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

various forced labor systems but also controlled and monopolized trade through a merchant guild called the Consulado de Comercio. Most of the population in Guatemala was high in the mountains and far from the coast. The high transportation costs reduced the extent of the export economy, and initially land was not very valuable. Much of it was still in the hands of indigenous peoples, who had large communal landholdings called
ejidos
. The remainder was largely unoccupied and notionally owned by the government. There was more money in controlling and taxing trade, such as it was, than in controlling the land.
    Just as in Mexico, the Guatemalan elite viewed the Cadiz Constitution ( this page – this page ) with hostility, which encouraged them to declare independence just as the Mexican elites did. Following a brief union with Mexico and the Central American Federation, the colonial elite ruled Guatemala under the dictatorship of Rafael Carrera from 1839 to 1871. During this period the descendants of the conquistadors and the indigenous elite maintained the extractive economic institutions of the colonial era largely unchanged. Even the organization of the Consulado did not alter with independence. Though this was a royal institution, it happily continued under a republican government.
    Independence then was simply a coup by the preexisting local elite, just as in Mexico; they carried on as usual with the extractive economic institutions from which they had benefited so much. Ironically enough, during this period the Consulado remained in charge of the economic development of the country. But as had been the case pre-independence, the Consulado had its own interests at heart, not those of the country. Part of its responsibility was for the development of infrastructure, such as ports and roads, but as in Austria-Hungary,Russia, and Sierra Leone, this often threatened creative destruction and could have destabilized the system. Therefore, the development of infrastructure, rather than being implemented, was often resisted. For example, the development of a port on the Suchitepéquez coast, bordering the Pacific Ocean, was one of the proposed projects. At the time the only proper ports were on the Caribbean coast, and these were controlled by the Consulado. The Consulado did nothing on the Pacific side because a port in that region would have provided a much easier outlet for goods from the highland towns of Mazatenango and Quezaltenango, and access to a different market for these goods would have undermined the Consulado’s monopoly on foreign trade. The same logic applied to roads, where, again, the Consulado had the responsibility for the entire country. Predictably it also refused to build roads that would have strengthened competing groups or would have potentially undone its monopoly. Pressure to do so again came from western Guatemala and Quezaltenango, in the Los Altos region. But if the road between Los Altos and the Suchitepéquez coast had been improved, this could have created a merchant class, which would have been a competitor to the Consulado merchants in the capital. The road did not get improved.
    As a result of this elite dominance, Guatemala was caught in a time warp in the middle of the nineteenth century, as the rest of the world was changing rapidly. But these changes would ultimately affect Guatemala. Transportation costs were falling due to technological innovations such as the steam train, the railways, and new, much faster types of ships. Moreover, the rising incomes of people in Western Europe and North America were creating a mass demand for many products that a country such as Guatemala could potentially produce.
    Early in the century, some indigo and then cochineal, both natural dyes, had been produced for export, but the more profitable opportunity would become coffee production. Guatemala had a lot of land suitable for coffee, and cultivation began to spread—without any assistance from the Consulado. As the world price of coffee rose and international trade expanded, there were huge profits to be made,and the Guatemalan elite became interested in coffee. In 1871 the long-lasting regime of the dictator Carrera was finally overthrown by a group of people calling themselves Liberals, after the worldwide movement of that name. What liberalism means has changed over time. But in the nineteenth century in the United States and Europe, it was similar to what is today called libertarianism,