by Anthony Painter
In 1978, workers at the Scania factory in Sao Paulo went on strike in protest at the Government manipulating the rate of inflation meaning they were worse off than they had thought. Strikes had been illegal in Brazil since 1964. The metalworker union’s president was called in to convince the workers to return to work. He refused. Brazil’s long march to economic and political freedom had begun. The president’s name? Luiz Inatio Lula da Silva – “Lula”.
Critical to Daron Acemoglu and James A Robinson’s Why nations fail: the origins of power, prosperity and poverty is the notion that these events in 1978 are connected to today’s Brazilian prosperity. Their central argument is that prosperity is generated through inclusive political and economic institutions. They reinforce each other. A pluralistic political system tends to support private property, encourages investment and innovation, creates a level-playing field and prevents elites from extracting too much wealth. As long as you have sufficient centralisation to enable the rule of law, these are the circumstances in which nations develop and poverty is diminished.
Lula was part of a broad civic movement for democracy and social justice. Over time this movement enhanced pluralism within Brazil’s political system and cracked open its economy. The first local administration to be run by the Workers’ Party, Porto Alegre, introduced ‘participatory budgeting’ which consulted residents about spending priorities. Inclusive political institutions promote inclusive economic institutions which unleash creative destruction against privilege and monopoly.
The great trust-buster, Teddy Roosevelt, confronted the ‘Robber barons’ in the early twentieth century. He was responding to popular concern with their market power. America’s institutions enabled this transmission from popular discontent to action. The same would be less likely to happen in Yemen.
Two things distinguish Why nations fail the simplicity of its argument and the sheer range and scope of historical references. Acemoglu and Robinson cover the Roman Empire, the history of Ethiopia, Congo, Bolivia, Peru, Japan, India, China, Austria and many more.
They devote considerable attention to a small European nation called England. Our divergent path came through the colonisation of north America which emboldened a merchant class to insist on political reform. It all came to a head in the Glorious Revolution of 1688.
Acemoglu and Robinson are particularly adept at comparing starkly diverging destinies of seemingly similar locations that have been taken in different institutional directions: Nogales, Arizona and Nogales, Sonora; North and South Korea; the Bushong and Lele of Kongo; north and south London. OK, they don’t include north and south London but you get the picture.
The book is staggering, accessible but not without flaws. Its core thesis does become quite repetitive and this breaks its pace from time to time.