Summary: Why Nations Fail?

The book for November was 'why nations fail' by Daron Acemoglu and james A. Robinson (both american economists) incredibly described details of two systems i-e inclusive and extractive system. 

The book state different reasons of poverty like corruption, poor education system, oppression, lack of opportunities, inability to deliver public services etc. The writer draw an equation of devastation as repression + absence of social justice + denial of channels for peacefull change = ticking bomb. 

Behind the backwardness of different countries the writer blames the different factors, of egypt he believes narrow elites are responsible for organizing a society for their own benefits at the cost of the vast mass of people. Some countries are winning in the race of development for example USA because its inhabitants overthrew the elites who controlled power and created a society of their own choice and hence were able to maintain an atmosphere where political and social rights of citizens were much more broadly distributed, where the government is accountable and responsible plus answerable to citizens consequently end up on taking more economic opportunities. Fundamental change was change of political system which transformed the countries like JAPAN, BOTSWANA and BRAZIL etc to become rich.

The book talks about different hypothesis to support backwardness such as the geography hypothesis, the culture hypothesis, the ignorance hypothesis etc but the truth is world inequality is all on how institution of a particular country works. The book gives us an insight that Niether geographic nor cultural nor ignorance based theories are helpful for explaining the reason behind failures of nation but institutional theory does. The beautiful example was of south korea and north korea of Nogales and Arizona. How in south korea and Arizona are developed far more from north korea and nogales. Why? Because they don't promote creative destruction hence no innovation. Another factor is no incentives given to people for innovation or technology. If political institutions ensures stability and continuity the progress will follow the suit. 

This book shows that economic institutions are also critical for determining whether a country is poor or prosperous but politics and political institutions will determine what kind of economic institution a country will develop. This helps us to understand the nexus between economic institution and political institution of a country. Another important point is interaction between both the institutions.

The book discussed about the neolithic revolution. The Neolithic Revolution, or the (First) Agricultural Revolution, was the wide-scale transition of many human cultures during the Neolithic period from a lifestyle of hunting and gathering to one of agriculture and settlement, making an increasingly large population possible.

Interestingly, writer maintained that depending on price of oil richest countries include US followed by canada, chile, Argentina, brazil, mexico and uruguay. While mentioning importance of adaptation to advancement the book enlightend me with an idea of 'small differences' that matters. For instance industrial revolution was possible because parts of the world adopted the innovations and technology. Small initial differences due to hessitant behavior of embracing innovation and technology led to huge gap between poor and prosperous countries. 

The ideas of patent and selling ideas to create money and then starting business from that money was new to me and i enjoyed what edison did early on..

The book also talks about social contract.

The concept of critical juncture is still usefull in the context of covid-19. We can take this challange as an opportunity to innovate ourselves and upgrade our system. This books talks about critical juncture regarding black death. 

This book explains that despite the fact Afghanistan, Haiti and Nepal exists in different regions of the world map but shares the same fate, same trajectory and miserable state. Why? Because they all fail to maintain stability and their institutions have much in common. 

The book advocates for free choices of an individuals as this will allow people to make their own decisions. They will jump up in markets and this is the best way for a society to use their resources efficiently. However, if narrow elites will make decisions on behlaf of people there will be not any right incentives and efficient allocation of resources. 

The book is full with benefits of inclusive system and some important lessons regarding extractive system includes there will be not any sustainable technological change, lack of economic incentives resistance created by elites etc. Another drawback of extractive institutions is this will encourage infighting from rival groups wishing to take control of the state and the extraction it generates. 

A strategy by narrow elites was to give bonuses to people in order to keep everyone focus on the present. And not to mention, Innovation is about making sacrifices of today for the sake of having more tomorrow. This cleared my concept regarding 'Incentives' and 'bonuses'. Productivity shall not be calculated in terms of economic benefits. While talking about history the books suggests that behind extractive institutions there is this powerful logic that they can generate limited prosperity at the sametime distributing it into the hands of a small elites. The main difference in growth generated by both extractive and inclusive institution is in extractive system the growth generated is short-lived and don't foster creative destruction also generates a limited amount of technological progress. We can conclude that infighting and instability are inherent features of extractive system. 

An amazing line which tells the importance of creation and implementation of plan was 'the creation of plan is just the beginning. The real direction of the plan develops only after putting together of the plan' this went into my quotes list. 

The final product of this book will make us understand how the failure of nation presently is influenced by their Institutional histories and how much policy advice is much more relevant than to incorrect hypothesis of geographical location etc how nations are still able to seize critical junctures and break the mold to reform their institutions and can lead to a path of prosperity.

This book is a long roller coaster of history, and provides a background of worldwars, peak and downfall of many important countries along with reasons behind. I am almost done with half of it and i commit to read the other half in December.