Why do nations continue to fail?

The co-author of Why Nations Fail, Daron Acemoglu focuses on mankind’s biggest challenges

Why do nations continue to fail?

The co-author of Why Nations Fail, Daron Acemoglu focuses on mankind’s biggest challenges

Professor Acemoglu, why do nations continue to fail?

Because the world is increasingly complex and states are constantly faced with a battle between those who benefit from monopolistic power structures and those who don’t. Yet state’s capacity to foster growth and prosperity for all is not something we can invest in and build in the same way we build bridges. It creates winners and losers, so naturally there are those who resist it.

How can nations foster economic growth for all in these times of change?

The best way of developing state capacity is by endowing societies with trust through security and property rights, rule of law, the court system and regulations. While there is a vibrant debate about which of these matters most, there is a consensus that an overly monopolized society with inefficient courts and unreliable contracts is extremely damaging to economic growth. Equality of opportunity is also important. Societies like Germany with a good education system are doing quite well.

China is on the verge of becoming a new global leader. How do you view its growth potential?

China is a textbook example for the importance of institutions. The economic boom of the past years lifted several hundred million people out of poverty. Yet all of this is taking place under a communist-dominated society. That makes it difficult for China to move from initial catch-up growth to economic and political leadership. The forces of true innovation necessary for Chinese companies to compete will be much harder to acquire.

So what is your proposition for China?

Income per capita in China is about one fifth of that in the United States, so that’s not an economy that caught up. I think there is a lot of room for the Chinese industry to compete in middle-tech products with Germany, France and Canada. But I doubt China will go head-to-head with Germany or France in terms of income per capita anytime soon.

Germany has been separated for decades – has this been a case study for you?

There are these sharp cases like Germany, but also Korea and the Czech Republic or Austria. They all show a significant divergence leading to, for example, a more than tenfold difference in income per capita in the case of North and South Korea. Once this separation ends, a convergence process starts if human capital is raised on both sides by means of education.