(1) "why the nations fail" Greece by dimitris

I wrote (and write) the manifesto before I met the book, “Why nations fail” but the book help me to answer some questions, so I would like first thank Daron Acemoglou and James Robinson for their research that gave me the answers.
I have started this manifesto after Stavros Theodorakis' calling (the leader of a new party “the river”) for proposals from citizens. The manifesto has the influence of the people who I met personally and through the internet and my own experience of working and leaving in Greece and sometimes abroad.

I have spent a big part of my previous life with the dream of a better world, but when I got out of the circle of my friends I met a competitive world which I have to adapt to leave on. Furthermore a lot of the people I met they wouldn't like a better society, but their own interest indifferent for the others except their family.

My question was how the competitiveness of the man lead to the inclusive institutions of the succeed nations.
The book “Why nations fail” gave the answers to me and help me to clear facts from the history of the humanity. There was critical junctures and coincidence of the history, where people struggle to make the institutions first more pluralistic and afterwords more inclusive. A lot of times the driving force was not the dream for a better world for everybody, but the need to participate in the share of power.

After centuries of struggle a part of the humanity through the success nations pass first from the rule of law and after from the inclusive institutions for the most of their citizens.

Before I will go on, I would like to make a criticism for the period of time before the beginning of our civilization. Indigenous people were leaving on earth with great sense for the earth and their community with institutions very different than the extractive institutions of Aztec and Maya.

“...the political institutions of the Tswana, in particular the kgotla, also encouraged political participation and constrained chiefs.

...the political history of another of the Tswana states, the Rolong... in practice these rules were interpreted to remove bad rulers and allow talented candidates to become chief.

...Aboriginals, possibly as many as one million at the time of the founding of New South Wales. But they were spread out over a vast continent, and their density in New South Wales was insufficient for the creation of an economy based on their exploitation.

...in eastern Nigeria the Igbo peoples had no chiefs when the British encountered them in the nineteenth century.

...the Powhatan Confederacy, a coalition of some thirty polities owing allegiance to a king called Wahunsunacock.

...the Yaqui people of Sonora, in the hinterland of Nogales. Between 1900 and

1910, possibly thirty thousand Yaqui were deported, essentially enslaved, and sent to work in the henequen plantations of Yucatαn." extracts from "why nations fails"

All the above and many others, as the today’s Zapatistas have different institutions.

The bottom line is that our culture has not followed the hunters and gatherers. Of the time given the ability to man to store wealth simultaneously with the development of reason and ego the conflict came in the field. Until the people understand that apart from the conflict there is the controlled conflicts through sport, or trade, or inclusive republics spent millennia.

At this point I want to express my respect for the Zapatistas who seek democracy, while at war.

But most people today are different from the Zapatistas and seek safety first, then wealth and freedom end.

Not all people are competitive. Those who are not competitive fall into traps desperately seeking communities without competition and end up paying for the expense of their freedom, they just think that people can change with education.

About the future it is sure that China or Russia... will try to keep their extractive institutions for ever, using a mixed economy. Nobody knows if they succeed at the end, putting in the same dream the rest of the world.

The last thing is that extractive democracies as Greece, Argentina, Mexico, Russia, .. need special study for understanding them. I hope Daron and James (if they have time) and other researchers put their attention for a better understanding.

The above criticism have nothing to do with the value of “Why nations fail” since it gives to the reader the chance to see how the small differences at the critical junctures of the history lead to more inclusive institutions from the beginning of our civilization till today. I would like to write what I have understand from the book “Why nations fail” and how this fit to my experience.

Every trial for a better world, in a big scale, with the incentive to include all the citizens without competition has failed.

My experience says that there are some people among us who would do everything for succeed and there is no way change them with education or prison. These people may be your father, your sister, your neighbor, your boss or yourself. The only way to deal with them is to give the chance to compete with the others but under the rule of law, and if they would like to be monopole to block them. From these people sometimes comes the talents.

To have a world without competition sounds nice for a lot of people but simple is no possible. The competition exist in every society even if it is outlaw. The competition is in the core of some human beings and the best way to deal with it is to accept it. The succeed nations develop the rule of the law and the inclusive institutions for big scale government. In small communities may we have one no competitive world, or with friends, family, … but in a big scale every attempt to have planed world with security for everybody without competition was a failure and deprivation of freedom.

May be the most of the people don't like the competition and the free markets and there are ready to change the security of a permanent job (without real evaluation) with their freedom. If there is no the faceless free markets together with the rule of law and the inclusive institutions, who will govern their life?

You see here in Greece as in Mexico or Argentina, Russia, Turkey... the institutions are extractive the competition exist but is hidden and in the most of the cases there is only one way for easy success: to find a job in the state or in privilege “private” companies, or to have good relations with the politic system, or be inside the politic system and of course to avoid tax payment.
The manifesto is the voice of the voiceless every were in the world, when the people understand that somewhere exist another reality and they wish to leave in. With that meaning some Ukrainian citizens today wish to have the freedom, the safe, the welfare state of the North European countries, that the wish of manifesto for Greece.

Unfortunately is no easy to be a succeed nation by adapting the best Constitution if you have no change the institutions to inclusive.
I think that Guy Verhofstadt have understand the matter. The Germans also Know very well the matter since they have change the extractive institutions of East Germany to the inclusive institutions of the West Germany. There was not a plan for the integration of Europe for the rest countries.

I can say that the history is in a critical juncture for the Europe the Greece and the rest countries. The Europe looks at it's own problems how to keep the welfare state without deficits, but maybe the answer is in the problem of Greece.

If Europe have the plan to change the institutions for the bankrupt and candidate countries, may have answers for its own problems.

The manifesto is a simple, innocent, experiential, intuitive and not complete text that says rational (mathematical) solutions to make the crisis opportunity to change institutions. Has not the accuracy of a professor of economics and you can keep whatever you like and disregard whatever you don' like.

I will start with the condition in Greece as I understand it.
Greece has extractive institutions even if it has democracy, as Argentina Mexico, Russia...

In Greece the job market is closed for the good jobs. The good jobs belongs to the public sector, public utilities and big private companies who have close relations with the politicians.

The same happens with the businesses where the only way to deal is to have good relations with the politicians or with the entrepreneurs who have grow up with the help of politicians and they ought to them. The people who have study business administration know very well that the Greek companies have a different management even though they look normal.

I think that this condition is going on because the Greek citizens prefer the security of a permanent job than the competitiveness of the open markets. They cannot understand that the security jobs and the privileges for an individual or a group extract resources from the rest. They cannot understand that their security is payed from their children who can not find a work or find work in degrading conditions.

It is important to see an exploitation factor which is not understood. In Greece there are two types of workers protected and unprotected, and it happens in the public sector, Public Utilities, banks and many private sector enterprises.

In Greece, the source of exploitation is temporary contracts in public sector and outsourcing that occurs in the public and "private" sector. That is that creates two kind of workers. In the same organization (eg ministry, hospital, electricity, banks, ... and private companies) even for the same jobs there are the insiders and the outsiders, the protected and the unprotected.

It is not strange that people are not rioting since most live in the hope to find protected jobs. Further more since their brothers working on safe work, is easier to rebel against austerity than their families members.

The trap that Greece has fallen in and it is difficult to get, is associated with the desire of many people for a better world without competition for all citizens. This is not possible on a large scale. Free markets need a small percentage of unemployment and mobility and that is the only way leading to development.

The unemployed should have a guaranteed minimum subsistence income to be less than the income of the employee (eg half)

The most important for the integration of the Europe is to deep the inclusive institutions in every country and special in bankrupt and the candidate countries to change the institutions from extractive to inclusive.

The change of institutions in the bankrupt and the candidate countries should be the cost for enter in the EU. The people by referendum should accept change in their institutions if they want to enter the common currency.

I can call manifesto liberal left, liberal because it accepts the free markets and left because speaks for every citizen.

In this point I will introduce the reasonable leaving expenses (rle) a statistic calculation of the cost of dignified life (without housing costs). Actual the banks (with the governments) use the rle to restructure red loans for citizens.

http://www.isi.gov.ie/en/isi/pages/rle_calculated

for simplicity I will call RLE the add of rle+housing cost (rent or loan installments)
The RLE may be associated with reduction factors related to the trade deficit and the collectibility of taxes.

The important is to have a point of reference for all the citizens and families.



In the future, if I have the time I would like to write more even if my English is poor.

extracts “Why nations fail” Acemoglou - Robinson. US, Argentina, Egypt, kgotla Botswana, China, Brazil

PACKING THE COURT

"(USA)...Congress certainly would not have approved this, but then Roosevelt could have appealed to the nation, asserting that Congress was impeding the necessary measures to fight the Depression. He could have used the police to close Congress. Sound farfetched? This is exactly what happened in Peru and Venezuela in the 1990s. Presidents Fujimori and Chavez appealed to their popular mandate to close uncooperative congresses and subsequently rewrote their constitutions to massively strengthen the powers of the president..."

"… In 1990 Argentina finally experienced a transition between democratically elected governments—one democratic government followed by another. Yet, by this time democratic governments did not behave much differently from military ones when it came to the Supreme Court. The incoming president was Carlos Saϊl Menem of the Peronist Party. The sitting Supreme Court had been appointed after the transition to democracy in 1983 by the Radical Party president Raϊl Alfonsνn. Since this was a democratic transition, there should have been no reason for Menem to appoint his own court."

"… A Supreme Court can have power if it receives significant support from broad segments of society willing to push back attempts to vitiate the Court’s

independence. That has been the case in the United States, but not Argentina."

EL CORRALITO

"Argentina was in the grip of an economic crisis in late 2001. For three years, income had been falling, unemployment had been rising, and the country had

accumulated a massive international debt. The policies leading to this situation were adopted after 1989 by the government of Carlos Menem, to stop hyperinflation and stabilize the economy. For a time they were successful.

In 1991 Menem tied the Argentine peso to the U.S. dollar. One peso was equal to one dollar by law. There was to be no change in the exchange rate. End of story. Well, almost. To convince people that the government really meant to stick to the law, it persuaded people to open bank accounts in U.S. Dollars..."

"… the government then forcibly converted all the dollar bank accounts into pesos, but at the old one-for-one exchange rate. Someone who had had $1,000 saved suddenly found himself with only $250. The government had expropriated three-quarters of people’s savings."

"… During the periods of civilian rule there were elections—a democracy of sorts. But the political system was far from inclusive. Since the rise of Peron in the 1940s, democratic Argentina has been dominated by the political party he created, the Partido Justicialista, usually just called the Peronist Party. The Peronists won elections thanks to a huge political machine, which succeeded by buying votes, dispensing patronage, and engaging in corruption, including government contracts and jobs in exchange for political support. In a sense this was a democracy, but it was not pluralistic. Power was highly concentrated in the Peronist Party, which faced few constraints on what it could do, at least in the period when the military restrained from throwing it from power. As we saw earlier, if the Supreme Court challenged a policy, so much the worse for the Supreme Court.

In the 1940s, Peron had cultivated the labor movement as a political base. When it was weakened by military repression in the 1970s and ’80s, his party simply switched to buying votes from others instead. Economic policies and institutions were designed to deliver income to their supporters, not to create a level playing field. When President Menem faced a term limit that kept him from being reelected in the 1990s, it was just more of the same; he could simply rewrite the constitution and get rid of the term limit. As El Corralito shows, even if Argentina has elections and popularly elected governments, the government is quite able to override property rights and expropriate its own citizens with impunity. There is little check on Argentine presidents and political elites, and certainly no pluralism."

"… So Argentina at first appears a world apart from Peru or Bolivia, but it is really not so different once you leave the elegant boulevards of Buenos Aires. That the preferences and the politics of the interior got embedded into Argentine institutions is the reason why the country has experienced a very similar institutional path to those of other extractive Latin American countries.

That elections have not brought either inclusive political or economic institutions is the typical case in Latin America. In Colombia, paramilitaries can fix one-third of national elections. In Venezuela today, as in Argentina, the democratically elected government of Hugo Chavez attacks its opponents, fires them from public-sector jobs, closes down newspapers whose editorials it doesn’t like, and expropriates property. In whatever he does, Chavez is much more powerful and less constrained than Sir Robert Walpole was in Britain in the 1720s, when he was unable to condemn John Huntridge under the Black Act. Huntridge would have fared much less well in present-day Venezuela or Argentina.

While the democracy emerging in Latin America is in principle diametrically opposed to elite rule, and in rhetoric and action it tries to redistribute rights and opportunities away from at least a segment of the elite, its roots are firmly based in extractive regimes in two senses. First, inequities persisting for centuries under extractive regimes make voters in newly emerging democracies vote in favor of politicians with extreme policies. It is not that Argentinians are just naοve and think that Juan Peron or the more recent Peronist politicians such as Menem or the Kirchners are selfless and looking out for their interests, or that Venezuelans see their salvation in Chavez. Instead, many Argentinians and Venezuelans recognize that all other politicians and parties have for so long failed to give them voice, to provide them with the most basic public services, such as roads and education, and to protect them from exploitation by local elites. So many Venezuelans today

support the policies that Chavez is adopting even if these come with corruption and waste in the same way that many Argentinians supported Peron’s policies in the 1940s and 1970s. Second, it is again the underlying extractive institutions that make politics so attractive to, and so biased in favor of, strongmen such as Peron and Chavez, rather than an effective party system producing socially desirable alternatives. Peron, Chavez, and dozens of other strongmen in Latin America are just another facet of the iron law of oligarchy, and as the name suggests, the roots of this iron law lies in the underlying elite-controlled regimes"

KEEPING THE PLAYING FIELD AT AN ANGLE

"...Many sectors of the economy (Egypt) were dominated by state-owned

enterprises. Over the years, the rhetoric of socialism lapsed, markets opened, and the private sector developed.

Yet these were not inclusive markets, but markets controlled by the state and by a handful of businessmen allied with the National Democratic Party (NDP), the political party founded by President Anwar Sadat in 1978. Businessmen became more and more involved with them under the government of Hosni Mubarak."

"… In many sectors of the economy (Egypt), businessmen persuaded the government to restrict entry through state regulation. These sectors included the media, iron and steel, the automotive industry, alcoholic beverages, and

cement. Each sector was very concentrated with high entry barriers protecting the politically connected businessmen and firms. Big businessmen close to the regime, such as Ahmed Ezz (iron and steel), the Sawiris family (multimedia, beverages, and telecommunications), and Mohamed Nosseir (beverages and telecommunications) received not only protection from the state but also government contracts and large bank loans without needing to put up collateral..."

"The economic reforms of the 1990s promoted by international financial institutions and economists were aimed at freeing up markets and reducing the role of the state in the economy. A key pillar of such reforms everywhere was the privatization of state-owned assets. Mexican privatization, instead of increasing competition, simply turned state-owned monopolies into privately owned monopolies, in the process enriching politically connected businessmen such as Carlos Slim. Exactly the same thing took place in Egypt.

The businesspeople connected to the regime were able to heavily influence implementation of Egypt’s privatization program so that it favored the wealthy business elite—or the “whales,” as they are known locally. At the time that

privatization began, the economy was dominated by thirtytwo of these whales."

WHY NATIONS FAIL

"… the Egyptian Revolution was more a coup by a group of military officers. When Egypt changed sides in the cold war and became pro-Western, it was therefore relatively easy, as well as expedient, for the Egyptian military to change from central command to crony capitalism as a method of extraction."

"… extractive political institutions have created extractive economic institutions, transferring wealth and power toward the elite.

The intensity of extraction in these different countries obviously varies and has important consequences for prosperity. In Argentina, for example, the constitution and democratic elections do not work well to promote pluralism, but they do function much better than in Colombia..."

"… the long-run effect is the same: the state all but remains absent, and institutions are extractive. In all these cases there has been a long history of extractive institutions since at least the nineteenth century.

Each country is trapped in a vicious circle. In Colombia and Argentina, they are rooted in the institutions of Spanish colonial rule..."

"The solution to the economic and political failure of nations today is to transform their extractive institutions toward inclusive ones. The vicious circle means that this is not easy. But it is not impossible, and the iron law of oligarchy is not inevitable. Either some preexisting inclusive elements in institutions, or the presence of broad coalitions leading the fight against the existing regime, or just the contingent nature of history, can break vicious circles. Just like the civil war in Sierra Leone, the Glorious Revolution in 1688 was a struggle for power. But it was a struggle of a very different nature than the civil war in Sierra Leone.

Conceivably some in Parliament fighting to remove James II in the wake of the Glorious Revolution imagined themselves playing the role of the new absolutist, as Oliver Cromwell did after the English Civil War. But the fact that Parliament was already powerful and made up of a broad coalition consisting of different economic interests and different points of view made the iron law of oligarchy less likely to apply in 1688..."

THREE AFRICAN CHIEFS

"The South African anthropologist Isaac Schapera describes how the kgotla worked as follows:

all matters of tribal policy are dealt with finally before a general assembly of the adult males in the chief’s kgotla (council place). Such meetings are very frequently held … among the topics discussed … are tribal disputes, quarrels between the chief and his relatives, the imposition of new levies, the undertaking of new public works, the promulgation of new decrees by the chief … it is not unknown for the tribal assembly to overrule the wishes of the chief. Since anyone may speak, these meetings enable him to ascertain the feelings of the people generally, and provide the latter with an opportunity of stating their grievances. If the occasion calls for it, he and his advisers may be taken severely to task, for the people are seldom afraid to speak openly and frankly.

Beyond the kgotla, the Tswana chieftaincy was not strictly hereditary but open to any man demonstrating significant talent and ability. Anthropologist John Comaroff studied in detail the political history of another of the Tswana states, the Rolong. He showed that though in appearance the Tswana had clear rules stipulating how the chieftancy was to be inherited, in practice these rules were interpreted to remove bad rulers and allow talented candidates to become chief. He showed that winning the chieftancy was a matter of achievement, but was then rationalized so that the successful competitor appeared to be the rightful heir. The Tswana captured this idea with a proverb, with a tinge of constitutional monarchy: kgosi ke kgosi ka morafe, “The king is king by the grace of the people.”

At independence, Botswana was one of the poorest countries in the world; it had a total of twelve kilometers of paved roads, twenty-two citizens who had graduated from university, and one hundred from secondary school. To top it all off, it was almost completely surrounded by the white regimes of South Africa, Namibia, and Rhodesia, all of which were hostile to independent African countries run by blacks. It would have been on few people’s list of countries most likely to succeed. Yet over the next forty-five years, Botswana would become one of the fastest-growing countries in the world. Today Botswana has the highest per capita income in sub-Saharan Africa, and is at the same level as successful Eastern European countries such as Estonia and Hungary, and the most successful Latin American nations, such as Costa Rica.

How did Botswana break the mold? By quickly developing inclusive economic and political institutions after independence. Since then, it has been democratic, holds regular and competitive elections, and has never experienced civil war or military intervention. The government set up economic institutions enforcing property rights, ensuring macroeconomic stability, and encouraging the development of an inclusive market economy. But of course, the more challenging question is, how did Botswana manage to establish a stable democracy and pluralistic institutions, and choose inclusive economic institutions, while most other African countries did the opposite? To answer this, we have to understand how a critical juncture, this time the end of colonial rule, interacted with Botswana’s existing institutions.

Early stages of independence would play out very differently in Botswana, again largely because of the background created by Tswana historical institutions. In this, Botswana exhibited many parallels to England on the verge of the Glorious Revolution. England had achieved rapid political centralization under the Tudors and had the Magna Carta and the tradition of Parliament that could at least aspire to constrain monarchs and ensure some degree of pluralism. Botswana also had some amount of state centralization and relatively pluralistic tribal institutions that survived colonialism.

Though the early growth in Botswana relied on meat exports, things changed dramatically when diamonds were discovered. The management of natural resources in Botswana also differed markedly from that in other African

nations. During the colonial period, the Tswana chiefs had attempted to block prospecting for minerals in Bechuanaland because they knew that if Europeans

discovered precious metals or stones, their autonomy would be over. The first big diamond discovery was under Ngwato land, Seretse Khama’s traditional homeland.

Before the discovery was announced, Khama instigated a change in the law so that all subsoil mineral rights were vested in the nation, not the tribe. This ensured that diamond wealth would not create great inequities in Botswana. It also gave further impetus to the process of state centralization as diamond revenues could now be used for building a state bureaucracy and infrastructure and for investing in education."

THE IRRESISTIBLE CHARM OF AUTHORITARIAN GROWTH

"(China) … His real crime was to start a large project that would compete with statesponsored companies and do so without the approval of the higher-ups in the Communist Party. This was certainly the lesson that others drew from the case.

The Communist Party’s reaction to entrepreneurs such as Dai should not be a surprise. Chen Yun, one of Deng Xiaoping’s closest associates and arguably the major architect behind the early market reforms, summarized the views of most party cadres with a “bird in a cage” analogy for the economy: China’s economy was the bird; the party’s control, the cage, had to be enlarged to make the bird healthier and more dynamic, but it could not be unlocked or removed, lest the bird fly away."

"… Even if Chinese economic institutions are incomparably more inclusive today than three decades ago, the Chinese experience is an example of growth under extractive political institutions. Despite the recent emphasis in China on innovation and technology, Chinese growth is based on the adoption of existing technologies and rapid investment, not creative destruction. An important aspect of this is that property rights are not entirely secure in China. Every now and then, just like Dai, some entrepreneurs are expropriated. Labor mobility is tightly regulated, and the most basic of property rights, the right to sell one’s own labor in the way one wishes, is still highly imperfect. The extent to which economic institutions are still far from being truly inclusive is illustrated by the fact that only a few businessmen and -women would even venture into any activity without the support of the local party cadre or, even more important, of Beijing. The connection between business and the party is highly lucrative for both.

Businesses supported by the party receive contracts on favorable terms, can evict ordinary people to expropriate their land, and violate laws and regulations with impunity.

Those who stand in the path of this business plan will be trampled and can even be jailed or murdered"

"… Today the party’s control over the media, including the Internet, is unprecedented. Much of this is achieved through self-censorship: media outlets know that they should not mention Zhao Ziyang or Liu Xiaobo, the government critic demanding greater democratization, who is still languishing in prison even after he was awarded the Nobel Peace Prize. Self-censorship is supported by an Orwellian apparatus that can monitor conversations and communications, close Web sites and newspapers, and even selectively block access to individual news stories on the Internet. All of this was on display when news about corruption charges against the son of the general secretary of the party since 2002, Hu Jintao, broke out in 2009. The party’s apparatus immediately sprang into action and was not only able to prevent Chinese media from covering the case but also managed to selectively block stories about the case on the New York Times and Financial Times Web sites.

Because of the party’s control over economic institutions, the extent of creative destruction is heavily curtailed, and it will remain so until there is radical reform in political institutions"

"… Argentina was also one of the richest countries in the world in the nineteenth century, as rich as or even richer than Britain, because it was the beneficiary of the worldwide resource boom; it also had the most educated population in Latin America. But democracy and pluralism were no more successful, and were arguably less successful, in Argentina than in much of the rest of Latin America. One coup followed another, and as we saw in, even democratically elected leaders acted as rapacious dictators. Even more recently there has been little progress toward inclusive economic institutions, and as we saw in, twenty-first-century Argentinian governments can still expropriate their citizens’ wealth with impunity."

YOU CAN’T ENGINEER PROSPERITY

"...many economies around the world ostensibly implementing such reforms, most notably in Latin America, stagnated throughout the 1980s and ’90s. In reality, such reforms were foisted upon these countries in contexts where politics went on as usual. Hence, even when reforms were adopted, their intent was subverted, or politicians used other ways to blunt their impact. All this is illustrated by the “implementation” of one of the key recommendations of international institutions aimed at achieving macroeconomic stability, central bank independence. This recommendation either was implemented in theory but not in practice or was undermined by the use of other policy instruments. It was quite sensible in principle. Many politicians around the world were spending more than they were raising in tax revenue and were then forcing their central banks to make up the difference by printing money. The resulting inflation was creating instability and uncertainty. The theory was that independent central banks, just like the Bundesbank in Germany, would resist political pressure and put a lid on inflation. Zimbabwe’s president Mugabe decided to heed international advice; he declared the Zimbabwean central bank independent in 1995. Before this, the inflation rate in Zimbabwe was hovering around 20 percent. By 2002 it had reached 140 percent; by 2003, almost 600 percent; by 2007, 66,000 percent; and by 2008, 230 million percent!..."

"… the nongovernmental organization (NGO) Seva Mandir to improve health care delivery in the state of Rajasthan in India...

In 2006 Seva Mandir together with a group of economists, designed an incentive scheme to encourage nurses to turn up for work in the Udaipur district of Rajasthan. The idea was simple: Seva Mandir introduced time clocks that would stamp the date and time when nurses were in the facility. Nurses were supposed to stamp their time cards three times a day, to ensure that they arrived on time, stayed around, and left on time. If such a scheme worked, and increased the quality and quantity of health care provision, it would be a strong illustration of the theory that there were easy solutions to key problems in development.

In the event, the intervention revealed something very different. Shortly after the program was implemented, there was a sharp increase in nurse attendance. But this was very short lived. In a little more than a year, the local health administration of the district deliberately undermined the incentive scheme introduced by Seva Mandir.

Absenteeism was back to its usual level, yet there was a sharp increase in “exempt days,” which meant that nurses were not actually around—but this was officially sanctioned by the local health administration. There was also a sharp increase in “machine problems,” as the time clocks were broken. But Seva Mandir was unable to replace them because local health ministers would not cooperate"

THE FAILURE OF FOREIGN AID

"… two important lessons here. First, foreign aid is not a very effective means of dealing with the failure of nations around the world today. Far from it. Countries need inclusive economic and political institutions to break out of the cycle of poverty. Foreign aid can typically do little in this respect, and certainly not with the way that it is currently organized. Recognizing the roots of world inequality and poverty is important precisely so that we do not pin our hopes on false promises. As those roots lie in institutions, foreign aid, within the framework of given institutions in recipient nations, will do little to spur sustained growth. Second, since the development of inclusive economic and political institutions is key, using the existing flows of foreign aid at least in part to facilitate such development would be useful. As we saw, conditionality is not the answer here, as it requires existing rulers to make concessions. Instead, perhaps structuring foreign aid so that its use and administration bring groups and leaders otherwise excluded from power into the decision-making process and empowering a broad segment of population might be a better prospect."

EMPOWERMENT

(Brazil) "… By late 1978, Lula was floating the idea of creating a new political party, the Workers’ Party. This was to be the party not just of trade unionists, however. Lula insisted that it should be a party for all wage earners and the poor in general. Here the attempts of union leaders to organize a political platform began to coalesce with the many social movements that were springing up.

In taking over many local governments, something that accelerated in the 1990s, the Workers’ Party began to enter into a symbiotic relationship with many local social movements. In Porto Alegre the first Workers’ Party administration after 1988 introduced “participatory budgeting,” which was a mechanism for bringing ordinary citizens into the formulation of the spending priorities of the city. It created a system that has become a world model for local government accountability and responsiveness, and it went along with huge improvements in public service provision and the quality of life in the city. The successful governance structure of the party at the local level mapped into greater political mobilization and success at the national level. Though Lula was defeated by Fernando Henrique Cardoso in the presidential elections of 1994 and 1998, he was elected president of Brazil in 2002. The Workers’ Party has been in power ever since.

The rise of Brazil since the 1970s was not engineered by economists of international institutions instructing Brazilian policymakers on how to design better policies or avoid market failures. It was not achieved with injections of foreign aid. It was not the natural outcome of modernization.

Rather, it was the consequence of diverse groups of people courageously building inclusive institutions.

Eventually these led to more inclusive economic institutions. But the Brazilian transformation, like that of England in the seventeenth century, began with the creation of inclusive political institutions.

There are many parallels between these historical processes of empowerment and what took place in Brazil starting in the 1970s. Though one root of the Workers’ Party is the trade union movement, right from its early days, leaders such as Lula, along with the many intellectuals and opposition politicians who lent their support to the party, sought to make it into a broad coalition. These impulses began to fuse with local social movements all over the country, as the party took over local governments, encouraging civic participation and causing a sort of revolution in governance throughout the country. In Brazil, in contrast with England in the seventeenth century or France at the turn of the eighteenth century, there was no radical revolution igniting the process of transforming political institutions at one fell swoop.

More important, empowerment at the grass-roots level in Brazil ensured that the transition to democracy corresponded to a move toward inclusive political institutions, and thus was a key factor in the emergence of a government committed to the provision of public services, educational expansion, and a truly level playing field. As we have seen, democracy is no guarantee that there will be pluralism. The contrast of the development of pluralistic institutions in Brazil to the Venezuelan experience is telling in this context. Venezuela also transitioned to democracy after 1958, but this happened without empowerment at the grassroots level and did not create a pluralistic distribution of political power. Instead, corrupt politics, patronage networks, and conflict persisted in Venezuela, and in part as a result, when voters went to the polls, they were even willing to support potential despots such as Hugo Chαvez, most likely because they thought he alone could stand up to the established elites of Venezuela. In consequence, Venezuela still languishes under extractive institutions, while Brazil broke the mold.

One other actor, or set of actors, can play a transformative role in the process of empowerment: the media. Empowerment of society at large is difficult to

coordinate and maintain without widespread information about whether there are economic and political abuses by those in power. We saw in chapter 11 the role of the media in informing the public and coordinating their demands against forces undermining inclusive institutions in the United States. The media can also play a key role in channeling the empowerment of a broad segment of society into more durable political reforms, again as illustrated in our discussion in chapter 11, particularly in the context of British democratization."

"… Fujimori and Montesinos thought that controlling the media was much more important than controlling politicians and judges. One of Montesinos’s henchmen, General Bello, summed this up in one of the videos by stating, “If we do not control the television we do not do anything.”

The current extractive institutions in China are also crucially dependent on Chinese authorities’ control of the media, which, as we have seen, has become frighteningly sophisticated. As a Chinese commentator summarized, “To uphold the leadership of the Party in political reform, three principles must be followed: that the Party controls the armed forces; the Party controls cadres; and the Party controls the news.”"

"… meaningful change only when a broad segment of society mobilizes and organizes in order to effect political change, and does so not for sectarian

reasons or to take control of extractive institutions, but to transform extractive institutions into more inclusive ones.

Whether such a process will get under way and open the door to further empowerment, and ultimately to durable political reform, will depend, as we have seen in many different instances, on the history of economic and political

institutions, on many small differences that matter and on the very contingent path of history."

extracts “Why nations fail” Acemoglou - Robinson. Inclusive and extractive political and economic institutions

 Inclusive and extractive economic institutions

"Inclusive economic institutions, such as those in South Korea or in the United States, are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new businesses and allow people to choose their careers."

"...Inclusive economic institutions require secure property rights and economic opportunities not just for the elite but for a broad cross-section of society.

Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties. To function well, society also needs other public services: roads and a transport network so that goods can be transported; a public infrastructure so that economic activity can flourish; and some type of basic regulation to prevent fraud and malfeasance. Though many of these public services can be provided by markets and private citizens, the degree of coordination necessary to do so on a large scale often eludes all but a central authority.

The state is thus inexorably intertwined with economic institutions, as the enforcer of law and order, private property, and contracts, and often as a key provider of public services. Inclusive economic institutions need and use the state."

"...We call such institutions, which have opposite properties to those we call inclusive, extractive economic institutions—extractive because such institutions are designed to extract incomes and wealth from one subset of society to benefit a different subset."

Engines of prosperity"

"...Inclusive economic institutions create inclusive markets, which not only give people freedom to pursue the vocations in life that best suit their talents but also provide a level playing field that gives them the opportunity to do so. Those who have good ideas will be able to start businesses, workers will tend to go to activities where their productivity is greater, and less efficient firms can be replaced by more efficient ones"

"...Inclusive markets are not just free markets. Barbados in the seventeenth century also had markets. But in the same way that it lacked property rights for all but the narrow planter elite, its markets were far from inclusive"

"...Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education."

"...The price these nations pay for low education of their population and lack of inclusive markets is high. They fail to mobilize their nascent talent. They have many potential Bill Gateses and perhaps one or two Albert Einsteins who are now working as poor, uneducated farmers, being coerced to do what they don’t want to do or being drafted into the army, because they never had the opportunity to realize their vocation in life.

The ability of economic institutions to harness the potential of inclusive markets, encourage technological innovation, invest in people, and mobilize the talents and skills of a large number of individuals is critical for economic growth"

Inclusive and extractive political institutions

"All economic institutions are created by society...different people with different interests and objectives made the decisions about how to structure society...

Politics is the process by which a society chooses the rules that will govern it. Politics surrounds institutions for the simple reason that while inclusive institutions may be good for the economic prosperity of a nation, some people or groups,...will be much better off by setting up institutions that are extractive.

When there is conflict over institutions, what happens depends on which people or group wins out in the game of politics—who can get more support, obtain additional resources, and form more effective alliances. In short, who wins depends on the distribution of political power in society.

The political institutions of a society are a key determinant of the outcome of this game. They are the rules that govern incentives in politics. They determine how the government is chosen and which part of the government has the right to do what. Political institutions determine who has power in society and to what ends that power can be used. If the distribution of power is narrow and unconstrained, then the political institutions are absolutist, as exemplified by the absolutist monarchies reigning throughout the world during much of history."

"...political institutions that distribute power broadly in society and subject it to constraints are pluralistic. Instead of being vested in a single individual or a narrow group, political power rests with a broad coalition or a plurality of groups.

There is obviously a close connection between pluralism and inclusive economic institutions."

"...the key to understanding why South Korea and the United States have inclusive economic institutions is not just their pluralistic political institutions but also their sufficiently centralized and powerful states."

"...political power in Somalia has long been widely distributed—almost pluralistic. Indeed there is no real authority that can control or sanction what anyone does.

Society is divided into deeply antagonistic clans that cannot dominate one another. The power of one clan is constrained only by the guns of another. This distribution of power leads not to inclusive institutions but to chaos, and at the root of it is the Somali state’s lack of any kind of political centralization, or state centralization, and its inability to enforce even the minimal amount of law and order to support economic activity, trade, or even the basic security of its citizens"

"… We will refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions.

When either of these conditions fails, we will refer to the institutions as extractive political institutions.

There is strong synergy between economic and political institutions. Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival. Inclusive political institutions, vesting power broadly, would tend to uproot economic institutions that expropriate the resources of the many, erect entry barriers, and suppress the functioning of markets so that only a few benefit."

"...This synergistic relationship between extractive economic and political institutions introduces a strong feedback loop: political institutions enable the elites controlling political power to choose economic institutions with few constraints or opposing forces. They also enable the elites to structure future political institutions and their evolution. Extractive economic institutions, in turn, enrich the same elites, and their economic wealth and power help consolidate their political dominance."

"...Inclusive economic institutions, in turn, are forged on foundations laid by inclusive political institutions, which make power broadly distributed in society and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp power and undermine the foundations of inclusive institutions. Those controlling political power cannot easily use it to set up extractive economic institutions for their own benefit. Inclusive economic institutions, in turn, create a more equitable distribution of resources, facilitating the persistence of inclusive political institutions."

"...Economic institutions that create incentives for economic progress may simultaneously redistribute income and power in such a way that a predatory dictator and others with political power may become worse off."

"...creative destruction. They replace the old with the new. New sectors attract resources away from old ones. New firms take business away from established ones. New technologies make existing skills and machines obsolete. The process of economic growth and the inclusive institutions upon which it is based create losers as well as winners in the political arena and in the economic marketplace. Fear of creative destruction is often at the root of the opposition to inclusive economic and political institutions."

"...In Somalia, power is evenly balanced, and no one clan can impose its will on any other. Therefore, the lack of political centralization persists."

"The long agony of the Congo"

"The institution of slavery meant that the most fundamental market of all, an inclusive labor market where people can choose their occupation or jobs in ways that are so crucial for a prosperous economy, did not exist."

extracts “Why nations fail” Daron Acemoglou and James Robinson Egypt, Mexico

PREFACE

“Why nations fail” Daron Acemoglou and James Robinson

“...Egypt is poor precisely because it has been ruled by a narrow elite that have organized society for their own benefit at the expense of the vast mass of people.

Political power has been narrowly concentrated, and has been used to create great wealth for those who possess it, such as the $70 billion fortune apparently accumulated by ex-president Mubarak. The losers have been the Egyptian

people, as they only too well understand...

...poor countries are poor for the same reason that Egypt is poor. Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.

...the reason that Britain is richer than Egypt is because in 1688, Britain (or England, to be exact) had a revolution that transformed the politics and thus the economics of the nation. People fought for and won more political rights, and they used them to expand their economic opportunities. The result was a fundamentally different political and economic trajectory, culminating in the Industrial Revolution.

The Industrial Revolution and the technologies it unleashed didn’t spread to Egypt, as that country was under the control of the Ottoman Empire, which treated Egypt in rather the same way as the Mubarak family later did. Ottoman rule in Egypt was overthrown by Napoleon Bonaparte in 1798, but the country then fell under the control of British colonialism, which had as little interest as the Ottomans in promoting Egypt’s prosperity. Though the Egyptians shook off the Ottoman and British empires and, in 1952, overthrew their monarchy, these were not revolutions like that of 1688 in England, and rather than fundamentally transforming politics in Egypt, they brought to power another elite as disinterested in achieving prosperity

for ordinary Egyptians as the Ottoman and British had been. In consequence, the basic structure of society did not change, and Egypt stayed poor.

In this book we’ll study how these patterns reproduce themselves over time and why sometimes they are altered, as they were in England in 1688 and in France with the revolution of 1789. This will help us to understand if the situation in Egypt has changed today and whether the revolution that overthrew Mubarak will lead to a new set of institutions capable of bringing prosperity to ordinary Egyptians. Egypt has had revolutions in the past that did not change things, because those who mounted the revolutions simply took over the reins from those they’d deposed and re-created a similar system. It is indeed difficult for ordinary citizens to acquire real political power and change the way their society works. But it is possible, and we’ll see how this happened in England, France, and the United States, and also in Japan, Botswana, and Brazil.

Fundamentally it is a political transformation of this sort that is required for a poor society to become rich.... ”

HAVING AN IDEA, STARTING A FIRM, AND GETTING A LOAN

“Why nations fail” Daron Acemoglou and James Robinson

(Mexico 1910) "...The reason that the United States had a banking industry that was radically better for the economic prosperity of the country had nothing to do with differences in the motivation of those who owned the banks. Indeed, the profit motive, which underpinned the monopolistic nature of the banking industry in Mexico, was present in the United States, too.

But this profit motive was channeled differently because of the radically different U.S. institutions. The bankers faced different economic institutions, institutions that subjected them to much greater competition. And this was largely because the politicians who wrote the rules for the bankers faced very different incentives themselves, forged by different political institutions. Indeed, in the late eighteenth century, shortly after the Constitution of the United States came into operation, a banking system looking similar to that which subsequently dominated Mexico began to emerge. Politicians tried to set up state banking monopolies, which they could give to their friends and partners in exchange for part of the monopoly profits. The

banks also quickly got into the business of lending money to the politicians who regulated them, just as in Mexico. But this situation was not sustainable in the United States, because the politicians who attempted to create these banking monopolies, unlike their Mexican counterparts, were subject to election and reelection. Creating banking monopolies and giving loans to politicians is good business for politicians, if they can get away with it. It is not particularly good for the citizens, however. Unlike in Mexico, in the United States the citizens could keep politicians in check and get rid of ones who would use their offices to enrich themselves or create monopolies for their cronies. In consequence, the banking monopolies crumbled. The broad distribution of political rights in the United States, especially when compared to Mexico, guaranteed equal access to finance and loans. This in turn ensured that those with ideas and inventions could benefit from them..."

MAKING A BILLION OR TWO

“Why nations fail” Daron Acemoglou and James Robinson

"...The enduring implications of the organization of colonial society and those societies’ institutional legacies shape the modern differences between the United States and Mexico, and thus the two parts of Nogales. The contrast between how Bill Gates and Carlos Slim became the two richest men in the world—Warren Buffett is also a contender—illustrates the forces at work. The rise of Gates and Microsoft is well known, but Gates’s status as the world’s richest person and the founder of one of the most technologically innovative companies did not stop the U.S. Department of Justice from filing civil actions against the Microsoft Corporation on May 8, 1998, claiming that Microsoft had abused monopoly power...

In Mexico, Carlos Slim did not make his money by innovation. Initially he excelled in stock market deals, and in buying and revamping unprofitable firms. His major coup was the acquisition of Telmex, the Mexican telecommunications monopoly that was privatized by President Carlos Salinas in 1990. The government announced its intention to sell 51 percent of the voting stock (20.4 percent of total stock) in the company in September 1989 and received bids in November 1990. Even though Slim did not put in the highest bid, a consortium led by his Grupo Corso won the auction. Instead of paying for the shares right away, Slim managed to delay payment, using the dividends of Telmex itself to pay for the stock. What was once a public monopoly now became Slim’s monopoly, and it was hugely profitable.

The economic institutions that made Carlos Slim who he is are very different from those in the United States. If you’re a Mexican entrepreneur, entry barriers will play a crucial role at every stage of your career. These barriers include expensive licenses you have to obtain, red tape you have to cut through, politicians and incumbents who will stand in your way, and the difficulty of getting funding from a financial sector often in cahoots with the incumbents you’re trying to compete against. These barriers can be either insurmountable, keeping you out of lucrative areas, or your greatest friend, keeping your competitors at bay. The difference between the two scenarios is of course whom you know and whom you can influence—and yes, whom you

can bribe. Carlos Slim, a talented, ambitious man from a relatively modest background of Lebanese immigrants, has been a master at obtaining exclusive contracts; he managed to monopolize the lucrative telecommunications

market in Mexico, and then to extend his reach to the rest of Latin America...

Slim has made his money in the Mexican economy in large part thanks to his political connections. When he has ventured into the United States, he has not been

successful..."

TOWARD A THEORY OF WORLD INEQUALITY

“Why nations fail” Daron Acemoglou and James Robinson

"...Finally, the political institutions (of United States) ensured stability and continuity. For one thing, they made sure that there was no risk of a dictator taking power and changing the rules of the game, expropriating their wealth, imprisoning them, or threatening their lives and livelihoods. They also made sure that no particular interest in society could warp the government in an economically disastrous direction, because political power was both limited and distributed sufficiently broadly that a set of economic institutions that created the incentives for prosperity could emerge.

Though institutions are the key to the differences between the two Nogaleses and between Mexico and the United States, that doesn’t mean there will be a consensus in Mexico to change institutions. There is no necessity for a society to develop or adopt the institutions that are best for economic growth or the welfare of its citizens, because other institutions may be even better for those who control politics and political institutions.

The powerful and the rest of society will often disagree about which set of institutions should remain in place and which ones should be changed. Carlos Slim would not have been happy to see his political connections disappear and the entry barriers protecting his businesses fizzle—no matter that the entry of new businesses would enrich millions of Mexicans. Because there is no such consensus, what rules society ends up with is determined by politics: who has power and how this power can be exercised.

Carlos Slim has the power to get what he wants. Bill Gates’s power is far more limited. That’s why our theory is about not just economics but also politics. It is about the effects of institutions on the success and failure of nations —thus the economics of poverty and prosperity; it is also about how institutions are determined and change over time, and how they fail to change even when they create poverty and misery for millions—thus the politics of poverty and prosperity..."