Why Nations Fail: The Origins of Power, Prosperity, and Poverty (49 page)

By the “ballot,” they meant the secret ballot and the end of open voting, which had facilitated the buying of votes and the coercion of voters.

The Chartist movement organized a series of mass demonstrations, and throughout this period Parliament continually discussed the potential for further reforms. Though the Chartists disintegrated after 1848, they were followed by the National Reform Union, founded in 1864, and the Reform League, which was founded in 1865. In July 1866, major pro-reform riots in Hyde Park brought reform right to the top of the political agenda once more. This pressure bore dividends in the form of the Second Reform Act of 1867, in which the total electorate was doubled and working-class voters became the majority in all urban constituencies. Shortly afterward the secret ballot was introduced
and moves were made to eliminate corrupt electoral practices such as “treating” (essentially buying votes in exchange for which the voter received a treat, usually money, food, or alcohol). The electorate was doubled again by the Third Reform Act of 1884, when 60 percent of adult males were enfranchised. Following the First World War, the Representation of the People Act of 1918 gave the vote to all adult males over the age of twenty-one, and to women over the age of thirty who were taxpayers or married to taxpayers. Ultimately, all women also received the vote on the same terms as men in 1928. The measures of 1918 were negotiated during the war and reflected a quid pro quo between the government and the working classes, who were needed to fight and produce munitions. The government may also have taken note of the radicalism of the Russian Revolution.

Parallel with the gradual development of more inclusive political institutions was a movement toward even more inclusive economic institutions. One major consequence of the First Reform Act was the repeal of the Corn Laws in 1846. As we saw in
chapter 7
, the Corn Laws banned the import of grains and cereals, keeping their prices high and ensuring lucrative profits for large landowners. The new parliamentarians from Manchester and Birmingham wanted cheap corn and low wages. They won, and the landed interests suffered a major defeat.

The changes in the electorate and other dimensions of political institutions taking place during the course of the nineteenth century were followed by further reforms. In 1871 the Liberal prime minister Gladstone opened up the civil service to public examination, making it meritocratic, and thus continuing the process of political centralization and the building of state institutions that started during the Tudor period. Liberal and Tory governments during this period introduced a considerable amount of labor market legislation. For example, the Masters and Servants Acts, which allowed employers to use the law to reduce the mobility of their workers, was repealed, changing the nature of labor relations in favor of workers. During 1906–1914, the Liberal Party, under the leadership of H. H. Asquith and David Lloyd George, began to use the state to provide far more public services, including health and unemployment insurance, government-financed
pensions, minimum wages, and a commitment to redistributive taxation. As a result of these fiscal changes, taxes as a proportion of national product more than doubled in the last three decades of the nineteenth century, and then doubled again in the first three decades of the twentieth. The tax system also became more “progressive,” so that wealthier people bore a heavier burden.

Meanwhile, the education system, which was previously either primarily for the elite, run by religious denominations, or required poor people to pay fees, was made more accessible to the masses; the Education Act of 1870 committed the government to the systematic provision of universal education for the first time. Education became free of charge in 1891. The school-leaving age was set at eleven in 1893. In 1899 it was increased to twelve, and special provisions for the children of needy families were introduced. As a result of these changes, the proportion of ten-year-olds enrolled in school, which stood at a disappointing 40 percent in 1870, increased to 100 percent in 1900. Finally, the Education Act of 1902 led to a large expansion in resources for schools and introduced the grammar schools, which subsequently became the foundation of secondary education in Britain.

In fact, the British example, an illustration of the virtuous circle of inclusive institutions, provides an example of a “gradual virtuous circle.” The political changes were unmistakably toward more inclusive political institutions and were the result of demands from empowered masses. But they were also gradual. Every decade another step, sometimes smaller, sometimes larger, was taken toward democracy. There was conflict over each step, and the outcome of each was contingent. But the virtuous circle created forces that reduced the stakes involved in clinging to power. It also spurred the rule of law, making it harder to use force against those who were demanding what these elites had themselves demanded from Stuart monarchs. It became less likely that this conflict would turn into an all-out revolution and more likely that it would be resolved in favor of greater inclusiveness. There is great virtue in this sort of gradual change. It is less threatening to the elite than the wholesale overthrow of the system. Each step is small, and it makes sense to give in to a small demand rather than create a major showdown. This partly explains how the Corn Law was repealed
without more serious conflict. By 1846 landowners could no longer control legislation in Parliament. This was an outcome of the First Reform Act. However, if in 1832 the expansion of the electorate, the reform of the rotten boroughs, and the repeal of the Corn Laws had all been on the table, landowners would have put up much more resistance. The fact that there were first limited political reforms and that repeal of the Corn Laws came on the agenda only later defused conflict.

Gradual change also prevented ventures into uncharted territories. A violent overthrow of the system means that something entirely new has to be built in place of what has been removed. This was the case with the French Revolution, when the first experiment with democracy led to the Terror and then back to a monarchy twice before finally leading to the French Third Republic in 1870. It was the case in the Russian Revolution, where the desires of many for a more equal system than that of the Russian Empire led to a one-party dictatorship that was much more violent, bloody, and vicious than what it had replaced. Gradual reform was difficult in these societies precisely because they lacked pluralism and were highly extractive. It was the pluralism emerging from the Glorious Revolution, and the rule of law that it introduced, that made gradual change feasible, and desirable, in Britain.

The conservative English commentator Edmund Burke, who steadfastly opposed the French Revolution, wrote in 1790, “It is with infinite caution that any man should venture upon pulling down an edifice, which has answered in any tolerable degree for ages the common purposes of society, or on building it up again without having models and patterns of approved utility before his eyes.” Burke was wrong on the big picture. The French Revolution had replaced a rotten edifice and opened the way for inclusive institutions not only in France, but throughout much of Western Europe. But Burke’s caution was not entirely off the mark. The gradual process of British political reform, which had started in 1688 and would pick up pace three decades after Burke’s death, would be more effective because its gradual nature made it more powerful, harder to resist, and ultimately more durable.

Inclusive institutions in the United States had their roots in the struggles in Virginia, Maryland, and the Carolinas during the colonial period (
this page
–
this page
). These institutions were reinforced by the Constitution of the United States, with its system of constraints and its separation of powers. But the Constitution did not mark the end of the development of inclusive institutions. Just as in Britain, these were strengthened by a process of positive feedback, based on the virtuous circle.

By the middle of the nineteenth century, all white males, though not women or blacks, could vote in the United States. Economic institutions became more inclusive—for example, with the passage of the Homestead Act in 1862 (
this page
), which made frontier land available to potential settlers rather than allocating these lands to political elites. But just as in Britain, challenges to inclusive institutions were never entirely absent. The end of the U.S. Civil War initiated a rapid spurt of economic growth in the North. As railways, industry, and commerce expanded, a few people made vast fortunes. Emboldened by their economic success, these men and their companies became increasingly unscrupulous. They were called the Robber Barons because of their hard-nosed business practices aimed at consolidating monopolies and preventing any potential competitor from entering the market or doing business on an equal footing. One of the most notorious of these was Cornelius Vanderbilt, who famously remarked, “What do I care about the Law? Hain’t I got the power?”

Another was John D. Rockefeller, who started the Standard Oil Company in 1870. He quickly eliminated rivals in Cleveland and attempted to monopolize the transportation and retailing of oil and oil products. By 1882 he had created a massive monopoly—in the language of the day, a trust. By 1890 Standard Oil controlled 88 percent of the refined oil flows in the United States, and Rockefeller became the world’s first billionaire in 1916. Contemporary cartoons depict Standard Oil as an octopus wrapping itself around not just the oil industry but also Capitol Hill.

Almost as infamous was John Pierpont Morgan, the founder of the modern banking conglomerate J.P. Morgan, which later, after many mergers over decades, eventually became JPMorgan Chase. Along with Andrew Carnegie, Morgan founded the U.S. Steel Company in 1901, the first corporation with a capitalized value of more than $1 billion and by far the largest steel corporation in the world. In the 1890s, large trusts began to emerge in nearly every sector of the economy, and many of them controlled more than 70 percent of the market in their sector. These included several household names, such as Du Pont, Eastman Kodak, and International Harvester. Historically the United States, at least the northern and midwestern United States, had relatively competitive markets and had been more egalitarian than other parts of the country, particularly the South. But during this period, competition gave way to monopoly, and wealth inequality rapidly increased.

The pluralistic U.S. political system already empowered a broad segment of society that could stand up against such encroachments. Those who were the victims of the monopolistic practices of the Robber Barons, or who objected to their unscrupulous domination of their industries, began to organize against them. They formed the Populist and then subsequently the Progressive movements.

The Populist movement emerged out of a long-running agrarian crisis, which afflicted the Midwest from the late 1860s onward. The National Grange of the Order of Patrons of Husbandry, known as the Grangers, was founded in 1867 and began to mobilize farmers against unfair and discriminatory business practices. In 1873 and 1874, the Grangers won control of eleven midwestern state legislatures, and rural discontent culminated in the formation of the People’s Party in 1892, which got 8.5 percent of the popular vote in the 1892 presidential election. In the next two elections, the Populists fell in behind the two unsuccessful Democratic campaigns by William Jennings Bryan, who made many of their issues his own. Grass-roots opposition to the spread of the trusts had now organized to try to counteract the influence that Rockefeller and other Robber Barons were exerting over national politics.

These political movements slowly began to have an impact on
political attitudes and then on legislation, particularly concerning the role of the state in the regulation of monopoly. The first important piece of legislation was the Interstate Commerce Act of 1887, which created the Interstate Commerce Commission and initiated the development of the federal regulation of industry. This was quickly followed by the Sherman Antitrust Act of 1890. The Sherman Act, which is still a major part of U.S. antitrust regulation, would become the basis for attacks on the Robber Barons’ trusts. Major action against the trusts came after the election of presidents committed to reform and to limiting the power of the Robber Barons: Theodore Roosevelt, 1901–1909; William Taft, 1909–1913; and Woodrow Wilson, 1913–1921.

A key political force behind antitrust and the move to impose federal regulation of industry was again the farm vote. Early attempts by individual states in the 1870s to regulate railroads came from farmers’ organizations. Indeed, nearly all the fifty-nine petitions that concerned trusts sent to Congress prior to the enactment of the Sherman Act came from farming states and emanated from organizations such as the Farmers’ Union, Farmers’ Alliance, Farmers’ Mutual Benefit Association, and Patrons of Animal Husbandry. Farmers found a collective interest in opposing the monopolistic practices of industry.

From the ashes of the Populists, who seriously declined after throwing their weight behind the Democrats, came the Progressives, a heterogeneous reform movement concerned with many of the same issues. The Progressive movement initially gelled around the figure of Teddy Roosevelt, who was William McKinley’s vice president and who assumed the presidency following McKinley’s assassination in 1901. Prior to his rise to national office, Roosevelt had been an uncompromising governor of New York and had worked hard to eliminate political corruption and “machine politics.” In his first address to Congress, Roosevelt turned his attention to the trusts. He argued that the prosperity of the United States was based on market economy and the ingenuity of businessmen, but at the same time,