Why Nations Fail Chapter Summaries PDF

Preview

Summary

Summaries over every chapter in the book...

Description

Why Nations Fail Chapter 7  

 





 

The fear of creative destruction is the main reason why there was no sustained increase in living standards between the Neolithic and Industrial Revolutions Technological innovations make human societies prosperous but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people For sustained economic growth we need new technologies and new ways of doing things The Glorious Revolution transformed English political institutions, making them more pluralistic, and started laying the foundations for inclusive economic institutions. At this time, Parliament also continued the process of political centralization that was initiated by the Tudors, increasing the capability and capacity of the state in all directions. The Industrial Revolution led to the mechanization of textile production and the development of factories to produce these manufactured textiles. (fundamental recognition of economic institutions in favor of innovators and entrepreneurs based on the emergence of more secure and efficient property rights) By 1760 the combination of all these factors—improved and new property rights, improved infrastructure, a changed fiscal regime, greater access to finance, and aggressive protection of traders and manufacturers—was beginning to have an effect. After this date, there was a jump in the number of patented inventions, and the great flowering of technological change that was to be at the heart of the Industrial Revolution began to be evident. Innovations took place on many fronts, reflection the improved institutional environment. Creative destruction redistributes not simply income and wealth, but also political power Contingency and a broad coalition were deciding factors underpinning the emergence of pluralism and inclusive institutions

Why Nations Fail Chapter 8 

 



















Political and economic institutions shaped the response to technological innovation, creating once again the familiar pattern of interaction between existing institutions and critical junctures leading to divergence in institutions and economic outcomes Absolutism is rule constrained by law or the wishes of others, though in reality absolutists rule with the support of some small group or elite Though absolutist regimes were not pluralistic and feared creative destruction, many had centralized states, or at least states that were centralized enough to impose bans on innovations Absolutism and a lack of, or weak, political centralization are two different barriers to the spread of industry, but both are kept in place by fear of creative destruction and because the process of political centralization often creates a tendency toward absolutism Resistance to political centralization is motivated by reasons similar to resistance to inclusive political institutions: fear of losing power, this time to the newly centralizing state and those who control it. The Industrial Revolution created a transformative critical juncture for the whole world during the nineteenth century and beyond: those societies that allowed and incentivized their citizens to invest in new technologies could grow rapidly, but many around the world failed to do so—or explicitly chose not to. Nations under the grip of extractive political and economic institutions did not generate such incentives. Spain and Ethiopia provide examples where the absolutist control of political institutions and the3 implied extractive economic institutions choked economic incentives long before the dawn of the 19th century. The outcome was similar in other absolutist regimes—for example, in Austria-Hungary, Russia, the Ottoman Empire, and China, though in these cases the rulers, because of fear of creative destruction, not only neglected to encourage economic progress but also took explicit steps to block the spread of industry and the introduction of new technologies that would bring industrialization. (The case of Somalia illustrates how the process of industrialization also passed by such societies) Inclusive political and economic institutions necessitate some degree of political centralization so that the state can enforce law and order, uphold property rights, and encourage economic activity when necessary by investing in public services. Political centralization is resisted for the same reason that absolutist regimes resist change: the often well-placed fear that change will reallocate political power from those that dominate today to new individuals and groups. As absolutism blocks moves towards pluralism and economic change, so do the traditional elites and clans dominating the scene in societies without state centralization, and as a consequence, societies that lacked such centralization in the 18th and 19th centuries were particularly disadvantaged in the age of industry. While the variety of extractive institutions ranging from absolutism to states with little centralization failed to take advantage of the spread of industry, the critical juncture of the Industrial Revolution had very different effects in other parts of the world. Societies that had already taken steps toward inclusive political and economic institutions, such as the United States and Australia, and those where absolutism was more seriously



challenged, such as France and Japan, took advantage of these new economic opportunities and started a process of rapid economic growth. The usual pattern of interaction between a critical juncture and existing institutional differences leading to further institutional and economic divergence played out again in the nineteenth century, and this time with an even bigger bang and more fundamental effects on the prosperity and poverty of nations.

Why Nations Fail Chapter 9 







 

  



The development of political institutions was spurred by similar processes, including technological change in methods of warfare and international trade. State institutions became more centralized, with a king at the center claiming absolute power. The extractive institutions created by the Dutch in the Spice Islands had the desired effects, though, in Banda this was at the cost of 15,000 innocent lives and the establishment of a set of economic and political institutions that would condemn the islands to underdevelopment. By the end of the 17th century, the Dutch had reduced the world supply of these spices by about 60% and the price of nutmeg had doubled. For some, European expansion into the Atlantic fueled the rise of inclusive institutions in Britain. But as illustrated by the experience of the Moluccas under the Dutch, this expansion sowed the seeds of underdevelopment in many diverse corners of the world by imposing, or further strengthening existing, extractive institutions. These either directly or indirectly destroyed nascent commercial and industrial activity throughout the globe or they perpetuated institutions that stopped industrialization. As a result, as industrialization was spreading in some parts of the world, places that were part of European colonial empires stood no chance of benefiting from these new technologies. The slave trade initiated two adverse political processes. First, many polities initially became more absolutist, organized around a single objective: to enslave and sell others to European slavers. Second, as a consequence, but, paradoxically, in opposition to the first process, warring and slaving ultimately destroyed whatever order and legitimate state authority existed in sub-Saharan Africa. Legitimate Commerce—a phrase coined for the export from Africa of new commodities not tied to the slave trade, including palm oil and kernels, peanuts, ivory, rubber, and gum Arabic Because slave trade had slowed, the slaves that could no longer be sold to the Europeans were profitably put to work, under coercion, in Africa, producing the new items of legitimate commerce The abolition of slave trade, rather than making slavery in Africa wither away, simply led to a redeployment of the slaves, who were now used within Africa rather than in the Americas Many of the political institutions the slave trade had wrought in the previous two centuries were unaltered and patterns of behavior persisted Given the extractive economic and political institutions based on the slave trade, industrialization did not spread to sub-Saharan Africa, which stagnated or even experienced economic retardation as other parts of the world were transforming their economies Dual Economy Paradigm—many less-developed or underdeveloped economies have a dual structure and are divided into a modern sector and a traditional sector. The modern sector, which corresponds to the more developed part of the economy, is associated with urban life, modern industry, and the use of advanced technologies. The traditional sector is associated with rural life, agriculture, and “backward” institutions and technologies. Backward agricultural institutions include the communal ownership of land, which implies the absence of private property rights on land. Labor was used so inefficiently in the traditional sector that it could be reallocated to the modern sector without reducing the amount the rural sector could produce.



 

 

   







The “problem of development” has come to mean moving people and resources out of the traditional sector, agriculture and the countryside, and into the modern sector, industry and cities Even a modicum of inclusive institutions and the erosion of the powers of the chiefs and their restrictions were sufficient to start a vigorous African economic boom During this period two forces worked to destroy the rural prosperity and dynamism that Africans had created in the previous 50 years. The first was antagonism by European farmers who were competing with Africans. Successful African farmers drove down the price of crops that Europeans also produced. The response of Europeans was to drive the Africans out of business. The second force was even more sinister. The Europeans wanted a cheap labor force to employing the burgeoning mining economy, and they could ensure this cheap supply only by impoverishing the Africans. This they went about methodically over the next several decades. Both of the goals of removing competition with white farmers and developing a large lowwage labor force were simultaneously accomplished by the Natives Land Act of 1913 The type of economic development that white South Africa was achieving was ultimately limited, being based on extractive institutions the whites had built to exploit the blacks. South African whites had property rights, they invested in education, and they were able to extract gold and diamonds and sell them profitably in the world market. 80% of the South African population was excluded from the majority of desirable economic activities Blacks could not use their talents, they could not become skilled workers, businessmen, entrepreneurs, engineers, or scientists Economic institutions were extractive; whites became rich by extracting from blacks This economic growth without creative destruction, from which only the whites benefited, continued as long as revenues from gold and diamonds increased. By the 1970s, however, the economy stopped growing. It was the empowerment of blacks who managed to organize and rise up that ultimately ended South Africa’s dual economy in the same way that South African whites’ political force had created it in the first place World inequality today exists because during the 19th and 20th centuries some nations were able to take advantage of the Industrial Revolution and the technologies and methods of organization that it brought while others were unable to do so. This explains why industrialization passed by large parts of the world and encapsulates how economic development may sometimes feed on, and even create, the underdevelopment in some other part of the domestic or world economy

Why Nations Fail Chapter 10   

   













Convicts sent from England to the Americas then later sent to Australia; “out of sight out of mind” Convicts had to perform compulsory work (forced labor) in order to make guards money Convicts did not have incentives to work hard or do good work, the guards thus embarked on a path that would ultimately lead to institutions that were more inclusive than those back in Britain Convicts were given a set of tasks to do, and if they had extra time, they could work for themselves and sell what they produced. Production increased, and the guards created monopolies to sell the goods to the prisoners Rum Rebellion led by Macarthur (p. 278) British government sent John Bigge to Australia to see the developments there and he was shocked by the rights that the convicts enjoyed and was surprised by the fundamentally inclusive nature of the economic institutions of this penal colony. He recommended a radical overhaul: convicts could not own land, nobody should be allowed to pay convicts wages anymore, pardons were to be restricted, ex-convicts were not to be given land, and punishment was to be made much more draconian. Ex-convicts and their sons and daughters were demanding greater rights. Most important, they realized, again just as in the United States, that to consolidate their economic and political rights fully they needed political institutions that would include them in the process of decision making. They demanded elections in which they could participate as equals and representative institutions and assemblies in which they could hold office. (led by William Wentworth) The inclusive institutions established in the United States and Australia meant that the Industrial Revolution spread quickly to these lands and they begun to get rich. The path these countries took was followed by colonies such as Canada and New Zealand The French Revolution abolished the feudal system and all the obligations and dues that it entailed, and it entirely removed the tax exemptions of the nobility and the clergy. It also created equality before the law for all, not only in daily life and business, but also in politics. It subsequently abolished the Church’s authority to levy special taxes and turned the clergy into employees of the state. Together with the removal of the rigid political and social roles, critical barriers against economic activities were stamped out. The guilds and all occupational restrictions were abolished, creating a more level playing field in the cities. Even more remarkable than the storming The National Constituent Assembly passed the final version of the constitution on September 29, 1791, turning France into a constitutional monarchy, with equality of rights for all men, no feudal obligations or dues, and an end to all trading restrictions imposed by guilds. of the Bastille were the dynamics of the National Constituent Assembly, which on August 4, 1789, withy its newfound confidence, passed the new constitution, abolishing feudalism and the special privileges of the First and Second Estates. The forces unleashed by the revolution of 1789 ended French absolutism and would inevitably, even if slowly, lead to the emergence of inclusive institutions



 



 





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. The French Revolution prepared not only France but much of the rest of Europe for inclusive institutions and the economic growth that these would spur. Code Napoleon—codified the Roman law and the ideas of equality before the law into a legal system; Napoleon saw this code as his greatest legacy and wished to impose it in every territory he controlled; feudalism, the guilds, and the nobility were permanently destroyed or weakened 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 inclusive economic institutions that would then allow industrialization to take root in these places Australia and the United States could industrialize and grow because their relatively inclusive institutions would not block new technologies, innovation, or creative destruction. Just as in France, it took a revolution to change the system, this time one led by the renegade lords who overthrew the shogun, created the Meiji Restoration, and moved Japan onto the path of institutional reforms and economic growth. The institutional dynamics we have described ultimately determined which countries took advantage of the major opportunities present in the 19th century onward and which ones failed to do so. With a few exceptions, the rich countries of today are those that embarked on the process of industrialization and technological change starting in the 19th century, and the poor ones are those that did not....