Chapter 4:
Small Differences and Critical Junctures: The Weight of History
I. The World the Plague Created
 (1346) Bubonic Plague/ the Black
Death
o Transmitted by fleas living on
rats
o Brought from China by traders
traveling along the Silk Road
o The plague wiped out about half
of the population of any area it
hit
 Such catastrophes can have a huge
effect on the institutions of society
 The plague also had a socially,
economically, and politically
transformative impact on medieval
European societies
 Turn of the 14th century: Europe
had a feudal order, an organization
of society that emerged in Western
Europe after the collapse of the
Roman Empire
o Hierarchical relationship
between king and lords beneath
him
o Peasants at the bottom with
“servile” status: Serfs
 Performed extensive
unpaid labor and
subject to many
fines and taxes
 Unable to move
without permission
of their lord who
was also the judge,
jury, and police
force
o Highly extractive system
 Massive scarcity of labor created
by the plague shook the
foundations of the feudal order
o Peasants demanded change
o They started to free themselves
from compulsory labor services
and obligations to their lords
o Wages went up
 (1381) Peasants’ Revolt broke out
o Rebels under Wat Tyler
captured most of London
o They were defeated and
executed; but
o There were no more attempts to
enforce statute of laborers
o Inclusive labor market began to
emerge in England
 Demographic impact in Eastern
Europe was the same as in England
and Western Europe
o Labor was scarce
o People demanded greater
freedoms
 East: more powerful contradictory
logic was at work
o Lords had a greater incentive to
keep the labor market extractive
and peasants servile
o Eastern landlords began to take
over large tracts of land and
expand their holdings
o Towns were weaker and less
populous
o Workers’ freedoms were being
encroached on
 (1500) Western Europe began
demanding agricultural goods
produced in the East
o 80% of imports of rye
o Eastern landlords ratcheted up
their control over the labor force
to expand their supply
o “Second Serfdom”
o Serfs subject to these rules made
up 90% of the rural population
by this time
 (1600) they became 2 worlds apart
in terms of differences between
Western and Eastern Europe
 West
o Free of feudal dues, fines, and
regulations were become a key
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
part of a booming market
economy
 East
o Coerced serfs grew the food and
agricultural goods
o Not an inclusive market
economy
 Black Death was an example of a
critical juncture
o A major event or confluence of
factors disrupting the existing
economic or political balance in
society
o Double-edged sword that causes
a sharp turn in the trajectory of a
nation
 We must understand how history
and critical junctures shape the
path of economic and political
institutions
 It enables us to have a more
complete theory of the origins of
differences in poverty and
prosperity
 Why some nations make transition
to inclusive economic and political
institutions while others don’t
II. The Making of Inclusive
Institutions
 England was unique among the
nations when it made the
breakthrough to sustained
economic growth in the 17th
century
 Major economic changes were
preceded by a political revolution
o Brought a distinct set of
economic and political
institutions
o Much more inclusive
o Profound implications for
economic incentives and for
who would reap benefits of
prosperity
o Result of intense conflict as
different groups competed for
power
o Attempted to structure
institutions in their own favor
 Two landmark events:
o English Civil War 1642 - 1651
o Glorious Revolution of 1688
 Limited the power of the
king and the executive
 Relocated to parliament the
power to determine
economic institutions
 Opened up the political
system
 Foundation for creating a
pluralistic society
 Accelerated a process of
political centralization
 Created the world’s first set
of inclusive political
institutions
o Both domestic and international
economy were choked by
monopolies
 Arbitrary taxation and
manipulated legal system
 Changed after the glorious
revolution
o Government adopted these
economic institutions
 Incentives for investment,
trade and innovation
 Enforced property rights,
patents
 Major stimulus to
innovation
 Protected law and order
 Arbitrary taxation stopped
 Monopolies were abolished
almost completely
o English promoted mercantile
activities and promoted
domestic industry
o Facilitated construction of
infrastructure
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
 Roads, canals, etc.
 Proved to be crucial for
industrial growth
 Impelled engines of prosperity
 Paved the way for the Industrial
Revolution
o Depended on major
technological advantages
o Made possible by scientific
inquiry and talents
o It was the inclusive nature of
markets
o Relied on education and skills
 Industrial Revolution started in
England following the glorious
revolution
o James Watt
o Richard Arkwright
o These inventors were confident
that their property rights would
be respected
 The technological advances,
drive of businesses to expand and
invest, and the efficient use of
skills and talent, were all made
possible by the inclusive
economic institutions that
England developed
 There in turn were founded on
her inclusive political institutions
 These were developed because of
two factors
o Political institutions including a
centralized state that enabled her
to take the step toward inclusive
institutions with the onset of the
Glorious Revolution (it did not
significantly differentiate it
from Western European
countries)
o Events leading up to the
Glorious Revolution forged a
broad and powerful coalition
able to place durable constraints
on the power of the monarchy
and the executive
III. Small Differences That Matter
 World inequality dramatically
increased with the British or
English
 Industrial Revolution because
only some parts adopted the
innovations and new
technologies
 The response of different nations
was largely shaped by the
different historical paths of their
institutions
 By the middle of the 18th century,
there were already notable
differences in political and
economic institutions around the
world
 (1588) All three countries
(England, France and Spain)
were ruled by relatively
absolutist monarchs
o Parliament in England
o Cortes in Spain
o Estates-general in France
 These assemblies all had
somewhat different powers and
scopes
 (1688) English political
institutions were on their way to
greater pluralism
 English parliament and Spanish
Cortes had power over taxation
 Parliament demanded
concessions, restrictions on the
right to create monopolies
 In Spain, trade was monopolized
by the Spanish monarchy
o These distinctions which
appeared small started to
matter a great deal in the 17th
century
 It was only after 1600 that a huge
expansion of world trade
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
particularly in the Atlantic took
place
o Even thought Americas was
discovered in 1492
o And rounding the Cape of
Good Hope happened
 The consequences of various
economic expansions for
institutions were very different
for England than for Spain and
France because of small initial
differences
o Elizabeth I and her
successors could not
monopolize the trade with
Americas
o Other European monarchs
could
o Large groups of wealthy
traders in England had little
affiliation with the crown
o English traders resented
royal control and demanded
changes in political
institutions
o This played a critical role in
the Glorious Revolution and
English Civil War
 The divergent paths of English,
French, and Spanish societies
illustrate the importance of the
interplay of small institutional
differences with critical junctures
 Critical junctures affect a whole
of set of societies
 Colonization and decolonization
affected most of the globe
 No two cities create the same
institutions
o They have distinct customs,
different systems of property
rights, etc.
 Societies are constantly subject
to economic and political conflict
that is resolved in different ways
because of specific historical
differences, the role of
individuals, or just random
factors
 Institutional drift has no
predetermined path and does not
even need to be cumulative
 The differences created by
institutional drift become
especially consequential
o They influence how society
reacts to changes in
economic or political
circumstances during critical
junctures
 The richly divergent patterns of
economic development around
the world hinge on the interplay
of critical junctures and
institutional drift
IV. The Contingent Path of History
 The outcomes of the events
during critical junctures are
shaped by the weight of history
o Existing economic and
political institutions shape
the balance of power and
delineate what is politically
feasible
 The outcome is not historically
predetermined but contingent
 The exact path of institutional
development during these
periods depends on
o which one of the opposing
forces will succeed,
o which groups will be able to
form executive coalitions,
o and which leaders will be
able to structure events to
their advantage.
 The role of contingency can be
illustrated by the origins of
inclusive political institutions in
England
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
 A century earlier it was far from
obvious that England would have
any ability to dominate the seas,
colonize and capture much of
trade with the Americas and the
East
 Bad weather and strategic
mistakes made the Spanish
Armada lose their advantage and
against all odds the English
destroyed much of the fleet of
their opponent
o This unlikely victory created
the transformative critical
juncture and spawned the
distinctively pluralistic
political institutions of post
1688 England
o This critical juncture led to a
major political revolution a
century later
 There should be no presumption
that any critical juncture will lead
to a successful political
revolution or to change for the
better
 History is full of examples of
revolutions and radical
movements
 Robert Michels: Iron law of
oligarchy
 The end of colonialism in the
decades following the 2nd world
war created critical junctures for
many former colonies
 In most cases (sub-Saharan
Africa and many in Asia) the
post independence governments
repeated and intensified the
abuses of their predecessors
o Narrowly distributed
political power
 Botswana: critical junctures were
used to launch a process of
political and economic change
that paved the way for economic
growth
 Critical junctures can result in
major change toward extractive
institutions
 Inclusive institutions, can also
reverse course and become
gradually more extractive due to
challenges during critical
junctures
V. Understanding the Lay of the Land
 The emergence of a market
economic based on inclusive
institutions and sustained
economic growth in 18th century
England ret ripples around the
world
 The diffusion of the Industrial
Revolution had different effects
on the world in the same way the
Black Death had different effects
on Western and Eastern Europe,
and how the expansion of the
Atlantic trade had different
effects in England and Spain
 It was the institutions in place in
different parts of the world that
determined the impact
 The institutions were indeed
different
o Small differences amplified
over time by prior critical
junctures
 Some parts of the world
developed institutions that were
very close to those in England
o European settler colonies such
as Australia, Canada, and the
US
 Western Europe had institutions
similar to England at the time of
the industrial revolution
o There were small differences
between England and the rest
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
o That is why this revolution
happened in England and not
in France
o This created an entirely new
situation and different sets of
challenges to European
regimes
 Spawned a new set of
conflicts culminating the
French Revolution
 The French Revolution
was another critical
juncture that led the
institutions of Western
Europe to converge with
those of England
 The rest of the world followed
different institutional trajectories
o European colonization set the
stage for institutional
divergence in the Americas
 Inclusive institutions
developed in the US and
Canada
 Extractive ones in Latin
America
 Which explains the
patterns of inequality we
see in the Americas
o Africa was part of the world
with the institutions least able
to take advantage of
opportunities made available
by the industrial revolution
 Africa has lagged behind
the rest of the world in
terms of technology,
political development,
and prosperity
 Centralized states
formed very late and
very tenuously
 Shares this trajectory of
lack of state
centralization with
countries like
Afghanistan, Haiti,
Nepal, etc.
 These countries have
much in common
institutionally with most
nations in sub-Saharan
Africa
o How African institutions
evolved into their situation
today as extractive illustrates
the process of institutional
drift punctuated by critical
junctures but with highly
perverse outcomes
o The initial differences
between England and Kongo
meant that while new long
distance trade opportunities
created a critical juncture
toward pluralistic political
institutions in the former
 They also extinguished
any hope of absolutism
being defeated in the
Kongo
o In much of Africa the
substantial profits to be had
from slaving led not only to its
intensification and even more
insecure property rights
 But also intense warfare
and destruction of many
institutions
 Many of the African
states had collapsed
o The critical juncture of the
discovery of the Americas
may have helped England
develop inclusive institutions
but it made institutions in
Africa even more extractive
 Even though the slave trade
ended, subsequent European
colonialism cut off any
possibility of indigenous
institutional reform
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
o Even outside of areas such as
Congo, Madagascar, etc. there
was little chance for Africa to
change its institutional path
o The structures of colonial rule
left Africa with a more
complex institutional legacy in
the 1960’s than at the start of
the colonial period
 The development of the political
and economic institutions in
many African colonies meant
that rather than creating a critical
juncture for improvements in
their institutions, independence
created an opening for
unscrupulous leaders to take over
and intensify extraction
 The political incentives these
structures created led to a style of
politics that reproduced the
historical patterns of insecure and
inefficient property rights under
states with strong absolutist
tendencies but lacking any
centralized authority
 Industrial revolution still has not
spread to Africa because the
continent has experienced a long
vicious circle of the persistence
and re-creation of extractive
political and economic
institutions
o With Botswana as the
exception
 There is a tendency to see
historical events as the inevitable
consequences of deep-rooted
forces
 History of economic and political
institutions creates vicious and
virtuous circles
o Contingency can always be a
factor
 19th century, absolutism not so
different from that in Africa or
Eastern Europe was blocking the
path of industrialization in much
of Asia
 In China, the state was absolutist
and independent cities,
merchants were either non-
existent or much weaker
politically
o Major naval power
o Involved in long-distance
trade centuries before the
Europeans
o Turned away from the oceans
just at the wrong time
o Ming emperors decided
creative destruction would be
likely to threaten their rule
 In India, institutional drift
worked differently and led to the
development of a uniquely rigid
hereditary caste system
o Limited functions of market
o Underpinned strong form of
absolutism under the Mughal
rulers
o Indian caste systems were so
rigid and gradually became
meaningless as predictors of a
person’s occupation
o The caste system and Mughal
absolutism were serious
impediments to the
development of inclusive
economic institutions
o India became an extractive
colony of the English in the
19th century
o Since English defeated China
in the opium wars
 China, India and others failed to
take advantage of commercial
and industrial opportunities
o They lagged behind as
Western Europe was forging
ahead (Asia except for Japan)
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
 Institutional development that
Japan charted
o Interaction between critical
junctures and small
differences created by
institutional drift
o They were under absolutist
rule
o Critical juncture: created by
Western Interventionist
 Demanded trade
concessions similar to
what England got from
Opium Wars
o Tokugawa rule
 Extractive and absolutist
 Absolutism in China was
stronger and opposition
less organized
o The institutional difference, in
many ways small relative to
the differences separating
China and Japan
 Had decisive
consequences during the
critical juncture created
by forceful arrival of
English and Americans
 China continued in its
absolutist path
 Meiji restoration
 Enabled more
inclusive political
institutions
 Laid the foundations
for the subsequent
rapid Japanese
growth, while China
languished under
absolutism
 Transitions from
stagnation to rapid
growth
 Growth was preceded by
historic changes in the
economic institutions of
countries
 Not always political
institutions
 Just like the China
case
 Decisive steps toward
inclusive economic
institutions can ignite
rapid economic growth,
a sharp turn away from
inclusive institutions can
lead to economic
stagnation
 Collapses of rapid
growth like Argentina or
Soviet Union
 Are consequences of
growth under
extractive institutions
coming to an end
 This can happen because
of infighting over spoils
of extraction leading to
the collapse of the
regime
 Or because of inherent
lack of innovation and
creative destruction
under that puts a limit on
sustained growth
 Political and economic
institutions of Latin America
over the past 500 years were
shaped by Spanish colonialism
 Those in the middle east:
Ottoman colonialism
o Absolutist
o Sultan was accountable to few
and sharing power with none
o Economic institutions were
highly extractive
o No private property in land
o But they did not dominate the
middle east
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
o They were continuously
challenged by tribal powers in
the Arabian peninsula
o It lacked the administrative
capacity to collect taxes
 Farmed them out to
individuals
 Tax farmers became
autonomous and
powerful
o Property rights were farm
from secure because the
Ottoman state failed to
establish a stable order in
these areas
 There was great deal of
lawlessness and banditry
o At the time of the Industrial
Revolution, the economic
institutions of the Middle East
were extractive
 Region stagnated
economically
o 1840’s they were trying to
reform institutions
o but absolutism persisted until
WW1 and reform efforts were
thwarted
 fear of creative
destruction and losing
o Status quo persisted because
of the desire for political
control and taxation
 In the middle ages, the middle
east itself was also a relatively
advanced part of the world
economically
 We have seen that neither
geographic nor cultural nor
ignorance based theories are
helpful for explaining the lay of
the land around us
o They don’t provide a
satisfactory account for the
prominent patterns of world
inequality
 The process of economic
divergence started with
the Industrial Revolution
in England
 The persistent
divergence between
different paths of the
Americas
 The poverty of Africa or
the Middle East
 The divergence between
Eastern and Western
Europe
 The transitions from
stagnation to growth and
the sometimes abrupt
end to growth spurts
 Our institutional theory
does
 In the remaining chapters:
o How this institutional theory
works
o Illustrate the wide range of
phenomena it can account for
o How and why decisive steps
toward inclusive political
institutions were taken during
the Glorious Revolution in
England
o Will also show certain areas
that managed to transform
institutions in a more inclusive
direction (like France and
Japan)
o Or that prevented the
establishment of extractive
institutions (Australia and US)
were more receptive to the
spread of the Industrial
Revolution and pulled ahead
of the rest
 As in England, it was not always
a smooth process, and along the
way, many challenges to
inclusive institutions were
 Chapter 4:
Small Differences and Critical Junctures: The Weight of History
overcome, sometimes because of
the contingent past of history