Hey there reader, I hope you’re doing great. I started a new book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson.
The authors begin by highlighting differences between impoverished border towns in North America. Two key differences in the quality of life and life expectancy between Nogales, AZ, and Nogales, Sonora, other than the obvious political boundaries: access to healthcare and high-quality sanitary conditions. The authors also emphasize the difference between extractive institutions and inclusive institutions.
- Inclusive institutions provide incentives to innovation, enforce property rights and contracts.
- Extractive institutions hinder growth, economic development, provide little incentive for innovation and have insecure property rights.
- Nations fail when leaders use extractive institutions to enrich themselves: leaders resist change, creative destruction, and block innovation.
- Extractive institutions create poverty while inclusive institutions create prosperity.
- Before nations fail, they go through a process of institutional drift, infighting and instability ensue and reach critical junctures where institutions must change for the better or risk becoming obsolete.
- Economic reform leads to political reform, political reform leads to economic reform.
The authors highlighted the differences between the Spanish silver mining in South America and the English plantations in North America. When the English failed to enslave the natives of Virginia as the Spanish did in South America, they resorted to agriculture and enslaved Africans instead. Per capita taxes induced unemployed workers to join the labor force in Spanish-South America. This kept wages low, that is until full employment was reached. The Spanish extracted wealth in South America differently than the English in North America. The Spanish used a more elaborate labor, price fixing, and subsistence system while the English used property rights, contracts, indentured servitude, and slavery. Western societies have lead with inclusive institutions while much of the East has lagged behind.
The authors also touched on key differences between developmental economic theories from Jeffrey Sachs and Jared Diamond. The authors used critical theory to describe how institutions shape economies, societies, and everyday life throughout history. I love this book. I’ll update this post as I continue to read it.