Why Nations Fail: The Origins of Power, Prosperity, and Poverty (Book Review) … Review by Bill Gates …. The book goes back in history to talk about economic growth during Roman times. The problem with this is that before 800AD, the economy everywhere was based on sustenance farming. So the fact that various Roman government structures were more or less inclusive did not affect growth. The authors demonstrate an oddly simplistic world view when they attribute the decline of Venice to a reduction in the inclusiveness of its institutions. The fact is, Venice declined because competition came along. The change in the inclusiveness of its institutions was more a response to that than the source of the problem. Even if Venice had managed to preserve the inclusiveness of their institutions, it would not have made up for their loss of the spice trade. When a book tries to use one theory to explain everything, you get illogical examples like this. – TheGatesNotes
Dominant Social Theme: Nations fail because not enough people get along.
Free-Market Analysis: Wow, Bill Gates writes a book review on his site, TheGatesNotes, and we get a glimpse of how the great man thinks about major issues of our time.
Gates hits a lot of the right notes in his review, from our perspective. Of course, we haven't read the book so we are not going to critique it directly. Instead, we offer our readers a critique of Gates's review.
One thing stands out right away. Gates apparently believes in complexity. We are much more simple-minded than Gates (and a helluva lot less wealthy). Thus, we do believe that there is a single theory that can explain the rise and fall of nations.
That theory is competition, the utilization of the Invisible Hand. The more a "nation" makes use of the Invisible Hand, the better off that nation will be. More of that in a minute. First, a little more from Gates on the larger theory, which he finds unpersuasive.
Normally, I'm fairly positive about the books I review, but here's one I really took issue with. Why have some countries prospered and created great living conditions for their citizens, while others have not? … It makes an argument that is appealingly simple: countries with "inclusive" (rather than "extractive") political and economic institutions are the ones that succeed and survive over the long term.
Ultimately, though, the book is a major disappointment. I found the authors' analysis vague and simplistic. Beyond their "inclusive vs. extractive" view of political and economic institutions, they largely dismiss all other factors—history and logic notwithstanding. Important terms aren't really defined, and they never explain how a country can move to have more "inclusive" institutions.
Another surprise was the authors' view of the decline of the Mayan civilization. They suggest that infighting—which showed a lack of inclusiveness—explains the decline. But that overlooks the primary reason: the weather and water availability reduced the productivity of their agricultural system, which undermined Mayan leaders' claims to be able to bring good weather. The authors believe that political "inclusiveness" must come first, before growth is achievable. Yet, most examples of economic growth in the last 50 years–the Asian miracles of Hong Kong, Korea, Taiwan, and Singapore–took place when their political tended more toward exclusiveness.
This is interesting because we have suggested the same sort of thing regarding the Mayans. We've suggested that warring between various kingdoms was institutionalized and this was the reason for the Mayan populace abandoning their great cities. The average citizen simply didn't want to live in fear of having his still-beating heart removed by remorseless priests with obsidian knives.
It is true, as well, that we have suggested competition between nation-states is the key to a region's initial prosperity. Italy's Renaissance, Greece's Golden Age, the first efflorescence of the United States all came about because people lived under separate regulatory regimes but in close proximity. If one government got oppressive, people could move – but still remain within the ambit of their own culture and language.
Of course, there is a myth that empire is what makes a nation "great." But this leaves us with several questions. First, what is an "empire" and second, what is a "nation." In fact, there are no empires or nations. There are merely people bound together in various ways by power, fear and culture.
Most normal people, however, don't get up in the morning intending to build a power-based political empire via war and stealth. Most people, normally ambitious, want to succeed in the normal course of things by creating something that is in demand.
It is usually governmental competition that generates this sort of possibility. What the authors call "inclusion" – the creation of empire – is actually a failure of competition. It is the harbinger of a centralization that inevitably brings higher taxes, more regulation and, increasingly, corruption and creeping authoritarianism.
Gates does understand that the "inclusion" paradigm is insufficient to explain various epochs of prosperity and creativity. He seems to believe as well that "strong leadership" can create national "greatness" – whatever that is. He writes:
The authors ridicule "modernization theory"–which observes that sometimes a strong leader can make the right choices to help a country grow, and then there is a good chance the country will evolve to have more "inclusive" politics. Korea and Taiwan are examples of where this has occurred. The book also overlooks the incredible period of growth and innovation in China between 800 and 1400.
We have the temerity to disagree with the Great Gates here. We do not think it is "leadership" that makes a difference, or at least it ought not. We are believers in individual human action. The greatness of a region – its true creativity and human progress – is engendered by freedom and the operation of a free market.
Left to their own devices, people will take care of themselves, usually without confrontation, or at least not violent confrontation. Most people instinctively want to take care of each other without government intervention. Even infrastructure can be created via the Invisible Hand and without the heavy hand of the state.
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