Why Nations Fail: The Origins of Power, Prosperity, and Poverty (43 page)

The Atlantic slave trade repeated the same pattern in Africa, even if starting from less developed conditions than in Southeast Asia and India. Many African states were turned into war machines intent on capturing and selling slaves to Europeans. As conflict between different polities and states grew into continuous warfare, state institutions, which in many cases had not yet achieved much political centralization in any case, crumbled in large parts of Africa, paving the way for persistent extractive institutions and the failed states of today that we will study later. In a few parts of Africa that escaped the slave trade, such as South Africa, Europeans imposed a different set of institutions, this time designed to create a reservoir of cheap labor for their mines and farms. The South African state created a dual economy, preventing 80 percent of the population from taking part in skilled occupations, commercial farming, and entrepreneurship. All this not only explains why industrialization passed by large parts of the world but also encapsulates how economic development may sometimes feed on, and even create, the underdevelopment in some other part of the domestic or the world economy.

E
IGHTEENTH-CENTURY
E
NGLAND
—or more appropriately, Great Britain after the 1707 union of England, Wales, and Scotland—had a simple solution for dealing with criminals: out of sight, out of mind, or at least out of trouble. They transported many to penal colonies in the empire. Before the War of Independence, the convicted criminals, convicts, were primarily sent to the American colonies. After 1783 the independent United States of America was no longer so welcoming to British convicts, and the authorities in Britain had to find another home for them. They first thought about West Africa. But the climate, with endemic diseases such as malaria and yellow fever, against which Europeans had no immunity, was so deadly that the authorities decided it was unacceptable to send even convicts to the “white man’s graveyard.” Their next option was Australia. Its eastern seaboard had been explored by the great seafarer Captain James Cook. On April 29, 1770, Cook landed in a wonderful inlet, which he called Botany Bay in honor of the rich species found there by the naturalists traveling with him. This seemed like an ideal location to British government officials. The climate was temperate, and the place was as far out of sight and mind as could be imagined.

A fleet of eleven ships packed with convicts was on its way to Botany Bay in January 1788 under the command of Captain Arthur Phillip. On January 26, now celebrated as Australia Day, they set up camp in Sydney Cove, the heart of the modern city of Sydney. They called the colony New South Wales. On board one of the ships, the
Alexander
, captained by Duncan Sinclair, were a married couple of convicts, Henry and Susannah Cable. Susannah had been found guilty of stealing and was initially sentenced to death. This sentence was later commuted to fourteen years and transportation to the American colonies. That plan fell through with the independence of the United States. In the meantime, in Norwich Castle Jail, Susannah met and fell in love with Henry, a fellow convict. In 1787 she was picked to be transported to the new convict colony in Australia with the first fleet heading there. But Henry was not. By this time Susannah and Henry had a young son, also called Henry. This decision meant the family was to be separated. Susannah was moved to a prison boat moored on the Thames, but the word got out about this wrenching event and reached the ears of a philanthropist, Lady Cadogan. Lady Cadogan organized a successful campaign to reunite the Cables. Now they were both to be transported with young Henry to Australia. Lady Cadogan also raised £20 to purchase goods for them, which they would receive in Australia. They sailed on the
Alexander
, but when they arrived in Botany Bay, the parcel of goods had vanished, or at least that is what Captain Sinclair claimed.

What could the Cables do? Not much, according to English or British law. Even though in 1787, Britain had inclusive political and economic institutions, this inclusiveness did not extend to convicts, who had practically no rights. They could not own property. They could certainly not sue anyone in court. In fact, they could not even give evidence in court. Sinclair knew this and probably stole the parcel. Though he would never admit it, he did boast that he could not be sued by the Cables. He was right according to British law. And in Britain the whole affair would have ended there. But not in Australia. A writ was issued to David Collins, the judge advocate there, as follows:

Henry and Susannah, since they were both illiterate, could not sign the writ and just put their “crosses” at the bottom. The words “new settlers of this place” were later crossed out, but were highly significant. Someone anticipated that if Henry Cable and his wife were described as convicts, the case would have no hope of proceeding. Someone had come up instead with the idea of calling them new settlers. This was probably a bit too much for Judge Collins to take, and most likely he was the one who had these words struck out. But the writ worked. Collins did not throw out the case, and convened the court, with a jury entirely made up of soldiers. Sinclair was called before the court. Though Collins was less than enthusiastic about the case, and the jury was composed of the people sent to Australia to guard convicts such as the Cables, the Cables won. Sinclair contested the whole affair on the grounds that the Cables were criminals. But the verdict stood, and he had to pay fifteen pounds.

To reach this verdict Judge Collins didn’t apply British law; he ignored it. This was the first civil case adjudicated in Australia. The first criminal case would have appeared equally bizarre to those in Britain. A convict was found guilty of stealing another convict’s bread, which was worth two pence. At the time, such a case would not have come to court, since convicts were not allowed to own anything. Australia was not Britain, and its law would not be just British. And Australia would soon diverge from Britain in criminal and civil law as well as in a host of economic and political institutions.

The penal colony of New South Wales initially consisted of the convicts and their guards, mostly soldiers. There were few “free settlers” in Australia until the 1820s, and the transportation of convicts, though it stopped in New South Wales in 1840, continued until 1868 in Western Australia. Convicts had to perform “compulsory work,” essentially just another name for forced labor, and the guards intended to make money out of it. Initially the convicts had no pay. They were given only food in return for the labor they performed. The guards kept what they produced. But this system, like the ones with which the Virginia Company experimented in Jamestown, did not work very well, because convicts did not have the incentives to work hard or do good work. They were lashed or banished to Norfolk Island, just thirteen square miles of territory situated more than one thousand miles east of Australia in the Pacific Ocean. But since neither banishing nor lashing worked, the alternative was to give them incentives. This was not a natural idea to the soldiers and guards. Convicts were convicts, and they were not supposed to sell their labor or own property. But in Australia there was nobody else to do the work. There were of course Aboriginals, possibly as many as one million at the time of the founding of New South Wales. But they were spread out over a vast continent, and their density in New South Wales was insufficient for the creation of an economy based on their exploitation. There was no Latin American option in Australia. The guards thus embarked on a path that would ultimately lead to institutions that were even more inclusive than those back in Britain. Convicts were given a set of tasks to do, and if they had extra time, they could work for themselves and sell what they produced.

The guards also benefited from the convicts’ new economic freedoms. Production increased, and the guards set up monopolies to sell goods to the convicts. The most lucrative of these was for rum. New South Wales at this time, just like other British colonies, was run by a governor, appointed by the British government. In 1806 Britain appointed William Bligh, the man who seventeen years previously, in 1789, had been captain of the H.M.S.
Bounty
, during the famous “Mutiny on the
Bounty
.” Bligh was a strict disciplinarian, a trait that was probably largely responsible for the mutiny. His ways had not
changed, and he immediately challenged the rum monopolists. This would lead to another mutiny, this time by the monopolists, led by a former soldier, John Macarthur. The events, which came to be known as the Rum Rebellion, again led to Bligh’s being overpowered by rebels, this time on land rather than aboard the
Bounty
. Macarthur had Bligh locked up. The British authorities subsequently sent more soldiers to deal with the rebellion. Macarthur was arrested and shipped back to Britain. But he was soon released, and he returned to Australia to play a major role in both the politics and economics of the colony.

The roots of the Rum Rebellion were economic. The strategy of giving the convicts incentives was making a lot of money for men such as Macarthur, who arrived in Australia as a soldier in the second group of ships that landed in 1790. In 1796 he resigned from the army to concentrate on business. By that time he already had his first sheep, and realized that there was a lot of money to be made in sheep farming and wool export. Inland from Sydney were the Blue Mountains, which were finally crossed in 1813, revealing vast expanses of open grassland on the other side. 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.

Convicts were soon allowed to become entrepreneurs and hire other convicts. More notably, they were even given land after completing their sentences, and they had all their rights restored. Some of
them started to get rich, even the illiterate Henry Cable. By 1798 he owned a hotel called the Ramping Horse, and he also had a shop. He bought a ship and went into the trade of sealskins. By 1809 he owned at least nine farms of about 470 acres and also a number of shops and houses in Sydney.

The next conflict in New South Wales would be between the elite and the rest of the society, made up of convicts, ex-convicts, and their families. The elite, led by former guards and soldiers such as Macarthur, included some of the free settlers who had been attracted to the colony because of the boom in the wool economy. Most of the property was still in the hands of the elite, and the ex-convicts and their descendants wanted an end to transportation, the opportunity of trial by a jury of their peers, and access to free land. The elite wanted none of these. Their main concern was to establish legal title to the lands they squatted on. The situation was again similar to the events that had transpired in North America more than two centuries earlier. As we saw in
chapter 1
, the victories of the indentured servants against the Virginia Company were followed by the struggles in Maryland and the Carolinas. In New South Wales, the roles of Lord Baltimore and Sir Anthony Ashley-Cooper were played by Macarthur and the Squatters. The British government was again on the side of the elite, though they also feared that one day Macarthur and the Squatters might be tempted to declare independence.

The British government dispatched John Bigge to the colony in 1819 to head a commission of inquiry into the developments there. Bigge was shocked by the rights that the convicts enjoyed and surprised by the fundamentally inclusive nature of the economic institutions of this penal colony. He recommended a radical overhaul: convicts could not own land, nobody should be allowed to pay convicts wages anymore, pardons were to be restricted, ex-convicts were not to be given land, and punishment was to be made much more draconian. Bigge saw the Squatters as the natural aristocracy of Australia and envisioned an autocratic society dominated by them. This wasn’t to be.

While Bigge was trying to turn back the clock, ex-convicts and their sons and daughters were demanding greater rights. Most important,
they realized, again just as in the United States, that to consolidate their economic and political rights fully they needed political institutions that would include them in the process of decision making. They demanded elections in which they could participate as equals and representative institutions and assemblies in which they could hold office.