Why do nations fail? In their new book, economists Daron Acemoglu and James Robinson argue that countries collapse when the reigning political coalition extracts wealth rather than promotes innovation and growth. Sounds like a union, doesn’t it?
The book, Why Nations Fail, sums up Acemoglu and Robinson’s laudable academic oeuvre, focusing on the pre-industrial and developing world. They trace how nations grow rich thanks to inclusive institutions that provide economic incentives and protect property rights, and how nations suffer when “extractive elites” gather political and economic power for the purpose of rent-seeking.
In a review of the book, Buttonwood, a columnist for The Economist, argues that, given the anemic growth across the industrialized world, perhaps the West and the United States face similar problems. He fingers two possible culprits — the extractive elites of the rich world: too-big-to-fail banks, and the public sector, particularly its unionized employees.