How does Former Leadership influence Economic Development today?

The borders between nations shape almost every aspect of life. Chapter 1 of Why Nations Fail by Daron Acemoglu and James A. Robinson explores how the contrasting fiscal policies of the United States and Mexico have contributed to their respective economies overtime. The city of Nogales illustrates this vividly: life is experienced very differently to the north of the fence (Arizona, USA) than it is to the south (Sonora, Mexico). The average household income in the south of Nogales is roughly a third of its American counterpart, and the GDP per capita of the US is 84,534.0, incomparable to Mexico’s 14,185.8 (2024). Chapter 1 explores the possible causes of these disparities, considering factors such as ethnic descent, colonisation, and corruption. They posed the question: “Why are the institutions of the United States so much more conducive to economic success than those of Mexico or, for that matter, the rest of Latin America?” My initial response draws on Keynesian economics, attributing these differing economic dispositions to government intervention, or the lack thereof. It is not unreasonable to assume that poor leadership could produce insufficient growth, but how much power do fiscal policies truly have over a nation’s development, and what is the longevity of their effects?

How the book “Why Nations Fail” shaped my findings

This book was published in 2012, with each chapter exploring different theories behind as to “Why Nations Fail”. Chapter 1 highlights the wealth disparity between the US and Mexico, two countries sharing borders and land. They start their research in the 16th century, the “Era of Exploration”. This period arguably sets the foundation for the contrasting financial states of the two countries, as North America received more investment than the South due to the contributions of England. Basic economic principles suggest that an increase in investment (albeit via the exploitation of Native Americans) will lead to sustained economic growth, as it will lead to an increase in aggregate demand. Because of this, Latin America was fundamentally disadvantaged in comparison to the North. The authors of the book argue that the interaction of politics and economics in society cannot and should not be ignored, acknowledging this as the leading cause of wealth disparity between nations, “thus the politics of poverty and prosperity”. Their relatively modern perspective prompted me to undertake the question for myself, eliciting my research topic. However, in the volatile world of economics, even data from 2012 is outdated, possibly even irrelevant. Their argument undertakes a political viewpoint, and considering the innumerable changes in leadership, as well as world events that Acemoglu and Robinson have most definitely not anticipated, their argument may grow weak in the face of 2025. Can one leader or government make or break a nation? Would we benefit from a laissez-faire system instead?

What IS bad leadership?

A “bad leader” is an ambiguous term, with the definition altered to suit the standards of those who use it. It is impossible to cater to the needs of everyone in society, meaning that it is inevitable for there to be at least a small proportion of disgruntled individuals or businesses. Gemini refers to a bad leader as one that is “ineffective, detrimental to team growth and productivity, has traits like poor communication, lack of empathy, self-interest, and resistance to change, often creating a toxic environment despite potentially good intentions”. With consideration for economics, this definition may be altered to describe a bad leader as one whose actions hinder the growth of GDP via unemployment, inflation (beyond a healthy amount), and limited investment. For example, Rachel Reeves’ Autumn 2025 budget announced it will extend the freeze to personal tax thresholds for three further years. This led to some referring to her a bad leader, with vicious accusations that she was preventing the accumulation of individual wealth in the UK. Alternatively, her abolition of the two-child universal credit policy is said to raise 450,000 children out of poverty, producing a rather contradictory reaction to some of her other policies, showing how difficult it is to characterise someone as a hindrance to the growth of GDP.

In 20th century Mexico, the politicians of the nation were more than a hindrance through their monopoly over the banking system. The book states that by 1910, Mexico only had 42 banks, whereas the US had around 27,000. This disparity means that the citizens of Mexico were unable to borrow with the same freedom as their American counterparts. The lack of national competition in the Mexican banking system allowed interest rates to soar, making it extremely unaffordable for the average citizen to borrow money. The monetary policy of the government contributed to this, creating a monopoly wherein lower interest rates were given to those in power. A lack of borrowing, as we know, will lead to a decrease in consumption, as well as a decline in consumer confidence. In the early 20th century, when wealth was significantly easier to accumulate, this was detrimental to the economic growth of Mexico, as businesses were unable to invest. Due to the lack of democracy, the people of Mexico were unable to vote their corrupt government out of power. However, Mexico became a democratic society in the year 2000, yet it still has not become a high-income country. This therefore suggests that the lack of a “fair” voting system is not the sole cause of their inability to stand on par with their neighbour the US, and that corruption always has a place in society. Therefore, can we truly attribute the failure of a nation to leadership?

My conclusions

The decisions of government inevitably affect the country’s future. For example, Margeret Thatcher’s ideology, often referred to as “Thatcherism”, which led to the deindustrialization of the UK. Between 1979 and 1983, over two million jobs in industry, and 1.7 million in manufacturing. This led to widespread structural unemployment, as many workers’ skills became obsolete. Industrial skills are typically less transferable than professional skills, meaning workers were often forced to retrain or remain economically inactive. Thatcher’s policies have therefore contributed to the persistent North–South divide. As of 2018, the average household income in the North is around £7323 less than in the South (BBC). However, the claim that Thatcher’s government is solely responsible is oversimplistic and ignorant. The level of employment in British industry began to fall in the mid-1950s, and in manufacturing in the mid-1960s (Tomlinson, J. (2021)), signifying that Thatcher only sped up this process. Furthermore, businesses in the UK tend to invest in the South, therefore contributing the disparity in professional jobs. This is less to do with leadership, and more to do with private sector decision. Nevertheless, it could still be debated that Southern investment has to do with how the fiscal policy of predecessors has decreased the attraction of rural areas, as well as the lack of professional jobs within the north, therefore linking back to the idea that the current state of UK society is due to leadership.

A leader who unquestionably altered his nation’s trajectory is, of course, Adolf Hitler. Germany’s most infamous dictator led to socio-political devastation in Europe from 1939 to 1945 by initiating WWII, causing long-lasting structural damage that took some countries decades to repair. Hitler fits all the criteria for poor economic leadership: he created unemployment by restricting the rights of women and Jews to work, he facilitated the destruction of Jewish businesses due to prejudice and acted solely in the interest of his “1000-year Reich”. At the end of 1945, the housing stock in Germany had fallen by 20%, and the Reichsmark, German currency at the time, had become virtually worthless (Gethard, 2026). Many men between 18-35 had been killed or left crippled from the “war effort”, making the possibility of economic recovery look bleak and out of reach. By 1989 however, Germany had the third-biggest economy in the world, trailing only Japan and the United States in terms of gross domestic product (GDP). This recovery was facilitated by major superpowers such as the US, which provided financial aid through the Marshall Plan, rebuilding infrastructure and promoting economic stability. West Germany received around $1.4 billion, equivalent to 5% of its GDP at the time (ECA, 1952). Germany’s economy flourished not only due to monetary support, but also through the industrial boom that occurred during the 1950s., often referred to as Wirtschaftswunder (economic miracle). Growth averaged 8% a year and unemployment was at a record low (Payne, 2011). Hitler, despite the viewpoint of many, had a significantly worse impact on the economy than Margaret Thatcher. However, Germany had a recovery that alleviated the effects of their dictator, forming a nation better than before Hitler’s impact. Does this prove there is something fundamentally different between Germany and the United Kingdom, two Western European nations, that prevents negative leadership from having a long-lasting impact? This is also impossible to prove, meaning we may have to consider the possibility that there are factors external to leadership contributing to the eco-political states of the two nations to this day.

To what extent does leadership impact the economy? Based on my findings, the answer is simple. Even with laissez-faire system, the inaction of government in itself will affect the economy. The imposition of policy, participation in wars, the greed of corruption: the number of years that pass doesn’t matter. Every decision made by a person in power is consequential to those who come after them. The development of North America over South America in the 16th-17th century, as well as the decisions of Christopher Columbus, still impact Mexico today. The financial decisions of Margeret Thatcher in the 1980s, and Rachel Reeves in 2025 will impact the UK for years to come. The power granted to those that we will never meet affect us everyday, contributing to the employment opportunities we have access to, the price of our groceries and how much interest we pay at the bank. However, just as “bad” leadership may cause unemployment, inflation and stagnant investment, under “good” leadership these things may still occur. Just as how we acknowledge how those in charge contribute to our daily lives, we must also consider that economics is volatile, and that a single factor (leadership) will never grant us the full picture.