Why Nations Fail...and organisations fail too

If you read one book this year, make it 'Why Nations Fai'l by Daron Acemoglu and James Robinson. Well, that is if you can resist 'The Art of Fielding' by Chad Harbach. And if you can, read both.

Tellingly, both books are written by Americans. Unlike most British and European writers, Americans have no appetite for obscurantism or snobbishness in the way they write. The authors of 'Why Nations Fail' are two of the world's foremost academics on economic history. Put this subject matter in the hands of their Oxbridge equivalents and you'd struggle to get past the introduction. In the hands of these guys, you simply can't put it down.

So what's so special? I guess, it's quite rare, at 43, to be reading stuff about an old question - why do some parts of the world, 'succeed' - politically, economically, socially - when others fail, without quickly running up against the same worn out ideas: imperialism, geography/climate, the Protestant work ethic etc.

This book debunks all of that - very quickly. Very simply, 'Why Nations Fail' says that nations succeed because, over time, they develop inclusive - meaning pluralistic political and economic institutions. They develop these, of course, party by accident and partly by design.

Factors like colonialism, great individuals and major world events (disease, war, famine) have a huge role in shaping whether inclusive or 'extractive' institutions develop, but, when it comes down to it, it is only when a territory can support the rule of law, secure property rights, reasonable public services and open political system that long-term progress can be made. Without all of the above - and the book uses many examples - you end up with a political elite which has an interest in holding back the many.

The opener of the book contrasts two halves of a city, Noglales which straddles the Mexico-US border. One sits in the region on Sonala, Mexico, the other in Arizona, US. Here the people, culture, climate and operating conditions are the same. On one side of the border, incomes are many times higher, there are good public services and crime is uncommon. On the other, people are mostly poor, there are few public services and crime is rampant because the state isn't in real control on the ground.

The history of both countries explains why such a situation has evolved. From colonial times, there has been little development in Mexico of inclusive political and economic institutions. It is hard to stay safe, start a business or progress economically. The Mexican Bill Gates or Steve Jobs does not have a chance to freely develop his ideas without overcoming unreasonably hurdles right from birth. He won't be educated, unless from an elite family. He can't set up a business without paying a lot of bribes. He can't find good people because nobody is educated to the right level. Investment is not there because nobody is sure what's going to happen next in a country like that.

And so on. It's a wonderful book. Perhaps what has capitivated me most, though, is the read-across to why certain types of public services fail, despite wonderful resources and high levels of native talent. Analogous to the extractive and exclusive institutions described at state level in this book could be placed the large public sector monopolies which still dominate much of public service in Europe and certainly in the UK.

Here, power is often monopolised and change, even 'good change' does run against the interests of many of those involved. Initiative is often powerfully suppressed. It is hard, frequently impossible, to set up in business against these monopolies and there are often few political processes which can be used to break these systems down.

What am I thinking of here? Well, if you haven't guessed, I am alluding to many of the organisations from which spin-outs do or don't emerge.

The truth of the matter, and I see this every day, is that setting up a new business to deliver public services feels like it probably does to set up any ordinary business in parts of the developing world. You need the buy-in of a variety of power-brokers, all of whom need to see their interests satisfied. You need to go through all sorts of bureaucratic processes to show you're not a risk and are 'worthy' of delivering services.

From there, you need to make all sorts of promises to the system that its interests will not be threatened and create opportunities for the system to have it's say even when the business is up and running.

All of this, of course, creates a massive disincentive for any sane person in public services who wants to change things. The risks are massive - to career, to sanity, to reputation - that most people, quite understandably either stay put or move out. Those that try to start a public service business have to run a gamut that looks far more like something you'd see in Mexico than in Midshire, UK.

Of course, this is far worse in the non-democratic part of our polity - the NHS, than in local councils where there is always a final court of appeal But you see it all over. The real disease, and it is a disease, is that organisations fail for the same reasons nations fail: if you create what are, in effect, dictatorships, if you sit hard on people, if you keep the power to take away what people have created and if you eliminate any means of influence then you end up with the organisational equivalent of Mexico.