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Chapter 7
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
Under the heading “No Printing Allowed,” Acemoglu and Robinson describe how Johannes Gutenberg’s printing press changed the world in 1445, making books far cheaper and mass literacy possible for the first time. But while the printing press spread rapidly across Europe, the Ottoman Empire banned it for almost 300 years—and, even then, mandated that scholars check everything for accuracy. The process was incredibly slow, and even after 1850, most books in the Ottoman Empire were still copied by scribes. As a result, literacy was much lower in the Ottoman Empire than anywhere in Europe. But the Ottoman sultans wanted it this way: books threatened their power by spreading subversive ideas.
The Ottoman Empire’s opposition to the printing press is a classic example of how absolutist governments and extractive institutions protect their power by setting up barriers to development. Mass literacy threatened Ottoman leaders’ political, economic, and social dominance. However, their policy also had political, economic, and social costs, as it held people int he Ottoman Empire back while Europe became more literate, educated, and productive. This chapter is about how this same strategy, which is rooted in elites’ fear of creative destruction, prevented many countries from developing after the Industrial Revolution.
Themes
During the critical juncture of the Industrial Revolution, many states encouraged innovation and commerce—but many others did not. Over time, these decisions led nations to different economic outcomes. Two kinds of societies resisted industrialization. First, absolutist regimes that depended on extractive economic institutions, like the Ottoman and Russian Empires, fought industrialization because they feared creative destruction. Second, societies without a centralized state couldn’t create the basic institutions needed for industrialization to succeed.
In the chapter “Theories That Don’t Work,” the authors pointed out that different countries didn’t start economically diverging until the mid-1800s. This was because of the Industrial Revolution: the few countries that industrialized started to grow, while the majority failed to industrialize and remained stagnant. Again, Acemoglu and Robinson reiterate that truly inclusive political institutions have to be both pluralist and centralized. The countries that failed to industrialize weren’t inclusive because they lacked one or both of these factors.
Themes
Powerful people often resist centralization because they fear it will take away their power. It threatens leaders because it can create more inclusive institutions (like in the 1400s in Britain), but it also threatens less powerful elites because it can give leaders the chance to impose absolutism.
The reader might associate the idea of a centralized government with dictators and kings. But the authors point out that leaders often resist expanding their reach because they know they could create enemies and lose power in the process. For instance, if a leader tries to impose control on remote regions of their territory, local leaders in that region might rebel and overthrow them. Therefore, absolutist leaders in decentralized states often prefer to leave things as they are. They prefer to rule and profit from a smaller government, rather than lose power by fighting for a larger one.
Themes
In the section “A Small Difference That Mattered,” Acemoglu and Robinson explain how Spain became more absolutist over time. Queen Isabella and King Ferdinand married and merged their kingdoms, and then their descendants married into the House of Habsburg. This left their heir, Holy Roman Emperor Charles V, with control over much of Europe and most of the Americas—where he got a cut of all the stolen loot and silver extracted from the mines.
Spain’s monarchy was incredibly powerful and centralized, which allowed its kings and queens to rule with little opposition. Charles V’s wealth shows how this greatly benefited them. Such unchecked power and wealth are clear evidence of why elites generally choose to establish extractive institutions—if they can get away with it.
Themes
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However, the Spanish empire’s increasingly absolutist and extractive institutions led to economic decline. Ferdinand, Isabella, and their descendants expelled Jewish and Arab people and confiscated their property. The Crown defaulted repeatedly on its debt, creating a series of calamities for Europe’s banking sector. And it gave a specific merchant guild a monopoly on overseas commerce, so the Spanish economy didn’t benefit from competitive markets or trade with other empires.
Spanish history shows that extractive institutions enrich elites in the short term but undermine the state itself in the long term. By curtailing their people’s property rights and economic freedoms, Spanish monarchs made it very difficult for anyone else to build wealth or drive economic change. Rather than building inclusive economic institutions (like an accessible banking sector), they did the exact opposite, and this eventually made it harder for them to maintain their power and wealth as a nation.
Themes
Spain’s institutions were more extractive than England’s because they were more absolutist: the Spanish Cortes (or Parliament) was much weaker than England’s and primarily represented elites in the cities. The Crown tried to overrule the Cortes, which rebelled until the Crown shut it down. But this left the Crown unable to collect taxes, which made centralization impossible. While the English were building “a modern, efficient tax bureaucracy” and rapidly industrializing, the Spanish created an increasingly corrupt, arbitrary state that oversaw rapid economic decline. In fact, poverty increased and wages fell in Spain during the 17th century. The contrast between Spain and England is another example of how small institutional differences can lead nations to diverge in critical junctures.
While England’s weaker monarchy allowed the Glorious Revolution to reorganize its political institutions and generate long-term growth, Acemoglu and Robinson argue, Spain’s stronger monarchy prevented it from doing either. Still, the initial difference between the Spanish and English systems was relatively small—both were monarchies whose advisory Parliament essentially just had power over revenue. But each monarchy’s conflicts with its respective Parliament magnified these differences, leading Britain down the path to inclusive institutions and Spain to extractive ones. At the same time, though, the authors strongly imply that Spain—Europe’s most powerful nation in the 16th century—likely would have led the Industrial Revolution if it had managed to create inclusive institutions like England.
Themes
In the section “Fear of Industry,” Acemoglu and Robinson summarize their argument that societies like Spain, Russia, and Austria-Hungary couldn’t take advantage of the Industrial Revolution because they didn’t share England’s inclusive institutions. The Austro-Hungarian Empire, which was run by the House of Habsburg, was extremely absolutist. It gave merchants virtually no economic power, and its society was still based on serfdom.
In England, monarchs and their elite friends certainly had a “fear of industry,” but they simply weren’t powerful enough to overrule the pro-industry Parliament. In contrast, in most other European societies of the time—including the three that the authors name here—the monarchy could easily punish innovation and ban industry. By doing so, they preserved the feudal systems that benefited them.
Themes
The Habsburg leaders all made the state much more centralized and absolutist. Without a parliament or constitution, they had absolute power over everything in their domain. They maintained total control over the economy by maintaining serfdom, imposing monopolies, and opposing all new technology. In particular, Francis I banned the construction of factories and steam-powered railways, which he thought would bring revolution and social unrest to Vienna. In short, he opposed innovation and focused on maintaining extractive institutions because he knew that creative destruction would challenge his power.
Because of the institutional differences between England and the Habsburg Empire at the critical juncture of the Industrial Revolution, the two societies ended up trending in opposite directions. While both became more centralized, the Habsburg Empire became more extractive and England became more inclusive. Francis I’s policies protected his own power, but also prevented his territory from modernizing and his people from achieving a higher quality of life.
Themes
Meanwhile, Russia was just as absolutist as Austria-Hungary. It was also based on a brutal system of serfdom, in which landlords could buy, sell, and restrict the movement of their serfs. Tsar Nicholas I and his finance minister, Count Egor Kankrin, tried to stop industry by limiting the banking system to landowners, banning industrial exhibitions, and strictly limiting factory and railway construction. Thus, by 1870, there were very few railways in Russia and Austro-Hungary compared to the rest of Europe.
Russia’s serfdom system was highly extractive because it gave most people virtually no political or economic rights, while enabling a minority of landlords and aristocrats to profit handsomely from that majority’s labor. Thus, it’s unsurprising that Tsar Nicholas and Count Kankrin did everything possible to preserve it. Of course, this helps explain why the Soviet Union was so concerned about modernizing and industrializing the economy.
Themes
In “No Shipping Allowed,” Acemoglu and Robinson note that China and the Ottoman Empire also resisted industrialization because of their absolutist and extractive institutions. By the Song dynasty (960-1279), China was highly technologically advanced compared to Europe. It also ran as a complex, centralized—but absolutist and extractive—state. Merchants and the public had no political power, and the emperor fought against creative destruction and technological change.
China’s trajectory shows how extractive institutions can create some growth and technological advancement, but not as much as inclusive ones—and certainly not over the long term. China’s technological advancement didn’t translate into widespread economic growth, Acemoglu and Robinson suggest, because people didn’t have the freedom or incentives to spread their innovations and transform society. Therefore, while advanced technologies may have existed, they didn’t necessarily spur economic growth or drive further innovation.
Themes
These tendencies only strengthened during the following dynasties, the Ming and Qing. The Ming emperors totally banned international trade between 1368 and 1567 (with one major exception from 1402 to 1422). Thus, just when Europe was starting to profit from transatlantic trade, China cut itself off from the world. Next, in the 1600s, the Qing dynasty started confiscating citizens’ wealth and property. The emperor Kangxi even banned international trade and forced the whole coastal population to move inland. Thus, even when trade was briefly permitted, nobody would invest in it, because they could expect the emperor to abruptly cut it off again.
China happened to ban international trade precisely at the critical juncture when it was the primary source of growth and dynamism in the global economy. Furthermore, the authors suggest that each Chinese dynasty passed progressively stricter policies, which shows how extractive institutions tend to grow stronger and more extreme over time.
Themes
The Song, Ming, and Qing emperors simply cared more about political stability than technological innovation. As a result of their policies, while Europe industrialized in the 1800s, there was little innovation or economic growth in China until the 20th century.
Like many of the other absolutist states that the authors profile in this chapter, the Song, Ming, and Qing dynasties set up barriers to development. This protected their power, but also prevented economic growth.
Themes
In “The Absolutism of Prester John,” Acemoglu and Robinson cite Abyssinia (or Ethiopia) as another example of long-lived absolutism. Because Ethiopia was Christian, many Europeans visited it in search of the Prester John—a mythical Christian king whose kingdom was separated from the rest of Christendom by Islam. These visitors left detailed records about Ethiopian institutions.
Europe and Ethiopia didn’t just share Christianity: they also shared a similar institutional path. As the authors have previously noted, many parts of Ethiopia were semi-feudal for many centuries—just like European society. Ethiopia is a useful case study because, while it was highly isolated from European influence, there are important overlaps between its history and Europe’s history—and, of course, important differences.
Themes
Ethiopia’s king distributed and seized property at will, often shifting land through multiple hands per year, which gave farmers no incentive to care for it. Thus, Ethiopia was extremely absolutist and extractive—even more so than Eastern Europe. In the mid-1800s, Emperor Tewodros II tried to modernize and bureaucratize the government in an attempt to fight off colonizers. His successor, Menelik II, defeated the invading Italian army by calling together a feudal-style army. The last Ethiopian Emperor, Haile Selassie, kept the state absolutist, extractive, and feudalistic as before until he was overthrown in 1974. This long history is the reason Ethiopia remains one of the world’s poorest countries today.
The king’s behavior again demonstrates how extractive institutions and policies undermine economic growth. By refusing to recognize private property rights or let people keep the fruits of their labor, the king took away any incentive they may have had to innovate, work hard, or otherwise increase their productivity. Thus, while many other parts of Africa struggled to develop because the slave trade and European colonialism left them with no centralized states at all, Ethiopia struggle to develop because it remained too absolutist and extractive to ever build inclusive institutions.
Themes
Under the heading “The Children of Samaale,” Acemoglu and Robinson argue that a lack of state centralization prevented inclusive institutions from forming in much of Africa. As a case study, they look at Somalia, which is dominated by six major clans and numerous family subgroups. These groups have historically fought over resources, land, and wealth. They technically have leaders, but in practice, all adult males make decisions collectively, according to a system of informal laws focused on “blood wealth,” which is a form of monetary compensation for murder. This reflects the “almost constant state of warfare” between different clans in Somali society.
Despite their geographical proximity, Somalia and Ethiopia face opposite challenges to development. Inclusive institutions require both centralization and pluralism. Ethiopia is centralized but not pluralistic, while Somalia is pluralistic but not centralized. Acemoglu and Robinson argue that this explains why both are mired in conflict. Practically speaking, Somalia might as well have had six different governments that ruled six different states and didn’t recognize one another’s legitimacy. While they constantly fight for power, none is powerful enough to overwhelm all the others and build a single centralized state.
Themes
Because of its collective decision-making practices, Somalia was historically pluralistic, but its institutions weren’t inclusive because there was no centralized state to impose order or guarantee property rights. As such, Somalia could not have possibly built an industrial economy in the wake of the Industrial Revolution. The country’s politics also prevented it from adopting new technology. For instance, the Kingdom of Taqali in northwestern Somalia had writing technology but didn’t use it for a century. Its citizens worried the state would use writing to seize resources and collect taxes, while Taqali’s rulers preferred governing without writing because it allowed them to change rules at will. This shows how difficult it would have been to create centralized institutions in Somalia, and how this disincentivized Somali people from investing in technology.
Somalia was pluralistic because many different groups held power in the country, but it wasn’t centralized because these groups didn’t work together to make and enforce decisions. The Kingdom of Taqali’s resistance to writing again shows why people—including both elites and commoners—often oppose centralization. Specifically, centralization increases the state’s power, and the state can use this for good as well as for evil. This is why both the most prosperous countries (like Britain) and the most repressive ones (like North Korea) have highly centralized institutions. The elite fears it will lose power under centralization, and the people fear that the elite will further disempower them. But Taqali’s refusal to use writing also disproves the assumption that countries simply need to create new technologies to develop. Rather, Acemoglu and Robinson emphasize that the state’s willingness to accept, adopt, and spread technology is at least as important as the creation of that technology in the first place.
Themes
Acemoglu and Robinson summarize their argument in the section “Enduring Backwardness.” Different societies respond to the critical juncture of the Industrial Revolution in different ways. Some societies give their citizens incentives to innovate, but most don’t, whether because of extractive institutions, absolutist rulers who fear creative destruction, or a lack of political centralization. But societies with inclusive institutions, or where citizens challenge absolutism, manage to set off explosive economic growth. Again, then, small institutional differences lead to economic divergence during a critical juncture.
To close the chapter, Acemoglu and Robinson further refine their theory of global inequality by applying their two main ideas to the Industrial Revolution. These two ideas are the principle that institutions determine prosperity and the principle that institutions change because of small differences at critical junctures. As they note here, when applied to the Industrial Revolution, their theory explains why certain countries started to grow in the 1800s while others stagnated. As they have already pointed out, the modern economic divergence between nations began in the 1800s. Therefore, they believe that applying their theory to the Industrial Revolution explains contemporary inequality. However, they still have to explain why countries with extractive institutions haven’t changed either during or since the Industrial Revolution—an idea they will tackle in the coming chapters.
Themes
