They say culture and geography aren’t the reason for defeating the countries; the tyrannical institutions are the reason, to find a solution for the political and economic problems the extractive institutions must change to inclusive institutions.
Fifteen years of study and investigation via James Robinson & Daron Acemoglu in a book titled (Why the Nations Fail?) concentrate on the fundamentals of authority, prosperity and poverty. They attempted to respond to that question, why some nations rich and others poor? The book is translated by (Hoshiar Siwaily).
Acemoglu and Robinson support their thesis by comparing the economy of the world countries in their study. They identify countries that are similar in many of the mentioned factors above, but because of different political and institutional choices become more or less prosperous.
Acemoglu and Robinson’s major thesis is that economic prosperity depends above all on the inclusiveness of economic and political institutions. Institutions are inclusive when many people have a say in political decision making, as opposed to cases where a small group of people control political institutions and are unwilling to change. They argue that a functioning democratic and pluralistic state guarantees the rule of law. The authors also argue that inclusive institutions promote economic prosperity because they provide an incentive structure that allows talents and creative ideas to be rewarded.
However, the writers describe extractive institutions as ones that permit the elite to rule over and exploit others, extracting wealth from those who are not in the elite. Nations with a history of extractive institutions have not gotten welfare, they give samples of some African, Asian and South American countries, they argue, because entrepreneurs and citizens have less incentive to invest and innovate. One reason is those ruling elites are afraid of creative destruction is the ongoing process of annihilating old and bad institutions while generating new and good ones. Creative destruction would fabricate new groups that compete for power against ruling elites, who would lose their exclusive access to a country’s economic and financial resources.
In conclusion, Acemoglu and Robinson disagree with the culture, geography and ignorance arguments as explanations for income inequality in the contemporary world. Political and economic institutions are their main argument to explain global income inequality. Their institutional analysis can be used to explore the potential role of global institutions on global income inequality. They intensely discuss how institutions play a significant role in a nation’s development. Analyzing the role of institutions at the global and regional level seems to be a legitimate validity test for their approach. Application of their institutional analysis at the global and regional levels would give further insights in terms of the impacts of institutions on development.