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

party’s candidate. In the runoff race with Fernando Collor, he won 44 percent.
    In taking over many local governments, something that accelerated in the 1990s, the Workers’ Party began to enter into a symbiotic relationship with many local social movements. In Porto Alegre the first Workers’ Party administration after 1988 introduced “participatory budgeting,” which was a mechanism for bringing ordinary citizensinto the formulation of the spending priorities of the city. It created a system that has become a world model for local government accountability and responsiveness, and it went along with huge improvements in public service provision and the quality of life in the city. The successful governance structure of the party at the local level mapped into greater political mobilization and success at the national level. Though Lula was defeated by Fernando Henrique Cardoso in the presidential elections of 1994 and 1998, he was elected president of Brazil in 2002. The Workers’ Party has been in power ever since.
    The formation of a broad coalition in Brazil as a result of the coming together of diverse social movements and organized labor has had a remarkable impact on the Brazilian economy. Since 1990 economic growth has been rapid, with the proportion of the population in poverty falling from 45 percent to 30 percent in 2006. Inequality, which rose rapidly under the military, has fallen sharply, particularly after the Workers’ Party took power, and there has been a huge expansion of education, with the average years of schooling of the population increasing from six in 1995 to eight in 2006. Brazil has now become part of the BRIC nations (Brazil, Russia, India, and China), the first Latin American country actually to have weight in international diplomatic circles.
    T HE RISE OF B RAZIL since the 1970s was not engineered by economists of international institutions instructing Brazilian policymakers on how to design better policies or avoid market failures. It was not achieved with injections of foreign aid. It was not the natural outcome of modernization. Rather, it was the consequence of diverse groups of people courageously building inclusive institutions. Eventually these led to more inclusive economic institutions. But the Brazilian transformation, like that of England in the seventeenth century, began with the creation of inclusive political institutions. But how can society build inclusive political institutions?
    History, as we have seen, is littered with examples of reform movements that succumbed to the iron law of oligarchy and replaced one set of extractive institutions with even more pernicious ones. We haveseen that England in 1688, France in 1789, and Japan during the Meiji Restoration of 1868 started the process of forging inclusive political institutions with a political revolution. But such political revolutions generally create much destruction and hardship, and their success is far from certain. The Bolshevik Revolution advertised its aim as replacing the exploitative economic system of tsarist Russia with a more just and efficient one that would bring freedom and prosperity to millions of Russians. Alas, the outcome was the opposite, and much more repressive and extractive institutions replaced those of the government the Bolsheviks overthrew. The experiences in China, Cuba, and Vietnam were similar. Many noncommunist, top-down reforms fared no better. Nasser vowed to build a modern egalitarian society in Egypt, but this led only to Hosni Mubarak’s corrupt regime, as we saw in chapter 13 . Robert Mugabe was viewed by many as a freedom fighter ousting Ian Smith’s racist and highly extractive Rhodesian regime. But Zimbabwe’s institutions became no less extractive, and its economic performance has been even worse than before independence.
    What is common among the political revolutions that successfully paved the way for more inclusive institutions and the gradual institutional changes in North America, in England in the nineteenth century, and in Botswana after independence—which also led to significant strengthening of inclusive political institutions—is that they succeeded in empowering a fairly broad cross-section of society. Pluralism, the cornerstone of inclusive political institutions, requires political power to be widely held in society, and starting from extractive institutions that vest power in a narrow elite, this requires a process of empowerment. This, as we