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

E
NDURING
 B
ACKWARDNESS
The Industrial Revolution created a transformative critical juncture
for the whole world during the nineteenth century and beyond: those
societies that allowed and incentivized their citizens to invest in new
technologies could grow rapidly. But many around the world failed to
do so—or explicitly chose not to do so. Nations under the grip of
extractive political and economic institutions did not generate such
incentives. Spain and Ethiopia provide examples where the absolutist
control of political institutions and the implied extractive economic
institutions choked economic incentives long before the dawn of the
nineteenth century. The outcome was similar in other absolutist
regimes—for example, in Austria-Hungary, Russia, the Ottoman
Empire, and China, though in these cases the rulers, because of fear of
creative destruction, not only neglected to encourage economic
progress but also took explicit steps to block the spread of industry
and the introduction of new technologies that would bring
industrialization.
Absolutism is not the only form of extractive political institutions
and was not the only factor preventing industrialization. Inclusive
political and economic institutions necessitate some degree of
political centralization so that the state can enforce law and order,
uphold property rights, and encourage economic activity when

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necessary by investing in public services. Yet even today, many
nations, such as Afghanistan, Haiti, Nepal, and Somalia, have states
that are unable to maintain the most rudimentary order, and
economic incentives are all but destroyed. The case of Somalia
illustrates how the process of industrialization also passed by such
societies. Political centralization is resisted for the same reason that
absolutist regimes resist change: the often well-placed fear that
change will reallocate political power from those that dominate today
to new individuals and groups. Thus, as absolutism blocks moves
toward pluralism and economic change, so do the traditional elites
and clans dominating the scene in societies without state
centralization. As a consequence, societies that still lacked such
centralization in the eighteenth and nineteenth centuries were