, they argue that institutions are far more important in determining long-term success, a view that many find overly simplistic.
Cultural factors are also largely dismissed by Acemoglu and Robinson. Yet, critics argue that culture can play a significant role in shaping institutions themselves. For example, trust, social capital, and norms of cooperation can influence the effectiveness of institutions, which is something the book glosses over. Ang, in her critique, also points out that different cultural contexts can lead to varied institutional trajectories and outcomes, emphasising that there is no one-size-fits-all institutional model.
Simplistic policy implications
The policy implications derived from Why Nations Fail are often critiqued for being too simplistic. The authors advocate for promoting inclusive institutions as the key to development, but they offer little concrete guidance on how to achieve this transformation. The book does not delve deeply into the political and economic constraints that countries face in reforming institutions, especially in authoritarian contexts. Critics argue that transforming institutions is far more complex and requires consideration of local context, historical legacies, and geopolitical realities.
Additionally, Ang and others have pointed out that some countries, like China or Singapore, have developed under non-democratic regimes, which challenge the notion that inclusiveness is always a prerequisite for economic success. This makes the authors’ policy recommendations appear more tailored for democratic, Western contexts, rather than offering a universal framework for global development.
Methodological concerns
The historical cases used in Why Nations Fail are illustrative, but some critics feel they are selectively chosen to fit the theory, rather than offering a comprehensive or balanced look at history. For example, while South Korea’s rise is used as an example of the power of inclusive institutions, the country’s early economic development occurred under a military dictatorship. This selective use of examples raises concerns about confirmation bias in their analysis.
Furthermore, critics argue that the book does not provide enough quantitative evidence to back up its sweeping claims. While historical anecdotes are powerful, they do not always constitute rigorous empirical support for the theory. As such, some scholars feel that the authors could have strengthened their argument by engaging more with quantitative methods and broader datasets.
Book's clear framework, engaging historical analysis, and focus on political economy have made it a touchstone for understanding global inequality. However, the book’s critics raise important points about the limits of institutional determinism
Alternative explanation
Jason Hickel, a Spanish anthropologist and a senior fellow at the London School of Economics, has argued that the European settler colonies achieved faster economic development not because they had "better institutions", but because they were actively supported by the states of the imperial core, and purposefully integrated into that core for geopolitical and commercial reasons, which financed their industrialisation with surplus appropriated from the rest of the colonial periphery.
Furthermore, they were allowed to use state-led industrial policy and protectionism, which was actively denied to the other colonies and post-colonies. In the post-colonial period, they were never subjected to Western-backed coups, military interventions, sanctions, or destabilisation campaigns.
And, crucially, they were never subjected to the structural adjustment programmes that were imposed across the rest of the periphery, which dismantled public investment and public services, crushed public research and development initiatives, forcibly deregulated economies, destroyed industrial policy, induced prolonged recessions, and - as Ha-Joon Chang put it - kicked away the ladder to development. Hickel’s powerful critique deserves more attention, especially among those who simplistically believe that importing Western institutions, like Westminster democracy, offers a panacea for development.
Conclusion
"Why Nations Fail" is an ambitious and influential work that has shaped much of the current discourse on development economics and political institutions. Its clear framework, engaging historical analysis, and focus on political economy have made it a touchstone for understanding global inequality. However, the book’s critics raise important points about the limits of institutional determinism and the need for more nuanced, multi-factor explanations of development.
While Acemoglu and Robinson’s focus on institutions is valuable, it is arguably too simplistic to capture the full complexity of why nations succeed or fail. Their underemphasis on factors such as geography, culture, and gradual institutional change limits the explanatory power of their framework. Moreover, their theory struggles to account for outliers like China, which has achieved remarkable economic growth without fully inclusive institutions.
In the end, Why Nations Fail offers a compelling but incomplete explanation of global inequality. It provides a useful framework for thinking about the importance of institutions, but it should be complemented with insights from other fields and scholars to fully understand the multifaceted nature of development.