Why Nations fail or prosper
By Ted Belman
My daughter, Aliza, spent considerable time with me at the hospital. One of the more interesting conversations we had, had to do with a book she was reading, Why Nations Fail. The sub title of this book is, The Origins of Power, Prosperity, and Poverty. It was written by James Robinson and Daron Acemoglu.
The subject came up because she wanted to share some ideas contained in it with me. As you may recall her area of expertise is third world development and this book was made to order for her.
In a nutshell.
- “The volume presented a detailed argument for a proposition that a nation’s economic success is predominantly determined by its political institutions. Inclusive states have no single centre of power but are innovative and prosperous thanks to the jostling of competing interests under the rule of law and secure property rights. Inclusive democracies with strong independent judicial systems thrive. It claims that importance of politics is far ahead of geography, resources or culture, that freedom begets prosperity. Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society with political rights more broadly distributed and the government accountable and responsive to citizens. In these countries the great mass of people could take advantage of economic opportunities. Conversely, nations dominated by self-centred elites fail and they are extremely poor. Extractive, totalitarian states are in a vicious circle of plutocracy, suppression of technological innovation and economic and personal freedom.”
You better read that again and slowly because it’s a mouthful. Essentially freedom enables people to generate wealth whereas fascism begets poverty. Now you know why some countries are rich and some are poor.
Aliza started our discussion by telling me how devastating the Black Plague was in the fourteenth century as 50% of the population perished. Thus for the first time, labour was in short supply and could demand more for its services. The Lords of the land, pressed the King for legislation which prevented labour from extracting a higher price. Nevertheless the tables had turned. Labour was more independent and the legislation couldn’t overcome the market forces. This was the beginning of the end of feudalism, certainly in Europe. Russia was not affected as much because it had and deployed the requisite force to keep things under control.
Traditionally labour had always been at a disadvantage because it was too abundant. As a result it had no choice but to work for subsistence only.
Feudalism was a system that enabled the monarch to exploit the land. Lords were appointed over certain territories each and they had the obligation to collect taxes for the King and to field an army for the King, if required, in return.
Throughout the centuries the land was a fixed commodity. As they say, they aren’t making any more of it. But that was true until the age of discovery. The seafaring nations like, Portugal, Spain, Britain and Holland, created vast colonies in Africa, South America, in order to exploit their wealth. But not all colonies were equally wealthy.
Spain for instance found so much gold in South America, Central America and Mexico, that she repressed the natives in order to exploit the available resources. There was no need to create wealth. It was all over the place.
America was different. It contained abundant land and little gold. After experiencing and fleeing from, religious oppression in Europe and few economic opportunities, America emphasized in it’s constitution and Declaration of Independence, individual liberty and inalienable rights thereby limiting the role of government and freeing up the individual.
Israel began following the same path about 20 years ago and has reaped great financial rewards for doing so. There is yet more to be done in Israel to limit the economic elete and encourage competition.
Korea was/is home to Koreans. It had no natural resources to speak of. The country was divided in two in the early fifties as part of an armistice agreement. The north took the path of dictatorship and the south took the path of liberty and democracy. As a result, the north is poor and the south is prosperous.
Sarah Palin understands the connection between wealth creation and freedom. She is constantly arguing that freedom, liberty and small, less obtrusive, government is the way to job creation and wealth.
China is now going through her own industrialization. Peasants are moving from the land to the cities. China is building industries to employ them. Her GDP is booming. But China has yet to fully liberate her people to produce wealth. I predict that in time she will. In the meantime China has approached Israel to form a partnership in which Israel provides her own ingenuity and entrepreneurship and China provides its ability to mass produce.
Russia, the home of Communism, is another story. Marx flew in the face of this wisdom and emphasized the collective, not the individual. We know how Russia fared under communism. It proved the thesis of this book. Though Russia ultimately dropped communism it never embraced freedom, perhaps because it had great resources to exploit and didn’t need the people to create the wealth.
In 1901, Jabotinsky delivered a famous lecture entitled ”Individualism and Socialism”. He was 21 at the time. Of this lecture his biographer, Shmuel Katz, wrote:
- The interests of the individual, he proclaimed, are supreme and the ideal society is one that serves those interests. The creator and the mover of progress was not the mass, but the individual.
“Without his individual character, man was no different from an animal; and organized collectivism paralyzes, even kills man’s special characteristics.
“For me, as for all lovers of freedom , an ant-hill or colony of bees, cannot serve as an example for humanity. A collectivist regime, which subjugates the individual’s personality is no better than a regime of feudalism or autocracy. The ‘equality and justice’ of such a regime will be based on organized production, distribution and consumption – all to be coordinated by the government, and if somebody does not conform to this organization, the heavy hand of the government will come down on him, or he may be hanged from a tree in the name of ‘equality and justice’.
Individualism however, Jabotinsky went on, was allied to real equality.
“All individuals are equal and if in the march towards progress, some falter by the way, society must help raise them up.’
Katz informs us that the largely Socialist audience, which had listened thus far in stunned silence burst into violent protest calling him every name in the book. No liberty or tolerance for them.
The left is always about suppression of freedom and not creation of wealth.
Will America get back to its founding principles, I hope so.