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Why Nations Fail—and Organizations Too

The book Why Nations Fail answers the question that has stumped experts for centuries: Why are some nations rich and others poor? Why are they divided by wealth and poverty, health and sickness, food and famine? Is it culture, the weather, geography? It seems that none of these factors is either definitive or destined. Daron Acemoglu and James Robinson show that man-made political and economic institutions underlie economic success (or the lack of it). To what extent does this also explain the success and failure of organizations?

 Why Nations Fail

Why nations failThe authors provide many examples in the book, from the Roman Empire, the Mayan city-states, medieval Venice and the Soviet Union, to modern day Botswana, China and the United States. The differences between North and South Korea best explain their point that man-made political and economic institutions underlie economic success or lack thereof. Nations thrive when rules and regulations are clear and stable and (intellectual) property is honored.

Korea is a remarkably homogeneous nation, yet while the people of North Korea are among the poorest on earth, their brothers and sisters in South Korea are among the richest. The South forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to its citizens. Sadly, by contrast, the people of the North have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas are due to policies that created completely different trajectories for their people.

Why Do Organizations Prosper?

Could the findings of Acemoglu and Robinson translate to organizations? Could it be that the predictability and fairness of organizational structure, rules and culture also determine the success of an organization?

If you read How Google Works, it is clear that Google has all the structures in place to allow smart, creative people to thrive. If you compare it to ExxonMobil, you see that their organizational structure, rules and culture differ immensely. Probably the only thing Google and ExxonMobil have in common is that their rules are clear, stable and fair, and that both are thriving firms. While organizations such as Enron or Dewey & LeBoeuf lacked fair and predictable organizational structures, rules and culture—and failed.

In short, could it be that instead of size, resources, capabilities, market power, etc., it is the clarity, stability and fairness of an organization’s structure and culture, and how intellectual property and the contribution of employees are honored, that determine the success or failure of an organization?

Just a thought.

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Why Nations Fail: The Origins of Power, Prosperity, and Poverty Paperback 2013, D. Acemoglu and J. Robinson

How Google Works 2014 E. Schmidt and J. Rosenberg 

Dewey & LeBoeuf