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

by Daron Acemoğlu

German sociologist Robert Michels

the iron law of oligarchy,

The end of colonialism in the decades following the Second World War created critical junctur...

It was only in a few cases, societies such as Botswana (see this page), that critical junctures were used to launch a process of political and economic change that paved the way for economic growth.

can also reverse course and become gradually more extractive because of challenges during critical junctures—and

The Venetian Republic,

Some parts of the world developed institutions that were very close to those in England, though by a very different route.

The French Revolution was another critical juncture that led the institutions of Western Europe to converge with those of England, while Eastern Europe diverged further.

European colonization set the stage for institutional divergence in the Americas,

Africa was the part of the world with the institutions least able to take advantage of the opportunities made available by the Industrial Revolution.

Africa shares this trajectory of lack of state centralization with countries such as Afghanistan, Haiti, and Nepal,

during the expansion of the Atlantic slave trade.

they also extinguished any hope of absolutism being defeated in the Kongo.

The critical juncture of the discovery of the Americas may have helped England develop inclusive institutions but it made institutions in Africa even more extractive.

reverse nascent economic modernization in parts of southern and western Africa but also cut off any possibility of indigenous institutional reform.

the structures of colonial rule left Africa with a more complex and pernicious institutional legacy in the 1960s

The Industrial Revolution has still not spread to Africa because that continent has experienced a long vicious circle of the persistence and re-creation of extractive political and economic institutions.

in the nineteenth century, King Khama, the grandfather of Botswana’s first prime minister at independence, Seretse Khama, initiated institutional changes to modernize the political and economic institutions of his tribe.

While we place great emphasis on how the history of economic and political institutions creates vicious and virtuous circles, contingency, as we have emphasized in the context of the development of English institutions, can always be a factor.

When he returned to lead the anticolonial struggle, he did so with the intention not of entrenching the traditional institutions but of adapting them to the modern world.

But it had turned away from the oceans just at the wrong time, when Ming emperors decided in the late fourteenth and early fifteenth centuries that increased long-distance trade and the creative destruction that it might bring would be likely to threaten their rule.

In India, institutional drift worked differently and led to the development of a uniquely rigid hereditary caste system that limited the functioning of markets and the allocation of labor across occupations much more severely than the feudal order in medieval Europe.

Mughal r...

Though Indian merchants did trade throughout the Indian Ocean, and a major textile industry developed, the caste system and Mughal absolutism were serious impediments to the development of inclusive economic institutions in India.

India became an extractive colony of the English.

Japan, too, faced a critical juncture created by Western intervention as four U.S. warships, commanded by Matthew C. Perry, entered Edo Bay in July 1853,

China continued in its absolutist path after the Opium Wars, while the U.S. threat cemented the opposition to Tokugawa rule in Japan and led to a political revolution, the Meiji Restoration,

another aspect of the lay of the land around us: transitions from stagnation to rapid growth.

But more often, collapses of rapid growth, such as in Argentina or the Soviet Union, are a consequence of growth under extractive institutions coming to an end.

those of the Middle East were shaped by Ottoman colonialism.

In 1453 the Ottomans under Sultan Mehmet II captured Constantinople, making it their capital.

Balkans and most of the rest...

Tunisia in the East, through Egypt, all the way to Mecca in the Arabian Peninsula, and on to what is now modern Iraq.

The Ottoman state was continuously challenged by Bedouins and other tribal powers in the Arabian Peninsula.

It lacked not only the ability to impose a stable order in much of the Middle East but also the administrative capacity to collect taxes.

These tax farmers became autonomous and powerful.

great deal of lawlessness and banditry as armed groups vied for local control.

Commerce was under state control, and occupations were strictly regulated by guilds and monopolies.

By the 1840s, the Ottomans were trying to reform institutions—for example, by reversing tax farming and getting locally autonomous groups under control. But absolutism persisted until the First World War, and reform efforts were thwarted by the usual fear of creative destruction

Ottoman colonization was followed by European colonization after 1918.

with extractive colonial institutions taken over by independent elites.

In the remaining chapters, we will discuss in greater detail how this institutional theory works and illustrate the wide range of phenomena it can account for.

How inclusive institutions emerged from the interplay of the critical juncture created by Atlantic trade and the nature of preexisting English institutions. • How these institutions persisted and became strengthened to lay the foundations for the Industrial Revolution, thanks in part to the virtuous circle and in part to fortunate turns of contingency. • How many regimes reigning over absolutist and extractive institutions steadfastly resisted the spread of new technologies unleashed by the Industrial Revolution. • How Europeans themselves stamped out the possibility of economic growth in many parts of the world that they conquered. • How the vicious circle and the iron law of oligarchy have created a powerful tendency for extractive institutions to persist, and thus the lands where the Industrial Revolution originally did not spread remain relatively poor. • Why the Industrial Revolution and other new technologies have not spread and are unlikely to spread to places around the world today where a minimum degree of centralization of the state hasn’t been achieved.

But growth under extractive institutions differs in nature from growth brought forth by inclusive institutions. Most important, it will be not sustained growth that requires technological change, but rather growth based on existing technologies.

Woodrow Wilson,

The old tsarist regime had been overthrown by the Bolsheviks in October 1917.

economic democracy first and political democracy last.”

“I’ve seen the future, and it works.”

and by 1927 Joseph Stalin had consolidated his grip on the country.

Gosplan,