Why Nations Fail: The Origins of Power, Prosperity, and Poverty

particularly in the Atlantic, started to take place. In 1585 the first
English colonization of North America began at Roanoke, in what is
now North Carolina. In 1600 the English East India Company was
formed. In 1602 it was followed by the Dutch equivalent. In 1607 the
colony of Jamestown was founded by the Virginia Company. By the
1620s the Caribbean was being colonized, with Barbados occupied in
1627. France was also expanding in the Atlantic, founding Quebec
City in 1608 as the capital of New France in what is now Canada. The
consequences of this economic expansion for institutions were very
different for England than for Spain and France because of small
initial differences.
Elizabeth I and her successors could not monopolize the trade with
the Americas. Other European monarchs could. So while in England,
Atlantic trade and colonization started creating a large group of
wealthy traders with few links to the Crown, this was not the case in
Spain or France. The English traders resented royal control and
demanded changes in political institutions and the restriction of royal
prerogatives. They played a critical role in the English Civil War and
the Glorious Revolution. Similar conflicts took place everywhere.
French kings, for example, faced the Fronde Rebellion between 1648
and 1652. The difference was that in England it was far more likely
that the opponents to absolutism would prevail because they were
relatively wealthy and more numerous than the opponents to
absolutism in Spain and France.
The divergent paths of English, French, and Spanish societies in the
seventeenth century illustrate the importance of the interplay of small
institutional differences with critical junctures. During critical
junctures, a major event or confluence of factors disrupts the existing
balance of political or economic power in a nation. These can affect
only a single country, such as the death of Chairman Mao Zedong in
1976, which at first created a critical juncture only for Communist
China. Often, however, critical junctures affect a whole set of
societies, in the way that, for example, colonization and then
decolonization affected most of the globe.

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Such critical junctures are important because there are formidable
barriers against gradual improvements, resulting from the synergy
between extractive political and economic institutions and the
support they give each other. The persistence of this feedback loop
creates a vicious circle. Those who benefit from the status quo are
wealthy and well organized, and can effectively fight major changes
that will take away their economic privileges and political power.
Once a critical juncture happens, the small differences that matter
are the initial institutional differences that put in motion very
different responses. This is the reason why the relatively small
institutional differences in England, France, and Spain led to
fundamentally different development paths. The paths resulted from
the critical juncture created by the economic opportunities presented
to Europeans by Atlantic trade.
Even if small institutional differences matter greatly during critical
junctures, not all institutional differences are small, and naturally,
larger institutional differences lead to even more divergent patterns
during such junctures. While the institutional differences between
England and France were small in 1588, the differences between
Western and Eastern Europe were much greater. In the West, strong
centralized states such as England, France, and Spain had latent
constitutional institutions (Parliament, the Estates-General, and the
Cortes). There were also underlying similarities in economic
institutions, such as the lack of serfdom.
Eastern Europe was a different matter. The kingdom of Poland-
Lithuania, for example, was ruled by an elite class called the Szlachta,
who were so powerful they had even introduced elections for kings.
This was not absolute rule as in France under Louis XIV, the Sun
King, but absolutism of an elite, extractive political institutions all the
same. The Szlachta ruled over a mostly rural society dominated by
serfs, who had no freedom of movement or economic opportunities.
Farther east, the Russian emperor Peter the Great was also
consolidating an absolutism far more intense and extractive than even
Louis XIV could manage. 
Map 8
provides one simple way of seeing
the extent of the divergence between Western and Eastern Europe at

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the beginning of the nineteenth century. It plots whether or not a
country still had serfdom in 1800. Countries that appear dark did;
those that are light did not. Eastern Europe is dark; Western Europe is
light.
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

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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

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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.