Why Nations Fail

E
NDURING
 B
ACKWARDNESS
The Industrial Revolution created a transformative critical
juncture for the whole world during the nineteenth century
and beyond: those societies that allowed and incentivized
their citizens to invest in new technologies could grow
rapidly. But many around the world failed to do so—or
explicitly chose not to do so. Nations under the grip of
extractive political and economic institutions did not
generate such incentives. Spain and Ethiopia provide
examples where the absolutist control of political
institutions and the implied extractive economic institutions
choked economic incentives long before the dawn of the
nineteenth century. The outcome was similar in other
absolutist regimes—for example, in Austria-Hungary,
Russia, the Ottoman Empire, and China, though in these
cases the rulers, because of fear of creative destruction,
not only neglected to encourage economic progress but
also took explicit steps to block the spread of industry and
the introduction of new technologies that would bring
industrialization.
Absolutism is not the only form of extractive political
institutions and was not the only factor preventing
industrialization. 
Inclusive 
political 
and 
economic
institutions 
necessitate 
some 
degree 
of 
political
centralization so that the state can enforce law and order,
uphold property rights, and encourage economic activity
when necessary by investing in public services. Yet even
today, many nations, such as Afghanistan, Haiti, Nepal, and
Somalia, have states that are unable to maintain the most

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rudimentary order, and economic incentives are all but
destroyed. The case of Somalia illustrates how the process
of industrialization also passed by such societies. Political
centralization is resisted for the same reason that absolutist
regimes resist change: the often well-placed fear that
change will reallocate political power from those that
dominate today to new individuals and groups. Thus, as
absolutism blocks moves toward pluralism and economic
change, so do the traditional elites and clans dominating
the scene in societies without state centralization. As a
consequence, societies that still lacked such centralization
in the eighteenth and nineteenth centuries were particularly
disadvantaged in the age of industry.
While the variety of extractive institutions ranging from
absolutism to states with little centralization failed to take
advantage of the spread of industry, the critical juncture of
the Industrial Revolution had very different effects in other