MIT economist Daron Acemoglu believes institutions matter when it comes to generating prosperity. And in analyzing what makes rich countries rich, and poor countries poor, one has to look primarily at government. Or as he writes in Esquire: "Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments."
How do we know that institutions are so central to the wealth
and poverty of nations? Start in Nogales, a city cut in half by the
Mexican-American border fence. There is no difference in geography
between the two halves of Nogales. The weather is the same. The winds
are the same, as are the soils. The types of diseases prevalent in the
area given its geography and climate are the same, as is the ethnic,
cultural, and linguistic background of the residents. By logic, both
sides of the city should be identical economically.
And yet they are far from the same.
one side of the border fence, in Santa Cruz County, Arizona, the median
household income is $30,000. A few feet away, it's $10,000. On one
side, most of the teenagers are in public high school, and the majority
of the adults are high school graduates. On the other side, few of the
residents have gone to high school, let alone college. Those in Arizona
enjoy relatively good health and Medicare for those over sixty-five,
not to mention an efficient road network, electricity, telephone
service, and a dependable sewage and public-health system. None of
those things are a given across the border. There, the roads are bad,
the infant-mortality rate high, electricity and phone service expensive
The key difference is that those on the north side
of the border enjoy law and order and dependable government services —
they can go about their daily activities and jobs without fear for
their life or safety or property rights. On the other side, the
inhabitants have institutions that perpetuate crime, graft, and
Read What Makes a Nation Rich? One Economist's Big Answer here. And take a closer look at the accompanying map/graphic (above) by clicking here.