IS POVERTY REALLY WHAT MAKES A COUNTRY POOR?
The easiest way to impoverish a country is not necessarily to steal its money. A far more dangerous way is to destroy people’s belief that honest work, merit, and justice will eventually be rewarded. Money can be earned again; but when a society loses its confidence in the future, rebuilding that confidence is far more difficult.
This was the thought that stayed with me most strongly while reading Why Nations Fail, the book by Daron Acemoglu and James A. Robinson that I have repeatedly urged my doctoral students to read.
Imagine two countries.
In one, a young person graduates from university thinking, “If I work hard, I can eventually reach the position I deserve.”
In the other, the same young person learns before even starting a job:
“If you don’t know the right people, you’re in trouble.”
The first young person invests in the future. The second looks for ways to protect himself from the system.
The difference is not merely economic.
The message that institutions send to people is different.
This is where the central thesis of Acemoglu and Robinson becomes important. They argue that the wealth or poverty of nations cannot be explained solely by natural resources, geography, culture, or how hard-working their people are. One of the decisive factors is how political and economic institutions function.
Institutions that protect property rights, provide predictable laws, encourage entrepreneurship and innovation, and allow broad segments of society to participate in economic and political life are what the authors call “inclusive” institutions.
By contrast, when power and resources are concentrated in the hands of a small group, when the rules are not applied equally to everyone, and when the economic system serves the interests of particular circles, “extractive” institutions emerge.
This distinction reminds me of some simple but important realities I have witnessed throughout my years in universities.
Having the word “merit” written on the wall of an institution does not mean that merit actually exists there.
Having the same rules written in a regulation for everyone does not mean that everyone is actually treated equally.
And holding elections in a country does not, by itself, prove that the country has a strong democracy.
The real question is whether a person’s identity and connections lose their importance when confronted with the power of the rules.
Can a person advance simply because they are talented?
Can a comedian express an idea through humor without having to pay a price for doing so?
Can an entrepreneur trust that the business they spent years building will not be put at risk tomorrow by an arbitrary decision?
Can a citizen go to court and expect justice without worrying about who the person on the other side is?
The answers to these questions may tell us far more about a country’s real institutional structure than its economic growth figures.
Because when institutions deteriorate, people’s behavior changes as well.
An honest person gradually begins to feel like a fool.
A competent person withdraws.
A person who speaks out learns to remain silent.
Someone who has been treated unjustly begins to say, “Forget it,” instead of seeking justice.
And after a while, a significant part of society becomes more concerned with the question, “How do I survive in this system?” than with the question, “What is the right thing to do?”
I believe this is where the real danger begins.
Because bad institutions do not merely produce bad decisions.
They also gradually erode people’s willingness to do the right thing.
This is also why the relationship between political and economic power matters. When power becomes concentrated in a few hands, access to economic resources can become an advantage enjoyed by those same circles. As economic power increases, so does political influence; and as political influence increases, it becomes easier to preserve existing economic advantages.
A cycle is created.
Power produces more power.
But the opposite is also possible.
Power can be restrained.
Institutions can be held accountable.
The rule of law can be upheld.
A system can be built in which people are free to express their thoughts and where hard work and ability can take precedence over personal connections.
In such a society, people do not merely try to survive today.
They think about tomorrow as well.
Because investment requires more than money.
It requires trust.
A young person must believe that their efforts can eventually be rewarded if they are to invest in their future.
An entrepreneur must trust that the rules will still apply tomorrow if they are to invest in production.
A citizen must not be afraid of the power of the person standing on the other side when seeking justice.
And an academic must know that expressing an idea will not come at the cost of their professional future.
When trust disappears, a society’s energy is spent less on creating and producing and more on protecting itself.
That is why Why Nations Fail does not seem to me to be merely a book about economics. At its heart, the book raises a much more difficult question:
How does a society lose its own future?
Sometimes the answer is not war.
Sometimes it is not even a major economic crisis.
Sometimes people simply begin, little by little, to believe this:
“No matter how hard I work, no matter how honest I am, the outcome will not change anyway.”
That sentence carries an enormous cost for societies.
Because when money is lost, an economy can be rebuilt.
Roads can be rebuilt.
Factories can reopen.
But when a society loses its belief that hard work will be rewarded, that the law applies equally to everyone, and that people can shape their own future, what it loses is more than prosperity.
The greatest poverty a country can suffer is the loss of its citizens’ belief that they can still build a better future.