Why are some places richer than others

Why are some countries poor and others rich?

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Why is South Korea richer than North Korea? Both have the same culture. Is Africa largely poor because of its geography? Israel is also not the most economical country - and yet it is rich. Why are some ex-colonies richer (USA) and others poorer (Peru)? Why did Russia remain so authoritarian after the fall of the Soviet Union, why did Poland become wealthy, and why did Tajikistan collapse? If someone has the answers to all of these questions, their name is either crazy or Daron Acemoğlu or James Robinson.

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Daron Acemoğlu works at MIT and is one of the strongest research economists in the world. The political scientist James Robinson (University of Chicago) has been his trusted partner for decades. Together they explain the world. With Why Nations Fail they wrote a global bestseller in which they clinically examined the origins of poor and rich countries. 800,000 pieces have been sold to date. Now the successor has appeared The Narrow Corridor. To understand your new book, it is worth taking a step back.

Why are some countries poor? Popular answers: Because they have been exploited. Or: they lack capital. (Therefore: A Marshall Plan for Africa!) Also popular: It is the dictators who make "wrong" policies. The latter has had an impact on the politics of many countries for decades. For example, when organizations like the International Monetary Fund simply prescribe the "right" policy: cut, privatize, liberalize. All of this is somewhat true, and yet it is fundamentally different, say Acemoğlu and Robinson for 20 years - and have so decisively shaped how many in science think about the subject.

Your theory is best illustrated by an example: North and South America. Before the Europeans came, the south was richer than the north. The south was more densely populated, politically more centralized, there was the Inca Empire and the Aztecs. Far fewer people lived in a large area in the north. In those parts of South America where there were many more people, they could be easily exploited - and that's exactly what happened.

Europeans created institutions so that a small European elite could subdue the rest of the population. In the north, however, where there was little to get, they built institutions so that people could build something for themselves. While land and resources were distributed extremely unevenly in South America, many in the north were given a piece of land and had a say in politics. The laws in the south were used for exploitation, in the north their function - similar to Europe - was to protect property and enforce contracts.

The book authors call this extractive and inclusive institutions. The latter, in their reading, are the key to prosperity. (It is also clear that the institutions in North America were only "inclusive" for whites and only for men and that many indigenous people were displaced or killed in the process.) So the people in today's USA did not have a better geography such as fertile land, no more capital (South America had more) and were not more diligent, but they had and still have better political institutions. That still has an effect today.

A country is prosperous when it has innovative companies and workers like the USA or England. Most economists agree on that. But how it happens that some have more and others have less is still a controversial topic. This is where their great contribution lies. Acemoğlu and Robinson did not discover that institutions are important. Douglass North had already emphasized this earlier. What was new was her creative approach to prove this with data.

You sparked huge debates with your early work in the early 2000s. Not all share their view, but most now agree that institutions play an important role. At the latest with your book Why Nations Fail they have set that in the minds of many. In her new book The Narrow Corridor, that's probably why they put it aside and look for answers to new questions.

The title of the book is their central theory. There is a very narrow corridor for societies, they write, in which people are free and can live in prosperity. In order to get there, you need a balance between society and the state. The stronger one, the stronger the other has to be. Ideally, and this can be found in parts of Europe, for example, it is a democratic state with a strong civil society, associations and trade unions.

Why does this work in Western and Northern Europe? A sequence of circumstances: The region inherited the state structures of the Roman Empire and the hierarchy of the Church, which has a strong side. The other: the participatory form of government of Germanic tribes like the Franks, which was already a thousand years ago. Over time, one has drawn the other along, step by step democracies have emerged that could offer the masses prosperity.

In China, only the state has always been strong, society weak. That is why it is not in the corridor and, according to their theory, will not connect to the prosperity of the West. As in the Soviet Union, a country can catch up economically by adopting existing technologies. In order to get up to the standards of the West, however, innovation and a willingness to experiment are required. According to the two of them, there is not enough of that in an autocratic society in which people rule with fear and terror.

This is part of their theory that has long been criticized. Whether a society really has to be democratically organized in order for a country to become prosperous is controversial. Where your new book goes further than the previous one: Democracy alone is not enough. This is illustrated by the example of India, which caused problems for the previous theory. It is the largest democracy in the world and yet it is poor. However, the state does not work well - and the caste system prevents society from mobilizing and gradually making it stronger, as in Europe, for example. If the state and society are weak, the country remains poor.

But there are not only democratic or weak states, but also regions where there have not been any for a long time: In Africa they cite the example of the Tiv in Nigeria, an ethnic group that never developed state structures. Although they have language, culture and territory, society is structured in such a way that there is no political hierarchy and so no state structures have emerged. Without them, there are strong limits to development. The Tiv are not in the corridor, so there is neither freedom nor prosperity.

In a study you have previously examined Africa more closely. The combination of the Tiv’s problem - a weak or non-existent state - and the aftermath of colonialism is, for them, the main reason why most of Africa is poor. As in South America, Europeans created states that were there to exploit people. Something like that doesn't change overnight. The fact that usually many different ethnic groups live in already weak states makes it difficult for society to mobilize itself and to make the state better over time.

What you can do to get into the corridor is barely covered in the book. What remains is a framework with which the world can be interpreted. Pressing the history of many societies over hundreds of years into a single model is daring, but one of the reasons why the two are so successful. They are masters of narration and feed their big theory with lots of little anecdotes. This makes the book not only an important step for research - but also suitable for the interested reader.

The book appears under the title "Balance of Power. The Eternal Struggle Between State and Society" on November 27th. at S. Fischer in German.

If you liked the article, sign up for the newsletter. I will write to you when a new article appears in the series. (Andreas Sator, November 10, 2019)

Correction, 11/11: In a first version of the article, the Tiv were incorrectly referred to as Tsiv. Thanks to user "Symlink" for pointing this out.

Thanks for valuable comments to the University of Houston economists Dario Sidhu and Dietrich Vollrath, with whom I spoke about the role of Acemoğlu and Robinson in research and their new book.

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