Book notes - Why Nations Fail

“Why (and how) did previous democracies fail?” — This is an intriguing question. The Roman empire is a classic example in this category. I always thought disruptive technologies & movements [The Innovator’s Dilemma by Clayton M. Christensen] end up causing such failures in most cases. This book takes a different view on this while still recognizing the role of the disruptive phenomenas, referred as “critical junctures” and “creative destruction” in the book.

Inclusive political and economic institutions lead to sustained economic growth (this is the underlying thesis of the book). On the other hand, extractive governments (those that serve only few people at the top) often fail. Critical junctures like industrial revolution & black death either help or hurt the countries enormously depending on whether the institutions are inclusive or extractive.

What I like the most about this book is the variety of examples taken from all over the world — from the Mediterranean Natufian culture from 10,000 BC to the modern countries like Egypt and Brazil.

Here’s a very small list of examples explored in the book:

• Spanish colonialism vs English colonialism — how and why they were different. The authors observe that the Spanish colonies were extremely extractive governments. England wanted to replicate the same in their own American colonies — but, they could not find gold/silver nor could they use the local populace as labor. After several years of failed attempts to extract resources and labor from the locals, they had to incentivize the colonists (immigrants from England and other parts of the Europe) to work. This ended up creating “relatively” inclusive institutions. It consequently ends up creating huge differences in Latin American countries like Peru, Bolivia and Mexico vs US.
• The effect of Black Death (1346–1353) in England and Western European countries vs Eastern European countries.
• Soviet Union, an extractive state, achieved significant economic growth initially by displacing people from agriculture to industries. However, growth stalled after a certain economic parity was achieved with the rest of the developed world. They had to create specific incentives to keep increasing economic output — but people would soon learn how to game the incentives and most incentives became irrelevant quickly. To me, this seems like a classic shortcoming of oppressive regimes.
• The rise and fall of Maya city-states: Mayans, like Soviets and others, achieved initial growth through centralized institutions. However, the extractive nature of the society might have been a key ingredient leading to in-fighting among elites and civil wars.
• The rise of Venice, Italy (9th to 12th century) as a prominent trading hub seems to have been fueled by its unique and inclusive trading contracts which offered a path for ordinary families to move up the social hierarchy. The book argues the subsequent long decline is mainly a result of elites blocking the way for more ordinary citizens to become elites.
• The story of Rome, Italy is a similar one. There is some evidence of increased sea trading activity over the course of the Republic (510 BC — 49 BC) and the same decreases over time during the Empire (49 BC — 476 AD).