Why Nations Fail: FROM THE WINNERS OF THE NOBEL PRIZE IN ECONOMICS: The Origins of Power, Prosperity and Poverty

by Daron Acemoğlu

We saw in chapters 7 and 8 that despite the many similarities between England, France, and Spain, the critical juncture of the Atlantic trade had the most transformative impact on England because of such small differences—the fact that because of developments during the fifteenth and sixteenth centuries, the English Crown could not control all overseas trade, as this trade was mostly under Crown monopoly in France and Spain. As a result, in France and Spain, it was the monarchy and the groups allied with it who were the main beneficiaries of the large profits created by Atlantic trade and colonial expansion, while in England it was groups strongly opposed to the monarchy who gained from economic opportunities thrown open by this critical juncture.

Western European powers could not have surged ahead and conquered the world without several historic turning points. These included the specific path that feudalism took, replacing slavery and weakening the power of monarchs on the way; the fact that the centuries following the turn of the first millennium in Europe witnessed the development of independent and commercially autonomous cities; the fact that European monarchs were not as threatened by, and consequently did not try to discourage, overseas trade as the Chinese emperors did during the Ming dynasty; and the arrival of the Black Death, which

THE RISE OF BRAZIL since the 1970s was not engineered by economists of international institutions instructing Brazilian policy-makers on how to design better policies or avoid market failures. It was not achieved with injections of foreign aid. It was not the natural outcome of modernization. Rather, it was the consequence of diverse groups of people courageously building inclusive institutions. Eventually these led to more inclusive economic institutions. But the Brazilian transformation, like that of England in the seventeenth century, began with the creation of inclusive political institutions. But how can society build inclusive political institutions?

What is common among the political revolutions that successfully paved the way for more inclusive institutions and the gradual institutional changes in North America, in England in the nineteenth century, and in Botswana after independence—which also led to significant strengthening of inclusive political institutions—is that they succeeded in empowering a fairly broad cross-section of society. Pluralism, the cornerstone of inclusive political institutions, requires political power to be widely held in society, and starting from extractive institutions that vest power in a narrow elite, this requires a process of empowerment.