ARUN - Social Investment Platform | [Book Review] Social Investment Explained No. 6 

[Book Review] Social Investment Explained No. 6


Shinya Hanaoka, ARUN Partner

Associate Professor of Tokyo Institute of Technology, Graduate School of Science and Engineering, Department of International Development Engineering

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

Daron Acemoglu  (Author), James Robinson  (Author)

When you make a decision for a social  investment, do you pay attention to the “people” of the enterprise?

Or do you also take into consideration the person’s “nationality/race” or “characteristics” of the nation?

The title I am going to talk about should be an interesting read if you are interested in developing countries, even a little.

The volume is divided in two (in Japanese translation) and rather long, but there are many anecdotes that are easy to read like a story. The foreword of the translated copy in Japanese is lined with praises from dignitaries such as the economist who won the Nobel Prize in economics, and also from a well-known historian; a promising sign for a good book. The book starts by saying; “The theme of this book is the huge gap of income and the standard of living between the wealthy countries and poor countries in the world.” In the second chapter, the author denies the geographical theory* and the cultural theory which have been influential, and in the third chapter, he presents the hypothesis which is the conclusion of this book. The fourth chapter and on list various episodes which span 300 years ago to the present, from all over the world that verify this book’s hypothesis.

This book’s hypothesis is simple.

“Nations which grow have an inclusive political institution, and nations which fail have an extractive political institution.”

An inclusive political institution refers to the centralized and pluralistic system, while an extractive political institution refers to an autocratic and hierarchical system. (Japan’s Meiji Restoration appears as an example of the inclusive institution in Chapter 10.)  Simply stated, for the nation’s growth, democracy is necessary. I encourage you to read this book for more details. I am not simply agreeing with the book’s claims. Reading the large volume of the episodes which is the compilation of the authors’ 15 years of research, however, I am awed and feel respect for the authors as a fellow researcher, though of a different field. What a sense of accomplishment one must feel to write such a book!

Reading books on poverty problems of developing countries often makes me think of this; there aren’t much biological differences in human beings. If so, which is more diverse, an individual person’s characteristics in a certain country (diversity of individuality), or the world’s 200 or so nations’ diversity (national diversity)? For example, there is a joke; at an international conference, if you can shut up an Indian and make a Japanese speak, the conference is a great success. Of course, there are quiet Indians and talkative Japanese (I apologize for people in India if this example is offensive). National traits definitely exist, but I wonder which is more diverse.

I have had the chance to meet people from different countries, mainly from Asia. Because of my profession, many of them tend to be researchers and students, but I have visited more than 50 countries and talked with people of more than 70 nationalities. It is scarcely half of the world, but I have noticed something. First, in a country or in an area, without exception, everyone uses the expression; “We, the people of ~” (~ can be the name a country or the name of a tribe.) When I visited a few countries in West Africa, someone told me that there are several ethnicities and different languages exist within the same nation, but the same person also said that people of his country are different from the people from the neighboring country. This is a consequence of person’s self identity as being a part of a nation or ethnic group, which is fostered over time, and perhaps it is completely normal. On the other hand, I also notice that the top government officials and internationally known scholars (so-called elites) whom I meet occasionally, whether it is in Asia, Europe, America, Latin America or Africa, and no matter what ethnicity, have a relatively similar mindset. For example, what they have in common is the ability to see themselves objectively. Those who possesses high aspirations and vision create a certain atmosphere that is similar, beyond their nationality or ethnicity.

Developing countries are diverse. Among  200 some countries in the world with a population of approximately 7 billion, developed countries(*2) are only around 30 with approx. 1 milion people, and the rest is categorized by economic indicators such as newly industrialized countries,  recent-emerging countries, and least developed countries. Even though there is such diversity among developing countries, I believe that the way humans think is ultimately similar, and there must be common traits independent from which nation or ethnic groups they belong to. I also think that the common traits may be the base for the possibility of eliminating poverty. This may sound like an optimistic thinking (*3). Diversity of individuals or diversity of nations, which is larger? It may not be possible to find the answer to the question, but by asking the question occasionally, I am hoping for myself to be able to deepen my understanding of the relationship between the nation/nationality and individual.

I got sidetracked too much.  I will forcefully conclude why this book is related to social investment. Ms. Ayako Sono, the author of many inspirational books for seniors in recent years, wrote two good books entitled “Rural Areas in Poverty,” and “The Scenery of Poverty.” They are powerful books written from the experience of the author visiting Sub-Saharan Africa many times. What strikes me from reading these books is the author’s emphasis on the point that “in order to give aid, you must actually meet those being aided with your own eyes, and you must deliver the goods and money directly by yourself.” She explains how important it is to see the “person” on your own. She repeatedly warns that in the extractive nations, the majority of aid goods and money does not reach those who are really in need.

Social investment is a method to reach the “person.” Let’s go back to the original questions at the beginning.

When you make a decision for a social  investment, do you pay attention to the “people” of the enterprise?

Aren’t you looking down at the people thinking; “It cannot be helped because they are ~ (nationality, ethnicity)”? I admit that it is very difficult to get rid of preconceptions. Comparing only with Japan, however, is the worst thing you can do. Although nationality does exist, and cannot be ignored, let’s make comparisons with many different countries besides Japan. I believe that the most important thing at the end, is the “person.”

P.S. I was supposed to write a book review, but I ended up writing many of my own ideas.  Please read it with a grain of salt, because I have never made investments, nor have I ever attended the investment committee.


*1 The book denies Jared Diamond’s best seller, “Guns, Germs and Steel” as one of the geographical theories. Published in 1957, Sadao Umesawa’s well-known title, “An Ecological View of History (Bunmei no Seitai Shikan)” can also be said as the geographical theory.  Paul Collier’s “Bottom Billion” of which I wrote a book review in the past (the book review HERE in Japanese), is similarly close to the geographical theory.

*2  I never felt right about the Japanese term,  “senshin-koku” (advanced country). Here is my essay titled “Japan as a Developed Country in Asia.”

*3  Abhijit Banerjee and Esther Duflo, in their book, “Poor Economics,” criticize the hypothesis of “Why Nations Fail,” which states that “political institutions determine whether a nation grows or not,” as pessimistic, because it implies that the developing countries’ escape from poverty is not easy. The authors,  Acemoglu and Robinson never state that their hypothesis is pessimistic, but it is true that some people interpret it that way.

captured image from Lauren Manning “World Population Growth”

March 2020
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