Why Nations Fail

by Daron Acemoglu

  Not so in most of the other European colonies. Their dynamics would be quite the opposite of those in Australia and the United States. Lack of a native population or resources to be extracted made colonialism in Australia and the United States a very different sort of affair, even if their citizens had to fight hard for their political rights and for inclusive institutions. In the Moluccas as in the many other places Europeans colonized in Asia, in the Caribbean, and in South America, citizens had little chance of winning such a fight. In these places, European colonists imposed a new brand of extractive institutions, or took over whatever extractive institutions they found, in order to be able to extract valuable resources, ranging from spices and sugar to silver and gold. In many of these places, they put in motion a set of institutional changes that would make the emergence of inclusive institutions very unlikely. In some of them they explicitly stamped out whatever burgeoning industry or inclusive economic institutions existed. Most of these places would be in no situation to benefit from industrialization in the nineteenth century or even in the twentieth.

  The dynamics in the rest of Europe were also quite different from those in Australia and the United States. As the Industrial Revolution in Britain was gathering speed at the end of the eighteenth century, most European countries were ruled by absolutist regimes, controlled by monarchs and by aristocracies whose major source of income was from their landholdings or from trading privileges they enjoyed thanks to prohibitive entry barriers. The creative destruction that would be wrought by the process of industrialization would erode the leaders’ trading profits and take resources and labor away from their lands. The aristocracies would be economic losers from industrialization. More important, they would also be political losers, as the process of industrialization would undoubtedly create instability and political challenges to their monopoly of political power.

  But the institutional transitions in Britain and the Industrial Revolution created new opportunities and challenges for European states. Though there was absolutism in Western Europe, the region had also shared much of the institutional drift that had impacted Britain in the previous millennium. But the situation was very different in Eastern Europe, the Ottoman Empire, and China. These differences mattered for the dissemination of industrialization. Just like the Black Death or the rise of Atlantic trade, the critical juncture created by industrialization intensified the ever-present conflict over institutions in many European nations. A major factor was the French Revolution of 1789. The end of absolutism in France opened the way for inclusive institutions, and the French ultimately embarked on industrialization and rapid economic growth. The French Revolution in fact did more than that. It exported its institutions by invading and forcibly reforming the extractive institutions of several neighboring countries. It thus opened the way to industrialization not only in France, but in Belgium, the Netherlands, Switzerland, and parts of Germany and Italy. Farther east the reaction was similar to that after the Black Death, when, instead of crumbling, feudalism intensified. Austria-Hungary, Russia, and the Ottoman Empire fell even further behind economically, but their absolutist monarchies managed to stay in place until the First World War.

  Elsewhere in the world, absolutism was as resilient as in Eastern Europe. This was particularly true in China, where the Ming-Qing transition led to a state committed to building a stable agrarian society and hostile to international trade. But there were also institutional differences that mattered in Asia. If China reacted to the Industrial Revolution as Eastern Europe did, Japan reacted in the same way as Western Europe. Just as in France, it took a revolution to change the system, this time one led by the renegade lords of the Satsuma, Chōshū, Tosa, and Aki domains. These lords overthrew the shogun, created the Meiji Restoration, and moved Japan onto the path of institutional reforms and economic growth.

  We also saw that absolutism was resilient in isolated Ethiopia. Elsewhere on the continent the very same force of international trade that helped to transform English institutions in the seventeenth century locked large parts of western and central Africa into highly extractive institutions via the slave trade. This destroyed societies in some places and led to the creation of extractive slaving states in others.

  The institutional dynamics we have described ultimately determined which countries took advantage of the major opportunities present in the nineteenth century onward and which ones failed to do so. The roots of the world inequality we observe today can be found in this divergence. With a few exceptions, the rich countries of today are those that embarked on the process of industrialization and technological change starting in the nineteenth century, and the poor ones are those that did not.

  11.

  THE VIRTUOUS CIRCLE

  THE BLACK ACT

  WINDSOR CASTLE, located just west of London, is one of the great royal residencies of England. In the early eighteenth century, the castle was surrounded by a great forest, full of deer, though little of this remains today. One of the keepers of the forest in 1722, Baptist Nunn, was locked in to a violent conflict. On June 27 he recorded,

  Blacks came in the night shot at me 3 times 2 bullets into my chamber window and [I] agreed to pay them 5 guineas at Crowthorne on the 30th.

  Another entry in Nunn’s diary read, “A fresh surprise. One appeared disguised with a message of destruction.”

  Who were these mysterious “Blacks” making threats, shooting at Nunn, and demanding money? The Blacks were groups of local men who had their faces “blacked” to conceal their appearance at night. They appeared widely across southern England in this period, killing and maiming deer and other animals, burning down haystacks and barns, and destroying fences and fish ponds. On the surface it was sheer lawlessness, but it wasn’t. Illegal hunting (poaching) deer in lands owned by the king or other members of the aristocracy had been going on for a long time. In the 1640s, during the Civil War, the entire population of deer at Windsor Castle was killed. After the Restoration in 1660, when Charles II came to the throne, the deer park was restocked. But the Blacks were not just poaching deer to eat; they also engaged in wanton destruction. To what end?

  A crucial building block of the Glorious Revolution of 1688 was the pluralistic nature of interests represented in Parliament. None of the merchants, industrialists, gentry, or aristocracy allied with William of Orange and then with the Hanoverian monarchs, who succeeded Queen Anne in 1714, were strong enough to impose their will unilaterally.

  Attempts at restoring the Stuart monarchy continued throughout much of the eighteenth century. After James II’s death in 1701, his son, James Francis Edward Stuart, the “Old Pretender,” was recognized as the lawful heir to the English Crown by France, Spain, the pope, and supporters of the Stuart monarchy in England and Scotland, the so-called Jacobites. In 1708 the Old Pretender attempted to take back the throne with support of French troops, but was unsuccessful. In the ensuing decades there would be several Jacobite revolts, including major ones in 1715 and 1719. In 1745–46, the Old Pretender’s son, Charles Edward Stuart, the “Young Pretender,” made an attempt to take back the throne, but his forces were defeated by the British army.

  The Whig political party, which as we saw (this page–this page) was founded in the 1670s to represent the new mercantile and economic interests, was the main organization behind the Glorious Revolution, and the Whigs dominated Parliament from 1714 to 1760. Once in power, they were tempted to use their newly found position to prey on the rights of others, to have their cake and eat it, too. They were no different from the Stuart kings, but their power was far from absolute. It was constrained both by competing groups in Parliament, particularly the Tory Party which had formed to oppose the Whigs, and by the very institutions that they had fought to introduce to strengthen Parliament and to prevent the emergence of a new absolutism and the return of the Stuarts. The pluralistic nature of society that emerged from the Glorious Revolution also meant that the population at large, even those without formal representation in Pa
rliament, had been empowered, and “blacking” was precisely a response by the common people to perceptions that the Whigs were exploiting their position.

  The case of William Cadogan, a successful general in the War of the Spanish Succession between 1701 and 1714 and in the suppression of the Jacobite revolts, illustrates the sort of encroachment of common people’s rights by the Whigs that led to blacking. George I made Cadogan a baron in 1716 and then an earl in 1718. He was also an influential member of the Regency Council of Lords Justices, which presided over major affairs of state, and he served as the acting commander in chief. He bought a large property of about a thousand acres at Caversham, about twenty miles west of Windsor. There he built a grand house and ornate gardens and laid out a 240-acre deer park. Yet this property was consolidated by encroaching on the rights of those around the estate. People were evicted, and their traditional rights to graze animals and collect peat and firewood were abrogated. Cadogan faced the wrath of the Blacks. On January 1, 1722, and again in July, the park was raided by mounted and armed Blacks. The first attack killed sixteen deer. Earl Cadogan was not alone. The estates of many notable landowners and politicians were also raided by the Blacks.

  The Whig government was not going to take this lying down. In May 1723, Parliament passed the Black Act, which created an extraordinary fifty new offenses that were punishable by hanging. The Black Act made it a crime not only to carry weapons but to have a blackened face. The law in fact was soon amended to make blacking punishable by hanging. The Whig elites went about implementing the law with gusto. Baptist Nunn set up a network of informers in Windsor Forest to discover the identity of the Blacks. Soon several were arrested. The transition from arrest to hanging ought to have been a straightforward affair. After all, the Black Act had already been enacted, the Whigs were in charge of Parliament, Parliament was in charge of the country, and the Blacks were acting directly contrary to the interests of some powerful Whigs. Even Sir Robert Walpole, secretary of state, then prime minister—and like Cadogan, another influential member of the Regency Council of the Lords Justices—was involved. He had a vested interest in Richmond Park in southwest London, which had been created out of common land by Charles I. This park also encroached upon the traditional rights of local residents to graze their animals, hunt hares and rabbits, and collect firewood. But the ending of these rights appears to have been rather laxly enforced, and grazing and hunting continued, until Walpole arranged for his son to become the park ranger. At this time, the park was closed off, a new wall was constructed, and man traps were installed. Walpole liked hunting deer, and he had a lodge built for himself at Houghton, within the park. The animosity of local Blacks was soon ignited.

  On November 10, 1724, a local resident outside the park, John Huntridge, was accused of aiding deer stealers and abetting known Blacks, both crimes punishable by hanging. The prosecution of Huntridge came right from the top, initiated by the Regency Council of Lords Justices, which Walpole and Cadogan dominated. Walpole went so far as to extract evidence himself as to Huntridge’s guilt from an informant, Richard Blackburn. Conviction ought to have been a foregone conclusion, but it wasn’t. After a trial of eight or nine hours, the jury found Huntridge innocent, partly on procedural grounds, since there were irregularities with the way the evidence had been collected.

  Not all Blacks or those who sympathized with them were as lucky as Huntridge. Though some others were also acquitted or had their convictions commuted, many were hanged or transported to the penal colony of choice at the time, North America; the law in fact stayed on the statute books until it was repealed in 1824. Yet Huntridge’s victory is remarkable. The jury was made up not of Huntridge’s peers, but of major landowners and gentry, who ought to have sympathized with Walpole. But this was no longer the seventeenth century, where the Court of Star Chamber would simply follow the wishes of Stuart monarchs and act as an open tool of repression against their opponents, and where kings could remove judges whose decisions they did not like. Now the Whigs also had to abide by the rule of law, the principle that laws should not be applied selectively or arbitrarily and that nobody is above the law.

  THE EVENTS SURROUNDING the Black Act would show that the Glorious Revolution had created the rule of law, and that this notion was stronger in England and Britain, and the elites were far more constrained by it than they themselves imagined. Notably, the rule of law is not the same as rule by law. Even if the Whigs could pass a harsh, repressive law to quash obstacles from common people, they had to contend with additional constraints because of the rule of law. Their law violated the rights that the Glorious Revolution and the changes in political institutions that followed from it had already established for everybody by tearing down the “divine” rights of kings and the privileges of elites. The rule of law then implied that both elites and nonelites alike would resist its implementation.

  The rule of law is a very strange concept when you think about it in historical perspective. Why should laws be applied equally to all? If the king and the aristocracy have political power and the rest don’t, it’s only natural that whatever is fair game for the king and the aristocracy should be banned and punishable for the rest. Indeed, the rule of law is not imaginable under absolutist political institutions. It is a creation of pluralist political institutions and of the broad coalitions that support such pluralism. It’s only when many individuals and groups have a say in decisions, and the political power to have a seat at the table, that the idea that they should all be treated fairly starts making sense. By the early eighteenth century, Britain was becoming sufficiently pluralistic, and the Whig elites would discover that, as enshrined in the notion of the rule of law, laws and institutions would constrain them, too.

  But why did the Whigs and parliamentarians abide by such restraints? Why didn’t they use their control over Parliament and the state to force an uncompromising implementation of the Black Act and overturn the courts when the decisions didn’t go their way? The answer reveals much about the nature of the Glorious Revolution—why it didn’t just replace an old absolutism with a new version—the link between pluralism and the rule of law, and the dynamics of virtuous circles. As we saw in chapter 7, the Glorious Revolution was not the overthrow of one elite by another, but a revolution against absolutism by a broad coalition made up of the gentry, merchants, and manufacturers as well as groupings of Whigs and Tories. The emergence of pluralist political institutions was a consequence of this revolution. The rule of law also emerged as a by-product of this process. With many parties at the table sharing power, it was natural to have laws and constraints apply to all of them, lest one party start amassing too much power and ultimately undermine the very foundations of pluralism. Thus the notion that there were limits and restraints on rulers, the essence of the rule of law, was part of the logic of pluralism engendered by the broad coalition that made up the opposition to Stuart absolutism.

  In this light, it should be no surprise that the principle of the rule of law, coupled with the notion that monarchs did not have divine rights, was in fact a key argument against Stuart absolutism. As the British historian E. P. Thompson put it, in the struggle against the Stuart monarchs:

  immense efforts were made … to project the image of a ruling class which was itself subject to the rule of law, and whose legitimacy rested upon the equity and universality of those legal forms. And the rulers were, in serious senses, whether willingly or unwillingly, the prisoners of their own rhetoric; they played games of power according to rules which suited them, but they could not break those rules or the whole game would be thrown away.

  Throwing the game away would destabilize the system and open the way for absolutism by a subset of the broad coalition or even risk the return of the Stuarts. In Thompson’s words, what inhibited Parliament from creating a new absolutism was that

  take away law, and the royal prerogative … might flood back upon their properties and lives.

  Moreover,

  it w
as inherent in the very nature of the medium which they [those aristocrats, merchants etc. fighting the Crown] had selected for their own self-defense that it could not be reserved for the exclusive use only of their own class. The law, in its forms and traditions, entailed principles of equity and universality which … had to be extended to all sorts and degrees of men.

  Once in place, the notion of the rule of law not only kept absolutism at bay but also created a type of virtuous circle: if the laws applied equally to everybody, then no individual or group, not even Cadogan or Walpole, could rise above the law, and common people accused of encroaching on private property still had the right to a fair trial.

  WE SAW HOW INCLUSIVE economic and political institutions emerge. But why do they persist over time? The history of the Black Act and the limits to its implementation illustrate the virtuous circle, a powerful process of positive feedback that preserves these institutions in the face of attempts at undermining them and, in fact, sets in motion forces that lead to greater inclusiveness. The logic of virtuous circles stems partly from the fact that inclusive institutions are based on constraints on the exercise of power and on a pluralistic distribution of political power in society, enshrined in the rule of law. The ability of a subset to impose its will on others without any constraints, even if those others are ordinary citizens, as Huntridge was, threatens this very balance. If it were temporarily suspended in the case of the peasants protesting against elites encroaching on their communal lands, what was there to guarantee that it would not be suspended again? And the next time it was suspended, what would prevent the Crown and aristocracy from taking back what the merchants, businessmen, and the gentry had gained in the intervening half century? In fact, the next time it was suspended, perhaps the entire project of pluralism would come crumbling down, because a narrow set of interests would take control at the expense of the broad coalition. The political system would not risk this. But this made pluralism, and the rule of law that it implied, persistent features of British political institutions. And we will see that once pluralism and the rule of law were established, there would be demand for even greater pluralism and greater participation in the political process.