I finished Why Nations Fail on September 17th, 2024. Less than a month later, on October 14th, the book’s authors—Daron Acemoglu from MIT and James Robinson from the University of Chicago—shared the Nobel Prize in Economics with Simon Johnson (also from MIT) for what they presented in that book: insights derived from “comparative studies on prosperity between nations.” While I was not surprised that Acemoglu received the prize—by the time the book landed on my reading list, his name was already widely recognizable even beyond economics—it had never occurred to me that Why Nations Fail itself might be Nobel-worthy.
Don’t get me wrong. I liked the book. As a modeler myself, I am always a sucker for elegant and grand theorization. I know how challenging it is to develop and test a social theory capable of explaining even a simple phenomenon convincingly, let alone something as complex and diverse as the workings of nations across different ages and geographies. However, the theory presented in the book did not strike me as innovative, nor did I find it particularly compelling. Let me explain why.
The core thesis of the book—I shall call it the Acemoglu-Robinson-Johnson (ARJ) theory—is that nations fail because extractive institutions trap them in a vicious cycle.
The cycle begins when an elite establishes political institutions to enrich themselves, by consolidating state power in their own hands without meaningful checks and balances. Depending on the degree of political centralization, the elite may or may not successfully maintain law and order, protect property rights, or coordinate economic activities. Where centralization is extremely weak—such as in sub-Saharan countries—persistent conflicts, chaos, and civil wars ensue. Countries with highly centralized states, such as China and the former Soviet Union, may sustain economic growth, at least temporarily, though such growth disproportionately benefits the elite. Many modern democracies fall between these extremes, with institutions deeply rooted in their extractive past yet masked by a democratic facade. These mediocre nations are often crippled by widespread corruption, blatant clientelism, political instability, and chronic economic stagnation—Argentina’s infamous fall from grace perhaps serving as the most vivid example.
Once set in motion, the vicious cycle perpetuates itself with its own internal logic, like selfish genes ruthlessly propagating through generations. Because extractive institutions inevitably lead to unsustainable wealth concentration and entrenched social stratification, those in power rarely achieve legitimacy or broad societal support, leaving them chronically vulnerable to open revolts or coups d’état. Their capacity to withstand such internal destructive forces again depends on the strength of political centralization: the stronger the state, the longer society can be held together. When the old regime implodes, a new elite rises to power, only to preside over the very institutions they once despised but now eagerly embrace. Another cycle thus begins, whereby the next regime reincarnates under a different name and guise yet inherits the same genes.
How can nations break the vicious cycle and develop inclusive institutions that, according to the ARJ theory, serve as guardians of long-term economic prosperity? Citing the British experience as an exemplary case, Acemoglu and Robinson write (emphasis mine):
“The Glorious Revolution was a momentous event precisely because it was led by an emboldened broad coalition and further empowered this coalition, which managed to forge a constitutional regime with constraints on the power of both the executive and, equally crucially, any one of its members.”
But how did the Anglo-Saxons manage to form such a broad coalition? The book makes it clear that historical contingencies were key. These contingencies function similarly to random mutations in human evolution, creating what the authors term “institutional drifts.” These drifts may persist, disappear, or expand through processes analogous to natural selection. Importantly, institutional evolution is neither linear nor cumulative. Rather, it often experiences sudden acceleration at critical historical junctures, causing societies that initially seem quite similar to diverge significantly.
The British success story was shaped by a series of historical contingencies: the unique form of feudalism prevalent in Medieval Europe, monarchs who never fully secured absolute power, the emergence and growth of autonomous commercial cities, and the devastating Black Death, which wiped out more than half the population.
In summary, the ARJ theory implies that human societies are inherently predisposed to developing and maintaining extractive institutions rather than inclusive ones. The vicious cycle represents the default state of affairs—robust yet pernicious—while inclusive institutions are fragile exceptions that flourish only under special conditions, much like delicate flowers in a greenhouse. Furthermore, there are no universally applicable solutions to transition from extractive to inclusive institutions. This sobering message echoes sociologist Robert Michels’ “iron law of oligarchy,” which states that large democratic organizations inevitably succumb to elite rule and abuse of power.
At its core, Why Nations Fail is a full-throated endorsement of western liberal democracy, “the final form of human government,” as Francis Fukuyama stated in his now often ridiculed End of History. According to Fukuyama, a well-functioning polity rests on three pillars: a strong state, the rule of law, and an accountable (or democratically elected) government. These features align closely with the inclusive institutions Acemoglu and Robinson speak of fondly in their book, with the implication that liberal democracy is the only form of government capable of stimulating and sustaining long-term economic growth. Whether one agrees or disagrees with this assertion, it is hardly a new idea, as Fukuyama—and many others—have championed it for decades.
Acemoglu and Robinson insist that geography, history, language, and culture do not explain why nations fail economically. From Zimbabwe in Africa to Colombia in South America, and from Uzbekistan in Asia to Egypt in the Middle East, they assert emphatically that failed nations share nothing but extractive institutions.
I agree that institutions are a strong predictor of a nation’s well-being. Sometimes they may even be the most important factor, as illustrated by the divergence between North and South Korea or East and West Germany. However, completely dismissing other factors seems unnecessarily overstretched and inconsistent with the facts. Inclusive institutions do not fall from the sky overnight; rather, they gradually emerge over extended periods, often shaped by unique circumstances. I find it especially puzzling that the authors emphasize historical contingencies as a critical driving force on the one hand, yet willingly overlook the deep roots these contingencies have in history, culture, and geography on the other.
Take the British experience as an example again. Among the contingencies identified as precursors to the Glorious Revolution, the Black Death may have been entirely random. But what about feudalism and weak monarchy? The relatively limited power of European monarchs compared to their counterparts elsewhere likely had cultural and religious roots. For example, Chinese emperors’ claim to the Mandate of Heaven implied that they embodied absolute divine power. In contrast, within the European monotheistic tradition, no king could assert such authority and be taken seriously.
Another example, discussed at length in the book, concerns the drastically different developmental paths taken by North and South America. Acemoglu and Robinson write:
“As North America developed, English elites tried time and time again to set up institutions that would heavily restrict the economic and political rights for all but a privileged few of the inhabitants of the colony, just as the Spanish did. Yet in each case, this model broke down.”
Why did the extractive institutions that initially served the Spanish colonists fabulously well in South America fail to take root in North America? The secrete lies in climate. South America enjoyed far more favorable conditions for agriculture—a natural advantage clearly demonstrated by its significantly higher population density in 1500 compared to North America. This difference meant that the English, who arrived late to the colonization game, found few indigenous people to enslave in North America. Furthermore, attempts to establish rigid hierarchical societies designed to exploit settlers were unsuccessful because the New World offered many alternative possibilities. To encourage settlers to work productively for the colonies, broader political rights and economic incentives had to be conceded. Thus, today’s differences in prosperity between North and South America can be traced back to climatic conditions.
A corollary of the ARJ theory is that genuinely inclusive institutions are exceptions that prove the rule of the vicious cycle. Contrary to popular modernization theory, these institutions do not naturally result from economic growth. Here again, China provides a telling edge case. For decades since China opened its economy to the world, the West hoped that free trade would lead to democratic reforms and improved institutions. However, by the early 2010s, this hope had already begun to fade, as Acemoglu and Robinson wrote,
“the rapid increase in U.S.-China trade since the mid-1980s has done little for Chinese democracy, and the even closer integration that is likely to follow during the next decade will do equally little.”
Their observation was both prudent and prescient. While China has become more integrated with the global economy since the publication of Why Nations Fail, it has decidedly retreated from, rather than advanced toward, the democratic institutions the West anticipated.
Compared to the optimism expressed by Fukuyama in End of History, the underlying message of Why Nations Fail is fundamentally pessimistic—despite both sharing faith in the eventual triumph of liberal democracy. To Acemoglu and Robinson, inclusive institutions are largely the product of chance, and deliberate attempts to engineer them—as seen in Iraq and Afghanistan—are doomed to fail. Extending their logic further with an evolutionary analogy, nations mired in extractive institutions resemble species that diverged from the main evolutionary path and forever lost the potential for further development. This determinism is as dark and troubling as it is peculiar, for it appears at odds with the progressive ideology underpinning liberal democracy.
If the ARJ theory cannot tell us how to build a liberal democracy, can we at least use it to make useful predictions? Acemoglu and Robinson believe it is possible. Using the theory, they predict that China’s economic miracle cannot persist much longer once it reaches middle-income living standards, writing:
“Growth with creative destruction and true innovation will not arrive… because there is little reason to expect that a transition in China toward more inclusive political institutions is likely or that it will take place automatically and painlessly.” (emphasis mine)
There is no question that China’s economy has significantly slowed today, hindered by an aging population, high unemployment, a faltering real estate sector, and chronic underconsumption. These are serious structural issues, undoubtedly rooted in China’s institutions. Does this mean the theory’s prediction is correct? I doubt it.
As far as I can see, the problems that China is facing currently have not arisen due to a lack of innovation or resistance to creative destruction. By most quantifiable metrics, China excels in innovation. It grants the highest number of advanced degrees in STEM fields, publishes more research papers than any other country, leads the world in green technology such as renewable energy and electric vehicles, and closely trails the U.S. in the number of unicorn tech startups. Indeed, China’s AI sector has become such a formidable competitor that the U.S. felt compelled to restrict its access to advanced computer chips. Even this draconian measure could not stop China from rocking the American AI industry earlier this year with the release of Deepseek V3. In contrast, Western European countries, long celebrated for their inclusive institutions, seem to have lagged authoritarian China in many key areas of innovation.
I can think of two reasons for this uncomfortable anomaly. One is the strength and control of the Chinese state. Its authority over society is so absolute that innovation is rarely perceived as a threat; instead, it is typically embraced as a means to further consolidate state power. The other factor is the global impact of the internet and open science, which grants researchers and engineers worldwide unrestricted access to new ideas.
In the foreseeable future, China is unlikely to encounter significant obstacles in stimulating and profiting from innovation. While authoritarian regimes might still be more prone to ultimate failure, their institutions do not necessarily deprive them of innovative capabilities, as China has demonstrated. The failure must come from a different mechanism that is not covered by the ARJ theory.
Marco Nie, Wilmette, IL
