Why do nations fail? Two academics face off with two billionaires

Don’t tell Bill Gates his buddy Carlos Slim isn’t helping Mexico.
Don’t tell Bill Gates his buddy Carlos Slim isn’t helping Mexico.
Image: AP Photo / Eduardo Verdugo
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Economist Daron Acemoglu and political scientist James Robinson have been investigating why nations fail, and their recent book makes the case that prosperity depends on whether a country’s political and economic institutions are designed to extract value for a few or allow many in prosperity.

Microsoft founder Bill Gates, whose philanthropy supports many development projects, wrote a rather scathing review of the book. He called it ”a major disappointment,” not least because the authors question the efficacy of some types of foreign aid.

The authors respond with an article that essentially says Gates doesn’t know what he’s talking about. Perhaps the most telling of Gates’ misunderstandings, according to the authors, is when he notes that the authors seem to compare him, a software entrepreneur, favorably to his fellow billionaire, Carlos Slim, the Mexican entrepreneur who made his fortune with a telecom monopoly.

But the authors weren’t comparing Gates to Slim; they were comparing anti-trust institutions in Mexico and the United States:

We point out that Gates, just like Mexican telecom mogul Carlos Slim, would have loved to form a monopoly. He tried and failed. What our book shows in a positive light are the U.S. institutions, such the Department of Justice, that stopped Gates and Microsoft from cornering the market. We say, “sadly there are few heroes in this book.” Bill Gates was not one of them.

On a related note, Gates writes that that our book is “quite unfair to Slim.” Mexico, he contends, is “much better off with Slim’s contribution in running businesses well than it would be without him.” But once again, this reveals a lack of understanding of our main thesis, which isn’t that Carlos Slim is evil and the root cause of Mexico’s problems. We argue that ambitious entrepreneurs like Gates or Slim will do good for society if inclusive institutions constrain them, and that they will mostly serve their own interests otherwise.

They can even put a number on the social costs to Mexico’s anti-competitive institutions: An OECD study says that Mexicans paid $129.9 billion more than they should have for phone calls and other telecommunications between 2005 and 2009.