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Two things distinguish Why nations fail the simplicity of its argument and the sheer range and scope of historical references.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.
It’s quite dismissive of countervailing factors such as the cultural explanation. Culture can be a dubious explanation – and sometimes a racist one – but where do these institutions come from? It might simply be a interplay of power at critical junctures of history as the authors wish us to accept. But surely institutions have to go with the grain of the culture in which they sit. The reintroduction of slavery into the UK is unimaginable but not only for legal-institutional reasons.
A major question that flows out of the book that the authors don’t really confront is what should developed and inclusive countries seek to do? Are they at the end of history or are there further institutional developments from which we could benefit also? In other words, are there institutional innovations which could benefit our society even though, in relative terms, we are prosperous?
Our political institutions, bureaucratic and centralised, seem remote from the experience of most. We have a centralised state with centralised parties who are governed by a narrow elite. Democracy becomes about showering gifts on certain client groups rather than allowing people into the democratic conversation. As a consequence, they often shout and scream when they are allowed in – how else are you going to be heard? It does feel like there is scope for greater pluralism and inclusivity. Perhaps a more inclusive political system will lend itself to more inclusive economic institutions for us just as it would do in Russia.
As the middle class decays and the poorest suffer, the only answer the Tory-led Government has is austerity: no further vision, no hope, no sense of national mission. The institutional mix of our economy didn’t stop collapse in 2008 – in fact, it may have precipitated it.
The countervailing power of the labour movement has collapsed in recent decades. No institution has replaced it in order to support the lives of all. It is a failure of imagination to think there is a way of reversing to a previous way of life. We need to build a new one and new and inclusive economic institutions are central to that: to invest in the future, develop skills, to support wages, to create new economic networks. The state has a role to play in creating and supporting new institutions – some of which will fail. A more inclusive state will necessary if the Acemoglu/Robinson argument applies to us too.
The government wishes to simply get the pre-crash economy started up again. That suits their political purposes. The left too often looks back to the pre-pre-crash economy. The greatest institution builders – Lula amongst them – have understood instead how inclusive political and economic institutions coexist. England was the first to industrialise. We have yet to understand the largely post-industrial world and cultivate institutions to ensure a broad spread of wealth and opportunity in that context.
Once we see the task as one of long-term institution cultivation rather than short-term distribution then we can create a different future. This book suggests why that approach is important.
Anthony Painter is an author and a critic.