Why Nations Fail is an interesting read. The book discusses history from a political and economic point of view and how extractive versus inclusive systems in past history greatly influence how different areas of the world operate today.
Why is Nogales AZ (U.S. side of the border) so different compared to Nogales Mexico? They are in the same geography since the only difference is a fence that cuts the city in two. Yet their incentives are completely different which leads to people living in completely different conditions right next to each other.
Obviously North Korea is different from South Korea … why? They have the same geography and come from the same historical culture. Again, people living in different conditions right next to each other.
Haiti versus the Dominican Republic … completely different halves of the same island.
The authors posit it is because of the combination of extractive versus inclusive political systems and extractive versus inclusive economic systems. How these have played out in different areas of the world historically has left a legacy as to why things are today. And the dynamics continue to change and evolve which will influence outcomes for the future.
One of the reviewers relates the same concept of extractive behavior to the owner of the company they worked for and his attitude towards employee benefits … no profit sharing plan … because the owner would not get those benefits for themselves. Naturally employee behavior was different for this company compared to before when the profit sharing plan existed. Scale the same individual attitude up from a company to a region, state, and nation and you can see how incentives make a difference how people behave.
Understanding the perspective of the book helps explain why one should be aware of the risk of investing in a company in a country that may nationalize the company (remove shareholders as owners and make the state the owner) … Argentina nationalisation … Bolivia nationalisation … as well as state-owned corporations. Indeed, our own behavior as potential investors illustrates personally how the effect of participation (inclusion), or not, affects our behavior!