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Why did this unique process start in England and why in the seventeenth century? Why did England develop pluralistic political institutions and break away from extractive institutions? As we have seen, the political developments leading up to the Glorious Revolution were shaped by several interlinked processes. Central was the political conflict between absolutism and its opponents. The outcome of this conflict not only put a stop to the at..
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Daron Acemoğlu |
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Australia was not Britain, and its law would not be just British.
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Daron Acemoğlu |
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While Bigge was trying to turn back the clock, ex-convicts and their sons and daughters were demanding greater rights. Most important, they realized, again just as in the United States, that to consolidate their economic and political rights fully they needed political institutions that would include them in the process of decision making. They demanded elections in which they could participate as equals and representative institutions and ..
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Daron Acemoğlu |
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Today we still call the standard method of achieving secrecy in voting in elections the Australian ballot. The
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Daron Acemoğlu |
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Inclusive economic institutions, such as those in South Korea or in the United States, are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish.
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Daron Acemoğlu |
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a312131
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We saw in the previous chapter how the process of political centralization under the Tudor monarchy in England increased demands for voice and representation by different local elites in national political institutions as a way of staving off this loss of political power. A stronger Parliament was created, ultimately enabling the emergence of inclusive political institutions. But
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Daron Acemoğlu |
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But in many other cases, just the opposite takes place, and the process of political centralization also ushers in an era of greater absolutism.
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Daron Acemoğlu |
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during the critical juncture created by the Industrial Revolution, many nations missed the boat and failed to take advantage of the spread of industry. Either they had absolutist political and extractive economic institutions, as in the Ottoman Empire, or they lacked political centralization, as in Somalia. A
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Daron Acemoğlu |
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AUSTRALIA, LIKE THE UNITED STATES, experienced a different path to inclusive institutions than the one taken by England. The same revolutions that shook England during the Civil War and then the Glorious Revolution were not needed in the United States or Australia because of the very different circumstances in which those countries were founded--though this of course does not mean that inclusive institutions were established without any con..
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Daron Acemoğlu |
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Absolutism reigned not just in much of Europe but also in Asia, and similarly prevented industrialization during the critical juncture created by the Industrial Revolution. The Ming and Qing dynasties of China and the absolutism of the Ottoman Empire illustrate this pattern.
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Daron Acemoğlu |
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Finally, when growth comes under extractive political institutions but where economic institutions have inclusive aspects, as they did in South Korea, there is always the danger that economic institutions become more extractive and growth stops. Those controlling political power will eventually find it more beneficial to use their power to limit competition, to increase their share of the pie, or even to steal and loot from others rather th..
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Daron Acemoğlu |
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Absolutism reigned not just in much of Europe but also in Asia, and similarly prevented industrialization during the critical juncture created by the Industrial Revolution. The Ming and Qing dynasties of China and the absolutism of the Ottoman Empire illustrate this pattern. Under the Song dynasty, between 960 and 1279, China led the world in many technological innovations. The Chinese invented clocks, the compass, gunpowder, paper and pape..
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Daron Acemoğlu |
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Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education. Sustained economic growth is almost always accompanied by technological improvements that enable people (labor), land, and existing capital (buildings, existing machines, and so on) to become more productive.
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Daron Acemoğlu |
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The reasoning of the Ming and Qing states for opposing international trade is by now familiar: the fear of creative destruction.
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Daron Acemoğlu |
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The consequence of all this absolutist control of the economy was predictable: the Chinese economy was stagnant throughout the nineteenth and early twentieth centuries while other economies were industrializing. By the time Mao set up his communist regime in 1949, China had become one of the poorest countries in the world. T
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Daron Acemoğlu |
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The Manchester Act was a significant victory for the nascent cotton manufacturers. But its historical and economic significance was in fact much greater. First, it demonstrated the limits of entry barriers that the pluralistic political institutions of parliamentary England would permit. Second, over the next half century, technological innovations in the manufacture of cotton cloth would play a central role in the Industrial Revolution and..
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Daron Acemoğlu |
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Naturally, the type of dual economy articulated in Verwoerd's speech is rather different from Lewis's dual economy theory. In South Africa the dual economy was not an inevitable outcome of the process of development. It was created by the state. In South Africa there was to be no seamless movement of poor people from the backward to the modern sector as the economy developed. On the contrary, the success of the modern sector relied on the e..
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Daron Acemoğlu |
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Creative destruction redistributes not simply income and wealth, but also political power,
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Daron Acemoğlu |
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Without the changes in political institutions and political power similar to those that emerged in England after 1688, there was little chance for absolutist countries to benefit from the innovations and new technologies of the Industrial Revolution. In Spain, for example, the lack of secure property rights and the widespread economic decline meant that people simply did not have the incentive to make the necessary investments and sacrifice..
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Daron Acemoğlu |
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World inequality today exists because during the nineteenth and twentieth centuries some nations were able to take advantage of the Industrial Revolution and the technologies and methods of organization that it brought while others were unable to do so. Technological change is only one of the engines of prosperity, but it is perhaps the most critical one. The countries that did not take advantage of new technologies did not benefit from the..
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Daron Acemoğlu |
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The South African state created a dual economy, preventing 80 percent of the population from taking part in skilled occupations, commercial farming, and entrepreneurship. All this not only explains why industrialization passed by large parts of the world but also encapsulates how economic development may sometimes feed on, and even create, the underdevelopment in some other part of the domestic or the world economy.
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Daron Acemoğlu |
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There could be some economic growth without innovation, relying on existing technology, but it was growth without creative destruction. And it did not last.
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Daron Acemoğlu |
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stagnation
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Daron Acemoğlu |
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The Black Death is a vivid example of a critical juncture, a major event or confluence of factors disrupting the existing economic or political balance in society. A critical juncture is a double-edged sword that can cause a sharp turn in the trajectory of a nation. On the one hand it can open the way for breaking the cycle of extractive institutions and enable more inclusive ones to emerge, as in England. Or it can intensify the emergence ..
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Daron Acemoğlu |
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While in England the profits of the slave trade helped to enrich those who opposed absolutism, in Africa they helped to create and strengthen absolutism. Farther
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Daron Acemoğlu |
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WE WILL ARGUE that to understand world inequality we have to understand why some societies are organized in very inefficient and socially undesirable ways. Nations sometimes do manage to adopt efficient institutions and achieve prosperity, but alas, these are the rare cases. Most economists and policymakers have focused on "getting it right," while what is really needed is an explanation for why poor nations "get it wrong." Getting it wrong..
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Daron Acemoğlu |
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No two societies create the same institutions; they will have distinct customs, different systems of property rights, and different ways of dividing a killed animal or loot stolen from another group. Some will recognize the authority of elders, others will not; some will achieve some degree of political centralization early on, but not others. Societies are constantly subject to economic and political conflict that is resolved in different ..
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Daron Acemoğlu |
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The leaders of the French Revolution and, subsequently, Napoleon exported the revolution to these lands, destroying absolutism, ending feudal land relations, abolishing guilds, and imposing equality before the law--the all-important notion of rule of law, which we will discuss in greater detail in the next chapter. The French Revolution thus prepared not only France but much of the rest of Europe for inclusive institutions and the economic ..
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Daron Acemoğlu |
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Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people.
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Daron Acemoğlu |
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All in all, French armies wrought much suffering in Europe, but they also radically changed the lay of the land. In much of Europe, gone were feudal relations; the power of the guilds; the absolutist control of monarchs and princes; the grip of the clergy on economic, social, and political power; and the foundation of ancien regime, which treated different people unequally based on their birth status. These changes created the type of inclu..
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Daron Acemoğlu |
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Finally, we will also discuss how the failure of nations today is heavily influenced by their institutional histories, how much policy advice is informed by incorrect hypotheses and is potentially misleading, and how nations are still able to seize critical junctures and break the mold to reform their institutions and embark upon a path to greater prosperity.
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Daron Acemoğlu |
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As with France, an important consequence of the British Industrial Revolution for China and Japan was military vulnerability. China was humbled by British sea power during the First Opium War, between 1839 and 1842, and the same threat became all too real for the Japanese as U.S. warships, led by Commodore Matthew Perry, pulled into Edo Bay in 1853. The reality that economic backwardness created military backwardness was part of the impetus..
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Daron Acemoğlu |
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The ability of economic institutions to harness the potential of inclusive markets, encourage technological innovation, invest in people, and mobilize the talents and skills of a large number of individuals is critical for economic growth. Explaining why so many economic institutions fail to meet these simple objectives is the central theme of this book. E
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Daron Acemoğlu |
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The most important lesson is that extractive institutions cannot generate sustained technological change for two reasons: the lack of economic incentives and resistance by the elites.
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Daron Acemoğlu |
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Though the extractive institutions that the Mayas created produced sufficient wealth for the cities to flourish and the elite to become wealthy and generate great art and monumental buildings, the system was not stable. The extractive institutions upon which this narrow elite ruled created extensive inequality, and thus the potential for infighting between those who could benefit from the wealth extracted from the people. This conflict ulti..
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Daron Acemoğlu |
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Extractive institutions are so common in history because they have a powerful logic: they can generate some limited prosperity while at the same time distributing it into the hands of a small elite. For this growth to happen, there must be political centralization. Once this is in place, the state--or the elite controlling the state--typically has incentives to invest and generate wealth, encourage others to invest so that the state can ext..
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Daron Acemoğlu |
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Lack of creative destruction and innovation is not the only reason why there are severe limits to growth under extractive institutions. The history of the Maya city-states illustrates a more ominous and, alas, more common end, again implied by the internal logic of extractive institutions. As these institutions create significant gains for the elite, there will be strong incentives for others to fight to replace the current elite. Infightin..
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Daron Acemoğlu |
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Max Weber, who we met in the previous chapter, provided the most famous and widely accepted definition of the state, identifying it with the "monopoly of legitimate violence" in society. Without such a monopoly and the degree of centralization that it entails, the state cannot play its role as enforcer of law and order, let alone provide public services and encourage and regulate economic activity. When the state fails to achieve almost any..
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Daron Acemoğlu |
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We will refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions as extractive political institutions. There
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Daron Acemoğlu |
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Economic growth and technological change are accompanied by what the great economist Joseph Schumpeter called creative destruction.
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Daron Acemoğlu |
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the colonists in Jamestown perished. Of the five hundred who entered the winter, only sixty were alive by March. The situation was so desperate that they resorted to cannibalism.
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Daron Acemoğlu |
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WHAT CAN BE DONE to kick-start or perhaps just facilitate the process of empowerment and thus the development of inclusive political institutions? The honest answer of course is that there is no recipe for building such institutions. Naturally there are some obvious factors that would make the process of empowerment more likely to get off the ground.
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Daron Acemoğlu |
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Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the "invisible hand" of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings."
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incentive
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Daron Acemoğlu |
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NATIONS FAIL TODAY because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction. Extractive economic and political institutions, though their details vary under different circumstances, are always at the root of this failure.
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Daron Acemoğlu |