Group 3

WHY NATIONS FAIL:

The origins of power, prosperity
and poverty
Daron Acemoglu, James A. Robinson
Table of contents
01 So close and yet so

04
different Small differences and
critical junctures: The

02
weight of history
Theories that
don't work

05
I’ve Seen the Future, and It

03
The making of Works”: Growth Under
Prosperity and Extractive Institutions
Poverty
 Daron Acemoglu (1967)
Ph.D. from the London School of Economics
in 1992
Currently a professor of economics at the
Massachusetts Institute of Technology (MIT)
Research related to economic growth,
political economy, and institutions

James A. Robinson (1960)

Ph.D. from Yale University in 1992
Currently a University Professor at the
Why Nations Fail
University of Chicago First published in 2012
Research related to economic and A widely acclaimed work of scholarship in
political development, democratization, the field of economics and political science
and institutions
Chapter 1
and yet so different
So close
So many similarities, yet so different
WHY?

levels of economic

development.

The quality of institutions

USA

Inclusive Extractive

The level playing field for

Mexico individuals Benefit a small elite at the
Individuals participate in expense of the rest of society.
economic and political life
 Colonial era
The Spanish established The British colonies in North America
extractive institutions in Mexico established more inclusive
institutions

Divergent economic

and political
development trajectories

in the two regions

 The roles of geography
Countries with favorable countries with unfavorable
geography geography

EXTRACTIVE INSTITUTIONS INCLUSIVE INSTITUTIONS

Key takeaways
Institutions shape economic and political incentives

Colonial institutions have long-lasting effects

Geography plays a role in shaping institutions

Institutions can change

Chapter 2
ori es th at
The
don't w o rk
 First country to experience sustained
economic growth: UK -> Western Europe, The lay of the Land
US industrialization / Canada, Australia,
New Zealand
Afghanistan, Haiti and parts of Southeast
Asia, North Korea
Middle East: Oil rich/oil poor

The character of the pattern

1. Most of the current inequality in the world
emerged in the late 18th century after the
Industrial Revolution

2. Many countries in East Asia have grown

rapidly since World War II
THE GEOGRAPHY
HYPOTHESIS
Tropical diseases
particularly malaria, have very
adverse consequences for health
and therefore labor productivity

Tropical soils
tropical soils do not allow for
productive agriculture
Aztec and Inca Englad in 19c North America
civilizations
America became more
These empires were England in the prosperous precisely
politically centralized nineteenth century was because it enthusiastically
and complex, built also a very unhealthy adopted the technologies
roads, and provided place. and advances of the
famine relief. Industrial Revolution.
 THE CULTURE HYPOTHESIS
Protestant Reformation and the Protestant ethic it spurred played a key
role in facilitating the rise of modern industrial society in Western Europe

North KR vs South KR Middle Eastern Asian Countries

The Korean peninsula has a long Chinese culture & Confucian values
Most of them are Islamic
period of common history. Before

cultures, whether poor or rich.

the Korean War and the division at the importance of the Chinese work
The role of historical events is
the 38th parallel, it had an ethic as the engine of growth in
more powerful than cultural
unprecedented homogeneity in China, Hong Kong, and
factors.
terms of language, ethnicity, and Singapore is trumpeted
culture.

 THE IGNORANCE
HYPOTHESIS
Arguement
Global inequality exists because our
rulers do not know how to enrich a
poor country.
The poor country is poor because
there are many market failures and
economists and policymakers do not
know how to eliminate market failures
and have listened to wrong advice in
the past.
Limitation
If ignorance were the problem, well-
meaning leaders would quickly learn what
types of policies increased their citizens’
incomes and welfare, and would gravitate
toward those policies.
It explains neither the origins of prosperity
around the world nor the lay of the land
around us.
Chapter 3
 3.1. THE ECONOMICS
OF THE 38TH
PARALLEL
Park Chunghee - South Korea leader
period 1963-1979
Source: luat.org

Source: Japan Focus Source: Vietnamnet

After World War 1945, the Japanese colony in Korea collapsed

The famine in North Korea is getting worse
Source: Toquoc.vn
Korea is divided into two areas, South and North, at the 38th parallel
The South (Korea) developed and became rich, while the North (Korea)
had an extremely harsh life under the military dictatorship and rigid form
of central planned economy as part of the so-called Juche system.
These striking differences are not from antiquity.
They didn't exist before the end of World War II.
But after 1945, governments in the North and the
South chose in different ways to organize their
economies.

=> The result was a contrast between two

economies:

In the late 1990s, after only about half a century, the

economic and the standard of living in North Korea
was only about a tenth of that in South Korea.
What cause the different?
According to the author, countries differ in
their economic success because they follow
2 different economic institutions

 3.2. ECONOMICS INSTITUTIONS
INCLUSIVE
ECONOMICS
INSTITUTIONS
Happened in South Korea
Economic opportunities not only for the
elite but also for a wide section of
society.
Allow and encourage the participation
of large numbers of people in economic
activities that make the best use of their
talents and skills
Allow individuals to select the options
they want.
Secure private property rights
EXTRACTIVE
ECONOMICS
INSTITUTIONS
Happened in North Korea
Designed to extract incomes and
wealth from other subsets of society
to benefit a subset
Any economic activity or any activity
must be aimed at serving and
benefiting the military and the
regime.
Private property rights do not exist,
property or interests can be taken
away by the state at any time.
 3.3. ENGINES OF PROSPERITY

Inclusive economic institutions also pave the way for two other engines of prosperity:
Technology and Education:

EDUCATION
NORTH KOREA
The education they
received in school was pure
propaganda, intended to
underpin the legitimacy of
the regime; there are few
books, let alone computers.
TECHNOLOGY
SOUTH KOREA Sustained economic growth is almost always
Adolescents receive good accompanied by technological improvements.
education, face incentives
that encourage them to try => It is not surprising that American society, not Mexico or
and excel in their chosen Peru, created Thomas Edison, and that South Korea, not North
profession. Korea, created the technologically innovative companies like
today's Samsung and Hyundai.

After finishing school,

everyone had to enter the => Education for the masses is crucial for innovation in an advanced
army for ten years. technological world – This is what all developed nations have, and what
many undeveloped nations lack.

 What is the origin of

different economic
institutions?
All economic institutions are created by society.

In other words, countries may have different

economic institutions simply because they have
different political backgrounds

 3.4. EXTRACTIVE AND INCLUSIVE
POLITICAL INSTITUTIONS
Extractive political institutions:
Allow the elite who control political
power to choose economic institutions
with few constraints or few opposing
forces.
They also allow the elite to organize
future political institutions and their
evolution.
Extractive economic institutions, in turn,
enrich the same elite, and wealth and
economic power underpin their political
dominance.
Inclusive political institutions:
Build inclusive economic institutions,
which make power widely distributed in
society and restrain its arbitrary use.
These institutions also make it harder for
others to usurp power and erode the
foundations of inclusive institutions.
Inclusive economic institutions, in turn,
create a more equitable distribution of
resources, facilitating the persistence of
inclusive political institutions.
 3.5. WHY NOT ALWAYS
CHOOSE PROSPERITY?
Different institutions have different consequences
for national prosperity, how that wealth is
distributed, and who has power and who benefits
from those institutions.

=> Fundamentally, economic institutions that

create incentives for economic progress can also
simultaneously aim to redistribute income and
power in such a way that dictators plunder and
others who have political power, these economic
institutions will lead to a worse economy, not
better. The powerful do not necessarily want to build economic institutions that
promote economic success
Source: The Book "Why nations fall"
Chapter Final Question:
Is there any way for the
development of the
economy under
EXTRACTIVE POLITICAL
INSTITUTIONS ?

 3.6. GROWTH UNDER EXTRACTIVE

POLITICAL INSTITUTIONS
There are 2 ways for the development of the economy under
EXTRACTIVE POLITICAL INSTITUTIONS

1) Concentrate 2) Mix institutions

resources allocated
Even if economic institutions are
extractive, growth is possible when
elites can directly allocate
resources to high-productivity
activities that they themselves
control.
The second type of growth under
extractive political institutions occurs
when the institutions permit the
development of somewhat, even if
not completely inclusive economic
institutions.

=> Even though extractive institutions can somewhere generate

growth, they will usually not generate sustainable economic growth
=> Sustainable growth won't happen, unless political institutions
are transformed from extractive to inclusive.
 Chapter 4
f er e n ce s a nd
Small d if
n ctu r e s : Th e
critic a l j u
h t o f h is to ry
w eig
 A critical juncture

Black Death Glorious Revolution and The emergence of the

Creating institutional the birth of Industrial Atlantic trade opportunity
differences between Eastern
Revolution in 1600:
and Western Europe, as the
West loosened and the East Opened the
way to the
Limited the power of the king, creation of new institutions with
tightened the King’s political
expanded the political system, greater pluralism in England,
power, while at first Western
becoming the first set of inclusive while strengthening the French
European institutions were
not always so different from political institutions in the world and Spanish monarchs.
those of the East.
The importance of Critical
Juncture to nations'
developement history

The Critical Juncture marks the emergence

of small institutional differences and initiates
the process of divergence. These differences
start out often small, but they accumulate,
creating an institutional drift, which later
have fundamentally different implication to
the division in power, prosperity and poverty
of nations
 THE COTINGENT
PATH OF HISTORY
The divergence, however, is not historically predetermined but contingent...
Nevertheless, not every critical juncture leads to a successful political
revolution or change for the better

The difference between sub-

The change in power of the
Saharan African countries and
King and the birth of Pluralism
many cases in Asia as some
depends on the side that wins in
choose to narrow their political
the Glorious revolution
division, others do not

Example 1: Example 2:
Origins of inclusive political
The post-WW2 critical juncture
institutions in Britain.

UNDERSTANDING THE LAY OF THE LAND

Develop institutions

Latin American regions:

Persistent poverty

Africa and its lagging behind

most of the world

India: Caste system and

government have severely
hindered development

Japan and China: Meiji

Restoration enabled Japan
more inclusive political
institutions, , while China
languished under absolutism

Middle East: The extractive

economic institution
caused the region to
stagnate economically
 Chapter 5
t , and
he Fu tu re ,
"I’v e Se en
r ow t h U n d er
It W o rk s ” : G
In sti tu tio ns
Ex tr ac tiv e
 'I have seen the future
and it works.'
[remark after visiting the Soviet Union in 1919]'

Lincoln Steffens
Most societies with extractive
institutions still managed to
achieve economic growth.
-> rather a growth based on
existing technologies
-> not sustainable
 THE SOVIET UNION
MODEL
Forced collectivization of farmland and hikes
in taxes to fund the Soviet economy’s
industrialization => allocation of labor and
resources from agriculture to industry
Invest in the current industry
=> quick growth the 1920s to the 1960s.

This institution failed to incentivize innovation.

=> Growth stopped in the 1960s and broke down
in 1991
=> not sustainable in the long term and always
leads to the collapse
On the bank of the The Long Summer The Unstable
Kasai Extraction
The Bushongs are richer hierarchy has been
Extractive institutions rise,
and more advanced established among the
=> creating political
than the Lele. Natufians ->
instability and stunting
-> resulted from institutional changes
growth
extractive institutions but not in long term
 nations f
y ai
h l
Presented By: W Thursday,
Group 4 08/06/2023

Chapter 6 - chapter 10
 Agenda
Introduction

Chapter 6 Drifting Apart

Chapter 7 The Turning Point

Not on Our Turf: Barriers

Chapter 8
to Development

Chapter 9 Reversing development

Inclusive economic institutions require Chapter 10 The Diffusion of Prosperity
secure property rights and economic
opportunities not just for the elite but for
Key Takeaways
a a broad cross-section of society
 Introduction
AUTHORS
2 economists

James A. Robinson Daron Acemoglu

Professor at MIT Professor at Harvard University

BOOK Publication date: March 20,2012

"Acemoglu and Robinson have produced a landmark book that will be read
by economists, historians, and policymakers for decades to come. It digs
deep into the reasons behind the origins of power, prosperity and poverty"
Chapter 6
Drifting Apart
reasons why institutions
evolved along different paths
 Chapter 6
The trend toward more inclusive institutions may be reversed
VENICE
From prosperous city To a museum
Venice's economy today: fishing, tourism
pre-Serrata wonders of Venice
economic rise open politics institutional
improvements
1297 - 1315: political tension mounted

more extractive
ower consolidated in Doge’s Palace Lions of St. Mark’s
economic & political
the hands of the nobles Cathedral
institutions
 Modest institutional variations are fleeting by nature

510 BC Republic 49 BC Empire AD 476

ROMAN
Economic growth Lost its force
Prospered trade and shipping Exacerbated extraction inside
Unsustainable growth, layers of power
partially extractive

BRITAIN Affluent under the Roman domination

AD 450
Economic prosperity of
Roman Britain Declined after the
Romans left, lag
behind other regions
for a long time
 DIVERGING PATHS
EUROPE

The fall of Rome Strong emergence of Feudal institutions

Islamic states appeared

Consequences of Early Growth

"... once the relatively inclusive republican institutions gave way to the
more extractive institutions of the empire, economic regress became all
but inevitable."
 CHAPTER 7
"The turning point"

The emergence of Pluralism and Inclusive institutions

replacing the previous extractive institutions
 Inclusive
Pluralism
institutions
Coexistence of different
ideologies Broad distribution of power
Promote the inclusivity, Inherent checks and
tolerance balances
Equal social participation Regulated economic entities,
institutions and activities.

Absolutism
You can beheaded and have
your property confiscated if
you dare to attack or not
support the King
1500s
Extractive
William Lee institutions
Created a brilliant knitting The norm throughout
invention history of England.
the Queen refused to grant Impeded growth and
him a patent innovations that would
benefit society.

Key idea
The fear of creative destruction leads to no sustained increase
in living standards between the New Stone Age and Industrial
revolutions”
 LEVIATHAN

Chapter 8
 Great Features

Small difference
Print Fear of industry
Literacy rate - Western EU
to matter
Absolutism Blocked any attempt to
><

introduce technologies
Tool to record Islamic
Yes: Economic declined --> harder to control people
strictly controlled in Ottoman
No: Trading developed
 Great Features

No Shipping Insecurity of Lack of political

Allowed property rights centralization
International trade = Merchants
No pluralistic institutions of any Clans reject any dominance
were enriched and emboldened
kind, nor any checks and control and surrender of power
-->The fear of creative
constraints on the power of the --> No centralized state to
destruction and political
emperor. enforce order
unstability
Chapter 9
Reversing Development
 Spices & Genocide
Spice Islands Global trading
Cloves, mace, and nutmeg
60% world trading spices in 1602 (colonial) companies
Main suppliers: Indonesian islands, Dutch, British, Portuguese are key player on
Phillipines maritime trading and colonization
Powerful military, financial, and legal
Exploitation and Genocide rights which could wipe out any countries
Craving for spices and spice monopoly with
Southeast Asian kingdoms
VOC threatened and manipulated the
rulers of absolutist kingdoms to exploit
In the Banda Islands, they massacred
almost the entire population of the
islands, probably about 15,000 people.
Political institutions in
Southeast Asia
Results Southeast Asia was left Absolutism: Ambon islands, etc.
Other Southest Asian headstates in 17th behind the Industrial Autonomous city-states: Banda
century:
" Autarky is better than facing the Dutch Revolution Islands
(and other Westerners)"
 Africa
16th - 19th century

Main supply of African slave: War prisoners

Absolutism native rulers: sell slave

and buy guns, war transportation
Europeans: take advantage of
massive supply of slave and soak
African in bloody wars.

Dual economy in South Africa (case

study)
Two sides of Natal rivers: contrast level of
economic development
Used to have an economic boom in 1890 -
1913 but then the rise of Apartheid regime
halt and destroy the progress
Chapter 10
The Diffusion of Prosperity
Australia
The transportation of convicts from Great Britain
to New South Wales

Convicts "The Squatters"

Had to perform non- Farmed sheep and
paid "compulsory exported wool on the
work" land owned by the
Were lashed or British government
banished by guards Owned most of the
to work harder property

Results
Established inclusive institutions
The spread of the Industrial Revolution
The country started to accumulate wealth
 FRANCE The 18th-century society

No tax Manufacturing
Luxurious lifestyle
Political power Regulated by powerful guilds
Prevent outsiders from entering and
starting a business in their occupation
Aristocrats Clergy Incomes were exclusive to members

Absolutism
Louis XIV consolidated the power of
the monarchy
Fostered government-sponsored and
controlled industry

Common people
Restrictions on mobility
Feudal obligations and dues
FRANCE
The French Revolution

1789: The Revolution

Abolished feudalism & special privileges
of the elite
Equality of rights
No feudal obligations and dues
Ended trading restrictions

1799 - 1815
Uncountable military victories for France,
led by Napoleon Bonaparte
Spread the radical values of the
Revolution to the lands they seized and
conquered
Facilitated the establishment of inclusive
institutions in these countries
 JAPAN
Meiji Restoration

Ruler
Ruled by the Tokugawa family
Emperor: a ceremonial role

19th-century society
Strict occupational categories
Trade restrictions
High taxes
Extractive institutions

Other powerful families devised a

plan to overthrow the Tokugawas
 JAPAN
Meiji Restoration

Transformative reforms
Abolished feudalism & samurai
class
Taxation was centralized
Equality before the law
Introduced individual property
rights on land
Freedom to enter any trade

Japan: the first Asian country to adopt a written Constitution

Became a constitutional monarchy
 KEY TAKEAWAYS
Chap 6 Why institutions evolved along different paths

How pluralism and inclusive institutions

Chap 7 replace the obsolete and extractive institutions

Chap 8 The political centralization and absolutism's

impacts on the Industrial Revolution's development

How the failure to leverage the Industrial

Chap 9 Revolution led to world inequality

Chap 10 How the embrace of opportunities for change

resulted in prosperity in some countries
 Group 11

Why Nations
Fail
The origins of Power,
Prosperity and Poverty

by Daron Acemoglu
and James A. Robinson
Table of Contents
Chapter 11 - The Virtuous Circle
Chapter 12 - The Vicious Circle
Chapter 13 - Why Nations Fail Today
Chapter 14 - Breaking The Mold
Chapter 15 - Understanding
Prosperity and Poverty
Chapter 11
The Black Act
The Blacks

Poachers and vandalizers on aristocrats' properties.

This can be seen as a response to encroachment on
their rights.

The Whigs
Newly-in-power government, attempting to
establish absolute control over society.
Initiated the Black Act to punish the Blacks.

--> The act was, overall, INEFFECTIVE.

 Rule of Law
Despite being the ruling class, the aristocrats soon found they
too had become constrained by the rule of law.

Now, no individual or group could rise above the system, and

even the common people accused of encroaching on
property had the rights to a fair trial.

--> Evidence of the slow march towards democracy.

The Glorious Revolution
Starting point of Pluralism

Victory over Absolutism:

This was not simply replacing one elite with
another, but a broad coalition against the
monarchy.

A self-perpetuating circle:
Once established, the rule of law became a
suppressant to absolutism, powered by
economic inclusiveness.
Economic and
political

V
inclusiveness

"Virtuous
circle"

More
accessible

V
resources
Chapter 12
"The Vicious Circle"
~ a continuing
unpleasant situation
How are countries constantly

Q
stuck with corrupted
institutions regardless of
remarkable power shifts?

An analysis of four nations

A with four different

background , yet stuck in the
same vicious circle
Sierra Leone
A former British colony
Why do new leaders recreate

Q the same extractive institutions

that they overthrow?

The ruling party tends to build

extractive economic institutions

A to enrich themselves, then uses

their wealth to build extractive
political institutions rigged in
their favour.
Guatemala
Colonised by Spain from the
16th century

Early days - The "Encomienda" system:

indigenous people were forced to grow
crops on privatised fertile land to enrich the
elites.

After 1945:
Extractive power was simply handed down from
the Spanish Crown to local elites, nothing
changed
 The US South
Before the Civil War After the Civil War

Extractive institutions Nothing changed, no

benefited only a small establishment of
group of plantation inclusive institutions
owners & left millions of
enslaved individuals --> Jim Crow
without any rights. segregation laws were
introduced, allowing the
--> Less wealthy, planter elites to
industrialised, and maintain their wealth
innovative compared and power. Apartheid
to the North. system continued.
Ethiopia
& The Iron Law of Oligarchy
The Ethiopian Civil War in 1974: The Derg helped the country
gain independence

After 1974: Derg leader veered institutions back into the

same extractive mechanism as they once used to be

Q: What about the Glorious Revolution & French Revolution?

A: They successfully broke the law of oligarchy
Key factor: The powers are shared with independent
parliaments
Chapter 13
"How to Win the
Lottery in Zimbabwe"

That Robert Mugabe could win the lottery

whenever he wanted showed how much of
a dictator he was.

Zimbabwe under Mugabe's regime was

failed, from a country with much potential
to a no more than a ruined nation only
famous for hyperinflation
because of extractive institutions.
 From national hero...
1890: Britain suppressed people, increased exploration and
exploitation of precious minerals in Rhodesia.

Not long after 1923: white people ruled Rhodesia (now Zimbabwe)
with apartheid system, favoring white land owners.

Around 1950s: European colonial empires collapsed, white elite in

Rhodesia declared independence from Britain but received little
approval.
=> parties organized guerrilla war in here, typically ZANU
(Zimbabwe African National Union) of Mugabe and ZAPU
(Zimbabwe African People's Union) of Joshua Nkomo.
=> They won.

1980: the state of Zimbabwe was established. Mugabe became

Prime Minister.
 ...to a dictator
Prime Minister Mugabe promised to build
democracy, grant freedom to vote, end
white minority rule, etc.

But he actually:
+ violently suppressed the opposition,
rigged elections, rewrote the constitution,
still inherited the extractive system.
+ gave jobs to supporters, enacted price
and foreign trade regulations to the
detriment of private-sector firms, favoring
the elite.
+ expropriated thousands of white
industrialized farms.
 Consequences
Zimbabwe in crisis with the influx of whites
fleeing Zimbabwe. Food shortages occured.
=> Fell into hyperinflation in 2007.

The confiscation of arable land affected by

droughts and lack of supply
=> Sharp decline in agricultural exports.

Zimbabwe experienced a severe shortage of

hard currency, leading to hyperinflation and
chronic shortages of fuel and imported
goods. The government is inefficient and
almost stopped providing public service.

Unemployment reached 94%

 ...and the same results came to Sierra Leone, Colombia, Argentina, Egypt,
Uzbekistan and North Korea, in the same way,
under THEIR regime

Foday Sankoh Carlos Castano Carlos Menem Kim Jong-Il Islam Karimov
Gil

Sierra Leone Colombia Argentina's North Korean's Child labor in

engulfed in experienced President easily savings were Uzbekistan was
labor coercion election fraud rewrote expropriated forced
Constitution
Extractive institutions
weak property rights
forced labor
system of elite or nobility
suppression of freedoms of
expression

Inclusive institutions
secure property rights
fair employer-labor relations
voting rights
freedom of speech
CHAPTER 14
Break the mold
 BOTSWANA
"FIRST" TRIBAL INSTITUTION

After independence, Botswana Democratic Party

succeeded in setting up inclusive institutions &
strong fiscal base for the government
=> Bred political stability and supported
inclusive economic institutions.
=> Significant growth rate & no civil war
>< Other Africa countries: still be colonised or
suffer civil commotion
because of natural resource (diamond)
 The U.S.South
The "Blacks" regulations

The cilvil rights regulations of governments

allowed southern blacks to "be mattered"
=> rapid economic improvements and
social stability in the South
>< The South before legislation:
The extractive institutions supported the
discrimination against blacks eroded
=> The blacks out-migration of the South
CHINA
"Market-economic"
Institution

Economic institution moved from being the

most extractive to be more inclusive and
adapted to competitive market in Deng
Xiaoping's period
=> Rapid growth rate in few decades
>< Monopoly market in Mao's period
=> Impact of Culture Revolution & steel mass
production strategy
Chapter 15
 Inclusive economic and political
institutions are the key to prosperity
Inclusive institutions Extractive institutions
allow all citizens to >< benefit a small elite at the
participate in economic expense of the majority
and political life (Ex: Zimbabwe)
(Ex: United States, China) => lead to poverty and
=> distribute the benefits conflict
of economic growth fairly.

+ Prevent the rise of conflict and violence

Why => necessary for political stability
important + Create a level playing field for all citizens to
? compete and innovate
=> necessary for economic growth
 The best way to help poor
countries is to help them build
inclusive institutions

Foreign aid and other forms of assistance

can be helpful, but not enough
=> the only way to achieve lasting
change is to help poor countries create
their own inclusive institutions

=> The book has had a significant impact on

the way that economists and policymakers
think about development