Economists, who agree with the broad-based surveys and analyses offered by the authors, posit that if nations still in the Malthusian Trap of grinding poverty with no bright future implement “inclusive institutions,” they can raise their per capita income from poverty level up to that of China in less than a century.
It is very interesting as a Korean to discover in chapter three that the authors use the case of South Korea and North Korea as an evidence to persuade readers how their respective institutions led the former to prosperity and the latter to poverty.
In the preface, they explain that North Korea, currently one of the world’s poorest countries, was far better-off than South Korea until 1974, the year when every economic index turned dramatically upward in favor of South Korea. Since then, North Korea, as history tells us, could not dig itself out of the list of the nations even in the 21st century. North Korea cannot survive without international aids, while South Korea has joined the members of the OECD.
Acemoglu emphasizes that the success or failure of a nation does not hinge on differences in ethnicity, culture, language, climate, natural resources, or the common characteristics of its populace. He simply says that success or failure depends on whether nations have inclusive institutions or not. If a nation employs inclusive economic and political institutions, it will see a brighter future than nations that employ “extractive ones.”
Inclusive institutions are based on values that were sparked by Enlightenment thought and the Industrial Revolution: individualism, private ownership, rule of law, free market system, and democracy.
The authors ask a question: How could the race between the two Koreas, twin nations of a single ethnic origin that inherited the same culture, language, and populations with shared characteristics, end up with one so successful and the other so poverty-stricken in such a short period of time? At the start of the race, North Korea appears to have had a marked advantage over South Korea because it contained all the industrial assets that Japan had built for the purpose of colonizing Asia as well as superior natural resources. In the 1960s and 70s during the early stage of the race, North Korea’s centralized, socialist economy and authoritarian rule seemed to work better than its counterparts. In the south, it suffered from the implementation of a noisy, complicated and messy democracy with its more liberal rule, a brand-new political system that it had never attempted during its long history. In fact, the book argues that there was no favorable element or whatsoever for South Korea to win the race.
The authors tried to get to the bottom of the reasons why North Korea has failed so spectacularly despite its perceived advantages. They reached the conclusion that extractive economic and political institutions provided a key that opened the door to a poverty-stricken hell. In contrast, in South Korea, inclusive ones provided a key that opened the door to a wealthy land of peace.
South Korea has a constitution that guarantees the rights of private ownership, a free market system, free trade, and rule of law under democracy. Institutions upholding these rights perpetuate the advances of the Industrial Revolution and modernity. They are rooted in values that propel mankind out of the Malthusian Trap.
What changed the status of some nations was the implementation of inclusive economic and political institutions. The authors categorized Spain, Mexico, Argentina, Russia, China and almost all African nations into the same group of North Korea, with Great Britain, Netherland, the United States of America, Japan, France, Germany, and Canada in the same group with South Korea. We can question why Spain, Russia, and China, once superpowers, failed to maintain their status as such. The answer is that it happened due to their extractive institutions which are full of corruption and are not subject to the rule of law, destroyed creativity, or as Joseph Schumpeter put it, “choked entrepreneurship” and suppressed private ownership. Such aspects, therefore, are discouraging productivity and plummeting the nation into poverty. These are the results that come from the absence of the inclusive political institutions that constrain the power of government and the intervention by government in free market. It is not the free market system that should take the blame for the failure of a nation. It is the political extractive institutions that kill the free market and cause a nation to fail.
Koh Ki-wan firstname.lastname@example.org
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