False economy What’s in it for me? Understand what makes the

Why nations fail
What’s in it for me? Sharpen your understanding 
of political and economic power dynamics on a 
global, historical scale.
It doesn’t take more than a few minutes of 
flicking through the news before some pretty 
basic questions start kicking in. Why are some 
nations rich and others poor? And how do some 
nations end up prosperous and tolerant, while 
others sink into elite despotism and self-
interested greed?
It’s been common over the centuries to explain 
away such historical trends through a nation’s 
culture or location. But in truth, it’s the 
development of a country’s institutions that 
matter. In the course of history, all nations are 
faced with forks in the road, which lead them to 
building and sustaining institutions that are either 
inclusive or exclusive. It’s the fallout and 
landscapes built from such institution-building 
that is explored here. And it’s this that explains 
how nations can either prosper or fail.
In these blinks you’ll learn

Why it took centuries for the printing 
press to catch on in the Ottoman 
Empire;

How the power of unions faced down 
the military dictatorship in Brazil; and

How Western Europe benefited from the 
destructive Black Death.
A country’s propensity to wealth or poverty 
isn’t simply based on its geography, culture 
or knowledge base.
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 

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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.