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

S
MALL
 D
IFFERENCES
 T
HAT
 M
ATTER

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World inequality dramatically increased with the British, or English,
Industrial Revolution because only some parts of the world adopted
the innovations and new technologies that men such as Arkwright
and Watt, and the many who followed, developed. The response of
different nations to this wave of technologies, which determined
whether they would languish in poverty or achieve sustained
economic growth, was largely shaped by the different historical paths
of their institutions. By the middle of the eighteenth century, there
were already notable differences in political and economic
institutions around the world. But where did these differences come
from?
English political institutions were on their way to much greater
pluralism by 1688, compared with those in France and Spain, but if
we go back in time one hundred years, to 1588, the differences shrink
to almost nothing. All three countries were ruled by relatively
absolutist monarchs: Elizabeth I in England, Philip II in Spain, and
Henry II in France. All were battling with assemblies of citizens—such
as the Parliament in England, the Cortes in Spain, and the Estates-
General in France—that were demanding more rights and control
over the monarchy. These assemblies all had somewhat different
powers and scopes. For instance, the English Parliament and the
Spanish Cortes had power over taxation, while the Estates-General
did not. In Spain this mattered little, because after 1492 the Spanish
Crown had a vast American empire and benefited massively from the
gold and silver found there. In England the situation was different.
Elizabeth I was far less financially independent, so she had to beg
Parliament for more taxes. In exchange, Parliament demanded
concessions, in particular restrictions on the right of Elizabeth to
create monopolies. It was a conflict Parliament gradually won. In
Spain the Cortes lost a similar conflict. Trade wasn’t just
monopolized; it was monopolized by the Spanish monarchy.
These distinctions, which initially appeared small, started to matter
a great deal in the seventeenth century. Though the Americas had
been discovered by 1492 and Vasco da Gama had reached India by
rounding the Cape of Good Hope, at the southern tip of Africa, in

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1498, it was only after 1600 that a huge expansion of world trade,