Nations Fail

                 On Kohtla-Järve ash mountain, author with her son, the driver, and foreign visitors, 1990.



The global economic crisis that also affects Estonia has produced, as a consequence, diverse opinions in our media on how to recover.  Some opinions have very pessimistic views, as if there have not been crises earlier in history, and some identify market economy as the source of disaster, implying simultaneously that the system should be jettisoned.  In such a context it is worthwhile to look at the politico-economic structure proposed by academicians Daron Acemoglu and James Robinson in their book “Why Nations Fail – The Origins of Power, Prosperity and Poverty”, and to consider its relevance to Estonia.  Acemoglu is an economics professor at MIT and Robinson teaches political science at Harvard.  The book is the result of 15 years of research and it has received high marks from their peers and critics.  

The authors ask why some countries are poor and some rich.  They reach back into history to analyze selected countries and they compare contemporary neighboring countries, such as North Korea and South Korea - one mired in poverty and the other among the richest. Their analyses lead them to the conclusion that, without doubt, the economy plays a role in whether a country is rich or poor, but the country’s political institutions are of greater significance, because they determine its economic policies.  Nations with inclusive political and economic institutions are capable of securing sustainable development, but the nations whose political and economic institutions are extractive – meaning they extract wealth for themselves – are not sustainable.  

The authors maintain that the political foundations of a nation determine the modern level of prosperity.  They argue that investment and innovation cannot occur in an environment in which investors and innovators do not have faith that those in power will not take the results from them.  Consequently, a nation’s prosperity and sustainability rest on three things:  a sufficiently centralized government in order to prevent disorder, inclusive political and economic institutions in order to prevent instability, and the absence of “extractive” political and economic institutions who would exploit the country’s resources for their own benefit. “Extractive” institutions discourage people from saving, investing and being innovative, because “extractive” political institutions support economic policies which increase the power of their institutions.   The authors claim that although extractive economic and political institutions can vary in details, they are always the origins of failing and collapsing nations.

It is quite clear by now that liberal economic policies have failed due to greed and speculation on the financial markets that became a global financial crisis.  The latter in turn developed into a global economic crisis.  Poverty and unemployment grew at the same time as a small percentage of the population became very rich.   It is also clear that Estonia’s current leaders’ political positions and understanding of economic activities will not bring us out of the crisis, because they constitute the “extractive” power.

Having lived with the crisis in confidence for several years, last year public protests finally started.  Teachers and transport workers went on strike in the winter, in the fall health care workers went on strike, and before the year ended a large public gathering at Toompea said that “we have had enough”.

It serves no purpose to enumerate here the mistakes, stupidities, lies, deceptions and even treason that have taken place under the current power structure.  At the moment, the aim is to calm down the public, but considering that power structures are always interested in remaining in power that activity is also driven by that interest.  Those presently in power are inveterate supporters of liberal economic policies and it is futile to expect from them any changes, advancement of sustainable policies or ethical conduct.  If we do not elect new leaders who reject extractive power, our country is on the way to a failed nation.  I recommend to everybody the book “Why Nations Fail.”