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Chapter 11
Themes
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 “You Can’t Take the Train to Bo Anymore,” Acemoglu and Robinson explain that, after the British took over Sierra Leone and started demanding taxes, local leaders rebelled, especially in the south. To help crush the rebellion, the British built a railway through the South. In the 1960s, Sierra Leone became an independent country with two main parties: the SLPP, which was strongest in the south, and the APC, which mostly represented the north. The old British railway helped the south export chocolate, coffee, and diamonds. But when APC leader Siaka Stevens won power, he dismantled the railway to punish the SLPP. He simply cared more about power than the economy.
The railway’s construction and destruction both show how extractive institutions pit the government against the people. First, the British built it to extract wealth from the country and violently suppress calls for political freedom. Then, Siaka Stevens dismantled it to protect his own power and wealth at the expense of his rivals and the public. While he shamelessly prioritized his own personal future over his country’s collective future, this was no different from what the British did. That is the central question in this chapter: why do leaders like Stevens recreate the same extractive institutions that they overthrow? Why don’t institutions change when power changes hands?
Themes
In fact, when Stevens eliminated the SLPP and created an absolutist one-party dictatorship, he simply followed the British model of extractive institutions. For instance, the British heavily taxed farmers by forcing them to sell all their product through the Sierra Leone Produce Marketing Board. Stevens kept this system in place and paid farmers even less than the British—as little as ten percent of their harvests’ true value. Similarly, the British let local leaders rule for life as “paramount chiefs,” and this institution still exists today. Throughout Africa, policies like these have held back agricultural productivity. Farmers don’t have an incentive to improve their crops or secure property rights to their land.
Siaka Stevens’s government wasn’t just as ineffective as the British colonial one: it also kept the exact same extractive institutions in place. However, Stevens’s motives were relatively obvious: it was extraordinarily profitable and easy for him to keep using these same institutions. Thus, after winning their independence, the people of Sierra Leone had to live under virtually the same conditions as they lived under during the colonial period.
Themes
The British colonial mining policies in Sierra Leone and Australia exemplify the difference between extractive and inclusive institutions. In Sierra Leone, the British gave a single company a monopoly over diamond mining and helped it recruit a private army. After independence, Siaka Stevens transferred this monopoly to the government. Similarly, when gold was discovered in Australia, elites wanted to sell control to a monopoly. But instead, the public convinced the government to open mining up to everyone.
Sierra Leone’s monopoly was extractive because it let the government direct all of the nation’s diamond mining profits to a single beneficiary of its choosing. In contrast, Australia’s open mining system was inclusive because it allowed almost anyone to join the mining industry. As a result, the profits from Australian mining were split relatively widely throughout the population. In contrast, Acemoglu and Robinson believe that Sierra Leone’s pre-existing extractive institutions allowed it to regulate the diamond industry in an extractive way, too. Australia’s existing inclusive institutions, on the other hand, set the stage for the government to make diamond mining a competitive industry.
Themes
The slave trade and British colonial policy are chiefly responsible for creating extractive institutions in Sierra Leone. Most importantly, the British used indirect rule—they governed by delegating most authority to loyal chiefs. Before British colonialism, chiefs needed public support to keep power. But under colonialism, chiefs ruled for life. This made them accountable to the British, not the people. Sierra Leone’s independent government simply kept all the colonial era’s extractive institutions in place. While Stevens did decide to tear down the old British railroad, he only did so because he knew his army wasn’t strong enough to put down a rebellion (unlike Britain’s). In fact, Stevens deliberately weakened the army so that it wouldn’t overthrow him.
Stevens consistently put personal power above national prosperity. In the process, he weakened the government even further, continuing the pattern first set by the British. Acemoglu and Robinson again show how earlier institutional differences caused different nations to diverge at critical junctures. Namely, Sierra Leone’s earlier institutions set the conditions for its later institutions to form.
Themes
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Ultimately, as throughout Africa, the vicious circle of extractive institutions has impoverished Sierra Leone and prevented it from developing. Colonial elites built extractive economic institutions to enrich themselves, then used their wealth to build extractive political institutions rigged in their favor. Under such institutions, whoever runs the government can easily amass wealth because nothing stops them from abusing their power. Worse still, nothing stops challengers from overthrowing the government and seizing power. In fact, infighting is common in extractive institutions because the benefits of holding power are so great. Such elite infighting has led many African countries into civil wars after independence.
The vicious circle of extractive institutions is the opposite of the virtuous circle of inclusive institutions. This vicious circle doesn’t just prevent countries like Sierra Leone from developing—it also actively impoverishes them over time. Extractive institutions generally don’t put checks on elites’ power, so they allow leaders to implement increasingly extreme policies that plunder the nation’s wealth. Moreover, as the authors note here, extractive institutions undermine centralized government by creating conflicts among elites who all want to rule. Therefore, it’s not unusual for poor countries with highly extractive institutions to actually become poorer and more desperate over time.
Themes
Under the heading “From Encomienda to Land Grab,” Acemoglu and Robinson point out that, in 1993, Guatemala’s president and key cabinet members were all directly descended from Spanish conquistadors. In fact, from 1531 to the present, 22 families have monopolized power in Guatemala. In many countries, including Guatemala, elites build extractive institutions that keep themselves in power and keep the country underdeveloped.
When Sierra Leone won its independence, power changed hands but institutions stayed the same. In Guatemala, though, power didn’t even change hands: the same families stayed in power and kept profiting from the country’s extractive institutions. In this way, Guatemala offers an even clearer example of how and why extractive institutions perpetuate themselves in a vicious circle. Namely, elites amass enough political, economic, and military power that they can consistently put down any challenges from the rest of the population.
Themes
In Guatemala, like in Mexico and Peru, the encomienda system enriched Spanish elites by imposing forced labor on the indigenous masses. Independence simply handed power from the Spanish Crown to local elites, whose merchant guild (the Consulado) resisted innovation and new infrastructure because it feared competition. When Guatemala’s coffee industry started booming in the 1800s, elites dismantled the Consulado. They then privatized a million acres of fertile land, auctioned it off to themselves, and forced indigenous people to grow coffee on it through a forced labor system.
The encomienda system didn’t truly disappear—it just transformed into a new labor system that recreated the same exploitation. Because the small circle of ruling elites monopolized the country’s land, wealth, and political power, they controlled the economy just as tightly as Stalin did in the Soviet Union or the Holy Roman Emperor did in his territory throughout Europe. This allowed them to completely freeze all innovation and prevent all creative destruction, making it hard for anyone to challenge the existing power structures.
Themes
This forced labor system lasted until 1945, when the dictator Jorge Ubico resigned, leading the country into nine years of democracy and then a 30-year civil war. Ultimately, as Guatemala’s elite kept using extractive Spanish colonial institutions for their own benefit, it kept the country’s indigenous Maya majority poor, uneducated, and unrepresented in government.
Despite its recent changes, Guatemala is clearly still stuck in the vicious circle of extractive institutions. However, because Guatemala’s extractive dictatorships and civil war were primarily funded by the US government, some readers might take issue with Acemoglu and Robinson’s version of history, which doesn’t acknowledge this destructive foreign intervention.
Themes
Next, in the section “From Slavery to Jim Crow,” Acemoglu and Robinson point out that the US South was very similar to Guatemala until the Civil War. Its extractive institutions enriched a tiny planter elite while giving millions of enslaved people no rights at all. As a result, the South was far poorer, less industrialized, and far less innovative than the North. The Civil War forced the South to change, but instead of building inclusive institutions, it maintained its extractive ones through Jim Crow segregation. Planter elites remained wealthy and powerful. Most survived the war, as enslavers were exempt from military service. And although slavery was over, they continued to run plantations where Black laborers had few legal rights.
The racist policies of the Jim Crow era show how resilient the vicious circle can be: even the Civil War couldn’t shake the planter elites’ power. The sharecropping system was almost as cruel and extractive as slavery, and its purpose was the same: to produce cotton for the elites’ benefit. Moreover, enslavers’ exemption from military service shows how elites distorted the political system to their own benefit. While people in the US generally think of the country as uniquely democratic and inclusive, Acemoglu and Robinson emphasize that the South wasn’t this way for most of its history. And yet, the authors also used American antitrust law as an example of the virtuous circle in the last chapter. Clearly, then, the US managed to have both incredibly inclusive institutions (at the national level) and incredibly extractive ones (in several states throughout the South) at the same time. The authors repeatedly argue that inclusive and extractive institutions eventually clash until one of them changes; in Chapter 14, they will explain how this clash played out in the South.
Themes
After Reconstruction ended in 1877, the Democrats established one-party rule throughout the South. They passed laws to prevent Black citizens from voting and segregated all public services, creating an apartheid system similar to South Africa’s. They also stopped the federal government from passing development projects that could empower Black people. The South remained largely unindustrialized until after World War II, and its economy didn’t start growing significantly until after the civil rights movement. Until that time, its vicious circle was similar to Guatemala’s: the entrenched elite built extractive economic institutions for its own benefit, then created extractive political institutions to support those economic institutions.
From 1877 to the 1960s, the South followed the traditional pattern of extractive institutions. Jim Crow segregation was a highly extractive political institution designed to stop democracy and preserve the planter elite’s monopoly on political power. Southern states then used this extractive political institution to support extractive economic institutions. Namely, they kept the region agricultural rather than allowing it to economically develop. This ensured that the old planter elite would keep capturing all the profits, while everyone else would remain poor—including both Black people and non-elite white people.
Themes
In “The Iron Law of Oligarchy,” Acemoglu and Robinson explain how the Derg, a left-wing military group, overthrew Ethiopia’s traditional, absolutist emperor in 1974. The Derg began arresting and executing government officials and nationalizing private property, which led to independence and separatist movements all around the country. But then Derg leader Mengistu Mariam started ruling from the emperor’s old throne in the Grand Palace, holding the same official functions, and buying expensive clothes, liquor, and cars.
There may be no clearer symbol of the vicious circle than Mengistu Mariam abandoning his communist ideology, wasting the state budget on personal luxuries, and ruling from the throne of the emperor he deposed. Mariam became precisely the kind of ruler he had pledged to fight, which shows how easily extractive institutions can seduce political leaders by offering them unlimited wealth, unchecked power, and total impunity.
Themes
Just like in Sierra Leone, Guatemala, and the US South, the same vicious circle kept recreating extractive institutions in Ethiopia. Sociologists call this “the iron law of oligarchy.” New leaders promise radical change, overthrow the government, and then rule exactly like their predecessors.
The iron law of oligarchy explains why revolutions tend to fail in nations with extractive institutions. If they win, revolutionaries get to choose between ruling as oligarchs or creating an inclusive democracy. These revolutionaries benefit tremendously from the former, but not very much at all from the latter. Therefore, it’s little surprise that most revolutionaries choose more oligarchy.
Themes
Acemoglu and Robinson ask why radical change sometimes works—like in the Glorious Revolution and French Revolution. These revolutions were unique. During both, businessmen pushed for inclusive economic institutions while broad coalitions of different groups pushed for inclusive political institutions. Meanwhile, England and France’s monarchies already shared power with independent parliaments. None of this was true in countries like Sierra Leone and Ethiopia, whose economies were more extractive and where no local institutions or independent businesspeople could check government power. Therefore, in these countries, the vicious circle continued.
Acemoglu and Robinson argue that the most important factor when it comes to whether a revolution succeeds or fails is the kind of coalition that leads it. When a small group of committed, ideological revolutionaries overthrow a government (like the Derg in Ethiopia), it’s basically like one elite replacing another through a coup. It’s similar to how Roman elites constantly murdered each other to gain power. A tiny minority of these usurpers might choose to build a democracy, but the vast majority won’t change the system. However, in some revolutions, a coalition truly wants to change a system, not just replace a ruler. The authors suggest that, for this kind of revolution to succeed, its leadership has to be diverse. This is because diversity is the key to pluralism: if the people leading political change don’t agree on everything or have competing economic interests, they are more likely to share power than band together and monopolize it. Thus, while it’s impossible to know for sure whether any given revolution will reform a nation’s institutions, a diverse coalition is a telltale sign that it’s capable of doing so.
Themes
Acemoglu and Robinson summarize the last two chapters under the heading “Negative Feedback and Vicious Circles.” Inclusive institutions tend to become more inclusive over time, in a virtuous circle. Pluralism checks abuses of power and creates inclusive economic institutions, which spread wealth and power more broadly. But extractive institutions also tend to become more extractive over time, in a vicious circle. Extractive political institutions create extractive economic institutions, which enrich elites and protect their power.
The vicious and virtuous circles explain why the international hierarchy of rich and poor countries has remained practically frozen in time since the mid-1800s. The same institutional factors that allow rapid economic growth in rich countries also protect those countries against absolutism. Meanwhile, the extractive institutions that prevent economic growth in poor countries also enrich and empower the elite. This helps them hold onto power by any means necessary and gives them no incentive to build inclusive institutions.
Themes
Guatemala is a good example of how the vicious circle can keep the same elite in power for centuries. And the US South shows how resilient this circle can be: after the Civil War ended slavery, the planter elite held onto power and rebuilt the same extractive economy that enriched them before. Elsewhere, the vicious circle continues even when the political elite changes because of the iron law of oligarchy. Extractive institutions don’t check the new elite’s power, but rather give them a huge financial incentive to abuse it. Some societies have broken the iron law. For instance, the Glorious Revolution and the Meiji Restoration were led by broad coalitions that wanted inclusive institutions. But revolutions in Ethiopia and Sierra Leone were led by narrow factions uninterested in pluralism.
Guatemala, the US South, and the iron law of oligarchy represent three different versions of the vicious circle. In Guatemala, the circle has been stable, creating a deeply extractive system that keeps enriching the same elite. In the US, the Southern elite survived a serious challenge to its power. And in countries like Sierra Leone and Ethiopia, the circle continues even as the system changes. However, Acemoglu and Robinson also emphasize that all nations start out in a version of the vicious circle, meaning that all prosperous countries have managed to break out of extractive practices at some point. Unfortunately, though, many countries still haven’t managed to do this.
Themes
