A Critique on ‘Why Nations Fail’ by Daron Acemoglu and James Robinson

Ramoncito P. Javier

How is it possible that a skilled Filipino worker who settles abroad has better chances of gaining
material wealth as compared to those who prefer to stay in the Philippines given the same skill set,
values and work ethics? Why is Spain far more progressive than the Philippines even if the maňana
habit and taking afternoon siestas (now modernly known as power naps) are common to both
countries? Why do Filipinos follow traffic rules and observe road courtesy when abroad in the
world? Do they suddenly receive an intravenous shot of discipline together with their driver’s
license? Don’t our political leaders aspire to have a world-class airport or efficient mass transport
systems every time they travel to other countries?

The authors of “Why Nations Fail.”, Daren Acemoglu and James Robinson explain that climate,
geography, culture, or the ignorance of domestic leaders cannot be the reasons why the Philippines
lag behind its ASEAN neighbors. They argue against these long standing theories with a great deal of
historical and present-day examples. They believe the real reason behind the poverty trap lies in the
role of political and economic institutions.

“Why Nations Fail.” is focused on the formation of political institutions and formulates the thesis
that only within an inclusive political system is it possible for nations to achieve prosperity.
Extractive political institutions concentrate power in the hands of a narrow political elite and place
few constraints on the exercise of this power. Economic institutions are then often structured by the
said elite to extract resources from the rest of society. It is in this scenario where wealth will be
accumulated and the motivation to preserve its power thus leaving a nation to persistent poverty.
The Philippines own economic elite control the economy and takes advantage of the Filipino
working class. In 2011 alone, the increase in wealth of the 40 richest Filipinos was 76.5 percent of
the Philippine GDP growth. This disparity of wealth is a common characteristic of third world
countries.

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The 7.2 percent economic growth in 2013 is still not enough to reduce poverty. While growth has
improved from the dismal levels of the 80s and 90s, the average GDP growth of the last decade will
not be enough to address some major challenges the Philippines faces. Although it is the highest
recorded in the last three decades, growth has not been enough to achieve any significant reduction
in the percent of the population living in poverty. In an ADB report, for every 1 percent growth in
GDP, poverty incidence has gone down 2 percent in Asia. This is in contrast to the continuing rise of
poverty between 2003 and 2009 as well as an increase in the percentage of poor people (from 24.9
percent to 26.5 percent of total population).

But a few years after the introduction of the Conditional Cash Transfer (CCT) in 2008, there was a
significant drop in poverty incidence from 22.3 to 19.1 in 2013 and from 10 to 7.7 percentage points
for subsistence incidence in the same year. Arsenio Balisacan, Director General of the National
Economic and Development Authority, said “the faster growth of poor households’ income
compared with the slower increase of basic commodity prices implies a robust increase in real
incomes of the poor, which played a significant role in reducing poverty during the period”.

In a 2012 World Bank study, the CCT program also had a strong and robust impact in in improving
education outcomes among younger children between 9-12 years old who were eligible for CCT
educational grants throughout 2008 to 2011.

United Nations (UN) Undersecretary and General and Associate Administrator of the United Nations
Development Programme (UNDP) Rebeca Grynspan said that the CCT program should “not be
judged in the short term but after ten years when it can demonstrate success in breaking the
intergenerational cycle of poverty.” The UN official stressed that the program must be supported as
it gives children of poor households a chance to finish school through incentives.

The CCT has been mired in controversy amid concerns the program could be vulnerable to
corruption and partisan politics. An expert even warned that the program could be used for vote-
buying during the 2013 mid-term elections.

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In November 2012, the Commission on Audit (COA) released a report that found critical problems in
the implementation of the program, including a decline in beneficiaries in 2011, billions in
unaccounted disbursements, deficient supervision in household registration and questionable use of
funds. A COA-conducted survey also found that not all beneficiaries were really poor, yet were
included in the program. This is an example where, as Acemoglu put it, the controlling political
power will eventually find it more beneficial to use their power to limit competition, to increase
their share of the pie, or, as in this case, steal and loot from others rather than support economic
progress. The distribution and ability to exercise power will ultimately undermine the very
foundations of economic prosperity, unless political institutions are transformed from extractive to
inclusive.

Is there a chance for the Philippines to change its extractive political institution by some
supernatural transformational power? Unfortunately, the intensity of political contests in the
Philippines stems from the fact that the government disposes a significant amount of resources and
exercises discretion over a wide sphere. The barangay unit, in itself, is a strange political animal. It
has the power to exercise legislative, judicial and executive powers without distinction.

The political elite are comprised mostly of landowners, big business owners, political clans or
dynasties and in some cases, lawless elements such as drug lords, gambling lords and leaders of
organized syndicates. There are very rare cases of people, with financial lack, that win in local
elections because of their big heart and willingness to make a difference. This is the stuff of movie
plots or tele-novelas. The goal of elite struggles is control of the state’s machinery and resources to
skew their deployment in favor of special interests. Control would be difficult without financial
resource. Powerful incentives then work to persuade incumbents to retain power indefinitely in
order to protect such interests. Electoral contests or even coups are viewed as chances to attain or
retain this power.

More recently, news of a term extension for President Aquino caused a major uproar for most
Filipinos. Some people viewed it as a way to test the waters and see if the Aquino administration
was doing a good job with all the reforms it has been trying to implement.

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Is there chance for the extractive nature of Philippines’ political institutions to change? This time,
the authors have amusingly radical views. They argue that there is no natural process whereby rising
prosperity in an autocracy evolves into inclusion. Rather, it is only in the interest of the elite to cede
power to inclusive institutions if confronted by something even worse, namely the prospect of
revolution. The foundations of prosperity are political struggle against privilege. It did happen in
1986 followed by a string of nine more coup attempts. Unfortunately, everyone was still playing the
same game despite the change in players. The new elite emerged aside from President Cory. The
likes of Binay, Ramos, Enrile, Honasan, Alfredo Lim et al were seen as hope that eventually turned
hopeless.

Acemoglu and Robinson also morbidly suggested that natural disasters of devastating proportions
like Europe’s Black Death can also trigger a change in political institutions. The only incident of
similar magnitude may be the anticipated earthquake caused by the Western fault line. The Metro
Manila Earthquake Impact Reduction Study revealed that seven out of 17 cities in Metro Manila will
suffer the most damage and casualties. They are Marikina, Quezon, Makati, Pateros, Taguig and
Muntinlupa. This may be too frightening to discuss or even think about with the hope that this
doesn’t happen in our lifetime.

So we are obviously trapped in a vicious circle. What do we do?

Adopt the patience of Job. We’ll eventually get there. Who would have thought that we could attain
dizzying economic growth rates, gain investment grade status, lend US$ 1B to the IMF and attempt
to curb corruption by impeaching a former Chief Justice and “jailing” three senators with the hope
that there are more to follow.

The government is fully aware of what it needs to do. It is the same thing over and over again -
invest in infrastructure and significantly improve education and social services; improve investor
confidence through good governance and better taxation laws; be more appealing or attractive to
foreign investors through a business friendly environment with clear policies and rules and amend
the economic provisions in the constitution; and lastly curbing corruption to an acceptable level.

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In the meantime, we can do our share in any little way possible. Stop whining and complaining
about every little problem of the country, don’t leave everything to the government, be
entrepreneurial to spur economic growth no matter how insignificant it is in the existing business
landscape, share your knowledge and resources to improve the lives of others and educate others to
vote for the right leaders.

Do this for the next generation and don’t expect to see changes in your lifetime.

We are resilient but at the same time impatient. We are a happy people but we complain a lot. We
gleefully have our pictures taken together with the leaders we strongly criticize and loathe when
given a chance. This is the phenomena of the Filipino psyche. This is who we are. We don’t know if it
would ever change. There is no need to over analyze why we can’t get there. We will, eventually!

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