Why do governments fail? part 1

World history contains many stories and facts about failed governments and empires. We all know about the fates of the Roman, Greek, Spanish, Dutch, British, Russian and Islamic empires; about their rise to fame and grandeur and then their failure and downfall.

Today I would like to discuss an excellent book on this topic, written by two eminent economists from MIT and Harvard. The book is ‘Why Nations Fail – The Origins of Power, Prosperity and Poverty’, written by Prof Daron Acemoglu of MIT and Prof James A Robinson of Harvard and published by Profile Books Ltd, USA. Both of them are renowned and holders of many distinguished awards. They are also the authors of another well-known book, ‘Economic Origin of Dictatorship and Democracy’.

In the preface, the authors ask: why is North Korea ten times poorer than South Korea? Why are people on the American side of the border so much richer than the poverty-ridden Mexicans on the other side? They have proved, with cogent arguments, that poverty or richness is not due to climate, location or culture, but is due to the functioning of institutions.

They have given convincing arguments and examples in support of their theory. They have discussed the ancient Roman Empire, the British Empire and recent developments in China, and have pointed out and emphasised that to become rich one has to work hard. That is the only way to earn money and to be able to save it. This means that good, well-administered and smoothly run institutions lead to good management, the creation of jobs and wealth, economic growth, equal distribution of wealth and, consequently, peace and prosperity.

The authors have spent 15 years in deep research and considered the points of view of other experts before writing this book. They have considered economics, politics and history in order to understand the causes of prosperity and poverty. This research, though purely theoretical, gives the impression that, with time, even poor countries will become reasonably rich.

They have very emphatically stated that a country is not poor because of its location or that their leaders are ignorant of good policies, but because these leaders are selfish and adopt policies to enrich themselves and their near and dear ones, thereby letting the public suffer. Unfortunately, this is exactly what is happening in our poor country. Rulers are cunning and calculating. They hardly ever adopt people-friendly policies and their actions are usually governed by self-interest.

Our finance minister boasts about our good economic situation on the basis of loans obtained. The prime minister too boasts about our stock exchange, which is, in practice, nothing more than gambling and has little to do with the welfare of the public.

Roads, bridges, etc (requiring steel and cement, mostly monopoly industries) are given priority, creating only temporary job opportunities and filling the pockets of the concerned authorities. Some have even promised that all our woes, both economic and educational, will be over by 2025.

In our country of 190 million people, not a single one of our universities ranks in the top 500 universities of the world. In poverty rankings, we are almost the worst off; in corruption we outshine most others. Look at Singapore; smaller than Rawalpindi and Lahore, it has two universities ranked at numbers 12 and 13.

China, which only became independent in 1949, has Tsinghua University, Beijing ranked at number 24. I delivered a lecture there in 1978 or 1979. It was way behind us at that time. Seeing the dismal state of our education system, I prepared a detailed, thorough proposal (campus, buildings, facilities, courses, estimates, etc.) for a first-class federal institute. However, my plans remained unacknowledged.

If we combine incompetent rulers with ignorant and incompetent administrators, then this country’s future looks extremely bleak. We are buried under the burden of foreign loans. When the last straw has finally been added to the camel’s back, the selfish will pack up their suitcases and live a luxurious life abroad on ill-gotten gains from our poor country.

What has been done to promote agriculture, control floods, and provide adequate medical care? Look at the pathetic and dirty conditions of our most of our state-run hospitals and the facilities they offer.

Together with many colleagues we had set up the state-of-the-art GIK Institute in Topi in three years. It can be done again. Unfortunately, no one seems to have the foresight or the ability to establish a top-class university. Our history is witness to this. The 15 years I spent in European educational institutes and professional experience and the 25 years I spent running Kahuta gave me a deeper understanding of these needs.

The book under discussion has been highly praised by four Nobel Laureates – viz Gary S Baker (Economics 1992), Peter Diamond (Economics 2010), Michael Spence (Economics 2001) and Robert Slow (Economics 1987).

Note:

Expatriates have been scared away from investing in real estate in Pakistan due to our taxation policies. Many expatriates had invested in property here in order to create a permanent source of income, but with new taxation laws in force, this has slowed down. They are now more likely to invest in the UAE and neighbouring countries – the boat has been rowed aground.

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