Have you ever wondered why some countries are prosperous and some countries are poor? Why do nations fail? That might be one of the biggest questions in the modern world’s economy and politics. Is it because of the culture? Is it geographic locations? Or is it ignorance?
Most of the economists thought that the reason was one of these factors. However, that was not the case.
MIT professors Daron Acemoğlu and his colleagues received the 2024 Nobel Prize in Economics because of their revolutionary study. They found that building inclusive institutions is the key to success as a nation. Understanding this study and interpreting correctly will help societies to thrive all around the world and it will also help prosperous countries pave the way for sustainability.
I’m Arda Buluç, I’m an exchange student from Turkey. In this speech, I’ll explain why nations fail. Throughout my speech, I’ll explain the science of it by giving examples from the world.
What makes the United States one of the wealthiest nations in the world while there’s starvation in North Korea? This is a serious question for world politics and thus economists have thought long and argued on the periphery of this question.
One might think that the inequality of the world is so widespread that it would have a well-accepted explanation. Not so. Before getting into the thesis on inclusive institutions, we should look at the theories that don’t work.
The common belief among the economists was Geographic Determinism. Many scholars, including ecologist and evolutionary biologist Jared Diamond, believe that temperate climates have a relative advantage over tropical areas. The recent rapid economic advance of hot countries such as Singapore, Malaysia, and Botswana contradicts this idea.
The second widely accepted theory is the Culture theory, which relates prosperity to the culture. This idea was coined by the great German sociologist Max Weber, who argued that the Protestant ethic played a key role in the rise of modern industrial society in Western Europe. Many people believe that Africans are poor because they lack a good work ethic. However, norms are mostly the outcome of long-term national institutions, not independent causes. Both the geographical and cultural explanations are inadequate to explain economic disparities in our modern, technologically-driven world.
In Why Nations Fail, Acemoğlu and Robinson use the town of Nogales, split between Arizona in the US and Sonora in Mexico, to illustrate how institutions determine economic success. Despite sharing the same geography, climate, and culture, the two sides of Nogales have vastly different living conditions. Nogales, Arizona enjoys higher incomes, better healthcare, education, and security, while Nogales, Sonora faces poverty, corruption, and weaker public services. This contrast cannot be explained by geography or cultural differences, as both sides have the same historical roots and people.
Nations thrive when they establish strong political and economic institutions that protect property rights and personal freedom, enforce the rule of law, and allow for democratic governance. Conversely, countries with weak institutions suffer from corruption, instability, and economic stagnation.
Two other countries that we are going to contrast are South and North Korea. A single country before the split in WWII. The people of South Korea have living standards similar to those of Portugal and Spain. To the north, North Korea, living standards are akin to those of a sub-Saharan African country, about one-tenth of the average living standards in South Korea. The average North Korean can expect to live ten years less than his cousins south of the 38th parallel. Why is South Korea more prosperous than the ones in the north?
Countries differ in their economic success because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people. Imagine teenagers in North and South Korea and what they expect from life. Those in the North grow up in poverty, without adequate education to prepare them for skilled work. After finishing school, everyone has to go into the army for ten years. These teenagers know that they will not be able to own property, start a business, or become more prosperous. They are even unsure about what kind of human rights they will have.
South Korean teenagers know that, if successful as entrepreneurs or workers, they can one day enjoy the fruits of their investments and efforts; they can improve their standard of living and buy cars, houses, and health care.
The contrast of South and North Korea, and the United States and Latin America, illustrates a general principle. Inclusive economic institutions foster economic activity, productivity growth, and economic prosperity.
Let’s observe another country’s economy within the aspect of this research. Nobel Winner Acemoğlu’s and my own country Turkey, or with its new name Türkiye. In World War One, the Ottoman Empire lost its broader lands. At the time everybody thought that the Ottoman Empire was going to become a colony of foreign powers. Then, an unexpected independence movement started. With all the seemingly impossible odds, the independent and democratic nation of the Republic of Turkey was established in 1923.
Mustafa Kemal Atatürk, as the hero figure of the independence movement became the president of the nation. Similar to the US, Ataturk established a modern nation based upon the principles of parliamentary democracy, the rule of law, honest institutions, separation of powers, a secular state, and equality between men and women in all areas of life, long before many of its contemporaries, some of whom are still struggling to this day.
He established Village Institutions that gave poor parts of the country opportunities for modern education. The more efficient institutions of the modern republic led to rapid industrialization, high growth momentum, and increased prosperity for all its citizens. Now, unlike nearby failed states such as Syria and Lebanon, Türkiye is the 18th largest economy in the world in terms of nominal GDP. However, Turkey has faced many problems over the years.
After Atatürk’s party lost later elections, another political party came into power in 1950. One of the first acts of this party was closing the village institutions. The party favored wealthy elites. In the 1950s, there were many landlords in Turkey. Landlord system refers to a group of elites that would have many villages and farms, and use the villagers as laborers with ridiculously high levels of wage cuttings, most of the time half of the product of the villagers. A system that is very similar to the typical landowner-peasant relationship of the feudal period.
In this period, one Turkish author, Yaşar Kemal, wrote his biggest novel, Memed, the Hawk, a Nobel-literature-candidate epic. In this story, there’s Abdi Ağa, the landlord of five villages. A cruel portrait of the rulers. And there is Memed, a little child who has been forced to work for Abdi Ağa. However, Memed is a dreamer. He couldn’t endure the oppression and the brutality of Abdi and always ran from him. When he was eighteen, he and his friend went to the urban city of Adana. When they arrive in the city, Memed is amazed.
Adana was an urban city. Memed stood and stared at the buildings, city lights, people’s dresses, and how they could live as prosperous. He with all the fascination asked a retired soldier; “Who owns here?” The retired Soldier responds, “There’s no owner of here, in here everybody owns themselves.” From now on, he was going to make his village free from the cruel Abdi and make everybody own what they deserved.
So, how does this story connect to the economic aspect of Acemoğlu’s thesis? Let’s think of Memed’s village as a nation. The landlord, Abdi, represents an extractive institution that limits people’s potential. The villagers don’t have any power, the power is concentrated in Abdi. Those villagers don’t have any private property, Abdi owns everything. The children cannot pursue their ideas and they do not have a proper education to help them succeed. They should work for Abdi on the farms. Where the children in Adana can have a good education and choose their vocation in life depending on their talents and interests.
Considering the real example of the South and North Korea, This story is not only talking about Türkiye’s politics and economics in the 1950s, this novel provides us the main understanding of how a society can fail or succeed. The low education level of poor countries is caused by economic institutions that fail to educate children. The price these nations pay for low education and lack of inclusive markets is high. They fail to nurture their nascent talent. They have many potential Bill Gateses and perhaps one or two Albert Einstein who are now working as poor, uneducated farmers, or being drafted into the army because they never had the opportunity to realize their vocation in life. That’s the reason why nations fail.
In the world of inequality, Acemoğlu with “Why Nations Fail” provides the best explanation. Understanding the reasons for poverty can help nations to thrive. And most importantly, we are on the edge of new technologies and new problems. Such as AI that will change all the economies. It’s clear that if left unchecked, AI could lead to a future where economic power and decision-making become even more concentrated in the hands of a few autocratic elites. However, AI can be a powerful tool for inclusive institutions if it is regulated democratically rather than controlled by monopolistic companies.
Similarly, in the world we observe socio-economic hardships of climate change, inclusive institutions are necessary to prevent further damage to the economy of the world and more importantly our home, Earth. Do not forget, AI and climate change are not just technological or environmental issues—they are institutional challenges. Thus, understanding inclusive institutions and their significance to the economy will allow nations to sustain economies safely.
“Why Nations Fail’’ is a tipping point. Not just in the economy, however, but in the whole world. The economy is determining our education, our life joy, and our future. The future of nations is not written in history or geography—it is shaped by the institutions we choose to build.
Photo from Washington Post
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