![]() ![]() ![]() In contrast, developing countries such as the US and the UK have benefited from three to four centuries of a virtuous circle in which institutions have become gradually more inclusive, which has created increasing incentives for entrepreneurs and economic growth. The authors see little hope for such countries. They also suggest that there has been ‘a vicious circle’ at work in many underdeveloped countries over the last three to four centuries: Extractive institutions were first established by a colonial power (typically built on already existing internal extractive institutions), which, on independence, became even more extractive under postcolonial rulers, which in turn lead to civil war as competing factions fought for control over the extractive institutions – which then led to a decent into chaos and failed states. In contrast to those countries which develop ‘inclusive economic institutions’ which encourage development, the authors suggest the opposite ‘extractive economic institutions’ (think corrupt dictator and his clique stashing money into a Swiss bank account) can generate growth in the short-term, but in the long term result in poverty. The state also needs to maintain a monopoly on violence.Crucially, there needs to be a democratic principle at work in which people in politics establish institutions and laws which work for the majority of people, rather than just working to benefit the rich. The state is controlled by its citizens, rather than monopolised by a small elite.The state enables investment and growth through providing education and infrastructure.The state creates incentives for people to invest and innovate through guaranteeing private property rights and enforcing contract law.Overall Summary…ĭeveloped countries are wealthy because of ‘inclusive economic institutions’ – Basically a combination of the state and the free market in which: This post is a summary of Why Nations Fail: The Origins of Power, Prosperity and Poverty (2013) by D. TLDR: Nations fail because of their inability to develop ‘inclusive economic institutions’. The irresistible charm of authoritarian growth….Chapter 15 – understanding prosperity and poverty.This is best illustrated through the example of Sierra Leone –. ![]() Inclusive and extractive political institutions.Extractive and Inclusive economic institutions.Chapter three – the making of prosperity and poverty.Chapter one – so close and yet so different. ![]()
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