Humanity’s natural state is abject poverty. So how did some portion of the human race manage to escape this natural state? A remarkably insightful new book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, by Massachusetts Institute of Technology economist Daron Acemoglu and Harvard University economist* James Robinson provides an answer to that pressing question.
The book is somewhat misnamed since it really deals with how some nations succeed. The answer, in a word: institutions. In particular, the lucky development of “inclusive” political and economic institutions that interacted to generate a virtuous circle of sustained economic growth. Inclusive institutions and sustained economic growth are new in history.
Acemoglu and Robinson argue that since the Neolithic agricultural revolution, most societies have been organized around “extractive” political and economic institutions that funnel resources from the mass of people to small but powerful elites. Once they are on the gravy train, elites are naturally wary of economic growth since it could destabilize the social and political arrangements that make them rich. [...]
So how did some places throw off extractive institutions and replace them with inclusive ones? Acemoglu and Robinson trace the rise of inclusive institutions and the process of technological development and industrialization to Britain. They argue that at various critical junctures in British history contingent events gradually shifted British political institutions away from absolutist toward more inclusive ones. They actually claim that the “radical changes” ushered in by Britain’s Glorious Revolution in 1688 “led to what perhaps turned out to be the most important political revolution of the past two millennia.”
The Glorious Revolution overthrew would-be absolutist monarch James II and began the process of establishing a constitutional monarchy in which Parliament would increasingly restrain the power of the king. What followed was a strengthening of property rights and the increasing application of the rule of law to all citizens alike.