Bold but disappointing

Why Nations Fail by Daron Acemoglu and James Robinson is getting lavish praise. Mostly, the book deserves it. A kind of antidote to Jared Diamond's megaselling Guns, Germs, and Steel, it asks why some countries are rich and others poor. The answer isn't geography, as Diamond argued — ingeniously though implausibly. It isn't culture either, as others say. According to Acemoglu and Robinson, it is politics. Get the politics right, and you will prosper.

It is admirable to grapple with a question of such vast consequence and offer such a big, bold answer. The authors make getting there a rare intellectual treat. Nonetheless, I dare to be disappointed. Why Nations Fail goes wrong, I think, in a couple of important respects. The book's geographical and historical range is remarkable. It describes the varying economic and political impacts of the Black Death in Europe; the legacy of British colonialism in the United States and the shockingly different imprint it left on Africa; the contrast in the 1500s between, on the one hand, the Charruas and Querandi of what is now Argentina and, on the other, the Guarani of what is now Paraguay; political unrest in England in the 18th century; and political unrest in Egypt in 2011.

One chapter is described as: "What Stalin, King Shyaam, the Neolithic Revolution, and the Maya city-states all had in common and how this explains why China's current economic growth cannot last." Timid it is not. And no reader will suspect these authors of bluffing. The scholarship is carried lightly — the book is an easy, engaging read — but wide and deep.

Better still, the truth the authors keep returning to is one whose importance would be hard to exaggerate. Prosperity depends not on culture or geography or rulers' expertise but on "institutions, institutions, institutions", and on these above all: property rights, economic freedom, equality before the law, and trusted enforcement of contracts. Markets aren't enough.

For economies to prosper, governments must supply these institutions, and only governments can. Without them, people have no incentive to work, invest and innovate. The trouble is, as an explanation of development, "institutions matter" may be true, but it isn't new. To have a theory of development to call their own, the authors needed to go further. They do this by arguing in effect that politics is more fundamental than economics. You need property rights — but how does a system come to create property rights? Through politics, obviously. So the challenge isn't so much to create the right economic institutions. It is to create the right political institutions. Do that, and the right economic institutions will emerge. As for what those right political institutions might be, the authors' answer is that they should be "inclusive" — meaning, essentially, more democratic rather than less.

No right-thinking person could be against anything inclusive. The term demands approval and deadens the critical faculties in the same way as sustainable development, good corporate citizenship and change you can believe in. What does it even mean? The book asks the idea to carry a truckload of analytical weight, but its content is never carefully unpacked. We know that property rights, the sine qua non of development, are in there. But that is already a problem for inclusiveness. If I own my property, you don't. To a critic of capitalism, one man's inclusion is another man's extraction. "Property is theft," Pierre-Joseph Proudhon said, and he had a point.

For that matter, consider progressive taxation as a remedy for inequality. Up to a point, if the proceeds are spent on valuable public goods, it promotes growth as well as levelling incomes. But keep raising taxes and you do so much harm to incentives that the policy becomes self-defeating even for the putative tyrant collecting the cash. The authors would call the first kind of progressive taxation inclusive and the second kind extractive, but this sheds no light on the trade-offs involved. The idea of inclusion imparts a warm fuzzy feeling that invites you not to think about it.

The late Mancur Olson, a pioneer of the "institutions matter" school, wrestled with this and with the political economy of democracy and despotism more generally. I was surprised Acemoglu and Robinson found his ideas unworthy of discussion. What they call inclusive institutions, Olson called market-augmenting government — a less seductive term, but more informative. Olson agreed that democracies are better guardians of economic freedom, and had a deeper explanation of why this is. But he also had a lot to say about rival economic interests within democratic systems, how they compete at the expense of others to redistribute income in their direction, and why some democracies therefore do better than others. This harder-headed perspective, I think, is more productive than "inclusion is good."

Still, I want to end on a note of praise. The strength of Why Nations Fail is its ambition, its range and above all its fabulous richness of examples. The authors have brought off an extraordinary undertaking. On the main things, moreover, they are right. I just wish they hadn't said "inclusive".

Why Nations Fail: The Origins of Power, Prosperity, and PovertyBy Daron Acemoglu and James Robinson,Crown Business, 544 pages, $30