Why do nations fail? What is the cause of all of the world’s inequality that keeps me up at night? Having studied and worked in the non-profit sector, inequality is something that I have come to accept. I have come to accept that, unfortunately, some countries are rich and some countries are poor. Perhaps even worse is when there are internal inequalities within countries, and when even mineral- and resource-rich countries also fall on the poor end of the wealth spectrum. Why Nations Fail addresses exactly this conundrum. What is the cause of inequality?
To begin, the book discusses and debunks existing theories of the causes of inequality. Such theories include factors such as geography and the culture of the various nations. The authors argue that, as globalisation has made the world a “smaller” place, it has become difficult to segregate or categorize the causes of poverty based on such terms. Yes, some regions may have better resources due to their geographical features, but globalisation and the growth of the service industry have helped to level the playing field for many nations. Another theory that the authors debunk is related to ignorance, which argues that leaders simply do not understand how to run nations and organise their economic and policies. Yet, if ignorance were truly the cause of inequality, then learning and enlightenment – which are easy to attain, whether on one’s own or through advisors – should bring people, including national leaders, out of ignorance. As an individual who believes in the power of self-improvement and education, I couldn’t agree more with the authors that the ignorance hypothesis is a mere excuse.
The authors proceed by stating that it is the way the nations are organised that results in their inequality. It is the choice of those in power that results in how a nation is run, and what that nation gets in return. Simply put: nations depend on whether their institutions are Extractive or Inclusive political institutions. Extractive institutions are organised in a manner in which a small group benefits from the work of the majority. Inclusive institutions are organised to bring the population on to a leveled playing field by providing equal opportunities in education, civil liberties and careers. Extractive institutions may create success, but this success is not shared or sustained, while Inclusive institutions may support innovative and continued growth.
Source: Amazon.com
Acemoglu and Robinson use North Korea and South Korea as their initial examples. They are both of the same geography and original cultures, and are led by educated leaders, and yet there is a stark difference in the lives of those on the two sides of the North-South border. The cause of the difference is their political institutions. In North Korea, everything is controlled by the state, private ownership of land and organisations is banned, and the economy is centrally planned. In South Korea, quite the opposite, private investments are encouraged and everyone has an opportunity to own their property. Some may say that the differences are natural between a dictatorship and a democracy, but let us not forget that South Korea started as a dictatorship, too, and it was also arguably successful then.
On a personal note, I grew up in Lagos, Nigeria, and moved back home to Singapore at the age of fourteen. I was able to see such institutions at work directly, even though I may have only understood them when I was older. When reading the authors’ interpretation and discussion of extractive and inclusive institutions, I thought back to my two homes, Nigeria and Singapore. By no means are they on level playing grounds, as Singapore is so much smaller than Nigeria, but they were both colonies of the British Empire, and are at a similar latitude and populated by many races and ethnicities. Nigeria gained independence in 1960, five years before Singapore did. Singapore was a fishing village in 1965, but has been able to attain great levels of development by creating inclusive institutions that provide education, homeownership and other opportunities equally for the population. Nigeria has created many more Extractive institutions, particularly in the oil and gas sectors. Oil and gas exports in 2014 in Nigeria accounted for 90 percent of Nigeria’s export revenue and over 80 percent of the federal budget revenue. Being one of the leading oil producers in the world, Nigeria should not have a GDP per capita as low as it is. Why is this? I believe it is because it is only the wealthy who reap benefits from Nigerian oil. They extract the oil, which is sent to large oil companies for refinement and sold to the community. No benefits reach the people beyond those of price subsidies. There are still instance of“petrol drought”in Nigeria, perhaps attributable to the extractive nature of its largest industrial institution.
Similar comparisons can be made of South Korea and Kenya. In 1960, South Koreans were poorer than their Kenyan counterparts, and yet today they are much richer. This is because those in Kenya were not given an equal opportunity in education and eventually jobs, compared to South Koreans.
This is not to say that African nations are not doing well or providing civil opportunities. Rwanda, for instance, despite the brutal history of a genocide, has decided to start afresh. It has begun to open up its economy, work diligently on providing education to all of its citizens, and make businesses easier to be set up and run. With this, Rwanda will grow, and the world will first think of it as a success story, before recounting its violent history.
Having grown up in Nigeria, I am passionate about the African continent, and these are just some examples to illustrate Acemoglu and Robinson’s thesis. They, of course, provide many more in-depth and well-researched examples in this attention-grabbing book, be- ginning with a summary in the introduction and first few chapters, followed by detailed examples of their argument. This book is one of the most informative books on poverty that I have recently read, and I would recommend it to anyone keen to see beyond what we often read or hear in the news today, to understand why nations are the way that they are now. Critics’ praise the book as “awesome,” “splendid,” and “a bit of a masterpiece,” and it certainly did not fail.
A satellite photo of North and South Korea at night.Source: National Geophysical Data Center/Why Nations Fail
ANUSHA ASWANI
Anusha Aswani is a Development Manager at The HEAD Foundation. She was introduced to Corporate Social Responsibility and Community Development when she began her career in Corporate Communications. After focusing largely on Community Development projects, she soon made the switch to Philanthropy where she founded the Tolaram Foundation as Executive Director and Board Member. She focuses mainly on Social Impact and creating positive change through needs oriented projects.
APRIL 2017 | ISSUE 1
(Re)thinking the Box
