Why Nations Fail (Acemoglu, Robinson)
Andrew Yang is worried about truck drivers.
The unsuccessful presidential candidate in this year's Democratic Primary penned a book (or perhaps a manifesto), The War On Normal People, in which he raises the spectre of technological unemployment as the main justification for a Universal Basic Income in the United States. In it he talks about America's more than three million truck drivers, of which 94% are male, with an average age of 49. Yang believes we are close to the reality of driverless trucks; transport for America's industry that doesn't rest, doesn't crash, and doesn't require wages to eat, pay rent, or raise a family. “There’s going to be a lot of passion, a lot of resistance to this. Anyone who thinks truck drivers are just going to shrug and say, ‘Alright, I had a good run. I’ll just go home and figure it out’ — that’s not going to be their response,” says Yang. He also says that it is likely that displaced truckers would “park their trucks across the highway and get their guns out, because a lot of these guys are ex-military, and just be like, ‘Hey, I’m not going to move my truck until I get my job back,’ and there are going to be a lot of truckers in the same situation.”
If one takes the above scenario at face value, and additionally accepts that the benefits to society of driverless vehicles will be tremendous (the cost of transporting a goods is worked into the price, ergo lower transport costs would make everything cheaper), we are faced with a conundrum. Do we slow down or halt progress (while other countries undoubtedly plough ahead), or do we devastate entire industries, ruining families and risking severe or permanent damage to social cohesion?
How Nations Fail by Daron Acemoglu and James A. Robinson is a book about the economic inequalities that exist between nations, and the authors' theory on the reasons some nations prosper and others don't. They believe that in order to prosper, countries need centralisation of power (in the Hobbesian sense of general order), inclusive (as opposed to extractive) economic institutions, and crucially, inclusive political institutions. Why crucially? Because a country with strong economic performance over a period of time will inevitably experience changes in the groups that are in economic ascendancy in society. How those in power react to such changes determine the long run success or failure of a nation.
Andrew Yang's conundrum above is a microcosm of the tension involved in all meaningful economic growth. Countries can get richer by following previously well-trodden paths of modernisation, deregulation and investment but in truth, growth comes predominantly from new ideas. New ideas in the form of inventions, tweaks and ideas that make an hour's work produce more for society. Joseph Schumpeter aptly coined the term 'Creative Destruction' for this process. The benefit of observing differences in standards of living between countries is that it highlights the true nature of the choices we make when favouring groups over society as a whole. Anyone observing the lifestyle of a Soviet Russian in 1980 relative to an American can see the cumulative effects of resistance to disruptive but beneficial change.
In the late 16th Century English priest William Lee invented a 'stocking frame', to drastically increase the speed of knitting textiles. He sought an audience with Queen Elizabeth in order to secure a patent for his invention, which was denied on the grounds that those put out of work would destabilise the country politically. Lee died penniless, and it took almost 200 years for his invention to meaningfully change the face of industry. The parallels with Andrew Yang's fears are clear - the economic betterment of society as a whole often comes up against disruption to the status quo, and whether this derails society or technological progress determines whether a nation will prosper over the long term. The strength of How Nations Fail, is in showing that this economic conundrum is always and everywhere a political conundrum. How nations resolve the conflicts between different interest groups very much depends on how power is distributed in that nation. A famous example is in 19th century Britain, when famers sought to protect the price of grain by banning imports - to the obvious detriment of anyone in England who wished to buy food cheaply. The democratic institutions in place led to rational argument prevailing, and the repeal of the hated Corn Laws. In countries where elites benefit from a policy that is harmful to the citizenry overall, but those elites have overwhelming political power, that policy will prevail - and here is how nations fail. The counter argument is of course that social cohesion matters, and moving too fast in the other direction destroys other institutions such as the family - for a thorough examination of this point I highly recommend False Dawn by John Gray.
Another strength of the book is the acknowledgement of chance events in the fates of nations. For example, the Black Death wiped out almost half the working populations in feudal Europe, east and west. When scarcity of workers led them to demand better pay and conditions in England, landowners attempted to make leaving a job illegal, and to fix pay at a rate 20 years prior. Protests in England, and the existence of new towns and cities offering alternative work meant the landowners failed; leading to the demise of feudalism and eventually the industrial revolution in England and western Europe. Similar protests in Eastern Europe failed, because landowners were comparatively powerful; the result was an agrarian economy, ultimately much poorer than industrialised Western countries. The interaction between institutions, individual motivations and chance events illustrate why so many prescriptive and platonic attempts to help developing nations have failed.
How Nations Fail is an enjoyable and informative book, consisting of myriad examples and in-depth historical studies to both emphasise the merits of the authors' theory, and demonstrate flaws in rival theories. The theory is logical and well argued, although not without controversy - Bill Gates, featured in the book is one of many to critically review it, with the authors forcefully responding online.
For anyone who wishes to understand the nuances of development economics, this book is enormously valuable. For anecdotes about the demise of the Incas, why Botswana has outperformed surrounding African countries, how Robert Mugabe won the national lottery whilst president of Zimbabwe, and why China might never catch up with the west, this book is indispensable.