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

formal control of economic and political institutions after their defeat in the Civil War. Slavery, which was the basis of the plantation economy, was abolished, and blacks were given equal political and economic rights. Yet the Civil War did not destroy the political power of the planter elite or its economic basis, and they were able to restructure the system, under a different guise but still under their own local political control, and to achieve the same objective: abundance of low-cost labor for the plantations.
    This form of the vicious circle, where extractive institutions persist because the elite controlling them and benefiting from them persists, is not its only form. At first a more puzzling, but no less real and no less vicious, form of negative feedback shaped the political and economic development of many nations, and is exemplifiedby the experiences of much of sub-Saharan Africa, in particular Sierra Leone and Ethiopia. In a form that the sociologist Robert Michels would recognize as the iron law of oligarchy, the overthrow of a regime presiding over extractive institutions heralds the arrival of a new set of masters to exploit the same set of pernicious extractive institutions.
    The logic of this type of vicious circle is also simple to understand in hindsight: extractive political institutions create few constraints on the exercise of power, so there are essentially no institutions to restrain the use and abuse of power by those overthrowing previous dictators and assuming control of the state; and extractive economic institutions imply that there are great profits and wealth to be made merely by controlling power, expropriating the assets of others, and setting up monopolies.
    Of course, the iron law of oligarchy is not a true law, in the sense that the laws of physics are. It does not chart an inevitable path, as the Glorious Revolution in England or the Meiji Restoration in Japan illustrate.
    A key factor in these episodes, which saw a major turn toward inclusive institutions, was the empowerment of a broad coalition that could stand up against absolutism and would replace the absolutist institutions by more inclusive, pluralistic ones. A revolution by a broad coalition makes the emergence of pluralistic political institutions much more likely. In Sierra Leone and Ethiopia, the iron law of oligarchy was made more likely not only because existing institutions were highly extractive but also because neither the independence movement in the former nor the Derg coup in the latter were revolutions led by such broad coalitions, but rather by individuals and groups seeking power so that they could do the extracting.
    There is yet another, even more destructive facet of the vicious circle, anticipated by our discussion of the Maya city-states in chapter 5 . When extractive institutions create huge inequalities in society and great wealth and unchecked power for those in control, there will be many wishing to fight to take control of the state and institutions. Extractive institutions then not only pave the way for the next regime, which will be even more extractive, but they also engender continuousinfighting and civil wars. These civil wars then cause more human suffering and also destroy even what little state centralization these societies have achieved. This also often starts a process of descent into lawlessness, state failure, and political chaos, crushing all hopes of economic prosperity, as the next chapter will illustrate.

13.

W HY N ATIONS F AIL T ODAY
H OW TO W IN THE L OTTERY IN Z IMBABWE
    I T WAS J ANUARY 2000 in Harare, Zimbabwe. Master of Ceremonies Fallot Chawawa was in charge of drawing the winning ticket for the national lottery organized by a partly state-owned bank, the Zimbabwe Banking Corporation (Zimbank). The lottery was open to all clients who had kept five thousand or more Zimbabwe dollars in their accounts during December 1999. When Chawawa drew the ticket, he was dumfounded. As the public statement of Zimbank put it, “Master of Ceremonies Fallot Chawawa could hardly believe his eyes when the ticket drawn for the Z$100,000 prize was handed to him and he saw His Excellency RG Mugabe written on it.”
    President Robert Mugabe, who had ruled Zimbabwe by hook or by crook, and usually with an iron fist, since 1980, had won the lottery, which was worth a hundred thousand Zimbabwe dollars, about five times the annual per capita income of the country. Zimbank claimed that Mr.