Why Nations Fail. Why Nations Fail is a book trying to…
By: Andrew Chien
Tags: Failure, Personal Development, Nationalism, Success, Business

Why Nations Fail is a book trying to discover the fundamental reasons of why nations fail. The authors give many examples and evidences to prove that it’s not the weather, geography or culture to determine if the country would go prosperous or poor, but how the polity is run. The way to run polity can be divided into 2 parts, which are extractive institution and inclusive institution. The inclusive institutions uphold the property right and enforce the law to create a level playing field for people to have incentives to develop the new skills or new technologies. Compared to inclusive institutions, extractive institution emphasizes the nation’s property and right to be controlled by the vested interest or the beneficiary. This polity would be more resistant to the change and new technology for fear that the destructive innovation would change the playing field and deprive their already owned interest. As a result, this polity would be inclined to impede and even block the overall national economic growth.

However, the path to inclusive institutions is usually not an easy process. Some elements are critical to form such polity. Critical juncture, pluralism and presence of some degree of centralized order to some extent are important factors to form the inclusive institution. Critical junctures are usually the major events that could disrupt the existing political and economic balance of the nation, for example, like the Black Death in Europe which further cause the dissolution of the serfdom system and later direct the Europe to a more inclusive society. Another factor, pluralism is also a cornerstone of the inclusive political institutions. Pluralism requires political power to be widely held in society. As we can see, democracy is no guarantee to the inclusive institution if pluralism is not worked as this form of democracy would be corrupted and manipulated by the existing beneficiary. Lastly, the centralization of the power is also vital to the inclusive polity. Nevertheless, the centralization of power should be shaped by the pluralism to prevent it from falling to the system of extractive institution. The reason to having the central political power is to set the law and order to uphold and protect the property right. In addition, the centralized order could also de-risk the lawlessness caused by the social movements challenging the existing regimes.

Innovation and disruptive creativity are both important nutrients to the growth of the economy and sustainable economy. To have both of that, upholding the property right is necessary. Putting the same concept into managing the company, guarantee of every employee’s voice to be heard and their contribution to be valued and rewarded can also inspire the internal innovation and restructure of the organization to face the external challenge or new technology adoption. The story of Kodak or Nokia all remind us of how valuable the inclusive institution is. If a company is more extractive, then it would be less likely to let cannibalization happen. Cannibalization is always hard to both the whole company and the existing division of which product line is the popular start before. However, just like that the extractive institution could possibly to boost the economy by what it already had but it won’t be sustainable as it’s lack of disruptive innovation to upgrade the existing system. In the same vein, the past popular product line may drive the sales to induce the cash, but over time, the advantage would be taken over by the external competition.

Lastly, this concept can also be used personally. Introspection and challenging the thoughts already shaped in our heart can also help us to find our better self. Jumping out of the box with discipline day by day, then these seemingly small gradual changes could one day be the nutrients of the big leap of ourselves as well.