This is the second of four reflections by Saskatchewan businessman and writer Herb Pinder on Why Nations Fail, by authors Daron Acemoglu and James A. Robinson. The first, For our own sakes, we should understand why nations fail, appeared on Saturday.To become rich, countries must overthrow elites to “more broadly distribute political rights.” That's the theme of Why Nations Fail, by authors Daron Acemoglu and James A. Robinson. They argue wealth can only come from the development of sustainable “inclusive political institutions which in turn empower economic institutions.”.There are many other influences, of course. They include a country's geography, demographics, history, culture and so forth. But the authors explain how inclusive versus extractive institutions distinguish rich from poor. Understanding this construct can help us in Canada.Extractive means elites — monarchs, dictators and ruling parties — set the rules and capture the spoils.Inclusive institutions are pluralistic societies with stable institutions that share power, provide freedom of economic activity and support prosperity.A vivid visual example of the Rio Grande River. Not only is it the border between Mexico and the US, it also portrays the sharp difference in economic outcomes between the two countries, that are themselves the consequence of the two different economic systems on opposite sides of the river. To further 'get' the point, one might also consider the borders between North and South Korea, Israel and Gaza or between East and West Berlin, before the wall came down. (In 1961, the impact on my 14-year-old self of the just constructed wall to make citizens prisoners in their own country, and shooting those trying to escape, remains vivid today and forever influenced my political beliefs.)Throughout history, wresting power from caesars, dictators, monarchs and others has not come easily. For most of history, humanity has lived with extractive institutions characterized by crime, corruption, poor education, infant mortality, brief life spans, the subjugation of women and many other things we regret. Such regimes still exist: Iran, Russia and China for example, do not have problems with illegal immigration.The prosperity resulting from the Industrial Revolution was preceded by multi-century progress towards broadly based institutions in England. Once a backwater on the northern fringe of the Roman Empire, England was originally 'extractive' as monarchs granted privileges to lords, including the right to tax their serfs, creating a long-standing feudal system, almost a version of slavery.Evolution arrived however, in part from “critical junctures,” the result of conflict or serendipity. Such was the Magna Carta, which in 1215 forced the king to consult before raising taxes. According to the authors this was "the first step towards pluralism.”An elected parliament in 1265 enabled representation of a broader set of interests and provided a forum for citizens to oppose the arbitrary actions of monarchs. One aspect of how power was gained by peasants was the plague in the mid 14th century resulting in labour shortages — another critical juncture, this time as tragic as it was accidental.Over the following centuries, persistent peasant revolts changed England's feudal system into a labour market and aided by increasing centralization, more inclusive institutions slowly developed.Further conflict over rights led to The English Civil War of the 1640s. Won by the opposition Roundheads, eventually leader Oliver Cromwell himself became autocratic, a very common theme highlighting that sustainable change requires the establishment of strong political and economic institutions.But, another significant advance was the 1688 Glorious Revolution, when a negotiation turned England into a constitutional monarchy. This led to a Bill of Rights, property rights and inclusive institutions.The long, slow and successful establishment of a pluralistic society, as described in the book and summarized above, laid the foundation for the Industrial Revolution early in the 17th century.The comfort of constitutions, rule of law, property rights, patents, fiscal regimes and similar foundational conditions, enabled science and innovation, access to capital, and broadly based prosperity. As serfs evolved into citizens and trade spread, a merchant class became another institution making it ever more difficult for elites to recapture their extractive ways.Another critical juncture occurred in 1445 when Gutenberg invented the printing press, advancing knowledge that further supported pluralism. But it also revealed another unfortunate example of the damage of regressing into autocracy. The Ottoman Empire ruled much of Europe and North Africa for centuries and for a time was responsible for many critical advances in the future of humanity.However, the Sultan in the mid 1440s disallowed printing in Arabic, both substance and a proxy for a culture and empire that missed much of the industrial revolution. Regrettably, absolutist regimes still dominate many countries in the Middle East today and only those with oil and gas are rich.While the above scan of history from the more than 600-page book is superficial, the story is profound and forever changed the possibilities for human progress. The centuries-old process continues to provide economic benefits today, especially for those of us with the good fortune to live in countries with a British heritage — the US, Canada, Australia, New Zealand, India and many now-independent countries that were once part of the British Empire.The process whereby Divine Rights were superseded by pluralism, creates a “virtuous circle,” the key to maintaining rights when the inevitable attacks from elites emerge. Hand-in-hand with all this was the establishment of democracy, the single most important institution and a critical partner in the march to prosperity and freedom. Rights granted by monarchs to lords spread to commoners, part of the virtuous circle.By the mid 1880s, in the US all white men could vote. We all know the untidy but relentless progress towards all men and women gaining the same franchise and civil rights. Unfortunately, the US today is also an example of the difficulty of maintaining inclusive institutions.We all also are aware elites in many countries continue to extract benefits, usually diminishing the lives of their citizens, including but not limited to Russia, China, much of Africa, the Middle East and South America. And as we shall see, also in Canada.Venezuela is a textbook example of institutions vulnerable to the charisma of the vile President Chavez. Capturing the spoils, he eventually destroyed the oil industry, the country's economic driver. It will require a long time to recover, if ever.Argentina, “one of the richest countries in the world” a century ago, blessed with comparable natural resources to Canada, also succumbed. Having eliminated the independence of the central bank (among many other unfortunate policy mistakes) it has defaulted nine times in the last century. Inflation, and collapses of the currency and frozen bank accounts have devastated the net worth of the country. Desperate elites often react strongly. So do electorates. Having just elected a new president, one of his key planks the “dollarization” of Argentina’s currency.Another transgressor of central bank independence is Turkey, today suffering both runaway inflation and punitive interest rates. First gaining power, Erdogan became an autocrat, to the detriment of a country that was not so long ago on the rise.The important takeaway from the research is economic and political success is never assured. Inclusiveness is the pathway to a pluralistic culture and sustainable prosperity.“Rich nations are rich because they managed to develop inclusive institutions”. Part III will examine the state of Canadian institutions.
This is the second of four reflections by Saskatchewan businessman and writer Herb Pinder on Why Nations Fail, by authors Daron Acemoglu and James A. Robinson. The first, For our own sakes, we should understand why nations fail, appeared on Saturday.To become rich, countries must overthrow elites to “more broadly distribute political rights.” That's the theme of Why Nations Fail, by authors Daron Acemoglu and James A. Robinson. They argue wealth can only come from the development of sustainable “inclusive political institutions which in turn empower economic institutions.”.There are many other influences, of course. They include a country's geography, demographics, history, culture and so forth. But the authors explain how inclusive versus extractive institutions distinguish rich from poor. Understanding this construct can help us in Canada.Extractive means elites — monarchs, dictators and ruling parties — set the rules and capture the spoils.Inclusive institutions are pluralistic societies with stable institutions that share power, provide freedom of economic activity and support prosperity.A vivid visual example of the Rio Grande River. Not only is it the border between Mexico and the US, it also portrays the sharp difference in economic outcomes between the two countries, that are themselves the consequence of the two different economic systems on opposite sides of the river. To further 'get' the point, one might also consider the borders between North and South Korea, Israel and Gaza or between East and West Berlin, before the wall came down. (In 1961, the impact on my 14-year-old self of the just constructed wall to make citizens prisoners in their own country, and shooting those trying to escape, remains vivid today and forever influenced my political beliefs.)Throughout history, wresting power from caesars, dictators, monarchs and others has not come easily. For most of history, humanity has lived with extractive institutions characterized by crime, corruption, poor education, infant mortality, brief life spans, the subjugation of women and many other things we regret. Such regimes still exist: Iran, Russia and China for example, do not have problems with illegal immigration.The prosperity resulting from the Industrial Revolution was preceded by multi-century progress towards broadly based institutions in England. Once a backwater on the northern fringe of the Roman Empire, England was originally 'extractive' as monarchs granted privileges to lords, including the right to tax their serfs, creating a long-standing feudal system, almost a version of slavery.Evolution arrived however, in part from “critical junctures,” the result of conflict or serendipity. Such was the Magna Carta, which in 1215 forced the king to consult before raising taxes. According to the authors this was "the first step towards pluralism.”An elected parliament in 1265 enabled representation of a broader set of interests and provided a forum for citizens to oppose the arbitrary actions of monarchs. One aspect of how power was gained by peasants was the plague in the mid 14th century resulting in labour shortages — another critical juncture, this time as tragic as it was accidental.Over the following centuries, persistent peasant revolts changed England's feudal system into a labour market and aided by increasing centralization, more inclusive institutions slowly developed.Further conflict over rights led to The English Civil War of the 1640s. Won by the opposition Roundheads, eventually leader Oliver Cromwell himself became autocratic, a very common theme highlighting that sustainable change requires the establishment of strong political and economic institutions.But, another significant advance was the 1688 Glorious Revolution, when a negotiation turned England into a constitutional monarchy. This led to a Bill of Rights, property rights and inclusive institutions.The long, slow and successful establishment of a pluralistic society, as described in the book and summarized above, laid the foundation for the Industrial Revolution early in the 17th century.The comfort of constitutions, rule of law, property rights, patents, fiscal regimes and similar foundational conditions, enabled science and innovation, access to capital, and broadly based prosperity. As serfs evolved into citizens and trade spread, a merchant class became another institution making it ever more difficult for elites to recapture their extractive ways.Another critical juncture occurred in 1445 when Gutenberg invented the printing press, advancing knowledge that further supported pluralism. But it also revealed another unfortunate example of the damage of regressing into autocracy. The Ottoman Empire ruled much of Europe and North Africa for centuries and for a time was responsible for many critical advances in the future of humanity.However, the Sultan in the mid 1440s disallowed printing in Arabic, both substance and a proxy for a culture and empire that missed much of the industrial revolution. Regrettably, absolutist regimes still dominate many countries in the Middle East today and only those with oil and gas are rich.While the above scan of history from the more than 600-page book is superficial, the story is profound and forever changed the possibilities for human progress. The centuries-old process continues to provide economic benefits today, especially for those of us with the good fortune to live in countries with a British heritage — the US, Canada, Australia, New Zealand, India and many now-independent countries that were once part of the British Empire.The process whereby Divine Rights were superseded by pluralism, creates a “virtuous circle,” the key to maintaining rights when the inevitable attacks from elites emerge. Hand-in-hand with all this was the establishment of democracy, the single most important institution and a critical partner in the march to prosperity and freedom. Rights granted by monarchs to lords spread to commoners, part of the virtuous circle.By the mid 1880s, in the US all white men could vote. We all know the untidy but relentless progress towards all men and women gaining the same franchise and civil rights. Unfortunately, the US today is also an example of the difficulty of maintaining inclusive institutions.We all also are aware elites in many countries continue to extract benefits, usually diminishing the lives of their citizens, including but not limited to Russia, China, much of Africa, the Middle East and South America. And as we shall see, also in Canada.Venezuela is a textbook example of institutions vulnerable to the charisma of the vile President Chavez. Capturing the spoils, he eventually destroyed the oil industry, the country's economic driver. It will require a long time to recover, if ever.Argentina, “one of the richest countries in the world” a century ago, blessed with comparable natural resources to Canada, also succumbed. Having eliminated the independence of the central bank (among many other unfortunate policy mistakes) it has defaulted nine times in the last century. Inflation, and collapses of the currency and frozen bank accounts have devastated the net worth of the country. Desperate elites often react strongly. So do electorates. Having just elected a new president, one of his key planks the “dollarization” of Argentina’s currency.Another transgressor of central bank independence is Turkey, today suffering both runaway inflation and punitive interest rates. First gaining power, Erdogan became an autocrat, to the detriment of a country that was not so long ago on the rise.The important takeaway from the research is economic and political success is never assured. Inclusiveness is the pathway to a pluralistic culture and sustainable prosperity.“Rich nations are rich because they managed to develop inclusive institutions”. Part III will examine the state of Canadian institutions.
