Why Nations Fail: The Origins of Power, Prosperity, and Poverty

of the classical theories of political sociology, the theory of modernization, formulated by Seymour Martin Lipset. Modernization theory maintains that all societies, as they grow, are headed toward a more modern, developed, and civilized existence, and in particular toward democracy. Many followers of modernization theory also claim that, like democracy, inclusive institutions will emerge as a by-product of the growth process. Moreover, even though democracy is not the same as inclusive political institutions, regular elections and relatively unencumbered political competition are likely to bring forth the development of inclusive political institutions. Different versions of modernization theory also claim that an educated workforce will naturally lead to democracy and better institutions. In a somewhat postmodern version of modernization theory,
New York Times
columnist Thomas Friedman went so far as to suggest that once a country got enough McDonald’s restaurants, democracy and institutions were bound to follow. All this paints an optimistic picture. Over the past sixty years, most countries, even many of those with extractive institutions, have experienced some growth, and most have witnessed notable increases in the educational attainment of their workforces. So, as their incomes and educational levels continue to rise, one way or another, all other good things, such as democracy, human rights, civil liberties, and secure property rights, should follow.
    Modernization theory has a wide following both within and outside academia. Recent U.S. attitudes toward China, for example, havebeen shaped by this theory. George H. W. Bush summarized U.S. policy toward Chinese democracy as “Trade freely with China and time is on our side.” The idea was that as China traded freely with the West, it would grow, and that growth would bring democracy and better institutions in China, as modernization theory predicted. Yet the rapid increase in U.S.-China trade since the mid-1980s has done little for Chinese democracy, and the even closer integration that is likely to follow during the next decade will do equally little.
    The attitudes of many about the future of Iraqi society and democracy in the aftermath of the U.S.-led invasion were similarly optimistic because of modernization theory. Despite its disastrous economic performance under Saddam Hussein’s regime, Iraq was not as poor in 2002 as many sub-Saharan African nations, and it had a comparatively well-educated population, so it was believed to be ripe ground for the development of democracy and civil liberties, and perhaps even what we would describe as pluralism. These hopes were quickly dashed as chaos and civil war descended upon Iraqi society.
    Modernization theory is both incorrect and unhelpful for thinking about how to confront the major problems of extractive institutions in failing nations. The strongest piece of evidence in favor of modernization theory is that rich nations are the ones that have democratic regimes, respect civil and human rights, and enjoy functioning markets and generally inclusive economic institutions. Yet interpreting this association as supporting modernization theory ignores the major effect of inclusive economic and political institutions on economic growth. As we have argued throughout this book, it is the societies with inclusive institutions that have grown over the past three hundred years and have become relatively rich today. That this accounts for what we see around us is shown clearly if we look at the facts slightly differently: while nations that have built inclusive economic and political institutions over the last several centuries have achieved sustained economic growth, authoritarian regimes that have grown more rapidly over the past sixty or one hundred years, contrary to what Lipset’s modernization theory would claim, have not become more democratic. And this is in fact not surprising. Growth under extractive institutions is possible precisely because it doesn’t necessarily orautomatically imply the demise of these very institutions. In fact, it is often generated because those in control of the extractive institutions view economic growth as not a threat but a support to their regime, as the Chinese Communist Party has done since the 1980s. It is also not surprising that growth generated by increases in the value of the natural resources of a nation, such as in Gabon, Russia, Saudi Arabia, and Venezuela, is