Why Nations Fail

F
ROM
 
E
NCOMIENDA
 
TO
 L
AND
 G
RAB

---

On January 14, 1993, Ramiro De León Carpio was sworn
in as the president of Guatemala. He named Richard
Aitkenhead Castillo as his minister of finance, and Ricardo
Castillo Sinibaldi as his minister of development. These
three men all had something in common: all were direct
descendants of Spanish conquistadors who had come to
Guatemala in the early sixteenth century. De León’s
illustrious ancestor was Juan De León Cardona, while the
Castillos were related to Bernal Díaz del Castillo, a man
who wrote one of the most famous eyewitness accounts of
the conquest of Mexico. In reward for his service to Hernán
Cortés, Díaz del Castillo was appointed governor of
Santiago de los Caballeros, which is today the city of
Antigua in Guatemala. Both Castillo and De León founded
dynasties along with other conquistadors, such as Pedro
de Alvarado. The Guatemalan sociologist Marta Casaús
Arzú identified a core group of twenty-two families in
Guatemala that had ties through marriage to another
twenty-six families just outside the core. Her genealogical
and political study suggested that these families have
controlled economic and political power in Guatemala
since 1531. An even broader definition of which families
were part of this elite suggested that they accounted for just
over 1 percent of the population in the 1990s.
In Sierra Leone and in much of sub-Saharan Africa, the
vicious circle took the form of the extractive institutions set
up 
by 
colonial 
powers 
being 
taken 
over 
by
postindependence leaders. In Guatemala, as in much of
Central America, we see a simpler, more naked form of the
vicious circle: those who have economic and political
power structure institutions to ensure the continuity of their
power, and succeed in doing so. This type of vicious circle
leads to the persistence of extractive institutions and the
persistence of the same elites in power together with the
persistence of underdevelopment.
At the time of the conquest, Guatemala was densely
settled, probably with a population of around two million
Mayas. Disease and exploitation took a heavy toll as
everywhere else in the Americas. It was not until the 1920s
that its total population returned to this level. As elsewhere
in the Spanish Empire, the indigenous people were
allocated to conquistadors in grants of 
encomienda
. As we

---

saw in the context of the colonization of Mexico and Peru,
t h e 
encomienda
was a system of forced labor, which
subsequently gave way to other similar coercive
institutions, particularly to the 
repartimiento
, also called the
mandamiento
in Guatemala. The elite, made up of the
descendants of the conquistadors and some indigenous
elements, not only benefited from the various forced labor
systems but also controlled and monopolized trade through
a merchant guild called the Consulado de Comercio. Most
of the population in Guatemala was high in the mountains
and far from the coast. The high transportation costs
reduced the extent of the export economy, and initially land
was not very valuable. Much of it was still in the hands of
indigenous peoples, who had large communal landholdings
called 
ejidos
. The remainder was largely unoccupied and
notionally owned by the government. There was more
money in controlling and taxing trade, such as it was, than
in controlling the land.
Just as in Mexico, the Guatemalan elite viewed the Cadiz
Constitution (
this page
–
this page
) with hostility, which
encouraged them to declare independence just as the
Mexican elites did. Following a brief union with Mexico and
the Central American Federation, the colonial elite ruled
Guatemala under the dictatorship of Rafael Carrera from
1839 to 1871. During this period the descendants of the
conquistadors and the indigenous elite maintained the
extractive economic institutions of the colonial era largely
unchanged. Even the organization of the Consulado did not
alter with independence. Though this was a royal institution,
it happily continued under a republican government.
Independence then was simply a coup by the preexisting
local elite, just as in Mexico; they carried on as usual with
the extractive economic institutions from which they had
benefited so much. Ironically enough, during this period the
Consulado remained in charge of the economic
development of the country. But as had been the case pre-
independence, the Consulado had its own interests at
heart, not those of the country. Part of its responsibility was
for the development of infrastructure, such as ports and
roads, but as in Austria-Hungary, Russia, and Sierra
Leone, this often threatened creative destruction and could
have destabilized the system. Therefore, the development

---

of infrastructure, rather than being implemented, was often
resisted. For example, the development of a port on the
Suchitepéquez coast, bordering the Pacific Ocean, was
one of the proposed projects. At the time the only proper
ports were on the Caribbean coast, and these were
controlled by the Consulado. The Consulado did nothing on
the Pacific side because a port in that region would have
provided a much easier outlet for goods from the highland
towns of Mazatenango and Quezaltenango, and access to
a different market for these goods would have undermined
the Consulado’s monopoly on foreign trade. The same
logic applied to roads, where, again, the Consulado had
the responsibility for the entire country. Predictably it also
refused to build roads that would have strengthened
competing groups or would have potentially undone its
monopoly. Pressure to do so again came from western
Guatemala and Quezaltenango, in the Los Altos region. But
if the road between Los Altos and the Suchitepéquez coast
had been improved, this could have created a merchant
class, which would have been a competitor to the
Consulado merchants in the capital. The road did not get
improved.
As a result of this elite dominance, Guatemala was
caught in a time warp in the middle of the nineteenth
century, as the rest of the world was changing rapidly. But
these changes would ultimately affect Guatemala.
Transportation costs were falling due to technological
innovations such as the steam train, the railways, and new,
much faster types of ships. Moreover, the rising incomes of
people in Western Europe and North America were
creating a mass demand for many products that a country
such as Guatemala could potentially produce.
Early in the century, some indigo and then cochineal,
both natural dyes, had been produced for export, but the
more profitable opportunity would become coffee
production. Guatemala had a lot of land suitable for coffee,
and cultivation began to spread—without any assistance
from the Consulado. As the world price of coffee rose and
international trade expanded, there were huge profits to be
made, and the Guatemalan elite became interested in
coffee. In 1871 the long-lasting regime of the dictator
Carrera was finally overthrown by a group of people calling

---

themselves Liberals, after the worldwide movement of that
name. What liberalism means has changed over time. But
in the nineteenth century in the United States and Europe, it
was similar to what is today called libertarianism, and it
stood for freedom of individuals, limited government, and
free trade. Things worked a little differently in Guatemala.
Led initially by Miguel García Granados, and after 1873 by
Justo Rufino Barrios, the Guatemalan Liberals were, for the
most part, not new men with liberal ideals. By and large, the
same families remained in charge. They maintained
extractive political institutions and implemented a huge
reorganization of the economy to exploit coffee. They did
abolish 
the 
Consulado 
in 
1871, 
but 
economic
circumstances had changed. The focus of extractive
economic institutions would now be the production and
export of coffee.
Coffee production needed land and labor. To create land
for coffee farms, the Liberals pushed through land
privatization, in fact really a land grab in which they would
be able to capture land previously held communally or by
the government. Though their attempt was bitterly
contested, given the highly extractive political institutions
and the concentration of political power in Guatemala, the
elite were ultimately victorious. Between 1871 and 1883
nearly one million acres of land, mostly indigenous
communal land and frontier lands, passed into the hands of
the elite, and it was only then that coffee developed rapidly.
The aim was the formation of large estates. The privatized
lands were auctioned off typically to members of the
traditional elite or those connected with them. The coercive
power of the Liberal state was then used to help large
landowners gain access to labor by adapting and
intensifying various systems of forced labor. In November
1876, President Barrios wrote to all the governors of
Guatemala noting that
because the country has extensive areas of
land that it needs to exploit by cultivation
using the multitude of workers who today
remain 
outside 
the 
movement 
of
development of the nation’s productive
elements, you are to give all help to export

---

agriculture:
1. From the Indian towns of your jurisdiction
provide to the owners of fincas [farms] of that
department who ask for labor the number of
workers they need, be it fifty or one hundred.
The