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In their book, Why Nations Fail, authors Daron Acemoglu and James A. Robinson ask what one might think is a rather simple question: namely, why are some nation’s poor and others are not? Over the years, a number of leading economists and social observers have sought to provide greater clarity to this question by advancing various theories, which among other things have identified colonialism, environmental degradation, geographical disparities, and divergent culture attitudes as possible culprits.

Dissatisfied with these explanations, however, Acemoglu and Robinson began investigating this question for themselves and in the course of their research discovered a striking pattern. Notably, the authors identified a direct and cyclical causation, or what they characterize as a “strong synergy” tying the political and economic institutions of a country with its overall level of prosperity.

As Acemoglu and Robinson note, “countries differ in their economic success because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people.” As an example, the author point to the stark differences between teenagers living in North Korea South Korea.
   

“Those in the North group up in poverty, without entrepreneurial incentive, creativity, or adequate education to prepare them for skilled work. Much of the education they receive at school is pure propaganda, meant to shore up the legitimacy of the regime; there are few books, let alone computers. After finishing school, everyone has to go into the army for ten years. These teenagers know that they will not be able to own property, start a business, or become more prosperous even if many people engage illegally in private economic activities to make a living."
By contrast, teenagers in South Korea are significantly more likely to receive “a good education, and face incentives that encourage them to exert effort and excel in their chosen vocation. South Korea is a market economy, built on private property.” But equally important to this equation is the fact that the South Korean state likewise “supports economic activity,” and has adopted a number of inclusive so-called “inclusive economic institutions, which foster broad-based economic activity and prosperity. “To function well,” Acemoglu and Robinson further argue, society also needs public services, such as “roads and a transport network so that goods can be transported; a public infrastructure so that economic activity can flourish; and some type of basic regulation to prevent fraud and malfeasance.” In sum, the authors conclude, “inclusive economic institutions need and use the state.”

Supplementing the activities of economic institutions are those of political institutions. Here too, Acemoglu and Robinson note that the most prosperous countries are those that adopt inclusive political institutions to complement their inclusive economic institutions. As Acemoglu and Robinson state:

“Politics is the process by which a society chooses the rules that will govern it. Politics         surrounds institutions for the simple reason that while inclusive institutions may be good         for the economic prosperity of a nation, some people or groups...will be much better off         by setting up institutions that are extractive. Where there is a conflict over institutions,         what happens depends on which people or group wins out in the game of politics—who         can get more support, obtain additional resources, and form more effective alliances. In         short, who wins depends on the distribution of political power in society.”

In societies where political institutions are tightly controlled by an elite ruling class, or what Acemoglu and Robinson dub 'extractive political institutions', economic institutions are, rather unsurprisingly, designed to disproportionately benefit those at the top. Conversely, political freedoms and individual liberties are often severely restricted in societies where prosperity and economic opportunity are narrowly vested. There is of course good reason for this. After all, economic growth is not simply the “process of more and better machines, and more and better educated people,” producing ever more valuable goods and resources. Economic growth is a transformative and often times, socially destabilizing process, rendering older, less socially useful goods, services and technologies obsolete, thus disrupting established vested interests (be it a manufacturer, or a banker, or whoever). This process, or what famed economist Joseph Schumpeter called 'creative destruction' is almost always opposed by those with a vested interest in the losing, less resourceful good, service, or technology. “Growth thus moves forward only if not blocked by the economic loser who anticipate that their economic privileges will be lost and by political losers who fear that their political power will erode.”

This phenomenon, according to Acemoglu and Robinson, helps to explain why many dictators and political tyrants are often so diametrically opposed to market innovations and technological advancements which could otherwise improve the overall economic conditions of the people they rule over. After all, even in the most dire economic nations (such as North Korea for instance) the political leadership enjoy rich and prosperous lives. The risk then of loosening their economic grip is perceived by many in positions of power as being too great irrespective of how lofty the potential monetary gain might be. Acemoglu and Robinson dub this the 'vicious circle.' The synergistic relationship which exists between extractive economic institutions and extractive political institutions introduces “a strong feedback loop,” whereby “political institutions enable the elites controlling political power to choose economic institutions with few constraints or opposing forces.” This same feedback loop similarly enable the political elites to structure subsequent changes to future political institutions and practices. “Extractive economic institutions, in turn, enrich the same elites, and their economics wealth and power help consolidate their political dominance.”

Admittedly, a stronger synergy exists between extractive economic and extractive political institution, than between their inclusive counterparts. This is so, as when “existing elites are challenged under extractive political institutions and the newcomers break through,” the newcomers are subject to few constraints (sounds eerily similar to what happened in Russia following the Bolshevik Revolution). That said, not all feedback need be negative. The 'virtuous circle' as Acemoglu and Robinson call it, is consequently the result positive feedback, whereby citizens enjoy a more equal distribution of wealth, broad political empowerment, and more-or-less a level playing field.

Inclusive economic institutions are thus forged “on foundations laid by inclusive political institutions, which make power broadly distributed in society and constrain its arbitrary exercise.” Under these inclusive political regimes, it is incredibly difficult, though not impossible, to usurp power, or otherwise undermine the very widespread values and adopted characteristics of the inclusive economic and political order. Likewise, “those controlling political power cannot easily use it to set up extractive economic institutions for their own benefit,” as the democratic polities of such societies are naturally inclined to oppose such power grabs.

“Similarly, inclusive economic institutions will neither support no be supported by extractive political ones. Either they will be transformed into extractive economic institutions to the benefit of the narrow interests that hold power, or the economic dynamism they create will destabilize the extractive political institutions; opening the way for the emergence of inclusive political institutions. Inclusive economic institutions also tend to reduce the benefits the elites can enjoy by ruling over extractive political institutions, since those institutions face competition in the marketplace and are constrained by the contracts and property rights of the rest of society.”
For years, the United States served as a prime example of how the combination of inclusive economic and political institutions bred more prosperous, happy populations. But this is no longer the case. Today, the United States is a highly stratified country, and fact which is growing, not retreating. Our population is either increasingly rich, or increasingly poor. Our middle class is in shambles while the promise of the American Dream goes unfulfilled for far too many. Our political system is not only highly dysfunctional and seemingly incapable of working for the greater public good, but rather appears hellbent on extracting substantial harm on the American people, be it for partisan and ideological reasons, or out of simple want and greed. Daily, Washington showers the affluent and well-connected with corporate giveaways and tax breaks, all while obsessing over ever dwindling and inefficient entitlement spending and public services.

The breakdown of America’s political and economic institutions are very serious matters.  They are not easily fixed, but the longer the injustices perpetrated by this breakdown go ignored, the more worrisome one should grow.  After all, it was Victor Hugo, a man not wholly unfamiliar with social strife and stratification, who wrote:

“Suffering engenders passion; and while the prosperous blind themselves, or go to sleep, the hatred of the unfortunate classes kindles its torch at some sullen or ill-constituted mind, which is dreaming in a corner, and sets to work to examine society. The examination of hatred is a terrible thing.”
― Victor Hugo, Les Misérables

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Comment Preferences

  •  Tip Jar (2+ / 0-)
    Recommended by:
    Bob Duck, kern

    “In theory, theory and practice are the same. In practice, they are not.” -Albert Einstein

    by Dr Christopher Boerl on Mon Mar 31, 2014 at 10:59:26 AM PDT

  •  People will tolerate only so much injustice... (1+ / 0-)
    Recommended by:
    Bob Duck

    At a certain point, a crucial threshold is reached.  When it is, those in power can either accept the inevitability of change, or they can resist it.  When the latter is the case, resentment against those at the top only grows more intense.  This is a dangerous state for society to find itself in, as this is when violence is most likely to erupt.  

    “In theory, theory and practice are the same. In practice, they are not.” -Albert Einstein

    by Dr Christopher Boerl on Mon Mar 31, 2014 at 11:08:47 AM PDT

    •  I agree there will be violence, but not political (0+ / 0-)

      Our poor ever increasingly lack the social capitol to unite and make a foothold for change.  I speak as someone in the trenches.  I teach in an industrialized northeastern state where the greatest employment category is gambling.  Service economy at societies lowest level.
      (I am not opposed to gambling but is is not a good basis for an economic infrastructure)
      The students in the public school system lack the basics of social capitol, and engagement.  They are a crumbling infrastructure for our future. They lack the initiative, and intestinal fortitude; as well as the social skills to mount a revolution.
      The violence will come from the basal level of taking what is mine, and never mind a social contract.  

      I often ask my students if they trust one another - general answer 'it depends'. I follow with 'do you think people in this class steal?'--answer yes!  A lot of talk follows with what is acceptable in stealing.  Then I ask do you steal?  And you would be surprised that about 10 to 15% in a class will openly admit they do, with the bravado that the victims had it coming because they did not protect there stuff as well as they should.
      I also ask if they trust their teachers- mostly no.
      Do they trust their guidance counselors...not really.  Who do they trust..NO One.

      A revolution requires trust amongst the troops.  Occupy failed because they tried to be leaderless (since they so distrusted leaders) and in the end could not mount a defense let alone an offense without a leader
      .
      Well written piece, Thank you for your work.

  •  A very cogent analysis (0+ / 0-)

    Economic inequality is a gathering storm.

    "When fascism comes to America it will be wrapped in the flag and carrying a cross." - Sinclair Lewis

    by Bob Duck on Mon Mar 31, 2014 at 01:06:11 PM PDT

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