WHEN Kenya gained independence from Britain in 1963, it was richer than South Korea in terms of per capita income. A half-century later, South Koreans are on average 28 times richer than Kenyans.
How could two countries that essentially started at the same point have on their marathon to economic success fared so differently? The question - why some are so rich and some so poor - is said to be ''the grand object of all inquiries in political economy''.
Two American professors, Daron Acemoglu of MIT and James Robinson of Harvard, have tackled that question head-on in their book Why Nations Fail: The Origins of Power, Prosperity and Poverty, which has won praises from a line of Nobel laureates.
In their landmark study of development paths around the world, using examples ranging from the Spanish colonisation of South America to the Arab Spring, they argue that an open and pluralistic political culture, which allows the development of inclusive economic institutions, is the key to sustained prosperity.
The authors say inclusive economic institutions are important because they ''give people freedom to pursue the vocations in life that best suit their talents'' and also ''provide a level playing field that gives
them the opportunity to do so''.
In short, economic institutions such as private property rights give people incentives to invest, innovate and become educated.
But we have seen too many examples of economic institutions that are rigged to provide benefits only to the political elites.
For example, Carlos Slim, the world's richest man, enjoys a telecommunications monopoly in Mexico and parts of Latin America due to political connections. His patrons make sure that entry barriers to his business are entrenched, even though lifting them would benefit millions of Mexican.
These extractive economic institutions destroy people's incentives to invest or innovate as they know the fruit of their labour could be expropriated and security of their property is not guaranteed.
Just think of Indonesia under Suharto or Egypt under Mubarak, where relatives and cronies profiteered from control of economic institutions. Mubarak allegedly amassed a $70 billion fortune.
Acemoglu and Robinson find inclusive economic institutions are linked with open and pluralistic society - crucial in understanding why nations fail or prosper.
They argue that ''while economic institutions are critical for determining whether a country is prosperous, it is politics and political institutions that determine what economic institution a country has''.
Indeed, political culture creates and conditions economic institutions. In an open society where politicians are agents of citizens and their powers are limited, institutions tend to be inclusive and serve to create a level playing field.
Similarly, repressive political systems foster economic ''extractive'' institutions. The authors say these extractive institutions are responsible for economic failures of many poor countries from North Korea to Sierra Leone.
The only way to break out the vicious circle of poverty is to transform extractive institutions into inclusive institutions that look after the welfare of the majority.
This book arrives at an interesting time when developing countries, especially those run by dictators, are warming up to China's model of development, a Faustian marriage of political repression and economic growth.
An increasingly loud chorus of crackpot dictators, including Robert Mugabe, are ''looking East'' for inspirations, even though Beijing is reluctant to promote its brand of authoritarian capitalism.
The authors argue that despite the glittering success of the Beijing model, its economy is still the victim of a repressive political regime that discourages true innovation.
One of their boldest predictions, and the one that matters most to Australia, is that China's economic growth is not sustainable under the present political arrangement.
''Our theory suggests that growth under extractive political institutions, as under China, will not bring sustained growth, and is likely to run out of steam,'' they say.
Though China has changed significantly from the extremism of Mao, it is still within the firm grip of the largest extractive political and economic institution in the world - the Chinese Communist Party.
Local officials still expropriate farmers' land with impunity and private businesses are locked out of lucrative sectors of the economy for ''strategic reasons''.
The two economists say that Chinese growth is largely based on a catch-up strategy of importing foreign technology and exporting cheap manufacturing products.
They believe the dividends from this strategy will dry up as the country reaches a living standard comparable to a middle-income country.
''Because of the party's control over economic institutions, the extent of creative destruction is heavily curtailed, and it will remain so until there is radical reform in political institutions,'' they say.
It is to the disappointment of many, both inside and outside China, that rapid economic development has yet to have impact on political reform. In fact, the pace of reform came to a halt after the Tiananmen Square massacre more than two decades ago.
The compelling and simple lesson from this modern classic is that politics matters and is, in fact, paramount to economic development.
Sound economic institutions that encourage investment and innovation depend on a supportive political environment. Without that precondition, economic institutions can turn into rent-seeking tools for political elites.
South Korea has moved from the Third World to the First World after embracing not only modern technology but also free political institutions.
Kenya is still struggling to break free from the poverty trap.