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Chapter 3
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 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.
Themes
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.
Themes
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.
Just like the Black Death, the Glorious Revolution was a critical juncture—a transformational historical moment that shifted the balance of power and allowed institutions to rapidly change. Acemoglu and Robinson suggest that it marked the beginning of modern inclusive institutions and economic growth not only for England, but for the world. It transferred power from the monarch to a broader, more diverse coalition. Of course, this coalition was essentially made up of aristocrats. But still, it was remarkable simply because it included multiple groups who had different interests and incentives. To protect all their interests, these leaders created more inclusive economic institutions—like the property rights system, which spurred innovation. Thus, although it was a small start, the Glorious Revolution set the stage for greater democratization over time.
Themes
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.
As this section’s heading suggests, the differences between England, Spain, and France’s monarchies were relatively small before colonization and the Industrial Revolution. At another moment in history, the differences between these countries might not have mattered much. But because of the historical context surrounding these differences, each country’s fate changed significantly. The English monarchy, for example, was slightly weaker than Spain and France in a very specific, important way: it had less control over international trade. This made it possible for merchants to weaken the monarchy even further. In the short term, this meant the merchants were able to pressure the monarchy to change commerce laws. And in the long term, the merchants were able to completely overthrow the monarchy in the Glorious Revolution.
Themes
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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.
“Institutional drift”—the differences between nations that accumulate over time—doesn’t always lead to transformation. Rather, it only truly matters when those nations hit a critical juncture. But when they do, institutions transform. This is Acemoglu and Robinson’s explanation for why different nations have diverged over time. In particular, it explains how nations can make the leap from extractive to inclusive institutions. Virtually all nations start with extractive institutions run by and for a small elite, but at critical junctures, the pluralistic and democratic elements in those countries can sometimes overthrow extractive institutions and replace them with inclusive ones.
Themes
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.
Contingency really just means that things could have been otherwise—history didn’t have to go the way it did. Contingency is important because it’s empowering: it suggests that people’s actions and decisions often do change the course of history. By emphasizing the contingency of history, Acemoglu and Robinson emphasize that nations can overcome poverty if their people and leaders make the right choices and overthrow extractive institutions. In contrast to Acemoglu and Robinson’s theory, which acknowledges contingency, the geography and culture hypotheses suggest that the root cause of poverty is some inherent factor that’s outside of people’s control. They thus imply that people don’t have the power to reform and improve their own countries.
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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.
The idea of contingency suggests that, depending on the behavior of key actors, the same crisis in the same nation could make institutions either far more inclusive or far more extractive. Clearly, people shouldn’t court crisis in the hopes of building more inclusive institutions, since inclusiveness depends on a lot more than simply experiencing a critical juncture.
Themes
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).
Acemoglu and Robinson have finished presenting their theory about how institutions affect growth and history shapes institutions. Now, they try to show that this theory accurately explains global inequality. Of course, the rest of their book includes more detailed evidence to back up their assertions here. England’s inclusive institutions fueled the Industrial Revolution, and other countries’ institutions determined whether they benefited from it. The Industrial Revolution explains why the hierarchy of rich and poor countries changed so much prior to the mid-1800s but has basically stayed the same ever since.
Themes
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.
Acemoglu and Robinson attribute sub-Saharan Africa’s poverty to a series of patterns that have kept its institutions highly extractive over time. The slave trade, colonialism, and modern dictatorships all stopped both centralization and pluralism—which are the two key factors for inclusive political institutions. But the authors point out that these different phases of sub-Saharan African history weren’t completely random or separate: rather, they were possible mainly because institutions were already extractive. In other words, the slave trade made it easier for Europeans to colonize sub-Saharan Africa, and this colonialism made it easier for independent African leaders to maintain extractive institutions. Thus, sub-Saharan Africa hasn’t just been unlucky: rather, it has been stuck in a cycle of extractive institutions.
Themes
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.
China, India, and Japan’s unique institutions have shaped their economic fates. China and India failed to take advantage of the Industrial Revolution because they already had such advanced, centralized societies—unlike in Europe, where monarchies had less power. Readers may disagree with Acemoglu and Robinson’s portrayal of Western military interventions in Asia, but these interventions do show how critical junctures can lead to different responses (and outcomes) in different contexts. Specifically, China responded to the Opium Wars by becoming more extractive, while Japan responded to US intervention by becoming more inclusive. The Meiji Restoration follows the same pattern as the Glorious, French, and American Revolutions. A diverse coalition created a new, more inclusive political system, which gave entrepreneurs the economic rights and freedoms that they needed in order to take advantage of new industrial innovations and grow the economy.
Themes
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).
Ottoman and European colonialism impoverished the Middle East by creating extractive institutions, like insecure property rights and unsurpassable barriers to entry in every major industry. This stifled innovation and kept Middle Eastern economies frozen in time. Like in Africa and Latin America, then, successive governments maintained the same extractive institutions over time, keeping the region in a cycle of poverty. It's no coincidence that these extractive institutions determine how oil wealth gets distributed—nearly all of it goes to the elite.
Themes
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.
In the last two chapters, Acemoglu and Robinson have explained the two main components of their theory. First, institutions determine prosperity, with inclusive institutions causing growth and extractive ones causing stagnation. Second, countries form inclusive or extractive institutions depending on how their existing institutions respond to critical junctures. The rest of the book expands on this fundamental thesis.
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