2024 Nobel Laureate Explains What Makes Countries Fail Or Succeed, with James A. Robinson
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On Big Brains, we get to speak to a lot of groundbreaking scholars and experts. Oftentimes, we walk away knowing that we've just heard from someone who is truly changing the world.

We certainly felt that way after talking to University of Chicago professor James Robinson and it turns out the Nobel Prize committee agrees. The Royal Swedish Academy of Sciences has decided to award Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel for 2024 to Darren Asimoglu, MIT, Cambridge, USA, Simon Johnson,

MIT Cambridge USA and James Robinson University of Chicago USA

for studies of how institutions are formed and affect prosperity. This week, Robinson shared the 2024 Nobel Prize in Economic Sciences for the exact work that we talked to him about. He won the Nobel Prize this year because his work researching what makes nations succeed and what makes them fail is just as relevant, if not more so, today.

There's no better time to re-familiarize ourselves with his important research and celebrate his recent Nobel win. Please enjoy.

There are certain books that are just so important that you see them everywhere. Maybe you know the book Guns, Germs and Steel. Guns, Germs and Steel by Jared Diamond is certainly one of those books. It redefined the way we thought about human history by arguing that some nations succeeded while others failed because of their geographic locations and available natural resources. Jared Diamond, you know, he's a very good friend of mine. We actually edited a book together once. And he's been a great inspiration for me on many levels.

But I actually think fundamentally his explanation of human history is wrong. It's not about exogenous factors that condemn certain societies to poverty and bless them with prosperity. It's really about how humans themselves organize their societies that makes the difference. James Robinson is a leading political scientist and economist at the University of Chicago, as well as the director of the Pearson Institute for the Study and Resolution of Global Conflicts.

He's the author of his own well-renowned book, Why Nations Fail, which gives a very different view of human history. One that tells a story about how our political and economic institutions have determined why nations succeed and why they don't. I mean, I've given probably a hundred talks about why nations fail at this point. And what I see is that this notion of extractive and inclusive institutions is very simple.

And it resonates with people because it gives a language for helping people kind of process all this information that they have in the world, but they don't really know how to organize it or order it. Why Nations Fail was a huge success. Now Robinson and his co-author Darren Asimoglu have written a sequel.

It explains how and when these institutions come about and why our world looks the way it does. Economists understand what generates prosperity. You know, they understand it's about investment in public goods and education and property rights and innovation. And so to me, I've never been interested so much in rich countries because like what's curious is why is it that when everyone agrees, why doesn't that get going in Haiti or Sierra Leone? Like, so to me, the

puzzle has always been about poor countries and about why poor countries can't take advantage of all this stuff which is in economics textbooks. From the University of Chicago, this is Big Brains, a podcast about the pioneering research and pivotal breakthroughs that are reshaping our world. On this episode, James Robinson and the prosperity and poverty of nations. I'm your host, Paul Rand.

It's one of those questions that's so simple to ask, but it seems almost too big to answer. Why do some nations fail while others succeed? There's probably few people on the planet who have worked harder to find an answer than James Robinson and his co-author Darren Asimoglu. You know, successful countries fail

In our view, are just countries that manage to generate high levels of living standards for their people and failed countries are countries that don't where there's mass poverty and deprivation. Okay. And so when you think about it, is there a fundamental idea of things that if you had to summarize what it is that pushes nations to fail or to succeed, how do you typically talk about that? Yeah.

that? Yeah, I think it's whether or not the nation succeeds or fails depend on how the people in that society themselves organize that society, organize the institutions, the rules that create different patterns of incentives and opportunities.

That may sound basic, but it's actually a radical idea. For decades, scholars have argued that what separates successful and failed nations is their geographic location, resources, or culture. To illustrate why those theories don't work, we need to go to two towns along the southern border of the U.S. Nogales, Arizona and Nogales, Mexico.

Yeah, we start the book with these, what social scientists would call natural experiments, where you have kind of experimental-like variation in the way societies are organized, holding constant cultural factors or geographical factors. So it's a powerful way of trying to show that

These other types of theories that people often like can't really explain what you observe and what really matters about Nogales, which is essentially one town with a fence running down the middle, is that the northern half is in the United States and the southern half is in Mexico. North of the fence in Nogales, Arizona, people invest in businesses and houses without fear of theft by others or the government. Their kids are in school.

and they have relatively good incomes. South of the fence, however, in Nogales, Mexico, incomes drop to one-third, education rates plummet, and infant mortality rises. Yet there is no difference in geography or in climate and very little difference in culture on either side of the fence.

So what exactly has caused the differences in living standards? If you thought about over the last hundred years, why was Mexico so different from the U.S.? Well, first of all, Mexico had this autocratic one-party state until extremely recently. There was no accountability. There was no political competition. There was no democracy at all. So that's part of what we call inclusive political institutions is about. It's about having political power everywhere.

broadly distributed in society, so people's preferences count. And it's also about the state and the capacity of the state. So the Mexican state has just been much less able to develop

Thank you.

Political institutions, you know, politics is the study of how societies make collective choices. And for us, the way the economy is organized is a collective choice. The economic institutions, the rules, property rights, whatever it is, that comes out of the political system. So lurking behind economic differences must be political differences.

Robinson and Asimoglu say there are two kinds of institutions, extractive and inclusive. Understanding how they work creates a useful framework for figuring out why nations succeed or why they fail. We'll

We'll start with extractive institutions. If I look at the specific institutions of Haiti or Sierra Leone or Uzbekistan, obviously the details are extremely different. You know, the way the labor market works, the way property rights to land are. So you need a language which sort of says, OK, the details, they're all different. But actually the institutions have this one thing in common. OK, they're extractive institutions.

And what does that mean? It means they take away people's incentives and opportunities or they concentrate incentives and opportunities. How do you take away somebody's incentives?

Well, you think about the security of property rights. If you go to rural Haiti, property rights are very ill-defined. Nobody has a proper title given by the government. There's endless disputes over boundaries, over who owns what. So if you're thinking of investing and saving and building ditches, investing in your land, farming, the fact that your property rights are contestable and vague and insecure undermines your incentives.

And this makes sense, right? If you live in a place where your land, home, or possessions could be and regularly are taken away by others or the government, you're not going to have an incentive to invest. And no investment means no long-term growth.

Often, these states concentrate the wealth of the country amongst a few at the top by extracting it from the occupants through taxes and labor. So we talk about slavery or the way many colonial societies were constructed. You know, if you look at South Africa, for example, under apartheid, where rules and regulations were

stopped black people occupying many types of professions, stopped black people owning land, pushed black people into these Bantu stands. Here's clear examples of how people's incentives and opportunities were stripped away. So what do inclusive institutions look like? So here's a good example of an inclusive institution, which I think sort of drives the point home. The patent system. ♪

In the book, we have a photograph of the patent that Edison took out when he invented the light bulb. The economists know, since the work of Robert Solow in the 1950s, that what drives economic growth is incentives, innovation, new technologies, productivity increasing, devices, machines, ideas.

And so how do you get that going? Well, ideas are easy to copy. I could come up with the idea for a light bulb and you could say, oh, that's a great idea. I'm going to use that to do something else. So that's a problem from the incentive point of view because it means that if I have an idea, maybe I can benefit from it, but you can also benefit from it too. So the wealth that that idea generates...

spills over everywhere. So my private incentives are different from the social incentives. So the idea of a patent is by protecting your intellectual property rights, you kind of bring the private incentives closer to the social incentives. But okay, so a patent protects your intellectual property rights and it creates incentives for innovation.

But the interesting thing about the patent system in the U.S. is that this was open to everybody. Everybody paid the same fee to take out a patent. And the state protected your intellectual property rights. It's a very important thing. You know, it's in the Constitution. The first patent board. I didn't know that. It's in the Constitution. And the first patent board was regarded as so important that Jefferson was on it. You know, Jefferson was there deciding whether or not your idea deserved a patent.

If you look at who were these people who took out patents in the 19th century in the U.S. when the U.S. was becoming the world's technological leader, what's interesting about that is they come from all over the social spectrum. Elites, non-elites, farmers, artisans. Edison, he was homeschooled. His father was a roofing contractor. So he was not an elite contractor.

And the message there is creativity, ideas, talent, entrepreneurship is sort of spread very widely in society. You don't know where it is. I don't know where it is. The government doesn't know where it is. You've got to create a system of rules which can harness all that latent talent. And that's this idea of inclusive institutions that create broad-based incentives and opportunities. So people with ideas and talent and creativity can come to the top. And we know that's what drives innovation and innovation.

productivity and prosperity. And that's what you don't have in Haiti. That's what you didn't have in Mexico. You know, you don't have a system of rules. Most people are excluded from opportunities, chances, finance, property rights, education, so that all the benefits are concentrated in the hands of

a small subset of society. And that may create wealth for them, which is part of the problem, but it creates poverty for the society in which they're living. A few months ago, Robinson and Acemoglu released their follow-up to Why Nations Fail. It was a book called The Narrow Corridor. That's after the break. ♪

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I think that in Why Nations Fail, we did a good job of making this connection between inclusive and extractive economic institutions and economic success and failure, and then trying to show how there was a politics lying behind that. But then the question comes up, okay, so why is the world divided into countries which have extractive political institutions and inclusive political institutions? Where does that come from? You

it tries to emphasize this notion of liberty as important both in itself, but also deeply connected to economic success. So liberty is, you know, you're free to,

In the economic sphere, in the social sphere, in the political sphere, to undertake your choices to do what you want to do without the threat of influence by other people, at least up to the extent whereby your choices don't adversely affect other people. So I think we have a fairly classical definition of liberty. But then the question is, you know, what explains these choices?

massive variation in the extent to which societies, people in different societies in the world benefit from liberty or experience liberty. So what are the mechanisms that lead to that or don't lead to it? And how historically has liberty emerged in some parts of the world and not other parts of the world? You know, why is there much more liberty in Western Europe than in

China, for example, or in India? Or why is there more liberty, I would say, in North America than there is in Latin America? So the way we try to think about this creation of liberty or illiberty is to say, you know, you can think of this as coming out of a balance between the power of the state and the power or the organization of society. And Robinson and Asimoglu argue that there are three kinds of states –

or leviathans as they call them. The absent leviathan, the despotic leviathan, and the shackled leviathan. So a despotic leviathan is perhaps the simplest thing to think about. We characterize, say, China right the way back since the first dynasty as a despotic leviathan, where the apparatus of the state and the institutions of the state completely dominate society. Another possibility, the kind of stark opposite to that, would be where

Society dominates the state. Think of Yemen. In Yemen, there's never really been a centralized state which has any authority over society. Society is kind of organized around kinship groups and tribes that are armed. They organize and provide public goods completely independent of the state. And that's true of many parts of the world. In sub-Saharan Africa, think of Lebanon, think of larger parts of the Philippines or Pakistan or Nepal. So that's not a strange anomaly. It's present in the modern world and it's very prevalent.

So we call that the absent Leviathan. And so state dominates society or society dominates the state. And in between, and this is the key to kind of liberty or creating what we call the shackled Leviathan, the third type of state, is this balance between state and state.

and society. This balance between state and society is the narrow corridor from the book's title. Yes, it's this sort of zone where states and society are balanced. It's a kind of equilibrium, and it's a contested equilibrium. State institutions don't want to be controlled by society. State elites would like to not be accountable. They'd like to do what they want, and society has to force them to be accountable. But

What about the other side? You know, what about going off the rails in the other direction, where in some sense discontent from society about institutions is...

throws you out of this corridor. We are going to drain the swamp. You know, I think President Trump is a sort of complicated phenomena, but it's clear that he identified a lot of discontent in US society about the way things were working that other politicians didn't get. And those are real issues, I think. You know, the problems of this massive

massive increase in inequality, problems of unemployment and marginalization. And I think there are real social problems here. And there's disillusionment with the ability of institutions to cope with these problems. So it's a challenge to stay in the corridor. Maybe that's what we're seeing now.

Okay. So let me get a little historical with you for a moment. If we look at societies falling back to arguably the Mesopotamian times, if you were going to say, here's where I start looking at studying these things. Uh-huh.

Are these things learned over time or are they forgotten over time and we are doomed to keep learning these lessons over and over again? Yeah, to me it's not really a matter of knowledge. If you ask me about why did ancient Athens boom economically, I tell a similar story. I think the emphasis in the book is very much on persistence. We start the book by talking about this famous prediction theory.

when the Berlin Wall fell down, that all the world was going to converge to liberal democracy by Francis Fukuyama. The end of history refers to what I think still remains a question of whether that process is one that can terminate, whether that evolution finally culminates in a certain kind of civilization that in a certain sense will be the last civilization that mankind will achieve because in a certain sense it's the

You know, it's the right one, it's the one that fits human nature in an appropriate way. But our view is that, no, actually, the pattern in history is not convergence, it's divergence.

China has been where it's been for over 2,000 years. Yemen, we actually know quite a lot about Yemen going back 1,000 years. And it looked pretty like it does now 1,000 years ago. So this is not something nobody's bouncing about. You're kind of stuck in these very different steady states, you know, these very different types of Leviathan. And

Our story about the history of Europe or how Europe developed these types of shackled Leviathan, that also, that's deeply historically rooted. You know, it has to do with the collapse of the Western Roman Empire and the way that these Germanic tribes, which had very participatory traditions,

political institutions merged with late Roman state institutions, administrative institutions, legal institutions, fiscal institutions to kind of bring this balance between state and society together. That's the roots of this thing. That's a long time ago. So actually there's a lot of what social scientists would call path dependence in this process. Path dependence? Path dependence. Once you get a particular –

constellation of institutions in a society, that does tend to reproduce itself. So that's why you have this divergence, not convergence. Now, of course, it's also true that

But societies do go out of the corridor. So particularly we talk about the German case. So I mentioned the Germanic tribes. So you might think, OK, Germany, Germany should be in the corridor. And it is in the long run. But also, if you think about German history, there's clear moments where it jumps out of the corridor. Think about the Nazi state. Fifteen years, there's a bottom up crisis.

push out of the state. That's an interesting example of disillusionment with institutions, the inability of institutions to resolve conflicts, to resolve economic problems, the crisis of the depression and the hyperinflation. What I find super interesting is that you get these very unstable dynamics that can throw a society out of the corridor. But when they crash, you get back into the corridor. Germans after 1945

had a kind of common understanding of how things were going to work and how institutions ought to be structured. And they were able to recreate this shackled Leviathan. They had a blueprint for creating this shackled Leviathan. From past. Understanding how you did that from the past, which, you know, which nobody in Haiti or Sierra Leone has. I can't imagine that there's not a listener paying attention to this right now that's not, of course, thinking about in the US. And you mentioned that there's certainly some evolutions and things that

that are going on and some things that President Trump identified that really got exploited. Do you look at this and say that we're moving toward an absent or despotic state right now in the United States and that's something we should be concerned about? I don't think so because I think the history of the U.S., going back to this kind of historical path dependence, the history of the U.S. suggests that the institutions are capable of responding to these challenges. People have to make compromises. They have to make

New Deals, they have to make coalitions. And I think that, you know, that's what has to happen in the US now. And I think the past suggests there's some reason to be optimistic that that will happen. You know, I think democratic politicians are probably woken up at this point and realize there are a lot of problems.

that they weren't very aware of. And I mean, I'm English, you know, and in the Brexit context, I always think people say, oh, what a terrible thing this referendum was and how David Cameron was so crazy. But actually, I think the opposite is true. You know, what the referendum showed is that there's deep-seated kind of animosities or there's deep-seated discontent about the way many things work that the political elites were not aware of. Now they are. Absolutely. And that's a good thing. Yeah.

Capitalism is the engine of prosperity. Actually, it sows the seeds of its own demise. Could both be right? I'm Kate Waldock from Georgetown University. And I'm Luis Zangales from the University of Chicago. We're the hosts of Capital Isn't, a podcast about what's working in capitalism today. And most importantly, what isn't. We're going to share this sort of irreverent banter you'd hear between economists at a bar. That is, if economists were to go to a bar. Subscribe to Capital Isn't. You can find us wherever you get your podcasts.

You think about it and we've talked about that you do travel the world and you lecture, you speak. Are people looking at you and saying, I want to figure out in my country what I should be learning from? And we bring in economists, we bring in politicians, we bring in scientists. Are you finding that you're consulted and saying, help me understand as I'm looking to evolve my

my society. Yeah, I don't consult in the sense of governments pay me to come and tell them what to do. Actually, I had one experience of that and I didn't enjoy it at all. Why didn't you enjoy it? Because I felt everybody was over-promising. My view of the world is if you want to understand how to improve economic performance in Colombia, for example, we have these general ideas about institutions, inclusive institutions. But as soon as you're in the business of

trying to give policy advice, then all the details become extremely significant. So what you have to do in Colombia is going to be extremely different from what you have to do in Sierra Leone or what you have to do in Argentina. And then you need a lot of...

thick knowledge of those societies and so that's I think this business of running around the world telling you know Kazakhstan what to do is a fool's game you know and I felt extremely uncomfortable personally to be involved in that and I've never done it ever since but actually going and telling people about my ideas and talking

They can do with it what they will. Yes. And for me, I find that incredibly interesting. Also just learning about their people, the way people think about their problems and the challenges. Well, let me ask you, and this is not a consulting assignment, but if you're with students and the question came up with all the knowledge that you have and the question was, well, how do you develop? If you're going to start with a clean sheet of paper and design the perfect society, how would you think about doing that? Oh, man.

Yeah, I'm not sure I have a good answer to that. You know, one of the things that I personally find very enjoyable is all the sort of diversity of the world. What impresses me about the history of humanity is the incredible diversity of the types of societies that humans have created. I think there's fundamental political and economic problems that people have to solve in these societies.

And they've sold them in different ways because humans are creative and they're innovative. You know, it's interesting if you think about like Homo sapiens. Homo sapiens spread all over the world without speciating. They populated Greenland, but there wasn't like a Homo greenlandius or whatever.

What did they, how did they do that? How did they adapt to such a totally different environment without speciating? They invented igloos, you know, and ice fishing. So I think that seems like a kind of wacky example, but I think actually it tells you a lot about why social science is so interesting. All those different ways you can do things, cultures and everything, you know, you can still have prosperity, you can still have public goods, you can still have investments. So all of that variation is consistent with having

basic inclusive societies. You know, for us, that's the story. That's the big story is human innovation and creativity. And humans create these very different types of societies and some of them diffuse and spread and others don't. And that's the pattern. So I think like what we would like to do is probably write a book about

where we could convince people that this was the right way to think about things. I think we've done bits and pieces of that in these two books, but I don't think we're quite there yet. We don't have quite the right way of doing that yet. Your book, Why Nations Fail, was an international bestseller. Hopefully your new one will follow suit. As you write these books...

What do you, number one, why do you think that they get the attention they do, at least why nations fail? And as you think, you hope people get something out of it. What is it that you were hoping for? How do you think that's happening?

Where's the attraction? Well, yeah, I think academic research is so impenetrable for non-academics. You know, the language is impenetrable, the methods are impenetrable. But often, you know, the ideas can be said in quite a simple way. And I think Daron and I, we sort of read everything. We've always been inspired by...

political science, by anthropology, by reading history, by social, you know, by all sorts of things. One of the reasons we wrote Why Nations Fail is that many of the things that we found inspiring or stimulated research, we're never able to include in an academic paper because that's just inappropriate. You know, it's not scientific or whatever. So we thought...

Well, you know, gosh, all these things have inspired us, you know, and helped us think about the world. Maybe they'll inspire other people too. And it's been surprising. I mean, we never thought the book was going to be successful, to be honest with you. We thought we'd have a shot at it, but we were expecting to fail dismally. But it's been incredibly...

Well, I would argue that the simplicity and clarity of in or outside the corridor is also a compelling and hopefully understandable concept that will push this conversation even to a next degree. Well, we're hoping so too, but we'll have to wait and see. Big Brains is a production of the UChicago Podcast Network. If you like what you heard, please give us a review and a rating. Our show is hosted by Paul M. Rand and produced by me, Matt Hodep.

Thanks for listening.