economics | April 03, 2012

Thomas Friedman Finds Why Nations Fail Fascinating

Daron Acemoglu and James Robinson's sweeping new book, Why Nations Fail, has a fan in Pulitzer Prize-winning New York Times columnist Thomas Friedman. In a recent op-ed, Friedman says of the “fascinating” new book: “The more you read it, the more you appreciate what a fool’s errand we’re on in Afghanistan and how much we need to totally revamp our whole foreign aid strategy. But most intriguing are the warning flares the authors put up about both America and China.”

The lessons highlighted by Friedman revolve around Acemoglu and Robinson's premise that “inclusive” institutions—meaning ones enforcing property rights, and encouraging growth through tech and skill investments—allow countries to thrive. But, nations that choose the “exclusive” route of allowing power and opportunity to be accessed by a privileged few, fail.

America, meanwhile, is experiencing widening economic inequality, which undermines its institutions. “When one person can write a check to finance your whole campaign, how inclusive will you be as an elected official to listen to competing voices,” asks Friedman. As for China, they've experienced an economic growth burst from monopolizing power and mobilizing resources, but says Friedman, paraphrasing Acemoglu and Robinson's writing, “it’s not sustainable because it doesn’t foster the degree of 'creative destruction' that is so vital for innovation and higher incomes.”

From the book:

Sustained economic growth requires innovation. . . and innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilizes established power relations in politics.

Unless China makes the transition to an economy based on creative destruction, its growth will not last.

Daron Acemoglu and James Robinson's Why Nations Fail is a must read for anyone interested in the economic forces that elevate prosperous nations. Their observations are fascinating to the lay observer, yet substantial enough to impress seasoned observers such as three-time Pulitzer prize winner, Thomas Friedman. The duo's keynotes build on the book's lessons to offer a unique and intelligent look at what factors separate the rich from the poor.

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