In Part I of this series we described the assertions about poverty and why nations fail from the excellent book by Acemoglu and Robinson, “Why Nations Fail”: With many examples they revealed a single and consistent factor as being the one contributory cause of failure and poverty; the EXTRACTIVE nature of economic and political institutions in any country. These are structured to extract resources from the many by the few and fail to protect property rights or provide incentives for economic activity. They also concentrate power in the hands of a few, who will then have incentives to maintain and develop these institutions for their own benefit and use the resources they obtain to cement their hold on political power.

So, how does Foreign Aid play a part in this, and is it a helping or hindering force? Here is a simple, unbelievable but true example from Acemoglu and Robinson: