‘Why Nations Fail’ and the Fractal Effect

Learn from Botswana’s history about your own success and happiness in two minutes

Why nations fail is a great book which tries to explain world’s inequality.

Although the book is a little long-winded, Acemoglu (MIT) and Robinson (Harvard) explain which are the keys to success for a nation or a city such Botswana —the fastest-growing countries in the world— while others such as the Congo or South Korea are buried in poverty and violence.

Which are the keys that make a nation succed?

  • The first key is that sustained societal prosperity is only possible when economic and political institutions are inclusive instead of extractive. Most of the countries became rich because their citizens stopped the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.
  • The second key is political institutions control economic ones so, political institutions are the key to success.
  • The third one is to accept creative destruction.
    One of the core problems of most institutional arrangements is that those in power have ‘a fear of creative destruction’ — that the disruptive effect of innovation and capitalism will undermine their power base.
    Elites’ interests are opposed to those of the long-term development of their country. In lots of cases, even when oligarchs are overthrown, the revolutionaries — like the pigs in Animal Farm— often come to resemble them.
    When a combination of institutional accident and inspired leadership leads to an elite that is willing to accept creative destruction (as, the authors argue, is historically the case in the US), then a take off can occur.
  • Minor ‘butterfly’s wing’ differences in initial conditions caused by gentle ‘institutional drift’ make a huge difference when a country hits a ‘critical juncture’ (e.g. the Black Death in 14thCentury Europe, which wiped out a large part of the labour force and so transformed economies), and can set them on diametrically different paths.

Fractal Effect?

There is some kind of fractal effect in these four patterns in a nation’s success.

What works for an entire nation, works for an industry or a technology as the Web, and also for an enterprise, a department or even a person.

Think of the Internet as we know it. There is so much commercial freedom now on the Internet. We can access to world market, direct sales to customers, learn, make incredible things without capital…

But, of course, as with nations occurs, after the rise of the Internet, it starts to appear some forces and elites who work to turn this freedom and innovation into gold for them and poverty for the rest: Patterns, Net neutrality, Marketplaces, Censorship etc…

Think of an enterprise or a department. They are also a ‘society’ and, as a nation, the same rules are applied: The elite must be inclusive —not extractive, you must rule by politics valid for the long-term, you must accept and adapt to ‘creative destruction’ (competition) and innovation and there are ‘critical junctures’ that must be oriented in the correct path.

Of course, the keys for a person’s success are not different: be open to others, collaborate, help, be inclusive, not extractive, have a long-term purpose in live, have some rules, accept the others and adapt to others skills taking the best from others and take the opportunities.