Why Nations Fail: The Origins of Power, Prosperity, and Poverty
By Daron Acemoglu and James A. Robinson
Hasibul Hasan
Research Intern, Dacca Institute of Research and Analytics – daira
Why are some countries rich and democratic, and others poor and weak in politics? Economists Daron Acemoglu and James A. Robinson solve this question of ages in Why Nations Fail with a persuasive and convincing argument. Contrary to popular theories that geography, culture, or lack of intelligence cause underdevelopment, the authors argue that institutions, the rules and norms of societies, shape the fate of nations.
The book’s message in short is this: inclusive institutions, which offer citizens political voice, protect property rights, and allow businesses to compete, create the conditions for long-run economic growth. In contrast, extractive institutions—which concentrate power in the hands of an elite and limit opportunities for the masses—strangle countries. Institutions of this sort are not accidents of history; they are deliberately designed and maintained by elites that benefit.
A Tale of Two Nogales
To begin their argument, Acemoglu and Robinson bring up the case of Nogales—a binational city separated by the border of the U.S. and Mexico. On the north side, in Arizona, residents live longer, earn more, and have better schools and infrastructure. On the south side, in Sonora, citizens face worse public services, lower wages, and more crime takes place. Both share the same geography, culture, and even lineage. What’s the difference? Institutions. The United States constructed democratic and market institutions that encouraged growth. Mexico’s institutions have historically been weaker, more corrupt, and less inclusive.
This idea—that political and economic institutions shape development—runs throughout the book. The authors argue that inclusive political institutions, for example, regular elections, rule of law, and checks on executive power, are likely to produce inclusive economic institutions. These, in turn, allow people to invest, innovate, and improve their lives. When institutions are extractive, some privileged group captures political power and uses it to exploit economic resources. In these systems, most people lack motivation to work hard or be entrepreneurial because the motivation is taken by the elite.
Historical Case Studies
To support their theory, Acemoglu and Robinson cite a wide range of historical examples. The most important one is colonialism. In Latin America, the Spanish empire built extractive institutions designed to employ native populations to take out wealth and ship it back to Europe. Institutions like the encomienda, which employed native peoples to labor for the Spanish, failed to bring about investment in education, technology, or public goods. They created deep inequality and political tension, which currently shape the region.
British settlements in North America were unique. Without the power to dominate native populations due to the smaller indigenous populations and harsher climates, they had to tap European settlers with the promise of land, property rights, and self-rule. These institutional features comprised the foundation of future prosperity in Canada and the United States.
Another harsh example is the division of Korea after World War II. North and South Korea shared a history, language, and culture. Today, however, South Korea is a rich democracy, while North Korea is one of the poorest and most tyrannical regimes in the world. The difference is because of the political institutions adopted by each country. North Korea’s central dictatorship was wholly dominated economically, while South Korea moved toward democratic rule and free markets over time.
Acemoglu and Robinson also touch upon what they call “critical junctures”, moments when societies have to choose a new path. These are usually sparked by some great events like wars, pandemics, or revolutions. An example is the Black Death of the 14th century that wiped out an enormous portion of Europe’s population. In Western Europe, this labor shortage raised the bargaining power of peasants, reducing the grip of feudal lords and opening the door for more participatory institutions. But elites in Eastern Europe responded by further centralizing control over peasants, solidifying extractive institutions. The same shock had enormously different outcomes depending on the remaking of institutions.
Inclusive vs. Extractive Growth
One interesting point the authors make is that those countries with extractive institutions might actually experience a short-run economic growth, but are not sustainable. The Soviet Union is a classic example. Under Stalin, the USSR was growing rapidly through state planning and forced labor. But without innovation, private enterprise, or political freedom, the system eventually collapsed due to its own inefficiency. Analogously, the same can be argued regarding China, which has grown vast with one-party rule. The authors argue that unless China reformed political institutions to become more inclusive, it would stagnate in the future.
Conversely, the steadily rising countries are those with inclusive institutions. Take England, for example. During 1688, the Glorious Revolution limited the power of the monarchy and strengthened Parliament. That transformation allowed merchants and inventors to invest without fear of harassment and seizure at the whim of the ruling classes. Ultimately, these institutions encouraged the technological progress that propelled the Industrial Revolution.
The book also examines modern African nations, some of which inherited extractive colonial institutions. Instead of replacing them with inclusive institutions, post-colonial leaders had a tendency to maintain or continue them. Sierra Leone and Zimbabwe, for instance, have suffered from authoritarianism, corruption, and economic ruin. But Botswana is an isolated exception. Its leaders enshrined stable, democratic institutions after independence, respected property rights, and used natural resources wisely, leading to decades of consistent growth.
Aid and Development Policy
One of the more controversial of the book’s claims is that foreign aid will not work because it disregards institutional facts. Foreign governments and international organizations are too frequently aiming at technical solutions, like building schools, hospitals, or roads, without regard to the political institutions governing how the resources are distributed. Thus, aid can finance predatory regimes or be lost through corruption. Acemoglu and Robinson contend that without institutional change, even well-meaning development will be unsuccessful.
This evaluation is critical of most traditional development practices, emphasizing expertise, planning, or external guidance. Sustainable development, for the authors, cannot be dictated. It must result from internal political struggles that establish more inclusive institutions.
A Political Theory of Development
The core argument of Why Nations Fail is compelling and simple: nations prosper where leaders allow broad participation, fair rules, and accountability. They fail where authority is concentrated in the hands of a narrow elite and is protected from change. Critically, the brutality of these outcomes is not inevitable. Institutions are created and fought over by human beings. Elites would rather maintain in operation structures favorable to their own interests, even if this involves national collapse. Yet at key moments—through social movements, revolution, or reform movements—transformations are possible.
Although the book has been criticized for minimizing influences such as international trade, technological disruption, or cultural heritage, its value is its lucid message: politics counts. Development is not solely an economic policy or foreign aid issue—it is one of power and how it is wielded. This can explain why some nations ascend and others stagnate.
Conclusion
Overall, Why Nations Fail is a richly documented, well-researched, and readily comprehensible book that upsets the traditional wisdom regarding development. By placing institutions at the very center of the story, Acemoglu and Robinson offer a fresh and engaging explanation of the global inequality we see around us today. Whether one accepts all the particulars or not, the book offers a useful model for thinking about prosperity, poverty, and the political choices that bring them about.
To students, policymakers, and citizens everywhere, this book is a reminder that the sources of wealth and poverty are not ordained by nature or fate—they are made by people. And they can be changed.