Why Nations Fail

by Daron Acemoglu

  Yet the institutions of Western Europe had not always been so different from those in the East. They began, as we saw earlier, to diverge in the fourteenth century when the Black Death hit in 1346. There were small differences between political and economic institutions in Western and Eastern Europe. England and Hungary were even ruled by members of the same family, the Angevins. The more important institutional differences that emerged after the Black Death then created the background upon which the more significant divergence between the East and the West would play out during the seventeenth, eighteenth, and nineteenth centuries.

  But where do the small institutional differences that start this process of divergence arise in the first place? Why did Eastern Europe have different political and economic institutions than the West in the fourteenth century? Why was the balance of power between Crown and Parliament different in England than in France and Spain? As we will see in the next chapter, even societies that are far less complex than our modern society create political and economic institutions that have powerful effects on the lives of their members. This is true even for hunter-gatherers, as we know from surviving societies such as the San people of modern Botswana, who do not farm or even live in permanent settlements.

  No two societies create the same institutions; they will have distinct customs, different systems of property rights, and different ways of dividing a killed animal or loot stolen from another group. Some will recognize the authority of elders, others will not; some will achieve some degree of political centralization early on, but not others. Societies are constantly subject to economic and political conflict that is resolved in different ways because of specific historical differences, the role of individuals, or just random factors.

  These differences are often small to start with, but they cumulate, creating a process of institutional drift. Just as two isolated populations of organisms will drift apart slowly in a process of genetic drift, because random genetic mutations cumulate, two otherwise similar societies will also slowly drift apart institutionally. Though, just like genetic drift, institutional drift has no predetermined path and does not even need to be cumulative; over centuries it can lead to perceptible, sometimes important differences. The differences created by institutional drift become especially consequential, because they influence how society reacts to changes in economic or political circumstances during critical junctures.

  The richly divergent patterns of economic development around the world hinge on the interplay of critical junctures and institutional drift. Existing political and economic institutions—sometimes shaped by a long process of institutional drift and sometimes resulting from divergent responses to prior critical junctures—create the anvil upon which future change will be forged. The Black Death and the expansion of world trade after 1600 were both major critical junctures for European powers and interacted with different initial institutions to create a major divergence. Because in 1346 in Western Europe peasants had more power and autonomy than they did in Eastern Europe, the Black Death led to the dissolution of feudalism in the West and the Second Serfdom in the East. Because Eastern and Western Europe had started to diverge in the fourteenth century, the new economic opportunities of the seventeenth, eighteenth, and nineteenth centuries would also have fundamentally different implications for these different parts of Europe. Because in 1600 the grip of the Crown was weaker in England than in France and Spain, Atlantic trade opened the way to the creation of new institutions with greater pluralism in England, while strengthening the French and Spanish monarchs.

  THE CONTINGENT PATH OF HISTORY

  The outcomes of the events during critical junctures are shaped by the weight of history, as existing economic and political institutions shape the balance of power and delineate what is politically feasible. The outcome, however, is not historically predetermined but contingent. The exact path of institutional development during these periods depends on which one of the opposing forces will succeed, which groups will be able to form effective coalitions, and which leaders will be able to structure events to their advantage.

  The role of contingency can be illustrated by the origins of inclusive political institutions in England. Not only was there nothing preordained in the victory of the groups vying for limiting the power of the Crown and for more pluralistic institutions in the Glorious Revolution of 1688, but the entire path leading up to this political revolution was at the mercy of contingent events. The victory of the winning groups was inexorably linked to the critical juncture created by the rise of Atlantic trade that enriched and emboldened merchants opposing the Crown. But a century earlier it was far from obvious that England would have any ability to dominate the seas, colonize many parts of the Caribbean and North America, or capture so much of the lucrative trade with the Americas and the East. Neither Elizabeth I nor other Tudor monarchs before her had built a powerful, unified navy. The English navy relied on privateers and independent merchant ships and was much less powerful than the Spanish fleet. The profits of the Atlantic nonetheless attracted these privateers, challenging the Spanish monopoly of the ocean. In 1588 the Spanish decided to put an end to these challenges to their monopoly, as well as to English meddling in the Spanish Netherlands, at the time fighting against Spain for independence.

  The Spanish monarch Philip II sent a powerful fleet, the Armada, commanded by the Duke of Medina Sidonia. It appeared a foregone conclusion to many that the Spanish would conclusively defeat the English, solidify their monopoly of the Atlantic, and probably overthrow Elizabeth I, perhaps ultimately gaining control of the British Isles. Yet something very different transpired. Bad weather and strategic mistakes by Sidonia, who had been put in charge at the last minute after a more experienced commander died, made the Spanish Armada lose their advantage. Against all odds, the English destroyed much of the fleet of their more powerful opponents. The Atlantic seas were now open to the English on more equal terms. Without this unlikely victory for the English, the events that would create the transformative critical juncture and spawn the distinctively pluralistic political institutions of post-1688 England would never have got moving. Map 9 shows the trail of Spanish shipwrecks as the Armada was chased right around the British Isles.

  Of course, nobody in 1588 could foresee the consequences of the fortunate English victory. Few probably understood at the time that this would create a critical juncture leading up to a major political revolution a century later.

  There should be no presumption that any critical juncture will lead to a successful political revolution or to change for the better. History is full of examples of revolutions and radical movements replacing one tyranny with another, in a pattern that the German sociologist Robert Michels dubbed the iron law of oligarchy, a particularly pernicious form of the vicious circle. The end of colonialism in the decades following the Second World War created critical junctures for many former colonies. However, in most cases in sub-Saharan Africa and many in Asia, the postindependence governments simply took a page out of Robert Michels’s book and repeated and intensified the abuses of their predecessors, often severely narrowing the distribution of political power, dismantling constraints, and undermining the already meager incentives that economic institutions provided for investment and economic progress. It was only in a few cases, societies such as Botswana (see this page), that critical junctures were used to launch a process of political and economic change that paved the way for economic growth.

  Critical junctures can also result in major change toward rather than away from extractive institutions. Inclusive institutions, even though they have their own feedback loop, the virtuous circle, can also reverse course and become gradually more extractive because of challenges during critical junctures—and whether this happens is, again, contingent. The Venetian Republic, as we will see in chapter 6, made major strides toward inclusive political and economic institutions in the medieval period. But while such institutions became gradually stronger in England after the Glorious Re
volution of 1688, in Venice they ultimately transformed themselves into extractive institutions under the control of a narrow elite that monopolized both economic opportunities and political power.

  UNDERSTANDING THE LAY OF THE LAND

  The emergence of a market economy based on inclusive institutions and sustained economic growth in eighteenth-century England sent ripples all around the world, not least because it allowed England to colonize a large part of it. But if the influence of English economic growth certainly spread around the globe, the economic and political institutions that created it did not automatically do so. The diffusion of the Industrial Revolution had different effects on the world in the same way that the Black Death had different effects on Western and Eastern Europe, and in the same way that the expansion of Atlantic trade had different effects in England and Spain. It was the institutions in place in different parts of the world that determined the impact, and these institutions were indeed different—small differences had been amplified over time by prior critical junctures. These institutional differences and their implications have tended to persist to the present due to the vicious and virtuous circles, albeit imperfectly, and are the key to understanding both how world inequality emerged and the nature of the lay of the land around us.

  Some parts of the world developed institutions that were very close to those in England, though by a very different route. This was particularly true of some European “settler colonies” such as Australia, Canada, and the United States, though their institutions were just forming as the Industrial Revolution was getting under way. As we saw in chapter 1, a process starting with the foundation of the Jamestown colony in 1607 and culminating in the War of Independence and the enactment of the U.S. Constitution shares many of the same characteristics as the long struggle in England of Parliament against the monarchy, for it also led to a centralized state with pluralistic political institutions. The Industrial Revolution then spread rapidly to such countries.

  Western Europe, experiencing many of the same historical processes, had institutions similar to England at the time of the Industrial Revolution. There were small but consequential differences between England and the rest, which is why the Industrial Revolution happened in England and not France. This revolution then created an entirely new situation and considerably different sets of challenges to European regimes, which in turn spawned a new set of conflicts culminating in the French Revolution. The French Revolution was another critical juncture that led the institutions of Western Europe to converge with those of England, while Eastern Europe diverged further.

  The rest of the world followed different institutional trajectories. European colonization set the stage for institutional divergence in the Americas, where in contrast to the inclusive institutions developed in the United States and Canada extractive ones emerged in Latin America, which explains the patterns of inequality we see in the Americas. The extractive political and economic institutions of the Spanish conquistadors in Latin America have endured, condemning much of the region to poverty. Argentina and Chile have, however, fared better than most other countries in the region. They had few indigenous people or mineral riches and were “neglected” while the Spanish focused on the lands occupied by the Aztec, Maya, and Incan civilizations. Not coincidentally, the poorest part of Argentina is the northwest, the only section of the country integrated into the Spanish colonial economy. Its persistent poverty, the legacy of extractive institutions, is similar to that created by the Potosí mita in Bolivia and Peru (this page–this page).

  Africa was the part of the world with the institutions least able to take advantage of the opportunities made available by the Industrial Revolution. For at least the last one thousand years, outside of small pockets and during limited periods of time, Africa has lagged behind the rest of the world in terms of technology, political development, and prosperity. It is the part of the world where centralized states formed very late and very tenuously. Where they did form, they were likely as highly absolutist as the Kongo and often short lived, usually collapsing. Africa shares this trajectory of lack of state centralization with countries such as Afghanistan, Haiti, and Nepal, which have also failed to impose order over their territories and create anything resembling stability to achieve even a modicum of economic progress. Though located in very different parts of the world, Afghanistan, Haiti, and Nepal have much in common institutionally with most nations in sub-Saharan Africa, and are thus some of the poorest countries in the world today.

  How African institutions evolved into their present-day extractive form again illustrates the process of institutional drift punctuated by critical junctures, but this time often with highly perverse outcomes, particularly during the expansion of the Atlantic slave trade. There were new economic opportunities for the Kingdom of Kongo when European traders arrived. The long-distance trade that transformed Europe also transformed the Kingdom of Kongo, but again, initial institutional differences mattered. Kongolese absolutism transmogrified from completely dominating society, with extractive economic institutions that merely captured all the agricultural output of its citizens, to enslaving people en masse and selling them to the Portuguese in exchange for guns and luxury goods for the Kongolese elite.

  The initial differences between England and Kongo meant that while new long-distance trade opportunities created a critical juncture toward pluralistic political institutions in the former, they also extinguished any hope of absolutism being defeated in the Kongo. In much of Africa the substantial profits to be had from slaving led not only to its intensification and even more insecure property rights for the people but also to intense warfare and the destruction of many existing institutions; within a few centuries, any process of state centralization was totally reversed, and many of the African states had largely collapsed. Though some new, and sometimes powerful, states did form to exploit the slave trade, they were based on warfare and plunder. The critical juncture of the discovery of the Americas may have helped England develop inclusive institutions but it made institutions in Africa even more extractive.

  Though the slave trade mostly ended after 1807, subsequent European colonialism not only threw into reverse nascent economic modernization in parts of southern and western Africa but also cut off any possibility of indigenous institutional reform. This meant that even outside of areas such as Congo, Madagascar, Namibia, and Tanzania, the areas where plunder, mass disruption, and even whole-scale murder were the rule, there was little chance for Africa to change its institutional path.

  Even worse, the structures of colonial rule left Africa with a more complex and pernicious institutional legacy in the 1960s than at the start of the colonial period. The development of the political and economic institutions in many African colonies meant that rather than creating a critical juncture for improvements in their institutions, independence created an opening for unscrupulous leaders to take over and intensify the extraction that European colonialists presided over. The political incentives these structures created led to a style of politics that reproduced the historical patterns of insecure and inefficient property rights under states with strong absolutist tendencies but nonetheless lacking any centralized authority over their territories.

  The Industrial Revolution has still not spread to Africa because that continent has experienced a long vicious circle of the persistence and re-creation of extractive political and economic institutions. Botswana is the exception. As we will see (this page–this page), in the nineteenth century, King Khama, the grandfather of Botswana’s first prime minister at independence, Seretse Khama, initiated institutional changes to modernize the political and economic institutions of his tribe. Quite uniquely, these changes were not destroyed in the colonial period, partly as a consequence of Khama’s and other chiefs’ clever challenges to colonial authority. Their interplay with the critical juncture that independence from colonial rule created laid the foundations for Botswana’s economic and political success. It was another case of small
historical differences mattering.

  There is a tendency to see historical events as the inevitable consequences of deep-rooted forces. While we place great emphasis on how the history of economic and political institutions creates vicious and virtuous circles, contingency, as we have emphasized in the context of the development of English institutions, can always be a factor. Seretse Khama, studying in England in the 1940s, fell in love with Ruth Williams, a white woman. As a result, the racist apartheid regime in South Africa persuaded the English government to ban him from the protectorate, then called Bechuanaland (whose administration was under the High Commissioner of South Africa), and he resigned his kingship. When he returned to lead the anticolonial struggle, he did so with the intention not of entrenching the traditional institutions but of adapting them to the modern world. Khama was an extraordinary man, uninterested in personal wealth and dedicated to building his country. Most other African countries have not been so fortunate. Both things mattered, the historical development of institutions in Botswana and contingent factors that led these to be built on rather than overthrown or distorted as they were elsewhere in Africa.

  IN THE NINETEENTH CENTURY, absolutism not so different from that in Africa or Eastern Europe was blocking the path of industrialization in much of Asia. In China, the state was strongly absolutist, and independent cities, merchants, and industrialists were either nonexistent or much weaker politically. China was a major naval power and heavily involved in long-distance trade centuries before the Europeans. But it had turned away from the oceans just at the wrong time, when Ming emperors decided in the late fourteenth and early fifteenth centuries that increased long-distance trade and the creative destruction that it might bring would be likely to threaten their rule.