Our recent book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, received the harshest reviews from those who see geography and culture as the root causes of poverty, and enlightened leaders -- or even more enlightened outside donors and organizations -- as the keys to economic development. Perhaps unsurprisingly, given his dedication to international aid, billionaire foundation chief Bill Gates falls into this category: His Feb. 26 review of our book was particularly uncharitable. Unfortunately, however, it was also dead wrong on many counts.
Gates's review is disappointing, but not just because he disagrees with us. As academics, we expect that. Research is all about arguing and contradicting, finding new pieces of evidence, developing new concepts and perspectives, and getting closer to the truth. Alas, Gates fails in this endeavor. His inability to understand even the most rudimentary parts of our thesis means that his review fails to invite constructive argument. Nonetheless, we feel compelled to respond because of the undue attention the review has generated.
To start with, Gates makes some pretty baffling statements about our book, such as his assertion that "important terms aren't really defined." Actually, all of the major concepts we use in the book are defined; one just needs to read the book. Other assertions demonstrate not only that Gates is unfamiliar with the academic literature, which is understandable, but that he actually did not bother to consult the bibliographic essay and the references at the end. He writes, "The authors ... attribute the decline of Venice to a reduction in the inclusiveness of its institutions. The fact is, Venice declined because competition came along ... Even if Venice had managed to preserve the inclusiveness of their institutions, it would not have made up for their loss of the spice trade."
This is just bad history. Venice didn't decline because of the loss of the spice trade. If that were the case, the decline should have started at the very end of the 15th century. But the decline was already well underway by the middle of the 14th century. More generally, research by Diego Puga and Daniel Trefler shows that Venice's fortunes had nothing to do with competition or the spice trade.
Likewise, Gates seems to think that the Maya declined because of the "weather." Though there is certainly scholarly dispute over why Maya civilization decayed, to our knowledge no reputable scholar argues that it was due to the weather. Instead, most scholars emphasize the role of inter-city warfare and the collapse of Mayan political institutions. Nor does the book, as Gates would have it, "overlook the incredible period of growth and innovation in China between 800 and 1400." We discuss that period, and explain why it didn't translate into sustained economic growth (see Chapter 8, in particular, pp. 231-234).
Gates also says at one point that our book "refers to me in a positive light." Sorry, we do no such thing. 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. So the right counterfactual to Slim isn't no Slim, but a Mexico in which people like Slim (and hundreds of other talented would-be entrepreneurs who never got the opportunity to flourish because of the country's poor education system or because of its terrible competition laws) operate within the context of inclusive economic institutions and therefore enrich their society to a much greater extent.
For the record, however, before cheerleading Slim, Gates might want to read the OECD's 2012 report on telecommunications policy and regulation in Mexico, which estimates the social costs of Slim's monopoly at U.S. $129 billion and counting. (The latest Forbes list of the world's richest people puts Slim's net worth at U.S. $79 billion). So in what way is Mexico better off exactly?