Why Nations Fail by Daron Acemoglu- Book Review

Recipe for Success!

We tend to believe that the People and the Land make up the Nation - and hence the ability of the people and the quality of the land whether it is the geography or the availability of natural resources that determines whether a Nation will succeed or fail. But in this well researched book the authors show that it is the nature of the political and economic institutions which a nation creates that determines success or failure.

Authoritarian political institutions and extractive economics institutions are recipes for failure. But why do some countries or even adjacent cities develop them while their neighbors get democracy and inclusive economic institutions? Small initial differences going back hundreds of years which divert nations in different directions, contingent events, calamities, great personalities all explain the destinies of nations.

Covering countries from the West and the East, from Africa to Indonesia, from Australia to Antartica, the authors have a done a great job covering history, politics and economics and providing such insights that the book is a pleasure to read. There have never been a doubt that with free markets and equal opportunity, people from all backgrounds and nationalities can do well. For many decades we have seen immigrants from the world over get to the shores of the United States and do exceedingly well. But it had been difficult to understand why America developed they way it did while neighboring Mexico went down the other way. Or countries like China and India with ancient civilizations and colorful histories ended up being poor nations with millions on impoverished people. And why are they able to now rise back? And which model will succeed? Read the book to find out - you will not regret the effort.

I wish they can make this a compulsory read for all politicians......

A miracle in India !

"Bankruptcy to Billions - How the Indian Railways transformed" - by Sudhir Kumar & Shagun Mehrotra

Can you imagine a mammoth 100 year old Government organization in any country (let alone India) with 1.4 million employees transforming itself from a near bankruptcy situation to $6 Billion in cash surplus over just four years! And that too without privatization, layoffs or price increases! To cap it all they improved service levels significantly and actually managed to reduce prices (over 40%) for the poorer customer segments !! I am sure that everyone will agree that this qualifies as a miracle.

Well, that is the story of the Indian Railways from 2004 to 2008, and it is clearly told in this book “Bankruptcy to Billions” by Sudhir Kumar and Shahgum Mehrotra. Sudhir Kumar, a Government employee in the Indian Administrative Services was deputed on Special duty to the Minister of Railways (Lalu Prasad Yadav) and played a key role in this miracle story. Keep in mind that India has one of the largest railway networks in the world - daily running 13,000 trains (including 9000 passenger trains) over 63,000 km of routes and carrying 17 million passengers.

How did they do it? For an in depth understanding one needs to read the book. But I would summarize the management strategy as follows:

(a) Re-conceptualizing the Railway’s business - realizing that they are not a monopoly if they see themselves being in the Transportation business competing with buses, airlines, shipping lines for passenger traffic and trucks, ships and pipelines for the freight business (b) Innovation and Asset optimization - running faster longer and heavier trains, coordination and cooperation among the thousands of internal departments (c) Strategic investments for increasing utilization of existing assets by filling gaps (d) Alliances with private companies to meet soaring demand and co-opt competition (e) A deliberative and calibrated approach to make small changes and then learn, revise and scale up in a phased manner.

The book explains step by step on how the strategy was executed and it is an excellent case study of what can be achieved when politicians, bureaucrats and technocrats collaborate and innovate. It is also an example of how political compulsions can be reconciled with commercial objectives and produce a win-win situation for all. The book also dispels the notions that were spread by some in India that the turn around was more though accounting jugglery and just leveraging the vast real estate that Indian Railways owned. Further it also shows that the success was not just by plucking low lying fruits, but by making fundamental changes which should continue to propel Indian Railways forward. I hope that this story is used as a case study for MBA students world wide.

The book has some drawbacks though - the most critical being the lack of visibility in the book, of the key players who achieved this miracle. The team is just mentioned as ‘reformers’ - perhaps the author himself being one of them, was reluctant to project his role. Some more background of the railways from it inception at the time of the British, and its growth since independence, pictures of trains, stations and employees, would have been useful for non-Indian readers. The challenges that the team must have gone through are downplayed - the authors themselves don’t seem to have fully realized the scope and impact of their achievement!

A Roadmap to Nowhere

I normally hate to write bad reviews on books I read, but 'When Gaints Fall' by Michael Panzner raised my ire to a high degree.

The book predicts the fall of America (I guess not a difficult prediction now) and then paints a picture of doom and gloom in the United States and the rest of the world. About ten to fifteen points (Fall of the U.S, De-globalization, Increasing violence & wars, Fall of the Dollar, Changing Demographics, Energy crisis, Water shortage, Shortages of other natural resources and a few more) are repeated through out the book - the continuous repetitions making it a very difficult process to read the book. Extensive quotations are used - so much in fact that about 65 pages of the 260 page book are used up for bibliography!

Maybe the future predicted by Mr.Panzner is a possible outcome and he is entitled to his opinion. But the book claims to provide a economic roadmap for the future and also promises to show 'how the chaotic years of the future would present a singular opportunity for the reader to realize goals....' (quoted from the cover flap of the book). Here the author grossly misleads the reader. The book hardly provides any suggestions for the future except to 'focus, analyze, prepare well, network..' and to keep in mind that nothing will work out as planned!

The book is divided into two parts - Part 1 of 122 pages explaining the descent into chaos and Part II of about 60 pages supposedly to tell the reader how to prepare for the future. However Part II continues to repeat most of the points made in Part 1 with hardly a worthwhile suggestion. After some laborious effort, the author comes close to making a couple of positive suggestions (Invest in Canada, Invest in commodities & precious metals) but then immediately highlights why those steps are also fraught with danger!

The author completely misses out on Science & Technology and how today's challenges can be tomorrow's opportunities. A book written in haste - I guess to take advantage of the current pessimistic world outlook.