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Extractive economic institutions hinder economic development from "summary" of Why Nations Fail by Daron Acemoglu,James A. Robinson
Extractive economic institutions are characterized by a few individuals or groups who hold power and use it to extract resources from the rest of society, rather than encouraging productive activities. These institutions create a negative cycle where political power is concentrated in the hands of a few, who then use this power to maintain their control over economic resources. This results in limited economic opportunities for the majority of the population, as resources are not allocated efficiently or equitably. The extractive nature of these institutions stifles innovation and entrepreneurship, as individuals are discouraged from investing in new ideas or businesses due to the high levels of corruption, lack of property rights, and unstable legal systems. Without a level playing field, where individuals can trust that their investments will be protected and rewarded, economic development is severely hampered. Furthermore, extractive economic institutions often lead to widespread poverty and inequality, as resources are hoarded by a small elite at the expense of the broader population. This creates a vicious cycle where the rich get richer, while the poor remain trapped in a cycle of poverty and deprivation. In such a system, economic growth is limited, as the majority of the population is unable to access the resources and opportunities needed to improve their standard of living. In contrast, inclusive economic institutions create a positive cycle where political power is distributed more evenly, property rights are protected, and individuals are incentivized to invest in productive activities. This fosters innovation, entrepreneurship, and economic growth, as individuals are able to trust that their efforts will be rewarded and that they will have the opportunity to better their lives.- The concept of extractive economic institutions hindering economic development highlights the importance of creating inclusive institutions that promote equal opportunities, protect property rights, and encourage innovation. Without these fundamental components in place, societies are unable to achieve sustainable economic growth and development.
