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Chapter 5
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 “How Venice Became a Museum,” Acemoglu and Robinson explain how, starting around 800, Venice became “possibly the richest place in the world” by trading with growing European empires and building inclusive economic institutions. Its prosperity depended on legal innovations like the commenda system, in which wealthy investors funded young entrepreneurs’ commercial voyages and then split the profits with them. These innovations permitted unprecedented upward mobility, which in turn allowed Venetians to build new political institutions—like the Great Council—that gradually transferred power from the doge (duke) to the citizens. In turn, these new political institutions created new courts, which created new kinds of contracts and ultimately pioneered modern banking.
Venice’s rise shows how economic and political institutions build on each other in a positive feedback cycle. The city’s inclusive laws helped its economy grow, and this growth gave non-elite Venetians the power to make their political system more inclusive, too. The city was then able to pass even more inclusive economic laws. In particular, the commenda system was an inclusive economic institution because it gave young entrepreneurs the opportunity to build wealth and capital over time. Of course, like in virtually all other societies before the 20th century, Venice didn’t include everyone in politics or the economy—but it was still relatively inclusive because it didn’t reserve wealth and power for an exclusive group of elites.
Themes
However, every wave of economic growth in Venice also caused creative destruction, which decreased the elite class’s profit margins and threatened its political power. Elite families had an incentive to stop this economic growth, so in the late 1200s, they changed the selection procedures for the Great Council. The new rules essentially blocked outsiders from joining the Council and kept existing members and their descendants in their positions forever—thus turning them into an aristocracy. Next, the elite tried to monopolize Venice’s economic institutions. It banned commenda contracts, nationalized commerce, and sent Venice into a long economic and demographic decline. The city therefore became more of a museum than a center of economic prosperity.
Venice’s history shows that a nation’s luck can abruptly turn. This is an important reminder about the “contingency” of history: people decide the fate of their own societies, not destiny. After all, Acemoglu and Robinson emphasize that elites and the masses are always fighting over power, which means that societies can always become either more inclusive or more extractive (depending on which side wins). In Venice, the elites got the upper hand. They rolled back all of the Great Council’s reforms and ended Venice’s inclusiveness.
Themes
Acemoglu and Robinson explain that this chapter focuses on how institutions evolved differently in different places. Institutions don’t always evolve in the same direction—instead, institutional change is unpredictable and reversible. In Venice, elites overthrew inclusive institutions and established extractive ones. Similarly, during the Roman Empire and the Middle Ages, Britain was politically irrelevant and economically underdeveloped—later, though, it led the Industrial Revolution.
This chapter returns to key questions about how and why institutions transform. The short answer is that people change them. It’s especially likely that people will transform institutions during periods of great historical change. What’s more, the state of institutions at these moments of change has a huge impact on their future as either inclusive or extractive societies. Venice, for instance, ended up becoming more of a museum than a powerful economic hub because its institutions had become extractive when the Industrial Revolution hit. In contrast, despite its long history as a backwater, England ended up driving the Industrial Revolution because it had the right kind of institutions at the right time.
Themes
The Roman Empire greatly influenced Europe’s political and economic development. Its institutions, like Venice’s, started out highly inclusive but became more and more extractive over time, especially as the Roman Republic gave way to the Roman Empire. Moreover, the Roman Empire created critical junctures that set up the rest of Europe for important institutional changes. For instance, its decline enabled the formation of feudal systems with weak monarchies, which became more and more inclusive over time, especially due to the Black Death.
Venice and the Roman Empire rose as they became more inclusive and fell as they became more extractive. This shows that, even though inclusive institutions tend to reinforce themselves, elites often try to dismantle them and create extractive institutions instead. Thus, the authors imply that citizens in inclusive nations should never let down their guard by assuming their institutions are safe.
Themes
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Acemoglu and Robinson begin the section “Roman Virtues …” by explaining how Roman aristocrats murdered one of their own, Tiberius Gracchus, in 133 BC Rome was a republic with a relatively inclusive political system. Citizens elected their magistrates, who faced significant checks and balances on their power. For instance, the plebeian citizens won the right to elect their own representatives—including Tiberius Gracchus. By studying shipwrecks, archaeologists have shown that Rome built a prosperous economy by both trading with and extracting taxes from its provinces. Similarly, ice core evidence shows that metal concentrations in the atmosphere peaked in the first century A.D. due to extensive Roman mining.
The murder of Tiberius Gracchus might initially seem unusual because, as the authors have repeatedly argued, extractive institutions tend to cause political infighting—not inclusive ones. Rome’s political institutions were relatively inclusive because, although they were by no means egalitarian, they were somewhat pluralistic. In other words, Roman institutions represented multiple groups, even if they didn’t represent everyone. The archaeological evidence suggests that these institutions promoted economic growth, which supports the authors’ overall thesis about institutions causing prosperity.
Themes
Still, the Roman economy was highly unequal because it was based on extractive institutions like slavery and concentrated land ownership. Farmers who were conscripted into the army left behind empty land, which wealthy senators took over. When the farmers returned home landless, they started working in the city and rebelling against the aristocracy. They elected Tiberius Gracchus as the plebeians’ representative to push for land redistribution. When he tried to run for a second term, landowners murdered him and many of his supporters.
Despite Rome’s relatively inclusive political institutions, its economic institutions became more extractive over time, especially outside of the capital. As the authors argued in their second chapter, this kind of contradiction between inclusive and extractive institutions tends to cause unrest and transformation, until all the institutions become either inclusive or extractive. Rome went down the latter path. In fact, Gracchus’s murder was part of the elite campaign to make political institutions more extractive and prop up the extractive economic institutions that preserved their privilege.
Themes
There were constant tensions between citizens and landowners from Tiberius Gracchus’s death in 133 BC until Julius Caesar overthrew the Republic in 49 BC. In 28 BC, after a series of civil wars, Octavian (or Augustus Caesar) formally created the absolutist Roman Empire, which gradually destroyed the Republic’s somewhat inclusive political institutions.
As in Venice, Roman elites won out over the masses and established increasingly extractive institutions—the Empire—to benefit themselves. Again, this shows that institutions don’t always move in one direction. Rather, history is contingent. People’s decisions, historical conditions, and sheer luck can lead to unpredictable outcomes.
Themes
Under the heading “… Roman Vices,” Acemoglu and Robinson note that there were constantly civil wars and coups d’état in the Roman Empire from 180 to 476. Non-Roman “barbarians,” including the Goths, Huns, and Vandals, increasingly became powerful threats to Roman power—and Roman elites even built alliances with them in order to gain greater power in Rome. One emperor after another was murdered.
Like the 50 years after the Mexican War of Independence, the last three centuries of the Roman Empire were very politically unstable. This is because extractive institutions strongly incentivize a nation’s elites and enemies to seize power by any means necessary, creating a cycle that makes institutions even more extractive and unstable as time goes on.
Themes
The Goths, Huns, and Vandals weren’t uniquely formidable enemies—instead, the Roman Empire was uniquely weak because of its extractive institutions. Early emperors restructured the army to prevent soldiers from demanding greater representation, revoked many of the Plebeian Assembly’s powers, gave citizens free food and entertainment to distract them from politics, and granted elite professional soldiers more power. Emperors confiscated private property at will and increasingly amassed absolute power. Therefore, elites started fighting over the throne and murdering each other. Even the most capable emperors, like Hadrian and Marcus Aurelius, didn’t try to reform Rome’s political institutions.
The Roman Empire seriously undermined itself by building extractive institutions. The examples in this passage show that, when they faced challenges and crises, Roman emperors and their allies generally put short-term profit over long-term stability. Because they were mainly focused on their own short-term gains, then, they were relatively uninterested in the Empire’s long-term survival.
Themes
Therefore, the Empire became gradually more unstable over time. Like Maya city-states, many Roman cities fell into violence and started dismantling stone monuments to build defensive walls. The law granted different classes of citizens different rights, and landlords gained more and more power over the peasants (or coloni) who worked the land. Shipwreck and ice core evidence show that Roman trade and mining plummeted during the Empire. Like the Soviet Union, then, the Roman Empire’s economic growth was unsustainable because it was based on extractive institutions.
After elites captured total power over Rome’s political institutions, they began reshaping those institutions in order to preserve and perpetuate that power. This allowed them to claim an ever-greater slice of the Empire’s ever-shrinking economic pie. Moreover, by turning landlords and peasants into separate legal categories with unequal rights, the Roman Empire set up the foundation for the feudal system that followed its collapse.
Themes
Technology also didn’t advance much during the Roman Empire because elites feared and sabotaged creative destruction. According to a famous anecdote, the emperor Tiberius killed a man who invented unbreakable glass instead of adopting or promoting the invention. In another, the emperor Vespasian refused to adopt an inventor’s new device for transporting columns because this would mean putting thousands of column-carriers out of work—and sowing political discontent. Similarly, nobody had an incentive to innovate because citizens lived comfortably off of slave labor, while enslaved people and the coloni had no economic rights.
These anecdotes exemplify Acemoglu and Robinson’s hypothesis about why there was no serious, sustained economic growth anywhere in the world between the Neolithic Revolution and the Industrial Revolution. The emperors knew that innovations would replace existing technologies, causing rapid economic growth but also disrupting the existing social and economic order. Emperors and their allies rejected these innovations because the status quo already benefited them, while they stood to lose if someone else’s technology became essential to the functioning of society. Therefore, under strict extractive institutions, innovations could never get the traction they needed to spread, transform the economy, and start widespread growth.
Themes
Under the heading “No One Writes from Vindolanda,” Acemoglu and Robinson quote the correspondence between the Roman officials Octavius and Candidus, who were stationed in England. Their letters show that Roman England had money, financial services, tax collection systems, roads, and a postal service. But after the Roman Empire withdrew from England in the fifth century, all these institutions disappeared. Building technology deteriorated, literacy went down, and England became poor again.
The Roman Empire’s complex financial tools were really economic institutions. They gave Romans—although just a small number of them—the tools that they needed in order to buy and sell goods in a marketplace with others. But the Empire’s withdrawal shows how this kind of market relies on the state: it cannot exist unless the government creates institutions to protect it. Thus, when the Roman Empire retreated, England’s economy didn’t stagnate: it declined.
Themes
From the beginning of recorded history, England lagged far behind the Middle East and Europe both technologically and economically. This lack of early success shows that England wasn’t destined to lead the Industrial Revolution—rather, it led the Industrial Revolution because it just happened to have the right kind of institutions at the right time (or critical juncture).
Acemoglu and Robinson use England’s historical lack of technological and economic sophistication to emphasize the contingency of history. Its dominance wasn’t destined—rather, it was the result of other earlier historical events, plus a large dose of good luck. In fact, England’s success is yet another example of a great historical reversal, like the one in the Americas: Latin America was far more prosperous in the ancient past, but the US and Canada are far more prosperous today. In short, most early states were highly extractive, and the most egalitarian places tended to be the least sophisticated, since power in these societies was less concentrated. Thus, these less developed places were the most open to pluralism and therefore the most likely to form inclusive institutions.
Themes
In the section “Diverging Paths,” Acemoglu and Robinson explain how the critical juncture of the Western Roman Empire’s collapse enabled European institutions to develop in similar ways. The dominant Roman state gave way to many weaker and decentralized feudal states that were run by local leaders and frequently invaded by outsiders. Feudal institutions were highly extractive. But they also enabled slavery to disappear: elites had no need for enslaved people when most people were already serfs (unfree rural laborers with no economic rights). Moreover, feudal states also allowed independent manufacturing and trade centers to rise. Because of these precedents, when feudalism collapsed in Europe, society became much more pluralistic and inclusive.
While the Roman Empire fell many centuries before the Black Death and the end of feudalism, it still had a transformative impact on European institutions because of the political system it left behind. Again, the Roman Empire eventually enabled growth through a series of historical reversals. When the centralized, powerful, extractive Roman Empire fell, the institutions it left behind were very decentralized and powerless, but still extractive. Because these institutions were relatively weak, people were eventually able to overthrow them in the 18th and 19th centuries. Acemoglu and Robinson therefore suggest that, if the Roman Empire had never collapsed, Western Europeans might not have built the institutions that enabled them to colonize the world and lead the Industrial Revolution.
Themes
A similar process occurred in northern Ethiopia after the Kingdom of Aksum’s decline and fall. In the seventh century, Arab invaders took over Aksum colonies and trade routes, much like the Huns and Vandals did to Rome’s. After the Kingdom fell, Ethiopia developed a feudal system extremely similar to Europe’s, in which landowners provided military services to the new emperor in exchange for the right to tax farmers. However, while independent cities and transatlantic trade led to further institutional changes in Europe, they didn’t in Ethiopia. Meanwhile, the rest of Africa remained predominantly absolutist, especially as the slave trade gave leaders more and more power. Similarly, from the initial human settlement of the Americas through European conquest, most centralized institutions there were also highly extractive.
Ethiopia is an important case study because it followed a very similar trajectory to Western Europe, despite the fact that Ethiopia is almost completely isolated from Western Europe. Therefore, any similarities between Ethiopia and Western Europe’s trajectories must surely come from overlaps in their institutions, not historical links between the two regions. In both cases, major expansionist empires with highly centralized power structures collapsed, creating critical junctures that produced similar effects in both societies.
Themes
In “Consequences of Early Growth,” Acemoglu and Robinson that, between the Neolithic Revolution of 9500 BC and the Industrial Revolution in the 18th century, there was sporadic economic growth in societies like Rome and Venice. Inclusive institutions briefly flourished in these societies, until the elite classes crushed them and built extractive ones in their place. Still, these societies left behind particular feudal structures that helped inclusive institutions form centuries later in places like Britain.
The authors conclude that pre-18th century institutions had an important influence on the Industrial Revolution, although they certainly didn’t ensure that it would happen. This is an important part of historical contingency: earlier events set the stage for later ones that actually determine the outcome of history. Older institutions made it possible for merchants to build inclusive institutions during the Industrial Revolution and launch economic growth in England and the US—but these people still had to actually build these institutions.
Themes
