Our focus in Module 5 turns towards factors that affect the long-term growth rates, which are central to understanding industry transformation, poverty rates, and, in many cases, why nations fail.

To prepare for Module 5, we recap Chapter 3 from Why Nations Fail by Nobel Prize winners Daron Acemoglu & James Robinson, establishing that long-term economic growth depends on a country's institutions: the formal and informal structures that constrain individual behavior in a society.

Main Themes:

1. Economic Institutions are structures that specifically shape incentives to pursue education, invest, innovate, trade, and accumulate capital. These include Infrastructure, Access to Economic Gains, Education, Centralized Power, Rule of Law, Corruption (for Economic Gain), and Property Rights.
2. Inclusive Economic Institutions are structures that allow and encourage participation by the great mass of people in economic activities that make the best use of their talents and enable them to engage in economic pursuits. Key characteristics include broad distribution of power and opportunity, secure property rights for the everyone, a level playing field for economic activity, freedom to choose careers, and a capable state that provides public services and enforces order.
3. Extractive Economic Institutions are structures (or lack thereof) that prevent participation by the great mass of people in economic activities that make the best use of their talents and prevent them from engaging in economic pursuits, giving benefits to a select few at the expense of the masses. Key characteristics include the concentration of power and opportunity to an elite, extraction of incomes and wealth from one part of society to benefit another, lack of widespread property rights, limited economic choices for the general populace, and state power often used to benefit the elite rather than providing public services for general prosperity.
4. Political Institutions are the structures that determine how power is distributed and exercised, determining who holds political power, what decisions can be made and by whom, and how power is constrained.
5. Inclusive Political Institutions are structures that disperse power across a great mass of people and place constraints on the exercise of power. Key characteristics include a broad distribution of political power, limits on the exercise of power, citizen participation in political decision-making, and the rule of law applied equally.
6. Extractive Political Institutions are structures (or lack thereof) that concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Key characteristics include the concentration of power in a narrow elite, few limits on the exercise of this power, limited or manipulated political participation, selectively enforced laws, and state power often maintained through force.
7. Extractive Elites are individuals or groups with some political power who support policies detrimental to widespread economic growth because reforming existing institutions would negatively affect their personal well-being. Extractive elites do not need to be wealthy. Anyone whose well-being would be negatively impacted by a change from the status quo who possesses some ability to obstruct progress (e.g., through bloc voting), can be considered an extractive elite.
8. Economic and Political Institutions interact and evolve to become self-reinforcing. In a Virtuous Cycle, inclusive economic institutions ensure wealth is dispersed, preventing a wealthy elite from dominating politics. And the inclusive political institutions that then form ensure extractive economic institutions are dismantled. In a Vicious Circle, extractive economic institutions enrich the elite, who use their wealth to ensure political dominance. And these individuals with political power then ensure extractive economic institutions are maintained to benefit themselves.