In Nogales, a town in Mexico, the people in the north of the city are part of a state called Santa Cruz. They have three times literacy rate and better healthcare than those in the south of the city (which belongs to the state of Sonora).
North Korea and South Korea used to have same living standards. After World War 2, North Korea was ruled by Kim Il-Sung (a dictator) while South Korea chose the path of democracy. The difference now is North Korea ends up much poorer than South Korea.
WHY STATES FAIL?
WHY STATES FAIL?
By Daron Acemoglu and James A. Robinson
Both authors argued that differences seen in two sides of the city of Nogales and also in the two Koreas, are a result of different governing institutions.
We call democratic institutions, such as those in South Korea or in the United States, inclusive. These uphold private property, enforce law and order and contracts, encourage and support economic activity, allow entry of new businesses and permit the functioning of markets are inclusive economic institutions. They encourage the participation of most people in economic activities that best make use of their talents and skills. They also distribute political power more evenly in society and it is this pluralistic distribution of political power that makes these institutions work.
WHY STATES FAIL?
WHY STATES FAIL?
By Daron Acemoglu and James A. Robinson
Institutions, like those in North Korea or the Congo, are extractive. They fail to enforce property rights, contracts, and law and order; take away economic freedoms and coerce people into occupations that they don't want; erect prohibitive entry barriers; and involve the state intervening to distort markets and economic incentives rather than supporting these and providing public services are extractive economic institutions. They are supported by Communist Party's tight control over political power. The term extractive stems from the fact that such economic institutions are often shaped by those who control political power to extract resources from the rest of the society.
WHY STATES FAIL?
WHY STATES FAIL?
By Daron Acemoglu and James A. Robinson
Institutions, like those in North Korea or the Congo, are extractive. They fail to enforce property rights, contracts, and law and order; take away economic freedoms and coerce people into occupations that they don't want; erect prohibitive entry barriers; and involve the state intervening to distort markets and economic incentives rather than supporting these and providing public services are extractive economic institutions. They are supported by Communist Party's tight control over political power. The term extractive stems from the fact that such economic institutions are often shaped by those who control political power to extract resources from the rest of the society.
WHY STATES FAIL?
WHY STATES FAIL?
By Daron Acemoglu and James A. Robinson
The authors argued that both poverty and prosperity are created by economic and political incentives, and these incentives are shaped by institutions. South Nogales, Sonora and North Korea are poor because its inhabitants have limited economic opportunities, a poor state of infrastructure to build on, not enough education because of the poor state of public schools, and little security that if they work hard and invest they'll be able to enjoy the fruits of this. They are relatively poor not by choice, their poverty has been created by the institutions they live under. Crucially, these institutions are not in place by accident, but have their own logic. The institutions that inhabitants of South Nogales, some are live under have been forged by Mexican elites and politicians who have designed a system for their own benefit at the expense of the vast majority of the citizens of Mexico. The situation in North Korea is no different. Extractive institutions have been created and are kept in place for the benefit of the narrow elite dominating the Communist Party, and it is those who prosper while scores of North Koreans perish in famines.
