Nobel laureates reveal why some nations fail

 In Kenya, these groups have thrived, whereas their counterparts in Uganda have struggled.

“In Kenya, the Kalenjins have become presidents twice—Daniel Araap Moi and the incumbent William Ruto. In Uganda, they are runners,” Dr Corti Paul Lakuma, a research fellow at the Economic Policy Research Centre in Kampala, said.

“Institutions can separate two people with the same character and culture, significantly impacting who develops better,” he added.

Few have delved into the question of why some nations thrive while others falter as deeply as James Robinson from the University of Chicago, Daron Acemoglu, and Simon Johnson from MIT. Their research won them a Nobel Prize, but have they truly pinpointed the key? 

In essence, their findings highlight the importance of government institutions. Countries with genuine rule of law experience economic growth. 

In contrast, societies that exploit their citizens for short-term gains—what the laureates termed ‘extractive’—tend to stagnate. 

Organisation key

Simply put, freedom matters. They explored the influence of institutions, government actions and colonialism, something that has lasting effects across generations.

“Successful countries, in our view, are those that manage to generate high living standards for their people, while failed countries experience mass poverty and deprivation,” Mr Robinson said while on the University of Chicago’s Big Brains podcast, a few days after becoming a laureate.

“But whether a nation succeeds or fails depends on how the people in that society organise themselves—the institutions and rules that shape incentives and opportunities,” he added.

While it may seem basic, the idea that societal organisation matters more than geography, resources, or culture is radical. 

For decades, scholars have argued that these factors define successful and failed nations. While, for one, Uganda and Kenya share similar resources, their development outcomes differ significantly. 

Uganda’s agricultural sector is productive, employing most of its population, but its GDP per capita still lags behind Kenya, underscoring that resource management is crucial for success.

“It’s a powerful way of demonstrating that these other theories can't fully explain what we observe,” Mr Robinson said.

Dr Lakuma concurs, noting that the same argument applies to perceptions of success based on birthplace

“If you are born in the United States, you are more likely to succeed than in Uganda because of the institutions, environment, policies, education, healthcare, and ecosystem,” he said.

He added: “Here we have the food we love, the sunshine, our relatives, our passion for sports, and we are happy. You might say we lack capital, but capital thrives where inclusive institutions exist.”

Land question blues

Evidence from the Intergovernmental Authority on Development (IGAD) in Eastern Africa shows that Uganda’s land tenure system hinders development.

This is mostly because the lack of formal land titles in customary tenure results in insecure ownership, limiting investment in housing and infrastructure.

A research paper by Brian Makabayi and Moses Musinguzi, titled 'To What Extent Have the Existing Land Tenure Systems Affected Urban Land Development?' highlights that this system leads to disorganised urban areas, complicating essential services like roads and sanitation. Without secure tenure, slum dwellers face challenges accessing loans and government support, trapping them in poverty.

The paper recommends: “An inventory should be conducted on customary land to identify landlords and support building permissions. Long-term, they should formalise their land into leasehold or freehold. Community planning should be encouraged to allow residents to voluntarily offer land for services, rather than resorting to forced evictions with minimal compensation. Prioritising garbage collection and drainage facilities is essential, given the limited finances available.”

Dr Lakuma notes that in many developed countries, land ownership is community-based, fostering collective responsibility and long-term sustainability. Communities are more likely to manage land efficiently, preserving resources for future use. 

This approach can encourage equitable land distribution, reduce conflicts, and promote inclusive development, as land use decisions prioritise community welfare. It also supports better management, boosts local economies, and fosters ownership, driving community-driven initiatives.

Broad distribution of power

The 2024 Economics laureates also emphasise this in their research, noting that it's something crucial for a country’s development. 

To make such changes, they emphasise that political power must be broadly distributed, allowing people's preferences to shape governance, alongside the state’s ability to provide public goods and maintain order. They draw parallels to Mexico, where state politics became a tool of patronage, hindering economic growth.

“In our theory, the first layer is economic institutions that create patterns of incentives and opportunities but underlying them are political institutions. The economy's organisation is a collective choice—economic institutions, rules, and property rights emerge from the political system. Thus, political differences often explain economic disparities,” Mr Robinson said.

He and Mr Acemoglu differentiate between two types of institutions: extractive and inclusive. Understanding their dynamics helps explain national success or failure. Extractive institutions, as described in their economic papers, impact the labour market.

“They diminish people’s incentives and opportunities, concentrating them instead. For instance, endless disputes over land ownership discourage investment, as vague and contestable property rights undermine the desire to save or improve one’s land,” Mr Robinson explained.

Laws in Uganda, for example, ensure equal property rights for women and men, but implementation is challenging. 

Customary laws often take precedence, leaving many tenants and landowners unaware of their rights, while poor access to justice hinders enforcement. Institutional structures in the country struggle to uphold pro-gender policies and entrenched social norms in rural areas obstruct effective administration.

Despite progress, such as the Succession Amendment Bill granting widows inheritance rights and the Employment Amendment Bill protecting women from workplace violence, women still own less than 20 percent of land. Land inequality is highest in the central region and urban areas, according to Oxfam data. This uncertainty limits investment and hinders long-term growth.

The Nobel prize winning economists show that often, these countries with extractive institutions concentrate the wealth of the country amongst a few at the top by extracting it from the population through taxes and labour.

Inclusive institutions

So, what do inclusive institutions look like? The laureates likened them to the patent system that was clearly explained in a critically acclaimed book Mr Robinson co-authored with Mr Acemoglu titled Why Nations Fail. 

“In our book, we feature a photograph of the patent Thomas Edison took out for the light bulb. Since Robert Solow’s work in the 1950s, economists have known that incentives drive economic growth—innovation, new technologies, and productivity. However, ideas are easy to copy, creating a problem: if I have a great idea, you can also benefit from it, diluting my incentive,” Mr Robinson explained.

“To align private and social incentives, patents protect intellectual property rights, encouraging innovation,” he adds. 

In Uganda, the patent system is open to everyone who pays the same fee, with the state safeguarding intellectual property rights—an essential constitutional principle. 

“In the 19th century, when the US became a technological leader, patent holders came from all social backgrounds—elites, farmers, artisans. Thomas Edison, for instance, was homeschooled and not an elite. This shows that creativity and entrepreneurship are widely distributed, but a system of rules is needed to harness this latent talent,” Mr Robinson said

“In most poor countries, a lack of rule systems excludes most people from opportunities—finance, property rights, education. Benefits concentrate on a small elite, generating wealth for them while creating poverty for society at large,” he adds.

The question of liberty

A few months ago, Mr Robinson and Mr Acemoglu released their sequel to Why Nations Fail titled The Narrow Corridor.

This book examines why the world is divided into countries with extractive and inclusive political institutions. It makes two significant contributions. First, it emphasises the importance of liberty—not only as a fundamental value but also as closely tied to economic success. 

Liberty is something that entails the freedom to make choices in the economic, social, and political spheres without undue influence from others, as long as those choices do not harm others. 

The book raises the question of why societies experience such varied levels of liberty. What mechanisms promote or hinder liberty, and how has it historically emerged in some regions but not in others? 

There is no more important time to familiarise ourselves with this important research. There are certain books that are just so important that you see them everywhere like Guns Germs and Steel by Jared Diamond. 

It redefined the way we thought about human history by arguing that some nations succeeded while others failed because of their geographic locations and available natural resources. But his explanation of human history is being given a new twist. It’s not only exogenous factors that ensure the outcome of a roll of the dice but also the organisational abilities of humans.

“Economists understand what generates prosperity. They understand its about investment in public goods and education and property rights and innovation and education. So, to me, I have not been interested so much in rich countries […] to me, the puzzle has always been about poor countries and about why poor countries can’t take advantage of all the stuff which is in economics textbooks” Mr Robinson told the Big Brains podcast.