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What Bill Gates Got Wrong About Why Nations Fail
Did the Microsoft
founder even read our book before he criticized it?
Foreign Policy
March 12, 2013
BY DARON ACEMOGLU, JAMES ROBINSON
Our recent book, Why Nations Fail: The Origins of Power, Prosperity,
and Poverty, received the harshest reviews from those who see
geography and culture as the root causes of poverty, and enlightened
leaders -- or even more enlightened outside donors and organizations
-- as the keys to economic development. Perhaps unsurprisingly, given
his dedication to international aid, billionaire foundation chief Bill
Gates falls into this category: His Feb. 26 review
(http://www.thegatesnotes.com/en/Books/Personal/Why-Nations-Fail?WT.mc_id=03_1_2013_WhyNationsFail_tw&WT.tsrc= Twitter)
of our book was particularly uncharitable. Unfortunately, however, it
was also dead wrong on many counts.
Gates's review is disappointing, but not just because he disagrees
with us. As academics, we expect that. Research is all about arguing
and contradicting, finding new pieces of evidence, developing new
concepts and perspectives, and getting closer to the truth. Alas,
Gates fails in this endeavor. His inability to understand even the
most rudimentary parts of our thesis means that his review fails to
invite constructive argument. Nonetheless, we feel compelled to
respond because of the undue attention the review has generated.
To start with, Gates makes some pretty baffling statements about our
book, such as his assertion that "important terms aren't really
defined." Actually, all of the major concepts we use in the book are
defined; one just needs to read the book. Other assertions demonstrate
not only that Gates is unfamiliar with the academic literature, which
is understandable, but that he actually did not bother to consult the
bibliographic essay and the references at the end. He writes, "The
authors ... attribute the decline of Venice to a reduction in the
inclusiveness of its institutions. The fact is, Venice declined
because competition came along ... Even if Venice had managed to
preserve the inclusiveness of their institutions, it would not have
made up for their loss of the spice trade."
This is just bad history. Venice didn't decline because of the loss of
the spice trade. If that were the case, the decline should have
started at the very end of the 15th century. But the decline was
already well underway by the middle of the 14th century. More
generally, research by Diego Puga and Daniel Trefler shows that
Venice's fortunes had nothing to do with competition or the spice
trade.
Likewise, Gates seems to think that the Maya declined because of the
"weather." Though there is certainly scholarly dispute over why Maya
civilization decayed, to our knowledge no reputable scholar argues
that it was due to the weather. Instead, most scholars emphasize the
role of inter-city warfare and the collapse of Mayan political
institutions. Nor does the book, as Gates would have it, "overlook the
incredible period of growth and innovation in China between 800 and
1400." We discuss that period, and explain why it didn't translate
into sustained economic growth (see Chapter 8, in particular,
pp. 231-234).
Gates also says at one point that our book "refers to me in a positive
light." Sorry, we do no such thing. We point out that Gates, just like
Mexican telecom mogul Carlos Slim, would have loved to form a
monopoly. He tried and failed. What our book shows in a positive light
are the U.S. institutions, such the Department of Justice, that
stopped Gates and Microsoft from cornering the market. We say, "sadly
there are few heroes in this book." Bill Gates was not one of them.
On a related note, Gates writes that our book is "quite unfair to
Slim." Mexico, he contends, is "much better off with Slim's
contribution in running businesses well than it would be without him."
But once again, this reveals a lack of understanding of our main
thesis, which isn't that Carlos Slim is evil and the root cause of
Mexico's problems. We argue that ambitious entrepreneurs like Gates or
Slim will do good for society if inclusive institutions constrain
them, and that they will mostly serve their own interests
otherwise. So the right counterfactual to Slim isn't no Slim, but a
Mexico in which people like Slim (and hundreds of other talented
would-be entrepreneurs who never got the opportunity to flourish
because of the country's poor education system or because of its
terrible competition laws) operate within the context of inclusive
economic institutions and therefore enrich their society to a much
greater extent.
For the record, however, before cheerleading Slim, Gates might want to
read the OECD's 2012 report on telecommunications policy and
regulation in Mexico, which estimates the social costs of Slim's
monopoly at U.S. $129 billion and counting. (The latest Forbes list of
the world's richest people puts Slim's net worth at U.S. $79
billion). So in what way is Mexico better off exactly?
Gates also complains in his review that we "ridicule modernization
theory." We don't. We try to articulate an alternative theory of
extractive growth -- which takes place under extractive, authoritarian
political institutions -- where countries grow because their
leadership controlling these extractive institutions feels secure and
able to control and benefit from the growth process. This occupies a
large part of our book because it is a central feature of economic and
political development over the last several thousand years. Our theory
suggests why extractive growth doesn't automatically lead to more
inclusive institutions: Growth is made possible, at least in most
cases, by the leaders and dominant elites' belief in their relative
security.
Gates is right that there are examples like South Korea (which we
discussed in the book) that have transitioned to more inclusive
institutions following a period of extractive growth. But South
Korea's transition to democracy in the 1980s was in no way
automatic. It came about as a result of protests by students and
workers against the military regime, and only after the repression by
the military failed to quell the unrest. More importantly, as a
cursory look at our bibliographic essay would have shown, our
dismissal of modernization theory isn't based on a few case studies or
a gut feeling, but on careful econometric evidence. See, for example,
our papers titled "Income and Democracy" and "Re-evaluating the
Modernization Hypothesis, both jointly authored with Simon Johnson and
Pierre Yared.
At another point in his review, Gates contends that economic growth is
"strongly correlated with embracing capitalistic economics." Yet it is
far from clear what he means by "capitalistic economics." Were Egypt's
economic institutions during the presidency of Hosni Mubarak -- after
he liberalized the economy and reduced the role of the state --
capitalistic? Most people refer to this as "crony capitalism," but
perhaps this is all part of capitalist economics? Or consider the long
dictatorship of Porfirio Diaz in Mexico in the 19th century, which
eradicated many of the remaining restrictions of the Spanish colonial
system, established an economy based on private enterprise (especially
of his cronies), and "freed" markets (including the creation of the
market for coerced labor). Was that capitalistic? What about South
Africa under apartheid, based on private enterprise by whites, but
disempowering and exploiting the majority blacks? Perhaps Gates
himself should have more carefully defined his terms.
The concept of capitalism doesn't feature in our book for good
reason. It muddies the waters. Our point, by which we stand strongly,
is that what distinguishes societies isn't whether they are centrally
planned or capitalist, but whether they are extractive or
inclusive. Though centrally planned economies are by their nature
extractive, so are many "capitalist" economies.
Finally, Gates takes issue with our supposedly "huge attack on foreign
aid," citing in particular our "misleading" claims about
Afghanistan. But again, he would have benefited from looking at the
bibliography. The finding that about 10 percent of foreign aid goes to
intended recipients isn't from Afghanistan, as he seems to think, but
from Uganda, which was not a war zone but a peaceful country at the
time of the 2004 study we cite. More importantly, there is now
considerable evidence showing that foreign aid in the postwar era has
had little positive impact on economic development, which Gates
chooses to ignore (see, for example, William Easterly's White Man's
Burden). Denying this is really putting your head in the sand.
But even sadder is the fact that we don't even argue against foreign
aid. What we argue in the book is that aid -- the little of it that
reaches its target -- does a lot of good for poor people. But it is
not the solution to the real problems of development. Instead of
endlessly asserting empirically untenable positions, we all need to
move on and find more constructive ways to engage with poor
countries. Foreign aid should certainly be part -- but not all -- of
this engagement.
Gates does correctly point out that much is missing from the framework
in our book. Even if underdevelopment isn't just a problem of bad
leadership, and even if its solution won't come from enlightened
leaders, a more complete framework should indeed integrate the
behavior of leaders that play an important role in state building,
organizing collective action, and articulating visions for social
change. Examples of such leaders include Tunisia's Habib Bourguiba and
Singapore's Lee Kuan Yew, both of whom undoubtedly influenced the
course of their country's development. But we chose to emphasize
institutions in our book because for leadership to have a lasting
impact, it must become institutionalized via inclusive political
institutions. After several decades of promoting education and
developing a Tunisian national identity, for example, Bourguiba, who
ran Tunisia as a dictator, was elbowed out of power by a very
different sort of strongman, Zine El Abidine Ben Ali, who was far more
interested in using his power to loot the country's resources. But
Gates doesn't seem to be interested in such subtleties, preferring
instead to criticize every aspect of Why Nations Fail.
Some say that all publicity is good publicity, and we should be
thrilled to have Bill Gates review our book. Publicity is nice. But we
spent more than 15 years researching, writing, and thinking about
these topics, and we would be thrilled if the reviewers actually read
and understood the book in the first place. Then we could have a
constructive debate about the root causes of poverty in the world.
From: Emil Lazarian | Ararat NewsPress
Did the Microsoft
founder even read our book before he criticized it?
Foreign Policy
March 12, 2013
BY DARON ACEMOGLU, JAMES ROBINSON
Our recent book, Why Nations Fail: The Origins of Power, Prosperity,
and Poverty, received the harshest reviews from those who see
geography and culture as the root causes of poverty, and enlightened
leaders -- or even more enlightened outside donors and organizations
-- as the keys to economic development. Perhaps unsurprisingly, given
his dedication to international aid, billionaire foundation chief Bill
Gates falls into this category: His Feb. 26 review
(http://www.thegatesnotes.com/en/Books/Personal/Why-Nations-Fail?WT.mc_id=03_1_2013_WhyNationsFail_tw&WT.tsrc= Twitter)
of our book was particularly uncharitable. Unfortunately, however, it
was also dead wrong on many counts.
Gates's review is disappointing, but not just because he disagrees
with us. As academics, we expect that. Research is all about arguing
and contradicting, finding new pieces of evidence, developing new
concepts and perspectives, and getting closer to the truth. Alas,
Gates fails in this endeavor. His inability to understand even the
most rudimentary parts of our thesis means that his review fails to
invite constructive argument. Nonetheless, we feel compelled to
respond because of the undue attention the review has generated.
To start with, Gates makes some pretty baffling statements about our
book, such as his assertion that "important terms aren't really
defined." Actually, all of the major concepts we use in the book are
defined; one just needs to read the book. Other assertions demonstrate
not only that Gates is unfamiliar with the academic literature, which
is understandable, but that he actually did not bother to consult the
bibliographic essay and the references at the end. He writes, "The
authors ... attribute the decline of Venice to a reduction in the
inclusiveness of its institutions. The fact is, Venice declined
because competition came along ... Even if Venice had managed to
preserve the inclusiveness of their institutions, it would not have
made up for their loss of the spice trade."
This is just bad history. Venice didn't decline because of the loss of
the spice trade. If that were the case, the decline should have
started at the very end of the 15th century. But the decline was
already well underway by the middle of the 14th century. More
generally, research by Diego Puga and Daniel Trefler shows that
Venice's fortunes had nothing to do with competition or the spice
trade.
Likewise, Gates seems to think that the Maya declined because of the
"weather." Though there is certainly scholarly dispute over why Maya
civilization decayed, to our knowledge no reputable scholar argues
that it was due to the weather. Instead, most scholars emphasize the
role of inter-city warfare and the collapse of Mayan political
institutions. Nor does the book, as Gates would have it, "overlook the
incredible period of growth and innovation in China between 800 and
1400." We discuss that period, and explain why it didn't translate
into sustained economic growth (see Chapter 8, in particular,
pp. 231-234).
Gates also says at one point that our book "refers to me in a positive
light." Sorry, we do no such thing. We point out that Gates, just like
Mexican telecom mogul Carlos Slim, would have loved to form a
monopoly. He tried and failed. What our book shows in a positive light
are the U.S. institutions, such the Department of Justice, that
stopped Gates and Microsoft from cornering the market. We say, "sadly
there are few heroes in this book." Bill Gates was not one of them.
On a related note, Gates writes that our book is "quite unfair to
Slim." Mexico, he contends, is "much better off with Slim's
contribution in running businesses well than it would be without him."
But once again, this reveals a lack of understanding of our main
thesis, which isn't that Carlos Slim is evil and the root cause of
Mexico's problems. We argue that ambitious entrepreneurs like Gates or
Slim will do good for society if inclusive institutions constrain
them, and that they will mostly serve their own interests
otherwise. So the right counterfactual to Slim isn't no Slim, but a
Mexico in which people like Slim (and hundreds of other talented
would-be entrepreneurs who never got the opportunity to flourish
because of the country's poor education system or because of its
terrible competition laws) operate within the context of inclusive
economic institutions and therefore enrich their society to a much
greater extent.
For the record, however, before cheerleading Slim, Gates might want to
read the OECD's 2012 report on telecommunications policy and
regulation in Mexico, which estimates the social costs of Slim's
monopoly at U.S. $129 billion and counting. (The latest Forbes list of
the world's richest people puts Slim's net worth at U.S. $79
billion). So in what way is Mexico better off exactly?
Gates also complains in his review that we "ridicule modernization
theory." We don't. We try to articulate an alternative theory of
extractive growth -- which takes place under extractive, authoritarian
political institutions -- where countries grow because their
leadership controlling these extractive institutions feels secure and
able to control and benefit from the growth process. This occupies a
large part of our book because it is a central feature of economic and
political development over the last several thousand years. Our theory
suggests why extractive growth doesn't automatically lead to more
inclusive institutions: Growth is made possible, at least in most
cases, by the leaders and dominant elites' belief in their relative
security.
Gates is right that there are examples like South Korea (which we
discussed in the book) that have transitioned to more inclusive
institutions following a period of extractive growth. But South
Korea's transition to democracy in the 1980s was in no way
automatic. It came about as a result of protests by students and
workers against the military regime, and only after the repression by
the military failed to quell the unrest. More importantly, as a
cursory look at our bibliographic essay would have shown, our
dismissal of modernization theory isn't based on a few case studies or
a gut feeling, but on careful econometric evidence. See, for example,
our papers titled "Income and Democracy" and "Re-evaluating the
Modernization Hypothesis, both jointly authored with Simon Johnson and
Pierre Yared.
At another point in his review, Gates contends that economic growth is
"strongly correlated with embracing capitalistic economics." Yet it is
far from clear what he means by "capitalistic economics." Were Egypt's
economic institutions during the presidency of Hosni Mubarak -- after
he liberalized the economy and reduced the role of the state --
capitalistic? Most people refer to this as "crony capitalism," but
perhaps this is all part of capitalist economics? Or consider the long
dictatorship of Porfirio Diaz in Mexico in the 19th century, which
eradicated many of the remaining restrictions of the Spanish colonial
system, established an economy based on private enterprise (especially
of his cronies), and "freed" markets (including the creation of the
market for coerced labor). Was that capitalistic? What about South
Africa under apartheid, based on private enterprise by whites, but
disempowering and exploiting the majority blacks? Perhaps Gates
himself should have more carefully defined his terms.
The concept of capitalism doesn't feature in our book for good
reason. It muddies the waters. Our point, by which we stand strongly,
is that what distinguishes societies isn't whether they are centrally
planned or capitalist, but whether they are extractive or
inclusive. Though centrally planned economies are by their nature
extractive, so are many "capitalist" economies.
Finally, Gates takes issue with our supposedly "huge attack on foreign
aid," citing in particular our "misleading" claims about
Afghanistan. But again, he would have benefited from looking at the
bibliography. The finding that about 10 percent of foreign aid goes to
intended recipients isn't from Afghanistan, as he seems to think, but
from Uganda, which was not a war zone but a peaceful country at the
time of the 2004 study we cite. More importantly, there is now
considerable evidence showing that foreign aid in the postwar era has
had little positive impact on economic development, which Gates
chooses to ignore (see, for example, William Easterly's White Man's
Burden). Denying this is really putting your head in the sand.
But even sadder is the fact that we don't even argue against foreign
aid. What we argue in the book is that aid -- the little of it that
reaches its target -- does a lot of good for poor people. But it is
not the solution to the real problems of development. Instead of
endlessly asserting empirically untenable positions, we all need to
move on and find more constructive ways to engage with poor
countries. Foreign aid should certainly be part -- but not all -- of
this engagement.
Gates does correctly point out that much is missing from the framework
in our book. Even if underdevelopment isn't just a problem of bad
leadership, and even if its solution won't come from enlightened
leaders, a more complete framework should indeed integrate the
behavior of leaders that play an important role in state building,
organizing collective action, and articulating visions for social
change. Examples of such leaders include Tunisia's Habib Bourguiba and
Singapore's Lee Kuan Yew, both of whom undoubtedly influenced the
course of their country's development. But we chose to emphasize
institutions in our book because for leadership to have a lasting
impact, it must become institutionalized via inclusive political
institutions. After several decades of promoting education and
developing a Tunisian national identity, for example, Bourguiba, who
ran Tunisia as a dictator, was elbowed out of power by a very
different sort of strongman, Zine El Abidine Ben Ali, who was far more
interested in using his power to loot the country's resources. But
Gates doesn't seem to be interested in such subtleties, preferring
instead to criticize every aspect of Why Nations Fail.
Some say that all publicity is good publicity, and we should be
thrilled to have Bill Gates review our book. Publicity is nice. But we
spent more than 15 years researching, writing, and thinking about
these topics, and we would be thrilled if the reviewers actually read
and understood the book in the first place. Then we could have a
constructive debate about the root causes of poverty in the world.
From: Emil Lazarian | Ararat NewsPress