The Book That All Americans Should Be Reading Now

Nations fail because of their institutions, write Daron Acemoglu and James Robinson.

The two should know. Along with Simon Johnson, they were awarded the Nobel Prize in Economics for their groundbreaking work on why some nations thrive while others collapse. Their landmark book, Why Nations Fail, first published in 2012, offered a sweeping argument that it’s not culture or geography but the strength (and fairness) of institutions that determines a nation’s fate.

It’s a challenging argument, and a very timely one. Over a decade later, as the United States grapples with rising instability, inequality, and institutional erosion, their warning reads less like history and more like prophecy. Why? Because the downfall of the US has rarely been more plausible.

Acemoglu himself seems to acknowledge this in a recent article published in the Financial Times. The Nobel Laureate conducted a thought experiment envisioning a historian in the year 2050 describing what led to a hypothetical US failure. The real causes, the economist explains, are the weakening of democratic institutions along with economic inequality. In his account, the pillars of American prosperity (innovation, fair competition, and strong governance) gradually crumbled, leading to stagnation and decline.

But what does a 2012 book have to do with all of this?

Two Towns Called Nogales

Rather ironically, Why Nations Fail starts with a positive US tale. There are two towns called Nogales on opposite sides of the US border, one in Arizona and one in Mexico. If they were in the same country, they’d be a single town. However, they are divided by wire fence and an iron wall, separating the US side from Mexico.

Despite sharing the same geography, the Nogales towns have very different living standards and settings. They’re vastly different cities. People have different salaries, health facilities, and schools. Obviously, this is because they’re in different countries. But let’s dive even deeper. When they are so close, and all other things are equal, why does it matter so much that they’re in different countries? Why do Mexico and the US have such different conditions?

In a general sense, the question becomes “Why are some countries rich and prosperous while others are not?”

The Strength of Institutions

In Why Nations Fail, Acemoglu and Robinson argue that the success or failure of nations is primarily determined by the strength of their institutions. They define a way to look specifically at whether they are inclusive or extractive. More than geography, more than anything else, this is the one aspect that, in the long-term can drive prosperity: inclusive institutions.

Inclusive political and economic institutions are designed to encourage broad participation across society. They foster innovation and fuel sustainable economic growth. They achieve this by safeguarding secure property rights and ensuring the rule of law applies equally to all, providing genuine opportunities for individuals to advance. In such nations, governments are accountable to their citizens, power is distributed widely, and individuals are incentivized to invest their time and resources to create new ideas and participate in the progress of their nation. Nations flourish when their political and economic institutions are inclusive.

Conversely, nations falter when they are dominated by extractive institutions.

In these systems, a small, powerful elite controls both political power and economic wealth, often at the direct expense of the majority of the population. They extract from their people. These institutions actively limit economic opportunities, stifle innovation, and frequently rely on repression and coercion to maintain the elite’s grip on power. Corruption is rampant, property rights are weak or non-existent for most, and there is a severe lack of political accountability. These characteristics ultimately choke off long-term economic growth and development.

The tale of Nogales is just one compelling illustration of this fundamental difference, out of many examples. Perhaps no other pair of nations illustrates the power of institutions as vividly as North and South Korea.

These two countries share a common language, culture, and history, having been a unified peninsula for centuries. Yet, a line drawn at the 38th parallel after World War II, solidified by the Korean War, separated them into two radically different realities.

In 1945, at the time of their division, North Korea actually possessed a stronger industrial base, inheriting most of the heavy industry developed during Japanese colonial rule. South Korea was largely agrarian. Both suffered immense destruction during the Korean War (1950-1953). However, their chosen paths diverged dramatically in the aftermath, with profound consequences.

North Korea adopted a centrally planned, communist system, characterized by highly extractive institutions. Under the leadership of Kim Il-sung and his successors, private property was largely abolished, markets were suppressed and contact with the outside world was severely restricted. The goal of this system was to concentrate power and wealth in the hands of a small elite, the ruling Workers’ Party of Korea and the military.

While the North experienced some initial growth in the immediate post-war period, fueled by aid from the Soviet Union and China, this was not sustainable. The lack of incentives for innovation, combined with state control over nearly all aspects of life and the diversion of resources to the military, stifled long-term economic development. The result has been chronic food shortages, widespread poverty, and a society isolated from the global community.

North Korea’s economic development largely stagnated, and by the late 1990s, its GDP per capita was plummeting. Now, it’s one of the poorest countries in the world and even struggles to feed itself.

South Korea, by contrast, eventually embraced inclusive institutions.

Inclusive Institutions

South Korea’s early post-war years were marked by political instability and slow economic growth under authoritarian rule. Over time, particularly from the 1960s onward, South Korea prioritized an active economic strategy. This involved building institutions that protected property rights, fostered competitive markets, and invested heavily in education and infrastructure.

The South Korean government, while initially having a strong hand in guiding the economy, gradually created an environment where private businesses could thrive. Companies like Samsung and LG, now global giants, emerged from this environment. South Korea’s political system also transitioned towards greater democracy, increasing accountability and further solidifying inclusive institutions. This “Miracle on the Han River” transformed South Korea from one of the poorest countries in the world into a developed, high-income nation, a member of the OECD and the G20. Its GDP per capita now stands many times higher than that of its northern neighbor.

The difference between these two Koreas is not due to geography or culture. It is a direct result of their institutional choices. One chose an extractive path that concentrated power and stifled prosperity for the many, while the other progressively built inclusive institutions that fostered broad participation and economic growth.

But you don’t need to take two different places and compare them. The same place can turn from extractive to inclusive — or the other way around.

What Does This Mean for the United States?

You may be tempted to think that this doesn’t mean anything for the US. But remember, this isn’t about Korea or Nogales; it’s about institutions.

A nation’s prosperity is not a given. It is constantly shaped by the strength and character of its institutions. If you want to see how a country will do economically in the long run, look at its institutions. In the US, a lot is changing nowadays and institutions across the board are taking a hit.

Many scholars and observers, including Acemoglu and Robinson themselves, have applied the Why Nations Fail framework to the Trump presidency. Robinson, for instance, has stated that the Trump administration tried to build extractive institutions where power concentrates in the hands of a narrow elite and extracts resources from society.

The Trump approach, Robinson says, is centered around groups, masculinity, and antagonizing. It involves building an in-group and creating an ideology around white nationalism, xenophobia against foreigners, and masculinity. This is what Robinson called the “New Post-Liberal Order” and he doesn’t mince his words on what this will cause. “This is all going to be a disaster for economic performance in the United States,” Robinson concluded.

But here’s the thing: it’s all very hard to follow. That’s not a coincidence, it’s a strategy. Trump is a master at capturing attention, and he bombards the airwaves with seemingly random and often confusing ideas and approaches. From immigration to trans athletes to boat engines and sharks, Trump jumps from one thing to the next, and it’s next to impossible to keep track of it. But the reason why you should read Why Nations Fail is that it offers a framework that unites all of these seemingly disparate threads: a weakening of institutions.

The Trump presidency has already unleashed an unprecedented barrage on established democratic norms. These range from questioning election results to attacks on the press and even the judiciary. Why Nations Fail explains why this is not just terrible for democracy, but terrible for the economy as well.

The Stress Test

In the article where Acemoglu describes how a collapse of the US could happen, he starts from a weakening of institutions. The court system no longer functions, the competitive environment is dominated by friends and oligarchs, and ultimately, trust (and with it, the country’s economy) also collapses. It’s what we’ve seen happen in multiple countries, and it’s what could happen in the US as well if current trends continue.

This problem, they suggest, is rooted in a long-standing failure of liberal democracy to deliver shared prosperity and address growing inequalities that have emerged over recent decades. This sentiment, that the system isn’t working for everyone, creates fertile ground for populist movements and leaders who promise radical change and go on to erode institutions.

The lessons from history, from the two Nogales towns to North and South Korea, are clear. Geography or culture may play a role, but it’s the fundamental design and operation of a nation’s institutions that truly dictate its long-term trajectory. For the United States, and indeed for any nation, the future hinges on its collective commitment to protecting institutions that empower the many, rather than enriching the few.

Why Nations Fail offers a compass for America’s future. It’s not just a book about economics; it’s a blueprint for understanding why some societies thrive and others collapse, and a way to understand what’s happening in the US right now. It reminds us that the choice is stark: will the United States reinforce the inclusive foundations of its success, or will it succumb to the insidious creep of institutional decay? The stress test is now.