Was It Really the Protestant Work Ethic?

Why did Britain (or England) prosper in the late 1700’s and lead the way in the Industrial Revolution? Was this in part due to the earlier Glorious Revolution when our own ‘King Billy’ defeated the Catholic King James and ensured that Britain was a ‘Protestant State’ and had a Protestant work-ethic? Why do some countries like the USA become rich, while nearby countries like Mexico remain poor; what makes one country successful and another fail?

During my lifetime I have heard many theories of why some countries prosper while others fail. Some have argued convincingly that failure can be caused by socialism, or imperialism, or geography/climate/lack of natural resources etc, or the almost racist idea of national characteristics, or the mythical Protestant work ethic.

For most of the past 100 years, two competing ideologies have been central to most political thinking. Capitalism vs socialism has been at the heart of so many of our political conflicts, sometimes combined with other ideologies such as nationalism, libertarianism and even fascism. As a teenager I found the ideas of socialism very attractive, partly because they aligned with the Presbyterian Christianity that was so central to my upbringing, but the scientific part of my brain looks to see evidence from where political ideas have been tested and where they bring success.

Why Nations Fail

In this wonderful book, Why Nations Fail, Daron Acemoglu and James Robinson set out to discover why some countries descend into a hell of poverty and violence, while others become prosperous, stable and relatively peaceful.

The evidence of the past 300 years, as collected in this book from across a wide range of countries, would indicate that the recipe for success or failure contains a mix of ingredients. Neither socialism nor capitalism on its own offers the path to prosperity and stability for most people. Similarly, they show that the usual ideas of climate, natural resources, or the racist idea of national characteristics offer no explanation

In Chapter 2 the authors discuss these ideas and provide evidence to dismiss them all, suggesting an alternative way of dividing countries that bypasses these intellectual dead ends.

Two Ingredients for Success or Failure

This book shows that two questions predict which countries will be disastrous and which ones will prosper. We must ask

1. Do they have a centralised political authority and
2. Are their political and economic institutions extractive or inclusive.

Let’s deal with the simple concept first. Unless a country has a centralised political authority which can guarantee the rule of law and property rights, it will never become stable or prosperous. However, countries with centralised authority can still fail depending on whether their institutions are extractive or inclusive.

Extractive institutions are characterised by absolutist political control, with extraordinary power vested in a narrow group or perhaps just one person with very few constraints on their power. In such countries, economic institutions tend to follow this model with control coming from the top and being designed to extract resources from the population for the use of the leadership. Think of mediaeval England with the hierarchical structure of powerless serfs, ruled by Lords, ruled by a King.

In this respect Stalinist Russia, today’s North Korea and England before the Black Death and Peasant’s Revolt of 1381 were all very similar, with power and wealth moving upwards from powerless ordinary people to the great leader or king. Why Nations Fail shows using many examples that countries with extractive institutions usually fail to evolve and adapt to new technologies, seeing them as threatening to the control of the ruling elite. (Both Queen Elisabeth I and King James I refused to grant a patent for William Lee’s brilliant invention that could have industrialised the knitting of stockings because it would be disruptive to employment and create political instability. Or more recently, think of China’s original reaction to the internet.)

Inclusive institutions are characterised by broad spread, pluralist political control involving many groups, with constraints on how the leadership can exercise power. Economic institutions in such a society tend to be open to change, with new ideas being adopted and causing ‘creative destruction’ where businesses wedded to old technology fail and are replaced by new businesses that are more efficient and productive. This disruptive change leads to greater wealth across whole countries, but those business people who lose out because they are using older technology tend to oppose the changes, however because power is not absolute, those capable of producing most wealth tend to win through.

The Threat of Success

In a series of long chapters, the authors cover a range of countries that such as Congo (today split between DRC and Congo) that despite being rich in resources and having access to modern technology repeatedly fail to develop because of having extractive institutions controlled by narrow elites. In such countries the elites have little incentive to open up control, because even though the wealth of the country would improve, the elites would lose power and wealth during the process. Economic growth can be seen as a threat. It turns out that extractive political institutions tend to be self-perpetuating and as each new ruler takes charge, the safe option is to become rich and keep the elites satisfied and in place.

Other countries such as Somalia are listed as failing for a different reason – they have never been able to create centralised political authority that can guarantee property rights or the rule of law and consequently descend into a series of competing rival territories. Countries that cannot guarantee property rights cannot even get started on the road to prosperity. (This might be unwelcome news for anarchists.)

In some ways this book could be a depressing read, there is no simple key to prosperity and stability. Eg socialism and capitalism are not mutually exclusive and aspects of both exist in successful societies, but the book does raise interesting questions.

Spain, England and King Billy

In terms of resources and technology, Spain before the 1700s seemed destined to be a dominant world power and not England, but England triumphed and not because of the Protestant work ethic. Spain had enormous wealth and it also had an all-powerful monarchy. By contrast England was poorer and weaker after the Civil War and with the arrival of our own King Billy, England had a weaker monarch who had to please his parliament.

It turns out that England prospered under King Billy not because of his religion (forget the Protestant work ethic) but because he had less control – weakening the power of the King turned out to be good for business because it created a more pluralist England where lots of groups of people had an input. This meant that parliament could respond to pressure from a growing middle class to end monopolies and reorganise finance, including setting up the Bank of England in 1694. These changes created conditions that allowed the Industrial Revolution to prosper.

Which Nation Will Fail Next?

Most observers today accept the need for inclusive plural economic and political institutions. We expect successful modern countries to have the power of their government spread across three distinct branches: the executive (cabinet or president), the legislature (house of commons or congress), and the judiciary.

We should be concerned for the future of a country when we see this structure breaking down and all power being gathered in the hands of one all-powerful leader. Sound familiar?

Why Nations Fail is available from many bookshops including: https://uk.bookshop.org/p/books/why-nations-fail-the-origins-of-power-prosperity-and-poverty-daron-acemoglu/2322881?ean=9781846684302