of prosperity around the world nor the lay of the land around
us—for example, why some nations, such as Mexico and
Peru, but not the United States or England, adopted
institutions and policies that would impoverish the majority
of their citizens, or why almost all sub-Saharan Africa and
most of Central America are so much poorer than Western
Europe or East Asia.
When nations break out of institutional patterns
condemning them to poverty and manage to embark on a
path to economic growth, this is not because their ignorant
leaders suddenly have become better informed or less self-
interested or because they’ve received advice from better
economists. China, for example, is one of the countries that
made the switch from economic policies that caused
poverty and the starvation of millions to those encouraging
economic growth. But, as we will discuss in greater detail
later, this did not happen because the Chinese Communist
Party finally understood that the collective ownership of
agricultural land and industry created terrible economic
incentives. Instead, Deng Xiaoping and his allies, who were
no less self-interested than their rivals but who had different
interests and political objectives, defeated their powerful
opponents in the Communist Party and masterminded a
political revolution of sorts, radically changing the
leadership and direction of the party. Their economic
reforms, which created market incentives in agriculture and
then subsequently in industry, followed from this political
revolution. It was politics that determined the switch from
communism and toward market incentives in China, not
better advice or a better understanding of how the economy
worked.
W E WILL ARGUE that to understand world inequality we have
to understand why some societies are organized in very
inefficient and socially undesirable ways. Nations
sometimes do manage to adopt efficient institutions and
achieve prosperity, but alas, these are the rare cases. Most
economists and policymakers have focused on “getting it
right,” while what is really needed is an explanation for why
poor nations “get it wrong.” Getting it wrong is mostly not
about ignorance or culture. As we will show, poor countries