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Why Nations Fail

One of the many things I learned from graduate school was the importance of having a theoretical framework within which to situate a perceived problem you seek to address. Not every problem is amenable to such conceptual grounding so it is worth articulating one for yourself so that you don't get led astray in your pursuit of feasible policies. Many of the issues I discuss in my blog can be viewed from policy frameworks used in public policy schools. Other frameworks I have had to acquire from personal research. To that end, one book that I think will stand the test of time is Why Nations Fail by Daron Acemoglu and James Robinson (2012). The key message in this tome (it is 546 pages long) is that nations fail because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction. Extractive economic and political institutions, though their details vary under different circumstances, are always at the root of failure (372).
Inclusive Political Institutions
Exclusive Political Institutions
Inclusive Economic Institutions

Virtuous
Cycle

Unstable
Equilibrium
Exclusive Economic Institutions

Unstable
Equilibrium

Vicious
Cycle

Acemoglu and Robinson (2012) convincingly argue that countries today have gone through watershed moments in their histories–critical junctures to use their terminology– and the way the prevailing coalitions and actors responded to those critical junctures explains much of the country's institutional evolution. For example, the end of colonialism can be considered a critical juncture for many former colonies which find themselves mired in nuances of texts written to negotiate their freedom. The end of colonial subjugation in many cases marked the transition toward inclusivity as the governing parties under colonialism often served as extractive elements linking the colony to some crown in Europe.

Combining this institutional framework with other economic theories such as middle income trap can help one make sense of the goings on in so called emerging markets. If the recent civil unrests in Hong Kong, Myanmar, Brazil, Indonesia, Turkey, to name a few are any indication it is that as societies become richer, the masses will demand greater voice and accountability, i.e., inclusive political institutions. Steps towards political inclusivity could comprise clarifying and ensuring property rights, particularly with regard to land user rights; participatory democracy; broader alliance between government, citizens and business in policy dialogue; creating an accountable administration; free media; effective monitoring of elected bodies; independence of the judiciary as well as regulatory agencies among others. 

 Either way, this institutional framework allows me to situate perceived problems in a country and approximate likely context-fitting policies to facilitate greater inclusion. 
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