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

institutional innovations. These could instead have taken place in North America, in places such as the Mississippi Valley or even the northeastern United States. Had this been the case, Europeans might have encountered empty lands in the Andes and centralized states in North America, and the roles of Peru and the United States could have been reversed. Europeans would then have settled in areas around Peru, and the conflict between the majority of settlers and the elite could have led to the creation of inclusive institutions there instead of in North America. The subsequent paths of economic development would then likely have been different.
    Second, the Inca Empire might have resisted European colonialism, as Japan did when Commodore Perry’s ships arrived in Edo Bay. Though the greater extractiveness of the Inca Empire in contrast with Tokugawa, Japan, certainly made a political revolution akin to the Meiji Restoration less likely in Peru, there was no historical necessity that the Inca completely succumb to European domination. If theyhad been able to resist and even institutionally modernize in response to the threats, the whole path of the history of the New World, and with it the entire history of the world, could have been different.
    Third and most radically, it is not even historically or geographically or culturally predetermined that Europeans should have been the ones colonizing the world. It could have been the Chinese or even the Incas. Of course, such an outcome is impossible when we look at the world from the vantage point of the fifteenth century, by which time Western Europe had pulled ahead of the Americas, and China had already turned inward. But Western Europe of the fifteenth century was itself an outcome of a contingent process of institutional drift punctuated by critical junctures, and nothing about it was inevitable. Western European powers could not have surged ahead and conquered the world without several historic turning points. These included the specific path that feudalism took, replacing slavery and weakening the power of monarchs on the way; the fact that the centuries following the turn of the first millennium in Europe witnessed the development of independent and commercially autonomous cities; the fact that European monarchs were not as threatened by, and consequently did not try to discourage, overseas trade as the Chinese emperors did during the Ming dynasty; and the arrival of the Black Death, which shook up the foundations of the feudal order. If these events had transpired differently, we could be living in a very different world today, one in which Peru might be richer than Western Europe or the United States.
    N ATURALLY, THE PREDICTIVE POWER of a theory where both small differences and contingency play key roles will be limited. Few would have predicted in the fifteenth or even the sixteenth centuries, let alone in the many centuries following the fall of the Roman Empire, that the major breakthrough toward inclusive institutions would happen in Britain. It was only the specific process of institutional drift and the nature of the critical juncture created by the opening of Atlantic trade that made this possible. Neither would many have believed in the midst of the Cultural Revolution during the 1970s that Chinawould soon be on a path toward radical changes in its economic institutions and subsequently on a breakneck growth trajectory. It is similarly impossible to predict with any certainty what the lay of the land will be in five hundred years. Yet these are not shortcomings of our theory. The historical account we have presented so far indicates that any approach based on historical determinism—based on geography, culture, or even other historical factors—is inadequate. Small differences and contingency are not just part of our theory; they are part of the shape of history.
    Even if making precise predictions about which societies will prosper relative to others is difficult, we have seen throughout the book that our theory explains the broad differences in the prosperity and poverty of nations around the world fairly well. We will see in the rest of this chapter that it also provides some guidelines as to what types of societies are more likely to achieve economic growth over the next several decades.
    First, vicious and virtuous circles generate a lot of persistence and sluggishness. There should be little doubt that in fifty or even a hundred years, the United