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

Conditional aid is a form of foreign assistance that requires the recipient country to meet certain predefined criteria or conditions. The work discusses the limitations of conditional aid, arguing that it often fails to bring about meaningful institutional change due to the deeply rooted nature of extractive institutions.

Creative destruction is a key economic concept that describes how new innovations replace outdated technologies and ideas, leading to economic progress. Throughout the work, creative destruction is portrayed as a process essential for sustained economic growth and as a process often hindered in extractive economic systems, where existing elites may resist innovations that threaten their power.

Extractive institutions are political and economic systems that concentrate wealth and power in the hands of a few, often at the expense of the majority. The book frequently discusses these institutions, highlighting how they impede economic growth and development by failing to incentivize innovation and broader economic participation.

Inclusive institutions, as opposed to extractive ones, are those that promote economic growth by ensuring a level playing field, protecting property rights, and encouraging investment in new technologies and skills. The book emphasizes the importance of these institutions in driving long-term economic success and societal development.

Institutional drift refers to the gradual change or evolution of institutions due to small, often contingent, historical events and decisions. This concept plays a critical role in the work’s analysis of how nations develop over time, showing that even minor changes can have long-term consequences for a country’s political and economic landscape.

Modernization theory predicts that a society will naturally progress toward a more modern, developed, and democratic state as it grows economically. The book critiques this theory, arguing that economic growth does not automatically lead to democratic or inclusive political institutions.

Political centralization is the process or state of consolidating political power in a centralized government or authority. In the book, this term is often associated with the development of stronger, more effective states, which can be a precursor to the establishment of inclusive institutions.

Property rights are legal rights to use, control, and derive income from a resource. In the work, secure property rights are a cornerstone of inclusive economic institutions. They encourage investment, innovation, and economic participation by ensuring that individuals and businesses can reap the benefits of their efforts and investments.

Rule of law refers to the “principle under which all individuals, institutions, and entities are accountable to laws that are publicly promulgated, equally enforced, independently adjudicated, and consistent with international human rights principles” (“Overview – Rule of Law.” US Courts). The book discusses how the rule of law is fundamental to creating an equitable society, as it provides a framework where inclusive institutions can flourish, free from arbitrary governance and corruption.

Social movements are collective, organized efforts that aim to promote or resist social change. In the book, these movements are often portrayed as catalysts for political and economic reform. They can be instrumental in challenging extractive institutions and advocating for more inclusive systems that better represent and serve the broader population.

A vicious circle in the context of the book refers to a self-perpetuating cycle where extractive institutions generate policies and outcomes that further entrench these institutions. This concept is crucial in understanding why some countries remain trapped in poverty and underdevelopment.