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

by Daron Acemoğlu

It was sheep heaven. Macarthur was soon the richest man in Australia, and he and his fellow sheep magnates became known as the Squatters, since the land on which they grazed their sheep was not theirs. It was owned by the British government. But at first this was a small detail. The Squatters were the elite of Australia, or, more appropriately, the Squattocracy. Even with a squattocracy, New South Wales did not look anything like the absolutist regimes of Eastern Europe or of the South American colonies. There were no serfs as in Austria-Hungary and Russia, and no large indigenous populations to exploit as in Mexico and Peru. Instead, New South Wales was like Jamestown, Virginia, in many ways: the elite ultimately found it in their interest to create economic institutions that were significantly more inclusive than those in Austria-Hungary, Russia, Mexico, and Peru. Convicts were the only labor force, and the only way to incentivize them was to pay them wages for the work they were doing.

This passage exlains itself.