WHY NATIONS FAIL By Daron Acemoglu and James A. Robinson (CHAPTER 4)

SMALL DIFFERENCES AND CRITICAL JUNCTURES: THE WEIGHT OF HISTORY

THE WORLD THE PLAGUE CREATED

In this chapter, the author tries to explain why different countries build different kinds of institutions in the first place. The Black Death exemplifies one of their key principles: institutions tend to change during crises, because institutions have to adapt and respond to them. Specifically, in England the Black Death tipped the scales in the ongoing conflict between the elites and the masses. By redistributing power, the Black Death made it possible for the people to create more inclusive institutions.

The differences between England and Eastern Europe underline a second important principle about historical change: not every nation will respond to the same crisis (or critical juncture) in the same way. In fact, nations often diverge over time precisely because their institutions respond to the same critical stages in different ways. While the Black Death tipped the balance of power toward the masses in England, it did the opposite in Eastern Europe. Notably, this happened because England was slightly more inclusive and less extractive than Eastern Europe before the Black Death. In other words, the Black Death multiplied existing institutional differences, leading to a major divergence.

“Institutional drift” the differences between nations that accumulate over time doesn’t always lead to transformation. Rather, it only truly matters when those nations hit a critical juncture. But when they do, institutions transform. This is Acemoglu and Robinson’s explanation for why different nations have diverged over time. In particular, it explains how nations can make the leap from extractive to inclusive institutions. Virtually all nations start with extractive institutions run by and for a small elite, but at critical junctures, the pluralistic and democratic elements in those countries can sometimes overthrow extractive institutions and replace them with inclusive ones.

Contingency really just means that things could have been otherwise history didn’t have to go the way it did. Contingency is important because it’s empowering: it suggests that people’s actions and decisions often do change the course of history. By emphasizing the contingency of history, Acemoglu and Robinson emphasize that nations can overcome poverty if their people and leaders make the right choices and overthrow extractive institutions. In contrast to Acemoglu and Robinson’s theory, which acknowledges contingency, the geography and culture hypotheses suggest that the root cause of poverty is some inherent factor that’s outside of people’s control. They thus imply that people don’t have the power to reform and improve their own countries.

The idea of contingency suggests that, depending on the behaviour of key actors, the same crisis in the same nation could make institutions either far more inclusive or far more extractive. Clearly, people shouldn’t court crisis in the hopes of building more inclusive institutions, since inclusiveness depends on a lot more than simply experiencing a critical juncture.

Acemoglu and Robinson attribute sub-Saharan Africa’s poverty to a series of patterns that have kept its institutions highly extractive over time. The slave trade, colonialism, and modern dictatorships all stopped both centralization and pluralism—which are the two key factors for inclusive political institutions. But the authors point out that these different phases of sub-Saharan African history weren’t completely random or separate: rather, they were possible mainly because institutions were already extractive. In other words, the slave trade made it easier for Europeans to colonize sub-Saharan Africa, and this colonialism made it easier for independent African leaders to maintain extractive institutions. Thus, sub-Saharan Africa hasn’t just been unlucky: rather, it has been stuck in a cycle of extractive institutions.

Ottoman and European colonialism impoverished the Middle East by creating extractive institutions, like insecure property rights and unsurpassable barriers to entry in every major industry. This stifled innovation and kept Middle Eastern economies frozen in time. Like in Africa and Latin America, then, successive governments maintained the same extractive institutions over time, keeping the region in a cycle of poverty. It's no coincidence that these extractive institutions determine how oil wealth gets distributed nearly all of it goes to the elite.