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

page ), in the nineteenth century, King Khama, the grandfather of Botswana’s first prime minister at independence, Seretse Khama, initiated institutional changesto modernize the political and economic institutions of his tribe. Quite uniquely, these changes were not destroyed in the colonial period, partly as a consequence of Khama’s and other chiefs’ clever challenges to colonial authority. Their interplay with the critical juncture that independence from colonial rule created laid the foundations for Botswana’s economic and political success. It was another case of small historical differences mattering.
    There is a tendency to see historical events as the inevitable consequences of deep-rooted forces. While we place great emphasis on how the history of economic and political institutions creates vicious and virtuous circles, contingency, as we have emphasized in the context of the development of English institutions, can always be a factor. Seretse Khama, studying in England in the 1940s, fell in love with Ruth Williams, a white woman. As a result, the racist apartheid regime in South Africa persuaded the English government to ban him from the protectorate, then called Bechuanaland (whose administration was under the High Commissioner of South Africa), and he resigned his kingship. When he returned to lead the anticolonial struggle, he did so with the intention not of entrenching the traditional institutions but of adapting them to the modern world. Khama was an extraordinary man, uninterested in personal wealth and dedicated to building his country. Most other African countries have not been so fortunate. Both things mattered, the historical development of institutions in Botswana and contingent factors that led these to be built on rather than overthrown or distorted as they were elsewhere in Africa.
    I N THE NINETEENTH CENTURY , absolutism not so different from that in Africa or Eastern Europe was blocking the path of industrialization in much of Asia. In China, the state was strongly absolutist, and independent cities, merchants, and industrialists were either nonexistent or much weaker politically. China was a major naval power and heavily involved in long-distance trade centuries before the Europeans. But it had turned away from the oceans just at the wrong time, when Ming emperors decided in the late fourteenth and early fifteenthcenturies that increased long-distance trade and the creative destruction that it might bring would be likely to threaten their rule.
    In India, institutional drift worked differently and led to the development of a uniquely rigid hereditary caste system that limited the functioning of markets and the allocation of labor across occupations much more severely than the feudal order in medieval Europe. It also underpinned another strong form of absolutism under the Mughal rulers. Most European countries had similar systems in the Middle Ages. Modern Anglo-Saxon surnames such as Baker, Cooper, and Smith are direct descendants of hereditary occupational categories. Bakers baked, coopers made barrels, and smiths forged metals. But these categories were never as rigid as Indian caste distinctions and gradually became meaningless as predictors of a person’s occupation. Though Indian merchants did trade throughout the Indian Ocean, and a major textile industry developed, the caste system and Mughal absolutism were serious impediments to the development of inclusive economic institutions in India. By the nineteenth century, things were even less hospitable for industrialization as India became an extractive colony of the English. China was never formally colonized by a European power, but after the English successfully defeated the Chinese in the Opium Wars between 1839 and 1842, and then again between 1856 and 1860, China had to sign a series of humiliating treaties and allow European exports to enter. As China, India, and others failed to take advantage of commercial and industrial opportunities, Asia, except for Japan, lagged behind as Western Europe was forging ahead.
    T HE COURSE OF institutional development that Japan charted in the nineteenth century again illustrates the interaction between critical junctures and small differences created by institutional drift. Japan, like China, was under absolutist rule. The Tokugawa family took over in 1600 and ruled over a feudal system that also banned international trade. Japan, too, faced a critical juncture created by Western