What Makes Countries Rich or Poor? Jared Diamond For The New York Review of Books Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson Crown, 529 pp. "The fence that divides the city of Nogales is part of a natural experiment in organizing human societies. North of the fence lies the American city of Nogales, Arizona; south of it lies the Mexican city of Nogales, Sonora. On the American side, average income and life expectancy are higher, crime and corruption are lower, health and roads are better, and elections are more democratic. Yet the geographic environment is identical on both sides of the fence, and the ethnic makeup of the human population is similar. The reasons for those differences between the two Nogaleses are the differences between the current political and economic institutions of the US and Mexico. "This example, which introduces Why Nations Fail by Daron Acemoglu and James Robinson, illustrates on a small scale the bookâs subject.* Power, prosperity, and poverty vary greatly around the world. Norway, the worldâs richest country, is 496 times richer than Burundi, the worldâs poorest country (average per capita incomes $84,290 and $170 respectively, according to the World Bank). Why? Thatâs a central question of economics. "Different economists have different views about the relative importance of the conditions and factors that make countries richer or poorer. The factors they most discuss are so-called âgood institutions,â which may be defined as laws and practices that motivate people to work hard, become economically productive, and thereby enrich both themselves and their countries. They are the basis of the Nogales anecdote, and the focus of Why Nations Fail. In the authorsâ words: "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. "Among the good economic institutions that motivate people to become productive are the protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and open exchange of currency. For instance, people are motivated to work hard if they have opportunities to invest their earnings profitably, but not if they have few such opportunities or if their earnings or profits are likely to be confiscated. "The strongest evidence supporting this view comes from natural experiments involving borders: i.e., division of a uniform environment and initially uniform human population by a political border that eventually comes to separate different economic and political institutions, which create differences in wealth. Besides Nogales, examples include the contrasts between North and South Korea and between the former East and West Germany. Many or most economists, including Acemoglu and Robinson, generalize from these examples of bordering countries and deduce that good institutions also explain the differences in wealth between nations that arenât neighbors and that differ greatly in their geographic environments and human populations. "There is no doubt that good institutions are important in determining a countryâs wealth. But why have some countries ended up with good institutions, while others havenât?" Read on! http://www.nybooks.com/articles/arc...akes-countries-rich-or-poor/?pagination=false
very good article. I particularly enjoyed the critique int he end. Inclusive Institutions are important. The article betrayed its left bias by almost completely omitting the choices made by the people. Why did some countries have successful rebellions by against bad institutions? Why were many of them located in Europe? The authors left out individual choice. and, I believe both author and reviewer left out one other major factor. Which if you are going to talk about influence of institutions on people is a really odd one to leave out.
I would think the the quality and qualities of individual choice would be largely determined by socialization, thus another product of inclusive and influential institutions. Not to say that good choices cannot be made without good institutions, but the very notion of what's good and bad, right and wrong, effective and ineffective, has to come from somewhere.
Perhaps... and exactly my point. What institutions or movements were about individuals worth rather than the kings or the govts. What movements focused on the right of an individual to self determination. What institutions encouraged reading and learning. What institutions spoke of right wrong and greater good.
I read the article a couple of time and it is interesting but I don't get the connection to the thread title "Where to build your civilization? Don't pick "tropics"" I was reading that in Libya there were no real public institutions. Gaddafi effectively killed any government institutions or organizations that existed in Libya before he took power. He, apparently, feared that public/government institution like a central bank or health/medical regulator and even a weather agency could be used against him in any attempt to remove him as dictator. When Libya was able to rid itself of Gaddafi there was a real fear internationally that the country simply could not function because any type of centralized power was eliminated by Gaddafi.