Nathan Smith (via Bryan Caplan and Ryan Murphy) describes Daron Acemoglu’s and James Robinson’s Why Nations Fail as “one of the most over-rated books [he] has ever read.” I first read the book in the summer of 2012, so over a year has elapsed since then. I remember that there were parts of it I disliked. However, I don’t think Smith is being entirely fair in his critique.
Summing up Smith’s three main complaints,
- There is a lack of rigor (no formal theory or econometric evidence);
- Acemoglu and Robinson present a naïve view of democracy;
- The “inclusive” and “exclusive” terminology is “bizarre” (e.g. property rights are considered to be part of an inclusive set of institutions, but they’re actually designed to exclude).
Starting with (3), I think it’s best to interpret Why Nations Fail through a Buchananite (? Buchananian?) lens. When Acemoglu and Robinson refer to institutions, I have the feeling that they’re specifically thinking about political institutions — as opposed to things like property rights, the price system, et cetera. An inclusive institution, in this constricted context, is essentially synonymous with a pluralist institution. In public choice theory terms, inclusive institutions are those which approach unanimity at the constitutional level (and maybe also the decision-making level). This is what the authors most likely mean when they define inclusive and exclusive institutions in terms of the distribution of power.
Before discussing (2), I think we should quickly address (1). Why Nations Fail is not a scholarly book; it was not written for an academic audience. Rather, the book is intended to present the authors’ academic research to a non-expert audience. Looking at the authors’ academic work, there is an obvious difference in approach: the bulk of book is made up of historical illustrations of the authors’ main points, which are watered down versions of what they already presented to the scientific community. The academic piece that comes closest to the scope of the book is “Institutions as the Fundamental Cause of Long-Run Growth” (ungated), co-authored between Robinson, Acemoglu, and Simon Johnson. Other academic work that goes beyond the simple model presented in Why Nations Fail, includes: “Why Do Voters Dismantle Checks and Balances” (co-authored with Ragnar Torvik); “Why Not a Political Coase Theorem?” (ungated; a much simplified outline of the argument here); and (relevant to the authors’ discussion of political centralization) “The Monopoly on Violence: Evidence from Colombia” (ungated), co-authored with Rafael Santos. It’s also worth mentioning Acemoglu’s textbook, “An Introduction to Modern Economic Growth,” where the last 50 pages or so (not counting the appendixes and index) develop a mathematical model of institutions and growth. If we’re going to judge Acemoglu’s and Robinson’s contributions to growth theory (Smith calls Acemoglu “a disaster to the field”), we should look at their academic work, not at a book designed to popularize what otherwise would be unintelligible to the general public.
Smith might be right that Acemoglu and Robinson present a naïve theory of democracy in their book, but the value of the model has to be interpreted within the context of the objective of the book. It’s hard to think of relatively pluralistic political institutions that differ from democracy (which, I think, takes on a more general definition that includes representative rule), because society hasn’t experienced them yet. They do hint — although, perhaps, never explicitly tie together — towards several nuances which inform the readers’ understanding of what makes one set of political institutions more inclusive than another (which seem to support the interpretation I laid out above, when addressing point (3)). Take, for example, their discussion of the origins of Mexico’s and the United States’ respective constitutions (pp. 28–32 [all pages refer to the 2012 hardback edition]). Not only do they distinguish between the degree of unanimity at the constitutional-level, but they also compare the northern U.S. states with their southern counterparts. Democracy is a class of institutional sets, but the specific elements are relevant to the comparative success of one set over another. Consider also their reference to political instability in Latin America, despite democracy (pp. 37–38).
Consider the following,
Political institutions include but are not limited to written constitutions and to whether the society is a democracy. They include the power and capacity of the state to regulate and govern society. It is also necessary to consider more broadly the factors that determine how political power is distributed in society, particularly the ability of different groups to act collective to pursue their objectives or to stop other people from pursuing theirs (pp. 42–43).
Smith makes it seem as if Acemoglu and Robinson hold democracy as the ultimate standard of political institutions that induce (or, do not restrain) economic growth. But, in reality the authors’ argument is much more nuanced than that. Another example that contradicts Smith’s summation of their position is the reference to Syngman Rhee and Park Chung-Hee, who were autocratic rulers of South Korea (pp. 71–72). The authors mention the superior rate of growth, as compared to North Korea, despite both countries being autocracies.
The causal relationship between democracy and growth, however, is not clear, as Smith points out. He links to Robert Barro’s “Democracy and Growth.” The paper suggests that higher standards of living may lead to democracy, rather than the other way around. But, democracies don’t arise suddenly, being products of a spontaneous development of political institutions that often originate at the local level. It may be that a certain income level has to be attained to support a modern democracy, but this doesn’t mean that gradual changes in political institutions — that make them more inclusive — don’t positively affect standards of living. My guess is that the two phenomena are mutually reinforcing. Barro also argues that democratization, at some point, seems to have diminishing returns. (I’d say that widening the scope of collective action suffers from diminishing returns.) This is consistent with the findings in the paper that Ryan Murphy cites.
Why Nations Fail does not discuss these problems. Here Smith is right. There is no discussion of knowledge problems that impact democratic decision-making. Neither is there an in-depth discussion of the advantages of smaller pluralistic governments versus larger ones, or the interaction of political institutions that make up a Federalist system. This was one of the problems I had with the book, specifically with the authors’ reference to “centralization.” They argue that centralization positively impacts growth. My understanding is that they’re comparing a state that governs over a territory with competing states (or governments) that violently compete for territory — in other words, territorial consolidation. But, this doesn’t really speak to the decision-making decentralization that characterizes most successful democracies. Neither does it consider that the optimal (territorial) size of nations may be a dynamic function.
However, I don’t think it’s fair to criticize Acemoglu’s and Robinson’s position on democracy by pointing to the public choice literature. Problems that weaken democratic decision-making may also be relevant when looking at autocratic decision-making. Similarly, while there are problems with democracy that may not exist in autocracies, there are problems with the latter that aren’t relevant to the former. The public choice literature, some of which is still in dispute (e.g. rational ignorance), does not say that monarchies, dictatorships, or other forms of past governance are superior, or equal, in economic performance to democracies. Neither do I think that Acemoglu and Robinson would deny that modern democratic institutions are improvable.
Finally, consider that the authors’ main argument is to explain the difference in national income between modern nations. It may be that the wealthier countries may need to develop new, more inclusive, more constraining institutions to improve their own standard of living after a certain point (or to breakthrough some growth rate threshold), but the typical undeveloped country has yet to transition from relatively exclusive governance to pluralistic, and institutionally-strong, democracy. Thus, their pro-democracy message, understood within a proper context, shouldn’t be as controversial as Smith makes it out to be.
Is Why Nations Fail overrated? Maybe; it depends on what the average sentiment is. If the average person thinks it’s the best resource on economic growth, then, yes, it’s overrated. Someone looking for rigorous theory and empirical evidence is better off looking at the authors’ academic work. But, it’s still a very good book. If you are a non-expert, it serves as a good overview of the authors’ research in the field. Is the book perfect? No. There is a lot missing. For instance, the authors consider institutions the fundamental cause of long-run growth, but they deal almost exclusively with political institutions. There is no discussion of economic institutions that have, at best, an indirect relationship with their political counterparts. But, I don’t think that the criteria Nathan Smith mention are good ones to judge the book by.