Why Nations Fail review part II: relevance to Timor-Leste & the Pacific

The persistence of extractive political and economic institutions is the starting point for Acemoglu and Robinson’s analysis of Why Nations Fail. I outlined their main arguments in Part I of this review.

Acemoglu and Robinson argue that ruling elites ensure that a country’s institutions act to serve their interests and direct economic benefits to them. The dead hand of the past shapes how the state acts now. For countries administered as colonies, the legacy of control by a small elite is all too evident. Their aim, as in PNG, was to promote the use of plantation crops supported by migrant labour and later smallholder cash crops. This was to generate an economic surplus to fund the law and order functions of the state and provide minimal services.

False prophets

According to Acemoglu and Robinson, analysts in agencies like the World Bank view the main obstacle to development as elite ignorance about appropriate policy options. Their focus is on correcting ‘micro-economic failures’ such as under-performing education and health care systems. However, they fail to see that elites often undermine reform efforts.

The policy makers and bureaucrats who are supposed to act on well-intentioned advice may be as much a part of the problem, and the many attempts to rectify their inefficiencies may backfire precisely because those in charge are not grappling with the institutional causes of poverty in the first place (p 449).

Acemoglu and Robinson are also critical of foreign aid: if sustained economic growth depends on inclusive institutions, giving aid to the regimes that are the very root of the problems mean foreign aid must be ineffective. However, Acemoglu and Robinson do not call for foreign aid to stop, claiming that even if only a small amount of the aid gets to the poorest, this is better than nothing.

Acemoglu and Robinson conclude by highlighting how hard it is for countries to develop inclusive institutions and do not offer any recipe for doing so.

What can an institutional perspective offer?

So what can an institutional perspective tell us about the Pacific? First, a weak state stems from its lack of legitimacy. In countries where few people pay tax, citizens have little incentive to demand better services. Governments only see the need to buy local favour through handouts to keep in power.

An institutional perspective also suggests that the size of the middle class is crucial. A recent research paper [pdf] from the World Bank finds evidence based on 110 countries to support this. An expanding middle class puts more pressure on governments to reform public policy and improve how institutions work. As the size of the middle class increases, social policy on health and education improves. Increased democratic participation also results in better controls for official corruption.

Acemoglu and Robinson show how self-serving elites do all they can to avoid disruptive change which could undermine their power. The persistent failure of governments in the Pacific and Timor-Leste to reform their education systems could be viewed this way. Their lack of practical support to help young people to migrate to high-income labour markets for work is another indicator of elite fear of disruptive change. Better education outcomes would enable young people to gain access to work in Australia, New Zealand and the USA. The result would be a new generation better educated than those in power and with access to resources to mount a political challenge.

One way for Australia to foster the disruptive change needed to produce inclusive institutions in countries in the region is to develop and promote a regional employment strategy. This strategy needs to set targets for a share of educated young people from each Pacific island country and Timor-Leste to find work of their choice in another country in the region. This requires, for example, that the Australia Pacific Technical College focus on producing graduates for employment outcomes in Australia and New Zealand rather than for limited domestic labour markets, as at present.

Real change to institutions such as education systems in the Pacific will only come when students and parents demand changes. This can only come about if young people have a job-related incentive to seek better education outcomes. More access to good jobs will enable the middle class to grow. This, in turn, will lift the demand for more open and effective systems of governance.

This blog is a part of a series on ‘Why Nations Fail.’ For other blogs in the series, see here.

Richard Curtain is a Melbourne-based, public policy consultant, who has spent 18 months in Timor-Leste in 2008 and 2009, working on projects funded by USAID, UNICEF and AusAID. His current work for two major multilateral agencies in the region relates to Timor-Leste and to pacific island countries.

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Richard Curtain

Richard Curtain is a research associate, and recent former research fellow, with the Development Policy Centre. He is an expert on Pacific labour markets and migration.


  • Acemoglu & Robinson’s (2012) book, Why Nations Fail, is indeed compulsive reading. Its strength is in a unifying thesis about institutional failure, tested across a very wide set of disparate cases, historical and current. Among its examples it includes the Glorious Revolution of 1688 (with its ‘Black Act’ aftermath drawing on the work of Marxian historian E.P. Thompson in his book Whigs and Hunters) and the convict–based British settlement of New South Wales, Australia.

    Diamond’s lengthy critical review of the book, entitled ‘What Makes Countries Rich or Poor, should also be read. It will be evident that Diamond’s ‘geographical’ (reductionist?) approach as in his Guns, Germs and Steel is specifically and seriously targeted in A&R’s book. So Diamond has a lot at stake in this debate.

    One anomaly here (surprisingly, not picked by Diamond in his own review) is that despite A&R’s commendably cross-disciplinary scope, their critical focus in regard to Diamond’s work is exclusively on Guns, Germs and Steel, but there is no mention of the equally important evidence and argument in Diamond’s later book Collapse (2005) and see also references cited for other works in a similar vein.
    Indeed, words such as ‘environment’ or ‘ecology’, let alone environmental ‘collapse’, do not feature in A&R’s index. There is an important reference to ‘climate change’ but this does not encompass human-induced climate change, much less the notion of humanity as a ‘geological’ force acting on nature more generally, such as to justify the term ‘anthropocene’ to describe the geological era that some see as having emerged over the last few centuries. This is an amazing ‘silence’ on the part of A&R given the evidence (from Diamond and elsewhere) of past civilisations collapsing due to human-induced environmental effects. This is especially so given their apparent aspirations for the book, titled as it indeed is, Why Nations Fail ─ rather than why they may, even if temporarily, succeed.

    The further puzzle follows from the sub-title to Diamond’s Collapse, namely: How Societies Choose to Fail or Survive. While the case studies in Collapse convincingly substantiate the role of human-caused environmental degradation as a force destructive of those very societies and civilisations (and neglected by A&R) the weaker aspect of Diamond’s book is in his failure adequately to theorise his own ‘public choice’ question at the institutional level. Analysis of the ‘public choice’ question at the institutional level is the very strength that A&R claim for their own work.

    Clearly, there is ample scope for this debate to continue productively, recognising the need for close reconsideration on both (or all) sides.

  • Richard
    Your prescriptions in part 2 make sense to me. The discussion of the role and potential of a middle class is consistent with the identified dysfunctionalities of a ‘rentier state’ in which the middle class is able to be bought off by low taxes made possible as mineral revenues accrue to the governing elites. In this model no or low taxation is intended to take the struggle for ‘representation’ off the political agenda of the middle class.

    Your points about the desirability of creating a loyal diaspora along with educational opportunities outside also makes sense. This logic also seems to me applicable to indigenous people from remote areas in Australia. There needs to be dynamic interchange and exchange as between the remote communities and the wider world, if the former are to survive and if the indigenous people from these regions are to prosper and avoid degradation. Of course there can be a downside to ‘dynamic interchange and exchange’ in the form of alcoholism etc. and these are major issues to be addressed by these communities and the wider society cooperatively and consultatively. Alcohol and poverty wreak their destructive effects by sabotaging the will and the ability to plan and to commit, not least to education and advancement.

    Yes, there is a need to foster change that is ‘disruptive’ to the ruling elites, including those supported by quasi-colonial powers such as the US in the middle east and elsewhere. Such change is also viewed as disruptive to this quasi-colonial power, the U.S. still seeing itself unashamedly as a ‘status quo’ power. In fact, in terms of quasi-colonial practices it has been a ‘roll-back’ power in Iraq and elsewhere

  • Thanks Richard for another useful review. So inclusion, incentives, and institutions really do matter for development, and elite capture really does exist?!

    I don’t disagree with any of the major points put forth by Acemoglu and Robinson, or Diamond. I think most of the factors they point to are all valid, to varying degrees, across different countries and contexts. Inclusion, incentives, institutions, geography, history, culture – all these (and more) have shaped the paths and prosperity of nations. It’s almost impossible (if not impossible!) to disagree. And I think all of this applies even to small micro-states such as ours in the Pacific.

    But there’s one particular thread in this discussion that I really agree with. This has to do with the temporal dimension of development and change. As Diamond states, “One can’t just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history of tribal organisation.”

    We need to remind ourselves that self-discovery, assimilation, integration, and reconciliation are complex and often time-intensive processes – and development, fundamentally, is all about these things.

    All societies are in a continuous state of evolution. But sometimes they enter periods of major transition and change. In my view, most Pacific societies are still in this uneasy period of transition, from traditional to mixed and modern systems of governance and organization. Naturally, some societies transition faster and more effectively than do others. I can think of a couple countries in the region that seem to be getting this process right.

    In my country, the Marshalls, we are still trying to figure out how to effectively transition. We’re navigating in still unfamiliar waters. We have gained independence and have put in place the ‘hard’ institutions of a modern state, but somehow we haven’t quite figured everything out. We’re still struggling to reconcile our past with our present and future, our traditional systems and values with more modern ones. Sometimes it’s an ugly process – and some systems and values are probably irreconcilable.

    But we keep moving and we keep trying. We don’t always have the right leaders in place to manage this transition, but many of our leaders are trying their best to steer the ship in the ‘right’ direction, so that we don’t end up on the reef, a failed nation. But when it’s not always clear what this direction is, no one really knows how fast we should be sailing.

    Many things matter for development, and often times time itself is a major matter.

  • Keeping it simple (The KISS Principle)
    Professor Jared Diamond has made some interesting points is his essay ‘What Makes Countries Rich or Poor”. http://www.nybooks.com/articles/archives/2012/jun/07/what-makes-countries-rich-or-poor/?pagination=false

    For those who already know Prof. Diamond’s credentials, experience and writings, this should come as no surprise. What is so refreshing is that the Professor has actually taken the time and effort to visit countries like PNG’s and get out into the kunai roots and base his observations on first hand experience.

    Some of the issues raised in the paper are noted below together with some simple questions these issues raise.

    Issue: Given a level playing field, those countries that have an inclusive political system seem to do better than those who have an exclusive system or a political elite running the country. Examples provided include the contrast between North and South Korea.

    Question: Does that mean aid should not be given to exclusive regimes? Some may feel that aid to these exclusive regimes only helps them retain power. For example, if North Korea spent more on their food production and public health and less on their rockets, parades, ideology and hero worship, their people might be looking at the same standard of living as their relatives in the South?

    Issue: Many countries with a high average personal income and wealth are those where their societies have a long history of developing central government. People from these countries have had in many cases, hundreds if not thousands of years to adapt to this concept. In cases where a foreign central government system has been imposed on a country where none existed before, this does not work well. PNG is cited as a classic example.

    Question: If countries like PNG had been allowed the time to develop their own brand of central government, would what developed now be better accepted?

    Issue: Individual ownership of land and resources as opposed to group ownership tends to encourage greater incentive to produce more. Also, where countries were initially sparsely populated, those who then arrived had to work hard to survive and developed a work ethic of achievement. Australia is among those countries used as an example.

    Question: Should nations like PNG now pursue land alienation and encourage private ownership of resources?

    Question: If the pioneering ethos of the first European settlers provided the basis of wealth in Australia today, could this only be a temporary situation? Could today’s young people have lost the competitive edge as the challenges of the past no longer exist?

    Issue: Those countries with rich natural resources might be expected to have rich societies but this often does not seem to be the case. Extractive industries seem to promote the development of a political elite or worse, dictators who then ends up controlling the nation’s wealth. Many African nations are used as examples.

    Question: Should aid be targeted at geopolitical objectives to replace corrupt regimes with democratic and inclusive governments? What ethical basis is there to promote regime change from without? If signing up to the United Nations declarations is the ethical benchmark, why isn’t the UN as a global body applying the necessary means to ensure these declarations are enacted everywhere or has the UN been effectively ‘white anted’ from within?

    Issue: Population increases and lack of available birth control methods in poor countries seem to go hand in hand. Women are constantly caring for large numbers of children who are seen as creating a more secure future for their parents. This could mean that half the work force is unavailable for almost any other purpose. It also could mean less available resources to go around in the future.

    Question: Do aid giving countries have the right to try and promote change to a society’s customs and culture?

    Question: Is the education and liberation of women a decision aid giving cultures should make if this is contrary to the recipient’s culture and customs?

    Issue: Climate and rainfall might cause the soils of tropical countries to leach out faster than those of temperate countries. Disease and health problems are also factors affecting the average wealth of the nation.

    Questions: Should aid giving countries give food aid and so encourage the food dependency of countries where limited food production and limited resources inhibit large scale and broad acre food production using expensive machinery and fuel costs? Is food aid only likely to increase a recipient’s population to the point it will never be self-sufficient and always dependent? Wouldn’t it be better to encourage reciprocal trade rather than an aid dependency?

    The Real Question: If the concept of overseas aid is been effective, what benchmark is used to evaluate this view? If continued aid is still required, could this be due to the creation of a self fulfilling regime in itself and encourage permanency in those who promote it for their own objectives?

    Given the immense number of studies and papers currently being written about how aid money should or could be spent and what should so called developed nations do to help so called developing nations, perhaps it would be better for everyone to start thinking about the simple basic issues first and leave the endless esoteric postulations and academic pontifications for a later date?

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