Why Nations Fail

S
MALL
 D
IFFERENCES
 T
HAT
 M
ATTER
World inequality dramatically increased with the British, or
English, Industrial Revolution because only some parts of
the world adopted the innovations and new technologies
that men such as Arkwright and Watt, and the many who
followed, developed. The response of different nations to
this wave of technologies, which determined whether they
would languish in poverty or achieve sustained economic
growth, was largely shaped by the different historical paths

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of their institutions. By the middle of the eighteenth century,
there were already notable differences in political and
economic institutions around the world. But where did these
differences come from?
English political institutions were on their way to much
greater pluralism by 1688, compared with those in France
and Spain, but if we go back in time one hundred years, to
1588, the differences shrink to almost nothing. All three
countries were ruled by relatively absolutist monarchs:
Elizabeth I in England, Philip II in Spain, and Henry II in
France. All were battling with assemblies of citizens—such
as the Parliament in England, the Cortes in Spain, and the
Estates-General in France—that were demanding more
rights and control over the monarchy. These assemblies all
had somewhat different powers and scopes. For instance,
the English Parliament and the Spanish Cortes had power
over taxation, while the Estates-General did not. In Spain
this mattered little, because after 1492 the Spanish Crown
had a vast American empire and benefited massively from
the gold and silver found there. In England the situation was
different. Elizabeth I was far less financially independent, so
she had to beg Parliament for more taxes. In exchange,
Parliament 
demanded 
concessions, 
in