Nogales is an exceptional city. Half of this city is located in the state of Arizona, USA and the rest is in Mexico. A border wall divides this city from two different countries. The interesting thing is that the life-standard of the citizens are significantly different in the two parts of Nogales. In Arizona part, the average annual income of the citizens is approximately 30,000 USD, the life expectancy is 65 years and most of them are highly educated. You will see the opposite scenario just 10 feet away from the border wall. The annual average income of the citizens in Mexico part is almost one-third of that of the Arizona part, also there are significant differences in healthcare, transport, education, law and order, and other indicators.
Economists have been trying for ages to explain why some nations fail and why some succeed. Some explained, geography is the main factor behind this. Some thoughts, cultures, and lifestyles are key to a nation’s success. However, two great economists Daron Acemoglu and James A. Robinson have revealed the mysteries of a nation’s success by analyzing data of some failed and successful nations.
Actually, there are no significant geographical differences between the two parts of Nogales located in Arizona and Mexico, in fact, language and culture are also indifferent. Despite the geographical similarities, the socio-economic inequality between Arizona and Mexico parts rejects the 'Geographical' hypothesis of a nation’s success. Finally, Daron Acemoglu and James A. Robinson have revealed the secret law of a nation’s success and that is “Inclusive Political and Economic Institutions”. All the successful nations built their institutions as “Inclusive”. Providing “Incentives” to the citizens is their main aim.
On the other hand, all the failed nations built their institutions as “Extractive”, such institutions give more benefits to the “Elite Class” of the society while keeping the common people in the loop of suffering and exploitation.
The story of great inventor Thomas Alva Edison can be a perfect example of how a nation can make its citizen the best in the world by providing “Incentives”. Edison was the 7th child of his poor parents. He even didn’t complete his primary education but he has 1093 scientific patents. Till now he is one of the top innovators in the world.
When Edison invented the electric bulb, the government encouraged him to patent his innovation. Edison's patents for various inventions opened the door to earning huge sums of money.
This is how Edison built the tech giant companies like General Electronics and Motions Pictures later. If Edison were in a third-world country, the story would be different. There, protecting innovation by a patent is like an impossible dream for a little educated and poor person.
Social scientist Robert K. Merton explained in his “Methew Effect Theory” how rich people get richer and the poor get poorer over years. According to this theory, some extra favor can lead to a big success. This theory can be used to explain Edison’s example, the government helped Edison to be Tech superior by giving him a little favor. On the other hand, many potential innovators in the Third World are nipped in the bud due to a lack of state incentives. Yuval Noah Harari explained the matter by saying "In many third world countries, maybe someone as brilliant as Newton or Einstein is somehow passing his life as a farmer or day laborer".
Acemoglu and Robinson say ‘extractive’ institutions develop due to corruption, poor education systems, lack of civil services, and oppression. Such ‘extractive’ institutions only provide more benefits to the “Elite Class” and don’t give any “Incentives” to the common people. This can be explained by the example of Bill gates and Carlos Slim. In the USA, Bill gates the founder of Microsoft faced the Anti-Trust Authority several times.
The “Inclusive” institutions of the USA are committed to ensuring the facilities for the common people instead of the elite class. It seemed to the Anti-trust authority that Microsoft company is doing monopoly business in the computer operating systems so Bill Gates also has to come under accountability. On the other hand, Mexican ‘extractive’ institutions don’t ask any questions about Carlos Slim for his monopoly telecommunication business, although the Mexican citizens indirectly suffer millions of dollars in losses every year due to Carlos Slim.
Acemoglu and Robinson discovered ‘The vicious cycle of colonial oppression' as the root cause behind the ‘extractive’ institutions of failed nations. The colonial rulers sowed the seed of ‘extractive’ institutions in their colonies including Sierra Leone, Ghana, Kenya, Haiti, Ethiopia, Zimbabwe, Afghanistan, and this sub-continent to serve their evil desires. And some local dishonest politicians helped the colonial rulers to sow the seed of ‘extractive’ institutions. As a result, the state is controlled by the elite class. The chapter of colonial rulers has ended but ‘extractive’ institutions exist. The same stories of failure repeat for decades.
It’s very difficult to pottery the complete idea of Acemoglu and Robinson in this short article. The gist of their research is that nations succeed only for “Inclusive Political and Economic Institutions”. UK or USA is successful because they polarized the power to the common people from the elite class. On the other hand, Haiti and Zimbabwe failed because their ‘extractive’ institutions only give benefits to the elite class. They suggested, there is only one way to ensure sustainable development in underdeveloped countries and it is “Inclusive Political and Economic Institutions”. The thoughts of Acemoglu and Robinson can be a good lesson for the policymakers, world leaders, and obviously to all politicians and bureaucrats of the underdeveloped world.
Fazly Rabbi is an Engineer and Author.