False economy What’s in it for me? Understand what makes the

Extractive institutions create vicious cycles 
of poverty.
Generally speaking, extractive institutions 
emerge when leaders resist development and 
attempt to consolidate power instead.
But that’s just the start, since extractive political 
institutions are self-perpetuating.
The purpose of extractive structures is to 
maintain an elite’s grip on power, so it’s fairly 

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understandable that this elite will want to 
perpetuate these structures.
Just look at the slave states of the US in the 
nineteenth century. There, a white landowning 
elite profited from the labor of black slaves who 
had no political or economic rights.
After the American Civil War and the North’s 
victory in 1865, slavery was abolished, and black 
men gained the right to vote.
But the Southern landholding elite was still there, 
ready to extract and exploit ex-slaves as a 
source of cheap labor.
In an effort to consolidate power, they introduced 
the poll tax and literacy tests for potential voters. 
Of course, the intention was to disenfranchise 
new black voters who had been prevented from 
receiving the requisite education.
The dynamics of this power imbalance were 
formalized in the Jim Crow laws of the late 
nineteenth and early twentieth centuries. 
Segregation was officially sanctioned.
The continued existence of such extractive 
institutions, even after regime change, has been 
well studied.
The early twentieth-century German sociologist 
Robert Michels labeled this tendency “the iron 
law of oligarchy.” This refers to the penchant for 
oligarchic institutions to persist, irrespective of 
whether the same elite maintains its grip on 
power.
That’s exactly what happened in post-
independence Africa. The extractive institutions 
established by Europeans effectively remain 
there today.
Needless to say, those gifted power by such 
institutions are almost duty-bound to consolidate 
their own power even further.
Take Siaka Stevens, Sierra Leone’s first 
president. He set about actively discriminating 
against the Mende, an ethnic group that 
supported his political opponents. He debilitated 
economic growth in the region where the Mende 
lived by destroying the railway used for exports – 
all to crush his opponents.
Consequently, he assumed more power, but the 
nation’s institutions could hardly be said to have 
represented its people anymore.