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

increasingly narrow elite, the decline was under way. Venice appeared to have been on the brink of becoming the world’s first inclusive society, but it fell to a coup. Political and economic institutions became more extractive, and Venice began to experience economic decline. By 1500 the population had shrunk to one hundred thousand. Between 1650 and 1800, when the population of Europe rapidly expanded, that of Venice contracted.
    Today the only economy Venice has, apart from a bit of fishing, is tourism. Instead of pioneering trade routes and economic institutions, Venetians make pizza and ice cream and blow colored glass for hordes of foreigners. The tourists come to see the pre
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wonders of Venice, such as the Doge’s Palace and the lions of St. Mark’s Cathedral, which were looted from Byzantium when Venice ruled the Mediterranean. Venice went from economic powerhouse to museum.
    I N THIS CHAPTER we focus on the historical development of institutions in different parts of the world and explain why they evolved in different ways. We saw in chapter 4 how the institutions of WesternEurope diverged from those in Eastern Europe and then how those of England diverged from those in the rest of Western Europe. This was a consequence of small institutional differences, mostly resulting from institutional drift interacting with critical junctures. It might then be tempting to think that these institutional differences are the tip of a deep historical iceberg where under the waterline we find English and European institutions inexorably drifting away from those elsewhere, based on historical events dating back millennia. The rest, as they say, is history.
    Except that it isn’t, for two reasons. First, moves toward inclusive institutions, as our account of Venice shows, can be reversed. Venice became prosperous. But its political and economic institutions were overthrown, and that prosperity went into reverse. Today Venice is rich only because people who make their income elsewhere choose to spend it there admiring the glory of its past. The fact that inclusive institutions can go into reverse shows that there is no simple cumulative process of institutional improvement.
    Second, small institutional differences that play a crucial role during critical junctures are by their nature ephemeral. Because they are small, they can be reversed, then can reemerge and be reversed again. We will see in this chapter that, in contrast with what one would expect from the geography or culture theories, England, where the decisive step toward inclusive institutions would take place in the seventeenth century, was a backwater, not only in the millennia following the Neolithic Revolution in the Middle East but also at the beginning of the Middle Ages, following the fall of the Western Roman Empire. The British Isles were marginal to the Roman Empire, certainly of less importance than continental Western Europe, North Africa, the Balkans, Constantinople, or the Middle East. When the Western Roman Empire collapsed in the fifth century AD , Britain suffered the most complete decline. But the political revolutions that would ultimately bring the Industrial Revolution would take place not in Italy, Turkey, or even western continental Europe, but in the British Isles.
    In understanding the path to England’s Industrial Revolution and the countries that followed it, Rome’s legacy is nonetheless importantfor several reasons. First, Rome, like Venice, underwent major early institutional innovations. As in Venice, Rome’s initial economic success was based on inclusive institutions—at least by the standards of their time. As in Venice, these institutions became decidedly more extractive over time. With Rome, this was a consequence of the change from the Republic (510 BC –49 BC ) to the Empire (49 BC – AD 476). Even though during the Republican period Rome built an impressive empire, and long-distance trade and transport flourished, much of the Roman economy was based on extraction. The transition from republic to empire increased extraction and ultimately led to the kind of infighting, instability, and collapse that we saw with the Maya city-states.
    Second and more important, we will see that Western Europe’s subsequent institutional development, though it was not a direct inheritance of Rome, was a consequence of critical junctures that were common across the region in the wake of the collapse of the Western Roman Empire.