Why Nations Fail: The Origins of Power, Prosperity, and Poverty (56 page)

The international community thought that postcolonial African independence would lead to economic growth through a process of state planning and cultivation of the private sector. But the private sector
was not there—except in rural areas, which had no representation in the new governments and would thus be their first prey. Most important perhaps, in most of these cases there were enormous benefits from holding power. These benefits both attracted the most unscrupulous men, such as Stevens, who wished to monopolize this power, and brought the worst out of them once they were in power. There was nothing to break the vicious circle.

Rich nations are rich largely because they managed to develop inclusive institutions at some point during the past three hundred years. These institutions have persisted through a process of virtuous circles. Even if inclusive only in a limited sense to begin with, and sometimes fragile, they generated dynamics that would create a process of positive feedback, gradually increasing their inclusiveness. England did not become a democracy after the Glorious Revolution of 1688. Far from it. Only a small fraction of the population had formal representation, but crucially, she was pluralistic. Once pluralism was enshrined, there was a tendency for the institutions to become more inclusive over time, even if this was a rocky and uncertain process.

In this, England was typical of virtuous circles: inclusive political institutions create constraints against the exercise and usurpation of power. They also tend to create inclusive economic institutions, which in turn make the continuation of inclusive political institutions more likely.

Under inclusive economic institutions, wealth is not concentrated in the hands of a small group that could then use its economic might to increase its political power disproportionately. Furthermore, under inclusive economic institutions there are more limited gains from holding political power, thus weaker incentives for every group and every ambitious, upstart individual to try to take control of the state. A confluence of factors at a critical juncture, including interplay between existing institutions and the opportunities and challenges
brought by the critical juncture, is generally responsible for the onset of inclusive institutions, as the English case demonstrates. But once these inclusive institutions are in place, we do not need the same confluence of factors for them to survive. Virtuous circles, though still subject to significant contingency, enable the institutions’ continuity and often even unleash dynamics taking society toward greater inclusiveness.

As virtuous circles make inclusive institutions persist, vicious circles create powerful forces toward the persistence of extractive institutions. History is not destiny, and vicious circles are not unbreakable, as we will see further in
chapter 14
. But they are resilient. They create a powerful process of negative feedback, with extractive political institutions forging extractive economic institutions, which in turn create the basis for the persistence of extractive political institutions. We saw this most clearly in the case of Guatemala, where the same elite held power, first under colonial rule, then in independent Guatemala, for more than four centuries; extractive institutions enrich the elite, and their wealth forms the basis for the continuation of their domination.

The same process of the vicious circle is also apparent in the persistence of the plantation economy in the U.S. South, except that it also showcases the vicious circle’s great resilience in the face of challenges. U.S. southern planters lost their formal control of economic and political institutions after their defeat in the Civil War. Slavery, which was the basis of the plantation economy, was abolished, and blacks were given equal political and economic rights. Yet the Civil War did not destroy the political power of the planter elite or its economic basis, and they were able to restructure the system, under a different guise but still under their own local political control, and to achieve the same objective: abundance of low-cost labor for the plantations.

This form of the vicious circle, where extractive institutions persist because the elite controlling them and benefiting from them persists, is not its only form. At first a more puzzling, but no less real and no less vicious, form of negative feedback shaped the political and economic development of many nations, and is exemplified
by the experiences of much of sub-Saharan Africa, in particular Sierra Leone and Ethiopia. In a form that the sociologist Robert Michels would recognize as the iron law of oligarchy, the overthrow of a regime presiding over extractive institutions heralds the arrival of a new set of masters to exploit the same set of pernicious extractive institutions.

The logic of this type of vicious circle is also simple to understand in hindsight: extractive political institutions create few constraints on the exercise of power, so there are essentially no institutions to restrain the use and abuse of power by those overthrowing previous dictators and assuming control of the state; and extractive economic institutions imply that there are great profits and wealth to be made merely by controlling power, expropriating the assets of others, and setting up monopolies.

Of course, the iron law of oligarchy is not a true law, in the sense that the laws of physics are. It does not chart an inevitable path, as the Glorious Revolution in England or the Meiji Restoration in Japan illustrate.

A key factor in these episodes, which saw a major turn toward inclusive institutions, was the empowerment of a broad coalition that could stand up against absolutism and would replace the absolutist institutions by more inclusive, pluralistic ones. A revolution by a broad coalition makes the emergence of pluralistic political institutions much more likely. In Sierra Leone and Ethiopia, the iron law of oligarchy was made more likely not only because existing institutions were highly extractive but also because neither the independence movement in the former nor the Derg coup in the latter were revolutions led by such broad coalitions, but rather by individuals and groups seeking power so that they could do the extracting.

There is yet another, even more destructive facet of the vicious circle, anticipated by our discussion of the Maya city-states in
chapter 5
. When extractive institutions create huge inequalities in society and great wealth and unchecked power for those in control, there will be many wishing to fight to take control of the state and institutions. Extractive institutions then not only pave the way for the next regime, which will be even more extractive, but they also engender continuous
infighting and civil wars. These civil wars then cause more human suffering and also destroy even what little state centralization these societies have achieved. This also often starts a process of descent into lawlessness, state failure, and political chaos, crushing all hopes of economic prosperity, as the next chapter will illustrate.

I
T WAS
J
ANUARY 2000
in Harare, Zimbabwe. Master of Ceremonies Fallot Chawawa was in charge of drawing the winning ticket for the national lottery organized by a partly state-owned bank, the Zimbabwe Banking Corporation (Zimbank). The lottery was open to all clients who had kept five thousand or more Zimbabwe dollars in their accounts during December 1999. When Chawawa drew the ticket, he was dumfounded. As the public statement of Zimbank put it, “Master of Ceremonies Fallot Chawawa could hardly believe his eyes when the ticket drawn for the Z$100,000 prize was handed to him and he saw His Excellency RG Mugabe written on it.”

President Robert Mugabe, who had ruled Zimbabwe by hook or by crook, and usually with an iron fist, since 1980, had won the lottery, which was worth a hundred thousand Zimbabwe dollars, about five times the annual per capita income of the country. Zimbank claimed that Mr. Mugabe’s name had been drawn from among thousands of eligible customers. What a lucky man! Needless to say he didn’t really need the money. Mugabe had in fact only recently awarded himself and his cabinet salary hikes of up to 200 percent.

The lottery ticket was just one more indication of Zimbabwe’s extractive institutions. One could call this corruption, but it is just a symptom of the institutional malaise in Zimbabwe. The fact that Mugabe could even win the lottery if he wanted showed how much control he had over matters in Zimbabwe, and gave the world a glimpse of the extent of the country’s extractive institutions.

The most common reason why nations fail today is because they
have extractive institutions. Zimbabwe under Mugabe’s regime vividly illustrates the economic and social consequences. Though the national statistics in Zimbabwe are very unreliable, the best estimate is that by 2008, Zimbabwe’s per capita income was about half of what it was when the country gained its independence in 1980. Dramatic as this sounds, it does not in fact begin to capture the deterioration in living standards in Zimbabwe. The state has collapsed and more or less stopped providing any basic public services. In 2008–2009 the deterioration in the health systems led to an outbreak of cholera across the country. As of January 10, 2010, there have been 98,741 reported cases and 4,293 deaths, making it the deadliest cholera outbreak in Africa over the previous fifteen years. In the meantime, mass unemployment has also reached unprecedented levels. In early 2009, the UN Office for the Coordination of Humanitarian Affairs claimed that the unemployment rate had hit an incredible 94 percent.

The roots of many economic and political institutions in Zimbabwe, as is the case for much of sub-Saharan Africa, can be traced back to the colonial period. In 1890 Cecil Rhodes’s British South Africa Company sent a military expedition into the then-kingdom of the Ndebele, based in Matabeleland, and also into the neighboring Mashonaland. Their superior weaponry quickly suppressed African resistance, and by 1901 the colony of Southern Rhodesia, named after Rhodes, had been formed in the area that is currently Zimbabwe. Now that the area was a privately owned concession of the British South Africa Company, Rhodes anticipated making money there through prospecting and mining for precious minerals. The ventures never got off the ground, but the very rich farmlands began attracting white migration. These settlers soon annexed much of the land. By 1923 they had freed themselves from the rule of the British South Africa Company and persuaded the British government to grant them self-government. What then occurred is very similar to what had happened in South Africa a decade or so previously. The 1913 Natives Land Act (
this page
–
this page
) created a dual economy in South Africa. Rhodesia passed very similar laws, and inspired by the South African model, a white-only apartheid state was constructed soon after 1923.

As the European colonial empires collapsed in the late 1950s and
early 1960s, the white elite in Rhodesia, led by Ian Smith, comprising possibly 5 percent of the population, declared independence from Britain in 1965. Few international governments recognized Rhodesia’s independence, and the United Nations levied economic and political sanctions against it. The black citizens organized a guerrilla war from bases in the neighboring countries of Mozambique and Zambia. International pressure and the rebellion waged by the two main groups, Mugabe’s ZANU (the Zimbabwe African National Union) and ZAPU (the Zimbabwe African People’s Union), led by Joshua Nkomo, resulted in a negotiated end to white rule. The state of Zimbabwe was created in 1980.

After independence, Mugabe quickly established his personal control. He either violently eliminated his opponents or co-opted them. The most egregious acts of violence happened in Matabeleland, the heartland of support for ZAPU, where as many as twenty thousand people were killed in the early 1980s. By 1987 ZAPU had merged with ZANU to create ZANU-PF, and Joshua Nkomo was sidelined politically. Mugabe was able to rewrite the constitution he had inherited as a part of the independence negotiation, making himself president (he had started as prime minister), abolishing white voter rolls that were part of the independence agreement, and eventually, in 1990, getting rid of the Senate altogether and introducing positions in the legislature that he could nominate. A de facto one-party state headed by Mugabe was the result.

Upon independence, Mugabe took over a set of extractive economic institutions created by the white regime. These included a host of regulations on prices and international trade, state-run industries, and the obligatory agricultural marketing boards. State employment expanded rapidly, with jobs given to supporters of ZANU-PF. The tight government regulation of the economy suited the ZANU-PF elites because it made it difficult for an independent class of African businessmen, who might then have challenged the former’s political monopoly, to emerge. This was very similar to the situation we saw in Ghana in the 1960s in
chapter 2
(
this page
–
this page
). Ironically, of course, this left whites as the main business class. During this period the main strengths of the white economy, particularly the highly productive
agricultural export sector, was left untouched. But this would last only until Mugabe became unpopular.

The model of regulation and market intervention gradually became unsustainable, and a process of institutional change, with the support of the World Bank and the International Monetary Fund, began in 1991 after a severe fiscal crisis. The deteriorating economic performance finally led to the emergence of a serious political opposition to ZANU-PF’s one-party rule: the Movement for Democratic Change (MDC). The 1995 parliamentary elections were far from competitive. ZANU-PF won 81 percent of the vote and 118 out of the 120 seats. Fifty-five of these members of Parliament were elected unopposed. The presidential election the following year showed even more signs of irregularities and fraud. Mugabe won 93 percent of the vote, but his two opponents, Abel Muzorewa and Ndabaningi Sithole, had already withdrawn their candidacy prior to the election, accusing the government of coercion and fraud.