During the Arab Spring of 2011, Egyptians said something that we Nepalis often say as well:
“We are suffering from corruption, oppression and bad education. We are living amid a corrupt system which has to change.”
How do we end up in such corrupt systems? How do these systems lead nations to failure? Is it possible to escape the vicious cycle of corruption and failure? If so, how?
These are the kinds of questions Daron Acemoglu and James Robinson attempt to answer in their book Why Nations Fail.
Main Thesis of the Book
Acemoglu and Robinson present their argument as follows:
A country progresses when state power is centralised and inclusive economic and political institutions are established. Centralised power here does not imply authoritarianism, but rather the assurance of a capable and strong legal rule within the state. Similarly, inclusiveness means the meaningful participation of all segments of society in the political and economic system.
If any one of the three—centralised governance, inclusive economic institutions, or inclusive political institutions—is missing, the state moves towards failure. If none of the three are present, the nation becomes completely dysfunctional.
The effects of small policy decisions become much more significant during critical junctures in history. For example, during the Black Death in Europe, a population decline led to different consequences: in Britain, Magna Carta facilitated the abolition of serfdom, while in Eastern Europe, serfdom became more entrenched. The changes brought about in Britain by Magna Carta and the end of serfdom laid the groundwork for the Industrial Revolution and enabled Britain to become the world’s wealthiest and most powerful nation.
Geography, Culture, and Disease
While presenting their argument, Acemoglu and Robinson emphasise that geography, culture, and disease do not play a significant role in determining a nation’s success. They illustrate this with several examples:
- The two Nogales cities, divided by the U.S.–Mexico border, share the same geography, history, and culture but exhibit vastly different economic and political outcomes.
- North and South Korea, in spite of similar culture and geography, have radically different institutional setups and living standards.
- Botswana and its neighbouring countries in Africa also share environmental and historical traits but differ in governance and development outcomes.
The argument is that despite similar geography or culture, the economic and political structures in place have a far greater influence on the quality of life and development trajectories of the population.
Threats to Inclusive Institutions
Acemoglu and Robinson express concern that even inclusive institutions may gradually turn extractive due to rising political and economic inequality.
They cite historical examples such as
- The Roman Empire, which eventually collapsed.
- The Roman Republic and the Venetian Republic, both of which saw their inclusive institutions deteriorate as political and economic power became concentrated among elites.
As power became limited to a few hands, innovation stagnated, and people began migrating and trading elsewhere. This highlights how fragile institutions can be when not adequately protected or regulated.
Even in countries regarded today as inclusive and successful—such as Britain—the journey was neither direct nor uninterrupted. Between the 1215 Magna Carta and the Glorious Revolution of 1688, the state was not particularly inclusive, nor was it very successful in promoting economic development.
Rulers and Innovation
Why do rulers resist innovation and technological advancement? Is it because they don’t understand them?
Acemoglu and Robinson argue no—rulers often fully understand innovation but oppose it because it threatens their power.
Technological change and innovation can undermine the very foundation of extractive systems, so those in power suppress innovations that do not benefit them directly.
For instance, before the Glorious Revolution of 1688, British kings and queens blocked numerous technological advances. However, after 1688, wealthy merchants and scientists, enriched through colonial profits, began to gain influence and push for innovation.
Britain, Colonies, and Failed Nations
Britain displayed dual behaviour—within Britain, inclusive institutions gradually took shape, while in its colonies, the British deliberately established extractive institutions for resource exploitation.
Examples include:
- Slave trade in Africa, where the British were major participants. Although slavery was eventually outlawed in Britain due to public opposition, African states continued to engage in it.
- In contrast, in colonies like America, Canada, and Australia, where resources and indigenous populations were limited, inclusive institutions started to develop—often unintentionally.
This illustrates how the design of institutions depends on state policy and necessity.
The book also discusses how the Spanish and the Portuguese in Latin America and the Dutch in South-east Asia, engaged in oppressive colonial behaviour similar to the British.
The authors also discuss failed nations, with Somalia being the prime example. In Somalia, the absence of centralised power led to no political development and no focus on economic issues. Despite fertile land and access to the sea, Somalia suffers from instability, conflict, and extreme poverty.
The Uncertainty of History
History does not always move in a straight or predictable direction. Nations that appear inclusive at one time can later become extractive. Why Nations Fail acknowledges this uncertainty and emphasises that the future of a nation depends on whether its government can control such shifts.
For example, the book discusses the rise of the Robber Barons in 19th-century America:
- These were powerful industrialists like Andrew Carnegie (steel), John D. Rockefeller (petroleum), and J.P. Morgan (banking), who established monopolies by crushing smaller competitors and consolidating power.
- Their influence extended to the U.S. Congress, making them extremely politically powerful.
However, in the early 20th century, President Theodore Roosevelt committed to breaking up these monopolies. He was followed by William Taft and Woodrow Wilson, who promoted competition by dismantling monopolies.
This paved the way for a more competitive economic environment and encouraged new wealth creators like Bill Gates. Had competition not been restored, the U.S. might have ended up like Mexico, where industry often operates under political and economic favouritism.
Virtuous Cycle
A virtuous cycle occurs when a liberal and inclusive economy demands equally inclusive politics, and those politics in turn promote further economic inclusiveness.
This mutually reinforcing relationship strengthens over time.
Historical examples include
- Britain after the Glorious Revolution, and
- The United States after the Declaration of Independence.
The earlier example of the dismantling of monopolies in the U.S. is one such case of a virtuous cycle in action.
Another example is when Franklin D. Roosevelt tried to limit the power of the U.S. Supreme Court, but Congress refused, thereby asserting the independence of institutions and preventing concentration of power.
Vicious Cycle
A vicious cycle arises when extractive political institutions use the economy for their own benefit, and in turn, those who gain economic power use it to dominate politics.
This cycle reinforces inequality and authoritarianism over time.
Examples of countries caught in such a cycle include:
- Somalia
- Argentina
- North Korea
In these countries, wealth and power remain concentrated, while most people remain excluded from both political participation and economic opportunity.
Escape from the Vicious Cycle
It is possible to escape the vicious cycle of extractive politics and economics, but it requires making both politics and markets more inclusive.
One notable example is South Korea:
- In the 1960s, General Park Chung-hee became president. While his rule was authoritarian, he significantly improved the economy.
- After his assassination, his successor, Chun Doo-hwan, became even more repressive.
- However, as economic development and public awareness grew, South Koreans gained the courage to challenge authoritarianism.
This led to the establishment of a democratic system in South Korea from 1997 onwards.
Unstable Economic Growth
Even under extractive political systems, economic growth is possible—because rulers can still benefit from such growth.
However, this kind of growth:
- Rarely improves the lives of ordinary people, and
- Is usually unsustainable in the long run.
To illustrate this, the authors cite:
- The Soviet Union under Stalin: His policies made the USSR a military power but ultimately led to fragmentation and collapse.
- Modern China: While China has experienced rapid economic growth, the authors argue that without the development of inclusive political institutions, this growth cannot be sustained, and the country is likely to transition towards democracy in the future.
Some Problems in the Book
Why Nations Fail focuses almost exclusively on internal institutions within a nation and neglects other critical factors such as:
- Geopolitics and the influence of international institutions,
- The role of global economic policies and aid frameworks.
For example:
- After the Great Depression of the 1930s, the United States adopted Keynesian economics, which later influenced Europe.
- Global events like the Bretton Woods Conference (1944), the Marshall Plan, the end of the Gold Standard under Nixon, and the rise of neoliberalism under Ronald Reagan and Margaret Thatcher, along with the policies of the IMF, World Bank, and the Washington Consensus, all had profound effects on developing nations—but the book largely ignores them.
- Similarly, it overlooks how Western intelligence agencies have influenced regime change in emerging economies and how policies from so-called “successful nations” can undermine developing ones.
The book also struggles with historical accuracy in some ancient contexts:
- It claims that the Natufian civilization collapsed due to extractive institutions, but there is insufficient evidence to support this.
- Likewise, while Egyptian and Sumerian states left behind ample evidence of exploitation, the Maya civilization cannot conclusively be said to have fallen due to institutional extraction.
Other omissions:
- Singapore is not discussed, despite its one-party rule (nominally democratic) and remarkable development.
- In the case of China, the constitutional amendment that allowed Xi Jinping a third term is not addressed—even though it significantly strengthened the Chinese Communist Party’s grip on power.
Stylistically, the book repeats its core thesis many times, making it seem as though the authors want to emphasize that their model is the only truth. This repetition can become tedious.
Furthermore, due to the uncertainty of history and the many special circumstances involved, the model proposed by Acemoglu and Robinson lacks predictive power.
It may help analyze past events, but by focusing solely on institutions, it overlooks many other dimensions of political and economic change.
Nepal’s Context
Although Nepal is mentioned only briefly in the book, when viewed through the lens of Acemoglu and Robinson’s model, we can conclude that:
Nepal has fallen into a vicious cycle due to an extractive political system that has fostered an extractive economy.
Historically:
- The formation of modern Nepal is generally considered to have begun when Prithvi Narayan Shah defeated Kantipur in 1768 (1825 BS).
- During his unification campaign, power was centralized among his courtiers and military officers (known as Bhai-Bhardars), but this did not result in political unification.
- Nepal’s defeat beyond the Mahakali River in wars against the British showed weak political and military presence in those areas.
- Even today, some parts of Nepal lack meaningful state presence, leading to lawlessness and elite exploitation.
During the Rana regime, there was a strong centralized authority, but it remained confined to a small elite.
Education was reserved for the ruling class, and reforms were often suppressed:
- Reformist figures like Dev Shumsher and Padma Shumsher were exiled.
- When Gehendra Shumsher attempted to manufacture modern weapons, Chandra Shumsher sabotaged his efforts.
- Though Chandra did outlaw sati and slavery, and established Tri-Chandra College, access remained highly restricted.
In 1951, democracy was introduced, but power remained in the hands of a few elites.
Even the first popularly elected parliament and government failed to deliver significant change.
Later, King Mahendra’s Panchayat system developed roads and industries but lacked public participation and saw elite capture.
After the restoration of democracy (1990), the people’s movement (2006), and the establishment of a republic, Nepal has still not overcome elite dominance.
With limited economic resources and concentrated wealth, public frustration with the republic is growing.
Although some socio-economic indicators have improved, weak governance has hindered visible national development.
To change Nepal’s condition, there is a need for innovation and competitive industrialization. However, political leaders fear that empowering the public will weaken their grip on power, and thus continue to act extractively.
Conclusion
Daron Acemoglu and James Robinson’s Why Nations Fail is a useful book for understanding the role of internal institutions in a country’s economic development and prosperity.
However, because it does not account for geopolitical influences, its thesis remains limited. The examples in the book should not be taken at face value, but read critically and with broader context in mind.
For readers unable to undertake deep research, the emphasis on institutions may seem conclusive—but it is essential to approach this book with caution and analytical awareness.
