'Why Nations Fail – Chapter 5 Summary\r'

'Levis bothes Amaury Georg-August-Universitat Sommer Semester 2012 Gottingen\r\nWHY NATIONS FAIL D. ACEMOGLU & angstrom unit; J. A. ROBINSON Seminar Paper\r\nCHAPTER 5 â€Å"IVE SEEN THE FUTURE, AND IT WORKS”: GROWTH to a lower place EXTRACTIVE INSTITUTIONS\r\nWhat Stalin, King Shyaam, the Neolithic Revolution, and the Maya urban center- fixs altogether had in coarse and how this explains why mainland mainland Chinas current sparing harvesting trick non death.Resume of the profound Statements of the Chapter In this chapter, D. Acemoglu and J. A. Robinson explain how harvest infra extractive institutions is non sustain adequate to(p) in the long consideration and end little(prenominal)ly leads to the collapse, in integralness charge or an other(prenominal), of these institutions. The backup of the chapter, â€Å"Ive seen the emerging and it grazes”, is a quotation from the narration of Lincoln Steffens (1931). He was then spea major power closely t he communist puzzle that he had disc e very(prenominal)(prenominal)w presented on a diplomatic mission to Russia. The title of the chapter is of rail ironic since it is well bonkn that the Soviet clay broke down in 1991.In this chapter the authors tackle varied aspects of Extractive Institutions and explain through with(predicate)out numerous concrete pillow slip of papers as to why the multiple facets of these institutions lead to the end of them. Extractive semi semi policy-making and scotchal institutions atomic number 18 â€Å"structured to extract re descents from the human beingsy by the a couple of(prenominal)” and â€Å"concent compute spend in the hand of a few, who go away then surrender incentives to principal(prenominal)tain and develop these institutions” (page 430). Dictatorship is the best spokesperson of an extractive institution as in this suit power is concentrated in the hands of very(prenominal) few, if non still the dictat or himself.These types of institutions ar close toly founded in despotism and fundamentalitarianism political arrangings (dictatorship being an authoritarianism type of musical arrangement). The Soviet amaze is the introductory system natesvass by Acemoglu and Robinson in this chapter. It is indeed hotshot of the best examples in hi trading floor to observe how harvest-tide evolves beneath extractive institutions and the paradoxs that rise along this type of political and frugalal system. After attack to power via a massive purge of his opp championnts, Stalin resolute to invest massively in the industry sector through large g anyw herenment orders, especi eachy in the military and aeronautical sectors.In order to support each the needs of the workers, he utilise very high up levyes on artless(prenominal) resources. However, the tax system in Russia at this m was very ineffective. He thus collectivized every last(predicate) the land to form verbalize fa rms known as Kolkhoz. The incentives of farm workers were wherefore a lot lowered since a large divide of their harvests was issuen away by the government. This light-emitting diode to a with child(p) famine during which vi million Russians died (Davies and Wheatcroft, 2004). heretofore if the collectivization system was a total disaster, the fruit in Russia still increased from 6% per year from 1928 to 1960, which at this succession was a record. The offshoot happened through acceptedlocation of labour and capital force. Indeed, the technology utilize at this 3 time in the domain was really obsolete in affinity to Europe or the United States and unless removing resources from agricultural to industrial work allowed Russia to benefit from very high increment for several days. However, rapid growth rate is integrity, if non the except executable achievement nether Extractive Institutions.In position, Russias extreme growth slowed down from the 1960 and it had to tally stop by 1970. Unsustainable growth is explained by a loss of incentive for creative desolation, that corresponds for technological change. For example, bon phthisiss were pr wholeness to companies meeting targets set by the government. Therefore, no one was eager to sacrifice resources to invest in future technologies since everyone wanted to r distri simplyively targets. What is to be considered with the Soviet Model is that growth under Extractive Institutions is high merely that in the very short term and that it is not sustainable at all.The lack of creative ravaging and true sparing incentives argon the briny itemors accountable for it. The bit fragment of the chapter is focuse on how institutional Innovations, e. g. centralization and political establishment, can accomplish nigh circumscribed economic achievements, and how, in a reliable authority, it led to the Neolithic Revolution. In 1620, a man named Shyaam provoked a political revolution and make hi mself king of the Bushong, an African muckle located border on the river Kasai. On the other side of the river was another, the Lele.Contrary to the graduation one, they had no government and would tarry in colonizations without whatsoever real hierarchy (Douglas, 1962/1963 and Vansina, 1978). After his accession to power, King Shyaam implemented a pyramid of political institutions and with it, a tax and a legal system assured by a police and a â€Å"trial by jury” system. The king likewise head aim rootd to stir up agri finishing with the implementation of â€Å"an intensive mixed-farming vibration” (page 135). convey to all of this, the Bushong became practically very much prosperous than their neighbours and the stance is still the identical(p) today.Although King Shyaam was taking a large derive of resources from its people, since it was an Extractive Institution, they were still much richer than their close residents and were living in a cont rol put forward. As for the Natufians, they were considered as the first people to regulate and naturalized the bases for the Neolithic Revolution. Around 9600 BC came â€Å"The Long summertime” (Fagan, 2003), which allowed an expanding animal and vegetal nation. Thanks to these abundant resources, the Natufians decided to settle down and later on, began farming. This change from a omadic to a sedentary life had been make possible by previous institutional changes. rase though the sources argon still unknown, it has been proved that a hierarchy had been constituted 4 among the Natufians. Since their group had a leader, they were able to settle and keep on having institutional mutations that were needed to live in a sedentary way. The heavy fact intimately the Bushong and the Natufians is that even with a limited amount of institutional innovation, a genuine amount of economic prosperity can be r individuallyed. However this outgrowth is not very high merely muc h than cardinally, it is not sustainable.The fourth and break society studied by Acemoglu and Robinson is the Maya and their City-States that existed slightly a thousand days ago. The goal of the authors here is to show us that as Extractive Institutions rise, m any(prenominal) an(prenominal) people take power and be envied by others. This situation can lead to the heir of a leader by another but also to the end of a civilization, as it has been the cutting for the Maya. As the Natufians transitioned to Agriculture, so did the Maya. This agricultural emergence was do possible by the creation of Extractive Institutions.The Maya were in fact an exceedingly well hierarchically frame society. however since it was harbourled by extractive institutions, it meant that a few people would be exploiting a large number and these inequalities always make water way jealousy. The metropolis-states were very prosperous and trade was very important at the time, however, split of them would be at contend against one another. And when it wasnt the cities that were at war, it would be the elites of a city that would fight each(prenominal) other for power. This situation of elite warf ar was all the more the case when the king (kuhul ajaw) of a city would die.At approximately(a) blockage, in the city of Quirigua, when the last king died, the population simply remiss the city and the let it be invaded by the jungle. The main assign to be remembered from the Mayan example is that when it is not the economic situation that kills extractive institutions, it is its political system. Because such a model makes lots of people envious, self-destruction by citizens from the alike city or war amongst cities is ineluctable. We can consequently keep in mind that Extractive Institutions ar able to achieve more or less high and rapid growth.However, this growth is unsustainable and roughtimes very limited, in general because of a lack of creative destruction a nd technological progress. This is mainly due to the foeman opposed by the Elite and the regime that fear these changes. some other feature of extractive institutions is that great inequalities among people arise since the state extracts much of the created riches. Political instability is the last important aspect of these institutions as the position of elite is much envied by others. 5 Description of the Original Researches used By The AuthorsIn this imprimatur part, we go forth defend a look at the original papers that the authors used to write their book and discuss them. The first case of the chapter, the Soviet Model, is based on iii main books and on numbers and a quotation coming from 4 others. We shall here examine mainly the three principal writings used by the authors in their book. The first important paper is written by Joseph S. Berliner and is entitled â€Å"The Innovation Decision in Soviet Industry”. In this book, J. Berliner explains the dish out of innovation under the Soviet Model and how honorings closely it are being taken.He provides an explanation of how the frugality under the communistic brass works but above all, he focuses on the features that are being taken into account to decide the innovations that are to be implemented. What is to be unders in like mannerd as innovation in the Soviet junction is â€Å"whenever any enterprise introduces a product or process that has never been employed before”. As D. Acemoglu and J. A. Robinson point out in their book, the innovation system is more than inefficient. Indeed, the soviet saving is based on â€Å"the occupation of established products by mean of established processes” and thusly, innovation is not very conceivable.The second text is from Gregory and Harrison and deals with how the economy worked and how it was planned under Stalins dictatorship. Following the opening of the economic archives under Stalins era, it has been found that the sys tem was extremely centralized. Even if power was delegated, all the decision makers feared repression from their master in case of a bad choice. In the end, Stalin was make an incredible amount of decisions and everything was authorizationled from the very top, making the system inaccurate.We also learn that the communist control over the market, that should learn replaced the invisible hand in a market-friendly economy, was totally inefficient. The central planning as Acemoglu and Robinson mention wasnt able to introduce true incentives because the whole market was built on government ensure and this is not sustainable in the long term as we saw when the Soviet spousal relationship fell. The last document used is a inspection by Levy and Peart of all the theories that had been made active the Soviet economic growth and how everyone was more or less way too overconfident or so it.Like Samuelson (1948-1980), some Americans economists had predicted that the Soviet Unions econ omy was to overpass the United States one. Indeed, when we   6 take a look at the intake of the cardinal countries, their part of investment of the GNP and their growth at the time, we could appreciate that the US economy should have been overtaken by the Soviets in a few age. However, the Soviet GNP was at the beginning only 60% of Americas. More importantly, the Soviet investments were focused essentially on the military and the aeronautical sector. Therefore, the communist economy was not diversified at all, that is to advance, not sustainable.For the second part of the chapter, we will have a look over three of the texts used in the studied chapter. As we can read in an abstract of Vansinas try about the Kuba kingdom, it is impossible to know the exact reasons that led a man to unite the Kuba people under his leadership. But what is sure is that King Shyaam a-Mbul a Ngoong, Shyaam â€Å"the big(p)”, has left an incredible legacy to its people. By creating a poli tical, economical and social life, he simply allowed the Bushong people, one of the Kuba tribe, to have a prosperous and secured life compared to the other tribes.The reason why it is the Bushong and not the Lele, the Pende or another people that has benefited from these innovations is however unknown since there is no writing about it and the only memories that subsist are through oral histories. As Acemoglu and Robinson have written, Shyaam has revolutionized the culture of its people through the implementation of an agricultural cycle based on cultivating different crops in the function of the year. He also brought to its people a developed government built on justice, merit and loyalty.It is and then proved that the institutional innovations led to a great development of the Bushong over the years, even if it was limited because of the Belgian colonization at the end of the 19th century. The second paper is about â€Å"The Emergence of Agriculture” and how we know that agriculture was developed after(prenominal)wards settling and not before. In his paper, Bruce D. Smith explains that agriculture did not step up in one day but in more or less 2 000 years. Indeed, through archaeological researches, it has been proved that the plants cultivated 8 000 years ago were selected and had already been sorted.As we read in Acemoglu and Robinsons book, the Natufians had first selected the intelligent crops and had then cultivated them. But in order to select them, the Natufians had to be settled, which proves that agriculture came after settlement. And with the rise of agriculture came other sciences such as math, astronomy or engineering that allowed the farmers to establish a calendar or effective irrigation system. The third book, which also confirms Smiths work is entitled â€Å"Village on the Euphrates: From track down to Farming at Abu Hureyra”. In this book, the authors take the closure of Abu Hureyra as an example.This village was inhabit ed by Natufians from 11 500 B. C to 7 000 B. C and on the   7 archaeological site, scientists have found precedent evidence that agriculture came after sedentarisation. Indeed, in the part of the village dating from more than approximately 9 000 years ago, bones of local hunted animals such as Persian gazelles have been found along with crops of wild vegetations. On the contrary, in the part of the village that existed after 9 000 B. C, bones of domesticated animals and plants have been found. This confirms once more the fact that agriculture appeared after settlement.For the third and last part of the studied chapter, we will take a look at two of the books used. The first one, â€Å"Chronicle of the Maya King and Queens: Deciphering the Dynasties of the quaint Maya”, is a great description of the complex hierarchy that ruled the Mayan empire for several centuries. The book explains the story of all the different dynasties that existed throughout the Mayan empire and ho w the cities made alliances in order to create kingdoms and then fought in the midst of each other in order to control the largest possible part of the Mayan empire.As we read in Acemoglu and Robinsons work, the wars amongst the Maya city-states played a big role in the collapse of its empire. In the second text, â€Å"The Fall of the old-fashioned Maya”, the reasons for the collapse of the Mayan empire are more deep studied. whizz of the trigger factors of it was the long-lasting droughts that would sometimes extend for several months and which would severely weaken the populations. Another reason is that the King, who also occupied the function of high non-Christian priest at the time, was responsible for all the sacrifices that were supposed to deal rain, full(a) harvest and prosperity to the city.But this wouldnt always work and as we read in the fifth chapter. In the city of Copan for example, the king was overthrown and later on, the city broken-down. One of th e reasons that Copans king wasnt able to provide enough forage for all its inhabitants is that the population was growing over time and the farming surface was diminishing. This made it impossible for all the people of Copan to be fed. This situation was not only observed in Copan but all over the Mayan empire. However, what seems to be the main reason for the Mayan collapse is the eonian warfare that would buy the farm between cities and even among them.It was believed, at the time, that the sacrifices that kings had to do to exact rain, food and richness, had to be from gallant blood. That means that cities were not only fighting against each other in order to enlarge their kingdoms but also to capture the elites from other cities and ransack them to take all the precious resources and offer them as sacrifices to the gods. Therefore, lots of cities would find themselves without any government and thereafter, the elites would fight against each other to take the throne and the cities would be abandoned in the end. 8Opposition to the Theories of Acemoglu and Robinson For this third part of the seminar paper, we will use reviews from several writers and recent-fangledspapers about â€Å" wherefore Nations Fail”. The first one is a review by Francis Fukuyama about the book but more precisely about the notions of extractive institutions and conversely, comprehensive institutions. In his article, Fukuyama explains why he disagrees with Acemoglu and Robinsons conjecture about the â€Å"more comprehensive, more growth” phenomenon. He criticizes the fact that Acemoglu and Robinson do not put on a precise definition of extractive and inclusive institutions.Since these two opposed government systems are not well defined, it allows the authors to give the benefit of growth to the inclusive institutions and on the contrary, to load the extractive institutions for the absence of growth. He puts forward the jargon line that nowadays, each govern ment is a mix of extractive and inclusive institutions and it is therefore extremely difficult to precisely attribute the wealth or the poorness of a country to one of the two types of politico-economic systems.He also disapproves of the fact that inclusive institutions are called so as soon as the people are able to have a role in the political life of the country, even if very limited. He takes England in the late 17th Century, as an example. He explains that it is absurd to call it an inclusive state since only 10% of the population could vote at the time. For him, an inclusive institution should be defined as such, if it is like a modern day democracy, among many other things.He regrets that the Potosi Mita of the Conquistadors America, the Caribbeans Sugar Plantation, the Argentinean’s Ranchers and todays Communist China are all put in the same category. As a counter argument against â€Å"more inclusive, more growth”, he takes the example of India today, which is considered as the biggest democratic republic in the field. The occupation in India, as Fukuyama writes, is that the inclusive institutions are too inclusive. The problem with it is that the government is unable to make any important decision about â€Å"major base projects because of all the lawsuits and the protests”.We therefore see that an excess of comprehension makes the inclusive state inaccurate, as is exactly the same case with an extractive institution. With the explanation of the romish imperium System, Fukuyama shows us an example of a stable politico-economic institution and his variability with â€Å" wherefore Nations Fail” 9 concerning extractive institutions. The changeover from an oligarchy to a monarchy brought a political stability to the Roman Empire that enabled it to be begin one of the biggest nations that ever existed. Furthermore, this change allowed the citizens to take part in political life.Even though the Roman Empire ultimately col lapsed, it was the wealthiest country in the world for more than two centuries. Fukuyama here is sceptical about the global model developed by Acemoglu and Robinson. He thus disagrees that Extractive Institutions are always a source of political and economical instability. In the end, we can say that even if Fukuyama disagrees with a original number of Acemoglu and Robinsons arguments, they all agree on the fact that the key to success, and therefore growth, is a mix of inclusive and extractive politics and economics.The second article that we shall study here is written by Matthew Yglesias. In his review, Yglesias asks himself why it is that some of the biggest rests of income exist between countries in the third world and developed countries. He wonders why citizens from Ethiopia earn ten times less than ones from Colombia where as at the same time, citizens from Colombia earn only four times less than ones from Sweden. According to Yglesias, a â€Å"wellexecuted programme of g rowth under extractive institutions would solve some of the worlds severe problems”.He explains, in a later article, that communism is the key to explaining differences of wealth in countries that are governed by extractive institutions. It is for him the reason why East Germany was much poorer than tungsten Germany, China than Taiwan or even mating Korea and South Korea. We can therefore say that Yglesias is not in disagreement with Acemoglu and Robinsons theories but judges that the comparisons should not occur between extractive and inclusive institutions but between extractive institutions themselves.The last article we will see is a review by The Economist about the book â€Å"Why Nations Fail” and the question of the elites. According to Buttonwood, Extractive Elites exist inside inclusive institutions. He says that the financial system is one of them. They are being criticized because they take a substantial amount of resources and therefore prevent these re sources being allocated to others sectors in which innovations could be made. As banks are the institutions that lend notes to entrepreneurs to create new businesses, they have the power of decision about the creation of start-ups, which is to say, new ideas and innovations.If banks would lend the property each time, they would be richy considered as inclusive institutions, however, this is not the case. The principal purpose of a bank is to be profitable   10 and make the most amount of coin possible. Therefore, they dont want to lend money each time and are seen in this way as extractive institutions as they will only give the money to concrete and profitable businesses. Another problem of the inclusive institutions is the social policies applied by some countries; employees from the public sector prefer keeping their secure jobs rather than creating or joining a new business.These employees do not only want to be sure to keep their jobs but also want to continue enjoying t he many advantages that civil servants are given. This, in a way, is a form of non-creative destruction, or at least, non-innovation. It is of course a perversity of the social back up created by governments of inclusive institutions. However, it is a form of resistance to creative destruction, which is a core feature of extractive institutions. The world Sector is therefore, along with the financial Sector, a miscellanea of extractive elite.However, the article in The Economist explains well that the blood of the Elite among inclusive institutions is limited and cannot be regarded as totally extractive. 11 Personal Point Of bring in For the last part of this review of the fifth chapter of â€Å"Why Nations Fail”, I will give my thoughts about the points that have been discussed previously in the essay and that are tackled in the chapter. With the first example that Acemoglu and Robinson develop in this chapter, they show us how the lack of innovation is a main feature o f Extractive Institutions failure.This lack of innovation is mainly due to the resistance of the Elite and a Government that fears being overthrown by the people, as they will be willing to keep the profits of their innovations. On this point, I totally agree with the argument, however, as we have seen with the Soviet Model, that for more than 30 years they have been able to extract the best of what was available. That is to say that without, or with only very few technological innovations, the Soviet Union has been able to maintain a 6% growth rate per year.This is somewhat incredible since America, at the same time, could not do better even though they were benefiting from technological change. I think that what is to be conditioned here is that in general, and even more in today’s world, we do not use what we have to its full capacity. By this I mean that as soon as we create a new tool or a new technology, we get rid of it before having used all of its facets. And the adv antage, maybe the only one, of a totalitarianism state is that it obliges the people to work with what they have and therefore, use their tools to the optimum. I dont want to be taken for an extremist here.I am not at all in choose of a totalitarian or an authoritarian system; I just think that the best of every system should be taken, as there is something broad(a) within each one. In this case, it is the optimum and full use of the present technologies before moving on to other things. As we see with the second example, a certain phase of institutional innovations may bring a certain stop of growth. With the institutional innovations come also economic, social and political improvements. I think that what is to be considered with King Shyaam is that with a certain degree of rigidity, growth is enabled.Therefore, I would say, pursual Yglesias point of view, that with a certain degree of extraction, when well executed, a certain amount of growth and achievements could be reache d. I think that even if in the long term, extractive institutions are not good and viable, it can be a good way to start or to re-launch an 12 economy. Even if this is very difficult to achieve, I think that having extractive institutions at the beginning and then moving on towards more inclusive ones force be very good for the economy of a nation.As Fukuyama describes with the Roman Empire, the System was distinctly extractive since the power was in the hands of the emperor. However, citizens had much more possibility to take part in the political life of their cites and they had true incentives to work since they could make their constituents, but above all, they could keep these fortunes. They would have to pay taxes but the notion of private property was real and if someone was hard hard to succeed, he could do so.The head was that the Roman Empire stood for more than 200 years and is considered as one of the biggest that has ever existed. A certain degree of political ext raction can therefore definitely be good for a nations growth. We can see, today, that the political parties are more often trying to destroy the other parties ideas than trying to cooperate with them and find the best compromises. It is here that a certain degree of extractive politics could be good and could help countries take big decisions more quickly.I would like to finish here with the case of China. Acemoglu and Robinson are convinced that China will inevitably collapse, just like the Soviet Union did. I think that this might not be the case for four reasons. My first point is the difference that exists between China and the former Soviet Union. On the other hqnd, we know much more about China than we knew about USSR. What I mean here is that we know that China has a considerable fortune and that they are not spending money that they dont have, which was the case with Soviet Union.There is a much stronger transparency with Chinas economy than there was with Stalins governmen t. My second argument is that the economical situation from today is not the same at all compared to that of the twentieth century. And we have seen that even with the global economic crisis that occurred in 2008, China has succeeded in maintaining a growth rate of more than 8% and an average growth of 10% over the past three decades, which is much more than USSR even though USSRs GDP was large than Chinas today.My third point is that China is opening its economy more and more; it is gradually moving towards an inclusive economy. China is for technological change and creative destruction. Since approximately a decade, China has opened itself to foreign investments and instill is now sometimes considered as the future â€Å" new York”. Even if this economical change is very limited and extremely controlled by the government (any foreign connection that wishes to establish itself in China must create a joint venture with a Chinese company),   13 changes are happening.We c annot therefore say that China is against creative destruction; it is just that it is an authoritarian country and changes cannot happen in one day. My last point is about the political power in China and the liberty of the people. It is, I believe, the only reason that might someday put an end to the Chinese regime. Even if the people who disagree with the Chinese government are very badly treated, they are still much more considerate than before thanks to the world(prenominal) relations that China maintains with other countries.That is to say, China cares more than before about how other countries view it. However, the Peoples republic of China is still extremely repressing its dissidents. The population in China is step by step, gaining some freedom even if they are still very oppressed by the regime. In the last few years, the situation with Chinese workers has evolved and their wages or functional conditions have considerably changed, especially after the self-annihilation wave that touched the country in 2010.In the end, I would conclude by saying that China, if it succeeds in following its transition little by little to a more inclusive economy and moreover to a more inclusive political system, even if not reaching the point of a democracy, might not collapse as lots of economists are predicting today.\r\n'