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Chapter 8
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
Under the heading “Spice and Genocide,” Acemoglu and Robinson describe the remote Moluccan islands in Indonesia, which were long key to global commerce because they were the only sources of nutmeg, mace, and cloves. The Portuguese sailed around Africa and captured the city of Melaka in an attempt to monopolize the spice trade. But they failed because several absolutist Southeast Asian city-states were already trading spices. Later, the Dutch invaded the region with the same goals as the Portuguese. They convinced the king of Ambon to give them a monopoly on his island’s clove production.
The authors have already explained why the Industrial Revolution succeeded in England, and why it failed in absolutist monarchies throughout Europe and Asia. They now address why it also failed in most of the world. One factor explains this more than any other: European colonialism. The Portuguese and Dutch competition in Indonesia illustrates that Europeans’ primary motivation during colonization was profit (and certainly not growth in the places they colonized). Colonizers pursued this profit by imposing extractive institutions on the rest of the world, so according to the authors’ theory, colonized regions were unlikely to grow.
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But in the Banda Islands, each village ruled itself, so the Dutch couldn’t take control of the region’s spices. Instead, they committed genocide, massacring everyone on the islands and then creating a system of plantation slavery in their place. Through their monopoly, the Dutch drove down spice supplies and drove up their prices. They repeated this over the entire region, crushing the prosperous states surrounding them. Many states even destroyed their spice trees instead of facing Dutch conquest.
These brutal colonial practices clearly show how extractive economic institutions like monopolies harm the majority (and the economy as a whole) in order to benefit the few. In addition to committing unconscionable violence, the Dutch also impoverished local native people by destroying their robust commercial economies.
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Without this colonial violence, Acemoglu and Robinson suggest, Southeast Asian states might have become prosperous and inclusive. But it’s impossible to know. This chapter is about how European colonialism “sowed the seeds of underdevelopment” around the world by imposing highly extractive institutions on native populations.
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The section “The All-Too-Usual Institution” focuses on slavery. In the Middle Ages, Europe transitioned away from slavery to a system of feudal serfdom. But the slave trade remained alive and well within Africa and the Middle East. Then, in the 17th and 18th century, Europeans started taking millions of slaves from Africa to their American plantation colonies. Europeans paid for slaves with guns and ammunition, which accelerated war and conflict in Africa. Many African societies started focusing all their energy on capturing and trading slaves, and this eroded most existing institutions. For example, the Oyo and Asante Empires conquered most of coastal West Africa and sold their captives as slaves.
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Slavery and warfare suppressed population growth in Africa. For instance, without warfare and the slave trade, West Africa’s population would have at least doubled between 1800 and 1850—instead, it stayed the same. After the transatlantic slave trade ended, African societies and European merchants instead started trading commodities like ivory, rubber, and palm oil. While they could no longer sell enslaved people, African societies started using them to extract these commodities. For instance, the Asante and Dahomey empires built huge slave plantations. During the 19th century, widespread warfare continued and slavery actually expanded throughout Africa. Meanwhile, European colonizers continued using slave labor within Africa well into the 20th century.
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In the section “Making a Dual Economy,” Acemoglu and Robinson explain that economists still usually follow Arthur Lewis’s model to explain less-developed countries. Lewis argued that these countries have dual economies that are divided into a modern (industrial and urban) sector and a traditional (agricultural and rural) one. Economists define economic development as bringing people from the traditional sector into the modern one.
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South Africa is a clear example of the dual economy. For instance, the modern state of Natal is full of spectacular beachfront houses, while the more traditional neighboring state of Transkei is full of huts without gas or running water. Natal’s property rights and legal institutions are stronger than Transkei’s—but Transkei isn’t underdeveloped simply because it’s part of Africa. Rather, South Africa’s white apartheid government deliberately underdeveloped and impoverished it to give white-run businesses a source of cheap labor.
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South Africa mostly avoided the slave trade and its harmful effects. After Europeans first settled South Africa in 1652, they barely interacted with the native Xhosa people until the 19th century. But then Europeans expanded inland to take advantage of South Africa’s temperate climate and lack of tropical diseases. Along with a mining boom, these factors led to bloody conflicts between the English, Dutch, and Xhosa.
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However, European colonialism also led to a brief economic boom in South Africa. Xhosa people started trading with Europeans, building better houses, and irrigating and cultivating their soil. Their institutions changed, too, as they bought and sold land. These private property rights gave non-elites the chance to build wealth and infuriated traditional chiefs, who tried to stop people from improving the land and banned all European technology.
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Europeans deliberately reversed South African growth in order to eliminate competition from African farmers and create a supply of cheap labor for the mines. In 1913, the colonial government’s Natives Land Act explicitly divided South Africa in two, reserving 87 percent of the land for the white fifth of the population. This set the foundation for the apartheid system. In the mid-20th century, development economists viewed South Africa as a natural example of Arthur Lewis’s dual economy. But actually, government policy created it.
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The South African government’s policies inverted native Africans’ economic incentives. It led farmers to give up the new technologies they had adopted, revoked private property rights, and gave traditional rulers much more power. Most importantly, it impoverished the people, driving their wages and living standards down. This is why South Africa remains one of the world’s most unequal societies. South Africans weren’t allowed to start businesses, take up skilled occupations, or receive a quality education.
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In South Africa’s dual economy, poor people couldn’t move from the traditional sector into the modern one. Rather, white employers’ profits in the modern sector depended on them underpaying native workers in the traditional sector. This wasn’t a development problem: it was a policy one. South Africa’s extractive economic institutions were based on extractive political institutions that reserved all political power and representation for white people. South Africa’s dual economy didn’t end through natural economic development, but rather through the political movement that ended apartheid.
Acemoglu and Robinson summarize this chapter’s argument under the heading “Development Reversed.” At home, European industrialization, colonialism, and commerce brought prosperity. But abroad, it destroyed existing societies and created highly extractive institutions in their place, which prevented those societies from building inclusive institutions. The Dutch did this in Indonesia, and the British did this in India—after the Glorious Revolution ended its monopoly on the textile trade, the East India Company dismantled India’s prosperous textile sector.
Of course, the slave trade had similar effects on Africa—it led African countries to reorganize their economies around enslaving and fight wars that destroyed their centralized institutions. European colonialism impoverished South Africa by creating a dual economy for the benefit of a small minority. All these examples show how economic development in some parts of the world often depends on underdevelopment in other parts.
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