Why Nations Fail: The Origins of Power, Prosperity, and Poverty

enforce law and order, uphold property rights, and encourage economic activity when necessary byinvesting in public services. Yet even today, many nations, such as Afghanistan, Haiti, Nepal, and Somalia, have states that are unable to maintain the most rudimentary order, and economic incentives are all but destroyed. The case of Somalia illustrates how the process of industrialization also passed by such societies. Political centralization is resisted for the same reason that absolutist regimes resist change: the often well-placed fear that change will reallocate political power from those that dominate today to new individuals and groups. Thus, as absolutism blocks moves toward pluralism and economic change, so do the traditional elites and clans dominating the scene in societies without state centralization. As a consequence, societies that still lacked such centralization in the eighteenth and nineteenth centuries were particularly disadvantaged in the age of industry.
    While the variety of extractive institutions ranging from absolutism to states with little centralization failed to take advantage of the spread of industry, the critical juncture of the Industrial Revolution had very different effects in other parts of the world. As we will see in chapter 10 , societies that had already taken steps toward inclusive political and economic institutions, such as the United States and Australia, and those where absolutism was more seriously challenged, such as France and Japan, took advantage of these new economic opportunities and started a process of rapid economic growth. As such, the usual pattern of interaction between a critical juncture and existing institutional differences leading to further institutional and economic divergence played out again in the nineteenth century, and this time with an even bigger bang and more fundamental effects on the prosperity and poverty of nations.

North of the fence: Nogales, Arizona Jim West/imagebroker.net/Photolibrary

    South of the fence: Nogales, Sonora Jim West/age fotostock/Photolibrary

    Consequences of a level playing field: Thomas Edison’s 1880 patent for the lightbulb Records of the Patent and Trademark Office; Record Group 241; National Archives

    Economic losers from creative destruction: machine-breaking Luddites in early-nineteenth-century Britain Mary Evans Picture Library/Tom Morgan

    Consequences of a complete lack of political centralization in Somalia REUTERS/Mohamed Guled/Landov

    Successive beneficiaries of extractive institutions in Congo:

    King of Kongo © CORBIS King Leopold II The Granger Collection, NY

    Joseph-Désiré Mobutu © Richard Melloul/Sygma/CORBIS

    Laurent Kabila © Reuters/CORBIS

    The Glorious Revolution: William III of Orange is read the Bill of Rights before being offered the crown of England by parliament After Edgar Melville Ward/The Bridgeman Art Library/Getty Images

    The bubonic plague of the fourteenth century creates a critical juncture (
The Triumph of Death
painting of the Black Death by Brueghel the Elder) The Granger Collection, NY

    Beneficiary of institutional innovation: the King of Kuba Eliot Elisofon/Time & Life Pictures/Getty

    The emergence of hierarchy and inequality before farming: the grave goods of the Natufian elite http://en.wikipedia.org/wiki/File:Natufian-Burial-ElWad.jpg

    Extractive growth: Soviet Gulag labor builds the White Sea canal SOVFOTO

    Britain falls far behind: the ruins of the Roman empire at Vindolanda Courtesy of the Vindolanda Trust and Adam Stanford

    Innovation, essence of inclusive economic growth: James Watt’s steam engine The Granger Collection, NY

    Organizational change, a consequence of inclusive institutions: the factory of Richard Arkwright at Cromford The Granger Collection, NY

    Fruits of unsustainable extractive growth: Zheng He’s ship alongside Columbus’s
Santa Maria
Gregory A. Harlin/National Geographic Stock

    Bird’s-eye view of the dual economy in South Africa: poverty in Transkei, prosperity in Natal Roger de la Harpe/Africa Imagery

    Consequences of the Industrial Revolution: the storming of the Bastille Bridgeman-Giraudon/Art Resource, NY

    Challenges to inclusive institutions: the Standard Oil Company Library of Congress Prints and Photographs Division Washington, D.C.

    Noncreative destruction: abandoned Hasting railway station on the way to Bo in Sierra Leone © Matt Stephenson: www.itsayshere.org

    Extractive institutions today: children working in an Uzbek