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The Black Death is a vivid example of a critical juncture, a major event or confluence of factors disrupting the existing economic or political balance in society. A critical juncture is a double-edged sword that can cause a sharp turn in the trajectory of a nation. On the one hand it can open the way for breaking the cycle of extractive institutions and enable more inclusive ones to emerge, as in England. Or it can intensify the emergence ..
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Daron Acemoğlu |
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0c32022
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While in England the profits of the slave trade helped to enrich those who opposed absolutism, in Africa they helped to create and strengthen absolutism. Farther
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Daron Acemoğlu |
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c9a4b27
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WE WILL ARGUE that to understand world inequality we have to understand why some societies are organized in very inefficient and socially undesirable ways. Nations sometimes do manage to adopt efficient institutions and achieve prosperity, but alas, these are the rare cases. Most economists and policymakers have focused on "getting it right," while what is really needed is an explanation for why poor nations "get it wrong." Getting it wrong..
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Daron Acemoğlu |
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af2b8f8
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No two societies create the same institutions; they will have distinct customs, different systems of property rights, and different ways of dividing a killed animal or loot stolen from another group. Some will recognize the authority of elders, others will not; some will achieve some degree of political centralization early on, but not others. Societies are constantly subject to economic and political conflict that is resolved in different ..
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Daron Acemoğlu |
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a9d59fc
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The leaders of the French Revolution and, subsequently, Napoleon exported the revolution to these lands, destroying absolutism, ending feudal land relations, abolishing guilds, and imposing equality before the law--the all-important notion of rule of law, which we will discuss in greater detail in the next chapter. The French Revolution thus prepared not only France but much of the rest of Europe for inclusive institutions and the economic ..
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Daron Acemoğlu |
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2769ef1
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All in all, French armies wrought much suffering in Europe, but they also radically changed the lay of the land. In much of Europe, gone were feudal relations; the power of the guilds; the absolutist control of monarchs and princes; the grip of the clergy on economic, social, and political power; and the foundation of ancien regime, which treated different people unequally based on their birth status. These changes created the type of inclu..
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Daron Acemoğlu |
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Finally, we will also discuss how the failure of nations today is heavily influenced by their institutional histories, how much policy advice is informed by incorrect hypotheses and is potentially misleading, and how nations are still able to seize critical junctures and break the mold to reform their institutions and embark upon a path to greater prosperity.
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Daron Acemoğlu |
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41261a4
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As with France, an important consequence of the British Industrial Revolution for China and Japan was military vulnerability. China was humbled by British sea power during the First Opium War, between 1839 and 1842, and the same threat became all too real for the Japanese as U.S. warships, led by Commodore Matthew Perry, pulled into Edo Bay in 1853. The reality that economic backwardness created military backwardness was part of the impetus..
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Daron Acemoğlu |
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d4873cc
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The ability of economic institutions to harness the potential of inclusive markets, encourage technological innovation, invest in people, and mobilize the talents and skills of a large number of individuals is critical for economic growth. Explaining why so many economic institutions fail to meet these simple objectives is the central theme of this book. E
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Daron Acemoğlu |
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d2a05ac
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The most important lesson is that extractive institutions cannot generate sustained technological change for two reasons: the lack of economic incentives and resistance by the elites.
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Daron Acemoğlu |
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1cac4b9
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Though the extractive institutions that the Mayas created produced sufficient wealth for the cities to flourish and the elite to become wealthy and generate great art and monumental buildings, the system was not stable. The extractive institutions upon which this narrow elite ruled created extensive inequality, and thus the potential for infighting between those who could benefit from the wealth extracted from the people. This conflict ulti..
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Daron Acemoğlu |
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Extractive institutions are so common in history because they have a powerful logic: they can generate some limited prosperity while at the same time distributing it into the hands of a small elite. For this growth to happen, there must be political centralization. Once this is in place, the state--or the elite controlling the state--typically has incentives to invest and generate wealth, encourage others to invest so that the state can ext..
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Daron Acemoğlu |
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829e9d8
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Lack of creative destruction and innovation is not the only reason why there are severe limits to growth under extractive institutions. The history of the Maya city-states illustrates a more ominous and, alas, more common end, again implied by the internal logic of extractive institutions. As these institutions create significant gains for the elite, there will be strong incentives for others to fight to replace the current elite. Infightin..
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Daron Acemoğlu |
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ea427ce
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Max Weber, who we met in the previous chapter, provided the most famous and widely accepted definition of the state, identifying it with the "monopoly of legitimate violence" in society. Without such a monopoly and the degree of centralization that it entails, the state cannot play its role as enforcer of law and order, let alone provide public services and encourage and regulate economic activity. When the state fails to achieve almost any..
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Daron Acemoğlu |
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cb4c24f
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We will refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions as extractive political institutions. There
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Daron Acemoğlu |
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Economic growth and technological change are accompanied by what the great economist Joseph Schumpeter called creative destruction.
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Daron Acemoğlu |
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8f7e781
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the colonists in Jamestown perished. Of the five hundred who entered the winter, only sixty were alive by March. The situation was so desperate that they resorted to cannibalism.
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Daron Acemoğlu |
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612b5cd
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WHAT CAN BE DONE to kick-start or perhaps just facilitate the process of empowerment and thus the development of inclusive political institutions? The honest answer of course is that there is no recipe for building such institutions. Naturally there are some obvious factors that would make the process of empowerment more likely to get off the ground.
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Daron Acemoğlu |
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879ff91
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Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the "invisible hand" of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings."
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incentive
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Daron Acemoğlu |
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NATIONS FAIL TODAY because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction. Extractive economic and political institutions, though their details vary under different circumstances, are always at the root of this failure.
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Daron Acemoğlu |
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It is not that Argentinians are just naive and think that Juan Peron or the more recent Peronist politicians such as Menem or the Kirchners are selfless and looking out for their interests, or that Venezuelans see their salvation in Chavez. Instead, many Argentinians and Venezuelans recognize that all other politicians and parties have for so long failed to give them voice, to provide them with the most basic public services, such as roads ..
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Daron Acemoğlu |
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12bb644
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Extractive institutions that have achieved at least a minimal degree of political centralization are often able to generate some amount of growth. What is crucial, however, is that growth under extractive institutions will not be sustained, for two key reasons. First, sustained economic growth requires innovation, and innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also..
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Daron Acemoğlu |
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24ffa3a
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Both feared that the mechanization of stocking production would be politically destabilizing. It would throw people out of work, create unemployment and political instability, and threaten royal power. The stocking frame was an innovation that promised huge productivity increases, but it also promised creative destruction. T
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Daron Acemoğlu |
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Most economists and policymakers have focused on "getting it right," while what is really needed is an explanation for why poor nations "get it wrong."
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Daron Acemoğlu |
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Because elites dominating extractive institutions fear creative destruction, they will resist it, and any growth that germinates under extractive institutions will be ultimately short lived.
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Daron Acemoğlu |
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The process of political centralization can actually lead to a form of absolutism, as the king and his associates can crush other powerful groups in society. This is indeed one of the reasons why there will be opposition against state centralization,
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Daron Acemoğlu |
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a6ff4b9
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These monopolies, and many more, gave individuals or groups the sole right to control the production of many goods. They impeded the type of allocation of talent, which is so crucial to economic prosperity. Both
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Daron Acemoğlu |
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f6b89d4
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Yes, countries such as Syria and Egypt are poor, and their populations are primarily Muslim. But these countries also systemically differ in other ways that are far more important for prosperity. For one, they were all provinces of the Ottoman Empire, which heavily, and adversely, shaped the way they developed. After Ottoman rule collapsed, the Middle East was absorbed into the English and French colonial empires, which, again, stunted thei..
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Daron Acemoğlu |
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Nations fail when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth.
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Daron Acemoğlu |
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In the case of China, the growth process based on catch-up, import of foreign technology, and export of low-end manufacturing products is likely to continue for a while.
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Daron Acemoğlu |
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Many studies estimate that only about 10 or at most 20 percent of aid ever reaches its target.
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Daron Acemoğlu |
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But given the changes that had already taken place in economic and political institutions, long-run repression was not a solution in England. The Peterloo Massacre would remain an isolated incident. Following the riot, the political institutions in England gave way to the pressure, and the destabilizing threat of much wider social unrest,
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Daron Acemoğlu |
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c9b1d90
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There should be no presumption that any critical juncture will lead to a successful political revolution or to change for the better. History is full of examples of revolutions and radical movements replacing one tyranny with another, in a pattern that the German sociologist Robert Michels dubbed the iron law of oligarchy, a particularly pernicious form of the vicious circle.
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Daron Acemoğlu |
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93b1031
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poor countries are poor because those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose. To understand this, you have to go beyond economics and expert advice on the best thing to do and, instead, study how decisions actually get made, who gets to make them, and why those people decide to do what they do. This is the study of politics and political processes. Traditionally economic..
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Daron Acemoğlu |
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Political and economic institutions, which are ultimately the choice of society, can be inclusive and encourage economic growth. Or they can be extractive and become impediments to economic growth. Nations fail when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth.
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Daron Acemoğlu |
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Different patterns of institutions today are deeply rooted in the past because once society gets organized in a particular way, this tends to persist.
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Daron Acemoğlu |
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while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has.
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Daron Acemoğlu |
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authoritarian regimes currently experiencing some growth are likely to reach the limits of extractive growth before they transform their political institutions in a more inclusive direction--and in fact, probably before there is any desire among the elite for such changes or any strong opposition forcing them to do so.
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Daron Acemoğlu |
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Putting an end to foreign aid is impractical and would likely lead to additional human suffering. It is impractical because citizens of many Western nations feel guilt and unease about the economic and humanitarian disasters around the world, and foreign aid makes them believe that something is being done to combat the problems. Even if this something is not very effective, their desire for doing it will continue, and so will foreign aid.
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Daron Acemoğlu |
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8e7da90
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But if out of every dollar given to aid, ten cents makes it to the poorest people in the world, that is ten cents more than they had before to alleviate the most abject poverty, and it might still be better than nothing.
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Daron Acemoğlu |
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434c8fa
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In the same way, current Chinese growth has nothing to do with Chinese values or changes in Chinese culture; it results from a process of economic transformation unleashed by the reforms implemented by Deng Xiaoping and his allies, who, after Mao Zedong's death, gradually abandoned socialist economic policies and institutions, first in agriculture and then in industry.
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Daron Acemoğlu |
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science of economics should focus on the best use of scarce means to satisfy social ends.
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Daron Acemoğlu |
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After all, if ignorance were the problem, well-meaning leaders would quickly learn what types of policies increased their citizens' incomes and welfare, and would gravitate toward those policies.
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Daron Acemoğlu |
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bf75b45
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As we have seen, democracy is no guarantee that there will be pluralism. The contrast of the development of pluralistic institutions in Brazil to the Venezuelan experience is telling in this context. Venezuela also transitioned to democracy after 1958, but this happened without empowerment at the grassroots level and did not create a pluralistic distribution of political power. Instead, corrupt politics, patronage networks, and conflict per..
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Daron Acemoğlu |