Why Nations Fail: The Origins of Power, Prosperity, and Poverty

Why Nations Fail: The Origins of Power, Prosperity, and Poverty (ISBN: 9780307719225) was written by Daron Acemoglu and James A. Robinson in 2012.

Case Studies

Most of the book is fundamentally case studies to which the authors apply their thesis. I believe it is helpful to describe these case studies first.

Comparison of Nogales on either side of the US-Mexico border. The region was settled by New Spain and split by the Gadsden Purchase. There are now substantial differences in income, life expectency, etc., between the portion in Arizona and the portion in Sonora.

This bleeds into a bigger picture comparison of the US and Mexico. There are many parallels in their post-colonization history:

• declarations of independence from colonial powers around the same time
• presidential political systems with expansive executive power
  • also a recurring theme of military officers taking the presidency
• incidence of civil wars
• large scale exploitation of native populations

The first discrepancy lies in reasons for declaring independence.

• The 13 colonies rebelled over a number of grievances with English Parliamentary control.
• New Spain rebelled as monarchists.

  • The Cortes, which were established following the abdication of Ferdinand VII to Napoleon, promulgated the Cádiz Constitution which effectively constitutionalized the Spanish monarchy.

  • This was controversial in the colonies, where a landed aristocracy remained. Local politics were also characterized by the recent experience of the Hidalgo Revolt.

  • When Ferdinand was restored in 1815, he attempted to revert the constitution, but a mutiny instead enforced it. This led to the declarations of independence across the colonies.

The second discrepancy lies in how the civil war proceeded.

• The US civil war came from the rupture of a tenuous balance struck by the US constitution (and three fifths compromise), the Missouri Compromise, etc. There was security before and after. Furthermore, the war was short and decisive.
• The Mexican civil war was a protracted era of political turnover.

The third discrepancy lies in the development of financial sectors.

• "[I]n 1818 there were 338 banks in operation in the United States" (p33). "[B]y 1914 there were 27,864 banks" (p33).
• "[I]n 1910, the year in which the Mexican Revolution started, there were only forty-two banks in Mexico, and two of these controlled 60 percent of total banking assets." (p34).

TODO continue here

Washington, Grant, and Eisenhower were all victorious generals and gained the presidency, but did not use militarism to do so. All still subject to reelection. Iterbide, Santa Ana, and Díaz used military force to hold power. A government that is subject to elections cannot sustainably restrict economic freedoms (i.e. establish monopolies, restrict access to finance).

In the US, exploitation of native populations was largely to the profit of people willing to live in the "frontier". (Land Ordinance of 1785, Homestead Act of 1862, etc.) In Mexico, it was to the profit of Díaz and his selectorate. Specific mention of the deportation of Yaqui from Sonora.

Comparison of Calca and Acomayo. Only significant historic difference between the two is that the former was outside the Potosí catchment, while Acomayo was not.

• The Spanish colonization strategy, "perfected by Cortés in Mexico" (p11), was to capture leaders, demand tribute, and assimilating the existing coercive institutions (i.e. taxes, tributaries, and forced labor).

• Then establishment of encomienda, borrowed from the reconquista.

  • Quoting Bartolomelé de las Casas, A Short Account of the Destruction of the Indies: "Each of the settlers took up residence in the town allotted to him (or encommended to him, as the legal phrase has it), put the inhabitants to work for him, stole their already scarce foodstuffs for himself and took over the lands owned and worked by the natives and on which they traditionally grew their own produce." (pp13-14).

• Francisco de Toledo established reducciones, effectively concentration camps, to bring labor to newly discovered silver mines, e.g. in Potosí. He also assimilated the Incan mita institution, a system of forced plantation labor for collectivized agriculture to sustain other state projects, and vastly expanded its catchment area. Lastly, he established the repartimiento de mercancias, a system of price controls, and trajin, a replacement of pack animals with human labor for transportation of goods.

Comparison of North and South Korea, and more generally a case study of South Korea.

Korea was remarkably homogeneous until liberation from occupation, and now there is a massive disparity on either side of the 38th parallel. The boundary was completely arbitrary and ultimately was the subject to military adjudication. Furthermore, there are durable societal similarities, i.e. mandatory military service.

South Korea was not an inclusive political system under Rhee and Park, but did enforce property rights. Furthermore, Park's regime was secure enough to afford economic freedoms that led to an inclusive economy.

Il-Sung meanwhile outlawed private property and led a command economy, the Juche system.

South Korea is counted among the most successful economies of the world. In North Korea, famine is common.

Case study of Somalia. There is no central state of substance. Historically, political power has been distributed across six clans:

• Dir
• Darod
• Isaq
• Hawiye
• Digil
• Rahanweyn

Most contracts and laws revolved around diya, or compensations for murder or injury. These semi-legal codes are called heer. Subgroups of clans ("diya-paying groups") form around a particular heer, which not only was enforceable internally but set expectations for inter-group interactions. If an individual refused to pay diya, the victim's group had basis to retaliate against the accused's group.

Bad Case Studies

In addition, there are several case studies that I think are poorly done.

Comparison of Buenos Aires and Asuncion.

• Buenos Aires was established by Pedro de Mendoza in 1534. The colony could neither coexist nor conquer the local Charrúas and Querandí.
• Neustra Señora de Santa Maria de la Asunción was established by Juan de Ayolas in 1537. The colony quickly assimilated the coercive institutions of the Guaraní and subjugated the people.
• Spaniards abandoned the former for the latter. Buenos Aires was not resettled until 1580.

The problem with this comparison is that the success/failure of a military campaign is not a measure of development.

Comparison of UK and US patent systems. The English economy was dominated by royal monopolies. Meanwhile in US: "Between 1820 and 1845, only 19 percent of patentees in the United States had parents who were professionals or were from recognizable major landowning families." (p33).

The problems with this comparison are two-fold:

1. Patent systems are inherently an extractive political institution, so why are they treated as an inclusive one by the authors here?
2. Patent submissions reflect a decision, not an invention. There are famous case studies of the misuse of patent systems, as between Tesla and Edison. There are also modern case studies, i.e. patent trolling. The frequency of patent submissions is not a measure of innovation, but rather a measure of the utility/value of a patent.

Comparison of Bill Gates and Carlos Slim. The former innovated, won in a competitive marketplace, and still was subject to checks and regulations by Congress. The latter bought out privatized state enterprises and ran monopolies. Found to be monopoly but successfully employed legal defense of recurso de amparo.

The problem is simply that I am uncomfortable extrapolating caricatures of entire nations from two individuals' abbreviated life stories.

Case study of Jamestown, established by the Virginia Company.

• The company initially directed the colonists to subjugate the local Powhatan Confederacy, led by Wahunsunacock. This only accomplished the colony being embargoed.

• The company then directed the settlers themselves to be worked exploitatively, per the Lawes Divine, Morall and Martiall. This ran against the reality that settlers could easily run away from the colony.

• In 1618 the labor contracts were cancelled and settlers were allotted land. In the next year, they were also granted self governance.

The problem with this case study is that the initial Jamestown colony consisted of just over 100 people. There is no way to make an institutional argument out of such a small society, especially since it was (as noted above) embargoed.

Case study of early colonization in Australia, especially the Squattors. The lack of established/landed interests enabled incentives for innovation, investment, and productivity.

The problem with this case study is that too much of the book is devoted to investigating how weak states depress development because they cannot guarantee security and property rights. Australia certainly didn't provide those... again, Squattors'. If there's an implication to salvage, it's that the difference between most weak states and the early Australian colony is that colonists had sufficient technological advantages to self-guarantee security and property rights against Aboriginals, and that the presence of Aboriginals whom could be cheaply threatened and stolen from discouraged colonists from doing so to each other. Setting aside ethics... these are plainly not durable nor repeatable conditions. This is not a meaningful case study. Also, there's an epistemological problem. The claim that Australia saw rapid development during early colonization is rooted in the assumption that there was a baseline of zero development beforehand. Of course moving from zero to nonzero is rapid development. And it's fundamentally flawed to characterize the area as having zero development beforehand; it just wasn't developed in the way that colonists aimed to.

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