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

mentioned earlier. His next step was to rewrite the constitution to remove the term limit so he could run for president again. After being reelected, Menem moved to rewrite the constitution again, but was stopped not by Argentina political institutions but by factions within his own Perónist Party, who fought back against his personal domination.
    Since independence, Argentina has suffered from most of the institutional problems that have plagued Latin America. It has been trapped in a vicious, not a virtuous, circle. As a consequence, positive developments, such as first steps toward the creation of an independent Supreme Court, never gained a foothold. With pluralism, no group wants or dares to overthrow the power of another, for fear thatits own power will be subsequently challenged. At the same time, the broad distribution of power makes such an overthrow difficult. A Supreme Court can have power if it receives significant support from broad segments of society willing to push back attempts to vitiate the Court’s independence. That has been the case in the United States, but not Argentina. Legislators there were happy to undermine the Court even if they anticipated that this could jeopardize their own position. One reason is that with extractive institutions there is much to gain from overthrowing the Supreme Court, and the potential benefits are worth the risks.
P OSITIVE F EEDBACK AND V IRTUOUS C IRCLES
    Inclusive economic and political institutions do not emerge by themselves. They are often the outcome of significant conflict between elites resisting economic growth and political change and those wishing to limit the economic and political power of existing elites. Inclusive institutions emerge during critical junctures, such as during the Glorious Revolution in England or the foundation of the Jamestown colony in North America, when a series of factors weaken the hold of the elites in power, make their opponents stronger, and create incentives for the formation of a pluralistic society. The outcome of political conflict is never certain, and even if in hindsight we see many historical events as inevitable, the path of history is contingent. Nevertheless, once in place, inclusive economic and political institutions tend to create a virtuous circle, a process of positive feedback, making it more likely that these institutions will persist and even expand.
    The virtuous circle works through several mechanisms. First, the logic of pluralistic political institutions makes usurpation of power by a dictator, a faction within the government, or even a well-meaning president much more difficult, as Franklin Roosevelt discovered when he tried to remove the checks on his power imposed by the Supreme Court, and as Sir Robert Walpole discovered when he attempted to summarily implement the Black Act. In both cases, concentrating power further in the hands of an individual or a narrow group wouldhave started undermining the foundations of pluralistic political institutions, and the true measure of pluralism is precisely its ability to resist such attempts. Pluralism also enshrines the notion of the rule of law, the principle that laws should be applied equally to everybody—something that is naturally impossible under an absolutist monarchy. But the rule of law, in turn, implies that laws cannot simply be used by one group to encroach upon the rights of another. What’s more, the principle of the rule of law opens the door for greater participation in the political process and greater inclusivity, as it powerfully introduces the idea that people should be equal not only before the law but also in the political system. This was one of the principles that made it difficult for the British political system to resist the forceful calls for greater democracy throughout the nineteenth century, opening the way to the gradual extension of the franchise to all adults.
    Second, as we have seen several times before, inclusive political institutions support and are supported by inclusive economic institutions. This creates another mechanism of the virtuous circle. Inclusive economic institutions remove the most egregious extractive economic relations, such as slavery and serfdom, reduce the importance of monopolies, and create a dynamic economy, all of which reduces the economic benefits that one can secure, at least in the short run, by usurping political power. Because economic institutions had already become sufficiently