I finished reading the book Why Nations Fail: The Origins of Power, Prosperity, and Poverty in August 2023. But I will have to admit that the book is lengthy for my standards. It is staggering 462 pages long. I usually love books that are below 350 pages. Hence, back then I literally skimmed through it, precisely the way that I would approach an IELTS reading test. Interestingly, in 2024, Daron Acemoglu and James A. Robinson— the book’s authors, alongside Simon Johnson— were awarded the Nobel Prize in Economic Sciences for their influential research into why some nations thrive while others falter—highlighting the pivotal role of inclusive political and economic institutions in driving long-term prosperity. Well, funnily enough, it took me a Nobel Prize to go back to clearing the dust off the book and read it purely with a shallow interest in what they had in the book that warrants a Nobel Prize.
When I first picked up the book, the title felt like a bit of a marketing hook—”Why Nations Fail” sounds grand, almost like a governance crash course or yet another dense piece on development economics. Honestly, I braced myself for dry theories and textbook jargon. But flipping through the pages, it quickly became clear that my expectations were way off.
The authors argue that political and economic structures act as invisible architects, shaping the destiny of nations more than any natural resource or historical accident ever could. This shift in focus—from what’s easily visible to what quietly operates beneath the surface—was both unexpected and eye-opening. It challenged my assumptions and made me reconsider not just global disparities, but also the forces at play in my own country.
As someone from Nepal, I often find myself grappling with an unsettling question: why does Nepal continue to sit within the low-and-middle income bracket? What are the persistent barriers that seem to stall our progress, even when the potential for growth feels palpable? It’s tempting to point fingers at obvious culprits—geography, politics, historical baggage—but none of these seem to tell the full story. If you have ever felt that nagging sense of frustration or curiosity, “Why Nations Fail” might resonate with you. First published in 2012, the book’s central ideas feel as relevant in 2025 as they likely did over a decade ago—perhaps even more so.
Central idea
The book’s core argument pivots around two distinct types of institutions: inclusive and extractive. Inclusive institutions are those where secure property rights, fair legal systems, and public services create an environment where people can genuinely thrive. The authors suggest that inclusive political setups, where power is not hoarded by a select few but shared broadly, are key to keeping these economic institutions healthy and effective. Now, on the flip side you get extractive institutions that are designed to benefit a narrow elite at the expense of everyone else. Think of systems that suppress wages, grab land, enforce harsh taxes, and stifle entrepreneurship. These setups do not just slow progress; they actively block it. The political structures in such systems are the glue that holds the inequality together, concentrating power and resisting change, often leading to long-term instability and stagnation.
While the book’s framework of inclusive versus extractive institutions offers a compelling lens, it can sometimes feel overly binary. Real-world systems rarely fit neatly into these categories. Countries often exhibit a mix of both, with inclusive institutions in some sectors and extractive tendencies in others. For example, a nation might uphold democratic elections while simultaneously maintaining economic monopolies that restrict genuine competition. This complexity suggests that institutional dynamics are more fluid and nuanced than the book’s dichotomy might imply.
One of the more intriguing aspects of “Why Nations Fail” is how it anchors its arguments in real-life case studies. A few examples genuinely stood out to me:
Consider Nogales—a city literally split in two by the U.S.-Mexico border. On one side, you’ve got Nogales, Arizona, where households typically earn around $30,000 a year. Public services like clean water, decent roads, and a functioning legal system are, well, just part of everyday life. Most kids finish high school without it being a monumental feat. Cross a few steps south into Nogales, Sonora, and the picture shifts dramatically. Household income drops to about a third, public infrastructure struggles to keep up, and crime isn’t just a headline—it’s a daily concern. What’s interesting here is that the climate doesn’t change between the two halves. The geography? Identical. Even the germs don’t respect the border. So, what’s the real divider? The institutions. In Arizona, people enjoy more freedom to choose their careers, access quality education, start businesses with relative ease, and even (imagine that!) hold politicians accountable. Across the border, the system becomes more restrictive, riddled with corruption, and far less supportive of individual agency.
Then there’s the stark contrast between North and South Korea. Talk about a real-life social experiment—same people, same peninsula, same cultural roots, yet vastly different outcomes. South Korea’s inclusive institutions propelled it into an economic powerhouse with living standards that rival parts of Western Europe. Meanwhile, just north of the 38th parallel, North Korea grapples with economic decay, chronic food shortages, and authoritarian rule that’s as oppressive as it is resilient. It’s unsettling to realise how political choices can diverge so sharply from shared histories.
The book doesn’t just stop at countries; it zooms in on individuals too. Take Bill Gates and Carlos Slim, for instance. Gates’ success story is almost textbook American Dream—backed by institutions that championed quality education, entrepreneurial freedom, access to capital, and a legal system that protected his innovations. It’s not just about being smart or lucky; the ecosystem mattered. Slim’s fortune, however, paints a different picture. His wealth didn’t come from groundbreaking tech or disruptive ideas but from acquiring government-privatised monopolies like Telmex—often under dubious circumstances, like not offering the highest bid or conveniently delaying payments. This isn’t to diminish Slim’s business acumen, but it does highlight how Mexico’s economic environment tends to reward those who can navigate—or exploit—its extractive frameworks.
Historical roots of divergence
The depth of the books contents is demonstrated by the authors’ attempt to trace the historical roots of the institutional divergence. The most striking one for me was the contrast between the Spanish and English colonization.
The Spanish colonisation of Latin America was curated through a strategy that prioritised control over indigenous leadership, coercive labour systems, and the establishment of a colonial elite to manage existing mechanisms like the encomienda and mita. This approach did more than just amass wealth for the Spanish Crown and conquistadors—it entrenched deeply extractive institutions, fuelling stark inequality and curbing economic dynamism. Even after gaining independence, countries like Mexico have grappled with the lingering shadows of these structural imbalances.
Meanwhile, the English initially seemed poised to replicate this model in North America. However, their efforts hit a wall, largely due to the absence of easily exploitable resources like gold and indigenous populations that could be coerced en masse. This failure was not just a stumble; it became a pivot. The English adapted by incentivising settlers with land grants under the “headright system” and setting up a General Assembly. These measures did not just patch over their initial setbacks—they inadvertently sowed the seeds for participatory governance in the United States.
However, it is worth noting that framing these colonial legacies as extractive Spain versus inclusive England risks oversimplification. The ripples of both colonisation models were messy, uneven, and riddled with contradictions. Economic and political inclusivity did not flourish overnight in the U.S., nor did extractive practices vanish with the fall of Spanish rule.
The book highlights pivotal historical moments—critical junctures—that shake up entrenched power structures and can dramatically alter a nation’s course. These turning points, depending on the circumstances, can either open doors to progress or reinforce stagnation.
Take the Black Death in England, for example. While undeniably catastrophic, the massive population loss inadvertently created a labour shortage that shifted bargaining power to the peasants. This newfound leverage allowed them to push back against forced labour, undermining the feudal system and sowing seeds for more inclusive societal structures. It’s a stark reminder that even devastation can trigger unexpected social transformations.
Then there’s the Glorious Revolution of 1688–1689, often dubbed the “Bloodless Revolution.” King James II, whose pro-Catholic leanings clashed with Parliament, was replaced by William and Mary. This wasn’t just a change of monarchs—it marked a fundamental shift. The balance of power tilted decisively towards Parliament, ushering in a more pluralistic political landscape that championed free elections and freedom of speech. It’s tempting to draw a line from this political evolution to the Industrial Revolution, which flourished partly because innovators like James Watt and Richard Arkwright operated in an environment where their property rights—and by extension, their ideas—felt secure.
Fast forward to 1955 Alabama, where Rosa Parks’s quiet defiance on a segregated bus sparked the Montgomery Bus Boycott. This was not just a protest against public transport policies; it became a catalyst for the broader civil rights movement, challenging the very foundations of institutionalised racism in the American South.
Botswana’s independence in 1966 offers yet another angle on critical junctures. Unlike many postcolonial African nations that slipped into extractive governance, Botswana charted a different path. Building on pre-existing Tswana institutions, which already featured elements of accountability, the country’s leaders recognised the long-term value of secure property rights. This was not some accidental stroke of luck. Their deliberate choices around managing diamond wealth inclusively set Botswana apart, fuelling sustainable growth rather than enriching a select few.
What stands out across these instances is the unpredictable nature of critical junctures. Their outcomes hinge on how societies—particularly those in power—respond to the pressures and possibilities they present. More importantly, reading the critical junctures, quite intuitively I reflected on Nepal’s critical junctures. The 2006 People’s Movement, the abolition of monarchy, and the 2015 Constitution were critical junctures. Yet, Nepal has been unable to leverage the transformative potential of these critical junctures in our recent history.
Fear of creative destruction
The book introduces an important topic: Creative destruction. It means new industries, companies, and technologies constantly emerge, effectively replacing the old ones. It’s a natural part of progress, but it certainly creates both winners and losers. While the winners could be diverse, there is only one loser which is the elites or simply the section of the population who benefit from the existing order are typically terrified of creative destruction. They fear losing their economic advantages and, perhaps more importantly, their political power. This fear can lead to severe resistance to innovation and long-term growth. We see this in various historical contexts: European aristocracies opposing industrialization because it would shift wealth and power away from land; Russia’s finance minister, Kankrin, resisting railways because they’d bring “socially dangerous mobility”; China’s Ming and Qing dynasties banning overseas trade out of a fear of empowered merchants who could destabilize the state; and even Venice’s decline after its ruling elite closed off economic opportunities like the commenda contracts that had initially made it rich.
In today’s world, where the conversation around artificial intelligence (AI) often oscillates between excitement and apprehension, the concept of creative destruction feels more pertinent than ever. The idea that new technologies disrupt and replace old systems isn’t just an economic theory—it’s something we’re living through. As AI steadily encroaches on tasks once thought uniquely human, from creative writing to complex decision-making, it’s hard not to wonder where that leaves us.
Reflecting on history, I stumbled upon an intriguing parallel. During the early stages of the Industrial Revolution, the Luddites—a group of English workers—resorted to smashing machinery that threatened their livelihoods. They weren’t just anti-technology; they were resisting the rapid changes that seemed to strip them of purpose and security. Their story got me thinking: could the rise of AI spark a modern version of Luddism? And—here’s the uncomfortable part—could I be part of it?
Virtuous and vicious circles
The idea of virtuous and vicious circle was particularly interesting to me. Inclusive institutions tend to foster a “virtuous circle.” This means that pluralistic political systems make it harder for any single dictator or faction to grab absolute power, because power is widely distributed. And when economic institutions are inclusive, the benefits of violently seizing political power are reduced, which in turn encourages more political openness. It’s a positive feedback loop that helps these institutions endure and even expand over time.
On the flip side, extractive institutions often get stuck in a “vicious circle.” Here, extractive political power supports extractive economic policies, which then solidify the elite’s hold on political power. This makes these systems incredibly resilient and tough to break. The history of the Maya city-states offers a stark warning: their extractive systems generated wealth for the elite but also created deep inequality and constant infighting, eventually leading to the civilization’s collapse. Similarly, in Zimbabwe under the infamous Robert Mugabe’s dictatorial regime devastating cholera broke out in 2008-09 due to deterioration in the country’s health system, an outcome of country’s extractive political system.
Why read this book?
When I first cracked open Why Nations Fail, I wasn’t exactly on a quest for answers. In fact, I didn’t have any burning questions at all. The whole “why read this book?” dilemma didn’t hit me until much later, almost as an afterthought. Initially, I was just flipping through the pages, half-curious, half-distracted. But before I knew it, the book was pulling me into the lives of historical figures and events I’d never stumbled upon before.
Take Zimbabwe, for example. The book briefly mentions a cholera outbreak there in 2008-09, attributing it largely to the collapse of health systems. Sounds straightforward enough, right? But the more I dug into it, the messier—and more revealing—the story became. The outbreak claimed over 4,000 lives, making it one of Africa’s deadliest cholera crises. But what really triggered it wasn’t just a failing health system in the abstract. It traced back to political fallout: after the ruling party lost key municipal elections in 2005, they retaliated by cutting off funding to cities where they’d been defeated, including Harare, the capital. This wasn’t just budget tightening—it led to the complete halt of water purification services. Eventually, untreated sewage was rerouted straight into the city’s main reservoir. A public health catastrophe born out of political spite.
It’s these kinds of uncomfortable, tangled connections between governance, institutions, and real human suffering that the book nudges you to explore—not with neatly packaged answers, but with unsettling, thought-provoking questions.
Calling Why Nations Fail ambitious feels almost like an understatement. It’s bold, thought-provoking, and surprisingly readable despite tackling weighty topics. Sure, you might find yourself disagreeing with some of the authors’ conclusions—I certainly did at points. But that’s part of the charm. It doesn’t just hand you neatly packaged answers; it nudges you to reconsider how you’ve been viewing world history all along. It’s not about convincing you of a single truth but about making you pause, think, and maybe even argue with the pages a little. And honestly, what more could you ask for from a book?
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