Yesterday National Public Radio promoted the book Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson.
The question: why are some nations rich while others are poor, is the most important question in economics. And after centuries of trying to figure out the answer, economists still don’t know. Until, maybe, just maybe – right now.
Two important economists have come out with a new book that they say, and many others agree, may offer the answer. The book is called “Why Nations Fail.” One of the authors, Harvard’s James Robinson, says the reason economists haven’t succeeded so far is that they’ve been so obsessed with mathematical models of fictional economies that don’t actually exist.
And what signature example do Robinson and Acemoglu select? North Korea:
The two Koreas are an extreme example. But you can see the same thing on the border of the US and Mexico, Haiti and the Dominican Republic, and dozens of other neighboring countries. In all of these cases, the people and land were fairly similar, but the border changed everything.
“It’s all about institutions,” Daron Acemoglu, one of the authors, explained. “It’s really about human-made systems, rules, regulations, formal or informal that create different incentives.”
When these guys talk about institutions they mean it as broadly as possible: it’s the formal rules and laws, but also the norms and common practices of a society. Lots of countries have great constitutions but their leaders have a practice of ignoring the rules whenever they feel like it.
Acemoglu and his co-author, James Robinson say the key difference between rich countries and poor ones is the degree to which a country has institutions that keep a small elite from grabbing all the wealth. In poor countries, the rich and powerful crush the poor and powerless.
So North Koreans live in poverty because “the rich and powerful crush the poor and powerless.” If only today’s Harvard economists and good, progressive NPR listeners lived back when the Soviets set up the Democratic People’s Republic of Korea as a satellite state after World World II then surely they would have built “institutions that keep a small elite from grabbing all the wealth.” Right?