— by Ramin Babayev —
Introduction
Why are some nations rich while others remain poor?
This straightforward question has long puzzled economists, historians, and political scientists. The most influential answers in recent years were given by Daron Acemoglu and James Robinson in a landmark book, Why Nations Fail? The authors claim that political and economic institutions that are inclusive are the main source of wealth, whereas institutions that extract lead to poverty and stagnation. Their thesis has been widely recognised for providing a clear and positive plan: change the institutions, and success will follow. Nevertheless, this institutionalist story, which is very convincing, may understate the global situation to some extent. It presupposes that all countries have the same conditions, but internal reforms are the only factors that decide the victory. However, what if the result is different? What if some countries are poor not because they didn’t establish good institutions, but because they were not given a chance to do so? Wallerstein, the sociologist we mentioned earlier whose world-systems theory implicitly presents a completely different position, is a figure worth noting here. He maintains that the capitalist system at the international level is engineered to advantage a small number of “core” states at the cost of the “periphery” and “semi-periphery” ones. This is a model in which poverty is not merely a consequence of inadequate domestic policy but is instead the result of rampant global exploitation.
This article aims to reach a critical dialogue position with the theories and maintain that a deep comprehension of global inequality has to involve a combination of institutional analysis and structural critique. Often, countries aren’t just disaster victims—they are the ones that are caused to fail by a system that is made for inequality to continue in the world.
Acemoglu’s Institutionalism: A Promising but Incomplete Explanation
Acemoglu and Robinson center their argument on the division between inclusive and extractive institutions. Inclusive institutions guarantee secure property rights, an impartial legal system, access to education, and political pluralism. On the other hand, extractive institutions are those that focus on the concentration of power and wealth among a few; they are characterized by a lack of innovation, and they are against those who oppose them.
The authors primarily rely on historical examples in their work. The case of North and South Korea, the colonial histories of North America and Latin America, and the disintegration of the Ottoman Empire all serve to illustrate how institutions dictate the direction of development. Importantly, the authors explicitly reject geographic, cultural, and racial reasons for inequality. Instead, they argue that institutions are the real factor affecting the outcome of the situation.
Though their concept is not without some drawbacks. Firstly, it has the tendency to portray countries as if they are completely separate from the global system in which they operate. It depicts nations as isolated entities and implies that their institutional change has taken place without any external influence. Secondly, it minimizes the influence of outside parties—global businesses, financial institutions, military organizations, and former colonial powers—in the process of deciding the institutional options that weaker states have at their disposal.
Acemoglu’s framework assumes that all countries have the same capability to select freely their institutions. However, this assumption is completely invalid when we look at the situation of dependency, that is, the presence of foreign intervention and the structural constraints that the global economy imposes on us.
Wallerstein’s World-System Theory: Global Structure Over Domestic Agency
Wallerstein’s world-system theory traces a macro-historic perspective through history to the global capitalist system. The main idea in the theory is the division of the earth into three parts: the core, which is a leader in capital, technology, and governance; the semi-periphery, which is the source of both exploitation and being exploited; and the periphery, which supplies cheap labor, raw materials, and markets to the core.
Wallerstein, in contrast to Acemoglu, states that underdevelopment is not a result of failure in modernization but rather a structural aspect of the capitalist system. The rich countries that prosper are the ones that have the most power in the world. The Two Sides of the Same Historical Process are Development and Underdevelopment.
According to this theory, changes within the peripheral nations are limited by their position in the world-system. They may try to free themselves from dependence, and yet they find themselves victims of punishment in the form of economic retaliation, military force, or co-optation from the side of foreign powers. In Wallerstein’s view, the global order is a zero-sum hierarchy—prosperity at the top depends on stagnation at the bottom.
It is worth mentioning that some people characterize Wallerstein as someone with an extreme focus on determinism and who is quite disrespectful towards local agents of change. Nevertheless, his theory is an acknowledgment of the fact that externally caused poverty is usually the one that receives the
Case Studies: When Institutions Fail Because the World Decides
Let us look at several real-world examples where institutional reforms either didn’t work to create prosperity or were directly destroyed by global forces.
Tunisia: The Arab Spring revolution in Tunisia was followed by the country adopting democratic reforms, issuing a constitution that was inclusive, and promoting media freedom and civil society engagement. However, the country is still economically stagnant with low job opportunities and debt that is increasing debt. The reason? Its exports are confined to low-value goods, it is very dependent on European markets, and the international lenders have demanded that it introduce austerity measures. Improving its domestic affairs was not sufficient for Tunisia to win over its peripheral position.
Ghana and Nigeria: On the one hand, these countries are in good condition of governance, have good elections, and have accomplished anti-corruption work. But their topography of industry, however, has remained unchanged, and they are still predominantly chasing raw materials such as oil, cocoa, and gold. They go on importing manufactured goods, being bullied by unfair trade agreements, and experiencing capital flight. Their position in the global value chain is such that wealth is being evacuated faster than it is created.
Ukraine: Long-time stuck between Russia and the West, Ukraine depicts a nation whose institutions are continually being reconfigured by geopolitical forces. These reforms are typically externally generated (such as EU conditionalities or IMF requirements), and the economic situation is still overshadowed by political dependence. Not only is Ukraine’s sovereignty limited by the war, but it is also restricted by its inability to operate beyond the context of the competition between the great powers.
Persian Gulf States: A new angle is added when the comparison of countries like Qatar, the UAE, and Saudi Arabia with Iran is drawn. The Gulf monarchies have very good economic and strategic relations with the United States and other Western powers. This correspondence has facilitated not only security guarantees but also access to investment, weapons, and global markets. Their institutions, although not democratic, are stable and have a lot of money coming from the sale of oil under favorable global conditions. Iran, however, has decided to follow the path of resistance to the West-led global order. Consequently, it suffers from severe sanctions, is cut off from international financial systems, and has very limited access to technology and markets. While Iran has been good at building strong domestic institutions in some areas, the development there is still limited by global power relations. These examples demonstrate a recurring pattern: institutions alone do not determine outcomes. They operate within a global hierarchy that empowers some and constrains others.
Synthesis: Can the Two Theories Be Reconciled?
Instead of perceiving Acemoglu and Wallerstein as opposites, we should rather see them as two sides of the same coin that provide interrelated insights.
Acemoglu is definitely right: institutions are significant. A society with democratic governance, adherence to the law, and education will have the opportunity to become prosperous. Nevertheless, Wallerstein also maintains that the world system is very conducive to limiting the number of countries that are still able to realize those conditions.
South Korea, the institutionalists mostly mention it as a good example, has gained a lot from U.S. investments, the U.S. military, and being a part of the global market. Its growth was not only due to good governance but also because it was given the chance to grow during the Cold War as a force against communism.
In contrast, the reforming states are treated with hostility, and their attempts are rather hindered than helped by organizations with whom they initiate exchanges of goods and services. Punitive tariffs, sanctions, and conditionalities are all challenges technically imposed on reforming countries. National sovereignty is definitely affected as a result of debt obligations and unequal treaties. Global dominance structures may still allow them to unseat those reforms even if institutions improve.
Conclusion: Who Decides Who Succeeds?
The conversation between Acemoglu’s institutionalism and Wallerstein’s world-systems theory has proved that internal reforms and structural analyses are insufficient to explain the persistence of global inequality. Institutions do matter—they are the ones that influence incentives, provide accountability, and can even give power to the people. But their efficiency is most likely limited because of a global system that is structured in such a way as to benefit a small number of people.
Wallerstein constantly points to the division of labor among the countries and the exploitation of one part of the world history, and also the systemic asymmetries that are going on now, as the main sources of the boundaries where the nations are working. Contrariwise, Acemoglu brings it up that domestic elites’ decisions are of paramount importance. In unison, these views imply that both internal governance and external domination are responsible for inequality.
Building mainly better institutions in the countries, to a certain extent, is the necessary condition, but not at all sufficient for creating a more just world. We also have to change the organizations that regulate the world, be it trade, development, or any other area. We can only commence our journey to the solution of the mystery of why certain nations are still poor by not only analyzing the problem but also delivering real change.
