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

and 73 of the interlopers’ petitions came from the provinces outside London, as against 8 for the Company. From the colonies, where petitioning was also allowed, the interlopers gathered 27 petitions, the Company 11. The interlopers also gathered far more signatures for their petitions, in total 8,000, as opposed to 2,500 for the Company. The struggle continued until 1698, when the Royal African Company monopoly was abolished.
    Along with this new locus for the determination of economic institutions and the new responsiveness after 1688, parliamentarians started making a series of key changes in economic institutions and government policy that would ultimately pave the way for the Industrial Revolution. Property rights eroded under the Stuarts were strengthened. Parliament began a process of reform in economic institutions to promote manufacturing, rather than taxing and impeding it. The “hearth tax”—an annual tax for each fireplace or stove, which fell most heavily on manufacturers, who were bitterly opposed to it—was abolished in 1689, soon after William and Mary ascended thethrone. Instead of taxing hearths, Parliament moved to start taxing land.
    Redistributing the tax burden was not the only pro-manufacturing policy that Parliament supported. A whole series of acts and legislations that would expand the market and the profitability of woolen textiles was passed. This all made political sense, since many of the parliamentarians who opposed James were heavily invested in these nascent manufacturing enterprises. Parliament also passed legislation that allowed for a complete reorganization of property rights in land, permitting the consolidation and elimination of many archaic forms of property and user rights.
    Another priority of Parliament was reforming finance. Though there had been an expansion of banking and finance in the period leading up to the Glorious Revolution, this process was further cemented by the creation of the Bank of England in 1694, as a source of funds for industry. It was another direct consequence of the Glorious Revolution. The foundation of the Bank of England paved the way for a much more extensive “financial revolution,” which led to a great expansion of financial markets and banking. By the early eighteenth century, loans would be available to everyone who could put up the necessary collateral. The records of a relatively small bank, C. Hoare’s & Co. in London, which have survived intact from the period 1702–1724, illustrate this point. Though the bank did lend money to aristocrats and lords, fully two-thirds of the biggest borrowers from Hoare’s over this period were not from the privileged social classes. Instead they were merchants and businessmen, including one John Smith, a man with the name of the eponymous average Englishman, who was loaned £2,600 by the bank during the period 1715–1719.
    So far we have emphasized how the Glorious Revolution transformed English political institutions, making them more pluralistic, and also started laying the foundations for inclusive economic institutions. There is one more significant change in institutions that emerged from the Glorious Revolution: Parliament continued the process of political centralization that was initiated by the Tudors. It was not just that constraints increased, or that the state regulated the economy in a different way, or that the English state spent money on differentthings; but also the capability and capacity of the state increased in all directions. This again illustrates the linkages between political centralization and pluralism: Parliament had opposed making the state more effective and better resourced prior to 1688 because it could not control it. After 1688 it was a different story.
    The state started expanding, with expenditures soon reaching around 10 percent of national income. This was underpinned by an expansion of the tax base, particularly with respect to the excise tax, which was levied on the production of a long list of domestically produced commodities. This was a very large state budget for the period, and is in fact larger than what we see today in many parts of the world. The state budgets in Colombia, for example, reached this relative size only in the 1980s. In many parts of sub-Saharan Africa—for example, in Sierra Leone—the state budget even today would be far smaller relative to the size of the economy without the large inflows of foreign aid.
    But the expansion of