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

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On January 14, 1993, Ramiro De León Carpio was sworn in as the
president of Guatemala. He named Richard Aitkenhead Castillo as his
minister of finance, and Ricardo Castillo Sinibaldi as his minister of
development. These three men all had something in common: all
were direct descendants of Spanish conquistadors who had come to
Guatemala in the early sixteenth century. De León’s illustrious
ancestor was Juan De León Cardona, while the Castillos were related
to Bernal Díaz del Castillo, a man who wrote one of the most famous
eyewitness accounts of the conquest of Mexico. In reward for his
service to Hernán Cortés, Díaz del Castillo was appointed governor of
Santiago de los Caballeros, which is today the city of Antigua in
Guatemala. Both Castillo and De León founded dynasties along with
other conquistadors, such as Pedro de Alvarado. The Guatemalan
sociologist Marta Casaús Arzú identified a core group of twenty-two
families in Guatemala that had ties through marriage to another
twenty-six families just outside the core. Her genealogical and
political study suggested that these families have controlled economic
and political power in Guatemala since 1531. An even broader
definition of which families were part of this elite suggested that they
accounted for just over 1 percent of the population in the 1990s.
In Sierra Leone and in much of sub-Saharan Africa, the vicious
circle took the form of the extractive institutions set up by colonial
powers being taken over by postindependence leaders. In Guatemala,
as in much of Central America, we see a simpler, more naked form of
the vicious circle: those who have economic and political power
structure institutions to ensure the continuity of their power, and

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succeed in doing so. This type of vicious circle leads to the persistence
of extractive institutions and the persistence of the same elites in
power together with the persistence of underdevelopment.
At the time of the conquest, Guatemala was densely settled,
probably with a population of around two million Mayas. Disease and
exploitation took a heavy toll as everywhere else in the Americas. It
was not until the 1920s that its total population returned to this level.
As elsewhere in the Spanish Empire, the indigenous people were
allocated to conquistadors in grants of encomienda. As we saw in the
context of the colonization of Mexico and Peru, the encomienda was a
system of forced labor, which subsequently gave way to other similar
coercive institutions, particularly to the repartimiento, also called the
mandamiento in Guatemala. The elite, made up of the descendants of
the conquistadors and some indigenous elements, not only benefited
from the various forced labor systems but also controlled and
monopolized trade through a merchant guild called the Consulado de
Comercio. Most of the population in Guatemala was high in the
mountains and far from the coast. The high transportation costs
reduced the extent of the export economy, and initially land was not
very valuable. Much of it was still in the hands of indigenous peoples,
who had large communal landholdings called ejidos. The remainder
was largely unoccupied and notionally owned by the government.
There was more money in controlling and taxing trade, such as it was,
than in controlling the land.
Just as in Mexico, the Guatemalan elite viewed the Cadiz
Constitution (
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–
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) with hostility, which encouraged
them to declare independence just as the Mexican elites did.
Following a brief union with Mexico and the Central American
Federation, the colonial elite ruled Guatemala under the dictatorship
of Rafael Carrera from 1839 to 1871. During this period the
descendants of the conquistadors and the indigenous elite maintained
the extractive economic institutions of the colonial era largely
unchanged. Even the organization of the Consulado did not alter with
independence. Though this was a royal institution, it happily
continued under a republican government.

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Independence then was simply a coup by the preexisting local elite,
just as in Mexico; they carried on as usual with the extractive
economic institutions from which they had benefited so much.
Ironically enough, during this period the Consulado remained in
charge of the economic development of the country. But as had been
the case pre-independence, the Consulado had its own interests at
heart, not those of the country. Part of its responsibility was for the
development of infrastructure, such as ports and roads, but as in
Austria-Hungary, Russia, and Sierra Leone, this often threatened
creative destruction and could have destabilized the system.
Therefore, the development of infrastructure, rather than being
implemented, was often resisted. For example, the development of a
port on the Suchitepéquez coast, bordering the Pacific Ocean, was
one of the proposed projects. At the time the only proper ports were
on the Caribbean coast, and these were controlled by the Consulado.
The Consulado did nothing on the Pacific side because a port in that
region would have provided a much easier outlet for goods from the
highland towns of Mazatenango and Quezaltenango, and access to a
different market for these goods would have undermined the
Consulado’s monopoly on foreign trade. The same logic applied to
roads, where, again, the Consulado had the responsibility for the
entire country. Predictably it also refused to build roads that would
have strengthened competing groups or would have potentially
undone its monopoly. Pressure to do so again came from western
Guatemala and Quezaltenango, in the Los Altos region. But if the road
between Los Altos and the Suchitepéquez coast had been improved,
this could have created a merchant class, which would have been a
competitor to the Consulado merchants in the capital. The road did
not get improved.
As a result of this elite dominance, Guatemala was caught in a time
warp in the middle of the nineteenth century, as the rest of the world
was changing rapidly. But these changes would ultimately affect
Guatemala. Transportation costs were falling due to technological
innovations such as the steam train, the railways, and new, much
faster types of ships. Moreover, the rising incomes of people in

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Western Europe and North America were creating a mass demand for
many products that a country such as Guatemala could potentially
produce.
Early in the century, some indigo and then cochineal, both natural
dyes, had been produced for export, but the more profitable
opportunity would become coffee production. Guatemala had a lot of
land suitable for coffee, and cultivation began to spread—without any
assistance from the Consulado. As the world price of coffee rose and
international trade expanded, there were huge profits to be made, and
the Guatemalan elite became interested in coffee. In 1871 the long-
lasting regime of the dictator Carrera was finally overthrown by a
group of people calling themselves Liberals, after the worldwide
movement of that name. What liberalism means has changed over
time. But in the nineteenth century in the United States and Europe, it
was similar to what is today called libertarianism, and it stood for
freedom of individuals, limited government, and free trade. Things
worked a little differently in Guatemala. Led initially by Miguel
García Granados, and after 1873 by Justo Rufino Barrios, the
Guatemalan Liberals were, for the most part, not new men with
liberal ideals. By and large, the same families remained in charge.
They maintained extractive political institutions and implemented a
huge reorganization of the economy to exploit coffee. They did
abolish the Consulado in 1871, but economic circumstances had
changed. The focus of extractive economic institutions would now be
the production and export of coffee.
Coffee production needed land and labor. To create land for coffee
farms, the Liberals pushed through land privatization, in fact really a
land grab in which they would be able to capture land previously
held communally or by the government. Though their attempt was
bitterly contested, given the highly extractive political institutions
and the concentration of political power in Guatemala, the elite were
ultimately victorious. Between 1871 and 1883 nearly one million
acres of land, mostly indigenous communal land and frontier lands,
passed into the hands of the elite, and it was only then that coffee
developed rapidly. The aim was the formation of large estates. The

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privatized lands were auctioned off typically to members of the
traditional elite or those connected with them. The coercive power of
the Liberal state was then used to help large landowners gain access
to labor by adapting and intensifying various systems of forced labor.
In November 1876, President Barrios wrote to all the governors of
Guatemala noting that
because the country has extensive areas of land that it
needs to exploit by cultivation using the multitude of
workers who today remain outside the movement of
development of the nation’s productive elements, you are
to give all help to export agriculture:
1. From the Indian towns of your jurisdiction provide to
the owners of fincas [farms] of that department who ask
for labor the number of workers they need, be it fifty or
one hundred.
The repartimiento, the forced labor draft, had never been abolished
after independence, but now it was increased in scope and duration.
It was institutionalized in 1877 by Decree 177, which specified that
employers could request and receive from the government up to sixty
workers for fifteen days of work if the property was in the same
department, and for thirty days if it was outside it. The request could
be renewed if the employer so desired. These workers could be
forcibly recruited unless they could demonstrate from their personal
workbook that such service had recently been performed
satisfactorily. All rural workers were also forced to carry a workbook,
called a libreta, which included details of whom they were working
for and a record of any debts. Many rural workers were indebted to
their employers, and an indebted worker could not leave his current
employer without permission. Decree 177 further stipulated that the
only way to avoid being drafted into the repartimiento was to show
you were currently in debt to an employer. Workers were trapped. In
addition to these laws, numerous vagrancy laws were passed so that
anyone who could not prove he had a job would be immediately

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recruited for the repartimiento or other types of forced labor on the
roads, or would be forced to accept employment on a farm. As in
nineteenth- and twentieth-century South Africa, land policies after
1871 were also designed to undermine the subsistence economy of
the indigenous peoples, to force them to work for low wages. The