Macaulay, Acemoglu and Robinson’s Why Nations Fail

I held off reviewing Acemoglu and Robinson’s (AR) Why Nations Fail for a long time. Despite the material’s relevance to my old research interests, my love of universal history and the popularity of the book, I just couldn’t face the task. Yet, because it is now appearing in so many “best of 2012” lists, I am driven to write about it. 

Patrician handwaving is just so aggravating you see.

The book is from the leading contemporary proponents of new institutionalism. Institutionalist literature seeks to explain economic outcomes by reference to political and social structures and norms[1]. One thing that has always struck me about the new institutionalist literature, particularly the quantitative strand that AJR (Johnson has departed the trio) were associated with and about which I was enthusiastic, was the vagueness of the definitions of what constituted “good” and “bad” institutions – even though they were purporting to explain the divergence in economic fates rather than just labeling the residual. 

The vagueness served a purpose. It made the empirics much easier. Without having to refer to objective criteria under robust definitions, the indices of institutional quality used in the empirics relied on the judgment of their creators. They could tell what were good institutions; you could see them in wealthy countries. Subsequently a index showed that countries with institutions like those in wealthy countries were, in fact, wealthy.

This was not enlightening. I attempted an alternative, but that’s another story…

The core thesis of AR’s book is the following. Nations (societies really) fail because they have extractive institutions instead of inclusive institutions. The three terms in italics are never clearly defined, nor the framework that relies on them, but because of the way they are used I think we can define them clearly. This is necessary if we evaluate how well their framework works against their examples.

To fail, a nation does not provide its residents with prosperity and security.

Extractive institutions do not provide these because they allow actors, particularly state actors, to extract rents and political status by excluding people from political power or economic opportunity on arbitrary grounds.

Inclusive institutions do not exclude people arbitrarily, and the ability to rent seek is limited by rule of law. Rule of law  means that a single body of law is applied equally to all people consistently, and also that the creators and enforcers of the law are also answerable to it.

All very good, but what determines whether institutions become extractive or inclusive. The latter term, and the way AR uses it alongside pluralistic indicates a core, but not clearly stated part of the thesis. Let’s borrow the old concept of three kinds of rule; rule by one; rule by a few; rule by many – a workhorse that served Aristotle, Livy and Machiavelli. For AR, this is a clear spectrum from extraction to inclusion. Rule by the few is better than rule by one, and rule by many is better than both.

The more people who rule, the less extractive the institutions, and the less the chance the nation will fail. This is the framework that they apply to a very broad range of historical examples. Here’s where my problems begin.

a) Many examples, especially the examples I was familiar with, only fit this framework with vigourous handwaving – sometimes veering near to the disingenuous.

b) For their professed love of inclusion, they end up with a very patrician view of history. Very Whiggish, very aristocratic. The masses, whom inclusive institutions would necessarily include, really don’t get included in this book.

I just want to focus on a few of their (many, many) examples.

Their most favoured example of a movement towards inclusive institutions is the “Glorious Revolution” of 1688, where parliament asserted its role as legitimate seat of power over the monarch. Their effusiveness is so great it reminds me of the unquestioning praise that the whig historians of the 19th century gave to the same events. That’s why I added that patrician’s patrician Macaulay as the uncredited third author. In most historiography Macaulay is now the subject of condescension towards an outdated author, someone far too willing to impose the present on the past, and cheer heartily for their favoured sides in the past. Yet he’d be welcomed whole heartedly by AR it seems..

Their love of 1688 is mostly for the vibe. The vibe which in some sense led to a modern and successful country. After all, under their framework the movement to an oligarchic parliament away from an autocratic crown was inevitably a movement towards inclusiveness. Later, and to my mind far more consequential acts, such as the Catholic emancipation, the reforms acts, the repeal of the corn laws, the chartists and the suffragettes are thus mere footnotes to this, or not mentioned at all.  These relied on the vibe of 1688 after all right?.

Appealing to the vibe means that a political event rooted in large part by the desire of the oligarchic parliament to continue to exclude Catholics from political life, and one which still celebrated by those who want to exclude Catholics from political life in Northern Ireland, can be, and one that included very little of the men and women that had to wait for the reform acts, can be presented as the paradigmatic movement towards inclusive institutions. If you take proponents rhetoric on face value – even though the words of liberty are favoured most by those whom trample on it, and squint and turn your head a little…. It’s the vibe.

Their favour for the patricians of history extends to literal patricians. They see Ancient Rome as descending from an inclusive Republic to an exclusive Empire, and that was a fail. Never mind that the republic did not achieve security for its citizens – and hence was a failure on the framework, whereas the Principate of Augustus and his successors acheived it. Never mind that the experience of the Gracchi showed that the Republic was determined to protect the few at the exclusion of the many. Never mind that the public sat by as the republic fell for the simple reason that it has shown that it was designed to serve them. The important thing was that the patricians used the right rhetoric, and the nominal number of leaders was reduced from several to one.

This focus on numbers leads to some dodgy story telling. There is a section on colonial NSW, that begins with white settlement, describes Macarthur vs Bligh, and then suddenly jumps to the Legislative Council, and then self government [2]. This is important, because they present a story about the many being included, despite oligarchic attempts to exclude them – with Mararthur playing the role of villain. But they are hamstrung by their frameworks dislike of rule by one. Were they to cover the years of Macquarie they find their villains using the rhetoric they reserve for heroes, and they’d find an autocrat that was the strongest force for inclusion. But this doesn’t bode well for the framework! Best just skip past the awkward facts and write things like this.

“Macarthur and the Squatter’s vigourous opposition could not stop the tide in Australia, however. The demand for representative institutions was strong and would not be suppressed. Until 1823 the governor has ruled NSW more or less on his own. In that year his powers were limited….”

A paragragh like like would not be written by someone honestly representing the years after the Rum Rebellion – it implies that Macquarie (who remains unnamed, just “the governor) was an ally of the squatters and Macarthur! But only by doing this can can we pretend tha the success of the exclusionists in limiting an all too inclusive autocrat was in fact a triumph of inclusion.

I’m just glad they didn’t start getting excited about the hyperbolic miners at Eureka.

The NSW example is also a great example of how the many are routinely ignored. In other cases we could excuse them. Ordinary people have simply gone unrecorded for the vast majority of human history. But we have ample examples from the period. We have ample examples of inclusion in action, as emancipated convicts found a place in society, on the land, and even in the state. These stories would provide flesh on the bones of the concepts they use in their framework, and would give these ideas concrete meaning. Moreover I know that these stories are in the books they are citing! Yet after a strong anecdote about a legal case, these are left unexploited. Granted there is limited space in a wide ranging book, but where concrete examples before recent decades are so sparse, I think these should have been grasped heartily. They’d make up for inevitable lack of ordinary people in the rest of the book.

The last example I’ll pick at is Japan, which I highlight for different reasons. The Edo period, also known as the Tokugawa Shogunate, is treated as simply extractive, and the Meiji restoration as an unarguable move towards inclusion. Yet the Edo period doesn’t fit their criteria for failure, at least as I interpreted them. It was far more stable than the preceeding 600 years, so the security of its citizens was well served. By the end of the period merchants, whom were nominally at the bottom of the caste system, we more wealthy than many of the samurai who were nominally on top, so there was not excessive rent extraction by those in power. In this period elaborate financial systems, including the invention of futures markets, were put in place; these financial systems all relied on a robust and reliable rule of law to enforce contracts. It’s true that the country had not industrialised by the time Perry’s black ships turned up, but hardly anyone had.

Its much easier to interpret that post Meiji success as building on structures that had been cemeted during the pax Tokugawa. In fact the rapid moderninisation and reforming process has begun immediately after Perry; the Meiji court took over a state that was already moving into the modern world.

The Japanese case isn’t a result of squeezing stuff into a framework, but just lazy scholarship. If they do this kind of thing with the examples I am familiar with, how do I trust them on cases like Botswana, or Liberia, about which I know little?

I used to be enthusiastic about the institutionalist literature. I thought , with time, it would provide an internally consistent way of looking at the social determinants of economic fate. Once we create firm definitions of institutions, they’d become a useful tool. But it seems that leading proponents like AR were content to rely on a definition of good institutions along the lines of “I know them when I see them”. When I try to codify what they mean, their chosen examples simply don’t fit.

So it’s either too vague to apply to anything, or simply wrong. In either case it’s not useful at all.

I often describe universal history as a foolish and Quixotic endeavour, but I still love it. The last two years have produced several works that show that applying a consistent approach to a broad range of historical places can produce insightful and informative works without handwaving. These include Fukuyama learning from many eras whilst relying on definition of the modern state derived from Max Weber. It includes Kwarteng examining British colonial history from the perspective that colonial policy was largely ad lib and inconsistent [3]. It also includes Pinker’s study of decreasing violence over almost any period one chooses.

But AR’s handwaving in order to cram their examples into the framework, their patrician tendencies, and their disinclination to properly codify their framework does not belong in their company.

[fn1] I now some people here object to norms coming under the umbrella of institutions, but that is standard in the literature I’m talking about.

[fn2] Unlike their previous work which relied on Robert Hughes, they now cite John Hirst, but do not make proper use of him.

[fn3] Don’t get put off by the endorsements given the book by Niall Ferguson.

About Richard Tsukamasa Green

Richard Tsukamasa Green is an economist. Public employment means he can't post on policy much anymore. Also found at @RHTGreen on twitter.
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Avi Waksberg
Avi Waksberg
8 years ago

Great review.
I initially had high expectations of Why nations fail but came away disappointed. Not to say that it is bad, but not what I had hoped for. They rely far too heavily on just so stories and are extremely subjective in deciding which countries have ‘inclusive institutions’ as opposed to ‘extractive instituions’. And in focussing on the importance of institutions (which are no doubt of importance) they ignore alternative explanations. A review by Jared Diamond (author of Guns, germs and steel) is here:

Jim Rose
Jim Rose
8 years ago

Acemoglu and Robinson are very good indeed, but I think they overdraw the mark sometimes.

They explained the extension of the voting franchise by the threat of revolution.

Richard Congleton explains how the franchise will slowing become universal without any threat of revolution through cooption and constitutional exchange. The reforms were led from within rather that from the streets.

Congleton discusses in a 668 page book the emergence of democracy in England and the rest of northern Europe, the USA and Japan as a process of slow and peaceful cooption for mutual benefit.

Jim Rose
Jim Rose
8 years ago

Congleton’s book cover says he explains why contemporary liberal democracies are based on historical templates rather than revolutionary reforms; why the transition in Europe occurred during a relatively short period in the nineteenth century; why politically and economically powerful men and women voluntarily supported such reforms; how interests, ideas, and pre-existing institutions affected the reforms adopted; and why the countries that liberalized their political systems also produced the Industrial Revolution.

The book develops new rational choice models of (1) governance, (2) the balance of authority between parliaments and kings, (3) constitutional exchange, and (4) suffrage reform. Historical overviews and detailed constitutional histories of six important countries are then provided

Jim Rose
Jim Rose
8 years ago

see for many of the paper behind his book and idea that changes in parliamentary procedures have been widely adopted throughout Europe, North America, and in Asia in the past two centuries during times when threats of revolution were minimal. all the changes were by constitutional means

Jim Rose
Jim Rose
8 years ago

see for his lecture notes and book drafts

8 years ago

‘But it seems that leading proponents like AR were content to rely on a definition of good institutions along the lines of “I know them when I see them”. When I try to codify what they mean, their chosen examples simply don’t fit.

So it’s either too vague to apply to anything, or simply wrong. In either case it’s not useful at all.’

To be fair to AR, WNF is a book for the laypersons. Their series of journal articles provide more precise and substantive definitions of what they mean by ‘good’ and ‘bad’ institutions. Now whether the history fits their theory is another question …

derrida derider
derrida derider
8 years ago

The vagueness served a purpose. It made the empirics much easier.

Err, not so much. The vagueness serves a purpose alright – it allows us to “define the residual” in as something only the state facilitates. But then it is only the state’s monopoly of violence that creates possibilities other than extraction – “political power comes out of the barrel of a gun”.

This was Scott’s mistake in his otherwise wonderful anarchist tract “Seeing Like A State” – modernity, for all it’s limitations, is actually a necessary condition for making it easier to get ahead by building things than by taking them. So AJR sorta begs the interesting questions in the petitio principi sense – it assumes what it sets out to prove.

Nicholas Gruen
Nicholas Gruen(@nicholas-gruen)
8 years ago

Thanks for the review Richard.

My impressions of reading reviews which made it all seem pretty much Douglas North lite and listening to podcasts of Acemoglu left me suspicious. It was a bit of a case of that old reference – that what the student has written is good and original, but the parts that were good were not original and the parts that were original were not good.