Why Nations Fail: not a book review

A great new book provides a useful further confirmation as to why socialism and the left wing in general are wrong: Why Nations Fail, by Darren Acemoglu and James Robinson. (Although the authors, as academics and probable lefties, may not like their work being seen as a vindication of global capitalism.)

The book’s main idea: whether a nation turns into a prosperous land of citizen-stakeholders, or a lawless wasteland with a venal elite, is all down to how its institutions develop.

If they’re “inclusive” – applied to everybody equally, as Britain’s broadly are – rule of law and economic growth happen as a natural consequence, because everybody’s got a stake in things getting better. If institutions are “extractive”, sucking power out of the hands of the public to serve an empowered minority – as in much of Africa and Asia – the pie never gets larger, and all you get is a gaggle of guys in sunglasses seeking an ever-greater share of an ever-shrinking pie.

In the second case, even revolutions rarely change things for the better, since once the rebels are in the presidential palaces they tend to need extractive institutions to cement their newfound powers.(Hi, Big Men of Africa!) Acemoglu and Robinson use countless examples, both in their book and on their blog – from Argentina’s early success and current basketcase status, to why China will fail in the long term despite its apparent juggernautism today. (That’s something else I agree with: Chinese mercantilism will not lead it to global leadership, the Yuan will not become a reserve currency, and it will all end in tears around 2020. Call it a Big Short.)

But there’s no reason for us Brits to feel smug. Because whether countries go one way or the other depends on some very, very small nudges near the beginning. For example, I’ve long thought that the reason for Britain’s dominance of the world in the 19th century was a simple and subtle accident: the fact that British adventurers were allowed to be in business for themselves, rather than acting as agents of the State like the Conquistadores. English Kings and Queens of medieval times were weak, and didn’t really get to order the merchants around…. which led to us developing the boundless potential of big empty places full of promise, like North America and Australia. We weren’t better by nature; we became better thanks to a happy circumstance. There wasn’t anything deliberate or insightful about it, but Britain nudged itself in the right direction around 1600, and became perhaps the most inclusive and successful nation that ever has, or ever will, exist.

Fuzzy-thinking Labour and Liberal voters (is there any other kind?) will doubtless disagree with my take here. After all, doesn’t “inclusivity” sound more like the all-are-equal dream of the Left, and “extractive” sound like fat cats getting rich off the back of the masses?

But this is down to what (I feel) is the great misunderstanding of the Left: life isn’t a zero-sum game. Nor should it be. There is not a fixed amount of work to be shared out among workers (the false reasoning behind France’s 35-hr workweek), nor a set volume of wealth that must be divided equally (the apparent belief of Britain’s grab-it-all public sector.) Equality of opportunity does not mean equality of outcome. In an inclusive system, anyone can start a business … but not everybody will prosper from it. (If the outcomes are guaranteed, there’s no reason to work hard at anything.) Some fail, some succeed, the markets allocate capital accordingly, and the system pushes itself upward. In the capitalist system, an “inclusive” system, the pie gets bigger.

It’s why Stalin, Lenin, Mao, Castro, the Kims, and champagne-swilling charlatans like Marx were wrong. It’s why the worst of British leaders, like Blair and Brown, were wrong. It’s why today’s woolly-minded lefties like “Gogglehead Ed” Miliband are wrong. But of course, plenty of people like the comfort their wrong views provide… like Britain’s wrongheaded public sector. We won’t get rid of the scourge of leftism for a while – but in the long run, it hasn’t a chance.

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