The most common reason why nations fail today is because they have extractive institutions.
- Daron Acemoglu
The past few months my reading pace has slowed, as work has taken up most of my time. Most of the reading was done on commutes. At last, I’ve finished the final page of Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson. What a book. It distills the authors’ years of research in economics and history into one core argument: why nations succeed or fail.
Although both are economists, the book reads more like history than theory. From the rise and fall of the Roman Empire to the Industrial Revolution, the authors trace events across centuries and continents without resorting to heavy economics jargon. The message is strikingly clear: nations fail because of extractive institutions, and thrive because of inclusive ones. The story is told through a series of “critical junctures”—moments when choices set nations on diverging paths. For example, the Glorious Revolution in Britain in 1688 established constraints on the monarchy and strengthened Parliament, creating inclusive political and economic institutions that paved the way for the Industrial Revolution. In contrast, absolutist Spain, despite its immense wealth from New World silver, entrenched extractive systems that squandered opportunities for sustained growth. Some societies broke the mold; others stagnated or worsened. Hence, we see prosperous Western European countries today on one side, and persistently poor sub-Saharan African countries on the other. Evolution does not happen overnight—it is a cycle, either vicious or virtuous, that pushes nations toward repeated breakthroughs, such as Britain’s industrialisation, or toward collapse, as in the case of Venice after its elites shut down opportunities for broader participation.
What I appreciate most is the book’s willingness to discuss history openly and objectively. The damage inflicted by Western colonial powers on African and Asian countries has lasted for centuries, leaving scars that shape today’s realities. It is disheartening to read about the Atlantic slave trade, where millions of African lives were lost or uprooted, and about the way colonial rule entrenched extractive institutions across the Global South. It is equally sobering to see modern dictatorships, such as North Korea or Zimbabwe under Robert Mugabe, where power is concentrated in the hands of a few, and the state exists to extract for the benefit of the elite rather than the masses. The book persuasively argues that it is not geography, weather, or culture that determine prosperity, but political institutions and the economic systems they create. When ordinary people have no incentives to innovate, to work harder, or to build businesses, how can a nation grow? The Soviet Union is a prime example: for decades it appeared strong, but its extractive model was built on forced mobilization of resources and labor. Once that model ran out of steam, the system collapsed. Perhaps China today faces a similar turning point—after decades of rapid growth, it may need to transition toward more inclusive institutions to sustain progress.
At the same time, I find myself wondering: are the inclusive institutions we see in today’s developed nations the “best” possible system? Not necessarily. They too are products of evolution, trial and error, and countless turning points. Seemingly small events often had profound consequences. If the great breakthroughs of the Industrial Revolution had occurred in Africa rather than Europe, how different would our world look today? No one knows.
This is a must-read book for anyone who wants to understand not just the fundamentals of economics, but the sweep of world history and the forces that shape prosperity and poverty.