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

the critical juncture created by the Industrial Revolution. While Japanese institutions were being transformed and the economy was embarking on a path of rapid growth, in China forces pushing for institutional change were not strong enough, and extractive institutions persisted largely unabated until they would take a turn for the worse with Mao’s communist revolution in 1949.
R OOTS OF W ORLD I NEQUALITY
    This and the previous three chapters have told the story of how inclusive economic and political institutions emerged in England to make the Industrial Revolution possible, and why certain countries benefitedfrom the Industrial Revolution and embarked on the path to growth, while others did not or, in fact, steadfastly refused to allow even the beginning of industrialization. Whether a country did embark on industrialization was largely a function of its institutions. The United States, which underwent a transformation similar to the English Glorious Revolution, had already developed its own brand of inclusive political and economic institutions by the end of the eighteenth century. It would thus become the first nation to exploit the new technologies coming from the British Isles, and would soon surpass Britain and become the forerunner of industrialization and technological change. Australia followed a similar path to inclusive institutions, even if somewhat later and somewhat less noticed. Its citizens, just like those in England and the United States, had to fight to obtain inclusive institutions. Once these were in place, Australia would launch its own process of economic growth. Australia and the United States could industrialize and grow rapidly because their relatively inclusive institutions would not block new technologies, innovation, or creative destruction.
    Not so in most of the other European colonies. Their dynamics would be quite the opposite of those in Australia and the United States. Lack of a native population or resources to be extracted made colonialism in Australia and the United States a very different sort of affair, even if their citizens had to fight hard for their political rights and for inclusive institutions. In the Moluccas as in the many other places Europeans colonized in Asia, in the Caribbean, and in South America, citizens had little chance of winning such a fight. In these places, European colonists imposed a new brand of extractive institutions, or took over whatever extractive institutions they found, in order to be able to extract valuable resources, ranging from spices and sugar to silver and gold. In many of these places, they put in motion a set of institutional changes that would make the emergence of inclusive institutions very unlikely. In some of them they explicitly stamped out whatever burgeoning industry or inclusive economic institutions existed. Most of these places would be in no situation to benefit from industrialization in the nineteenth century or even in the twentieth.
    The dynamics in the rest of Europe were also quite different from those in Australia and the United States. As the Industrial Revolution in Britain was gathering speed at the end of the eighteenth century, most European countries were ruled by absolutist regimes, controlled by monarchs and by aristocracies whose major source of income was from their landholdings or from trading privileges they enjoyed thanks to prohibitive entry barriers. The creative destruction that would be wrought by the process of industrialization would erode the leaders’ trading profits and take resources and labor away from their lands. The aristocracies would be economic losers from industrialization. More important, they would also be political losers, as the process of industrialization would undoubtedly create instability and political challenges to their monopoly of political power.
    But the institutional transitions in Britain and the Industrial Revolution created new opportunities and challenges for European states. Though there was absolutism in Western Europe, the region had also shared much of the institutional drift that had impacted Britain in the previous millennium. But the situation was very different in Eastern Europe, the Ottoman Empire, and China. These differences mattered for the dissemination of industrialization. Just like the Black Death or the rise of Atlantic trade, the critical juncture created by industrialization intensified the ever-present conflict over institutions in many European