Extractive practices often redirect resources to activities that are productive in the short term, but this stifles innovation and doesn’t lead to sustainable long-term growth. The merchants were therefore able to gain political power and eventually build inclusive institutions during the Glorious Revolution.Īcemoglu and Robinson go on to examine economic growth under extractive conditions. The same principle applies to inclusive institutions: for example, England’s monarchy was weaker than France and Spain’s in the 1600s, so it put private merchants in charge of overseas commerce instead of giving a monopoly to the Crown. In the East, though, landlords grew stronger and serfs became even weaker, ultimately reinforcing the feudal system. But after the Black Death, this difference was amplified: serfs won reforms in the West and thus weakened the feudal system. For instance, in medieval Europe, feudal landlords had slightly more power over their serfs in Eastern Europe than they did in Western Europe. During these critical junctures, societies that are similar to one another sometimes go down radically different paths. While most societies throughout history have had extractive institutions, some have formed inclusive institutions during periods of transition (or critical junctures). Next, the authors ask where inclusive and extractive institutions come from. Extractive institutions can experience a certain amount of financial success, but this success is severely limited and unsustainable, as made evident by the decline of the Soviet Union.
This means that a country has to adopt inclusive practices in order to achieve meaningful economic growth. The authors point out that political institutions create economic ones, so true economic change starts with political change. Institutions are the real problem, along with the incentives they create. And while other social scientists blame poverty on leaders’ ignorant policy decisions, the authors note that leaders aren’t ignorant: politicians know when they’ll benefit from policies that harm people. In contrast, Mexico’s economy is still highly extractive and centered around the elite, which has prevented innovation and economic growth.Īcemoglu and Robinson go on to point out that geography and cultural customs can’t explain global inequality. to build stable and democratic institutions, which eventually helped the country harness the Industrial Revolution and grow rapidly from the 19th century onwards. was actually a remarkably inclusive society for its time. Although it also came to depend on slavery and was by no means democratic, Acemoglu and Robinson argue that the colonial U.S. To build a viable colony, then, the government had to give English settlers political power and rights. In contrast, the earliest English settlers in Virginia had to farm their own land to survive. Colonial Latin America ran on the encomienda system, a system of indigenous slave labor that was massively profitable for Spanish settlers but destructive to local communities. Political history accounts for this disparity. side have a much higher standard of living and more economic opportunities than those on the Mexican side. While both halves of Nogales share the same culture, history, and geography, people on the U.S. In the first chapter, Acemoglu and Robinson focus on Nogales, a city that exemplifies modern inequality because it’s split by the U.S.-Mexico border. Based on their analysis, Acemoglu and Robinson argue that replacing extractive institutions with inclusive ones is the key to achieving economic progress in the developing world-and overcoming global inequality. In turn, this drives innovation and investment, leading to sustainable economic growth. Such institutions secure political representation and economic freedom for a wide range of the population. In contrast, rich countries have achieved sustainable economic growth by building inclusive political and economic institutions. They argue that most of the world’s countries are poor because their political and economic institutions are extractive, which means they’re designed to benefit the small elite that holds power. While most social scientists blame this inequality on geography, culture, or incompetent leadership, Acemoglu and Robinson think the problem is political.
Robinson argue that institutional differences are responsible for the profound inequalities between nations today. In Why Nations Fail, economists Daron Acemoglu and James A.
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