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

a few cases, societies such as Botswana (see this page ), that critical junctures were used to launch a process of political and economic change that paved the way for economic growth.

    Critical junctures can also result in major change toward rather than away from extractive institutions. Inclusive institutions, even though they have their own feedback loop, the virtuous circle, can also reverse course and become gradually more extractive because of challenges during critical junctures—and whether this happens is, again, contingent. The Venetian Republic, as we will see in chapter 6 , made major strides toward inclusive political and economic institutions in the medieval period. But while such institutions became gradually stronger in England after the Glorious Revolution of 1688, in Venice they ultimately transformed themselves into extractive institutions under the control of a narrow elite that monopolized both economic opportunities and political power.
U NDERSTANDING THE L AY OF THE L AND
    The emergence of a market economy based on inclusive institutions and sustained economic growth in eighteenth-century England sent ripples all around the world, not least because it allowed England to colonize a large part of it. But if the influence of English economic growth certainly spread around the globe, the economic and political institutions that created it did not automatically do so. The diffusion of the Industrial Revolution had different effects on the world in the same way that the Black Death had different effects on Western and Eastern Europe, and in the same way that the expansion of Atlantic trade had different effects in England and Spain. It was the institutions in place in different parts of the world that determined the impact, and these institutions were indeed different—small differences had been amplified over time by prior critical junctures. These institutional differences and their implications have tended to persist to the present due to the vicious and virtuous circles, albeit imperfectly, and are the key to understanding both how world inequality emerged and the nature of the lay of the land around us.
    Some parts of the world developed institutions that were very close to those in England, though by a very different route. This was particularly true of some European “settler colonies” such as Australia, Canada, and the United States, though their institutions were just forming as the Industrial Revolution was getting under way. As we saw in chapter 1 , a process starting with the foundation of the Jamestown colony in 1607 and culminating in the War of Independence and the enactment of the U.S. Constitution shares many of the same characteristics as the long struggle in England of Parliament against the monarchy, for it also led to a centralized state with pluralistic political institutions. The Industrial Revolution then spread rapidly to such countries.
    Western Europe, experiencing many of the same historical processes, had institutions similar to England at the time of the Industrial Revolution. There were small but consequential differences between England and the rest, which is why the Industrial Revolution happened in England and not France. This revolution then created an entirely new situation and considerably different sets of challenges to European regimes, which in turn spawned a new set of conflicts culminating in the French Revolution. The French Revolution was another critical juncture that led the institutions of Western Europe to converge with those of England, while Eastern Europe diverged further.
    The rest of the world followed different institutional trajectories. European colonization set the stage for institutional divergence in the Americas, where in contrast to the inclusive institutions developed in the United States and Canada extractive ones emerged in Latin America, which explains the patterns of inequality we see in the Americas. The extractive political and economic institutions of the Spanish conquistadors in Latin America have endured, condemning much of the region to poverty. Argentina and Chile have, however, fared better than most other countries in the region. They had few indigenous people or mineral riches and were “neglected” while the Spanish focused on the lands occupied by the Aztec, Maya, and Incan civilizations. Not coincidentally, the poorest part of Argentina is the northwest, the only section of the country integrated into the Spanish