Review and critique of Why Nations Fail

My family was separated by the Iron Curtain after WW2,so I had no problem understanding the main idea of this book: that the political institutions of a country are what matters foremost when it comes to prosperity. They shape the economic institutions to be extractive or inclusive, to favor growth or poverty. What makes this book interesting is that it retells the world history of most parts of the planet in order what explains why some countries are rich and others are poor. And the authors manage to do this without taking a political or biased position.

This book was published in 2012 and this explains why some of the actors of the most recent historical accounts have already disappeared! The last 12 years have proven the authors right in many predictions, but I also 3 failures that should be interesting to analyze in more detail. 

There are also 2 small factual errors:

#1 Chapter 4, page 96. "the plague was brought from China by traders". This is a very unfortunate error. The plague that caused the Black Death originated in Central Kyrgyzstan and spread from the Crimea westward. The reason this mistake is unfortunate is because Chinese scholars are likely to feel upset by this error that shows some kind of prejudice against China!

#2 Chapter 8, page 213 "In 1460 there was already a printing press across the border, in Strasbourg, France" False. In 1460, Strasbourg was part of the Holy Roman (German) Empire. France only conquered it in 1681.  

As a side note, I recommend that the authors familiarize themselves with René Girard's work (especially 'Violence and the sacred') in order to better understand the creation of primitive societies. The Neolithic Revolution (see page 141) could probably be better explained, especially the fundamental role of religion in early human societies. 

Failure #1: Argentina

First, let's acknowledge a great insight from the authors that democracy isn't a sufficient condition to have inclusive institutions and a prosperous country. South American countries like Venezuela and Argentina are great examples and the book makes a good case that the oligarchy inherited from the past still influences these political institutions and has prevented modernization and creative destruction. The 'iron law of oligarchy' makes real change in economic institutions very hard and almost impossible, even with democracy, according to this essay. So, with the election of Milei as a libertarian president in Argentina, we might be facing a 'critical juncture' of history, where one change, the election of a radical president, could trigger a lasting improvement in the way the political institutions are shaped ('Afuera' most bureaucracies!) and improve the economy. While it's still too early to tell, this is the kind of positive development that the authors hope for, I think, but that was, in all fairness, impossible to predict in 2012!

Failure #2: The book didn't identify the mass migration of unskilled labor to Western countries as a threat to the middle class in these countries. 

It threatens society as this phenomenon is extractive in nature: the oligarchy benefit from the lower wages, while the lower classes suffer the most from the violence in their neighborhoods and the stagnant wages.

The failure to mention this common threat to the US and Western Europe is surprising when we read on page 281 that:

(In Australia), "Ex-convicts and in fact many new free settlers also wanted transportation of convicts from Britain to stop, because it created competition in the labor market and drove down wages."

The chapters about slavery also showed that this cheap, unskilled labor benefited the elite at the expense of average citizens.  

Failure #3: China. "Our theory also suggests that growth under extractive political institutions, as in China, will not bring sustained growth, and is likely to run out of steam." (Page 436).

The authors are not only dismissive of China under Xi, but also dismissive of China under the Song dynasty (and probably under all dynasties). See page 231: 

"Yet China was absolutist, and growth under the Song dynasty was under extractive institutions. There was no political representation for groups other than the monarchy in society, nothing resembling a Parliament or a Cortes. Merchants always had a precarious status in China, and the inventions of the Song were not spurred by market incentives, but were brought into existence under the auspices, or even the orders, of the government. Little was commercialized. The grip of the state tightened during the Ming and Qing dynasties that followed the Song. (...) the absolutist emperors of China opposed change, sought stability, and in essence feared creative destruction."

The authors are correct when they say that Confucian China ranks merchants at the bottom and scholars, farmers and artisans above them. However, China's prosperity often surpassed that of Europe (during Tang and Song and approximately even up to the early Qing dynasty. This couldn't have happened by accident, against the central theory of this book that extractive political institutions cause poverty. 

Instead, I assume that the authors are not experts about China and have overlooked an important inclusive political institution: the civil service examination system. The first such exams happened in the Qin (221BCE  - 206 BCE) and Han (206 BCE to 220 CE) dynasties. It was then established during the Sui dynasty (581-618), improved under Tang dynasty (618-907) and it lasted until the fall of the Qing dynasty in 1905. In theory, this system ensured a high quality of bureaucrats, chosen for their skills instead of their connections or wealth. It can also prevents the political system to be controlled solely by 'robber barons', since these officials are selected from all China according to their exam results. Of course, if the emperor decided to seal China to the world, these mandarins couldn't go against his orders, but they could be very efficient as Dieter Kuhn has shown in 'The Age of Confucian Rule, The Song Transformation of China'.

What is interesting is that the People's Republic of China reinstated examinations to enter university (in 1952) and to enter the civil service. And the Communist party recruits its cadres from the top universities. So, this old inclusive and meritocratic institution has evolved and survived, which would not have surprised the authors, since their theory is that institutions usually have strong foundations. 

So, while democratically selected politicians in the West seem dumber with each passing generation and/or controlled by powerful special interests (multinationals, NGOs...), the Chinese leadership benefits from a large and diverse influx of its smartest students. They seem to have learned that their success and survival depends on the providing growth and economic opportunities to the largest segments of Chinese society. Of course, like in imperial China, the PRC could also stumble with a bad leader. However, these meritocratic institutions seem here to stay for a long time.

Qing dynasty court silk painting: the second lunar month