Why Nations Fail: The Origins of Power, Prosperity, and Poverty (17 page)

The divergent paths of English, French, and Spanish societies in the seventeenth century illustrate the importance of the interplay of small institutional differences with critical junctures. During critical junctures, a major event or confluence of factors disrupts the existing balance of political or economic power in a nation. These can affect only a single country, such as the death of Chairman Mao Zedong in 1976, which at first created a critical juncture only for Communist China. Often, however, critical junctures affect a whole set of societies, in the way that, for example, colonization and then decolonization affected most of the globe.

Such critical junctures are important because there are formidable
barriers against gradual improvements, resulting from the synergy between extractive political and economic institutions and the support they give each other. The persistence of this feedback loop creates a vicious circle. Those who benefit from the status quo are wealthy and well organized, and can effectively fight major changes that will take away their economic privileges and political power.

Once a critical juncture happens, the small differences that matter are the initial institutional differences that put in motion very different responses. This is the reason why the relatively small institutional differences in England, France, and Spain led to fundamentally different development paths. The paths resulted from the critical juncture created by the economic opportunities presented to Europeans by Atlantic trade.

Even if small institutional differences matter greatly during critical junctures, not all institutional differences are small, and naturally, larger institutional differences lead to even more divergent patterns during such junctures. While the institutional differences between England and France were small in 1588, the differences between Western and Eastern Europe were much greater. In the West, strong centralized states such as England, France, and Spain had latent constitutional institutions (Parliament, the Estates-General, and the Cortes). There were also underlying similarities in economic institutions, such as the lack of serfdom.

Eastern Europe was a different matter. The kingdom of Poland-Lithuania, for example, was ruled by an elite class called the Szlachta, who were so powerful they had even introduced elections for kings. This was not absolute rule as in France under Louis XIV, the Sun King, but absolutism of an elite, extractive political institutions all the same. The Szlachta ruled over a mostly rural society dominated by serfs, who had no freedom of movement or economic opportunities. Farther east, the Russian emperor Peter the Great was also consolidating an absolutism far more intense and extractive than even Louis XIV could manage.
Map 8
provides one simple way of seeing the extent of the divergence between Western and Eastern Europe at the beginning of the nineteenth century. It plots whether or not a country still had serfdom in 1800. Countries that appear dark did;
those that are light did not. Eastern Europe is dark; Western Europe is light.

Yet the institutions of Western Europe had not always been so different from those in the East. They began, as we saw earlier, to diverge in the fourteenth century when the Black Death hit in 1346. There were small differences between political and economic institutions in Western and Eastern Europe. England and Hungary were even ruled by members of the same family, the Angevins. The more important institutional differences that emerged after the Black Death then created the background upon which the more significant divergence between the East and the West would play out during the seventeenth, eighteenth, and nineteenth centuries.

But where do the small institutional differences that start this process of divergence arise in the first place? Why did Eastern Europe have different political and economic institutions than the West in the fourteenth century? Why was the balance of power between Crown and Parliament different in England than in France and Spain? As we will see in the next chapter, even societies that are far less complex than our modern society create political and economic institutions that have powerful effects on the lives of their members. This is true even for hunter-gatherers, as we know from surviving societies such as the San people of modern Botswana, who do not farm or even live in permanent settlements.

No two societies create the same institutions; they will have distinct customs, different systems of property rights, and different ways of dividing a killed animal or loot stolen from another group. Some will recognize the authority of elders, others will not; some will achieve some degree of political centralization early on, but not others. Societies are constantly subject to economic and political conflict that is resolved in different ways because of specific historical differences, the role of individuals, or just random factors.

These differences are often small to start with, but they cumulate, creating a process of institutional drift. Just as two isolated populations of organisms will drift apart slowly in a process of genetic drift, because random genetic mutations cumulate, two otherwise similar societies will also slowly drift apart institutionally. Though, just like genetic drift, institutional drift has no predetermined path and does not even need to be cumulative; over centuries it can lead to perceptible, sometimes important differences. The differences created by institutional drift become especially consequential, because they influence how society reacts to changes in economic or political circumstances during critical junctures.

The richly divergent patterns of economic development around the world hinge on the interplay of critical junctures and institutional drift. Existing political and economic institutions—sometimes shaped by a long process of institutional drift and sometimes resulting from
divergent responses to prior critical junctures—create the anvil upon which future change will be forged. The Black Death and the expansion of world trade after 1600 were both major critical junctures for European powers and interacted with different initial institutions to create a major divergence. Because in 1346 in Western Europe peasants had more power and autonomy than they did in Eastern Europe, the Black Death led to the dissolution of feudalism in the West and the Second Serfdom in the East. Because Eastern and Western Europe had started to diverge in the fourteenth century, the new economic opportunities of the seventeenth, eighteenth, and nineteenth centuries would also have fundamentally different implications for these different parts of Europe. Because in 1600 the grip of the Crown was weaker in England than in France and Spain, Atlantic trade opened the way to the creation of new institutions with greater pluralism in England, while strengthening the French and Spanish monarchs.

The outcomes of the events during critical junctures are shaped by the weight of history, as existing economic and political institutions shape the balance of power and delineate what is politically feasible. The outcome, however, is not historically predetermined but contingent. The exact path of institutional development during these periods depends on which one of the opposing forces will succeed, which groups will be able to form effective coalitions, and which leaders will be able to structure events to their advantage.

The role of contingency can be illustrated by the origins of inclusive political institutions in England. Not only was there nothing preordained in the victory of the groups vying for limiting the power of the Crown and for more pluralistic institutions in the Glorious Revolution of 1688, but the entire path leading up to this political revolution was at the mercy of contingent events. The victory of the winning groups was inexorably linked to the critical juncture created by the rise of Atlantic trade that enriched and emboldened merchants opposing the Crown. But a century earlier it was far from obvious that England would have any ability to dominate the seas, colonize many
parts of the Caribbean and North America, or capture so much of the lucrative trade with the Americas and the East. Neither Elizabeth I nor other Tudor monarchs before her had built a powerful, unified navy. The English navy relied on privateers and independent merchant ships and was much less powerful than the Spanish fleet. The profits of the Atlantic nonetheless attracted these privateers, challenging the Spanish monopoly of the ocean. In 1588 the Spanish decided to put an end to these challenges to their monopoly, as well as to English meddling in the Spanish Netherlands, at the time fighting against Spain for independence.

The Spanish monarch Philip II sent a powerful fleet, the Armada, commanded by the Duke of Medina Sidonia. It appeared a foregone conclusion to many that the Spanish would conclusively defeat the English, solidify their monopoly of the Atlantic, and probably overthrow Elizabeth I, perhaps ultimately gaining control of the British Isles. Yet something very different transpired. Bad weather and strategic mistakes by Sidonia, who had been put in charge at the last minute after a more experienced commander died, made the Spanish Armada lose their advantage. Against all odds, the English destroyed much of the fleet of their more powerful opponents. The Atlantic seas were now open to the English on more equal terms. Without this unlikely victory for the English, the events that would create the transformative critical juncture and spawn the distinctively pluralistic political institutions of post-1688 England would never have got moving.
Map 9
shows the trail of Spanish shipwrecks as the Armada was chased right around the British Isles.

Of course, nobody in 1588 could foresee the consequences of the fortunate English victory. Few probably understood at the time that this would create a critical juncture leading up to a major political revolution a century later.

There should be no presumption that any critical juncture will lead to a successful political revolution or to change for the better. History is full of examples of revolutions and radical movements replacing one tyranny with another, in a pattern that the German sociologist Robert Michels dubbed the iron law of oligarchy, a particularly pernicious form of the vicious circle. The end of colonialism in the decades following the Second World War created critical junctures for many former colonies. However, in most cases in sub-Saharan Africa and many in Asia, the postindependence governments simply took a page out of Robert Michels’s book and repeated and intensified the abuses of their predecessors, often severely narrowing the distribution of political power, dismantling constraints, and undermining the already meager incentives that economic institutions provided for investment and economic progress. 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.

Critical junctures can also result in major change toward rather than away from extractive institutions. Inclusive institutions, even though they have their own feedback loop, the virtuous circle, can also reverse course and become gradually more extractive because of challenges during critical junctures—and whether this happens is, again, contingent. The Venetian Republic, as we will see in
chapter 6
, made major strides toward inclusive political and economic institutions in the medieval period. But while such institutions became gradually stronger in England after the Glorious Revolution of 1688, in Venice they ultimately transformed themselves into extractive institutions under the control of a narrow elite that monopolized both economic opportunities and political power.

The emergence of a market economy based on inclusive institutions and sustained economic growth in eighteenth-century England sent ripples all around the world, not least because it allowed England to colonize a large part of it. But if the influence of English economic growth certainly spread around the globe, the economic and political institutions that created it did not automatically do so. The diffusion of the Industrial Revolution had different effects on the world in the same way that the Black Death had different effects on Western and Eastern Europe, and in the same way that the expansion of Atlantic trade had different effects in England and Spain. It was the institutions in place in different parts of the world that determined the impact, and these institutions were indeed different—small differences had been amplified over time by prior critical junctures. These institutional differences and their implications have tended to persist to the present due to the vicious and virtuous circles, albeit imperfectly, and are the key to understanding both how world inequality emerged and the nature of the lay of the land around us.