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Título: Why Nations Fail
Autor: Daron Acemoglu

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PRAISE FOR Why Nations Fail
“Acemoglu and Robinson have made an important contribution to the debate as to why
similar-looking nations di er so greatly in their economic and political development.
Through a broad multiplicity of historical examples, they show how institutional
developments, sometimes based on very accidental circumstances, have had enormous
consequences. The openness of a society, its willingness to permit creative destruction, and
the rule of law appear to be decisive for economic development.”
—Kenneth J. Arrow, Nobel laureate in economics, 1972
“The authors convincingly show that countries escape poverty only when they have
appropriate economic institutions, especially private property and competition. More
originally, they argue countries are more likely to develop the right institutions when they
have an open pluralistic political system with competition for political o ce, a widespread
electorate, and openness to new political leaders. This intimate connection between
political and economic institutions is the heart of their major contribution, and has resulted
in a study of great vitality on one of the crucial questions in economics and political
economy.”
—Gary S. Becker, Nobel laureate in economics, 1992
“This important and insightful book, packed with historical examples, makes the case that
inclusive political institutions in support of inclusive economic institutions is key to
sustained prosperity. The book reviews how some good regimes got launched and then had
a virtuous spiral, while bad regimes remain in a vicious spiral. This is important analysis
not to be missed.”
—Peter Diamond, Nobel laureate in economics, 2010
“For those who think that a nation’s economic fate is determined by geography or culture,
Daron Acemoglu and Jim Robinson have bad news. It’s manmade institutions, not the lay of
the land or the faith of our forefathers, that determine whether a country is rich or poor.
Synthesizing brilliantly the work of theorists from Adam Smith to Douglass North with more
recent empirical research by economic historians, Acemoglu and Robinson have produced a
compelling and highly readable book.”
—Niall Ferguson, author of The Ascent of Money
“Acemoglu and Robinson—two of the world’s leading experts on development—reveal why
it is not geography, disease, or culture that explain why some nations are rich and some
poor, but rather a matter of institutions and politics. This highly accessible book provides
welcome insight to specialists and general readers alike.”
—Francis Fukuyama, author of The End of History and the Last Man and The Origins
of Political Order

“A brilliant and uplifting book—yet also a deeply disturbing wake-up call. Acemoglu and
Robinson lay out a convincing theory of almost everything to do with economic
development. Countries rise when they put in place the right pro-growth political
institutions and they fail—often spectacularly—when those institutions ossify or fail to
adapt. Powerful people always and everywhere seek to grab complete control over
government, undermining broader social progress for their own greed. Keep those people in
check with effective democracy or watch your nation fail.”
—Simon Johnson, coauthor of 13 Bankers and professor at MIT Sloan
“Two of the world’s best and most erudite economists turn to the hardest issue of all: why
are some nations poor and others rich? Written with a deep knowledge of economics and
political history, this is perhaps the most powerful statement made to date that ‘institutions
matter.’ A provocative, instructive, yet thoroughly enthralling book.”
—Joel Mokyr, Robert H. Strotz Professor of Arts and Sciences and Professor of
Economics and History, Northwestern University
“In this delightfully readable romp through four hundred years of history, two of the giants
of contemporary social science bring us an inspiring and important message: it is freedom
that makes the world rich. Let tyrants everywhere tremble!”
—Ian Morris, Stanford University, author of Why the West Rules—for Now
“Imagine sitting around a table listening to Jared Diamond, Joseph Schumpeter, and James
Madison re ect on more than two thousand years of political and economic history.
Imagine that they weave their ideas into a coherent theoretical framework based on
limiting extraction, promoting creative destruction, and creating strong political institutions
that share power, and you begin to see the contribution of this brilliant and engagingly
written book.”
—Scott E. Page, University of Michigan and Santa Fe Institute
“In this stunningly wide-ranging book, Acemoglu and Robinson ask a simple but vital
question, why do some nations become rich and others remain poor? Their answer is also
simple—because some polities develop more inclusive political institutions. What is
remarkable about the book is the crispness and clarity of the writing, the elegance of the
argument, and the remarkable richness of historical detail. This book is a must-read at a
moment when governments across the Western world must come up with the political will
to deal with a debt crisis of unusual proportions.”
—Steven Pincus, Bradford Durfee Professor of History and International and Area
Studies, Yale University
“It’s the politics, stupid! That is Acemoglu and Robinson’s simple yet compelling
explanation for why so many countries fail to develop. From the absolutism of the Stuarts to
the antebellum South, from Sierra Leone to Colombia, this magisterial work shows how

powerful elites rig the rules to bene t themselves at the expense of the many. Charting a
careful course between the pessimists and optimists, the authors demonstrate history and
geography need not be destiny. But they also document how sensible economic ideas and
policies often achieve little in the absence of fundamental political change.”
—Dani Rodrik, Kennedy School of Government, Harvard University
“This is not only a fascinating and interesting book: it is a really important one. The highly
original research that Professors Acemoglu and Robinson have done, and continue to do, on
how economic forces, politics, and policy choices evolve together and constrain each other,
and how institutions a ect that evolution, is essential to understanding the successes and
failures of societies and nations. And here, in this book, these insights come in a highly
accessible, indeed riveting form. Those who pick this book up and start reading will have
trouble putting it down.”
—Michael Spence, Nobel laureate in economics, 2001
“This fascinating and readable book centers on the complex joint evolution of political and
economic institutions, in good directions and bad. It strikes a delicate balance between the
logic of political and economic behavior and the shifts in direction created by contingent
historical events, large and small, at ‘critical junctures.’ Acemoglu and Robinson provide an
enormous range of historical examples to show how such shifts can tilt toward favorable
institutions, progressive innovation, and economic success or toward repressive institutions
and eventual decay or stagnation. Somehow they can generate both excitement and
reflection.”
—Robert Solow, Nobel laureate in economics, 1987

Copyright © 2012 by Daron Acemoglu and James A. Robinson
All rights reserved.
Published in the United States by Crown Publishers, an imprint of the Crown Publishing Group, a division of Random House,
Inc., New York.

www.crownpublishing.com
CROWN and the CROWN colophon are registered trademarks of Random House, Inc.
Library of Congress Cataloging-in-Publication Data
Acemoglu, Daron.

Why nations fail : the origins of power, prosperity, and poverty / Daron Acemoglu, James A. Robinson.—1st ed.
p. cm.

Includes bibliographical references.

1. Economics—Political aspects. 2. Economic history—Political aspects. 3. Poverty—Developing countries. 4. Economic
development—Developing countries.

5. Revolutions—Economic aspects. 6. Developing countries—Economic policy.
7. Developing countries—Social policy. I. Robinson, James A., 1960–. II. Title.
HB74.P65A28 2012
330—dc23

2011023538
eISBN: 978-0-307-71923-2
Maps by Melissa Dell

Jacket design by David Tran

Jacket photograph by Kirk Mastin/Getty Images
v3.1

For Arda and Asu—DA
Para María Angélica, mi vida y mi alma—JR

CONTENTS

Cover
Title Page
Copyright
Dedication

PREFACE

Why Egyptians filled Tahrir Square to bring down Hosni Mubarak and what it means for our
understanding of the causes of prosperity and poverty

1.

SO CLOSE AND YET SO DIFFERENT

Nogales, Arizona, and Nogales, Sonora, have the same people, culture, and geography. Why is one
rich and one poor?

2.

THEORIES THAT DON’T WORK

Poor countries are poor not because of their geographies or cultures, or because their leaders do
not know which policies will enrich their citizens

3.

THE MAKING OF PROSPERITY AND POVERTY

How prosperity and poverty are determined by the incentives created by institutions, and how
politics determines what institutions a nation has

4.

SMALL DIFFERENCES AND CRITICAL JUNCTURES: THE WEIGHT OF HISTORY

How institutions change through political conflict and how the past shapes the present

5.

“I’VE SEEN THE FUTURE, AND IT WORKS”: GROWTH U NDER EXTRACTIVE INSTITUTIONS

What Stalin, King Shyaam, the Neolithic Revolution, and the Maya city-states all had in common
and how this explains why China’s current economic growth cannot last

6.

DRIFTING APART

How institutions evolve over time, often slowly drifting apart

7.

THE TURNING POINT

How a political revolution in 1688 changed institutions in England and led to the Industrial
Revolution

8.

NOT ON OUR TURF: BARRIERS TO DEVELOPMENT

Why the politically powerful in many nations opposed the Industrial Revolution
Photo Inserts

9.

REVERSING DEVELOPMENT

How European colonialism impoverished large parts of the world

10.

THE DIFFUSION OF PROSPERITY

How some parts of the world took different paths to prosperity from that of Britain

11.

THE VIRTUOUS CIRCLE

How institutions that encourage prosperity create positive feedback loops that prevent the efforts
by elites to undermine them

12.

THE VICIOUS CIRCLE

How institutions that create poverty generate negative feedback loops and endure

13.

WHY NATIONS FAIL TODAY

Institutions, institutions, institutions

14.

BREAKING THE MOLD

How a few countries changed their economic trajectory by changing their institutions

15.

U NDERSTANDING PROSPERITY AND POVERTY

How the world could have been different and how understanding this can explain why most
attempts to combat poverty have failed
ACKNOWLEDGMENTS
BIBLIOGRAPHICAL ESSAY AND SOURCES
REFERENCES

PREFACE

T

HIS BOOK IS

about the huge di erences in incomes and standards of living that separate the

rich countries of the world, such as the United States, Great Britain, and Germany, from the
poor, such as those in sub-Saharan Africa, Central America, and South Asia.
As we write this preface, North Africa and the Middle East have been shaken by the “Arab
Spring” started by the so-called Jasmine Revolution, which was initially ignited by public
outrage over the self-immolation of a street vendor, Mohamed Bouazizi, on December 17,
2010. By January 14, 2011, President Zine El Abidine Ben Ali, who had ruled Tunisia since
1987, had stepped down, but far from abating, the revolutionary fervor against the rule of
privileged elites in Tunisia was getting stronger and had already spread to the rest of the
Middle East. Hosni Mubarak, who had ruled Egypt with a tight grip for almost thirty years,
was ousted on February 11, 2011. The fates of the regimes in Bahrain, Libya, Syria, and
Yemen are unknown as we complete this preface.
The roots of discontent in these countries lie in their poverty. The average Egyptian has
an income level of around 12 percent of the average citizen of the United States and can
expect to live ten fewer years; 20 percent of the population is in dire poverty. Though these
di erences are signi cant, they are actually quite small compared with those between the
United States and the poorest countries in the world, such as North Korea, Sierra Leone, and
Zimbabwe, where well over half the population lives in poverty.
Why is Egypt so much poorer than the United States? What are the constraints that keep
Egyptians from becoming more prosperous? Is the poverty of Egypt immutable, or can it be
eradicated? A natural way to start thinking about this is to look at what the Egyptians
themselves are saying about the problems they face and why they rose up against the
Mubarak regime. Noha Hamed, twenty-four, a worker at an advertising agency in Cairo,
made her views clear as she demonstrated in Tahrir Square: “We are su ering from
corruption, oppression and bad education. We are living amid a corrupt system which has
to change.” Another in the square, Mosaab El Shami, twenty, a pharmacy student,
concurred: “I hope that by the end of this year we will have an elected government and that
universal freedoms are applied and that we put an end to the corruption that has taken
over this country.” The protestors in Tahrir Square spoke with one voice about the
corruption of the government, its inability to deliver public services, and the lack of
equality of opportunity in their country. They particularly complained about repression and
the absence of political rights. As Mohamed ElBaradei, former director of the International
Atomic Energy Agency, wrote on Twitter on January 13, 2011, “Tunisia: repression +
absence of social justice + denial of channels for peaceful change = a ticking bomb.”
Egyptians and Tunisians both saw their economic problems as being fundamentally caused
by their lack of political rights. When the protestors started to formulate their demands
more systematically, the rst twelve immediate demands posted by Wael Khalil, the
software engineer and blogger who emerged as one of the leaders of the Egyptian protest
movement, were all focused on political change. Issues such as raising the minimum wage

appeared only among the transitional demands that were to be implemented later.
To Egyptians, the things that have held them back include an ineffective and corrupt state
and a society where they cannot use their talent, ambition, ingenuity, and what education
they can get. But they also recognize that the roots of these problems are political. All the
economic impediments they face stem from the way political power in Egypt is exercised
and monopolized by a narrow elite. This, they understand, is the rst thing that has to
change.
Yet, in believing this, the protestors of Tahrir Square have sharply diverged from the
conventional wisdom on this topic. When they reason about why a country such as Egypt is
poor, most academics and commentators emphasize completely di erent factors. Some
stress that Egypt’s poverty is determined primarily by its geography, by the fact that the
country is mostly a desert and lacks adequate rainfall, and that its soils and climate do not
allow productive agriculture. Others instead point to cultural attributes of Egyptians that
are supposedly inimical to economic development and prosperity. Egyptians, they argue,
lack the same sort of work ethic and cultural traits that have allowed others to prosper, and
instead have accepted Islamic beliefs that are inconsistent with economic success. A third
approach, the one dominant among economists and policy pundits, is based on the notion
that the rulers of Egypt simply don’t know what is needed to make their country
prosperous, and have followed incorrect policies and strategies in the past. If these rulers
would only get the right advice from the right advisers, the thinking goes, prosperity would
follow. To these academics and pundits, the fact that Egypt has been ruled by narrow elites
feathering their nests at the expense of society seems irrelevant to understanding the
country’s economic problems.
In this book we’ll argue that the Egyptians in Tahrir Square, not most academics and
commentators, have the right idea. In fact, Egypt is poor precisely because it has been ruled
by a narrow elite that have organized society for their own bene t at the expense of the
vast mass of people. Political power has been narrowly concentrated, and has been used to
create great wealth for those who possess it, such as the $70 billion fortune apparently
accumulated by ex-president Mubarak. The losers have been the Egyptian people, as they
only too well understand.
We’ll show that this interpretation of Egyptian poverty, the people’s interpretation, turns
out to provide a general explanation for why poor countries are poor. Whether it is North
Korea, Sierra Leone, or Zimbabwe, we’ll show that poor countries are poor for the same
reason that Egypt is poor. Countries such as Great Britain and the United States became rich
because their citizens overthrew the elites who controlled power and created a society
where political rights were much more broadly distributed, where the government was
accountable and responsive to citizens, and where the great mass of people could take
advantage of economic opportunities. We’ll show that to understand why there is such
inequality in the world today we have to delve into the past and study the historical
dynamics of societies. We’ll see that the reason that Britain is richer than Egypt is because
in 1688, Britain (or England, to be exact) had a revolution that transformed the politics and
thus the economics of the nation. People fought for and won more political rights, and they
used them to expand their economic opportunities. The result was a fundamentally di erent
political and economic trajectory, culminating in the Industrial Revolution.

The Industrial Revolution and the technologies it unleashed didn’t spread to Egypt, as
that country was under the control of the Ottoman Empire, which treated Egypt in rather
the same way as the Mubarak family later did. Ottoman rule in Egypt was overthrown by
Napoleon Bonaparte in 1798, but the country then fell under the control of British
colonialism, which had as little interest as the Ottomans in promoting Egypt’s prosperity.
Though the Egyptians shook o the Ottoman and British empires and, in 1952, overthrew
their monarchy, these were not revolutions like that of 1688 in England, and rather than
fundamentally transforming politics in Egypt, they brought to power another elite as
disinterested in achieving prosperity for ordinary Egyptians as the Ottoman and British had
been. In consequence, the basic structure of society did not change, and Egypt stayed poor.
In this book we’ll study how these patterns reproduce themselves over time and why
sometimes they are altered, as they were in England in 1688 and in France with the
revolution of 1789. This will help us to understand if the situation in Egypt has changed
today and whether the revolution that overthrew Mubarak will lead to a new set of
institutions capable of bringing prosperity to ordinary Egyptians. Egypt has had revolutions
in the past that did not change things, because those who mounted the revolutions simply
took over the reins from those they’d deposed and re-created a similar system. It is indeed
di cult for ordinary citizens to acquire real political power and change the way their
society works. But it is possible, and we’ll see how this happened in England, France, and
the United States, and also in Japan, Botswana, and Brazil. Fundamentally it is a political
transformation of this sort that is required for a poor society to become rich. There is
evidence that this may be happening in Egypt. Reda Metwaly, another protestor in Tahrir
Square, argued, “Now you see Muslims and Christians together, now you see old and young
together, all wanting the same thing.” We’ll see that such a broad movement in society was
a key part of what happened in these other political transformations. If we understand
when and why such transitions occur, we will be in a better position to evaluate when we
expect such movements to fail as they have often done in the past and when we may hope
that they will succeed and improve the lives of millions.

1.
SO CLOSE AND YET SO DIFFERENT

THE ECONOMICS OF THE RIO GRANDE

T

NOGALES is cut in half by a fence. If you stand by it and look north, you’ll see
Nogales, Arizona, located in Santa Cruz County. The income of the average household there
is about $30,000 a year. Most teenagers are in school, and the majority of the adults are
high school graduates. Despite all the arguments people make about how de cient the U.S.
health care system is, the population is relatively healthy, with high life expectancy by
global standards. Many of the residents are above age sixty- ve and have access to
Medicare. It’s just one of the many services the government provides that most take for
granted, such as electricity, telephones, a sewage system, public health, a road network
linking them to other cities in the area and to the rest of the United States, and, last but not
least, law and order. The people of Nogales, Arizona, can go about their daily activities
without fear for life or safety and not constantly afraid of theft, expropriation, or other
things that might jeopardize their investments in their businesses and houses. Equally
important, the residents of Nogales, Arizona, take it for granted that, with all its
ine ciency and occasional corruption, the government is their agent. They can vote to
replace their mayor, congressmen, and senators; they vote in the presidential elections that
determine who will lead their country. Democracy is second nature to them.
Life south of the fence, just a few feet away, is rather di erent. While the residents of
Nogales, Sonora, live in a relatively prosperous part of Mexico, the income of the average
household there is about one-third that in Nogales, Arizona. Most adults in Nogales, Sonora,
do not have a high school degree, and many teenagers are not in school. Mothers have to
worry about high rates of infant mortality. Poor public health conditions mean it’s no
surprise that the residents of Nogales, Sonora, do not live as long as their northern
neighbors. They also don’t have access to many public amenities. Roads are in bad
condition south of the fence. Law and order is in worse condition. Crime is high, and
opening a business is a risky activity. Not only do you risk robbery, but getting all the
permissions and greasing all the palms just to open is no easy endeavor. Residents of
Nogales, Sonora, live with politicians’ corruption and ineptitude every day.
In contrast to their northern neighbors, democracy is a very recent experience for them.
Until the political reforms of 2000, Nogales, Sonora, just like the rest of Mexico, was under
the corrupt control of the Institutional Revolutionary Party, or Partido Revolucionario
Institucional (PRI).
How could the two halves of what is essentially the same city be so di erent? There is no
di erence in geography, climate, or the types of diseases prevalent in the area, since germs
do not face any restrictions crossing back and forth between the United States and Mexico.
Of course, health conditions are very di erent, but this has nothing to do with the disease
HE CITY OF

environment; it is because the people south of the border live with inferior sanitary
conditions and lack decent health care.
But perhaps the residents are very di erent. Could it be that the residents of Nogales,
Arizona, are grandchildren of migrants from Europe, while those in the south are
descendants of Aztecs? Not so. The backgrounds of people on both sides of the border are
quite similar. After Mexico became independent from Spain in 1821, the area around “Los
dos Nogales” was part of the Mexican state of Vieja California and remained so even after
the Mexican-American War of 1846–1848. Indeed, it was only after the Gadsden Purchase
of 1853 that the U.S. border was extended into this area. It was Lieutenant N. Michler who,
while surveying the border, noted the presence of the “pretty little valley of Los Nogales.”
Here, on either side of the border, the two cities rose up. The inhabitants of Nogales,
Arizona, and Nogales, Sonora, share ancestors, enjoy the same food and the same music,
and, we would hazard to say, have the same “culture.”
Of course, there is a very simple and obvious explanation for the di erences between the
two halves of Nogales that you’ve probably long since guessed: the very border that de nes
the two halves. Nogales, Arizona, is in the United States. Its inhabitants have access to the
economic institutions of the United States, which enable them to choose their occupations
freely, acquire schooling and skills, and encourage their employers to invest in the best
technology, which leads to higher wages for them. They also have access to political
institutions that allow them to take part in the democratic process, to elect their
representatives, and replace them if they misbehave. In consequence, politicians provide
the basic services (ranging from public health to roads to law and order) that the citizens
demand. Those of Nogales, Sonora, are not so lucky. They live in a di erent world shaped
by di erent institutions. These di erent institutions create very disparate incentives for the
inhabitants of the two Nogaleses and for the entrepreneurs and businesses willing to invest
there. These incentives created by the di erent institutions of the Nogaleses and the
countries in which they are situated are the main reason for the di erences in economic
prosperity on the two sides of the border.
Why are the institutions of the United States so much more conducive to economic success
than those of Mexico or, for that matter, the rest of Latin America? The answer to this
question lies in the way the di erent societies formed during the early colonial period. An
institutional divergence took place then, with implications lasting into the present day. To
understand this divergence we must begin right at the foundation of the colonies in North
and Latin America.
THE FOUNDING OF BUENOS AIRES
Early in 1516 the Spanish navigator Juan Díaz de Solís sailed into a wide estuary on the
Eastern Seaboard of South America. Wading ashore, de Solís claimed the land for Spain,
naming the river the Río de la Plata, “River of Silver,” since the local people possessed
silver. The indigenous peoples on either side of the estuary—the Charrúas in what is now
Uruguay, and the Querandí on the plains that were to be known as the Pampas in modern
Argentina—regarded the newcomers with hostility. These locals were hunter-gatherers who
lived in small groups without strong centralized political authorities. Indeed it was such a

band of Charrúas who clubbed de Solís to death as he explored the new domains he had
attemped to occupy for Spain.
In 1534 the Spanish, still optimistic, sent out a rst mission of settlers from Spain under
the leadership of Pedro de Mendoza. They founded a town on the site of Buenos Aires in the
same year. It should have been an ideal place for Europeans. Buenos Aires, literally
meaning “good airs,” had a hospitable, temperate climate. Yet the rst stay of the
Spaniards there was short lived. They were not after good airs, but resources to extract and
labor to coerce. The Charrúas and the Querandí were not obliging, however. They refused to
provide food to the Spaniards, and refused to work when caught. They attacked the new
settlement with their bows and arrows. The Spaniards grew hungry, since they had not
anticipated having to provide food for themselves. Buenos Aires was not what they had
dreamed of. The local people could not be forced into providing labor. The area had no
silver or gold to exploit, and the silver that de Solís found had actually come all the way
from the Inca state in the Andes, far to the west.
The Spaniards, while trying to survive, started sending out expeditions to nd a new
place that would o er greater riches and populations easier to coerce. In 1537 one of these
expeditions, under the leadership of Juan de Ayolas, penetrated up the Paraná River,
searching for a route to the Incas. On its way, it made contact with the Guaraní, a
sedentary people with an agricultural economy based on maize and cassava. De Ayolas
immediately realized that the Guaraní were a completely di erent proposition from the
Charrúas and the Querandí. After a brief con ict, the Spanish overcame Guaraní resistance
and founded a town, Nuestra Señora de Santa María de la Asunción, which remains the
capital of Paraguay today. The conquistadors married the Guaraní princesses and quickly
set themselves up as a new aristocracy. They adapted the existing systems of forced labor
and tribute of the Guaraní, with themselves at the helm. This was the kind of colony they
wanted to set up, and within four years Buenos Aires was abandoned as all the Spaniards
who’d settled there moved to the new town.
Buenos Aires, the “Paris of South America,” a city of wide European-style boulevards
based on the great agricultural wealth of the Pampas, was not resettled until 1580. The
abandonment of Buenos Aires and the conquest of the Guaraní reveals the logic of European
colonization of the Americas. Early Spanish and, as we will see, English colonists were not
interested in tilling the soil themselves; they wanted others to do it for them, and they
wanted riches, gold and silver, to plunder.
FROM CAJAMARCA …
The expeditions of de Solís, de Mendoza, and de Ayolas came in the wake of more famous
ones that followed Christopher Columbus’s sighting of one of the islands of the Bahamas on
October 12, 1492. Spanish expansion and colonization of the Americas began in earnest
with the invasion of Mexico by Hernán Cortés in 1519, the expedition of Francisco Pizarro
to Peru a decade and a half later, and the expedition of Pedro de Mendoza to the Río de la
Plata just two years after that. Over the next century, Spain conquered and colonized most
of central, western, and southern South America, while Portugal claimed Brazil to the east.
The Spanish strategy of colonization was highly e ective. First perfected by Cortés in

Mexico, it was based on the observation that the best way for the Spanish to subdue
opposition was to capture the indigenous leader. This strategy enabled the Spanish to claim
the accumulated wealth of the leader and coerce the indigenous peoples to give tribute and
food. The next step was setting themselves up as the new elite of the indigenous society and
taking control of the existing methods of taxation, tribute, and, particularly, forced labor.
When Cortés and his men arrived at the great Aztec capital of Tenochtitlan on November
8, 1519, they were welcomed by Moctezuma, the Aztec emperor, who had decided, in the
face of much advice from his counselors, to welcome the Spaniards peacefully. What
happened next is well described by the account compiled after 1545 by the Franciscan priest
Bernardino de Sahagún in his famous Florentine Codices.
[At] once they [the Spanish] rmly seized Moctezuma … then each of the guns
shot o … Fear prevailed. It was as if everyone had swallowed his heart. Even
before it had grown dark, there was terror, there was astonishment, there was
apprehension, there was a stunning of the people.
And when it dawned thereupon were proclaimed all the things which [the
Spaniards] required: white tortillas, roasted turkey hens, eggs, fresh water,
wood, firewood, charcoal … This had Moctezuma indeed commanded.
And when the Spaniards were well settled, they thereupon inquired of
Moctezuma as to all the city’s treasure … with great zeal they sought gold. And
Moctezuma thereupon went leading the Spaniards. They went surrounding
him … each holding him, each grasping him.
And when they reached the storehouse, a place called Teocalco, thereupon
they brought forth all the brilliant things; the quetzal feather head fan, the
devices, the shields, the golden discs … the golden nose crescents, the golden leg
bands, the golden arm bands, the golden forehead bands.
Thereupon was detached the gold … at once they ignited, set re to … all the
precious things. They all burned. And the gold the Spaniards formed into
separate bars … And the Spanish walked everywhere … They took all, all that
they saw which they saw to be good.
Thereupon they went to Moctezuma’s own storehouse … at the place called
Totocalco … they brought forth [Moctezuma’s] own property … precious things
all; the necklaces with pendants, the arm bands with tufts of quetzal feathers, the
golden arm bands, the bracelets, the golden bands with shells … and the
turquoise diadem, the attribute of the ruler. They took it all.
The military conquest of the Aztecs was completed by 1521. Cortés, as governor of the
province of New Spain, then began dividing up the most valuable resource, the indigenous
population, through the institution of the encomienda. The encomienda had rst appeared in
fteenth-century Spain as part of the reconquest of the south of the country from the Moors,
Arabs who had settled during and after the eighth century. In the New World, it took on a
much more pernicious form: it was a grant of indigenous peoples to a Spaniard, known as
the encomendero. The indigenous peoples had to give the encomendero tribute and labor
services, in exchange for which the encomendero was charged with converting them to
Christianity.

A vivid early account of the workings of the encomienda has come down to us from
Bartolomé de las Casas, a Dominican priest who formulated the earliest and one of the most
devastating critiques of the Spanish colonial system. De las Casas arrived on the Spanish
island of Hispaniola in 1502 with a eet of ships led by the new governor, Nicolás de
Ovando. He became increasingly disillusioned and disturbed by the cruel and exploitative
treatment of the indigenous peoples he witnessed every day. In 1513 he took part as a
chaplain in the Spanish conquest of Cuba, even being granted an encomienda for his service.
However, he renounced the grant and began a long campaign to reform Spanish colonial
institutions. His e orts culminated in his book A Short Account of the Destruction of the Indies,
written in 1542, a withering attack on the barbarity of Spanish rule. On the encomienda he
has this to say in the case of Nicaragua:
Each of the settlers took up residence in the town allotted to him (or
encommended to him, as the legal phrase has it), put the inhabitants to work for
him, stole their already scarce foodstu s for himself and took over the lands
owned and worked by the natives and on which they traditionally grew their
own produce. The settler would treat the whole of the native population—
dignitaries, old men, women and children—as members of his household and, as
such, make them labor night and day in his own interests, without any rest
whatsoever.
For the conquest of New Granada, modern Colombia, de las Casas reports the whole
Spanish strategy in action:
To realize their long-term purpose of seizing all the available gold, the Spaniards
employed their usual strategy of apportioning among themselves (or encommending, as they have it) the towns and their inhabitants … and then, as
ever, treating them as common slaves. The man in overall command of the
expedition seized the King of the whole territory for himself and held him
prisoner for six or seven months, quite illicitly demanding more and more gold
and emeralds from him. This King, one Bogotá, was so terri ed that, in his
anxiety to free himself from the clutches of his tormentors, he consented to the
demand that he ll an entire house with gold and hand it over; to this end he
sent his people o in search of gold, and bit by bit they brought it along with
many precious stones. But still the house was not lled and the Spaniards
eventually declared that they would put him to death for breaking his promise.
The commander suggested they should bring the case before him, as a
representative of the law, and when they did so, entering formal accusations
against the King, he sentenced him to torture should he persist in not honoring
the bargain. They tortured him with the strappado, put burning tallow on his
belly, pinned both his legs to poles with iron hoops and his neck with another
and then, with two men holding his hands, proceeded to burn the soles of his
feet. From time to time, the commander would look in and repeat that they
would torture him to death slowly unless he produced more gold, and this is what
they did, the King eventually succumbing to the agonies they inflicted on him.

The strategy and institutions of conquest perfected in Mexico were eagerly adopted
elsewhere in the Spanish Empire. Nowhere was this done more e ectively than in Pizarro’s
conquest of Peru. As de las Casas begins his account:
In 1531 another great villain journeyed with a number of men to the kingdom of
Peru. He set out with every intention of imitating the strategy and tactics of his
fellow adventurers in other parts of the New World.
Pizarro began on the coast near the Peruvian town of Tumbes and marched south. On
November 15, 1532, he reached the mountain town of Cajamarca, where the Inca emperor
Atahualpa was encamped with his army. The next day, Atahualpa, who had just vanquished
his brother Huáscar in a contest over who would succeed their deceased father, Huayna
Capac, came with his retinue to where the Spanish were camped. Atahualpa was irritated
because news of atrocities that the Spanish had already committed, such as violating a
temple of the Sun God Inti, had reached him. What transpired next is well known. The
Spanish laid a trap and sprang it. They killed Atahualpa’s guards and retainers, possibly as
many as two thousand people, and captured the king. To gain his freedom, Atahualpa had
to promise to ll one room with gold and two more of the same size with silver. He did this,
but the Spanish, reneging on their promises, strangled him in July 1533. That November,
the Spanish captured the Inca capital of Cusco, where the Incan aristocracy received the
same treatment as Atahualpa, being imprisoned until they produced gold and silver. When
they did not satisfy Spanish demands, they were burned alive. The great artistic treasures of
Cusco, such as the Temple of the Sun, had their gold stripped from them and melted down
into ingots.
At this point the Spanish focused on the people of the Inca Empire. As in Mexico, citizens
were divided into encomiendas, with one going to each of the conquistadors who had
accompanied Pizarro. The encomienda was the main institution used for the control and
organization of labor in the early colonial period, but it soon faced a vigorous contender. In
1545 a local named Diego Gualpa was searching for an indigenous shrine high in the Andes
in what is today Bolivia. He was thrown to the ground by a sudden gust of wind and in
front of him appeared a cache of silver ore. This was part of a vast mountain of silver,
which the Spanish baptized El Cerro Rico, “The Rich Hill.” Around it grew the city of Potosí,
which at its height in 1650 had a population of 160,000 people, larger than Lisbon or
Venice in this period.
To exploit the silver, the Spanish needed miners—a lot of miners. They sent a new
viceroy, the chief Spanish colonial o cial, Francisco de Toledo, whose main mission was to
solve the labor problem. De Toledo, arriving in Peru in 1569, rst spent ve years traveling
around and investigating his new charge. He also commissioned a massive survey of the
entire adult population. To nd the labor he needed, de Toledo rst moved almost the
entire indigenous population, concentrating them in new towns called reducciones—literally
“reductions”—which would facilitate the exploitation of labor by the Spanish Crown. Then
he revived and adapted an Inca labor institution known as the mita, which, in the Incas’
language, Quechua, means “a turn.” Under their mita system, the Incas had used forced
labor to run plantations designed to provide food for temples, the aristocracy, and the
army. In return, the Inca elite provided famine relief and security. In de Toledo’s hands the

mita, especially the Potosí mita, was to become the largest and most onerous scheme of labor
exploitation in the Spanish colonial period. De Toledo de ned a huge catchment area,
running from the middle of modern-day Peru and encompassing most of modern Bolivia. It
covered about two hundred thousand square miles. In this area, one-seventh of the male
inhabitants, newly arrived in their reducciones, were required to work in the mines at
Potosí. The Potosí mita endured throughout the entire colonial period and was abolished
only in 1825. Map 1 shows the catchment area of the mita superimposed on the extent of
the Inca empire at the time of the Spanish conquest. It illustrates the extent to which the
mita overlapped with the heartland of the empire, encompassing the capital Cusco.

Remarkably, you still see the legacy of the mita in Peru today. Take the di erences
between the provinces of Calca and nearby Acomayo. There appears to be few di erences

among these provinces. Both are high in the mountains, and each is inhabited by the
Quechua-speaking descendants of the Incas. Yet Acomayo is much poorer, with its
inhabitants consuming about one-third less than those in Calca. The people know this. In
Acomayo they ask intrepid foreigners, “Don’t you know that the people here are poorer
than the people over there in Calca? Why would you ever want to come here?” Intrepid
because it is much harder to get to Acomayo from the regional capital of Cusco, ancient
center of the Inca Empire, than it is to get to Calca. The road to Calca is surfaced, the one to
Acomayo is in a terrible state of disrepair. To get beyond Acomayo, you need a horse or a
mule. In Calca and Acomayo, people grow the same crops, but in Calca they sell them on
the market for money. In Acomayo they grow food for their own subsistence. These
inequalities, apparent to the eye and to the people who live there, can be understood in
terms of the institutional di erences between these departments—institutional di erences
with historical roots going back to de Toledo and his plan for e ective exploitation of
indigenous labor. The major historical di erence between Acomayo and Calca is that
Acomayo was in the catchment area of the Potosí mita. Calca was not.
In addition to the concentration of labor and the mita, de Toledo consolidated the
encomienda into a head tax, a xed sum payable by each adult male every year in silver.
This was another scheme designed to force people into the labor market and reduce wages
for Spanish landowners. Another institution, the repartimiento de mercancias, also became
widespread during de Toledo’s tenure. Derived from the Spanish verb repartir, to distribute,
this repartimiento, literally “the distribution of goods,” involved the forced sale of goods to
locals at prices determined by Spaniards. Finally, de Toledo introduced the trajin—meaning,
literally, “the burden”—which used the indigenous people to carry heavy loads of goods,
such as wine or coca leaves or textiles, as a substitute for pack animals, for the business
ventures of the Spanish elite.
Throughout the Spanish colonial world in the Americas, similar institutions and social
structures emerged. After an initial phase of looting, and gold and silver lust, the Spanish
created a web of institutions designed to exploit the indigenous peoples. The full gamut of
encomienda, mita, repartimiento, and trajin was designed to force indigenous people’s living
standards down to a subsistence level and thus extract all income in excess of this for
Spaniards. This was achieved by expropriating their land, forcing them to work, o ering
low wages for labor services, imposing high taxes, and charging high prices for goods that
were not even voluntarily bought. Though these institutions generated a lot of wealth for
the Spanish Crown and made the conquistadors and their descendants very rich, they also
turned Latin America into the most unequal continent in the world and sapped much of its
economic potential.
… TO

JAMESTOWN

As the Spanish began their conquest of the Americas in the 1490s, England was a minor
European power recovering from the devastating e ects of a civil war, the Wars of the
Roses. She was in no state to take advantage of the scramble for loot and gold and the
opportunity to exploit the indigenous peoples of the Americas. Nearly one hundred years
later, in 1588, the lucky rout of the Spanish Armada, an attempt by King Philip II of Spain

to invade England, sent political shockwaves around Europe. Fortunate though England’s
victory was, it was also a sign of growing English assertiveness on the seas that would
enable them to finally take part in the quest for colonial empire.
It is thus no coincidence that the English began their colonization of North America at
exactly the same time. But they were already latecomers. They chose North America not
because it was attractive, but because it was all that was available. The “desirable” parts of
the Americas, where the indigenous population to exploit was plentiful and where the gold
and silver mines were located, had already been occupied. The English got the leftovers.
When the eighteenth-century English writer and agriculturalist Arthur Young discussed
where pro table “staple products,” by which he meant exportable agricultural goods, were
produced, he noted:
It appears upon the whole, that the staple productions of our colonies decrease
in value in proportion to their distance from the sun. In the West Indies, which
are the hottest of all, they make to the amount of 8l. 12s. 1d. per head. In the
southern continental ones, to the amount of 5l. 10s. In the central ones, to the
amount of 9s. 6 1/2d. In the northern settlements, to that of 2s. 6d. This scale
surely suggests a most important lesson—to avoid colonizing in northern
latitudes.
The rst English attempt to plant a colony, at Roanoke, in North Carolina, between 1585
and 1587, was a complete failure. In 1607 they tried again. Shortly before the end of 1606,
three vessels, Susan Constant, Godspeed, and Discovery, under the command of Captain
Christopher Newport, set o for Virginia. The colonists, under the auspices of the Virginia
Company, sailed into Chesapeake Bay and up a river they named the James, after the
ruling English monarch, James I. On May 14, 1607, they founded the settlement of
Jamestown.
Though the settlers on board the ships owned by the Virginia Company were English, they
had a model of colonization heavily in uenced by the template set up by Cortés, Pizarro,
and de Toledo. Their rst plan was to capture the local chief and use him as a way to get
provisions and to coerce the population into producing food and wealth for them.
When they rst landed in Jamestown, the English colonists did not know that they were
within the territory claimed by the Powhatan Confederacy, a coalition of some thirty
polities owing allegiance to a king called Wahunsunacock. Wahunsunacock’s capital was at
the town of Werowocomoco, a mere twenty miles from Jamestown. The plan of the
colonists was to learn more about the lay of the land. If the locals could not be induced to
provide food and labor, the colonists might at least be able to trade with them. The notion
that the settlers themselves would work and grow their own food seems not to have crossed
their minds. That is not what conquerors of the New World did.
Wahunsunacock quickly became aware of the colonists’ presence and viewed their
intentions with great suspicion. He was in charge of what for North America was quite a
large empire. But he had many enemies and lacked the overwhelming centralized political
control of the Incas. Wahunsunacock decided to see what the intentions of the English were,
initially sending messengers saying that he desired friendly relations with them.
As the winter of 1607 closed in, the settlers in Jamestown began to run low on food, and

the appointed leader of the colony’s ruling council, Edward Marie Wing eld, dithered
indecisively. The situation was rescued by Captain John Smith. Smith, whose writings
provide one of our main sources of information about the early development of the colony,
was a larger-than-life character. Born in England, in rural Lincolnshire, he disregarded his
father’s desires for him to go into business and instead became a soldier of fortune. He rst
fought with English armies in the Netherlands, after which he joined Austrian forces serving
in Hungary ghting against the armies of the Ottoman Empire. Captured in Romania, he
was sold as a slave and put to work as a eld hand. He managed one day to overcome his
master and, stealing his clothes and his horse, escape back into Austrian territory. Smith had
got himself into trouble on the voyage to Virginia and was imprisoned on the Susan
Constant for mutiny after defying the orders of Wing eld. When the ships reached the New
World, the plan was to put him on trial. To the immense horror of Wing eld, Newport, and
other elite colonists, however, when they opened their sealed orders, they discovered that
the Virginia Company had nominated Smith to be a member of the ruling council that was
to govern Jamestown.
With Newport sailing back to England for supplies and more colonists, and Wing eld
uncertain about what to do, it was Smith who saved the colony. He initiated a series of
trading missions that secured vital food supplies. On one of these he was captured by
Opechancanough, one of Wahunsunacock’s younger brothers, and was brought before the
king at Werowocomoco. He was the rst Englishman to meet Wahunsunacock, and it was at
this initial meeting that according to some accounts Smith’s life was saved only at the
intervention of Wahunsunacock’s young daughter Pocahontas. Freed on January 2, 1608,
Smith returned to Jamestown, which was still perilously low on food, until the timely return
of Newport from England later on the same day.
The colonists of Jamestown learned little from this initial experience. As 1608 proceeded,
they continued their quest for gold and precious metals. They still did not seem to
understand that to survive, they could not rely on the locals to feed them through either
coercion or trade. It was Smith who was the rst to realize that the model of colonization
that had worked so well for Cortés and Pizarro simply would not work in North America.
The underlying circumstances were just too di erent. Smith noted that, unlike the Aztecs
and Incas, the peoples of Virginia did not have gold. Indeed, he noted in his diary, “Victuals
you must know is all their wealth.” Anas Todkill, one of the early settlers who left an
extensive diary, expressed well the frustrations of Smith and the few others on which this
recognition dawned:
“There was no talke, no hope, no worke, but dig gold, refine gold, load gold.”
When Newport sailed for England in April 1608 he took a cargo of pyrite, fool’s gold. He
returned at the end of September with orders from the Virginia Company to take rmer
control over the locals. Their plan was to crown Wahunsunacock, hoping this would render
him subservient to the English king James I. They invited him to Jamestown, but
Wahunsunacock, still deeply suspicious of the colonists, had no intention of risking capture.
John Smith recorded Wahunsunacock’s reply: “If your King have sent me presents, I also am
a King, and this is my land … Your father is to come to me, not I to him, nor yet to your
fort, neither will I bite at such a bait.”

If Wahunsunacock would not “bite at such a bait,” Newport and Smith would have to go
to Werowocomoco to undertake the coronation. The whole event appears to have been a
complete asco, with the only thing coming out of it a resolve on the part of
Wahunsunacock that it was time to get rid of the colony. He imposed a trade embargo.
Jamestown could no longer trade for supplies. Wahunsunacock would starve them out.
Newport set sail once more for England, in December 1608. He took with him a letter
written by Smith pleading with the directors of the Virginia Company to change the way
they thought about the colony. There was no possibility of a get-rich-quick exploitation of
Virginia along the lines of Mexico and Peru. There were no gold or precious metals, and the
indigenous people could not be forced to work or provide food. Smith realized that if there
were going to be a viable colony, it was the colonists who would have to work. He therefore
pleaded with the directors to send the right sort of people: “When you send againe I entreat
you rather to send some thirty carpenters, husbandmen, gardeners, shermen, blacksmiths,
masons, and diggers up of trees, roots, well provided, then a thousand of such as we have.”
Smith did not want any more useless goldsmiths. Once more Jamestown survived only
because of his resourcefulness. He managed to cajole and bully local indigenous groups to
trade with him, and when they wouldn’t, he took what he could. Back in the settlement,
Smith was completely in charge and imposed the rule that “he that will not worke shall not
eat.” Jamestown survived a second winter.
The Virginia Company was intended to be a moneymaking enterprise, and after two
disastrous years, there was no whi of pro t. The directors of the company decided that
they needed a new model of governance, replacing the ruling council with a single
governor. The rst man appointed to this position was Sir Thomas Gates. Heeding some
aspects of Smith’s warning, the company realized that they had to try something new. This
realization was driven home by the events of the winter of 1609/1610—the so-called
“starving time.” The new mode of governance left no room for Smith, who, disgruntled,
returned to England in the autumn of 1609. Without his resourcefulness, and with
Wahunsunacock throttling the food supply, the colonists in Jamestown perished. Of the ve
hundred who entered the winter, only sixty were alive by March. The situation was so
desperate that they resorted to cannibalism.
The “something new” that was imposed on the colony by Gates and his deputy, Sir
Thomas Dale, was a work regime of draconian severity for English settlers—though not of
course for the elite running the colony. It was Dale who propagated the “Lawes Divine,
Morall and Martiall.” This included the clauses
No man or woman shall run away from the colony to the Indians, upon pain of
death.
Anyone who robs a garden, public or private, or a vineyard, or who steals ears of
corn shall be punished with death.
No member of the colony will sell or give any commodity of this country to a
captain, mariner, master or sailor to transport out of the colony, for his own
private uses, upon pain of death.

If the indigenous peoples could not be exploited, reasoned the Virginia Company, perhaps
the colonists could. The new model of colonial development entailed the Virginia Company
owning all the land. Men were housed in barracks, and given company-determined rations.
Work gangs were chosen, each one overseen by an agent of the company. It was close to
martial law, with execution as the punishment of rst resort. As part of the new institutions
for the colony, the rst clause just given is signi cant. The company threatened with death
those who ran away. Given the new work regime, running away to live with the locals
became more and more of an attractive option for the colonists who had to do the work.
Also available, given the low density of even indigenous populations in Virginia at that
time, was the prospect of going it alone on the frontier beyond the control of the Virginia
Company. The power of the company in the face of these options was limited. It could not
coerce the English settlers into hard work at subsistence rations.
Map 2 shows an estimate of the population density of di erent regions of the Americas at
the time on the Spanish conquest. The population density of the United States, outside of a
few pockets, was at most three-quarters of a person per square mile. In central Mexico or
Andean Peru, the population density was as high as four hundred people per square mile,
more than ve hundred times higher. What was possible in Mexico or Peru was not feasible
in Virginia.

It took the Virginia Company some time to recognize that its initial model of colonization
did not work in Virginia, and it took a while, too, for the failure of the “Lawes Divine,
Morall and Martiall” to sink in. Starting in 1618, a dramatically new strategy was adopted.
Since it was possible to coerce neither the locals nor the settlers, the only alternative was to
give the settlers incentives. In 1618 the company began the “headright system,” which gave
each male settler fty acres of land and fty more acres for each member of his family and
for all servants that a family could bring to Virginia. Settlers were given their houses and
freed from their contracts, and in 1619 a General Assembly was introduced that e ectively
gave all adult men a say in the laws and institutions governing the colony. It was the start
of democracy in the United States.
It took the Virginia Company twelve years to learn its rst lesson that what had worked
for the Spanish in Mexico and in Central and South America would not work in the north.
The rest of the seventeenth century saw a long series of struggles over the second lesson:
that the only option for an economically viable colony was to create institutions that gave
the colonists incentives to invest and to work hard.
As North America developed, English elites tried time and time again to set up institutions
that would heavily restrict the economic and political rights for all but a privileged few of
the inhabitants of the colony, just as the Spanish did. Yet in each case this model broke
down, as it had in Virginia.
One of the most ambitious attempts began soon after the change in strategy of the
Virginia Company. In 1632 ten million acres of land on the upper Chesapeake Bay were
granted by the English king Charles I to Cecilius Calvert, Lord Baltimore. The Charter of
Maryland gave Lord Baltimore complete freedom to create a government along any lines he
wished, with clause VII noting that Baltimore had “for the good and happy Government of
the said Province, free, full, and absolute Power, by the Tenor of these Presents, to Ordain,
Make, and Enact Laws, of what Kind soever.”
Baltimore drew up a detailed plan for creating a manorial society, a North American
variant of an idealized version of seventeenth-century rural England. It entailed dividing
the land into plots of thousands of acres, which would be run by lords. The lords would
recruit tenants, who would work the lands and pay rents to the privileged elite controlling
the land. Another similar attempt was made later in 1663, with the founding of Carolina by
eight proprietors, including Sir Anthony Ashley-Cooper. Ashley-Cooper, along with his
secretary, the great English philosopher John Locke, formulated the Fundamental
Constitutions of Carolina. This document, like the Charter of Maryland before it, provided a
blueprint for an elitist, hierarchical society based on control by a landed elite. The preamble
noted that “the government of this province may be made most agreeable to the monarchy
under which we live and of which this province is a part; and that we may avoid erecting a
numerous democracy.”
The clauses of the Fundamental Constitutions laid out a rigid social structure. At the
bottom were the “leet-men,” with clause 23 noting, “All the children of leet-men shall be
leet-men, and so to all generations.” Above the leet-men, who had no political power, were
the landgraves and caziques, who were to form the aristocracy. Landgraves were to be
allocated forty-eight thousand acres of land each, and caziques twenty-four thousand acres.
There was to be a parliament, in which landgraves and caziques were represented, but it

would be permitted to debate only those measures that had previously been approved by
the eight proprietors.
Just as the attempt to impose draconian rule in Virginia failed, so did the plans for the
same type of institutions in Maryland and Carolina. The reasons were similar. In all cases it
proved to be impossible to force settlers into a rigid hierarchical society, because there were
simply too many options open to them in the New World. Instead, they had to be provided
with incentives for them to want to work. And soon they were demanding more economic
freedom and further political rights. In Maryland, too, settlers insisted on getting their own
land, and they forced Lord Baltimore into creating an assembly. In 1691 the assembly
induced the king to declare Maryland a Crown colony, thus removing the political
privileges of Baltimore and his great lords. A similar protracted struggle took place in the
Carolinas, again with the proprietors losing. South Carolina became a royal colony in 1729.
By the 1720s, all the thirteen colonies of what was to become the United States had
similar structures of government. In all cases there was a governor, and an assembly based
on a franchise of male property holders. They were not democracies; women, slaves, and
the propertyless could not vote. But political rights were very broad compared with
contemporary societies elsewhere. It was these assemblies and their leaders that coalesced
to form the First Continental Congress in 1774, the prelude to the independence of the
United States. The assemblies believed they had the right to determine both their own
membership and the right to taxation. This, as we know, created problems for the English
colonial government.
A TALE OF TWO CONSTITUTIONS
It should now be apparent that it is not a coincidence that the United States, and not
Mexico, adopted and enforced a constitution that espoused democratic principles, created
limitations on the use of political power, and distributed that power broadly in society. The
document that the delegates sat down to write in Philadelphia in May 1787 was the
outcome of a long process initiated by the formation of the General Assembly in Jamestown
in 1619.
The contrast between the constitutional process that took place at the time of the
independence of the United States and the one that took place a little afterward in Mexico
is stark. In February 1808, Napoleon Bonaparte’s French armies invaded Spain. By May
they had taken Madrid, the Spanish capital. By September the Spanish king Ferdinand had
been captured and had abdicated. A national junta, the Junta Central, took his place,
taking the torch in the ght against the French. The Junta met rst at Aranjuez, but
retreated south in the face of the French armies. Finally it reached the port of Cádiz, which,
though besieged by Napoleonic forces, held out. Here the Junta formed a parliament, called
the Cortes. In 1812 the Cortes produced what became known as the Cádiz Constitution,
which called for the introduction of a constitutional monarchy based on notions of popular
sovereignty. It also called for the end of special privileges and the introduction of equality
before the law. These demands were all anathema to the elites of South America, who were
still ruling an institutional environment shaped by the encomienda, forced labor, and
absolute power vested in them and the colonial state.

The collapse of the Spanish state with the Napoleonic invasion created a constitutional
crisis throughout colonial Latin America. There was much dispute about whether to
recognize the authority of the Junta Central, and in response, many Latin Americans began
to form their own juntas. It was only a matter of time before they began to sense the
possibility of becoming truly independent from Spain. The rst declaration of independence
took place in La Paz, Bolivia, in 1809, though it was quickly crushed by Spanish troops sent
from Peru. In Mexico the political attitudes of the elite had been shaped by the 1810
Hidalgo Revolt, led by a priest, Father Miguel Hidalgo. When Hidalgo’s army sacked
Guanajuato on September 23, they killed the intendant, the senior colonial o cial, and
then started indiscriminately to kill white people. It was more like class or even ethnic
warfare than an independence movement, and it united all the elites in opposition. If
independence allowed popular participation in politics, the local elites, not just Spaniards,
were against it. Consequentially, Mexican elites viewed the Cádiz Constitution, which
opened the way to popular participation, with extreme skepticism; they would never
recognize its legitimacy.
In 1815, as Napoleon’s European empire collapsed, King Ferdinand VII returned to power
and the Cádiz Constitution was abrogated. As the Spanish Crown began trying to reclaim its
American colonies, it did not face a problem with loyalist Mexico. Yet, in 1820, a Spanish
army that had assembled in Cádiz to sail to the Americas to help restore Spanish authority
mutinied against Ferdinand VII. They were soon joined by army units throughout the
country, and Ferdinand was forced to restore the Cádiz Constitution and recall the Cortes.
This Cortes was even more radical than the one that had written the Cádiz Constitution, and
it proposed abolishing all forms of labor coercion. It also attacked special privileges—for
example, the right of the military to be tried for crimes in their own courts. Faced nally
with the imposition of this document in Mexico, the elites there decided that it was better to
go it alone and declare independence.
This independence movement was led by Augustín de Iturbide, who had been an o cer in
the Spanish army. On February 24, 1821, he published the Plan de Iguala, his vision for an
independent Mexico. The plan featured a constitutional monarchy with a Mexican emperor,
and removed the provisions of the Cádiz Constitution that Mexican elites found so
threatening to their status and privileges. It received instantaneous support, and Spain
quickly realized that it could not stop the inevitable. But Iturbide did not just organize
Mexican secession. Recognizing the power vacuum, he quickly took advantage of his
military backing to have himself declared emperor, a position that the great leader of South
American independence Simón Bolivar described as “by the grace of God and of bayonets.”
Iturbide was not constrained by the same political institutions that constrained presidents of
the United States; he quickly made himself a dictator, and by October 1822 he had dismissed
the constitutionally sanctioned congress and replaced it with a junta of his choosing.
Though Iturbide did not last long, this pattern of events was to be repeated time and time
again in nineteenth-century Mexico.
The Constitution of the United States did not create a democracy by modern standards.
Who could vote in elections was left up to the individual states to determine. While
northern states quickly conceded the vote to all white men irrespective of how much income
they earned or property they owned, southern states did so only gradually. No state

enfranchised women or slaves, and as property and wealth restrictions were lifted on white
men, racial franchises explicitly disenfranchising black men were introduced. Slavery, of
course, was deemed constitutional when the Constitution of the United States was written in
Philadelphia, and the most sordid negotiation concerned the division of the seats in the
House of Representatives among the states. These were to be allocated on the basis of a
state’s population, but the congressional representatives of southern states then demanded
that the slaves be counted. Northerners objected. The compromise was that in apportioning
seats to the House of Representatives, a slave would count as three- fths of a free person.
The con icts between the North and South of the United States were repressed during the
constitutional process as the three- fths rule and other compromises were worked out. New
xes were added over time—for example, the Missouri Compromise, an arrangement where
one proslavery and one antislavery state were always added to the union together, to keep
the balance in the Senate between those for and those against slavery. These fudges kept
the political institutions of the United States working peacefully until the Civil War nally
resolved the conflicts in favor of the North.
The Civil War was bloody and destructive. But both before and after it there were ample
economic opportunities for a large fraction of the population, especially in the northern
and western United States. The situation in Mexico was very di erent. If the United States
experienced ve years of political instability between 1860 and 1865, Mexico experienced
almost nonstop instability for the rst fty years of independence. This is best illustrated
via the career of Antonio López de Santa Ana.
Santa Ana, son of a colonial o cial in Veracruz, came to prominence as a soldier ghting
for the Spanish in the independence wars. In 1821 he switched sides with Iturbide and never
looked back. He became president of Mexico for the rst time in May of 1833, though he
exercised power for less than a month, preferring to let Valentín Gómez Farías act as
president. Gómez Farías’s presidency lasted fteen days, after which Santa Ana retook
power. This was as brief as his rst spell, however, and he was again replaced by Gómez
Farías, in early July. Santa Ana and Gómez Farías continued this dance until the middle of
1835, when Santa Ana was replaced by Miguel Barragán. But Santa Ana was not a quitter.
He was back as president in 1839, 1841, 1844, 1847, and, nally, between 1853 and 1855.
In all, he was president eleven times, during which he presided over the loss of the Alamo
and Texas and the disastrous Mexican-American War, which led to the loss of what became
New Mexico and Arizona. Between 1824 and 1867 there were fty-two presidents in
Mexico, few of whom assumed power according to any constitutionally sanctioned
procedure.
The consequence of this unprecedented political instability for economic institutions and
incentives should be obvious. Such instability led to highly insecure property rights. It also
led to a severe weakening of the Mexican state, which now had little authority and little
ability to raise taxes or provide public services. Indeed, even though Santa Ana was
president in Mexico, large parts of the country were not under his control, which enabled
the annexation of Texas by the United States. In addition, as we just saw, the motivation
behind the Mexican declaration of independence was to protect the set of economic
institutions developed during the colonial period, which had made Mexico, in the words of
the great German explorer and geographer of Latin America Alexander von Humbolt, “the

country of inequality.” These institutions, by basing the society on the exploitation of
indigenous people and the creation of monopolies, blocked the economic incentives and
initiatives of the great mass of the population. As the United States began to experience the
Industrial Revolution in the first half of the nineteenth century, Mexico got poorer.
HAVING AN IDEA, STARTING A FIRM, AND GETTING A LOAN
The Industrial Revolution started in England. Its rst success was to revolutionize the
production of cotton cloth using new machines powered by water wheels and later by steam
engines. Mechanization of cotton production massively increased the productivity of
workers in, rst, textiles and, subsequently, other industries. The engine of technological
breakthroughs throughout the economy was innovation, spearheaded by new entrepreneurs
and businessmen eager to apply their new ideas. This initial owering soon spread across
the North Atlantic to the United States. People saw the great economic opportunities
available in adopting the new technologies developed in England. They were also inspired
to develop their own inventions.
We can try to understand the nature of these inventions by looking at who was granted
patents. The patent system, which protects property rights in ideas, was systematized in the
Statute of Monopolies legislated by the English Parliament in 1623, partially as an attempt
to stop the king from arbitrarily granting “letters patent” to whomever he wanted—
e ectively granting exclusive rights to undertake certain activities or businesses. The
striking thing about the evidence on patenting in the United States is that people who were
granted patents came from all sorts of backgrounds and all walks of life, not just the rich
and the elite. Many made fortunes based on their patents. Take Thomas Edison, the
inventor of the phonogram and the lightbulb and the founder of General Electric, still one
of the world’s largest companies. Edison was the last of seven children. His father, Samuel
Edison, followed many occupations, from splitting shingles for roofs to tailoring to keeping
a tavern. Thomas had little formal schooling but was homeschooled by his mother.
Between 1820 and 1845, only 19 percent of patentees in the United States had parents
who were professionals or were from recognizable major landowning families. During the
same period, 40 percent of those who took out patents had only primary schooling or less,
just like Edison. Moreover, they often exploited their patent by starting a rm, again like
Edison. Just as the United States in the nineteenth century was more democratic politically
than almost any other nation in the world at the time, it was also more democratic than
others when it came to innovation. This was critical to its path to becoming the most
economically innovative nation in the world.
If you were poor with a good idea, it was one thing to take out a patent, which was not
so expensive, after all. It was another thing entirely to use that patent to make money. One
way, of course, was to sell the patent to someone else. This is what Edison did early on, to
raise some capital, when he sold his Quadruplex telegraph to Western Union for $10,000.
But selling patents was a good idea only for someone like Edison, who had ideas faster than
he could put them to practice. (He had a world-record 1,093 patents issued to him in the
United States and 1,500 worldwide.) The real way to make money from a patent was to
start your own business. But to start a business, you need capital, and you need banks to

lend the capital to you.
Inventors in the United States were once again fortunate. During the nineteenth century
there was a rapid expansion of nancial intermediation and banking that was a crucial
facilitator of the rapid growth and industrialization that the economy experienced. While in
1818 there were 338 banks in operation in the United States, with total assets of $160
million, by 1914 there were 27,864 banks, with total assets of $27.3 billion. Potential
inventors in the United States had ready access to capital to start their businesses.
Moreover, the intense competition among banks and nancial institutions in the United
States meant that this capital was available at fairly low interest rates.
The same was not true in Mexico. In fact, in 1910, the year in which the Mexican
Revolution started, there were only forty-two banks in Mexico, and two of these controlled
60 percent of total banking assets. Unlike in the United States, where competition was
erce, there was practically no competition among Mexican banks. This lack of competition
meant that the banks were able to charge their customers very high interest rates, and
typically con ned lending to the privileged and the already wealthy, who would then use
their access to credit to increase their grip over the various sectors of the economy.
The form that the Mexican banking industry took in the nineteenth and twentieth
centuries was a direct result of the postindependence political institutions of the country.
The chaos of the Santa Ana era was followed by an abortive attempt by the French
government of Emperor Napoleon II to create a colonial regime in Mexico under Emperor
Maximilian between 1864 and 1867. The French were expelled, and a new constitution was
written. But the government formed rst by Benito Juárez and, after his death, by Sebastián
Lerdo de Tejada was soon challenged by a young military man named Por rio Díaz. Díaz
had been a victorious general in the war against the French and had developed aspirations
of power. He formed a rebel army and, in November of 1876, defeated the army of the
government at the Battle of Tecoac. In May of the next year, he had himself elected
president. He went on to rule Mexico in a more or less unbroken and increasingly
authoritarian fashion until his overthrow at the outbreak of the revolution thirty-four years
later.
Like Iturbide and Santa Ana before him, Díaz started life as a military commander. Such a
career path into politics was certainly known in the United States. The rst president of the
United States, George Washington, was also a successful general in the War of
Independence. Ulysses S. Grant, one of the victorious Union generals of the Civil War,
became president in 1869, and Dwight D. Eisenhower, the supreme commander of the Allied
Forces in Europe during the Second World War, was president of the United States between
1953 and 1961. Unlike Iturbide, Santa Ana, and Díaz, however, none of these military men
used force to get into power. Nor did they use force to avoid having to relinquish power.
They abided by the Constitution. Though Mexico had constitutions in the nineteenth
century, they put few constraints on what Iturbide, Santa Ana, and Díaz could do. These
men could be removed from power only the same way they had attained it: by the use of
force.
Díaz violated people’s property rights, facilitating the expropriation of vast amounts of
land, and he granted monopolies and favors to his supporters in all lines of business,
including banking. There was nothing new about this behavior. This is exactly what Spanish

conquistadors had done, and what Santa Ana did in their footsteps.
The reason that the United States had a banking industry that was radically better for the
economic prosperity of the country had nothing to do with di erences in the motivation of
those who owned the banks. Indeed, the pro t motive, which underpinned the monopolistic
nature of the banking industry in Mexico, was present in the United States, too. But this
pro t motive was channeled di erently because of the radically di erent U.S. institutions.
The bankers faced di erent economic institutions, institutions that subjected them to much
greater competition. And this was largely because the politicians who wrote the rules for the
bankers faced very di erent incentives themselves, forged by di erent political institutions.
Indeed, in the late eighteenth century, shortly after the Constitution of the United States
came into operation, a banking system looking similar to that which subsequently
dominated Mexico began to emerge. Politicians tried to set up state banking monopolies,
which they could give to their friends and partners in exchange for part of the monopoly
pro ts. The banks also quickly got into the business of lending money to the politicians who
regulated them, just as in Mexico. But this situation was not sustainable in the United
States, because the politicians who attempted to create these banking monopolies, unlike
their Mexican counterparts, were subject to election and reelection. Creating banking
monopolies and giving loans to politicians is good business for politicians, if they can get
away with it. It is not particularly good for the citizens, however. Unlike in Mexico, in the
United States the citizens could keep politicians in check and get rid of ones who would use
their o ces to enrich themselves or create monopolies for their cronies. In consequence, the
banking monopolies crumbled. The broad distribution of political rights in the United
States, especially when compared to Mexico, guaranteed equal access to nance and loans.
This in turn ensured that those with ideas and inventions could benefit from them.
PATH-DEPENDENT CHANGE
The world was changing in the 1870s and ’80s. Latin America was no exception. The
institutions that Por rio Díaz established were not identical to those of Santa Ana or the
Spanish colonial state. The world economy boomed in the second half of the nineteenth
century, and innovations in transportation such as the steamship and the railway led to a
huge expansion of international trade. This wave of globalization meant that resource-rich
countries such as Mexico—or, more appropriately, the elites in such countries—could enrich
themselves by exporting raw materials and natural resources to industrializing North
America or Western Europe. Díaz and his cronies thus found themselves in a di erent and
rapidly evolving world. They realized that Mexico had to change, too. But this didn’t mean
uprooting the colonial institutions and replacing them with institutions similar to those in
the United States. Instead, theirs was “path-dependent” change leading only to the next
stage of the institutions that had already made much of Latin America poor and unequal.
Globalization made the large open spaces of the Americas, its “open frontiers,” valuable.
Often these frontiers were only mythically open, since they were inhabited by indigenous
peoples who were brutally dispossessed. All the same, the scramble for this newly valuable
resource was one of the de ning processes of the Americas in the second half of the
nineteenth century. The sudden opening of this valuable frontier led not to parallel

processes in the United States and Latin America, but to a further divergence, shaped by the
existing institutional di erences, especially those concerning who had access to the land. In
the United States a long series of legislative acts, ranging from the Land Ordinance of 1785
to the Homestead Act of 1862, gave broad access to frontier lands. Though indigenous
peoples had been sidelined, this created an egalitarian and economically dynamic frontier.
In most Latin American countries, however, the political institutions there created a very
di erent outcome. Frontier lands were allocated to the politically powerful and those with
wealth and contacts, making such people even more powerful.
Díaz also started to dismantle many of the speci c colonial institutional legacies
preventing international trade, which he anticipated could greatly enrich him and his
supporters. His model, however, continued to be not the type of economic development he
saw north of the Rio Grande but that of Cortés, Pizarro, and de Toledo, where the elite
would make huge fortunes while the rest were excluded. When the elite invested, the
economy would grow a little, but such economic growth was always going to be
disappointing. It also came at the expense of those lacking rights in this new order, such as
the Yaqui people of Sonora, in the hinterland of Nogales. Between 1900 and 1910, possibly
thirty thousand Yaqui were deported, essentially enslaved, and sent to work in the
henequen plantations of Yucatán. (The bers of the henequen plant were a valuable export,
since they could be used to make rope and twine.)
The persistence into the twentieth century of a speci c institutional pattern inimical to
growth in Mexico and Latin America is well illustrated by the fact that, just as in the
nineteenth century, the pattern generated economic stagnation and political instability,
civil wars and coups, as groups struggled for the bene ts of power. Díaz nally lost power
to revolutionary forces in 1910. The Mexican Revolution was followed by others in Bolivia
in 1952, Cuba in 1959, and Nicaragua in 1979. Meanwhile, sustained civil wars raged in
Colombia, El Salvador, Guatemala, and Peru. Expropriation or the threat of expropriation
of assets continued apace, with mass agrarian reforms (or attempted reforms) in Bolivia,
Brazil, Chile, Colombia, Guatemala, Peru, and Venezuela. Revolutions, expropriations, and
political instability came along with military governments and various types of
dictatorships. Though there was also a gradual drift toward greater political rights, it was
only in the 1990s that most Latin American countries became democracies, and even then
they remain mired in instability.
This instability was accompanied by mass repression and murder. The 1991 National
Commission for Truth and Reconciliation Report in Chile determined that 2,279 persons
were killed for political reasons during the Pinochet dictatorship between 1973 and 1990.
Possibly 50,000 were imprisoned and tortured, and hundreds of thousands of people were
red from their jobs. The Guatemalan Commission for Historical Clari cation Report in
1999 identi ed a total of 42,275 named victims, though others have claimed that as many
as 200,000 were murdered in Guatemala between 1962 and 1996, 70,000 during the regime
of General Efrain Ríos Montt, who was able to commit these crimes with such impunity that
he could run for president in 2003; fortunately he did not win. The National Commission on
the Disappearance of Persons in Argentina put the number of people murdered by the
military there at 9,000 persons from 1976 to 1983, although it noted that the actual number
could be higher. (Estimates by human rights organizations usually place it at 30,000.)

MAKING A BILLION OR TWO
The enduring implications of the organization of colonial society and those societies’
institutional legacies shape the modern di erences between the United States and Mexico,
and thus the two parts of Nogales. The contrast between how Bill Gates and Carlos Slim
became the two richest men in the world—Warren Bu ett is also a contender—illustrates
the forces at work. The rise of Gates and Microsoft is well known, but Gates’s status as the
world’s richest person and the founder of one of the most technologically innovative
companies did not stop the U.S. Department of Justice from ling civil actions against the
Microsoft Corporation on May 8, 1998, claiming that Microsoft had abused monopoly
power. Particularly at issue was the way that Microsoft had tied its Web browser, Internet
Explorer, to its Windows operating system. The government had been keeping an eye on
Gates for quite some time, and as early as 1991, the Federal Trade Commission had
launched an inquiry into whether Microsoft was abusing its monopoly on PC operating
systems. In November 2001, Microsoft reached a deal with the Justice Department. It had its
wings clipped, even if the penalties were less than many demanded.
In Mexico, Carlos Slim did not make his money by innovation. Initially he excelled in
stock market deals, and in buying and revamping unpro table rms. His major coup was
the acquisition of Telmex, the Mexican telecommunications monopoly that was privatized
by President Carlos Salinas in 1990. The government announced its intention to sell 51
percent of the voting stock (20.4 percent of total stock) in the company in September 1989
and received bids in November 1990. Even though Slim did not put in the highest bid, a
consortium led by his Grupo Corso won the auction. Instead of paying for the shares right
away, Slim managed to delay payment, using the dividends of Telmex itself to pay for the
stock. What was once a public monopoly now became Slim’s monopoly, and it was hugely
profitable.
The economic institutions that made Carlos Slim who he is are very di erent from those
in the United States. If you’re a Mexican entrepreneur, entry barriers will play a crucial role
at every stage of your career. These barriers include expensive licenses you have to obtain,
red tape you have to cut through, politicians and incumbents who will stand in your way,
and the di culty of getting funding from a nancial sector often in cahoots with the
incumbents you’re trying to compete against. These barriers can be either insurmountable,
keeping you out of lucrative areas, or your greatest friend, keeping your competitors at
bay. The di erence between the two scenarios is of course whom you know and whom you
can in uence—and yes, whom you can bribe. Carlos Slim, a talented, ambitious man from a
relatively modest background of Lebanese immigrants, has been a master at obtaining
exclusive contracts; he managed to monopolize the lucrative telecommunications market in
Mexico, and then to extend his reach to the rest of Latin America.
There have been challenges to Slim’s Telmex monopoly. But they have not been
successful. In 1996 Avantel, a long-distance phone provider, petitioned the Mexican
Competition Commission to check whether Telmex had a dominant position in the
telecommunications market. In 1997 the commission declared that Telmex had substantial
monopoly power with respect to local telephony, national long-distance calls, and
international long-distance calls, among other things. But attempts by the regulatory

authorities in Mexico to limit these monopolies have come to nothing. One reason is that
Slim and Telmex can use what is known as a recurso de amparo, literally an “appeal for
protection.” An amparo is in e ect a petition to argue that a particular law does not apply
to you. The idea of the amparo dates back to the Mexican constitution of 1857 and was
originally intended as a safeguard of individual rights and freedoms. In the hands of Telmex
and other Mexican monopolies, however, it has become a formidable tool for cementing
monopoly power. Rather than protecting people’s rights, the amparo provides a loophole in
equality before the law.
Slim has made his money in the Mexican economy in large part thanks to his political
connections. When he has ventured into the United States, he has not been successful. In
1999 his Grupo Curso bought the computer retailer CompUSA. At the time, CompUSA had
given a franchise to a rm called COC Services to sell its merchandise in Mexico. Slim
immediately violated this contract with the intention of setting up his own chain of stores,
without any competition from COC. But COC sued CompUSA in a Dallas court. There are no
amparos in Dallas, so Slim lost, and was ned $454 million. The lawyer for COC, Mark
Werner, noted afterward that “the message of this verdict is that in this global economy,
rms have to respect the rules of the United States if they want to come here.” When Slim
was subject to the institutions of the United States, his usual tactics for making money didn’t
work.
TOWARD A THEORY OF WORLD INEQUALITY
We live in an unequal world. The di erences among nations are similar to those between
the two parts of Nogales, just on a larger scale. In rich countries, individuals are healthier,
live longer, and are much better educated. They also have access to a range of amenities
and options in life, from vacations to career paths, that people in poor countries can only
dream of. People in rich countries also drive on roads without potholes, and enjoy toilets,
electricity, and running water in their houses. They also typically have governments that do
not arbitrarily arrest or harass them; on the contrary, the governments provide services,
including education, health care, roads, and law and order. Notable, too, is the fact that the
citizens vote in elections and have some voice in the political direction their countries take.
The great di erences in world inequality are evident to everyone, even to those in poor
countries, though many lack access to television or the Internet. It is the perception and
reality of these di erences that drive people to cross the Rio Grande or the Mediterranean
Sea illegally to have the chance to experience rich-country living standards and
opportunities. This inequality doesn’t just have consequences for the lives of individual
people in poor countries; it also causes grievances and resentment, with huge political
consequences in the United States and elsewhere. Understanding why these di erences exist
and what causes them is our focus in this book. Developing such an understanding is not
just an end in itself, but also a rst step toward generating better ideas about how to
improve the lives of billions who still live in poverty.
The disparities on the two sides of the fence in Nogales are just the tip of the iceberg. As
in the rest of northern Mexico, which bene ts from trade with the United States, even if not
all of it is legal, the residents of Nogales are more prosperous than other Mexicans, whose

average annual household income is around $5,000. This greater relative prosperity of
Nogales, Sonora, comes from maquiladora manufacturing plants centered in industrial
parks, the rst of which was started by Richard Campbell, Jr., a California basket
manufacturer. The rst tenant was Coin-Art, a musical instrument company owned by
Richard Bosse, owner of the Artley ute and saxophone company in Nogales, Arizona. CoinArt was followed by Memorex (computer wiring); Avent (hospital clothing); Grant
(sunglasses); Chamberlain (a manufacturer of garage door openers for Sears); and
Samsonite (suitcases). Signi cantly, all are U.S.-based businesses and businessmen, using
U.S. capital and know-how. The greater prosperity of Nogales, Sonora, relative to the rest
of Mexico, therefore, comes from outside.
The di erences between the United States and Mexico are in turn small compared with
those across the entire globe. The average citizen of the United States is seven times as
prosperous as the average Mexican and more than ten times as the resident of Peru or
Central America. She is about twenty times as prosperous as the average inhabitant of subSaharan Africa, and almost forty times as those living in the poorest African countries such
as Mali, Ethiopia, and Sierra Leone. And it’s not just the United States. There is a small but
growing group of rich countries—mostly in Europe and North America, joined by Australia,
Japan, New Zealand, Singapore, South Korea, and Taiwan—whose citizens enjoy very
different lives from those of the inhabitants of the rest of the globe.
The reason that Nogales, Arizona, is much richer than Nogales, Sonora, is simple; it is
because of the very di erent institutions on the two sides of the border, which create very
di erent incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora. The
United States is also far richer today than either Mexico or Peru because of the way its
institutions, both economic and political, shape the incentives of businesses, individuals,
and politicians. Each society functions with a set of economic and political rules created and
enforced by the state and the citizens collectively. Economic institutions shape economic
incentives: the incentives to become educated, to save and invest, to innovate and adopt
new technologies, and so on. It is the political process that determines what economic
institutions people live under, and it is the political institutions that determine how this
process works. For example, it is the political institutions of a nation that determine the
ability of citizens to control politicians and in uence how they behave. This in turn
determines whether politicians are agents of the citizens, albeit imperfect, or are able to
abuse the power entrusted to them, or that they have usurped, to amass their own fortunes
and to pursue their own agendas, ones detrimental to those of the citizens. Political
institutions include but are not limited to written constitutions and to whether the society is
a democracy. They include the power and capacity of the state to regulate and govern
society. It is also necessary to consider more broadly the factors that determine how
political power is distributed in society, particularly the ability of di erent groups to act
collectively to pursue their objectives or to stop other people from pursuing theirs.
As institutions in uence behavior and incentives in real life, they forge the success or
failure of nations. Individual talent matters at every level of society, but even that needs an
institutional framework to transform it into a positive force. Bill Gates, like other legendary
gures in the information technology industry (such as Paul Allen, Steve Ballmer, Steve
Jobs, Larry Page, Sergey Brin, and Je Bezos), had immense talent and ambition. But he

ultimately responded to incentives. The schooling system in the United States enabled Gates
and others like him to acquire a unique set of skills to complement their talents. The
economic institutions in the United States enabled these men to start companies with ease,
without facing insurmountable barriers. Those institutions also made the nancing of their
projects feasible. The U.S. labor markets enabled them to hire quali ed personnel, and the
relatively competitive market environment enabled them to expand their companies and
market their products. These entrepreneurs were con dent from the beginning that their
dream projects could be implemented: they trusted the institutions and the rule of law that
these generated and they did not worry about the security of their property rights. Finally,
the political institutions ensured stability and continuity. For one thing, they made sure that
there was no risk of a dictator taking power and changing the rules of the game,
expropriating their wealth, imprisoning them, or threatening their lives and livelihoods.
They also made sure that no particular interest in society could warp the government in an
economically disastrous direction, because political power was both limited and distributed
su ciently broadly that a set of economic institutions that created the incentives for
prosperity could emerge.
This book will show that while economic institutions are critical for determining whether
a country is poor or prosperous, it is politics and political institutions that determine what
economic institutions a country has. Ultimately the good economic institutions of the United
States resulted from the political institutions that gradually emerged after 1619. Our theory
for world inequality shows how political and economic institutions interact in causing
poverty or prosperity, and how di erent parts of the world ended up with such di erent
sets of institutions. Our brief review of the history of the Americas begins to give a sense of
the forces that shape political and economic institutions. Di erent patterns of institutions
today are deeply rooted in the past because once society gets organized in a particular way,
this tends to persist. We’ll show that this fact comes from the way that political and
economic institutions interact.
This persistence and the forces that create it also explain why it is so di cult to remove
world inequality and to make poor countries prosperous. Though institutions are the key to
the di erences between the two Nogaleses and between Mexico and the United States, that
doesn’t mean there will be a consensus in Mexico to change institutions. There is no
necessity for a society to develop or adopt the institutions that are best for economic growth
or the welfare of its citizens, because other institutions may be even better for those who
control politics and political institutions. The powerful and the rest of society will often
disagree about which set of institutions should remain in place and which ones should be
changed. Carlos Slim would not have been happy to see his political connections disappear
and the entry barriers protecting his businesses zzle—no matter that the entry of new
businesses would enrich millions of Mexicans. Because there is no such consensus, what
rules society ends up with is determined by politics: who has power and how this power can
be exercised. Carlos Slim has the power to get what he wants. Bill Gates’s power is far more
limited. That’s why our theory is about not just economics but also politics. It is about the
e ects of institutions on the success and failure of nations—thus the economics of poverty
and prosperity; it is also about how institutions are determined and change over time, and
how they fail to change even when they create poverty and misery for millions—thus the

politics of poverty and prosperity.

2.
THEORIES THAT DON’T WORK

THE LAY OF THE LAND

T

our book is on explaining world inequality and also some of the easily visible
broad patterns that nest within it. The rst country to experience sustained economic
growth was England—or Great Britain, usually just Britain, as the union of England, Wales,
and Scotland after 1707 is known. Growth emerged slowly in the second half of the
eighteenth century as the Industrial Revolution, based on major technological
breakthroughs and their application in industry, took root. Industrialization in England was
soon followed by industrialization in most of Western Europe and the United States. English
prosperity also spread rapidly to Britain’s “settler colonies” of Canada, Australia, and New
Zealand. A list of the thirty richest countries today would include them, plus Japan,
Singapore, and South Korea. The prosperity of these latter three is in turn part of a broader
pattern in which many East Asian nations, including Taiwan and subsequently China, have
experienced recent rapid growth.
The bottom of the world income distribution paints as sharp and as distinctive a picture
as the top. If you instead make a list of the poorest thirty countries in the world today, you
will nd almost all of them in sub-Saharan Africa. They are joined by countries such as
Afghanistan, Haiti, and Nepal, which, though not in Africa, all share something critical with
African nations, as we’ll explain. If you went back fty years, the countries in the top and
bottom thirty wouldn’t be greatly different. Singapore and South Korea would not be among
the richest countries, and there would be several di erent countries in the bottom thirty, but
the overall picture that emerged would be remarkably consistent with what we see today.
Go back one hundred years, or a hundred and fty, and you’d nd nearly the same
countries in the same groups.
Map 3 shows the lay of the land in 2008. The countries shaded in the darkest color are the
poorest in the world, those where average per-capita incomes (called by economists GDP,
gross domestic product) are less than $2,000 annually. Most of Africa is in this color, as are
Afghanistan, Haiti, and parts of Southeast Asia (for example, Cambodia and Laos). North
Korea is also among this group of countries. The countries in white are the richest, those
with annual income per-capita of $20,000 or more. Here we nd the usual suspects: North
America, western Europe, Australasia, and Japan.
Another interesting pattern can be discerned in the Americas. Make a list of the nations
in the Americas from richest to poorest. You will nd that at the top are the United States
and Canada, followed by Chile, Argentina, Brazil, Mexico, and Uruguay, and maybe also
Venezuela, depending on the price of oil. After that you have Colombia, the Dominican
Republic, Ecuador, and Peru. At the bottom there is another distinct, much poorer group,
comprising Bolivia, Guatemala, and Paraguay. Go back fty years, and you’ll nd an
HE FOCUS OF

identical ranking. One hundred years: same thing. One hundred and fty years: again the
same. So it is not just that the United States and Canada are richer than Latin America;
there is also a de nite and persistent divide between the rich and poor nations within Latin
America.
A nal interesting pattern is in the Middle East. There we nd oil-rich nations such as
Saudi Arabia and Kuwait, which have income levels close to those of our top thirty. Yet if
the oil price fell, they would quickly fall back down the table. Middle Eastern countries with
little or no oil, such as Egypt, Jordan, and Syria, all cluster around a level of income similar
to that of Guatemala or Peru. Without oil, Middle Eastern countries are also all poor,
though, like those in Central America and the Andes, not so poor as those in sub-Saharan
Africa.
While there is a lot of persistence in the patterns of prosperity we see around us today,
these patterns are not unchanging or immutable. First, as we have already emphasized,
most of current world inequality emerged since the late eighteenth century, following on
the tails of the Industrial Revolution. Not only were gaps in prosperity much smaller as late
as the middle of the eighteenth century, but the rankings which have been so stable since
then are not the same when we go further back in history. In the Americas, for example, the
ranking we see for the last hundred and fty years was completely di erent ve hundred
years ago. Second, many nations have experienced several decades of rapid growth, such as
much of East Asia since the Second World War and, more recently, China. Many of these
subsequently saw that growth go into reverse. Argentina, for example, grew rapidly for ve
decades up until 1920, becoming one of the richest countries in the world, but then started a
long slide. The Soviet Union is an even more noteworthy example, growing rapidly
between 1930 and 1970, but subsequently experiencing a rapid collapse.

What explains these major di erences in poverty and prosperity and the patterns of
growth? Why did Western European nations and their colonial o shoots lled with
European settlers start growing in the nineteenth century, scarcely looking back? What
explains the persistent ranking of inequality within the Americas? Why have sub-Saharan
African and Middle Eastern nations failed to achieve the type of economic growth seen in
Western Europe, while much of East Asia has experienced breakneck rates of economic
growth?
One might think that the fact that world inequality is so huge and consequential and has
such sharply drawn patterns would mean that it would have a well-accepted explanation.
Not so. Most hypotheses that social scientists have proposed for the origins of poverty and
prosperity just don’t work and fail to convincingly explain the lay of the land.
THE GEOGRAPHY HYPOTHESIS

One widely accepted theory of the causes of world inequality is the geography hypothesis,
which claims that the great divide between rich and poor countries is created by
geographical di erences. Many poor countries, such as those of Africa, Central America,
and South Asia, are between the tropics of Cancer and Capricorn. Rich nations, in contrast,
tend to be in temperate latitudes. This geographic concentration of poverty and prosperity
gives a super cial appeal to the geography hypothesis, which is the starting point of the
theories and views of many social scientists and pundits alike. But this doesn’t make it any
less wrong.
As early as the late eighteenth century, the great French political philosopher
Montesquieu noted the geographic concentration of prosperity and poverty, and proposed
an explanation for it. He argued that people in tropical climates tended to be lazy and to
lack inquisitiveness. As a consequence, they didn’t work hard and were not innovative, and
this was the reason why they were poor. Montesquieu also speculated that lazy people
tended to be ruled by despots, suggesting that a tropical location could explain not just
poverty but also some of the political phenomena associated with economic failure, such as
dictatorship.
The theory that hot countries are intrinsically poor, though contradicted by the recent
rapid economic advance of countries such as Singapore, Malaysia, and Botswana, is still
forcefully advocated by some, such as the economist Je rey Sachs. The modern version of
this view emphasizes not the direct e ects of climate on work e ort or thought processes,
but two additional arguments: rst, that tropical diseases, particularly malaria, have very
adverse consequences for health and therefore labor productivity; and second, that tropical
soils do not allow for productive agriculture. The conclusion, though, is the same: temperate
climates have a relative advantage over tropical and semitropical areas.
World inequality, however, cannot be explained by climate or diseases, or any version of
the geography hypothesis. Just think of Nogales. What separates the two parts is not
climate, geography, or disease environment, but the U.S.-Mexico border.
If the geography hypothesis cannot explain di erences between the north and south of
Nogales, or North and South Korea, or those between East and West Germany before the fall
of the Berlin Wall, could it still be a useful theory for explaining di erences between North
and South America? Between Europe and Africa? Simply, no.
History illustrates that there is no simple or enduring connection between climate or
geography and economic success. For instance, it is not true that the tropics have always
been poorer than temperate latitudes. As we saw in the last chapter, at the time of the
conquest of the Americas by Columbus, the areas south of the Tropic of Cancer and north of
the Tropic of Capricorn, which today include Mexico, Central America, Peru, and Bolivia,
held the great Aztec and Inca civilizations. These empires were politically centralized and
complex, built roads, and provided famine relief. The Aztecs had both money and writing,
and the Incas, even though they lacked both these two key technologies, recorded vast
amounts of information on knotted ropes called quipus. In sharp contrast, at the time of the
Aztecs and Incas, the north and south of the area inhabited by the Aztecs and Incas, which
today includes the United States, Canada, Argentina, and Chile, were mostly inhabited by
Stone Age civilizations lacking these technologies. The tropics in the Americas were thus
much richer than the temperate zones, suggesting that the “obvious fact” of tropical poverty

is neither obvious nor a fact. Instead, the greater riches in the United States and Canada
represent a stark reversal of fortune relative to what was there when the Europeans
arrived.
This reversal clearly had nothing to do with geography and, as we have already seen,
something to do with the way these areas were colonized. This reversal was not con ned to
the Americas. People in South Asia, especially the Indian subcontinent, and in China were
more prosperous than those in many other parts of Asia and certainly more than the
peoples inhabiting Australia and New Zealand. This, too, was reversed, with South Korea,
Singapore, and Japan emerging as the richest nations in Asia, and Australia and New
Zealand surpassing almost all of Asia in terms of prosperity. Even within sub-Saharan
Africa there was a similar reversal. More recently, before the start of intense European
contact with Africa, the southern Africa region was the most sparsely settled and the
farthest from having developed states with any kind of control over their territories. Yet
South Africa is now one of the most prosperous nations in sub-Saharan Africa. Further back
in history we again see much prosperity in the tropics; some of the great premodern
civilizations, such as Angkor in modern Cambodia, Vijayanagara in southern India, and
Aksum in Ethiopia, ourished in the tropics, as did the great Indus Valley civilizations of
Mohenjo Daro and Harappa in modern Pakistan. History thus leaves little doubt that there
is no simple connection between a tropical location and economic success.
Tropical diseases obviously cause much su ering and high rates of infant mortality in
Africa, but they are not the reason Africa is poor. Disease is largely a consequence of
poverty and of governments being unable or unwilling to undertake the public health
measures necessary to eradicate them. England in the nineteenth century was also a very
unhealthy place, but the government gradually invested in clean water, in the proper
treatment of sewage and e uent, and, eventually, in an e ective health service. Improved
health and life expectancy were not the cause of England’s economic success but one of the
fruits of its previous political and economic changes. The same is true for Nogales, Arizona.
The other part of the geography hypothesis is that the tropics are poor because tropical
agriculture is intrinsically unproductive. Tropical soils are thin and unable to maintain
nutrients, the argument goes, and emphasizes how quickly these soils are eroded by
torrential rains. There certainly is some merit in this argument, but as we’ll show, the prime
determinant of why agricultural productivity—agricultural output per acre—is so low in
many poor countries, particularly in sub-Saharan Africa, has little to do with soil quality.
Rather, it is a consequence of the ownership structure of the land and the incentives that are
created for farmers by the governments and institutions under which they live. We will also
show that world inequality cannot be explained by di erences in agricultural productivity.
The great inequality of the modern world that emerged in the nineteenth century was
caused by the uneven dissemination of industrial technologies and manufacturing
production. It was not caused by divergence in agricultural performance.
Another in uential version of the geography hypothesis is advanced by the ecologist and
evolutionary biologist Jared Diamond. He argues that the origins of intercontinental
inequality at the start of the modern period, ve hundred years ago, rested in di erent
historical endowments of plant and animal species, which subsequently influenced
agricultural productivity. In some places, such as the Fertile Crescent in the modern Middle

East, there were a large number of species that could be domesticated by humans.
Elsewhere, such as the Americas, there were not. Having many species capable of being
domesticated made it very attractive for societies to make the transition from a huntergatherer to a farming lifestyle. As a consequence, farming developed earlier in the Fertile
Crescent than in the Americas. Population density grew, allowing specialization of labor,
trade, urbanization, and political development. Crucially, in places where farming
dominated, technological innovation took place much more rapidly than in other parts of
the world. Thus, according to Diamond, the di erential availability of animal and plant
species created di erential intensities of farming, which led to di erent paths of
technological change and prosperity across different continents.
Though Diamond’s thesis is a powerful approach to the puzzle on which he focuses, it
cannot be extended to explain modern world inequality. For example, Diamond argues that
the Spanish were able to dominate the civilizations of the Americas because of their longer
history of farming and consequent superior technology. But we now need to explain why
the Mexicans and Peruvians inhabiting the former lands of the Aztecs and Incas are poor.
While having access to wheat, barley, and horses might have made the Spanish richer than
the Incas, the gap in incomes between the two was not very large. The average income of a
Spaniard was probably less than double that of a citizen of the Inca Empire. Diamond’s
thesis implies that once the Incas had been exposed to all the species and resulting
technologies that they had not been able to develop themselves, they ought quickly to have
attained the living standards of the Spanish. Yet nothing of the sort happened. On the
contrary, in the nineteenth and twentieth centuries, a much larger gap in incomes between
Spain and Peru emerged. Today the average Spaniard is more than six times richer than the
average Peruvian. This gap in incomes is closely connected to the uneven dissemination of
modern industrial technologies, but this has little to do either with the potential for animal
and plant domestication or with intrinsic agricultural productivity di erences between
Spain and Peru.
While Spain, albeit with a lag, adopted the technologies of steam power, railroads,
electricity, mechanization, and factory production, Peru did not, or at best did so very
slowly and imperfectly. This technological gap persists today and reproduces itself on a
bigger scale as new technologies, in particular those related to information technology, fuel
further growth in many developed and some rapidly developing nations. Diamond’s thesis
does not tell us why these crucial technologies are not di using and equalizing incomes
across the world and does not explain why the northern half of Nogales is so much richer
than its twin just to the south of the fence, even though both were part of the same
civilization five hundred years ago.
The story of Nogales highlights another major problem in adapting Diamond’s thesis: as
we have already seen, whatever the drawbacks of the Inca and Aztec empires were in 1532,
Peru and Mexico were undoubtedly more prosperous than those parts of the Americas that
went on to become the United States and Canada. North America became more prosperous
precisely because it enthusiastically adopted the technologies and advances of the Industrial
Revolution. The population became educated and railways spread out across the Great
Plains in stark contrast to what happened in South America. This cannot be explained by
pointing to di erential geographic endowments of North and South America, which, if

anything, favored South America.
Inequality in the modern world largely results from the uneven dissemination and
adoption of technologies, and Diamond’s thesis does include important arguments about
this. For instance, he argues, following the historian William McNeill, that the east–west
orientation of Eurasia enabled crops, animals, and innovations to spread from the Fertile
Crescent into Western Europe, while the north–south orientation of the Americas accounts
for why writing systems, which were created in Mexico, did not spread to the Andes or
North America. Yet the orientation of continents cannot provide an explanation for today’s
world inequality. Consider Africa. Though the Sahara Desert did present a signi cant
barrier to the movement of goods and ideas from the north to sub-Saharan Africa, this was
not insurmountable. The Portuguese, and then other Europeans, sailed around the coast and
eliminated di erences in knowledge at a time when gaps in incomes were very small
compared with what they are today. Since then, Africa has not caught up with Europe; on
the contrary, there is now a much larger income gap between most African and European
countries.
It should also be clear that Diamond’s argument, which is about continental inequality, is
not well equipped to explain variation within continents—an essential part of modern
world inequality. For example, while the orientation of the Eurasian landmass might
explain how England managed to bene t from the innovations of the Middle East without
having to reinvent them, it doesn’t explain why the Industrial Revolution happened in
England rather than, say, Moldova. In addition, as Diamond himself points out, China and
India bene ted greatly from very rich suites of animals and plants, and from the
orientation of Eurasia. But most of the poor people of the world today are in those two
countries.
In fact, the best way to see the scope of Diamond’s thesis is in terms of his own
explanatory variables. Map 4 shows data on the distribution of Sus scrofa, the ancestor of
the modern pig, and the aurochs, ancestor of the modern cow. Both species were widely
distributed throughout Eurasia and even North Africa. Map 5 (this page) shows the
distribution of some of the wild ancestors of modern domesticated crops, such as Oryza
sativa, the ancestor of Asian cultivated rice, and the ancestors of modern wheat and barley.
It demonstrates that the wild ancestor of rice was distributed widely across south and
southeast Asia, while the ancestors of barley and wheat were distributed along a long arc
from the Levant, reaching through Iran and into Afghanistan and the cluster of “stans”
(Turkmenistan, Tajikistan, and Krgyzistan). These ancestral species are present in much of
Eurasia. But their wide distribution suggests that inequality within Eurasia cannot be
explained by a theory based on the incidence of the species.
The geography hypothesis is not only unhelpful for explaining the origins of prosperity
throughout history, and mostly incorrect in its emphasis, but also unable to account for the
lay of the land we started this chapter with. One might argue that any persistent pattern,
such as the hierarchy of incomes within the Americas or the sharp and long-ranging
di erences between Europe and the Middle East, can be explained by unchanging
geography. But this is not so. We have already seen that the patterns within the Americas
are highly unlikely to have been driven by geographical factors. Before 1492 it was the
civilizations in the central valley of Mexico, Central America, and the Andes that had

superior technology and living standards to North America or places such as Argentina and
Chile. While the geography stayed the same, the institutions imposed by European colonists
created a “reversal of fortune.” Geography is also unlikely to explain the poverty of the
Middle East for similar reasons. After all, the Middle East led the world in the Neolithic
Revolution, and the rst towns developed in modern Iraq. Iron was rst smelted in Turkey,
and as late as the Middle Ages the Middle East was technologically dynamic. It was not the
geography of the Middle East that made the Neolithic Revolution ourish in that part of the
world, as we will see in chapter 5, and it was, again, not geography that made the Middle
East poor. Instead, it was the expansion and consolidation of the Ottoman Empire, and it is
the institutional legacy of this empire that keeps the Middle East poor today.

Finally, geographic factors are unhelpful for explaining not only the di erences we see
across various parts of the world today but also why many nations such as Japan or China
stagnate for long periods and then start a rapid growth process. We need another, better
theory.
THE CULTURE HYPOTHESIS
The second widely accepted theory, the culture hypothesis, relates prosperity to culture. The
culture hypothesis, just like the geography hypothesis, has a distinguished lineage, going
back at least to the great German sociologist Max Weber, who argued that the Protestant
Reformation and the Protestant ethic it spurred played a key role in facilitating the rise of
modern industrial society in Western Europe. The culture hypothesis no longer relies solely
on religion, but stresses other types of beliefs, values, and ethics as well.
Though it is not politically correct to articulate in public, many people still maintain that
Africans are poor because they lack a good work ethic, still believe in witchcraft and magic,
or resist new Western technologies. Many also believe that Latin America will never be rich
because its people are intrinsically pro igate and impecunious, and because they su er
from some “Iberian” or “mañana” culture. Of course, many once believed that the Chinese
culture and Confucian values were inimical to economic growth, though now the
importance of the Chinese work ethic as the engine of growth in China, Hong Kong, and
Singapore is trumpeted.
Is the culture hypothesis useful for understanding world inequality? Yes and no. Yes, in
the sense that social norms, which are related to culture, matter and can be hard to change,
and they also sometimes support institutional di erences, this book’s explanation for world

inequality. But mostly no, because those aspects of culture often emphasized—religion,
national ethics, African or Latin values—are just not important for understanding how we
got here and why the inequalities in the world persist. Other aspects, such as the extent to
which people trust each other or are able to cooperate, are important but they are mostly
an outcome of institutions, not an independent cause.
Let us go back to Nogales. As we noted earlier, many aspects of culture are the same
north and south of the fence. Nevertheless, there may be some marked di erences in
practices, norms, and values, though these are not causes but outcomes of the two places’
divergent development paths. For example, in surveys Mexicans typically say they trust
other people less than the citizens of the United States say they trust others. But it is not a
surprise that Mexicans lack trust when their government cannot eliminate drug cartels or
provide a functioning unbiased legal system. The same is true with North and South Korea,
as we discuss in the next chapter. The South is one of the richest countries in the world,
while the North grapples with periodic famine and abject poverty. While “culture” is very
di erent between the South and the North today, it played no role in causing the diverging
economic fortunes of these two half nations. The Korean peninsula has a long period of
common history. Before the Korean War and the division at the 38th parallel, it had an
unprecedented homogeneity in terms of language, ethnicity, and culture. Just as in Nogales,
what matters is the border. To the north is a di erent regime, imposing di erent
institutions, creating di erent incentives. Any di erence in culture between south and north
of the border cutting through the two parts of Nogales or the two parts of Korea is thus not
a cause of the differences in prosperity but, rather, a consequence.
What about Africa and African culture? Historically, sub-Saharan Africa was poorer than
most other parts of the world, and its ancient civilizations did not develop the wheel,
writing (with the exception of Ethiopia and Somalia), or the plow. Though these
technologies were not widely used until the advent of formal European colonization in the
late nineteenth and early twentieth century, African societies knew about them much
earlier. Europeans began sailing around the west coast in the late fteenth century, and
Asians were continually sailing to East Africa from much earlier times.
We can understand why these technologies were not adopted from the history of the
Kingdom of Kongo at the mouth of the Congo River, which has given its name to the
modern Democratic Republic of Congo. Map 6 shows where the Kongo was along with
another important central African state, the Kuba Kingdom, which we discuss later in the
book.
Kongo came into intense contact with the Portuguese after it was rst visited by the
mariner Diogo Cão in 1483. At the time, Kongo was a highly centralized polity by African
standards, whose capital, Mbanza, had a population of sixty thousand, which made it about
the same size as the Portuguese capital of Lisbon and larger than London, which had a
population of about fty thousand in 1500. The king of Kongo, Nzinga a Nkuwu, converted
to Catholicism and changed his name to João I. Later Mbanza’s name was changed to São
Salvador. Thanks to the Portuguese, the Kongolese learned about the wheel and the plow,
and the Portuguese even encouraged their adoption with agricultural missions in 1491 and
1512. But all these initiatives failed. Still, the Kongolese were far from averse to modern
technologies in general. They were very quick to adopt one venerable Western innovation:

the gun. They used this new and powerful tool to respond to market incentives: to capture
and export slaves. There is no sign here that African values or culture prevented the
adoption of new technologies and practices. As their contacts with Europeans deepened, the
Kongolese adopted other Western practices: literacy, dress styles, and house designs. In the
nineteenth century, many African societies also took advantage of the rising economic
opportunities created by the Industrial Revolution by changing their production patterns. In
West Africa there was rapid economic development based on the export of palm oil and
ground nuts; throughout southern Africa, Africans developed exports to the rapidly
expanding industrial and mining areas of the Rand in South Africa. Yet these promising
economic experiments were obliterated not by African culture or the inability of ordinary
Africans to act in their own self-interest, but rst by European colonialism and then by
postindependence African governments.

The real reason that the Kongolese did not adopt superior technology was because they
lacked any incentives to do so. They faced a high risk of all their output being expropriated
and taxed by the all-powerful king, whether or not he had converted to Catholicism. In fact,
it wasn’t only their property that was insecure. Their continued existence was held by a
thread. Many of them were captured and sold as slaves—hardly the environment to
encourage investment to increase long-term productivity. Neither did the king have
incentives to adopt the plow on a large scale or to make increasing agricultural productivity
his main priority; exporting slaves was so much more profitable.
It might be true today that Africans trust each other less than people in other parts of the
world. But this is an outcome of a long history of institutions which have undermined
human and property rights in Africa. The potential to be captured and sold as a slave no
doubt influenced the extent to which Africans trusted others historically.


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