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

benefited massively from the gold and silver found there. In England the situation was different. Elizabeth I was far less financially independent, so she had to beg Parliament for more taxes. In exchange, Parliament demanded concessions, in particular restrictions on the right of Elizabeth to create monopolies. It was a conflict Parliament gradually won. In Spain the Cortes lost a similar conflict. Trade wasn’t just monopolized; it was monopolized by the Spanish monarchy.
    These distinctions, which initially appeared small, started to matter a great deal in the seventeenth century. Though the Americas had been discovered by 1492 and Vasco da Gama had reached India by rounding the Cape of Good Hope, at the southern tip of Africa, in1498, it was only after 1600 that a huge expansion of world trade, particularly in the Atlantic, started to take place. In 1585 the first English colonization of North America began at Roanoke, in what is now North Carolina. In 1600 the English East India Company was formed. In 1602 it was followed by the Dutch equivalent. In 1607 the colony of Jamestown was founded by the Virginia Company. By the 1620s the Caribbean was being colonized, with Barbados occupied in 1627. France was also expanding in the Atlantic, founding Quebec City in 1608 as the capital of New France in what is now Canada. The consequences of this economic expansion for institutions were very different for England than for Spain and France because of small initial differences.
    Elizabeth I and her successors could not monopolize the trade with the Americas. Other European monarchs could. So while in England, Atlantic trade and colonization started creating a large group of wealthy traders with few links to the Crown, this was not the case in Spain or France. The English traders resented royal control and demanded changes in political institutions and the restriction of royal prerogatives. They played a critical role in the English Civil War and the Glorious Revolution. Similar conflicts took place everywhere. French kings, for example, faced the Fronde Rebellion between 1648 and 1652. The difference was that in England it was far more likely that the opponents to absolutism would prevail because they were relatively wealthy and more numerous than the opponents to absolutism in Spain and France.
    The divergent paths of English, French, and Spanish societies in the seventeenth century illustrate the importance of the interplay of small institutional differences with critical junctures. During critical junctures, a major event or confluence of factors disrupts the existing balance of political or economic power in a nation. These can affect only a single country, such as the death of Chairman Mao Zedong in 1976, which at first created a critical juncture only for Communist China. Often, however, critical junctures affect a whole set of societies, in the way that, for example, colonization and then decolonization affected most of the globe.
    Such critical junctures are important because there are formidablebarriers against gradual improvements, resulting from the synergy between extractive political and economic institutions and the support they give each other. The persistence of this feedback loop creates a vicious circle. Those who benefit from the status quo are wealthy and well organized, and can effectively fight major changes that will take away their economic privileges and political power.
    Once a critical juncture happens, the small differences that matter are the initial institutional differences that put in motion very different responses. This is the reason why the relatively small institutional differences in England, France, and Spain led to fundamentally different development paths. The paths resulted from the critical juncture created by the economic opportunities presented to Europeans by Atlantic trade.
    Even if small institutional differences matter greatly during critical junctures, not all institutional differences are small, and naturally, larger institutional differences lead to even more divergent patterns during such junctures. While the institutional differences between England and France were small in 1588, the differences between Western and Eastern Europe were much greater. In the West, strong centralized states such as England, France, and Spain had latent constitutional institutions (Parliament, the Estates-General, and the Cortes). There were also underlying similarities in economic