There`s a Reason Why Some Live Well and Others Don`t

This year’s Nobel Prizes have a particularly strong connection to Korea. First, the Nobel Prize in Literature was awarded to Han Kang, a Korean novelist. Second, the Nobel Prize in Economic Sciences was awarded to Professor Daron Acemoglu of MIT and his co-authors, whose work explains why some countries are rich and others poor, using South Korea and North Korea as key case studies. Given this, it is only natural that interest in the Nobel Prize and in the works of its laureates has risen far more sharply in Korea than in previous years. Indeed, Han Kang’s novels reportedly sold out almost instantly at bookstores nationwide after her win.

While the reaction in Korea to the Nobel laureate in literature has been overwhelmingly enthusiastic, the response to the Nobel Prize in economics—particularly to a work that takes Korea and North Korea as representative cases—has been close to indifference. Is this because one laureate is Korean while the other is a foreigner, even though his work prominently features the Korean Peninsula? Or is it because one field is seen as “high-minded” literature, while the other concerns the supposedly “low-level” matter of making a living? Whatever the reason may be, the lukewarm response to the Nobel Prize in economics is regrettable. After all, there is an old saying: only when people are materially well-off can they afford proper manners and culture. In other words, good literature can flourish only in a society that eats well and lives well.

The central message of Why Nations Fail, written by Acemoglu and his co-authors, is strikingly simple and clear: countries that are rich are rich for a reason, and countries that are poor are poor for a reason. The book takes readers on an intellectual journey spanning more than 700 pages (in the Korean translation) to discover and test what those reasons are.

As mentioned earlier, the journey begins with comparisons: South Korea and North Korea; West Germany and East Germany, once divided between East and West; and Nogales, Arizona, and Nogales, Sonora—two cities that were once one community but are now separated by a border. The results of these comparisons are vividly captured in a single image: the now-famous nighttime satellite photograph of the Korean Peninsula, showing South Korea brightly illuminated like daylight, while North Korea lies shrouded in near-total darkness.

The authors’ intention in starting with South and North Korea, East and West Germany, and the two Nogales cities is clear. It is to demonstrate that several common explanations for why some people live well while others do not are simply wrong. For example, some argue that a country’s wealth is determined by its geographic location, or that cultural differences explain differences in prosperity. The authors argue that these claims are incorrect. The stark gap between South and North Korea—countries located in the same region and sharing the same ethnicity, culture, and history—clearly disproves such explanations. Therefore, the reasons why some countries prosper while others stagnate must be sought elsewhere, not in geography or culture.

Although the authors use somewhat ambiguous terms such as “inclusive economic institutions” and “extractive economic institutions,” the conclusion they ultimately reach is straightforward: the decisive factor is the economic order itself. In other words, whether a country chooses a market-based economic order or a socialist, centrally controlled economic order determines whether it becomes wealthy or remains poor.

If one were to summarize the authors’ entire 700-page journey in just a few sentences, it would read as follows:
“As is well known, we are one people. We shared the same language, culture, history, customs, and traditions, and after liberation we began from the same starting line. … The only difference between South Korea and North Korea was their economic order. South Korea chose a market economy, while North Korea chose a socialist command economy. That single choice at that moment divided South Korea and North Korea into what can only be described as heaven and hell.” (From the author’s Understanding Economics Properly.)

Why Nations Fail also conveys another important message. It helps us distinguish who seeks to make us prosperous and who, in effect, makes us poorer. By observing who supports or rejects the market economic order, and who favors or opposes a controlled economic system, it is not difficult to judge what kind of people they truly are.

Hyuk-Chul Kwon
Director, Free Market Research Institute

Korean version: https://www.cfe.org/20241023_26940