Why Nations Fail

As the destitution of the global economic disaster starts to fade away, one essential aspect of the economy strengthens; the gorge between the rich and poor. The divide is quite striking; a separating border can determine whether an individual is susceptible to poverty or riches. "Why Nations Fail" by M.I.T. economist Daron Acemoglu and Harvard scientist James Robinson is a compelling novel that explicates political and economic institutions are the sole driving force for economic success. The authors argue that weather, geography and culture have nothing to do with why nations fail; political institutions determine the prosperity of nations. The novel discusses 3 major themes; inclusive institutions, extractive institutions and why theories such as the geography, culture and ignorance of politics do not work. The book is full of past examples pertaining to the theory of extractive and inclusive institutions and is conducive in helping the reader understand and validate the reasons of why certain countries are prosperous or poor.

Acemoglu and Robinson explain that "inclusive economic institutions that enforce property rights create a level playing field and encourage investments in new technologies, and skills are more conducive to economic growth" (Acemoglu & Robinson, 2012). In return inclusive institutions are supported by inclusive political institutions which then distribute power widely to achieve centralization and property rights. The authors are describing that successful nations have good institutions that are inclusive, pluralistic and create incentives for people to work hard and invest in their future. For example the difference between North Korea and South Korea; South Korea's citizens play a major role in determining political decisions while people in North Korea are led by dictatorship. People in South Korea are entitled to education, property and investments while people in North Korea are not. Kim Jong-Il had no intention of giving citizens the right to private property or markets. Children in South Korea grow with ambition, knowing that one day they will be successful and able to buy homes and vehicles while children in North Korea grow up in poverty, and do not have any property rights or access to goods. Instead they know they will have to join the army for ten years after finishing school while people in South Korea know if they work hard they will enjoy a fulfilling life. The difference between North Korea and South Korea illustrates that inclusive economics institutions foster economic growth and prosperity. The people in South Korea rise to riches because the government has set appropriate institutions that allow the citizens to follow their dreams.

Another example that was given in the novel was the difference between the American city of Nogales, Arizona and the Mexican city of Nogales, Sonora. The cities are literally divided by a fenced border. In the American city of Nogales, roads are better, the life expectancy is higher and there is a democracy. However across the border it is the complete opposite. The author explains "the reason that Nogales, Arizona, is much richer than Nogales, Sonora, is simple: it is because of the very different institutions on the two sides of the border, which create very different incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora". The People in Nogales, Sonora are not so lucky they live in a different world with different institutions and because of these significantly different institutions: "The average citizen of the United States is seven times as prosperous as the average Mexican" (Acemoglu and Robinson, 42). Countries advance when the institutions surrounding them empower each citizen to create, invest and develop are the authors main argument. If countries would take the time to invest in democratic institutions for its people, they will in return invest in their country which will create an even distribution of wealth across the nation. Nations prosper when they create inclusive institutions however they fail when they become extractive.

Extractive institutions are institutions that focus power and opportunity in the hands of a small number of people. Extractive institutions are the main reasons that countries fail in having a strong and healthy economy today. Looking back at the examples of Nogales, Sonara in Mexico vs. the American city of Nogales; because the proper institutions are not set up to encourage economic growth there is lack of foreign investment and no real incentive for the people. "Nogales, Arizona is in the United States, which enables them to choose their occupations freely acquire schooling and skills and encourage their employers to invest in the best technology which leads to higher wages"( Acemoglu and Robinson, 9). The level of corruption in the Mexican government led to the lack of property rights and investment opportunities for its citizens. The right to buy property and invest was only in the hands of a few people who have money and some sense of political pull in Mexico. Mexico and North Korea can somewhat be related, although very different they both share one key element; that is an extractive model. The citizens in North Korea have no rights no opportunities and are forced to work in poverty with no hopes of moving forward in their lives. The right to property, investment and markets is only given to the upperclassmen while the lower class works to make the upper class even more prosperous.

One particular case that stood out in the novel was the Lottery in Zimbabwe. In January of the year 2000, President Robert Mugabe had won the Zimbabwe lottery. The bank had claimed that Mugabe's name was drawn from thousands of other customers. The authors discuss that corruption is a 'symptom' of extractive institutions. Mugabe did not really need the money as he had already awarded himself with a 200 percent salary increase. In today's world prosperity rests on the shoulders of politicians. They must centralize power and institutions to be inclusive or else they will remain in a state of poverty and corruption.

Acemoglu and Robinson also put an emphasis on how these countries actually came to be extractive. When digging back into history it related to how all these difference societies were formed. Understanding how Mugabe took power in the first place is very important. Mugabe and other political activist were able to over throw the "white regime" led by Ian Smith. After their independence Mugabe quickly established his control. He was eliminated his opponents violently unless they voluntarily opted out of his way. Mugabe was able to make himself president and rewrote the constitution in his favor. After becoming President, Mugabe took over extractive institutions that were created by the previous regime: "these institutions

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