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

participation. Natal and the Cape Colony allowed blacks to vote if
they had sufficient property, which typically they did not. The status
quo of Natal and the Cape Colony was kept in 1910, but by the
1930s, blacks had been explicitly disenfranchised everywhere in
South Africa.
The dual economy of South Africa did come to an end in 1994. But
not because of the reasons that Sir Arthur Lewis theorized about. It
was not the natural course of economic development that ended the
color bar and the Homelands. Black South Africans protested and rose

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up against the regime that did not recognize their basic rights and did
not share the gains of economic growth with them. After the Soweto
uprising of 1976, the protests became more organized and stronger,
ultimately bringing down the Apartheid state. It was the
empowerment of blacks who managed to organize and rise up that
ultimately ended South Africa’s dual economy in the same way that
South African whites’ political force had created it in the first place.
D
EVELOPMENT
 R
EVERSED
World inequality today exists because during the nineteenth and
twentieth centuries some nations were able to take advantage of the
Industrial Revolution and the technologies and methods of
organization that it brought while others were unable to do so.
Technological change is only one of the engines of prosperity, but it is
perhaps the most critical one. The countries that did not take
advantage of new technologies did not benefit from the other engines
of prosperity, either. As we have shown in this and the previous
chapter, this failure was due to their extractive institutions, either a
consequence of the persistence of their absolutist regimes or because
they lacked centralized states. But this chapter has also shown that in
several instances the extractive institutions that underpinned the
poverty of these nations were imposed, or at the very least further
strengthened, by the very same process that fueled European growth:
European commercial and colonial expansion. In fact, the profitability
of European colonial empires was often built on the destruction of
independent polities and indigenous economies around the world, or
on the creation of extractive institutions essentially from the ground
up, as in the Caribbean islands, where, following the almost total
collapse of the native populations, Europeans imported African slaves
and set up plantation systems.
We will never know what the trajectories of independent city-states
such as those in the Banda Islands, in Aceh, or in Burma (Myanmar)
would have been without the European intervention. They may have
had their own indigenous Glorious Revolution or slowly moved

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toward more inclusive political and economic institutions based on
growing trade in spices and other valuable commodities. But this
possibility was removed by the expansion of the Dutch East India
Company. The company stamped out any hope of indigenous
development in the Banda Islands by carrying out its genocide. Its
threat also made the city-states in many other parts of Southeast Asia
pull back from commerce.
The story of one of the oldest civilizations in Asia, India, is similar,
though the reversing of development was done not by the Dutch but
by the British. India was the largest producer and exporter of textiles
in the world in the eighteenth century. Indian calicoes and muslins
flooded the European markets and were traded throughout Asia and
even eastern Africa. The main agent that carried them to the British
Isles was the English East India Company. Founded in 1600, two
years before its Dutch version, the English East India Company spent
the seventeenth century trying to establish a monopoly on the
valuable exports from India. It had to compete with the Portuguese,
who had bases in Goa, Chittagong, and Bombay, and the French with
bases at Pondicherry, Chandernagore, Yanam, and Karaikal. Worse
still for the East India Company was the Glorious Revolution, as we
saw in 
chapter 7
. The monopoly of the East India Company had been
granted by the Stuart kings and was immediately challenged after
1688, and even abolished for over a decade. The loss of power was
significant, as we saw earlier (
this page
–
this page
), because British
textile producers were able to induce Parliament to ban the import of
calicoes, the East India Company’s most profitable item of trade. In
the eighteenth century, under the leadership of Robert Clive, the East
India Company switched strategies and began to develop a
continental empire. At the time, India was split into many competing
polities, though many were still nominally under the control of the
Mughal emperor in Delhi. The East India Company first expanded in
Bengal in the east, vanquishing the local powers at the battles of
Plassey in 1757 and Buxar in 1764. The East India Company looted
local wealth and took over, and perhaps even intensified, the
extractive taxation institutions of the Mughal rulers of India. This

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expansion coincided with the massive contraction of the Indian textile
industry, since, after all, there was no longer a market for these goods
in Britain. The contraction went along with de-urbanization and
increased poverty. It initiated a long period of reversed development
in India. Soon, instead of producing textiles, Indians were buying
them from Britain and growing opium for the East India Company to
sell in China.
The Atlantic slave trade repeated the same pattern in Africa, even if
starting from less developed conditions than in Southeast Asia and
India. Many African states were turned into war machines intent on
capturing and selling slaves to Europeans. As conflict between
different polities and states grew into continuous warfare, state
institutions, which in many cases had not yet achieved much political
centralization in any case, crumbled in large parts of Africa, paving
the way for persistent extractive institutions and the failed states of
today that we will study later. In a few parts of Africa that escaped
the slave trade, such as South Africa, Europeans imposed a different
set of institutions, this time designed to create a reservoir of cheap
labor for their mines and farms. The South African state created a
dual economy, preventing 80 percent of the population from taking