Why Nations Fail is the title of the lavishly praised recent book by two academics: Daron Acemoglu (MIT) and James Robinson (Harvard). It is impressive if only on account of its range, ambition and incredibly rich historical examples. Its topic, the subject of many inquiries on political economy, it is also the kind that sells books — especially when it comes with a presumptuous title.
Among others, not too long ago, Jared Diamond made a small fortune with his Guns, Germs and Steel, despite the gross charlatanism. As to why some countries are rich and some are poor, Diamond’s answer was geography. His arguments were ingenious but wrong. On the other hand, Acemoglu and Robinson argue that the answer is politics or, rather, the presence of political institutions, that is (in their view), property rights, economic freedom, equality before the law, the sanctity of contracts and so forth. They argue that the free markets are insufficient on their own to make a difference. If an economy is to prosper, they suggest, governments are the only ones who can and must supply such institutional advantages.
Sadly, the authors’ enormous and ambitious undertaking ends up with answers that confuse cause and effect — an elementary but common intellectual trap. Political correctness avoids a crucial and necessary component in the understanding of economic development: inequality. Not only are we born unequal in every respect but we do tend to labor with unequal effort, objectives and time preference. We seek to alleviate the gap in wealth that separates rich and poor without the understanding that such division is a historic and long-standing problem.
In the pursuit of wealth, failure or success are ultimately determined from within, not imposed from outside.
So writes David S. Landes, a Harvard historian whose striking and iconoclastic 1998 magnum opus The Wealth and Poverty of Nations remains my favorite on the subject.
If we learn anything from the history of economic development, it is that while many have become rich over time, the security and permanence of wealth in a society is a function of the appropriate cultural traits.
Reviewing the book for the New York Times in 1998, Andrew Porter summarizes Landes’s thesis on prosperity as
the product of a society that had developed a sense of national cohesion; a capacity to compete; a respect for, and a concern to impart, empirical and technical knowledge; and a preference for advancement by merit or competence.
Such a society’s members
had the ability not just to acquire but to use money, they respected honesty, and their institutions provided security both for property and for enjoyment of the rewards of labor or enterprise.
That is, as he argues, government is the result of a culture and not the source of its traits.
To gain a meaningful understanding of the political and economic issues that dominate the news, whether in Greece, Spain, Germany, Europe in general or, by inference and reflection, even the United States, one ought to start with political economy and history. Only as a start, we have two recommendations:
- David S. Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (W. W. Norton & Co, 1999). It is in stock at Amazon.com.
- Erik von Kuehnelt-Leddihn, The Intelligent American’s Guide to Europe (Arlington House, 1979). Unfortunately, this book is out of print and difficult to find.
This article was previously published in Edelweiss Journal, Issue 7 (26 June 2012)