Why Nations Fail

particular
restrictions on the right of Elizabeth to create monopolies. It
was a conflict Parliament gradually won. In Spain the
Cortes lost a similar conflict. Trade wasn’t just
monopolized; it was monopolized by the Spanish
monarchy.
These distinctions, which initially appeared small, started
to matter a great deal in the seventeenth century. Though
the Americas had been discovered by 1492 and Vasco da
Gama had reached India by rounding the Cape of Good
Hope, at the southern tip of Africa, in 1498, it was only after
1600 that a huge expansion of world trade, particularly in
the Atlantic, started to take place. In 1585 the first English
colonization of North America began at Roanoke, in what is
now North Carolina. In 1600 the English East India
Company was formed. In 1602 it was followed by the Dutch
equivalent. In 1607 the colony of Jamestown was founded
by the Virginia Company. By the 1620s the Caribbean was
being colonized, with Barbados occupied in 1627. France
was also expanding in the Atlantic, founding Quebec City in

---

1608 as the capital of New France in what is now Canada.
The consequences of this economic expansion for
institutions were very different for England than for Spain
and France because of small initial differences.
Elizabeth I and her successors could not monopolize the
trade with the Americas. Other European monarchs could.
So while in England, Atlantic trade and colonization started
creating a large group of wealthy traders with few links to
the Crown, this was not the case in Spain or France. The
English traders resented royal control and demanded
changes in political institutions and the restriction of royal
prerogatives. They played a critical role in the English Civil
War and the Glorious Revolution. Similar conflicts took
place everywhere. French kings, for example, faced the
Fronde Rebellion between 1648 and 1652. The difference
was that in England it was far more likely that the
opponents to absolutism would prevail because they were
relatively wealthy and more numerous than the opponents
to absolutism in Spain and France.
The divergent paths of English, French, and Spanish
societies in the seventeenth century illustrate the
importance of the interplay of small institutional differences
with critical junctures. During critical junctures, a major
event or confluence of factors disrupts the existing balance
of political or economic power in a nation. These can affect
only a single country, such as the death of Chairman Mao
Zedong in 1976, which at first created a critical juncture
only for Communist China. Often, however, critical junctures
affect a whole set of societies, in the way that, for example,
colonization and then decolonization affected most of the
globe.
Such critical junctures are important because there are
fo rmi d a b le barriers against gradual improvements,
resulting from the synergy between extractive political and
economic institutions and the support they give each other.
The persistence of this feedback loop creates a vicious
circle. Those who benefit from the status quo are wealthy
and well organized, and can effectively fight major changes
that will take away their economic privileges and political
power.
Once a critical juncture happens, the small differences
that matter are the initial institutional differences that put in

---

motion very different responses. This is the reason why the
relatively small institutional differences in England, France,
and Spain led to fundamentally different development
paths. The paths resulted from the critical juncture created
by the economic opportunities presented to Europeans by
Atlantic trade.
Even if small institutional differences matter greatly
during critical junctures, not all institutional differences are
small, and naturally, larger institutional differences lead to
even more divergent patterns during such junctures. While
the institutional differences between England and France
were small in 1588, the differences between Western and
Eastern Europe were much greater. In the West, strong
centralized states such as England, France, and Spain had
latent constitutional institutions (Parliament, the Estates-
General, and the Cortes). There were also underlying
similarities in economic institutions, such as the lack of
serfdom.
Eastern Europe was a different matter. The kingdom of
Poland-Lithuania, for example, was ruled by an elite class
called the Szlachta, who were so powerful they had even
introduced elections for kings. This was not absolute rule
as in France under Louis XIV, the Sun King, but absolutism
of an elite, extractive political institutions all the same. The
Szlachta ruled over a mostly rural society dominated by
serfs, who had no freedom of movement or economic
opportunities. Farther east, the Russian emperor Peter the
Great was also consolidating an absolutism far more
intense and extractive than even Louis XIV could manage.
Map 8
provides one simple way of seeing the extent of the
divergence between Western and Eastern Europe at the
beginning of the nineteenth century. It plots whether or not a
country still had serfdom in 1800. Countries that appear
dark did; those that are light did not. Eastern Europe is
dark; Western Europe is light.
Yet the institutions of Western Europe had not always
been so different from those in the East. They began, as we
saw earlier, to diverge in the fourteenth century when the
Black Death hit in 1346. There were small differences
between political and economic institutions in Western and
Eastern Europe. England and Hungary were even ruled by
members of the same family, the Angevins. The more

---

important institutional differences that emerged after the
Black Death then created the background upon which the
more significant divergence between the East and the
West would play out during the seventeenth, eighteenth,
and nineteenth centuries.
But where do the small institutional differences that start
this process of divergence arise in the first place? Why did
Eastern Europe have different political and economic
institutions than the West in the fourteenth century? Why
was the balance of power between Crown and Parliament
different in England than in France and Spain? As we will
see in the next chapter, even societies that are far less
complex than our modern society create political and
economic institutions that have powerful effects on the lives
of their members. This is true even for hunter-gatherers, as
we know from surviving societies such as the San people
of modern Botswana, who do not farm or even live in
permanent settlements.
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 ways because of specific historical
differences, the role of individuals, or just random factors.
These differences are often small to start with, but they
cumulate, creating a process of institutional drift. Just as
two isolated populations of organisms will drift apart slowly
in a process of genetic drift, because random genetic
mutations cumulate, two otherwise similar societies will
also slowly drift apart institutionally. Though, just like genetic
drift, institutional drift has no predetermined path and does
not even need to be cumulative; over centuries it can lead
to perceptible, sometimes important differences. The
differences created by institutional drift become especially
consequential, because they influence how society reacts
to changes in economic or political circumstances during
critical junctures.

---

The richly divergent patterns of economic development
around the world hinge on the interplay of critical junctures
and institutional drift. Existing political and economic
institutions—sometimes shaped by a long process of
institutional drift and sometimes resulting from divergent
responses to prior critical junctures—create the anvil upon
which future change will be forged. The Black Death and
the expansion of world trade after 1600 were both major
critical junctures for European powers and interacted with
different initial institutions to create a major divergence.
Because in 1346 in Western Europe peasants had more
power and autonomy than they did in Eastern Europe, the
Black Death led to the dissolution of feudalism in the West
and the Second Serfdom in the East. Because Eastern and
Western Europe had started to diverge in the fourteenth

---

century, the new economic opportunities of the
seventeenth, eighteenth, and nineteenth centuries would
also have fundamentally different implications for these
different parts of Europe. Because in 1600 the grip of the
Crown was weaker in England than in France and Spain,
Atlantic trade opened the way to the creation of new
institutions with greater pluralism in England, while
strengthening the French and Spanish monarchs.