Why some nations prosper and others fail: Big Brains podcast with James Robinson

Show Notes

It’s a simple question to ask, but seems impossible to answer: What causes one nation to succeed and another to fail? What exactly are the origins of global inequality?

There are few people who have spent more time trying to answer this question than Prof. James Robinson. Robinson’ first book, Why Nations Fail, was an international best-seller. It laid out in clear and stark terms what the origins of prosperity and poverty really are. Now, he’s written a sequel, The Narrow Corridor, which further explains what ingredients you need to create a prosperous nation.

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(Episode published December 2, 2019)

Transcript:

Paul Rand: There are certain books that are so important you see them everywhere.

James Robinson: Maybe you know the book Guns, Germs and Steel?

Paul Rand: Guns, Germs and Steel by Jared Diamond is certainly one of those books. It redefined the way we thought about human history by arguing that some nations succeeded while others failed because of where their geographic locations and natural resources.

James Robinson: So Jared Diamond, you know, he's a very good friend of mine. And we actually edited a book together once. So he's been a great inspiration for me on many levels. But I actually think, fundamentally, his explanation of human history is wrong. It’s not about exogenous factors that condemn certain societies to poverty or bless them with prosperity. It’s really about how humans themselves organize their societies that makes the difference.

Paul Rand: James Robinson is a prominent political scientist and economist at the University of Chicago as well as the director of the Pearson Institute for the Study and Resolution of Global Conflicts. He’s also the author of his own well-renowned book, Why Nations Fail, which gives a very different view of human history. One that tells a story about how our political and economic institutions have determined why nations succeed.

James Robinson: I mean, I've given probably a hundred talks about Why Nations Fail at this point. And what I see is that this notion of extractive and inclusive institutions is very simple, and it resonates with people because it gives them a language for helping people kind of process all this information that they have in the world, but they don't really know how to organize it or order it.

Paul Rand: Why Nations Fail was a huge success. Now, Robinson and his co-author Darren Acemoglu have written a sequel. It explains how and when these institutions come about and why our world looks the way it does.

James Robinson: Economists understand what generates prosperity. You know, they understand it's about investment in public goods and education and property rights and innovation. And so to me I've never been interested so much in rich countries because, like, what's curious is why is it that when everyone agrees why is that doesn't get going in Haiti or Sierra Leone? So, to me, the puzzle has always been about poor countries and about why poor countries can't take advantage of all this stuff which is in economics textbooks.

Paul Rand: From The University of Chicago this is Big Brains, a podcast about pioneering research and pivotal breakthroughs reshaping our world. On this episode, James Robinson and prosperity and poverty of nations…I’m your host Paul Rand.

Paul Rand: It’s one of those questions that’s so simple to ask but it seems too big to answer. Why do some nations fail while others succeed? There’s probably few other people on the planet who have worked harder to find an answer than James Robinson and his co-author Darren Acemoglu.

James Robinson: You know, successful countries in our view are just countries that manage to generate high levels of living standards for their people and failed countries are countries that don't, where there's mass poverty and deprivation.

Paul Rand: OK. And so when you think about it, is there a fundamental idea of things that if you had to summarize what it is that that pushes nations to fail or to succeed? How do you typically talk about that?

James Robinson: Yeah, I think that whether or not a nation succeeds or fails depends on how the people in that society themselves organize that society, organize the institutions, the rules that create different patterns of incentives and opportunities.

Paul Rand: This may sound basic, but it’s actually a radical idea. For decades, scholars have argued that what separates successful and failed nations is their geographic location, resources or culture. To illustrate why those theories don’t work, we need to go to two towns along the southern border of the US…Nogales, Arizona and Nogales, Mexico.

James Robinson: Yeah. We start the book with these what the social scientists would called natural experiments. Where you have kind of experimental like variation in the way societies are organized, holding constant cultural factors or geographical factors. So it's a powerful way of trying to show that these other types of theories that people often like can't really explain what you observe. And what really matters about Nogales, which is essentially one town with a fence running down the middle is that the northern half is in the United States and the southern half is in Mexico.

Paul Rand: North of the fence, in Nogales Arizona, people invest in businesses and houses without fear of theft by others or the government. Their kids are in school and they have relatively good incomes. South of the fence, in Nogales, Mexico, incomes drop to one-third, education rates plummet and infant mortality rises. Yet there is no difference in geography, climate and very little difference in culture on either side of the fence. So, what exactly caused the difference in living standards?

James Robinson: You know, if you thought about over the last hundred years why was Mexico so different from the US? Well, first of all, Mexico had this autocratic one-party state until extremely recently, the PRI, from the late 1920s, right the way through in the 1990s.

TAPE: The PRI was created by military elites clinging to power after winning the Mexican Revolution.

James Robinson: So there was just one hegemonic political party.

TAPE: A long period of economic growth market by authoritarian controls characterized Mexico in the 1940, 50s and 60s

James Robinson: There was no accountability. There was no political competition. There was no Democrat democracy at all. So that's part of what. What we call inclusive political institutions is about. It's about having political power broadly distributed in society so people's preferences count and it's also about the state and the capacity of the state. So, the Mexican state has just been much less able to develop capacity to provide public goods and order. And why is that? Well, you know, because it was used as a tool of patronage and politics by the one-party state. So, in our theory, the first layer, is economic institutions that create different patterns of incentives and opportunities in the economic sphere. But lying behind that is political institutions. You know, politics is the study of how societies make collective choices. And, for us, the way the economy is organized is a collective choice. The economic institutions, the rules, property rights, whatever it is that comes out of the political system. So, lurking behind economic differences must be political differences.

Paul Rand: Robinson and Acemoglu say there are two kinds of institutions, extractive and inclusive. Understanding how they work creates a useful framework for figuring out why nations succeed or fail. We’ll start with extractive institutions.

James Robinson: If I look at the specific institutions of Haiti, or Sierra Leone, or Uzbekistan, obviously the details are extremely different. You know, the way the labor market works, the way property rights to land are. So, you need a language which sort of says, okay, the details, they’re all different but actually these institutions have this one thing in common. Okay, they're extractive. And what does that mean? It means they take away people's incentives and opportunities or they concentrate incentives and opportunities.

Paul Rand: How do you take away someone’s incentives?

James Robinson: Well, you well think you know think about the security of property rights. You know, if you go to rural Haiti, property rights are very ill defined. Nobody has a proper title given by the government. There's endless disputes over boundaries over who owns what. So if you're thinking of investing and saving and building ditches, investing in your land, farming, the fact that your property rights are contestable and vague and, you know, insecure undermines your incentives.

Paul Rand: And this makes sense, right? If you live in a place where your land, home, or possesions could be and regularly are taken away by others or the government. You’re not going to have an incentive to invest. And no investment means no long term growth. Often these states concentrate the wealth of the country amongst a few at the top by extracting it from the occupants through taxes and labor.

James Robinson: So we talk about slavery or the way many colonial societies were constructed. You know, if you look at South Africa, for example, under apartheid,

Tape: Apartheid really began in 1948 but separating black Africans from the white minority had long been a policy aim. Laws made white people officially superior and the large black majority faced discrimination in every aspect of their lives.

James Robinson: where rules and regulations stop black people, you know, stop black people occupying many types of professions, stop black people owning land, pushed black people into these Bantustans.

Tape: There were separate public facilities, transport and schools. Interracial marriage was banned, many had no right to citizenship and were regarded as aliens in major cities.

James Robinson: You know, here's clear examples of how people's incentives and opportunities were stripped away.

Paul Rand: So…what do inclusive institutions look like…

James Robinson: So here's a good example of an inclusive institution, which I think sort of drives the point home. The patent system. So in the book, we have a photograph of the patent that Edison took out when he invented the light bulb. Economists know since the work of Robert Solow in the 1950s that what drives economic growth is incentives, innovation, new technologies, productivity increasing devices, machines, ideas. And so how do you get that going? Okay. Well, ideas are easy to copy. You know, I could come up with the idea for a light bulb and you could say, oh, that's a great idea, I'm going to use that to do something else. So, that's a problem from the incentive point of view because it means that if I have an idea, maybe I can benefit from it. But you can also benefit from it, too. So, the wealth that idea generates spills over every way. Right. So my private incentives are different from the social incentives. So, the idea of a patent is, by protecting your intellectual property rights, you kind of bring the private incentives closer to the social incentives. So, a patent protects your intellectual property rights and it creates incentives for innovation. But the interesting thing about the patent system in the US is that this was open to everybody. Everybody paid the same fee to take out a patent, and the state protected your intellectual property rights. It’s a very important thing, you know, it's in the Constitution, the first patent board.

Paul Rand: I didn’t know that.

James Robinson: And the first patent board was regarded as so important that Jefferson was on it. You know, Jefferson was there deciding whether or not your idea deserved the patent. If you look at who were these people who took out patents in the 19th century in the U.S., when the U.S. was becoming the world's technological leader. What's interesting about that is they come from all over the social spectrum, elites, non elites, farmers, artisans. You know, Edison, he was home schooled. His father was a roofing contractor, you know, so. So he was not an elite. And the message there is creativity, ideas, talent, entrepreneurship, it's sort of spread very widely in society. You don't know where it is, I don't know where it is, the government doesn't know where it is, you've got to create a system of rules which can harness all that latent talent. And that's this idea of inclusive institutions that create broad based incentives and opportunities. So people with ideas and talent and creativity can come to the top. And we know that's what drives innovation and productivity and prosperity. And that's what you don't have in Haiti. That's what you didn't have in Mexico. You know, you don't have a system of rules. Most people are excluded from opportunities, chances, finance, property rights, education. So that all the benefits are concentrated in the hands of a small subset of society. And that may create wealth for them, which is part of the problem, but it creates poverty for the society in which they're living.

Paul Rand: A few months ago, Robinson and Acemoglu released their follow up to Why Nations Fail, it was a book called The Narrow Corridor. That’s after the break.

(Break)

James Robinson: I think that in why nations fail, we did a good job of making this connection between inclusive and extractive economic institutions and economic success and failure, and then trying to show how there was a politics lying behind that. But then then the question comes up. Okay. So, why is the world divided into countries which have extractive political institutions and inclusive political institutions? Where does that come from? You know, the current book, I think makes two contributions. One, it tries to emphasize this notion of liberty as important both in itself, but also deeply connected to economic success. So liberty is, you know, you're free in the economic sphere, in the social sphere, in the political sphere to undertake your choices, to do what you want to do without the threat of influence by other people, at least up to the extent whereby your choices don't adversely affect other people. So I think we have a fairly classical definition of liberty. But then the question is what explains these massive variations in the extent to which societies, people in different societies in the world benefit from liberty or experienced liberty? So, what are the mechanisms that lead to that or don't lead to it? And how, historically has liberty emerged in some parts the world and not other parts of the world? You know, why is there much more liberty in Western Europe than in China, for example, or in India, or why is there more liberty I would say in North America than there is in Latin America. The way we tried to think about this creation of liberty or illiberty is to say, you know, you can think of this as coming out of a balance between the power of the state and the power or the organization of society.

Paul Rand: And Robinson and Acemoglu argue that there are three kinds of states—or Leviathans as they call them—the absent leviathan, the despotic leviathan, and the shackled leviathan.

James Robinson: So a despotic leviathan is perhaps the simplest thing to think about. We characterize, say, China right the way back since the first dynasty as a despotic leviathan where the apparatus of the state and the institutions of the state completely dominated society. Another possibility, the kind of stark opposite to that would be where society dominates the state. Now, think of Yemen. You know, in Yemen, there's never really been a centralized state which has any authority over society. Society is kind of organized around kinship groups and tribes that are armed. They organize and provide public goods completely independent of the state. And that's true of many parts of the world. You know, in sub-Saharan Africa, you know think of Lebanon, think of large parts of the Philippines or Pakistan or Nepal. So that's not a strange anomaly, its presence in the modern world. And it's very prevalent historically. So we call that the absent leviathan. And so state dominates society or society dominates the state and in between, and this is the key to kind of liberty or creating what we call the shackled leviathan, the third type of state, is this balance between state and society.

Paul Rand: That balance between state and society is the narrow corridor from the book’s title…

James Robinson: Yes, it’s this sort of zone where state and society are balanced. It’s an equilibrium and it’s a contested equilibrium. You know that state institutions don't want to be controlled by society. State elites would like to not be accountable and they'd like to do what they want. And society has to force them to be accountable. But what about the other side? You know, what about going off the rails in the other direction where in some sense discontent from society about institutions throws you out of this corridor

Tape: We are going to drain the swamp

James Robinson: You know, President Trump is a sort of complicated phenomena. But it's clear that he identified a lot of discontent in U.S. society about the way things were working that other politicians didn't get and they didn't understand.

Tape: Everybody’s so angry with the democrats and so angry with the republicans that’s why he’s got the support he’s got. He’s the screw you Washington vote, that’s all he is.

James Robinson: And those are real issues, I think. Problems of this massive increase in inequality, and employment and marginalization and I think there are real social problems here and there’s disillusionment with the ability of institutions to cope with these problems. So it's a challenge to stay in the corridor and maybe that's what we're seeing now.

Paul Rand: Okay. So. So let me get a little historical with you for a moment. If we look at societies, nations falling back to arguably the Mesopotamian times. If you were going to say, here's where I start looking at studying these things. Are these things learned over time or are they forgotten over time? And we are doomed to keep learning these lessons over and over again?

James Robinson: Yeah. To me, it's not it's not really a matter of knowledge. You know, if you ask me about why did ancient Athens boom economically? I’d tell a similar story. I think the emphasis in the book is very much on persistence. We start the book by talking about this famous prediction when the Berlin Wall fell down that all the world was going to converge to liberal democracy by Francis Fukuyama.

Tape: The end of history refers to what I think still remains a question of whether that process is one that can terminate, whether that evolution finally culminates in a certain kind of civilization that in a certain sense will be the last civilization mankind will achieve because in a certain sense it’s the right one it’s the one that fits human nature in an appropriate way.

James Robinson: Yeah. But our view is that no, actually, the pattern in history is not convergence, it's divergence. China has been where it's been for to over two thousand years, Yemen, we actually know quite a lot about Yemen going back a thousand years, and it looked pretty like it does now a thousand years ago. So this is not this is not something…nobody's bouncing about. You're kind of stuck in these very different steady states. You know, these very different types of leviathan. And our story about the history of Europe or how Europe develop these types of shackled leviathan, that's also deeply historically rooted, you know, has to do with the collapse of the Western Roman Empire and the way that these Germanic tribes, which had very participatory political institutions, merged with late Roman state institutions, administrative institutions, legal institutions, fiscal institutions to kind of bring this balance between state and society together. That's the roots of this thing. That's a long time ago. So actually, there's a lot of what social scientists call path dependence in this process.

Paul Rand: Path dependence?

James Robinson: That once you get a particular constellation of institutions in a society, that does tend to reproduce itself. So that's why you have this divergence, not convergence. Now, of course, it's also true that societies do go out to the corridor. So particularly we talk about the German case. So I'd mentioned the Germanic tribes. So you might think, okay Germany, Germany should be in the corridor and it is in the long run. But also, if you think about German history, there's clear moments where they went outside to the corridor, think about the Nazi state. You know, for 15 years, there's a bottom up push out of the state. You know, that's an interesting example of disillusionment with institutions, the inability of institutions to resolve conflicts, to resolve economic problems, the crisis of the depression and the hyperinflation. What I find super interesting is that you get these very unstable dynamics that can throw a society out of the corridor. But when they crash. You get back into the corridor. Germans after 1945 had a a kind of common understanding of how things were going to work and how institutions ought to be structured. And they were able to recreate this shackled leviathan. They had a blueprint for creating this shackled leviathan. Understanding how you did that from the past, which you know, which nobody in Haiti or Sierra Leone has.

Paul Rand: I can’t imagine that there’s not a listener paying attention to this right now that’s not thinking about in the U.S. And you mentioned that there are certainly some evolutions that are going on and some things that President Trump identified that that arguably got exploited. Do you look at this and say that we’re moving toward an absent or despotic state right now in the United States, and that's something we should be concerned about?

James Robinson: I don't think so, because I think the history of the U.S., you know, going back to this kind of historical path dependence, the history of the U.S. suggests that the institutions are capable of responding to these challenges. People have to make compromises, they have to make new deals, they have to make coalitions. And I think that's what has to happen in the U.S. now. And I think the past suggests there's some reason to be optimistic that that will happen. You know, I think Democratic politicians are probably woken up at this point and realize there are a lot of problems that they weren't very aware of. And I'm you know, I'm even in the Brexit context, for example. I mean, I'm English, you know, and in the Brexit context, I always think, people say, oh, what a terrible thing this referendum was and how David Cameron was so crazy. But actually, I think the opposite is true. You know, what the referendum showed is that there is deep seeded kind of animosities, you know, all those deep seeded discontent about the way many things work that the political elites were not aware of.

Paul Rand: Now they are.

James Robinson: Absolutely. And that's a good thing.

(Break)

Paul Rand: And it is you think about it and we've talked about that. You do travel the world and you lecture. You consult. You speak. Are people looking at you and saying, I want to figure out in my country what I should be learning from? And we bring in economists. We bring in politicians. We bring in scientists. Are you finding that you're consulted and saying, help me understand as I am looking to evolve my society?

James Robinson: Yeah, I do not consult, actually. In the sense of, you know, governments pay me to come and tell them what to do. I had one experience of that and I didn't enjoy it.

Paul Rand: Why didn't you enjoy it?

James Robinson: Because I felt everybody was over promising. You know, my view of the world is if you want to understand how to improve economic performance in Colombia, for example, we have these general ideas about institutions, inclusive institutions. You have to make institutions more inclusive. But as soon as you're in the business of trying to give policy advice, then all the details become extremely significant. So what you have to do in Colombia is going to be extremely different from what you have to do in Sierra Leone or what you have to do in Argentina. And then you need a lot of, you know, thick knowledge of those societies. And so I think this business of running around the world telling, Kazakhstan what to do is a fool's game. And I felt extremely uncomfortable personally to be involved in that. And I've never done it ever since. Actually going and telling people about my ideas and talking to them…

Paul Rand: They can do with it what they will.

James Robinson: Yes. And for me, I find that incredibly interesting. You know, I want to I think these general concepts are useful, but I always tell them, you know, OK, if you want to think about how to make institutions more inclusive, then you need to start thinking about all these details and trying to identify what's extractive or what works and what doesn't work and what's the politics around that. And how do you solve these problems.

Paul Rand: Well, let me ask you, this is not a consulting assignment, but if you're with students and the question came up with all the knowledge that you have and the question was, well, how do you develop if you're going to start with a clean sheet of paper and design, the perfect society? How would you think about doing that?

James Robinson: You know, one of the things that I personally find very enjoyable is all the sort of diversity in the world. What impresses me about the history of humanity is the incredible diversity of the types of societies that humans have created. I think there's fundamental political and economic problems that people have to solve in these societies, and they solve them in different ways. You know, because humans are creative and they're innovative and it's interesting if you think about like Homo-sapiens, Homo-sapiens spread all over the world without speciating. They populated Greenland, but there wasn't like a Homo-Greenland-ious or whatever. You know, well how did they do that? How did they adapt to such a totally different environment without speciating? You know, they invented igloos and ice fishing. So that seems like kind of a wacky example but I think it tells you a lot about why social science is interesting. You know, all those different ways you can do things, cultures and everything, you can still have prosperity. You know, you can still have public goods. You can still have investments. So all of that variation is consistent with having basic inclusive societies. You know, for us, that's the story. That's the big story is human innovation and creativity. And humans create these very different types of societies and some of them diffuse and spread and others don't. And that’s the pattern. So I think, look, what we would like to do is probably write a book where we could convince people that this was the right way to think about things. I think we've done bits and pieces of that in these two books, but I don't think we're quite there yet. We don't have quite the right way of doing that yet.

Paul Rand: Your book, Why Nations Fail was an international bestseller. Hopefully your new one will follow suit. As you write these books, why do you think that they get the attention they do. What do you. think you hope people get something out of it? What is it that you were hoping for? How do you think that's happening? Where's the attraction?

James Robinson: Well, I think academic research is so impenetrable for non-academics. You know, the language is impenetrable. The methods are impenetrable. But often, you know, the ideas can be said in quite a simple way. And I think Darren and I, we sort of read everything. We've always been inspired by political science, by anthropology, by reading history, by social, you know, by all sorts of things. One of the reasons we wrote why nations fail is that many of the things that we found inspiring or stimulated research we were never able to include in an academic paper because that's just inappropriate. You know, it's not scientific or whatever. And we thought, well, you know, gosh, all these things have inspired us, you know, and helped us think about the world. Maybe they'll inspire other people to. And it's been surprisingly we never thought the book was going to be successful, to be honest with you. We thought we'd have a shot at it. But we were expecting to fail dismally. But it's been it's been incredibly rewarding.

Paul Rand: I would argue that that the simplicity and clarity of in or outside the corridor is also a compelling and hopefully understandable concept that will push this conversation even to a next degree.

James Robinson: Well, we're hoping so, too, but we'll have to wait and see.