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

particularly in the capital city of Vienna. Those workers might then
become supporters for opponents of absolutism. His policies were
aimed at locking into place the traditional elites and the political and
economic status quo. He wanted to keep society primarily agrarian.
The best way to do this, Francis believed, was to stop the factories
being built in the first place. This he did directly—for instance, in
1802, banning the creation of new factories in Vienna. Instead of
encouraging the importation and adoption of new machinery, the
basis of industrialization, he banned it until 1811.
Second, he opposed the construction of railways, one of the key
new technologies that came with the Industrial Revolution. When a
plan to build a northern railway was put before Francis I, he replied,
“No, no, I will have nothing to do with it, lest the revolution might
come into the country.”
Since the government would not grant a concession to build a
steam railway, the first railway built in the empire had to use horse-
drawn carriages. The line, which ran between the city of Linz, on the
Danube, to the Bohemian city of Budweis, on the Moldau River, was
built with gradients and corners, which meant that it was impossible
subsequently to convert it to steam engines. So it continued with
horse power until the 1860s. The economic potential for railway
development in the empire had been sensed early by the banker
Salomon Rothschild, the representative in Vienna of the great banking
family. Salomon’s brother Nathan, who was based in England, was
very impressed by George Stephenson’s engine “The Rocket” and the
potential for steam locomotion. He contacted his brother to
encourage him to look for opportunities to develop railways in
Austria, since he believed that the family could make large profits by
financing railway development. Nathan agreed, but the scheme went
nowhere because Emperor Francis again simply said no.
The opposition to industry and steam railways stemmed from
Francis’s concern about the creative destruction that accompanied the
development of a modern economy. His main priorities were ensuring

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the stability of the extractive institutions over which he ruled and
protecting the advantages of the traditional elites who supported him.
Not only was there little to gain from industrialization, which would
undermine the feudal order by attracting labor from the countryside
to the cities, but Francis also recognized the threat that major
economic changes would pose to his political power. As a
consequence, he blocked industry and economic progress, locking in
economic backwardness, which manifested itself in many ways. For
instance, as late as 1883, when 90 percent of world iron output was
produced using coal, more than half of the output in the Habsburg
territories still used much less efficient charcoal. Similarly, right up to
the First World War, when the empire collapsed, textile weaving was
never fully mechanized but still undertaken by hand.
Austria-Hungary was not alone in fearing industry. Farther east,
Russia had an equally absolutist set of political institutions, forged by
Peter the Great, as we saw earlier in this chapter. Like Austria-
Hungary, Russia’s economic institutions were highly extractive, based
on serfdom, keeping at least half of the population tied to the land.
Serfs had to work for nothing three days a week on the lands of their
lords. They could not move, they lacked freedom of occupation, and
they could be sold at will by their lord to another lord. The radical
philosopher Peter Kropotkin, one of the founders of modern
anarchism, left a vivid depiction of the way serfdom worked during
the reign of Tsar Nicholas I, who ruled Russia from 1825 until 1855.
He recalled from his childhood
stories of men and women torn from their families and
their villages and sold, lost in gambling, or exchanged for
a couple of hunting dogs, and transported to some remote