PDF Summary:Why Nations Fail, by Daron Acemoglu and James A. Robinson

In Why Nations Fail, economist Daron Acemoglu and political scientist James A. Robinson try to answer one question: Why do some nations have wealth and high standards of living while others struggle with poverty and instability? They argue that the answer to this question has to do with freedom and fairness in a nation’s economy and government: Open nations—those with free and fair economies and governments—succeed. Exclusive nations—those with restricted and unfair economies and governments—fail.

In our guide, we’ll fully define what it means for a nation to be “open” or “exclusive” and how these qualities determine a nation’s success or failure. We’ll also examine how nations might change over time to become open or exclusive—or how they might resist such change. Through our commentary, we’ll provide alternative perspectives on what causes a nation to fail or succeed. We’ll also explore different interpretations of the historical examples that Acemoglu and Robinson discuss.

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2) Encouraging new ideas: Open institutions also encourage new ideas and technological developments. Opportunities for entrepreneurship allow citizens to develop new technologies and give them a personal incentive for doing so (money). Then, other citizens (who, like the entrepreneurs, can spend their money as they choose) will gravitate toward the best ideas. This gives both entrepreneurs and consumers personal incentives for technological development. Technological development is crucial for success, argue Acemoglu and Robinson. Historical examples like England’s early adoption of the steam engine or Japan’s tech boom in the 1970s show that being on the technological cutting edge creates lots of wealth.

Success Versus Internal Inequality

Acemoglu and Robinson suggest that inequality between nations correlates with technological development—nations that adopt new technologies grow wealthy, while nations that reject them fall behind. However, some experts argue that new technology also creates inequality within a nation by benefiting the wealthy much more than the poor. From this perspective, one could argue that technological development doesn’t go hand in hand with openness—it actually concentrates wealth further instead of distributing it across the population at large.

Some economists suggest that internal inequality also decreases worker productivity—so if technology does concentrate wealth, then it wouldn’t exist simultaneously with higher productivity. However, one could also argue that internal inequality comes from exclusive economic policy designed to benefit the wealthy rather than being an inherent part of technological advancement.

Part 3: Why Nations Fail

In addition to describing nations that succeed through openness, Acemoglu and Robinson also explore nations that “fail,” or that are poor and unstable with low quality of life. According to the authors, nations fail due to political and economic institutions that are “exclusive” rather than open. These exclusive institutions enrich and empower a select group of elites at the expense of the population at large. In Part 3 of our guide, we’ll explain Acemoglu and Robinson’s arguments on what makes institutions exclusive, why exclusive institutions cause nations to fail, and why many leaders create exclusive institutions.

(Shortform note: Some scholars suggest that authoritarian (and therefore exclusive) regimes will sometimes empower themselves by benefitting the population at large. Though these regimes still repress dissent, they may not fully meet Acemoglu and Robinson’s definition of “failing”: widespread poverty and low quality of life. From this perspective, exclusive leaders will provide wealth, benefits, or quality of life improvements to the population at large to coerce them into submission. For example, while Fidel Castro’s Cuba both repressed dissent and faced major economic hardships, it also created one of the world’s best healthcare systems.)

Exclusive Political Institutions

Acemoglu and Robinson explain that for a political institution to be exclusive, it must meet one of the following two standards:

1) Non-pluralistic: Unlike pluralistic institutions described above, non-pluralistic institutions don’t allow the population at large to exercise political power and don’t create limits on government power. Therefore, non-pluralistic institutions are exclusive by definition: They empower a few elites (the government and wealthy individuals) at the expense of the population at large, who can’t exercise political power or hold their government accountable.

2) Lack of enforcement: Even if a nation has pluralistic institutions, it can still be exclusive if it doesn’t have the power to enforce basic rules of conduct on the elite. Without this power, there’s nothing to limit government power or hold politicians accountable. In this situation, those in power can simply ignore the rules at the expense of the people—meaning that, in practical terms, the nation has exclusive political institutions.

Liberal Democracy and the Question of Singapore

Proponents of liberal democracy (a government consisting of open political institutions) have long debated the success of Singapore and what it means. Even using Acemoglu and Robinson’s standards for exclusive political institutions—specifically their standards for pluralism—Singapore doesn’t neatly fit into the category of either exclusive or open:

1) Exclusivity: Singaporeans elect government representatives, though most argue that these elections aren’t particularly fair—the dominant political party controls election rules and consistently wins a vast majority of elections. In addition, laws limit free speech, public assembly, and LGBTQ rights. These factors suggest that the Singaporean government isn’t pluralistic. The dominant party has the power to change or ignore limits on its power, and the population at large lacks a great deal of political power. That being said, the one-party hold on legislative, judicial, and executive authority also means that Singapore does have respected central power.

2) Openness: At the same time, Singapore is generally ranked as having one of the freest and most open economies in the world. The government generally supports a free and fair market by enforcing strong property rights and offering opportunities for entrepreneurship, as well as freedom of movement and employment.

Singapore therefore presents a challenge to Acemoglu and Robinson’s theory that exclusive political institutions necessarily lead to large-scale exploitation and failure.

Exclusive Economic Institutions

Under exclusive political institutions, those in power are free to create exclusive economic institutions that benefit themselves and their allies at the expense of everyone else. These exclusive economic institutions limit the economic activity of citizens by controlling what jobs they can have, what businesses they can run, and what technologies they can use or develop. This ensures that all market activity benefits those in power.

For example, Ellen lives in a nation with exclusive economic institutions and tries to start a business. To start her business, though, she has to bribe a government official, take out a high-interest loan from a state-run bank, and prove that she won’t sell anything “subversive.” These steps ensure that Ellen’s business benefits those in power first and foremost.

(Shortform note: Acemoglu and Robinson focus on how exclusive economic institutions serve leaders or high-ranking officials, but many scholars suggest that in corrupt (and exclusive) nations, these institutions benefit those in power on every level of society. At the lower levels of society, those in power aren’t dictators or their inner circle, but rather police officers, city governments, and other low-level bureaucrats. The presence of low-level corruption (bribery, nepotism, graft, and so on) shows how exclusive economic institutions don’t just benefit those at the very top—they can also benefit lower-level corrupt officials.)

Why Exclusive Institutions Lead to Failure

Acemoglu and Robinson argue that exclusive institutions cause nations to fail for two main reasons:

1) Lack of technological development: Exclusive institutions prevent and discourage citizens from developing new technology, limiting access to the skills, resources, and opportunities necessary for citizens to develop new ideas. This is largely because exclusive leaders fear technological developments that could lead to major economic or social changes—changes that could destabilize their hold on power. The result is that an intelligent and creative citizen in an exclusive nation won’t have access to a technical education, won’t be able to choose their own career in science or technology, won’t have access to a lab or research team, and won’t be allowed to create or distribute any new ideas that might threaten the state.

2) No incentives for productivity: Citizens have no reason to work hard, create wealth, or start a business if their government can arbitrarily take everything they earn or imprison them.

(Shortform note: Acemoglu and Robinson focus on how exclusive institutions fail by limiting a nation’s internal development—how they hamper the creation of wealth by limiting technology and productivity. In The White Man’s Burden, William Easterly argues that exclusive institutions also limit external economic development: They discourage wealth or business from coming into the nation through international trade. Corruption, bribery, and extortion are common in exclusive institutions and also discourage trade from foreign nations or businesses—it’s bad business for them to work with someone that might rip them off.)

Why Exclusive Economies Grow (and Decline)

While the authors believe that exclusive nations will eventually fail, they acknowledge that exclusive nations can undergo economic growth by exploiting a particularly valuable industry or by expanding their use of existing technology. However, Acemoglu and Robinson argue that exclusive economies can’t grow sustainably.

This is because exclusive institutions prevent “creative destruction”: technological development that creates new industries and destroys old ones. Acemoglu and Robinson argue that creative destruction constitutes healthy economic progress because it allows more efficient and productive industries to replace wasteful and outdated ones. This allows society to adapt to change and create more wealth over time. For instance, the growth of online shopping led to the destruction of many retail chains. This is the result of nations adapting to change (the popularization of the internet) and adopting a more efficient industry—one that delivers more goods for lower prices, benefiting everyone.

(Shortform note: Many critics of Acemoglu and Robinson, including Bill Gates, take particular issue with the idea that exclusivity leads to decline—either immediately or in the near future. Gates argues that all economic growth will inevitably decline regardless of openness or exclusivity. He cites the Great Depression and the 2008 financial crisis as examples of this.These events caused global economic decline separate from increases in exclusivity. Ultimately, Gates argues that openness and exclusivity aren’t sufficient for predicting or explaining a nation’s economic fortunes.)

Because they limit technological development and productivity, exclusive nations can’t adapt to creative destruction and therefore will eventually decline. An example of this is the collapse of the Venezuelan economy in the 2010s. Venezuela is an exclusive nation run by a dictator, but it still found economic success by exploiting oil reserves. However, the Venezuelan economy was entirely dependent on this existing industry. This meant that when the price of oil dropped in the 2010s, the Venezuelan economy couldn’t adapt and fell apart entirely.

(Shortform note: In the decade since Acemoglu and Robinson wrote Why Nations Fail, some exclusive nations have tried to embrace economic and technological development to avoid decline. For example, oil-rich and exclusive nations Saudi Arabia and the United Arab Emirates have launched massive campaigns to diversify their economies and reduce their dependence on oil. These efforts pose potential challenges to Acemoglu and Robinson’s argument that exclusive nations inevitably decline and can’t adapt to new developments—though it remains to be seen how successful they’ll be.)

Why Leaders Create Exclusive Institutions

The authors explain that leaders don’t create exclusive institutions for purely economic reasons—they create them to maintain their hold on power. These leaders aren’t trying to decide what’s economically best, but instead are trying to protect their own political position. This explains why leaders might make decisions completely contrary to economic wisdom or that have disastrous economic results. For example, a leader might sabotage a major corporation with tariffs not because they think that’ll help the economy, but because the CEO of that corporation is a potential political rival.

(Shortform note: Creating or enforcing exclusive institutions isn’t always a question of a greedy government official vying for money or power—sometimes, it’s a matter of staying alive. Take, for example, the relationship between low-level Mexican bureaucrats and drug cartels. Police officers, small-town mayors, and business owners often work with (or at least ignore) the cartels—which terrorize and exploit the population—due to the cartels’ threats of violence against these very same public officials. While this may or may not justify these officials’ corruption, it does show that “maintaining a hold on power” is sometimes more about avoiding political violence than it is about self-enrichment.)

Part 4: Why Nations Change (Or Stay the Same)

After outlining how institutions can lead a nation to succeed or fail, Acemoglu and Robinson then explain why nations change—how exclusive nations can become open and how open nations can become exclusive. Part 4 of our guide will cover their explanations of how, when, and why this happens—and how, when, and why it doesn’t.

Why Nations Change

Acemoglu and Robinson suggest that there are two main ways that nations can fundamentally change their institutions:

1) Critical moments: Nations can change as a result of “critical moments,” or historical events that threaten economic and political upheaval. Such upheaval challenges a nation’s status quo and creates opportunities for the redistribution of wealth and power. Then, whoever gains wealth and power from this redistribution can use it to impact political and economic change. For example, the coronavirus pandemic is causing major political and economic upheaval and redistributing wealth and power—from the growth of anti-vaccination movements to “the great resignation,” where many workers quit or changed their jobs to try and improve their economic circumstances.

(Shortform note: Some historians warn against viewing history as a series of “turning points.” They suggest that to understand historical change, scholars must consider the gradual change over time that contributes to it. Otherwise, they’ll reach reductive conclusions that fail to explain the complex nature of history. Consider Francis Fukuyama’s The End of History and the Last Man: Published in 1992, the book argues that the collapse of the Soviet Union was a turning point—the moment where liberal democracy “won” and became the global ideology forevermore. Critics argue that this kind of conclusion—one that has proven completely false—is the result of “turning point” based thinking.)

2) Gradual shifts: As opposed to critical moments, “gradual shifts” are small institutional changes that happen over the course of decades or even centuries. Acemoglu and Robinson suggest that, at their birth, all nations make initial institutional choices to fit their specific circumstances. Over time, even the smallest of these choices can evolve and have a major impact on the nation’s political and economic institutions.

For example, a new nation’s population is very spread out. As a result, the government decides to schedule regular meetings where people can gather to learn about new laws, taxes, or government decisions. These regular meetings (a political institution) help the population know what their government is up to, so they can hold their government more accountable to its promises or decisions. During the meetings, people begin to debate new government decisions—and eventually, they start to settle disagreements by voting. What started out as a small choice made to solve a specific problem (informing a spread-out population about new laws and taxes) caused a gradual shift toward open political institutions.

(Shortform note: This gradual and shifting type of change helps to inform Acemoglu and Robinson’s argument that nations like the United Kingdom or the United States had open institutions, despite having legal slavery, a colonial empire, and greatly restricted voting rights. The authors explain that the US and UK weren’t ideals of openness but were simply more open than many other nations at the time. From the perspective of gradual shifts, it was due to this partial openness that these nations’ institutions could then expand over time to more freely and fairly distribute political and economic power to the population at large.)

Why Nations Become Open

Acemoglu and Robinson suggest that nations become open by developing a balance of power. In particular, they note two factors that are necessary for this process:

1) Competing factions: Nations tend to become open when they have multiple competing economic or political factions. If these factions are all relatively equal in power, then none of them are strong enough to destroy their rivals and take control of the nation. Instead, the competing factions have to make compromises. In these compromises, the competing factions will want to ensure that they can limit the power of their rivals and hold those rivals accountable if they abuse their power—both crucial elements of open institutions.

2) Respected enforcement: A nation’s competing factions must also respect their compromises or create some system or group to enforce the terms of those compromises. Otherwise, the factions can simply ignore their agreed-upon terms and do whatever they want.

Factions, Central Power, and Federalism

The authors of The Federalist Papers ultimately agree with Acemoglu and Robinson’s two standards of a free nation, though they arrive at this conclusion in a much different way.

• Competing factions: Acemoglu and Robinson discuss competing factions in terms of hostile groups fighting for control over the nation as a whole. However, the authors of The Federalist Papers found themselves in a different position in the early United States—a position where a group of non-hostile factions (the individual states) didn’t want anyone to control the entire nation.

• Consistent enforcement: Despite the non-hostility of the states, the early United States was still dysfunctional. The federal government was so weak that the states simply ignored its demands. This led the authors of The Federalist Papers to argue (like Acemoglu and Robinson) that a successful nation needs the power to enforce its rules.

Why Nations Become Exclusive

The authors explain that nations tend to become exclusive due to one of the two following factors:

1) External influence: Historically, nations have often become exclusive due to outside influence. This can be direct—like through war and conquest—or indirect, with outside nations influencing the economic and political circumstances of a nation. These outside nations are incentivized to install exclusive institutions, since they directly benefit those in power (as we discussed earlier).

The most significant example of external influence is colonialism. For hundreds of years, European nations installed exclusive institutions in nations across Africa, Asia, and the Americas. Sometimes they did this through direct conquest or genocide, sometimes through supporting loyal and exclusive indigenous governments, and sometimes through economic incentives (for instance, supporting slavery-dependent empires by creating a massive market for enslaved people with the Atlantic slave trade). In all of these cases, Europeans installed themselves in power at the expense of indigenous peoples.

(Shortform note: Acemoglu and Robinson discuss colonies as nations separate from their colonizers, even when they existed under their colonizers’ direct rule. This leads to an inconsistent interpretation of historical institutions: For example, the authors praise the open institutions of Great Britain in the 19th century while critiquing the exclusive institutions of the British Raj during the same period. But the Raj was directly under British rule, part of the British Empire along with Great Britain. Defining the British Raj as a separate nation creates an inconsistency in which the political institutions of the British Empire are both open (in Great Britain) and exclusive (in India).)

2) Internal conflict: While nations can become open when multiple factions make compromises, they can become exclusive if these factions do not. This can happen in two different ways: First, if factions aren’t evenly matched, then the stronger faction doesn’t need to compromise—they can use their strength to defeat their rivals and take control. Exclusive institutions often result from this effort, since (as we discussed previously) leaders create them to cement their hold on power. Second, if the factions are evenly matched but refuse to compromise, then they will fall into conflict and each create exclusive institutions to try and cement their hold on power—in such a case, a nation will often split up and cease to exist entirely.

(Shortform note: Acemoglu and Robinson cite Somalia as an example of internal conflict leading to exclusivity and eventual failure. For much of the 20th and 21st centuries, the nation frequently lacked any state power and existed in a state of conflict. However, some argue that this didn’t entirely lead to exclusive conflicting factions. This argument points to the Republic of Somaliland, a nation that declared independence from Somalia in 2001. Though Somaliland isn’t officially recognized by any other nation, some experts argue that it is one of the most successful democratic nations in all of Africa. The democratic stability of Somaliland suggests that internal factional conflict may not always result in uniform exclusivity.)

Why Nations Stay the Same

While nations can change, Acemoglu and Robinson acknowledge that these changes are historically exceptional—for the most part, exclusive nations tend to remain exclusive and open nations tend to remain open. This is in part due to the close links between economic and political institutions. Wealthy groups can gain political power and powerful groups can influence economic policy—therefore, exclusive institutions that concentrate political power also concentrate wealth, while open institutions that disperse political power also disperse wealth. This close link also can create a feedback loop: Those who benefit from economic institutions gain more political power and wealth which they then use to influence those institutions in order to benefit more, and so on.

(Shortform note: Thomas Piketty (Capital in the Twenty-First Century) agrees that there’s a “feedback loop” concentrating wealth in the hands of a few over time. However, he suggests that this feedback loop benefits everyone who’s wealthy—not just politicians but also CEOs, stockbrokers, and lucky heirs to massive fortunes. Piketty argues that even if the ultra-wealthy stop working entirely, they can still reinvest their fortunes to make even more money, labor-free. Furthermore, he argues that without widespread action, this concentration of wealth will only continue further: As the wealthy gain more money, they’ll have more to reinvest, and can make even more while doing even less.)

Why Nations Remain Open

The authors argue that nations tend to remain open because their people have a vested interest in keeping them that way. A population will resist any attempt to take away their economic and political freedoms—and existing open institutions give them wealth and political power they can use to protect these freedoms. Efforts to protect freedoms take many forms. In particular, Acemoglu and Robinson note the importance of political demonstrations, an independent and free press, and widespread education. All of these help to create an informed and motivated population that recognizes the benefits of open institutions and is willing to protect them.

(Shortform note: In the decade since Acemoglu and Robinson published Why Nations Fail, many political commentators have noted a growing trend of democratic nations willingly electing autocratic leaders. These leaders use populist ideology, polarization, and misinformation to convince a population to partially or entirely abandon democracy. This trend challenges Acemoglu and Robinson’s claim that citizens will actively fight to protect open political institutions. The authors have spoken on this subject in the context of the United States and suggest that this trend results from exclusive economic institutions. These institutions left many poor and frustrated with their existing government—and more open to autocrats as a result.)

Why Nations Remain Exclusive

According to Acemoglu and Robinson, nations tend to remain exclusive because their leaders have a vested interest in keeping them that way. Leaders of exclusive nations don’t want to threaten their rule by distributing wealth or political power. In addition, exclusive institutions also give their leaders immense wealth and power that they can use to stop any attempt at change. Unlike in open nations, leaders of exclusive nations don’t have to make any kind of bargain with their people—the people have no wealth or power they can use to demand change.

The Iron Law of Oligarchy: Why Nations Must Become Exclusive

Acemoglu and Robinson cite Robert Michels’s “iron law of oligarchy” in their explanation of why nations remain exclusive. Unlike the authors, however, Michels believed not only that non-democratic (and exclusive) nations would remain that way, but also that all democratic (and open) nations would eventually transform into oligarchies. Michels argues that democratic nations are unsustainable because the internal and external structures of their governments conflict:

• Externally, everyone in a democracy is supposed to have an equal say in government affairs. This is why the population (people external to the government) votes in elections.

• Internally, government bureaucracy is hierarchical and undemocratic. Organizing and running the daily affairs of government requires some people to have more status and power than others. This is true at every level of government, from a post office to the leaders of the nation.

Michels believes that this conflict inevitably leads to oligarchy, as leaders in government become their own separate group with higher status, power, and organizational ability. These leaders then can use these benefits to change the government in a way that serves them—change that includes getting rid of democracy and maintaining exclusive political institutions.