Book Review: Daron Acemoglu and James A Robinson. 2023. Why Nations Fail.
By Annavajhula J C Bose, PhD
Former (Economics) Professor, SRCC, DU
Acemoglu et al. were bestowed with the 2024 Nobel Prize in Economics for saying that the European institutions are better for development in this book and the article in the references below. They had looked at “long-term development in Europe’s settler colonies versus non-settler colonies. In settler colonies, such as the US, Canada and Australia, Europeans established inclusive institutions. And these settler colonies have become high-income countries in the west (Global North). But in non-settler colonies, which include large parts of Africa and Latin America, Europeans established extractive institutions.” Institutions that “enforce property rights, protect democracy and limit corruption” are inclusive institutions. Institutions which give rise to “a high concentration of power, limited political freedom, and seek to concentrate resources in the hands of a small elite” are extractive institutions.
This is a false narrative on many counts, according to the critics (Hauge, 2024; Trainer, 2025).
The fact that “today’s high income countries score higher on western-based institution indexes”, such as the Global Institution Index—based on government effectiveness, regulatory quality, rule of law and control of corruption (Leogrande, 2024)—is not solid proof that “economic development was achieved because these states first established inclusive institutions.”
China, and East Asian states such as Singapore, South Korea and Taiwan demonstrate that inclusive institutions are not a precondition for their growth. Most importantly, the brutality of colonialism in settler colonies is ignored. Years of violence—in many cases verging on the genocide of native or indigenous populations– predated the development of inclusive institutions and this brutality should have been factored into the development processes of the North.
The causal mechanism for underdevelopment is identified and located within the poor countries (South) while the actual main causes are to be found in the exploitative nature of the global economy. This suits very well the interests of the development industry led by the World Bank and the International Monetary Fund. The truth: “The main reason why at least half the world’s people are poor is because the global economic system has established extractive institutions and keeps them in place, in order to siphon trillions of dollars of resource wealth out of poor countries every year. It is the global system which prevents them from escaping this fate… there is extraction and there are extractivists, and conventional economic theory, economists and the rich world are the main causes, protagonists and beneficiaries of extraction…many of the extractivists are in power because the global rich put them there or helped the Samozas and Pinochets to remain there, because they enabled normal economic development. The most culpable extractivists are to be found among the rich world corporations, banks and IMF officials.”
Normal economic development, according to Acemoglu et al. means getting materially richer as nations and as individuals. “It is about being able to purchase more, increasing the amount of producing, selling and consuming going on, and thus it is about increasing the GDP. This is the unidimensional view of development whereby nations move up the slope to be like rich nations. Getting richer is assumed to improve all sorts of other things, such as health and welfare.” And “This requires investment because a poor country has little capital. It means borrowing and it means attracting foreign investment. The two main domains enabling this are exporting natural physical resources and exporting labour via plantations, mines and factories. Thus, the country must enter the global market place to sell resources, competing against many other poor countries in the same situation.
Lacking the capital to set up mines, etc., foreign investment must be sought. But investors want access to infrastructures such as railways and ports, so large loans have to be taken out to build these. The common result is not rapidly increasing income to repay loans but the accumulation of very large debt, which seems to be accelerating in recent years. The debt typically becomes unpayable. At this point the IMF arranges bailout measures. These are designed to get the economy going again by making the economy more attractive to foreign investors, selling off profitable state-owned enterprises to them, holding down wages and social conditions, imposing savage austerity policies, and generally gearing the economy to the interests of the business class.” There is no escaping eulogy for capitalism and its expansion by colonialism, neo-colonialism and internal colonialism: “It is a Fukuyama-esque end of economic history; if only poor countries would adopt free markets and make conditions attractive to foreign investors development would thrive and poverty would be ended”!
In light of this critique, little wonder that a University of Chicago Booth School MBA student has poured out against Nobel Prize thus (Ogilvie, 2024): “When Alfred Nobel died in 1896, he established five Nobel Prizes in his will: physics, chemistry, “physiology and medicine,” literature, and peace. Not economics. The Nobel family’s descendants have protested the economics prize, with one of them calling it a “PR coup by economists to improve their reputation” and a “cuckoo’s egg in the Nobel nest.”
The award most people today call the “Nobel Prize in Economics” is more properly called the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.” It was established in 1968 by the economists running Sweden’s central bank, partly to shield the bank from democratic accountability and support their push to make it “independent.” To do this, those economists needed to market their discipline to the world as a “science” with technical, correct answers that only experts could fully understand and that lowly voters did not get to question. Their ploy worked too well. Following the Swedish model, economists carried out bloodless coups of central banks around the globe, co-opting the essentially arbitrary and political matter of setting interest rates for themselves. The newly established Fauxbel Prize also bolstered economics as a tool for governing technocratically and shutting down people who disagree with the elite consensus: many of the prizes have gone to market fundamentalist types for highly technical work of questionable value to society.
Economics is not a science. Crucially, economics also lacks the basic accountability mechanism that real sciences have: data. Bad theories in biology or physics disappear when new data repudiates them, but bad theories in economics never go away. Rather, fashions change as the political winds change. And the winds of 2024 are making it clear that the neoliberal elite consensus is not cutting it anymore, empowering contrarian economic thinkers like Oren Cass, Philip Pilkington, Yanis Varoufakis, and Steve Keen. Inflexible university departments full of yesterday’s award winners are not relevant in this environment.”
To conclude, following comrade Richard Wolff and others, “the ruling classes established the prize to bamboozle the hoi poli; the Sveriges Riksbank (Sweden’s central bank like the Fed) phony prize chooses the best economic liars; the prize has never been awarded to anyone who might be considered a Marxist; the 2024 prize was awarded to Daron Acemoglu (et al) and the prize argues that settler-colonialism (Israel anyone) is the secret to long-term nation development. The data set used came from soldiers who were campaigning to conquer indigenous people. Basically it is an apology for colonialism; The Sveriges Riksbank chooses between the “mainstream economists” Friedman or Krugman but never anyone else…Perhaps this is why it feels like every year, the prize goes to someone who asks “how does a change in variable X affect variable Y”, rather than asking difficult questions about colonialism, imperialism or capitalism – and daring to question the supremacy of western institutions.”
References
Acemoglu, Daron et al. (2001). The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review. 91 (5).
https://www.reddit.com/r/economy/comments/1joe2te/a_critique_of_the_nobel_prize_in_economics_it_was/
Hauge, Jostein (2024). This Year’s Nobel Prize Exposes Economics’ Problem with Colonialism. The Conversation. October 16.
Leogrande, Angelo (2024). The Global Institution Index. https://www.researchgate.net/publication/383521268_The_Global_Institution_Index
Ogilvie, Ben. 2024. https://www.chibus.com/perspectives/2024/2/13/the-nobel-prize-in-economics-is-fake
Trainer, Ted (2025). The 2024 Nobel Prize in Economics: An Example of How Conventional Economics Misrepresents Reality. Real-World Economics Review. 110. April.
