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

Breaking the vicious cycles of poverty is 
difficult but not impossible.
So far we’ve seen that sustainable growth in a 
society’s living standard is possible. It just needs 
economic and political institutions that are 
inclusive and pluralistic in nature.
But what does that mean for future prosperity? 
What can countries do if they have extractive 
political and economic institutions today but want 
to buck the trends of history?
First off, it’s important to realize that history isn’t 
deterministic. That’s just a fancy way of saying 
that the future isn’t always shaped by the past.
As we’ve observed, extractive and inclusive 
institutions blossom and grow thanks to shifts in 
institutional landscapes after critical junctures. 
But it’s not a predetermined route; virtuous 
cycles can be broken, as can vicious ones.
Just look at Britain and the rest of Western 
Europe. Truth be told, right up to until very 
recently, their institutions were highly extractive. 
However, critical junctures slowly guided these 
countries to more inclusive institutions – even if 
it took the Black Death and an awful lot of 
capitalism to get there!
More recently, the US South’s exclusive 
institutions have been slowly becoming more 
inclusive after centuries of unequal rights for 
whites and blacks. There’s still much work to be 
done but the civil rights movement of the 1950s 
and 1960s signaled that a change was “gonna 
come.”
So what now? Well, we need to ensure that 
inclusive institutions are encouraged so that 
economic prosperity the world over can be 
fostered.
For instance, foreign aid has very little effect in 
challenging extractive institutions that extort 
communities across Africa and central Asia.
If positive change is to be promoted, then foreign 
aid needs to be directed more meaningfully. 
Groups currently excluded from decision-making 
processes need to be equipped so they can defy 
their countries’ extractive institutions.
Brazil is a prime example. There it was an 
enfranchised and empowered people, rather 
than economists or politicians, who instigated 
change. It was due to a mobilized grassroots 
movement that the country’s military dictatorship 
was expelled in 1985. Social movements such 
as those led by trade unions had laid the 

---

foundations for a strong anti-dictatorship 
coalition.
And with that breaking of the cycle, Brazil 
prospered. Between 2000 and 2012, its 
economy was one of fastest growing in the 
world.
The chain can always be shattered.

---