Why Nations Fail revolves around the question as to why even today some nations are trapped in a cycle of poverty while others prosper, or at least while others appear to be on their way to prosperity. The book focuses largely on political and economic institutions, as the authors believe these are key to long-term prosperity.
On the border shared by Mexico and the United States there lies a town that’s divided in half between the two nations. The residents of Nogales, Arizona have a much higher standard of living than those living south of the border in Nogales, Sonora. They have better access to healthcare and education, their crime rates are lower, and the average household income is three times higher.
What causes such differences? The geography hypothesis has been the most influential theory designed to explain such inequality – but that theory falls short here.
It was most famously espoused by the eighteenth-century French philosopher Montesquieu. He maintained that inhabitants of warmer, more tropical climates were lazier than the harder working, more resourceful types who lived in more temperate climes.
In modern times, the theory has morphed to emphasize the presence of diseases in warmer regions such as Africa, South Asia and Central America, as well as the supposed poor soil quality of those regions, which allegedly inhibits economic growth.
But it isn’t just Nogales that disproves such ideas. Just look at differences between South and North Korea, the former countries of East and West Germany, and the massive economic leaps made by Botswana, Malaysia and Singapore.
Two other classically cited theories don’t stand up either.
The first is the cultural hypothesis. In the early twentieth century, German sociologist Max Weber claimed that Western Europe's high rate of industrialization, in contrast to the rest of the world, had been caused by its “Protestant work ethic.”
But just look at Korea, a peninsula that was culturally homogenous until the split between communist North and capitalist South. The cultural hypothesis simply cannot explain the differences in inequality between the two. It’s the existence of the border that has caused such disparities, rather than deep and significant cultural differences.
The ignorance hypothesis operates in a similar field as the cultural hypothesis. It suggests that poverty results from a dearth of knowledge regarding policies that might encourage economic growth.
The counter example here is obvious: foreign aid and expert advice brought to countries in Africa have largely failed to make a lasting difference.
However, there is a more compelling theory that explains international inequality. Let’s look at it now.