Why Nations Fail

In recent months, I’ve been hooked by this book entitled “Why Nations Fail” which has greatly influenced my view on the social project we are leading in the city. It is the great work of two MIT economists named Daron Acemoglu and James Robinson.

As shown by an avalanche of historical evidences, factors such as weather, geography and even culture do not definitively influence growth trajectories of societies overtime. The whole central thesis of the book is that nation’s fail mainly because of man-made political and economic institutions that underline economic success.

Political institutions primarily create economic institutions. People who hold power over a society primarily create political institutions. Looking at who holds the power is the beginning of the development narrative. Is political power held by a small number of land owning barons? Or is it dispersed to an array of diverse interests?

The book dichotomizes these political institutions as either exclusive or inclusive. Exclusive political institutions mean that it is governed by a homogenous group who uses the power of the sate to entrench and enrich their own ruling class at the expense of the broader development of the many. Inclusive political institutions mean that broader, varied and competing interests are able to hold power and use the state to enrich a broader population base.  

Since the entrenched ruling class has the incentive and the means to concentrate power upon themselves, it creates a vicious cycle of corruption and poverty. Taxes and other policies are used to finance private gain at the expense of greater societal development. At the level of the common people, there is no incentive to innovate since at anytime, their innovations might be expropriated or taxed to destruction by the state.

However, in certain convergence of historical events, these closed institutions crack up such as the signing of the Magna Carta in 1215 in England where for the first time, a sovereign agreed to limit his power.

This then became a staging point for further political development of England in the next centuries which ushered broader participation by ordinary townsfolk in political affairs. They were able to draw back the power of the ruling elite and establish a system of laws that is tilted in favor the common people. 

An example, which would propel England to the world stage in the 18^th century, is its relatively fair and enforceable patent laws. Due to the demand of the common people to protect their inventions, coupled by a parliament that already has common representation, these laws were passed with little opposition by vested elites fearful of innovation.

This law gives incentives to thinkers such as Sir Isaac Newton to express their scientific discoveries. It also encourages innovators to invent the steam engine that ushered in the Industrial Revolution.

As compared to Czarist Russia at the same time, railroad development was intentionally halted out of fear that railroads would mobilize the masses faster, with the ideals of the enlightenment with it. An anxious elite would use all means and power to stop it from happening but as we later know, their own neglect was their own undoing.

As a closing, it was only when a growing conscious and educated working class who organize themselves politically and assert their power within the state structure did these societies see a dramatic change in policy and direction which ultimately made prosperity a reality for a majority of the people. Giving the middle class sufficient political power creates a virtuous cycle where the decisions produce policies in its favor which in turn would benefit society overall. 

So in the Philippines where the shadow of feudalism cover much of our provinces and cities, when will the middle class grow sufficient in size, knowledge and idealism that will enable it to change the balance of power? I guess, based form the book, it is only then when we can dream of a better Philippines.