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

by Daron Acemoğlu

Officers kept three different types of records, all of which were supposed to match one another, and any tampering with these records was a serious offense. This remarkable level of state supervision of society exceeds what the governments of most poor countries can achieve today, and this in 1710.

This dynamic process was unleashed by the institutional changes that flowed from the Glorious Revolution. This was not just about the abolition of domestic monopolies, which had been achieved by 1640, or about different taxes or access to finance. It was about a fundamental reorganization of economic institutions in favor of innovators and entrepreneurs, based on the emergence of more secure and efficient property rights.

Property rights were much more secure after 1688, partly because securing them was consistent with the interests of Parliament and partly because pluralistic institutions could be influenced by petitioning.

Underlying the transportation revolution and, more generally, the reorganization of land that took place in the eighteenth century were parliamentary acts that changed the nature of property ownership.

Not surprisingly, parliamentarians and their constituents were not opposed to all entry barriers and monopolies. Those that would increase their own market and profits would be welcome. However, crucially, the pluralistic political institutions—the fact that Parliament represented, empowered, and listened to a broad segment of society—meant that these entry barriers would not choke other industrialists or completely shut out newcomers, as the Serrata did in Venice

The Manchester Act was a significant victory for the nascent cotton manufacturers. But its historical and economic significance was in fact much greater. First, it demonstrated the limits of entry barriers that the pluralistic political institutions of parliamentary England would permit. Second, over the next half century, technological innovations in the manufacture of cotton cloth would play a central role in the Industrial Revolution and fundamentally transform society by introducing the factory system.

Innovations took place on many fronts, reflecting the improved institutional environment.

The English textile industry not only was the driving force behind the Industrial Revolution but also revolutionized the world economy.

It was the growth in this sector that pulled ahead the whole economy. The combination of technological and organizational innovation provides the model for economic progress that transformed the economies of the world that became rich.

New people with new ideas were crucial to this...

The Peterloo Massacre would remain an isolated incident. Following the riot, the political institutions in England gave way to the pressure, and the destabilizing threat of much wider social unrest,

In 1832 the government passed the First Reform Act. It enfranchised Birmingham, Leeds, Manchester, and Sheffield, and broadened the base of voting so that manufacturers could be represented in Parliament.

It was the inclusive nature of English institutions that allowed this process to take place. Those who suffered from and feared creative destruction were no longer able to stop it.

The Industrial Revolution started and made its biggest strides in England because of her uniquely inclusive economic institutions. These in turn were built on foundations laid by the inclusive political institutions brought about by the Glorious Revolution. It was the Glorious Revolution that strengthened and rationalized property rights, improved financial markets, undermined state-sanctioned monopolies in foreign trade, and removed the barriers to the expansion of industry. It was the Glorious Revolution that made the political system open and responsive to the economic needs and aspirations of society. These inclusive economic institutions gave men of talent and vision such as James Watt the opportunity and incentive to develop their skills and ideas and influence the system in ways that benefited them and the nation. Naturally these men, once they had become successful, had the same urges as any other person. They wanted to block others from entering their businesses and competing against them and feared the process of creative destruction that might put them out of business, as they had previously bankrupted others. But after 1688 this became harder to accomplish. In 1775 Richard Arkwright took out an encompassing patent that he hoped would give him a monopoly on the rapidly expanding cotton spinning industry in the future. He could not get the courts to enforce it.

This drift of institutions now interacted with another critical juncture caused by the massive expansion of trade into the Atlantic. As we saw in chapter 4, one crucial way in which this influenced future institutional dynamics depended on whether or not the Crown was able to monopolize this trade. In England the somewhat greater power of Parliament meant that the Tudor and Stuart monarchs could not do so. This created a new class of merchants and businessmen, who aggressively opposed the plan to create absolutism in England. By 1686 in London, for example, there were 702 merchants exporting to the Caribbean and 1,283 importing. North America had 691 exporting and 626 importing merchants. They employed warehousemen, sailors, captains, dockworkers, clerks—all of whom broadly shared their interests. Other vibrant ports, such as Bristol, Liverpool, and Portsmouth, were similarly full of such merchants. These new men wanted and demanded different economic institutions, and as they got wealthier through trade, they became more powerful. The same forces were at work in France, Spain, and Portugal. But there the kings were much more able to control trade and its profits. The type of new group that was to transform England did emerge in those countries, but was considerably smaller and weaker.

When the Long Parliament sat and the Civil War broke out in 1642, these merchants primarily sided with the parliamentary cause.

Perhaps most critically, the emergence and empowerment of diverse interests—ranging from the gentry, a class of commercial farmers that had emerged in the Tudor period, to different types of manufacturers to Atlantic traders—meant that the coalition against Stuart absolutism was not only strong but also broad.

Broad coalition ment many interestd that required pluralistic government that would cover them, for that reason parlament was created.

all those fighting against the Stuarts had the same interests and the same background, the overthrow of the Stuart monarchy would have been much more likely to be a replay of the House of Lancaster versus the House of York, pitting one group against another narrow set of interests, and ultimately replacing and re-creating the same or a different form of extractive institutions. A broad coalition meant that there would be greater demands for the creation of pluralist political institutions. Without some sort of pluralism, there would be a danger that one of the diverse interests would usurp power at the expense of the rest.

The fact that Parliament after 1688 represented such a broad coalition was a crucial factor in making members of Parliament listen to petitions, even when they came from people outside of Parliament and even from those without a vote. This was a crucial factor in preventing attempts by one group to create a monopoly at the expense of the rest, as wool interests tried to do before the Manchester Act.

The Glorious Revolution was a momentous event precisely because it was led by an emboldened broad coalition and further empowered this coalition, which managed to forge a constitutional regime with constraints on the power of both...

Thus this broad coalition was essential in the lead-up to a strong Parliament after 1688, but it also meant that there were checks within Parliament against any single group becoming too powerful and abusing its power.

Atlantic trading opportunities stacked the cards against the Stuarts. In this instance, therefore, contingency and a broad coalition were deciding factors underpinning the emergence of pluralism and inclusive institutions.

Atlantic trade created a group of wealthy merchants who supported the cuase of parlament resulting in bigger opositions against Absolutist monarchy aka king Stuart

Given the highly absolutist and extractive Ottoman institutions, the sultan’s hostility to the printing press is easy to understand. Books spread ideas and make the population much harder to control. Some of these ideas may be valuable new ways to increase economic growth, but others may be subversive and challenge the existing political and social status quo. Books also undermine the power of those who control oral knowledge, since they make that knowledge readily available to anyone who can master literacy. This threatened to undermine the existing status quo, where knowledge was controlled by elites.

Absolutism and a lack of, or weak, political centralization are two different barriers to the spread of industry. But they are also connected; both are kept in place by fear of creative destruction and because the process of political centralization often creates a tendency toward absolutism.

Resistance to political centralization is motivated by reasons similar to resistance to inclusive political institutions: fear of losing political power, this time to the newly centralizing state and those who control it.

He also took control over the Church, just as Henry VIII did when centralizing the state in England.

In this chapter, we will see how during the critical juncture created by the Industrial Revolution, many nations missed the boat and failed to take advantage of the spread of industry. Either they had absolutist political and extractive economic institutions, as in the Ottoman Empire, or they lacked political centralization, as in Somalia.

It was this merchant class that would form the basis of early England economic dynamism and become the bulwark of the anti-absolutist political coalition.

In England the defeat of absolutism in 1688 led not only to pluralistic political institutions but also to the further development of a much more effective centralized state. In Spain the opposite happened as absolutism triumphed.

The persistence and the strengthening of absolutism in Spain, while it was being uprooted in England, is another example of small differences mattering during critical junctures. The small differences were in the strengths and nature of representative institutions; the critical juncture was the discovery of the Americas. The interaction of these sent Spain off on a very different institutional path from England.

In Spain, for example, the lack of secure property rights and the widespread economic decline meant that people simply did not have the incentive to make the necessary investments and sacrifices.

“I do not need savants, but good, honest citizens. Your task is to bring young men up to be this. He who serves me must teach what I order him. If anyone can’t do this, or comes with new ideas, he can go, or I will remove him.”

“Leave everything as it is.”

“So, you want a constitution! … Now look, I don’t care for it, I will give you a constitution but you must know that the soldiers obey me, and I will not ask you twice if I need money … In any case I advise you to be careful what you are going to say.”

Friedrich von Gentz, replied, “We do not desire at all that the great masses shall become well off and independent … How could we otherwise rule over them?”

There were very high tariffs on imported goods, with many explicit prohibitions on the import and export of goods. The suppression of markets and the creation of extractive economic institutions are of course quite characteristic of absolutism,

The problem in Kongo was that people understood that whatever they produced could be confiscated by an absolutist monarch, and therefore they had no incentive to invest or use better technology.

His policies were aimed at locking into place the traditional elites and the political and economic status quo. He wanted to keep society primarily agrarian. The best way to do this, Francis believed, was to stop the factories being built in the first place.

Instead of encouraging the importation and adoption of new machinery, the basis of industrialization, he banned it until 1811.

Second, he opposed the construction of railways, one of the key new technologies that came wit...

“No, no, I will have nothing to do with it, lest the revolution might c...

The opposition to industry and steam railways stemmed from Francis’s concern about the creative destruction that accompanied the development of a modern economy. His main priorities were ensuring the stability of the extractive institutions over which he ruled and protecting the advantages of the traditional elites who supported him.

“Revolution is on Russia’s doorstep, but I swear that it will not penetrate the country while there is breath in my body.”

“For the preservation of calm and prosperity, which at present time only Russia enjoys, the government must not permit the gathering of homeless and dissolute people, who will easily join every movement, destroying social or private peace.”

he argued would bring a socially dangerous mobility, noting that “railways do not always result from natural necessity, but are more an object of artificial need or luxury. They encourage unnecessary travel from place to place, which is entirely typical of our time.”

The reasoning of the Ming and Qing states for opposing international trade is by now familiar: the fear of creative destruction. The leaders’ primary aim was political stability. International trade was potentially destabilizing as merchants were enriched and emboldened, as they were in England during the era of Atlantic expansion.

With absolutism came extractive economic institutions and poverty for the mass of Ethiopians, though of course the emperors and nobility benefited hugely. But the most enduring implication of the absolutism was that Ethiopian society failed to take advantage of industrialization opportunities during the nineteenth and early twentieth centuries, underpinning the abject poverty of its citizens today.

Without some degree of political centralization, even if the elites of these African polities had wished to greet industrialization with open arms, there wouldn’t have been much they could have done.

Political centralization is the executive power that ensures that all the people of the state are being hold accountable.

Somalia, situated in the Horn of Africa, illustrates the devastating effects of lack of political centralization.

As a consequence of this lack of political centralization and the implied absence of even the most basic security of property rights, Somali society never generated incentives to invest in productivity-enhancing technologies.