Why Do Some Nations and Establishments Fail?

The article, A Nobel for explaining why nations fail by Prashanth Perumal argues that the story of human progress is not written in stone but in the institutions we build. As the 2024 Nobel laureates have shown us, the difference between prosperity and poverty lies not in geography or destiny, but in the fundamental choices societies make about how to organise themselves.

Like architects designing a home, our ancestors and current leaders craft the institutions that shelter our collective dreams. Some build inclusive structures, with strong foundations of democracy and private property rights, creating spaces where every citizen can contribute to and benefit from economic growth. Others construct extractive systems that may glitter temporarily but ultimately fail to provide sustainable shelter for their people's aspirations.

The beauty of this understanding is its empowering message: nations aren't permanently destined to be rich or poor. The United States transformed from a colony into a beacon of prosperity not through accident or fate, but through conscious choices to build inclusive institutions that encouraged innovation and protected individual rights.

This revelation carries hope for developing nations today. Just as a dilapidated building can be renovated, extractive institutions can be reformed. While the path isn't easy - powerful interests often resist change - history shows us that when people demand better systems, positive transformation becomes possible.

Think of inclusive institutions as gardens where every plant has the opportunity to grow, rather than extractive systems where only a few trees block the sunlight. The challenge for our generation is to nurture these gardens of opportunity, creating environments where innovation flourishes, rights are protected, and prosperity is shared.

A Nobel for explaining why nations fail by Prashanth Perumal. In: The Hindu, 17 October 2024.

The lesson is clear: our future isn't determined by our past but by the institutions we choose to build today. By understanding this truth, we gain not just knowledge but the power to shape better societies—ones that work not for the few, but for all who dare to dream of a more prosperous tomorrow.

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