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

unparalleled in its paranoid repressiveness, Ubico banned the use of words such as
obreros
(workers),
sindicatos
(labor unions), and
huelgas
(strikes). You could be jailed for using any one of them. Even though Ubico was powerful, the elite pulled the strings. Opposition to his regime mounted in 1944, headed by disaffected university students who began to organize demonstrations. Popular discontent increased, and on June 24, 311 people, many of them from the elite, signed the Memorial de los 311, an open letter denouncing the regime. Ubico resigned on July 1. Though he was followed by a democratic regime in 1945, this was overthrown by a coup in 1954, leading to a murderous civil war. Guatemala democratized again after only 1986.
    The Spanish conquistadors had no compunction about setting up an extractive political and economic system. That was why they had come all the way to the New World. But most of the institutions they set up were meant to be temporary. The
encomienda
, for example, was a temporary grant of rights over labor. They did not have a fully worked-out plan of how they would set up a system that would persist for another four hundred years. In fact, the institutions they set up changed significantly along the way, but one thing did not: the extractive nature of the institutions, the result of the vicious circle. The form of extraction changed, but neither the extractive nature of the institutions nor the identity of the elite did. In Guatemala the
encomienda
, the
repartimiento
, and the monopolization of trade gave way to the
libreta
and the land grab. But the majority of the indigenous Maya continued to work as low-wage laborers with little education, no rights, and no public services.
    In Guatemala, as in much of Central America, in a typical patternof the vicious circle, extractive political institutions supported extractive economic institutions, which in turn provided the basis for extractive political institutions and the continuation of the power of the same elite.
F ROM S LAVERY TO J IM C ROW
    In Guatemala, extractive institutions persisted from colonial to modern times with the same elite firmly in control. Any change in institutions resulted from adaptations to changing environments, as was the case with the land grab by the elite motivated by the coffee boom. The institutions in the U.S. South were similarly extractive until the Civil War. Economics and politics were dominated by the southern elite, plantation owners with large land and slave holdings. Slaves had neither political nor economic rights; indeed, they had few rights of any kind.
    The South’s extractive economic and political institutions made it considerably poorer than the North by the middle of the nineteenth century. The South lacked industry and made relatively little investment in infrastructure. In 1860 its total manufacturing output was less than that of Pennsylvania, New York, or Massachusetts. Only 9 percent of the southern population lived in urban areas, compared with 35 percent in the Northeast. The density of railroads (i.e., miles of track divided by land area) was three times higher in the North than in southern states. The ratio of canal mileage was similar.
    Map 18 ( this page ) shows the extent of slavery by plotting the percentage of the population that were slaves across U.S. counties in 1840. It is apparent that slavery was dominant in the South with some counties, for example, along the Mississippi River having as much as 95 percent of the population slaves. Map 19 ( this page ) then shows one of the consequences of this, the proportion of the labor force working in manufacturing in 1880. Though this was not high anywhere by twentieth-century standards, there are marked differences between the North and the South. In much of the Northeast, more than 10 percent of the labor force worked in manufacturing. In contrast in much of the South, particularly the areas with heavy concentrations of slaves, the proportion was basically zero.

    The South was not even innovative in the sectors in which it specialized: from 1837 to 1859, the numbers of patents issued per year for innovations related to corn and wheat were on average twelve and ten, respectively; there was just one per year for the most important crop of the South, cotton. There was no indication that industrialization and economic growth would commence anytime soon. But defeat in the Civil War was followed by fundamental economic and political reform