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Why Nations Fail to Prosper? Institutions… and Identity and Geography

May 21, 2012

Nations fail to prosper because broad sections of the society do not have access to economic opportunities: in this way the country is deprived of the innovative capacity of its individuals and the process of creative destruction, which substitutes the old with the more productive new never takes place. In other words their economic institutions are extractive in so far as a clique of the society extracts the surplus at the expense of the majority of the society. Extractive economic institutions are in turn rooted in political institutions, which concentrate the power in the hands of few and restrict the access to the plurality. By controlling the political power the clique can prevent any initiative which impinges upon its economic domain: dynamicity and innovation, which are the basis for economic growth, are in this way supplanted by extraction and rigidity. As a result, countries fail to prosper. This is the thesis advanced by social scientists Daron Acemoglu and James Robinson in their new book Why Nations Fail. The book defines institutions as the rules of the game which dictate what can and cannot be done and articulates why political and economic institutions can explain why some countries prospered while others failed. The book makes a convincing case to dismiss other theses, which have previously been examined to answer this question: geography and culture cannot for example explain why some countries that were rich in the past are now poor. Political and economic institutions can on the other hand account for such reversal of fortunes. But do nations fail only because of institutions? An analysis of Lebanon as a case study can shed light on other omitted factors which offer a more comprehensive picture.

Extractive Institutions. Political institutions in Lebanon are neither centralized not pluralistic. In a sense, they are extractive because they ensure that a narrow section of society can extract the surplus at the expense of the rest of society. This political set-up dates back to independence day in 1943: at that time a handful of families known as the Consortium held monopolistic control over the main axes of the country’s economy. They derived their economic supremacy by their proximity to the President who concentrated in his hands an exceptional executive and legislative power. Their political connection was a pass par tout to arm-twisting the country into specializing in specific sectors: finance, service such as communication, and tourism. Lebanon was to become a communication hub which played the role of an intermediary between the East and the West. Productive sectors such as industry and agriculture had no place in that Lebanon. Since then the political power of the president has been diffused and partly reallocated to other key institutional figures such the Prime Minister and the Parliament Speaker. This however has not translated into a more pluralistic system: in fact the consortium only enlarged to encompass families coalesced around the prime minister and the speaker thus becoming multi-confessional. This enlarged consortium has preserved a tight grip on the political and economic power so that Lebanon rhetorically remains a “laissez faire” country while the access to the economy is regulated: in this fashion it does not enjoy the creative destruction brought about by the entry of new and innovative individuals into the scene. As a result it fails to prosper. However, this is only part of the story.

Identity: citizens and subjects. In Lebanon, there is no shared definition of what constitutes being a Lebanese citizen. More precisely, the 1943 constitution imposes upon each individual a duality: each person is in fact a citizen of the Lebanese state as much as it is a subject of the religious community he or she belongs to. This dichotomy about the nature and source of rights – right by birth or rights by citizenship – is one of the key impediments to Lebanon’s path to  prosperity.

Firstly, it can account to a certain extent why Lebanon has political institutions which are neither centralized nor pluralistic. The concept of a communitarian identity serves to justify the lack of a centralized authority as necessary to ensure a pluralistic access to power. From this perspective the definition of ‘Lebaneseness’ can seem as a posteriori construct, which the political clique uses to preserve its power. This reading would however pose a false problem of before and after: extractive institutions and a contradictory identity are in a synergetic relationship in which the former institutionalizes and reinforces the latter and vice versa. For this reason political and economic institutions that are extractive and exclusionary cannot be seen as independent variables in the Lebanese context: a contested identity plays a role as big in explaining why Lebanon fails to prosper.

Secondly, this fraught identity has an independent explanatory power: the belonging at birth to a religious community and the ensuing status of subject determines since birth the person one can marry, the job one can get, the locality one can live in, the friends one can have and the politicians one should vote if his (i.e. his sect) interests are to be appropriately represented. In other words the concept of identity can by itself restrict the freedom of individuals to choose where to invest their energies: by doing so it disenfranchises their participation in the society and it freezes their dynamism.

Geography. Geography is usually defined as the ecological environment (both as diseases or soil) that a country is endowed with given its geographical location. According to this specific geography thesis, some countries have an adverse ecological environment which prevents them to grow. This definition of geography does not account for why Lebanon failed since it did not face a major burden of disease or soil conditions adverse to agriculture. When defined differently, geography however can explain why Lebanon failed.

Lebanon failed to prosper because it has been  either through a civil war or on the brink of a new one. This fragility is associated with Lebanon’s neighbors. And you do not get to  chose your neighbors, it is geography which dictates who they are.  In the case of Lebanon, political geography defined as the geostrategic importance a country has for its neighbors, is vital to consider.  Given its borders the independent Lebanon is a buffer state between two of the two major players in the region, Israel and Syria. The history of violence in Lebanon is the history of its belligerent neighbors who have fought their proxy wars on Lebanese soil. Without doubt, this violence was committed and perpetuated by internal actors which leveraged alliances with Syria or Israel to increase their access to the power. Yet, the decisive role of Lebanon’s fractious neighbors in igniting the clashes and fueling the spread cannot be ignored.

This poses the question as to why Lebanon’s neighbors were interested in this small state. Historically Lebanon had been the passageway for colonialism: when in 1920 Syria revolted against the French mandate Lebanon served as bridgehead for French troops to crush the uprising. Its geographical feature (in particular its proximity to the sea) made it for Syria a small state which could not be controlled by any other country but Syria. Lebanon had a vital strategic importance for its neighbor because of its geographical accessibility by other countries. When Israel invaded Lebanon up to Beirut in the early 1980s the spectrum of Lebanon as bridgehead for hostile forces was revived.  Since then Lebanon became the battleground where the tensions built up at the regional level could periodically erupt. From this perspective, geography, defined as the geostrategic importance a country has for its neighbors, holds an explanatory power to why Lebanon fails to prosper.

The example of Lebanon reinforces the thesis that extractive political institutions which are neither centralized nor pluralistic hamper the development of a country. However, it also shows that other variables play a role. The dichotomy between being a citizen of the state and at the same time a subject of the religious community one belongs to fragments society, disenfranchises individuals and creates ground for perpetual tensions. In the same fashion geography, defined as the geopolitical role for a country’s neighbors, accounts for why Lebanon failed to prosper. Because of the geo-strategic importance it had for its neighbors, Lebanon became the battleground where regional tensions periodically erupted. In sum, if one was to attempt to answer the question why nations fail to prosper, a more complete answer in the case of Lebanon would be institutions and identity and geography.

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2 Comments leave one →
  1. maiyacha permalink
    May 22, 2012 5:29 pm

    Fio, your piece couldn’t have come in at a better time as Nepal goes through instability in these days leading up to the Constitution deadline. For Nepal, we are failing to prosper because all of the 3 factors you’ve mentioned above: extractive institutions, identity and geography (more in the sense of topography, as well as location).
    Who you are born as does to a large degree determine who you become as you describe above, whether in the sense of limiting your options; or in making you part of the narrow slice of society that prospers at the cost of others.
    Nepal is moving towards adopting federalism; however, the demarcating lines based on a single ethnic identities would be detrimental to the overall development of the country. People in Nepal often identify with multiple identities; and the one that should be given importance to citizenship rather than our indigenous or regional identities.
    Being sandwiched between India and China, two emerging powerhouse countries; Nepal is a strategic location for both countries; as well outside interests…

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