YOU DECIDE: Why do some nations succeed and others fail?

Date posted: March 1, 2013

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

I have always been fascinated by geography. As a young child, I used to draw maps for fun. I considered a career as a geographer or cartographer before turning to economics. But even as an economist, I’ve tried to work geography into my research and writings. For example, I’ve investigated how certain prices and salaries vary across states, and I’ve studied the regional economies within North Carolina.

For economists who are also interested in geography — like me — one of the long-standing, perplexing questions has been why nations around the world don’t improve, economically speaking, at the same rate. That is, as we look at nations over long periods of time, it’s clear that all don’t boost their standard of living at the same rate. Some — like those countries in North America and Western Europe — have achieved living standards much higher than nations in other regions, such as in Asia, Africa and even South America.

A logical explanation for differing economic results might be natural resources. We might expect countries with abundant natural resources (oil, gas, precious metals) to have successful economies for two reasons. First, the countries can use the resources to propel their own growth. And second, the resources can be easily sold to countries lacking them for big bucks!

Yet the natural resources explanation has problems. There are many countries around the world — in the Middle East, Asia and even South America — that have huge supplies of natural resources and have relatively low living standards. Similarly, there are countries with few natural resources — Japan and Singapore are good examples — that have achieved very high incomes.

Maybe education is the key. Could it be the case that countries with higher levels of education will achieve better employment and incomes for their workers than countries with less education?

Again, there doesn’t appear to be a one-to-one correspondence. Sure, there are plenty of countries with low literacy rates that are poor and with high literacy rates that are rich. But there are also countries that have struggled economically with a highly educated population.

So what’s the answer for long-run economic prosperity? What factor or factors will, more than any others, give a nation the best chance of moving up the economic ladder over time?

This simple yet extremely important question was the central topic of a book published last year that I just finished reading. I have to say it is one of the best and most influential books I’ve read in years. It has the simple title Why Nations Fail, and it was written by MIT economist Daron Acemoglu and Harvard political scientist James Robinson.

Acemoglu and Robinson agree that plentiful natural resources and an educated workforce can lead to fast economic growth. But these aren’t enough, especially for sustained growth over time when the resources eventually run out.

Instead, the authors argue that two political and legal institutions are crucial in dividing nations between the winners and the losers in the economic race. Politically, nations must be inclusive and also open to competition and change. Individuals must know they can participate in both the political and economic systems and go as far as their abilities and interests will take them. Knowing this and knowing they will be rewarded for their performance will motivate people to develop their skills and aptitudes and in the process propel the economy forward.

Successful countries are those embracing competition and change. Being supportive of the latest technologies, innovations and products allows countries to adapt and improve over time. But, the authors caution, doing so isn’t always easy or without conflict. Out with the old and in with the new means those attached to the old will lose, at least temporarily. Managing economic change can be one of the tallest challenges facing a country. We’ve seen this challenge first hand in our country in the last quarter century.

Last, successful countries have legal institutions protecting ownership and enforcing contracts. While some may call such protections selfish, others say the legal frameworks guarantee that those doing the work reap the benefits, and this motivates striving, commitment and accomplishment. Still, the institutions can also support collective action to create social safety net programs and widespread economic opportunity. Successful nations are able to make private promotion and public protections compatible.

Acemoglu and Robinson make their case using the sweep of both time and geography. Whether or not you agree with all their conclusions, Why Nations Fail is a masterful book that will help you decide the answers to an age-old question. Enjoy!

- end -

Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

Be Sociable, Share!

Category:

Tags: , , , , , , , ,

Comments are closed.

Privacy Statement | University Policies | Contact