In “What Makes a Nation Rich?“, Daron Acemoglu offers some clear insight. He also answers the opposing question “What is the cause of poverty?”
People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments……..
There’s no doubt that erasing global inequality, which has been with us for millennia and has expanded to unprecedented levels over the past century and a half, won’t be easy. But by accepting the role of failed governments and institutions in causing poverty, we have a fighting chance of reversing it.
Acemoglu offers numerous clear examples to buttress his thesis. What he doesn’t address in his article is the the long term impact of government failure on previously rich nations. That experiment in the expansion of poverty is unfortunately something we seem destined to embark on here in America. Stay tuned for the academic analysis.