MIT professor explains ways to build a successful state

The question of why nations fail has puzzled historians, social scientists, and economists alike for centuries, giving birth to countless theories.  On Wednesday, September 30, Daron Acemoglu, Professor of Economics at Massachusetts Institute of Technology, and co-author of several books on the topic, including Why Nations Fail: Origins of Power, Poverty and Prosperity, attempted to explain what it takes to build a successful state.

Acemoglu began by defining a successful nation as a state that is able to provide services and security to its constituents effectively.  According to Acemoglu, measures of state aptitude are factors such as infant mortality rates, security of life (quantitative homicide rates), government impartiality, and professionalism, for example, a society based on meritocracy rather than political influence.

He went on to claim that these measures are generally associated with GDP per capita.  Based on these factors, most western countries would be considered successful, while regions such as Latin America, parts of Asia, and sub-Saharan Africa are plagued with “failing” countries.

Acemoglu proposed that there are two types of political and economic institutions: extractive and inclusive.  Extractive intuitions are characterized by a lack of law and order, insecure property rights, and entry barriers and regulations which impede the functioning of markets and create a non-level playing field.

Inclusive institutions, on the other hand, are characterized by secure property rights, law and order, state support for markets, relatively free entry of businesses into the marketplace, a legal system that upholds contracts, and access to education and opportunity for the majority of citizens.

Acemoglu explained that inclusive institutions are conducive to sustained economic growth for two reasons.  First, inclusive institutions create a fairly broad distribution of opportunity in society; second, they incentivize people to develop their talents and make investments in the most efficient way.

Furthermore, Acemoglu outlined two conditions for an inclusive institution: pluralism and political centralization.  Pluralism, he explained, is the broad distribution of political power, characterized by widespread participation, and the right institutional prerequisites to the political process, such as checks on those who hold power.  He defined political centralization as the state’s ability to regulate economic activity, provide public goods, tax its citizens, and provide stability.  Pluralism and political centralization act to balance one another, and both factors must be present in an inclusive system.

Why do some societies not adopt inclusive institutions?  The answer is tied to the relationship between leaders and constituents in extractive institutions.  The nature of an inclusive economic solution is that it redistributes the power within a state, usually eroding the political power of the leaders.  Furthermore, the leaders of a society are not the ones who benefit economically from the inclusive model; thus, there is little incentive for leaders to pluralize and centralize governments.

State capacity, according to Acemoglu, is the ability of the state to perform essential actions such as taxing, controlling violence, providing public goods, and facilitating impartiality and professionalism.

Acemoglu claimed there is both correlation and causality between state capacity and GDP per capita as well as between state capacity and sustained economic development.  He warned, however, that not all leviathans, or countries with substantial capacity, will become world powers.  Some leviathans are what Acemoglu calls “paper leviathans,” stunted because of a lack of pluralism or a weakness of civil society.

He further categorized these “paper leviathans” as stunted from the bottom and stunted from the top.  States that succumb to social norms that turn people against anyone who accumulates political or economic power are considered states that are stunted from the bottom, whereas states that are generally incapable or unwilling to take control of violence or that fail to implement pluralistic structures of government are said to be stunted from the top.

Acemoglu analyzed the examples of the development of democracy in Ancient Greece and the disarming of aristocracy in England to demonstrate that inclusive institutions encourage state building.  He emphasized how in both examples, when the power was given to the people—through the empowerment of Parliament in the case of England and more directly in the case of Greece—there was a deeper trust in state authority which in turn expanded that state’s capacity.  The power gained by the state was attained through the consent of the people.  Thus, Acemoglu concluded that pluralism leads to successful state building.

Acemoglu ended by addressing the issue of how his theory on state building should inform policy making.  He concluded, “Both at the national and local level, state building that happens at the expense of civil society … is going to work badly.”  Instead, Acemoglu suggests “working with traditional social norms … and strengthening civil society at the same time as building the state.”

 
Keenan White is a freshman living in Ryan Hall.  Email her at kwhite11@nd.edu.