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N
EGATIVE
F
EEDBACK AND
V
ICIOUS
C
IRCLES
Rich nations are rich largely because they managed to
develop inclusive institutions at some point during the past
three hundred years. These institutions have persisted
through a process of virtuous circles. Even if inclusive only
in a limited sense to begin with, and sometimes fragile,
they generated dynamics that would create a process of
positive feedback, gradually increasing their inclusiveness.
England did not become a democracy after the Glorious
Revolution of 1688. Far from it. Only a small fraction of the
population had formal representation, but crucially, she was
pluralistic. Once pluralism was enshrined, there was a
tendency for the institutions to become more inclusive over
time, even if this was a rocky and uncertain process.
In this, England was typical of virtuous circles: inclusive
political institutions create constraints against the exercise
and usurpation of power. They also tend to create inclusive
economic institutions, which in turn make the continuation
of inclusive political institutions more likely.
Under inclusive economic institutions, wealth is not
concentrated in the hands of a small group that could then
use its economic might to increase its political power
disproportionately. Furthermore, under inclusive economic
institutions there are more limited gains from holding
political power, thus weaker incentives for every group and
every ambitious, upstart individual to try to take control of
the state. A confluence of factors at a critical juncture,
including interplay between existing institutions and the
opportunities and challenges brought by the critical
juncture, is generally responsible for the onset of inclusive
institutions, as the English case demonstrates. But once
these inclusive institutions are in place, we do not need the
same confluence of factors for them to survive. Virtuous
circles, though still subject to significant contingency,
enable the institutions’ continuity and often even unleash
dynamics taking society toward greater inclusiveness.
As virtuous circles make inclusive institutions persist,
vicious circles create powerful forces toward the
persistence of extractive institutions. History is not destiny,
and vicious circles are not unbreakable, as we will see
further in
chapter 14
. But they are resilient. They create a
powerful process of negative feedback, with extractive
political institutions forging extractive economic institutions,
which in turn create the basis for the persistence of
extractive political institutions. We saw this most clearly in
the case of Guatemala, where the same elite held power,
first under colonial rule, then in independent Guatemala, for
more than four centuries; extractive institutions enrich the
elite, and their wealth forms the basis for the continuation of
their domination.
The same process of the vicious circle is also apparent
in the persistence of the plantation economy in the U.S.
South, except that it also showcases the vicious circle’s
great resilience in the face of challenges. U.S. southern
planters lost their formal control of economic and political
institutions after their defeat in the Civil War. Slavery, which
was the basis of the plantation economy, was abolished,
and blacks were given equal political and economic rights.
Yet the Civil War did not destroy the political power of the
planter elite or its economic basis, and they were able to
restructure the system, under a different guise but still under
their own local political control, and to achieve the same
objective: abundance of low-cost labor for the plantations.
This form of the vicious circle, where extractive
institutions persist because the elite controlling them and
benefiting from them persists, is not its only form. At first a
more puzzling, but no less real and no less vicious, form of
negative feedback shaped the political and economic
development of many nations, and is exemplified by the
experiences of much of sub-Saharan Africa, in particular
Sierra Leone and Ethiopia. In a form that the sociologist
Robert Michels would recognize as the iron law of
oligarchy, the overthrow of a regime presiding over
extractive institutions heralds the arrival of a new set of
masters to exploit the same set of pernicious extractive
institutions.
The logic of this type of vicious circle is also simple to
understand in hindsight: extractive political institutions
create few constraints on the exercise of power, so there
are essentially no institutions to restrain the use and abuse
of power by those overthrowing previous dictators and
assuming control of the state; and extractive economic
institutions imply that there are great profits and wealth to
be made merely by controlling power, expropriating the
assets of others, and setting up monopolies.
Of course, the iron law of oligarchy is not a true law, in the
sense that the laws of physics are. It does not chart an
inevitable path, as the Glorious Revolution in England or the
Meiji Restoration in Japan illustrate.
A key factor in these episodes, which saw a major turn
toward inclusive institutions, was the empowerment of a
broad coalition that could stand up against absolutism and
would replace the absolutist institutions by more inclusive,
pluralistic ones. A revolution by a broad coalition makes the
emergence of pluralistic political institutions much more
likely. In Sierra Leone and Ethiopia, the iron law of
oligarchy was made more likely not only because existing
institutions were highly extractive but also because neither
the independence movement in the former nor the Derg
coup in the latter were revolutions led by such broad
coalitions, but rather by individuals and groups seeking
power so that they could do the extracting.
There is yet another, even more destructive facet of the
vicious circle, anticipated by our discussion of the Maya
city-states in
chapter 5
. When extractive institutions create
huge inequalities in society and great wealth and
unchecked power for those in control, there will be many
wishing to fight to take control of the state and institutions.
Extractive institutions then not only pave the way for the next
regime, which will be even more extractive, but they also
engender continuous infighting and civil wars. These civil
wars then cause more human suffering and also destroy
even what little state centralization these societies have
achieved. This also often starts a process of descent into
lawlessness, state failure, and political chaos, crushing all
hopes of economic prosperity, as the next chapter will
illustrate.
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