Daron Acemoglu and James A. Robinson: Why nations fail: the origins of power, prosperity, and poverty: Crown Publishing Group, New York, NY, 2012, 544 pp, USD 30.00 (cloth)

Public Choice (2014) :

DOI 10.1007/s11127-013-0148-9

BOOK REVIEW

Daron Acemoglu and James A. Robinson: Why nations fail: the origins of power, prosperity, and poverty

Crown Publishing Group, New York, NY, 2012, 544 pp, USD 30.00 (cloth)

Atin Basuchoudhary

Published online: 8 January 2

Springer Science+Business Media New York 2014

Why nations fail: the origins of power, prosperity, and poverty is the most recent in a long and hallowed line of books that attempt to answer that deepest of economic questions: Why are some countries rich and others poor?

Acemoglu and Robinsons argument takes a somewhat meandering route through many examples and anecdotes. They start from the well-known position that rules, i.e. institutions, governing economic and political behavior matter for wealth or poverty. They categorize these rules under four broad headings. Extractive economic institutions lack the rule of law, fail to protect property and contracts, and act as a barrier against skill development by citizens. Inclusive economic institutions support the rule of law, secure property rights and contracts, and allow citizens to develop their own skills in response to market signals. Extractive political institutions concentrate power in the hands of a few without many constraints on their power. Inclusive political institutions allow pluralism and place checks and balances on political leadership and enforce the rule of law on all citizens. Inclusive institutions create sustained economic growth by encouraging investment, by using markets to allocate resources efciently, and by encouraging greater participation in the economic and political process through property right enforcement and access to education. Particularly, the authors claim that inclusive institutions encourage growth through investments in new technology and creative destruction. Extractive institutions do not. Acemoglu and Robinson want to know why certain countries have extractive institutions while other countries have inclusive institutions. They suggest that extractive institutions can be quite stable and persist over time and that the distributional consequences of extractive institutions are a source of conict both ancient and modern.

Acemoglu and Robinson present an argument for differential institutional drift to answer their question regarding differences in the wealth of nations. They suggest that a conuence of factors at a critical juncture magnify small differences in institutions to generate institutional divergence. They assume that these historical shocks are the main reason for...