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Why Nations Fail
The New York Times
The Opinion Pages
March 31, 2012
By THOMAS L. FRIEDMAN
I'M reading a fascinating new book called `Why Nations Fail.' The more
you read it, the more you appreciate what a fool's errand we're on in
Afghanistan and how much we need to totally revamp our whole foreign
aid strategy. But most intriguing are the warning flares the authors
put up about both America and China.
Co-authored by the M.I.T. economist Daron Acemoglu and the Harvard
political scientist James A. Robinson, `Why Nations Fail' argues that
the key differentiator between countries is `institutions.' Nations
thrive when they develop `inclusive' political and economic
institutions, and they fail when those institutions become
`extractive' and concentrate power and opportunity in the hands of
only a few.
`Inclusive economic institutions that enforce property rights, create
a level playing field, and encourage investments in new technologies
and skills are more conducive to economic growth than extractive
economic institutions that are structured to extract resources from
the many by the few,' they write.
`Inclusive economic institutions, are in turn supported by, and
support, inclusive political institutions,' which `distribute
political power widely in a pluralistic manner and are able to achieve
some amount of political centralization so as to establish law and
order, the foundations of secure property rights, and an inclusive
market economy.' Conversely, extractive political institutions that
concentrate power in the hands of a few reinforce extractive economic
institutions to hold power.
Acemoglu explained in an interview that their core point is that
countries thrive when they build political and economic institutions
that `unleash,' empower and protect the full potential of each citizen
to innovate, invest and develop. Compare how well Eastern Europe has
done since the fall of communism with post-Soviet states like Georgia
or Uzbekistan, or Israel versus the Arab states, or Kurdistan versus
the rest of Iraq. It's all in the institutions.
The lesson of history, the authors argue, is that you can't get your
economics right if you don't get your politics right, which is why
they don't buy the notion that China has found the magic formula for
combining political control and economic growth.
`Our analysis,' says Acemoglu, `is that China is experiencing growth
under extractive institutions - under the authoritarian grip of the
Communist Party, which has been able to monopolize power and mobilize
resources at a scale that has allowed for a burst of economic growth
starting from a very low base,' but it's not sustainable because it
doesn't foster the degree of `creative destruction' that is so vital
for innovation and higher incomes.
`Sustained economic growth requires innovation,' the authors write,
`and innovation cannot be decoupled from creative destruction, which
replaces the old with the new in the economic realm and also
destabilizes established power relations in politics.'
`Unless China makes the transition to an economy based on creative
destruction, its growth will not last,' argues Acemoglu. But can you
imagine a 20-year-old college dropout in China being allowed to start
a company that challenges a whole sector of state-owned Chinese
companies funded by state-owned banks? he asks.
The post-9/11 view that what ailed the Arab world and Afghanistan was
a lack of democracy was not wrong, said Acemoglu. What was wrong was
thinking that we could easily export it. Democratic change, to be
sustainable, has to emerge from grassroots movements, `but that does
not mean there is nothing we can do,' he adds.
For instance, we should be transitioning away from military aid to
regimes like Egypt and focusing instead on enabling more sectors of
that society to have a say in politics. Right now, I'd argue, our
foreign aid to Egypt, Pakistan and Afghanistan is really a ransom we
pay their elites not to engage in bad behavior. We need to turn it
into bait.
Acemoglu suggests that instead of giving Cairo another $1.3 billion in
military aid that only reinforces part of the elite, we should insist
that Egypt establish a committee representing all sectors of its
society that would tell us which institutions - schools, hospitals -
they want foreign aid to go to, and have to develop appropriate
proposals.
If we're going to give money, `let's use it to force them to open up
the table and to strengthen the grass-roots,' says Acemoglu.
We can only be a force multiplier. Where you have grass-roots
movements that want to build inclusive institutions, we can enhance
them. But we can't create or substitute for them. Worse, in
Afghanistan and many Arab states, our policies have often discouraged
grass-roots from emerging by our siding with convenient strongmen. So
there's nothing to multiply. If you multiply zero by 100, you still
get zero.
And America? Acemoglu worries that our huge growth in economic
inequality is undermining the inclusiveness of America's institutions,
too. `The real problem is that economic inequality, when it becomes
this large, translates into political inequality.' When one person can
write a check to finance your whole campaign, how inclusive will you
be as an elected official to listen to competing voices?
The New York Times
The Opinion Pages
March 31, 2012
By THOMAS L. FRIEDMAN
I'M reading a fascinating new book called `Why Nations Fail.' The more
you read it, the more you appreciate what a fool's errand we're on in
Afghanistan and how much we need to totally revamp our whole foreign
aid strategy. But most intriguing are the warning flares the authors
put up about both America and China.
Co-authored by the M.I.T. economist Daron Acemoglu and the Harvard
political scientist James A. Robinson, `Why Nations Fail' argues that
the key differentiator between countries is `institutions.' Nations
thrive when they develop `inclusive' political and economic
institutions, and they fail when those institutions become
`extractive' and concentrate power and opportunity in the hands of
only a few.
`Inclusive economic institutions that enforce property rights, create
a level playing field, and encourage investments in new technologies
and skills are more conducive to economic growth than extractive
economic institutions that are structured to extract resources from
the many by the few,' they write.
`Inclusive economic institutions, are in turn supported by, and
support, inclusive political institutions,' which `distribute
political power widely in a pluralistic manner and are able to achieve
some amount of political centralization so as to establish law and
order, the foundations of secure property rights, and an inclusive
market economy.' Conversely, extractive political institutions that
concentrate power in the hands of a few reinforce extractive economic
institutions to hold power.
Acemoglu explained in an interview that their core point is that
countries thrive when they build political and economic institutions
that `unleash,' empower and protect the full potential of each citizen
to innovate, invest and develop. Compare how well Eastern Europe has
done since the fall of communism with post-Soviet states like Georgia
or Uzbekistan, or Israel versus the Arab states, or Kurdistan versus
the rest of Iraq. It's all in the institutions.
The lesson of history, the authors argue, is that you can't get your
economics right if you don't get your politics right, which is why
they don't buy the notion that China has found the magic formula for
combining political control and economic growth.
`Our analysis,' says Acemoglu, `is that China is experiencing growth
under extractive institutions - under the authoritarian grip of the
Communist Party, which has been able to monopolize power and mobilize
resources at a scale that has allowed for a burst of economic growth
starting from a very low base,' but it's not sustainable because it
doesn't foster the degree of `creative destruction' that is so vital
for innovation and higher incomes.
`Sustained economic growth requires innovation,' the authors write,
`and innovation cannot be decoupled from creative destruction, which
replaces the old with the new in the economic realm and also
destabilizes established power relations in politics.'
`Unless China makes the transition to an economy based on creative
destruction, its growth will not last,' argues Acemoglu. But can you
imagine a 20-year-old college dropout in China being allowed to start
a company that challenges a whole sector of state-owned Chinese
companies funded by state-owned banks? he asks.
The post-9/11 view that what ailed the Arab world and Afghanistan was
a lack of democracy was not wrong, said Acemoglu. What was wrong was
thinking that we could easily export it. Democratic change, to be
sustainable, has to emerge from grassroots movements, `but that does
not mean there is nothing we can do,' he adds.
For instance, we should be transitioning away from military aid to
regimes like Egypt and focusing instead on enabling more sectors of
that society to have a say in politics. Right now, I'd argue, our
foreign aid to Egypt, Pakistan and Afghanistan is really a ransom we
pay their elites not to engage in bad behavior. We need to turn it
into bait.
Acemoglu suggests that instead of giving Cairo another $1.3 billion in
military aid that only reinforces part of the elite, we should insist
that Egypt establish a committee representing all sectors of its
society that would tell us which institutions - schools, hospitals -
they want foreign aid to go to, and have to develop appropriate
proposals.
If we're going to give money, `let's use it to force them to open up
the table and to strengthen the grass-roots,' says Acemoglu.
We can only be a force multiplier. Where you have grass-roots
movements that want to build inclusive institutions, we can enhance
them. But we can't create or substitute for them. Worse, in
Afghanistan and many Arab states, our policies have often discouraged
grass-roots from emerging by our siding with convenient strongmen. So
there's nothing to multiply. If you multiply zero by 100, you still
get zero.
And America? Acemoglu worries that our huge growth in economic
inequality is undermining the inclusiveness of America's institutions,
too. `The real problem is that economic inequality, when it becomes
this large, translates into political inequality.' When one person can
write a check to finance your whole campaign, how inclusive will you
be as an elected official to listen to competing voices?