Why Nations Fail

-Serrata
wonders of Venice,
such as the Doge’s Palace and the lions of St. Mark’s
Cathedral, which were looted from Byzantium when Venice
ruled the Mediterranean. Venice went from economic
powerhouse to museum.
I
N THIS CHAPTER
we focus on the historical development of
institutions in different parts of the world and explain why
they evolved in different ways. We saw in 
chapter 4
how the

---

institutions of Western Europe diverged from those in
Eastern Europe and then how those of England diverged
from those in the rest of Western Europe. This was a
consequence of small institutional differences, mostly
resulting from institutional drift interacting with critical
junctures. It might then be tempting to think that these
institutional differences are the tip of a deep historical
iceberg where under the waterline we find English and
European institutions inexorably drifting away from those
elsewhere, based on historical events dating back
millennia. The rest, as they say, is history.
Except that it isn’t, for two reasons. First, moves toward
inclusive institutions, as our account of Venice shows, can
be reversed. Venice became prosperous. But its political
and economic institutions were overthrown, and that
prosperity went into reverse. Today Venice is rich only
because people who make their income elsewhere choose
to spend it there admiring the glory of its past. The fact that
inclusive institutions can go into reverse shows that there is
no simple cumulative process of institutional improvement.
Second, small institutional differences that play a crucial
role during critical junctures are by their nature ephemeral.
Because they are small, they can be reversed, then can
reemerge and be reversed again. We will see in this
chapter that, in contrast with what one would expect from
the geography or culture theories, England, where the
decisive step toward inclusive institutions would take place
in the seventeenth century, was a backwater, not only in the
millennia following the Neolithic Revolution in the Middle
East but also at the beginning of the Middle Ages, following
the fall of the Western Roman Empire. The British Isles
were marginal to the Roman Empire, certainly of less
importance than continental Western Europe, North Africa,
the Balkans, Constantinople, or the Middle East. When the
Western Roman Empire collapsed in the fifth century 
AD
,
Britain suffered the most complete decline. But the political
revolutions that would ultimately bring the Industrial
Revolution would take place not in Italy, Turkey, or even
western continental Europe, but in the British Isles.
In understanding the path to England’s Industrial
Revolution and the countries that followed it, Rome’s legacy
is nonetheless important for several reasons. First, Rome,

---

like Venice, underwent major early institutional innovations.
As in Venice, Rome’s initial economic success was based
on inclusive institutions—at least by the standards of their
time. As in Venice, these institutions became decidedly
more extractive over time. With Rome, this was a
consequence of the change from the Republic (510 
BC
–49
BC
) to the Empire (49 
BC
–
AD
476). Even though during the
Republican period Rome built an impressive empire, and
long-distance trade and transport flourished, much of the
Roman economy was based on extraction. The transition
from republic to empire increased extraction and ultimately
led to the kind of infighting, instability, and collapse that we
saw with the Maya city-states.
Second and more important, we will see that Western
Europe’s subsequent institutional development, though it
was not a direct inheritance of Rome, was a consequence
of critical junctures that were common across the region in
the wake of the collapse of the Western Roman Empire.
These critical junctures had little parallel in other parts of the
world, such as Africa, Asia, or the Americas, though we will
also show via the history of Ethiopia that when other places
did experience similar critical junctures, they sometimes
reacted in ways that were remarkably similar. Roman
decline led to feudalism, which, as a by-product, caused
slavery to wither away, brought into existence cities that
were outside the sphere of influence of monarchs and
aristocrats, and in the process created a set of institutions
where the political powers of rulers were weakened. It was
upon this feudal foundation that the Black Death would
create havoc and further strengthen independent cities and
peasants at the expense of monarchs, aristocrats, and
large landowners. And it was on this canvas that the
opportunities created by the Atlantic trade would play out.
Many parts of the world did not undergo these changes,
and in consequence drifted apart.