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Chapter 3
Themes
and Colors
Key
LitCharts assigns a color and icon to each theme in Why Nations Fail, which you can use to track the themes throughout the work.
Global Inequality and Economic Growth
History and Institutional Change
Cycles of Wealth and Poverty
Diversity, Pluralism, and Empowerment
Summary
Analysis
In the section “The World the Plague Created,” Acemoglu and Robinson detail how the Black Death spread across Europe in the 1300s, killing roughly half its population and fundamentally transforming its societies. Before the plague, Europe was organized into an extractive and feudal system, in which kings granted their land to lords, who forced peasants to work on it under harsh conditions. But the plague killed many people, creating a labor shortage in many countries. In England, the peasants who survived gained more bargaining power and started demanding higher wages. The English government tried to freeze wages and imprison workers who sought to switch from one lord’s land to another’s. In response, the peasants rebelled in 1381, and the government withdrew these policies. The labor market became more inclusive.
In the last chapter, Acemoglu and Robinson explained why institutions determine prosperity. In this one, they try to explain why different countries build different kinds of institutions in the first place. The Black Death exemplifies one of their key principles: institutions tend to change during crises, because institutions have to adapt and respond to them. Specifically, in England the Black Death tipped the scales in the ongoing conflict between the elites and the masses. By redistributing power, the Black Death made it possible for the people to create more inclusive institutions.
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In Eastern Europe, land ownership was more concentrated, and lords had more power than in England. For this reason, landlords actually consolidated their power after the Black Death and imposed even more restrictive, extractive conditions on workers. For instance, they drove peasants’ wages down substantially in the 1500s. Thus, while Eastern and Western Europe were similar before the plague, by 1600, they had seriously diverged: the West had developed inclusive economic institutions, while the East had developed extractive ones. The Black Death shows how critical junctures—significant, disruptive historical events—can drive rapid change towards either inclusiveness or extractiveness, depending on the context in which they occur.
The differences between England and Eastern Europe underline a second important principle about historical change: not every nation will respond to the same crisis (or critical juncture) in the same way. In fact, nations often diverge over time precisely because their institutions respond to the same critical junctures in different ways. While the Black Death tipped the balance of power toward the masses in England, it did the opposite in Eastern Europe. Notably, this happened because England was slightly more inclusive and less extractive than Eastern Europe before the Black Death. In other words, the Black Death multiplied existing institutional differences, leading to a major divergence.
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Next, in the section “The Making of Inclusive Institutions,” Acemoglu and Robinson explain how England started to grow rapidly in the 17th century because of its inclusive political institutions, which were a result of the English Civil War (1642-1651) and, in particular, the Glorious Revolution of 1688. The Glorious Revolution gave Parliament the power to set economic policy and allowed “a broad cross section of society” to participate in politics for the first time. Parliament’s economic reforms created strong property rights and a uniform tax code, which incentivized innovation and created an even playing field. These incentives drove technological advances like the steam engine, which then spurred the Industrial Revolution. But they wouldn’t have been possible without England’s inclusive political institutions—especially its centralized state and strong anti-monarchy coalition.
In “Small Differences That Matter,” Acemoglu and Robinson argue that political institutions determined which countries adopted the Industrial Revolution’s technologies and thus achieved rapid economic growth. England, France, and Spain were similarly absolutist in 1588, but England’s monarchy was uniquely reliant on taxation, which gave Parliament significant power over it. This meant that, unlike the French and Spanish monarchs, Queen Elizabeth I wasn’t powerful enough to monopolize trade with her colonies—she needed to work with intermediary traders instead. These traders started demanding and winning political changes that comparable merchants in France and Spain weren’t powerful enough to achieve.
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Again, countries with even small institutional differences can move in opposite directions when they hit key critical junctures. Larger institutional differences, like Eastern Europe’s much stronger and more consolidated feudal system (compared to Western Europe’s), can create even wider divergences. Depending on a combination of factors like historical events, social norms, and randomness, these institutional differences tend to accumulate gradually over time, creating a process of “institutional drift” between different societies. This drift allows critical junctures to drive societies’ futures in different directions.
In the section “The Contingent Path of History,” Acemoglu and Robinson argue that, while existing institutions shape the way a society responds to critical junctures, these responses are never set in stone—they’re always historically contingent, dependent on which coalition manages to take and exercise power in any given historical moment. For instance, the Glorious Revolution was in part contingent on Britain’s powerful merchant class, whose wealth was contingent on the unexpected English defeat of the Spanish Armada in 1588.
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But critical junctures don’t always cause change—for instance, following their independence from colonial powers, the governments of many former colonies ruled just as abusively as their previous rulers. And sometimes, critical junctures make societies more unequal and extractive.
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In “Understanding the Lay of the Land,” Acemoglu and Robinson apply their theory about institutional differences and critical junctures to explain how different parts of the world developed in divergent ways after the Industrial Revolution—and why many of the patterns in its development still persist. English settler colonies (like the US, Canada, and Australia) tended to develop pluralistic political institutions similar to England’s and quickly join in the Industrial Revolution. In countries like France, the Industrial Revolution caused political revolutions, which ushered in more inclusive political and economic institutions. In contrast, Latin America’s extractive colonial institutions have largely endured in its independent nations—although less so in the areas that were least integrated into the Spanish Empire (like Argentina and Chile).
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Sub-Saharan Africa has had the most trouble building effective institutions. In general, it has struggled to form centralized states. Moreover, the profitable transatlantic slave trade encouraged African states like the Kingdom of Kongo to build extremely absolutist institutions, deny property rights, and wage a constant war on their people. This further fragmented the region. Then, European colonialism significantly worsened Africa’s trend towards extractive institutions. When African countries gained independence starting in the 1960s, their new leaders generally kept running institutions the same way as the Europeans. But small institutional differences and contingent historical events have led to a few exceptions.
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For similar reasons, Asian countries struggled to build inclusive institutions in the 19th century. Absolutist Chinese monarchies halted commerce as soon as creative destruction threatened their power. In India, the caste system and English colonialism created strongly absolutist, extractive institutions. In the mid-1800s, the Opium Wars made China more absolutist, but due to institutional differences, US interventions in Japan actually helped the monarchy’s opponents overthrow it. During this Meiji Restoration, Japan built more inclusive institutions and started growing rapidly—much like South Korea, Taiwan, and China have in the 20th century. But the opposite has also happened in places like Argentina and Russia, where extractive institutions have run out of steam and sent nations into economic decline.
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The Ottoman Empire set up absolutist, highly extractive institutions throughout the Middle East. It wasn’t as highly centralized as other empires and it struggled to collect taxes, but it still created highly unfavorable economic conditions. Peasants had virtually no property rights and state monopolies controlled most commerce. After World War One, European empires took over most of the Middle East and imposed extractive policies similar to those in Latin America and Africa. This history accounts for the Middle East’s contemporary poverty (excepting the effect of oil).
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Acemoglu and Robinson reiterate that institutional differences are the only good explanation for global inequality. They explain that the rest of their book will expand on this theory, apply it to a variety of situations, and show how some countries have managed to build more inclusive institutions.
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