Why Nations Fail - The Origins of Power, Prosperity and Poverty

Introduction - ANISH
Why nations fail and why nations succeed as well.
Why some countries are richs, and other are poor.

If we look at the world, we can see that all of the countries which are poor are in
the sames areas most of the time, for instance South-America or Africa, and
some of them have less than 2thousand dollars as Growth domestic product per
inhabitants. So we could think that poor countries are poor because of the
geography, but its not the fact. The truth is that poor countries and rich
countries are organized in very different ways. That organization in rich countries
creates incentives and opportunities for the people, and in poor country, it
doesnt.
Rich countries are the countries that adopt the growth-enhancing economic
policies.

The inequality between poor and rich countries has grown since the 1800,
Exponentionnaly. But before explain this difference in the organization, lets see
the beginning of the divergence.

The Theory of Daron Acemoglu:

The beginning of the divergence: Colonization process - CHARLES

The beginning of the current gap between poor and rich countries was with the
colonization process in South America.
Then north America with British and Indian colonization. With the example of
Virginia company..

The colony in the north and the colony in the south ended up on very differents
trajectories:

- Head right system with general assembly in the north. Step by step, slaves got
rights and thats why different society started developing in James town and in
other parts of North America where people keep they were producing and this
was supported by the political power today themselves head. They allow them to
make trade, people who had a land and who exploited it.

- Harsh colonial empire based on force labour, very hierarchical form of

repression and few making a lot of money at the expense of the rest developed in
the south.

The differences in the ways Latin America and North America were organized
historically explain the differences in the ways they are organized today and their
different levels of prosperity.

Inclusive economic and political Institutions - MRINAL

Inclusive economic institution: There are principles: Secure property rights,
law and order, markets and state support (public services and regulation) for
market; open to relatively free entry of new businesses; uphold contracts; access
to education and oportunity for the great majority of citizens.
Inclusive political institution: Political institutions allowing broad participation
(pluralism) and placing constraints and checks on politicians; rule of law (closely
related to pluralism).
Inclusive economic and political institutions (or inclusive institutions for short)
create powerful forces towards economic growth by:
- encouraging investment (because of well-enforced property rights)
- harnessing the power of markets (better allocation of resources, entry of
more efficient firms, ability to finance for starting businesses etc.)
- generating broad-based participation (education, again free entry, and
broad-based property rights).
Key aspect of growth under inclusive institutions: The Innovation, investment in
new technology and creative destruction (when a business line die and a new
business line is created)

CHARLES or MRINAL:
If we take the exemple of the US who are an Rich country, The innovation is the
most important leverage and it appeared first in the US with the Patent System.
Thomas Jefferson, one of the founder of the US opened the system patent of
everybody.
In a patent system, it doesnt matter who you are, you pay the same fees you got
a patent and thee government protect your intellectual property right.
Zimbabwe, democratic republic congo or North korea which are poor, have
economic institutions that create very differents incentives and opportunities
than in Inclusive institution, like the patent system.

Extractive economic and political Institutions - ANKIT

Extractive economic institution: Lack of law and order. Insecure property
rights; entry barriers and regulations preventing functioning of markets and
creating a nonlevel playing field.
Extractive political institution: in the limit (absolutism) : Political institutions
concentrating power in the hands of a few, without constraints, checks and
balances or rule of law.

Though growth is much more likely under inclusive institutions, it is still possible
under extractive institutions, because it generates output (rendements) and
resources to extract.
Two types of growth under extractive political institutions:
- extractive economic institutions allocating resources to high productivity
activities controlled by the elites
- when relatively secure in their position, the elites may wish to allow the
emergence of relatively inclusive economic institutions under their control

(Maybe Give exemples of China and Germany who were extractives economies
and who grow up.)
Comparaison= Bill gates for US Innovation creating incentives and
opportunities so he generated Innovation new ideas, and Carlos slim Creating
monopoly who block other people opportunities and incentives.
But big difference from growth under inclusive institutions that there are no
creative destruction and dynamics are very different. Consequently, even though
growth is possible under extractive institutions, this will not be sustained growth.
(croissance soutenue)

The emergence of World Inequality - NEVEDITA

The Industrial Revolution disseminated very unevenly because different parts of
the world have very different institutions:
-European settler colonies in North America and Australasia had developed
inclusive institutions by a different route (but still conflictual)
- Western European institutions diverged from Britain in the 17 th Century but
were not too different where it mattered.
- Many nations (e.g., Eastern Europe, Ottoman Empire) had long existing
extractive institutions.
- Others had extractive institutions imposed upon them by European colonial
powers (creation of Dual economies in Southern Africa for exemple)

Why nations do fail - QUENTIN

The biggest cause is because they have extractive political and economic
institutions.
These are difficult to change though they can be successfully challenged and
altered during critical junctures.
The roots of modern world inequality lie in the emergence of inclusive institutions
in Britain and the fruits of this - the industrial revolution - spread to those parts of
the world that had similar institutions (settler colonies) or quickly developed
them (Western Europe)
Other parts of the world languished with extractive institutions which have
persisted over time and thus remain poor today.

There is two secrets, one is that everybody has equal access to patents on the
same terms.
1) Because the political power is distributed. Distribution of political power.
2) Patent system

Trouver Inclusive et extractive exemples. Faire

Debate Question: All of the economy is based on the growth but do we
have to always focus the economy according to the growth ?

Its the example of the US, Thomas Jefferson, one of the founder of the US
opened the system patent of everybody.
In a patent system, it doesnt matter who you are, you pay the same fees you got
a patent and thee government protect your intellectual property right. The
difference for the economists between poor and richs are the innovation
creativety, entrepreuneurship are spread very proudly.
Prosper society In inclusive institution, if you group all of the talents with the
same rights and the same law,
Zimbabwe, democratic republic congo or North korea which are poor, have
economic institutions that create very differents incentives and opportunities
than in Inclusive institution, like the patent system.