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

elite could be sufficiently secure that they may permit some moves toward inclusive economic institutions when they are fairly certain that this will not threaten their political power. Alternatively, the historical situation could be such as to endow an extractive political regime with rather inclusive economic institutions, which they decide not to block. These provide the second way in which growth can take place under extractive political institutions.
    The rapid industrialization of South Korea under General Park is an example. Park came to power via a military coup in 1961, but he did so in a society heavily supported by the United States and with an economy where economic institutions were essentially inclusive. Though Park’s regime was authoritarian, it felt secure enough to promote economic growth, and in fact did so very actively—perhaps partly because the regime was not directly supported by extractive economic institutions. Differently from the Soviet Union and most other cases of growth under extractive institutions, South Korea transitioned from extractive political institutions toward inclusive political institutions in the 1980s. This successful transition was due to a confluence of factors.
    By the 1970s, economic institutions in South Korea had become sufficiently inclusive that they reduced one of the strong rationales for extractive political institutions—the economic elite had little to gain from their own or the military’s dominance of politics. The relative equality of income in South Korea also meant that the elite had less to fear from pluralism and democracy. The key influence of the United States, particularly given the threat from North Korea, also meant that the strong democracy movement that challenged the military dictatorship could not be repressed for long. Though General Park’s assassination in 1979 was followed by another military coup, led by Chun Doo-hwan, Chun’s chosen successor, Roh Tae-woo, initiated a process of political reforms that led to the consolidation of a pluralistic democracy after 1992. Of course, no transition of this sort took place in the Soviet Union. In consequence, Soviet growth ran out of steam, and the economy began to collapse in the 1980s and then totally fell apart in the 1990s.
    Chinese economic growth today also has several commonalities with both the Soviet and South Korean experiences. While the early stages of Chinese growth were spearheaded by radical market reforms in the agricultural sector, reforms in the industrial sector have been more muted. Even today, the state and the Communist Party play a central role in deciding which sectors and which companies will receive additional capital and will expand—in the process, making and breaking fortunes. As in the Soviet Union in its heyday, Chinais growing rapidly, but this is still growth under extractive institutions, under the control of the state, with little sign of a transition to inclusive political institutions. The fact that Chinese economic institutions are still far from fully inclusive also suggests that a South Korean–style transition is less likely, though of course not impossible.
    It is worth noting that political centralization is key to both ways in which growth under extractive political institutions can occur. Without some degree of political centralization, the planter elite in Barbados, Cuba, Haiti, and Jamaica would not have been able to keep law and order and defend their own assets and property. Without significant political centralization and a firm grip on political power, neither the South Korean military elites nor the Chinese Communist Party would have felt secure enough to manufacture significant economic reforms and still manage to cling to power. And without such centralization, the state in the Soviet Union or China could not have been able to coordinate economic activity to channel resources toward high productivity areas. A major dividing line between extractive political institutions is therefore their degree of political centralization. Those without it, such as many in sub-Saharan Africa, will find it difficult to achieve even limited growth.
    Even though extractive institutions can generate some growth, they will usually not generate sustained economic growth, and certainly not the type of growth that is accompanied by creative destruction. When both political and economic institutions are extractive, the incentives will not be there for creative