Why nations fail

Why nations fail: The origins of power, prosperity, and poverty This is probably the most prominent work by Acemoglu and Robinson. In this book, they elaborate a popular theme: Inclusive institutions lead to prosperity; extractive institutions lead to poverty. There is a problem with the terminology. Why not classify institutions as inclusive and non-inclusive, or exclusive? Equivalently, why not classify institutions as extractive and non-extractive? In this way, the classification would be more systematic. Otherwise, we might wonder whether inclusive institutions might be extractive as well. Or extractive institutions might be inclusive. The basic idea of the book is laid out in Chapter Three, The making of prosperity and poverty. The authors use the stark contrast between North and South Korea to illustrate their point. North Korea is indeed living hell. South Korea is often praised by the economists and media as the star student of the Western civilization, or inclusive institutions, as framed in this book. The authors seemed not to notice that the fertility rate of South Korea was far below the replacement rate at the time of their writing. Today, its fertility rate, below 0.8 per woman, is the lowest in the world. South Korea is not on the road to prosperity. It is on the road to extinction. In the book, Latin America is often used as an example of extractive institutions. That is why Latin America is mired in poverty. But according to the Monroe Doctrine, Latin America is the backyard of the US. The institutional structures of Latin America are largely shaped by US interests. Some countries in Latin America are called banana republics. These banana republics are institutions molded by the US to extract resources at low cost. In general, inclusive institutions often engage in activities to keep other institutions from becoming democratic institutions, or inclusive institutions. In 1953, the democratically elected government of Iran was overthrown in a coup aided by US and UK intelligence agencies. This type of action is easy to understand from the resource perspective. Inclusive institutions, being more internally cohesive, are more powerful in fighting for the control of resources. Hence an inclusive institution is more prosperous than an exclusive institution in general. An inclusive institution, whose resources are more widely shared, consumes more resources. Hence dominant inclusive institutions will suppress emerging inclusive institutions, which aspire to consume more resources and will have to compete with dominant inclusive institutions for resources. In the case of Iran, a more democratic society, or a more inclusive society, will demand a larger share of benefits from oil resources. This is why the dominant democratic institutions, or inclusive institutions, will suppress emerging democratic institutions. When resources are shared by less people, these powerful people who control the most resources are better off. This is why there is always a strong tendency for a system to become less inclusive over time. This phenomenon is sometimes called the iron law of oligarchy. Indeed, many of the inclusive societies, as defined by this book, are becoming increasingly less inclusive. All organisms need to extract external resources to survive and prosper. Humans, being organisms, need to extract external resources to survive and prosper. This is the real reason why institutions are not classified as extractive institutions and non-extractive institutions. All institutions are extractive institutions. All people are fighting for resources. No institutions are truly all inclusive. Relative inclusiveness are temporary allies, usually formed to fight against others for control for resources. These internal truces are usually very fragile and prone to break down. There is no sure recipe for prosperity over the long term.