why nations fail

this book explains, to a large extent, why some societies thrive while others don’t—when combined with average intelligence levels. but why isn’t intelligence alone enough? let me break it down:

we’re all familiar with south and north korea. south korea is incredibly advanced, constantly innovating, producing high-tech goods, and getting wealthier by the day. the country’s per capita income is more than 20 times that of north korea. in fact, due to the poverty and hunger in the north, south koreans are taller and live longer than their northern neighbors. north korea, on the other hand, can’t even feed its people without foreign aid, let alone produce technology.

the reason behind all this is what acemoglu describes as “extractive” and “inclusive” institutions. south korea has inclusive institutions, while north korea is stuck with extractive ones. as a result, while the south is advancing into space, the north is struggling with famine.

but there’s an important point we need to consider: the average iq levels in these two countries. despite north korea’s backwardness and hardships, their average iq is pretty close to that of south koreans. in fact, south koreans have some of the highest average iq levels in the world.

so what does this mean? it means that even after 50+ years of oppressive extractive institutions, north koreans still have an average iq of around 105, just like their neighbors in the south. if north korea’s extractive institutions were to collapse tomorrow (say, north korea reunites with the south), north koreans would likely become just as wealthy, innovative, and successful as south koreans in a short period of time.

this is where the importance of north koreans’ iq comes in. the moment they break free from their extractive system, they have the potential to become one of the most advanced nations in the world. meanwhile, many countries in latin america or eastern europe that are governed by inclusive institutions haven’t reached south korea’s level of development. this is where the average intelligence of a society plays a role.

take brazil, for instance. despite having inclusive institutions like south korea, brazil’s average iq is around 90, not 105 like south korea. that’s why brazil isn’t able to reach the same level of development. so, while inclusive and extractive institutions are key factors in a nation’s growth, average intelligence levels are equally important.

this means that even if countries like brazil have inclusive institutions, they won’t reach south korea’s level of development unless their average iq rises to similar levels. on the other hand, since north korea has high average intelligence, the moment they switch from extractive to inclusive institutions, they’ll skyrocket to south korea’s level.

of course, establishing inclusive institutions requires a certain level of intelligence. the elites who run extractive systems never want to share power, so it’s up to the people to pressure the elites and force them to create inclusive institutions. but for that to happen, the population needs to be aware and capable of demanding change. while some countries in latin america have managed to do this, north koreans haven’t—likely because of east asia’s ultra-conservative, community-over-individual culture.

this conservative, non-individualistic culture stifles creativity in east asia. a simple example is the apple vs. samsung rivalry. apple, a product of western culture, innovates and changes the world, while samsung takes what apple creates and optimizes it. sure, samsung might beat apple with optimized products, but they’ll never make world-changing innovations like apple does. and that’s because of east asia’s conservative culture. could this be linked to genetics? maybe, but research in this area is still too new to draw any firm conclusions.
(see: daron acemoglu)