The essay will dwell more on explaining and defining these terms and how they intertwine. History shows that the nations with inclusive systems are prosperous and are likely to get even richer with time, yet the opposite can be said for the extractive nations. To connect between and political institutions, a breakdown of the two is needed. With that, case studies will also be applied to show how all of these theorize work together or what happens if they are missing in a nation.Inclusive and Extractive Institutions
The analysis of reasons why nations fail starts with two basics. The nation is either inclusive or extractive one. Once this has been set, one might go and add other factors that may contribute to the rise and fall of nations. If the nation is propelled forward towards the inclusive system, changes start to appear as well as the state starts to give positive feedback (Acemoglu and Robinson 2012:60). It is almost like a loop to keep the nation on that position toward prosperity. Nations that are inclusive are the likes of Great Britain and the United States of America. They have been in that loop for decades now. These nations have certain characteristics, so they do not derail from their tracks. Here the state tries to prevent a monopoly in the state and try to create a more equal economic society. Yet there are nations that oppose the idea that only the inclusive system prospers. Yes, it is the plausible and more proven system through the history but with some of growing powers like China that seem to come up with new ways that look extractive.
The extractive institutions are also propelled by dependency on those who have power trying to block the creative explosion that comes from change thus creating a vicious cycle. These nations are ruled by greedy leaders and the markets are usually non-inclusive meaning that they gain only for themselves not to help the state or the nation to grow.
In the book “Why Nations Fail” the authors are very careful to indicate the importance of historical relevancy in their explanation of institutional subtleties and responses to critical junctures and new opportunities. Critical junctures are the turning points in history, and these are not noticed when they are happening but after they have passed we can see them as examples, being they like the black death as it eliminated the feudal system, that helped with creativity explosion that sparked the industrial revolution. This might even be called the domino effect that most of the critical junctures are interconnected.
Incentives and Opportunities
Incentives and opportunities play a major role for a state to stay in the loop of riches although the idea of cultural or geographical factors contributes to the riches of most of the Western European countries forty times over compared to some countries in the south, mid and north Africa where the influence is relative. (Acemoglu and Robinson 2012:51). “In the end the incentives to innovate, to invest, and to educate are crucial. Institutions provide a framework for these incentives. They continue to say that it creates fair and leveled field on which people can build, when that takes place, it is guaranteed that economic growth takes place.”
For these “inclusive institutions” there is always an exception rather than the norm. Throughout history, these contemporary societies were ruled by extractive institutions (Acemoglu and Robinson 2012:67). States that provide neither incentives nor opportunities to people … are purely designed to extract resources from the many by the few.” The difference in those institutions is key to his explanation for why some states or nations are much poorer when compared to others.
Acemoglu and Robinson also indicate why the importance of chance and luck, and the role of the individual actors, somewhat the age of ‘great men and fools’ was so popular at the end of the 19th and the beginning of the 20th centuries when individuals either raised their nation higher or destroyed it.
In Africa, Botswana is a good example, as it was fortunate to have a leader like Seretse Khama, who opted to move towards a more inclusive institution, that brought growth to his nation, unlike his neighbor Robert Mugabe in Zimbabwe who only forbid a free trade instead of doing the opposite. Zimbabwe is a good example of the failed state starting from its markets that were never inclusive becoming a monopoly instead. The richer only got richer and the poor got even poorer and while the rich where prospering they sucked their country to bits.
As to their leader Robert Mugabe, he never followed the rule of law. This is whereby the court of law is above everyone even the leaders so that no one can do as they please and to create an equal and fair environment for all the citizens of a country. But in Zimbabwe, it was more of a dictatorship – the media was controlled by the government and there was no freedom of speech. Zimbabwe had all the characteristics of a failed stated and an extractive institution (Acemoglu and Robinson 2012:25). The authors state that “for the economy to thrive in a country, it must be politically stable as well because one cannot thrive without the other’.