I was very pleased to see Will Hutton, in the Observer, making a point I first made in a review of Acemoglu and Robinson’s book Why Nations Fail. The book presents analysis of wealth-making that describes what is happening to our world better than any other I’ve seen, and Hutton agrees.
Ostensibly, the purpose of the book is to demonstrate why some nations have become rich whilst others, despite possessing obviously useful resources, have remained poor. Its great virtue is that, for all the case studies and figures, the thesis is blindingly simple. Acemoglu and Robinson divine two kinds of society: inclusive and extractive.
In inclusive societies there is no totalitarian power base; no one group has a stranglehold on wealth and innovation; there is the rule of law that protects commercial enterprise against expropriation and restrictive practices.
In extractive societies, a monopolistic group stifles commercial and technical development and retains all of the country’s wealth for a few cronies. There is no recourse to law because it only operates in favour of the ruling group. There are many case examples. Before the Civil War the American South was desperately backward because the economy was run to suit the slave-owning ruling class. There was no industry, hardly any railway lines. This was a recipe for stagnation. Acemoglu and Robinson cite the case of Sierra Leone, in which a railway originally built by the British was torn up by the ruler (who had originally been democratically elected) because it would threaten the trading monopoly of his friends.
But the sting in the tail of Acemoglu’s thesis, as I pointed out in my review, is the Britain is the textbook model of inclusive society. Or used to be. The current economic model of “maximizing shareholder value”, private equity, hedge funds, huge tax avoidance schemes, very low investment in research and development, escalating inequality (exclusiveness), are all prime extractive traits. Britain is throwing away centuries of inclusive enterprise and making the transition to an extractive economy. This is catastrophic because once such as system is in place – see Zimbabwe or Russia or Egypt or countless more – it is hard to ever escape it. How is it that the virtues of inclusiveness are being forgotten and that it has required an American and a Turkish-Armenian-American economist to point it out? Perhaps Will Hutton lending his voice will hasten awareness of the calamity facing us. No argument in the world deserves to be better heard and understood than this.
Ostensibly, the purpose of the book is to demonstrate why some nations have become rich whilst others, despite possessing obviously useful resources, have remained poor. Its great virtue is that, for all the case studies and figures, the thesis is blindingly simple. Acemoglu and Robinson divine two kinds of society: inclusive and extractive.
In inclusive societies there is no totalitarian power base; no one group has a stranglehold on wealth and innovation; there is the rule of law that protects commercial enterprise against expropriation and restrictive practices.
In extractive societies, a monopolistic group stifles commercial and technical development and retains all of the country’s wealth for a few cronies. There is no recourse to law because it only operates in favour of the ruling group. There are many case examples. Before the Civil War the American South was desperately backward because the economy was run to suit the slave-owning ruling class. There was no industry, hardly any railway lines. This was a recipe for stagnation. Acemoglu and Robinson cite the case of Sierra Leone, in which a railway originally built by the British was torn up by the ruler (who had originally been democratically elected) because it would threaten the trading monopoly of his friends.
But the sting in the tail of Acemoglu’s thesis, as I pointed out in my review, is the Britain is the textbook model of inclusive society. Or used to be. The current economic model of “maximizing shareholder value”, private equity, hedge funds, huge tax avoidance schemes, very low investment in research and development, escalating inequality (exclusiveness), are all prime extractive traits. Britain is throwing away centuries of inclusive enterprise and making the transition to an extractive economy. This is catastrophic because once such as system is in place – see Zimbabwe or Russia or Egypt or countless more – it is hard to ever escape it. How is it that the virtues of inclusiveness are being forgotten and that it has required an American and a Turkish-Armenian-American economist to point it out? Perhaps Will Hutton lending his voice will hasten awareness of the calamity facing us. No argument in the world deserves to be better heard and understood than this.
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