Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson
I recently finished Why Nations Fail, a very interesting look at the factors behind economic success or failure of nations. According to the author, the deciding factor is a country’s institutions, such as its legal system, system of government, and so on.
In short, institutions which are extractive (are designed to extract economic resources from the majority) lead to policies which maximise extraction, and hinder the majority to benefit economically, which lessens economic growth. These policies may include monopolies, slavery, nepotism, and so on.
On the other hand, institutions which are inclusive (let a majority take part in the economy and political decision-making), let the majority benefit economically, which leads to better economic growth overall.
The author supports his case with a large number of historical case studies, in particular, similar countries whose economies have diverged because of which political faction won and which social institutions they created.