Why Nations Fail

I, too, have been waiting for this response from Acemoglu and Robinson. So good.

Several people asked us why we haven’t responded to Jeffrey Sachs’s review of Why Nations Fail in Foreign Affairs. Well the answer was sort of in-between the lines in our response to Arvind Subramanian review (the original review is here and our response is here): we said that thoughtful reviews deserve thoughtful answers. What about not-so-thoughtful ones?

Be that as it may. We cave in to pressure.

Sachs charges that we are “simplistic” and our argument “contains a number of conceptual shortcomings”. But in each case, these are either just stated (and are wrong) or he is criticizing something we haven’t said. The Sachs strategy seems to be to throw a lot of mud, hoping that some of it would stick — did we say that we didn’t think it was quite thoughtful?

Let’s go through each one of his points in turn.

1. Sachs says: “dictators have sometimes acted as agents of deep economic reforms, often because international threats forced their hands.”

Perhaps we are not as deferential to dictators as Sachs would like us to be, but this is very much what we argue in our discussion of growth under extractive institutions. Such growth takes place when elites find it in their interest to allow new technologies and institutional changes necessary for economic growth. The entire Chapter 5 is devoted to this, and we return back to this issue several times in the book, including the last chapter.

2. He continues: “The authors also conflate the incentives for technological innovation and those for technological diffusion.”

We do no such thing. We emphasize that growth under extractive institutions is especially feasible, as in China today, when it can proceed rapidly by importing existing technologies from other economies. One of our central arguments is that inclusive institutions are necessary for sustained innovation, but import of technology can sometimes take place under extractive institutions. Does this look like ignoring the difference between innovation and diffusion?

We also go to pains to discuss how, when they feel threatened, rulers and elites in Ming and Qing China, the Ottoman Empire, and 19th-century Russia and Austria-Hungary have opposed the diffusion of technologies. The point we make is that innovation does require inclusive institutions but extractive institutions, though they sometimes allow the use of existing technologies, will often also block the import of technology because this too can be threatening to existing power-holders.

3. He goes on: “What’s more, authoritarian political institutions, such as China’s, can sometimes speed, rather than impede, technological inflows.”

This is a fair point, which one of us has argued theoretically and empirically in past work, but at the end, whether catch-up growth under extractive political institutions can be as fast or actually a little faster than growth under inclusive political institutions is secondary for anything we discuss in Why Nations Fail.

4. Sachs then charges: “The book misinterprets the causes of growth in another way…. a state’s power depends… on adequate resource base…”

Well, not really. There is no evidence we are aware of that a state’s powers depend on resources. Sure, Sachs himself has run some kitchen sink growth regressions where some geography-related variables are significant correlates of growth (but state’s power? We have never heard him to make that point before). In any case, these regressions do not really stand up to scrutiny— and of course are notoriously ill identified to say the least.

5. And then: “Not only can unfavorable geography cripple states; it can also slow the development and diffusion of technology.”

Again, evidence… (and see our elaboration of this in the next point).

6. Then comes the coup de grace: “The overreaching effect of these analytic shortcomings is that when Acemoglu and Robinson purport to explain why nations fail to grow, they act like doctors trying to confront many different illnesses with only one diagnosis.”

Well, we are not doctors. Sachs probably thinks he is one (though we didn’t think his doctorate was a medical one). Our purpose was not to write a doctor’s or even a practitioner’s manual, but provide a framework. We think, and perhaps Sachs disagrees, a framework that says there are 17 factors, each of them hugely important is no framework at all. The power of a framework comes from its ability to focus on the most important elements at the exclusion of the rest and in so doing in providing a way of thinking about these elements, how they function, how they have come about, and how they change. For us those elements were related to institutions and politics, and we have focused on them.

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