Daron Acemoglu: Why Nations Fail

Why do some nations rise while others wither? Why have some of the world's largest empires eventually crumbled? What are the 'best practices' that a modern nation should follow if it desires sustainable prosperity for its citizenry?

To answer these questions, we welcome MIT professor Doran Acemoglu and co-author of the book Why Nations Fail. His observations? Yes, national prosperity has some correlation to the resources available to the State, but importantly, it's determined by how those resources are put to productive -- and fair -- use:

It all depends on incentives and opportunities. If people have opportunities to become rich, to open businesses, be innovative, do things that are going to further their interests and at the same time the nation’s GDP (Gross Domestic Product) and they have incentives to do so, that’s going to lay the foundations of economic prosperity. It sounds extremely simple but the thing is that most nations don’t provide those sorts of opportunities and incentives to their citizens and therein lies sort of the big divide. How do we summarize those opportunities and incentives? It's the institutions, the rules, formal and informal regulations, and organization of society that determines what sort of opportunities are available to different people, to people from different walks of life, and what sorts of incentives they function under.

If you want to summarize what we say about the United States in the book, a fair summary would be US is an example of inclusive economic and political institutions but it’s always had its own challenges starting with slavery, then building up to great inequality both economic and political during the gilded age which saw robber barons and huge monopolization of American business, then segregation and now a remaining sidelining of a significant fraction of US population in terms of economic opportunities. 

One area that I would highlight is that the entire world, but also the United States in particular, is in the midst of another economic revolution. New technologies and globalization providing huge opportunities for increasing our productivity, increasing our ability to produce goods economically and increase the variety of goods that we produce for our consumers but these opportunities are also creating very unequal gains. Globalization for example, or trade with less developed economies such as China are reducing labor costs, but in the process are destroying a lot of jobs and these gains that accrue to companies or some subset of consumers are not necessarily automatically spreading to the rest of society.

The problem is even more dire when you come to new technology such as artificial intelligence, robots, which are coming online right now but over the last 25 years we have a broader process of automation going on which took a lot of jobs and made them more efficient but in the process created both unemployment and downward pressure on the wages of a significant fraction of Americans. All of these are creating challenges about how do we take the gains that are being created by this amazing globalization and technological changes and make sure that the rising tide lifts both…both in terms of gains so that we don’t create huge inequalities and therefore huge discontent within society and also importantly, in terms of opportunities so that we don’t destroy the relatively level playing field that the United States has compared to other countries, so that’s the first challenge.

The second challenge, perhaps not unrelated, is that every society continuously struggles with limiting political inequality. Politically inclusive institutions which I mentioned earlier on…they rest on the premise that no single individual or no group of individuals is going to become so powerful as to dictate the political choices of society. One-person one vote, one-person one voice. Of course, it’s not going to be perfect but broad distribution of political power. Well, that’s never true in any society but it also becomes harder and harder sometimes as certain groups, certain individuals, start accumulating more political power. I mentioned Venice. That’s how the decline of Venice started. Some people said…Okay, we’re going to monopolize the Venetian Parliament. We’re going to not allow other people to come in and become politically powerful actors in the society and then the whole thing unraveled. In the United States, we have the same thing coming from the fact that money matters a lot in politics, a lot of people have become disinterested in politics, a lot of people don’t have their voices heard in politics, and that is translating into huge political inequalities.

Click the play button below to listen to Chris' interview with Daron Acemoglu (43m:52s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/daron-acemoglu-why-nations-fail/

Dunbar's Number. Democracy was developed when there were far fewer people in the world. Dunbar says that the maximum number is 150 people that can know each other intimately. For instance the Icelandic Thing, where the community would come together to chew the fat and vote. On greater issues the All Thing was called. This situation was naturally inclusive and only worked because there were so few people. 

This is not the situation today. Today I believe that the Cultural Marxists are trying to remedy the over population problem by putting us all through a blender. The hope is that somehow this will make us more governable . (How many of you know your neighbour two doors  away?) 

The Club of Rome  The Limits to Growth report was primarily descriptive. It then tried various strategies to ameliorate what was obviously a disappointment.  

Anyone can purchase the program and experiment with their own pet solution. (There may be issues with heritage software.) Prepare to be frustrated. The results of this spreadsheet are odious. Only an attack on their assumptions may work.

Here is a snapshot . Good website BTW.



My point of attack on their assumptions is that we are confined to the surface of this rock. So far their foundations show little sign of damage. But I shall keep trying. 




Great interview and review of North/South American history and development!
He really educated me on the past 400 years of European "conquest" of the Americas, and the institutions and economic systems that followed. Extraction has now turned into different forms of rationing and populism.

Again, it demonstrates to me that those countries - especially the resource rich countries - who maintain limited government but allow entrepreneurs to flourish, will be the ones to lead us into new models of governance and economic success.

The problem is the accounting (monetary) system. The world needs to shift to a level playing field where the rewards to people and companies who satisfy the needs of the global population - in a fair, inclusive, environmentally sensitive way - will be secure enough to motivate and encourage risk takers. And then those countries who win at attracting these risk takers and intellectual property will be the winners…

Let's hope so!

Thanks Chris.

An interesting discussion, but given human nature’s record of exploitation, Mr. Acemoglu’s observations were nothing new to this old curmudgeon.  Organized living systems tend to spurn the second law of thermodynamics and concentrate energy for the system’s benefit. This results in exclusive behavior by the few at the expense of the larger group. Inclusive behaviors must be forced on human societies in order for them to operate at a higher level of complexity. As pointed out by the likes of Joseph Tainter and others of his thinking, this increased complexity results decreasing marginal utility. As resources become scarce, individuals seek out alternatives and find a niche that benefits them.
If you doubt this, ask those booked with Delta airlines how they plan to get home tomorrow. Exceptions have a tendency to become the rule as societies get larger and more dependent. As populations increase, these exceptions will affect everything from flight reservations to weather patterns. Diversity is the saving grace for these conditions and the more we can encourage that the better the planet will function.

The book is on order… Looking forward to reading it and getting a more complete picture of their theory. I like the fact that it moves beyond the myopic Spanish-bad, English-good settlement memes and that it is able to address more modern conditions of evolving institutional systems as well. I wonder just how many of the warning signs our current systems tick for heading onto the 'failure' track as a nation?

Great interview…I'm looking at History through a new lens and will get the book. For me it also comes down to a personal level…I know extractive type individuals but try to stick with the inclusive ones.

My takeaway from this story is that the British were confronted with decentralized, more independent, less authoritarian tribes in Virginia than those encountered in say, Mexico. These were not tribes living under an already extractive culture. Consider that the  war-crazed, authoritarian, religion-dominated Aztec state had already enslaved numerous populations and vassal tribes there (turning the bodies of many into ceremonial feasts for the elites).  Also, note this quote about the Tiwanku, predecessors of the Inca:
Like the later Incas, the Tiwanaku had few commercial or market institutions. Instead, the culture relied on elite redistribution.[8] That is, the elites of the empire controlled essentially all economic output, but were expected to provide each commoner with all the resources needed to perform his or her function. Selected occupations include agriculturists, herders, pastoralists, etc. Such separation of occupations was accompanied by hierarchical stratification within the empire.[9]

Just spitballing here, but sounds to me more like having your culture already in the pocket of elites made it possible for other elites to come and exploit you. 

One more thing, Daron said until very, very recently, the environment (which he equates with future humans) did not have any voice in government. Here is a quote from the Constitution of the Iroquois Confederacy (New York tribes). I'm not sure exactly when it was written but some date the foundation of the confederacy to the 1100s, and I'm fairly certain we can't chalk this sentiment up to European contact:

 "Look and listen for the welfare of the whole people and have always in view not only the present but also the coming generations, even those whose faces are yet beneath the surface of the ground – the unborn of the future Nation."

They too were talking about future humans, which of course is a limited view of the environment. But nevertheless, their knowledge of how to live sustainably on this planet may have been stamped out on this continent by British colonists, who were just pursuing economic opportunities

Hi Spencer.

There is no question that the coming of white/European traders brought about the end of Natives knowing how to live "sustainably."

Hatchets were better weapons than wooden warclubs…Metal utensils and objects replaces things previously made out of stone or bone. And, of course, Alcohol was what is was - but that is the subject of another post. What I'm trying to say here is that The European traders had things that made life easier for the Natives of the eastern seaboard. And so they let them in, which eventually led to their way of life being lost. 

More musings on The Limits to Growth assumptions.
The arrow of time.

The Limits to Growth report assumes an intuitive arrow of time because they were Systems Analysts. Why would they think otherwise?

There are two interpretations of the Quantum Erasure Experiment that I am aware of.

  1. That All is Data  This is Tom Campbell's interpretation. Reality is proceedurally generated exactly like the video game " No Man's Sky" Tom asserts based upon his own subjective experiences and his background as a Physicist that we are a subset of a Greater Reality. His model provides for an arrow of time.
  2. That the Past is Adjusted to Support the Present Observation This interpretation would allow for the fine tuning of the Universal "Constants" Sheldrake has already pointed out that the speed of light varies by orders of magnitude greater than the measurement error bars.
Because both interpretations are so persuasive I am thinking that there must be some common interpretation that we haven't remembered yet. One does not preclude the other. More work to be done here.

So how does this undermine the LTG report? The Observation is the primary act. Everything has to support the Observation. We Observe the world and all the Rules must comply with those observations. The self-consistency of the fresh rule-set needs further thought.

Christ said," If the mind creates the body, that is a marvel but if the body creates the mind, that is a marvel of marvels." Gospel of Thomas, The Nag Hamadi scrolls.
So how did He know? The answer lies in the above description of Reality. 

What makes the approach of the three E's so powerful is that it takes into account multiple disciplines and perspectives to attempt to understand what the future may bring us.  This pod cast is a welcome departure from the steady diet of financial analysis. Finance can only ever be a symptom of a deeper disease


Just spitballing here, but sounds to me more like having your culture already in the pocket of elites made it possible for other elites to come and exploit you.
Currently much of the world's surplus is being harvested via debt & interest payments.  More centralization makes this easier.

Wouldn't it be interesting (and/or ironic) if our own "centralization wave" (where much of the West has been slowly turned essentially into an oligarchy/centralized economy with ever more of the surplus floating to a progressively smaller fraction of the population) leaves us open to exploitation by … say … individuals with superior technology coming from off-planet, effectively replicating what the Spanish did to the Aztecs.

I was explaining to a friend the difference between life in the US and life in emerging nations.  In the US, you cannot just start a small business without huge costs.  Other places, your cost to start is more or less the cost of a handcart - typically it involves providing food or other small goods to a neighborhood.  Barrier to entry is low, overhead is low, and if you have the right product, you do well, and pretty much everyone can give it a try.

In the US, the larger companies have made sure that such things are illegal.  McDonalds does not want competition from locals cooking hamburgers from a handcart that have better quality, taste better, and cost less; so laws get passed, they win, and all the people who could have been running small businesses end up on food stamps buying low quality/high calorie food from MCD.

It is nearly impossible for an external force to extract surplus from a million handcart vendors.  Its vastly easier to do so from one mega fast food chain.  It is only when you go to other places that you start to see what is possible, as well as understand what has happened.

I wonder if the centralization wave we are experiencing is an emergent property of capitalism, or if it was a deliberately executed long-term plan on the part of "someone" somewhere.

you let your guy off the hook far too easily.  He had no concept of energy on reality.  I would really like to see you hold their feet to the fire.  It was very apparent that he did not understand the significance of type, density and amount of energy that will be available to society when we have to transition.  



I completely agree.  But with economists the ignorance of energy can be so profound (and don't mean to imply ignorance is the same as being unintelligent, I mean simply "not aware of something") that pushing the concept only creates discord and no additional illumination.

So my tendency is to probe and see where they are and drop it when it's obvious there's no 'landing pad' for the concept.

The concept of resources as limited and limiting factors is utterly foreign to most western trained academics, and why not?  It's not taught anywhere as a core component of any branch of study.  You have to self-select for it via biophysical economics or some such other field of study.

It's the same as nutrition still not being a core study element of most  medical schools.  Odd, but true.

I usually only ask the question to surface the ignorance, not as a means of enlightening my interviewee.

The important part was to raise the ideas that they've put forth in the book; namely that political and institutional/economic factors are critically important towards understanding the flow of human  history.

Why is this relevant to me?  Because even in the sorts of political and economic forumlations that led to some countries being "rich" while others wound up "poor" we can note that in BOTH cases the institutions were isolationist and extractive.  It's just a matter of where we drew the extractive boundary.

In poor countries the extraction line was placed well within the human boundary.  In rich countries it was moved a layer outwards and placed in the natural world.  Neither works well forever.

If we are to remake the world into the more beautiful place we know is possible (hat tip Charles Eisenstein) we need to develop political and economic institutions that are both regenerative and relational.

So my reason for not holding Daron's feet to the fire was because I am more interested in exploring the lay of the land so we can begin to explore how to modify it for the future than I am in exposing weaknesses in their framework.  We can save that for a different time, like now.  :)

Hi, I'm back from another bout of wrestling with demons … it's exercise.
I just want to marvel at Dave's attitudinal dexterity in openingly allowing for off planet influences. As most here will know, the history of advanced civilizations on " lesser " is not especially heartening and I don't believe there are easy answers out there either. In fact I've dug up stuff I'd prefer not to know and won't bother other's with.

I like Wendy's way of useful, helpful stuff, best. And since none of us really knows what reality is anyhow, it's as well as not, to be of Good Cheer. As the postcard says: " Having become disenchanted with Reality, I am now looking for a good Fantasy! "

Not being a good jam maker or anything practical I can't of course resist mentioning my current diversionary ( I had thought ) read. It for technical geeks and all interested in the US Space Program development. The worst edited but greatest alternative story ever, by an engineer with the highest clearance at the heart of the program since WW 2. An it may earn me an Olympic Medal in gullillibity: " Selected by Exterrestials by W M Tomkins ( still alive ).

O K I'm going…



I should have mentioned the above book contains some convincing looking photos and documentation plus sexy secretaries and ends ( Vol. 1) with the shock that confronted the astronauts who landed on the Moon. Also the immense shock to the US economy as the giant sub-rosa space effort was unwound.
Gotta fly…

Thought : The amount of quality UFO data now available has to be reaching a critical mass of some kind. Only misdirection or misinformation if not disclosure seems remaining to the PSTB. And I've just watched Paul C Roberts saying that Putin can't accept the activation of a NATO missile system in Poland in 2018 ( Info Wars ). Tempus Fugit. 


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