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

U
NDERSTANDING THE
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AY OF THE
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AND
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

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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

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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,