WHY NATIONS FAIL By Daron Acemoglu and James A. Robinson (CHAPTER 7)

 

THE TURNING POINT

TROUBLE WITH STOCKINGS

In “Trouble with Stockings,” Acemoglu and Robinson explain how the English priest William Lee invented a knitting machine in 1589. But Queen Elizabeth I and King James I both denied him a patent because they worried that it would put knitters out of business.

Two hundred years after Lee showed the queen and king his invention, similar textile machines drove the Industrial Revolution. Acemoglu and Robinson’s point is clear: England couldn’t industrialize in the 16th century because its political institutions weren’t inclusive enough. In fact, similar processes prevented industrialization all over the world for many centuries. Had other countries developed institutions like England’s, the authors imply, they would have been able to industrialize much earlier.

Acemoglu and Robinson repeatedly emphasize that historical events always depend on earlier events. Thus, while the Magna Carta and formation of Parliament couldn’t create inclusive institutions on their own, they did make it easier for England to develop these institutions later on, since they put checks on the monarchy’s power and made it possible for diverse groups to have a voice in the English government.

The War of the Roses actually began as elite infighting under extractive institutions: the aristocracy and monarchy both wanted more power for themselves. However, neither side won outright, so England had to form a kind of hybrid government that balanced power between the Crown and Parliament. In fact, precisely because it had to balance power in this way, the English government was already taking crucial first steps toward inclusiveness. The first step to building inclusive institutions, then, can simply be for multiple competing groups to win a meaningful voice in the government. Acemoglu and Robinson also return in this section to the crucial concept of centralization. Readers are likely to associate it with absolutism, probably because dictators often try to expand their power and impose it as widely as they can. However, the authors emphasize that centralization is really just the expansion of the state, so it isn’t always associated with absolutism. In Henry VIII’s case, centralization actually backfired: he wanted to increase his own power, but instead, he increased the state’s overall power while decreasing his control over the state.

Parliament’s anti-monopoly rules were fundamentally selfish: they were designed to help the merchant elite increase its profits. Of course, Charles I also clearly wanted to increase his own power and profits. Thus, Parliament wasn’t inching England toward inclusive institutions because it believed in democracy or pluralism. Instead, it did so because it had to gradually take power away from the king in order to pursue its own interests. This naturally created a more balanced, less concentrated system of power. Parliament also could have tried to overthrow the king and set up an extractive dictatorship of its own but it wasn’t powerful or unified enough to do so.

England’s transformation from extractive to inclusive institutions was a long process that unfolded slowly over the course of many decades. Parliament used its limited power over revenue to sabotage the king’s war effort. This shows how even slightly pluralistic institutions can stop absolutism by checking leaders’ power. Meanwhile, the English Civil War wasn’t merely a conflict between two different factions: it was also a fight between two different visions of government. Of course, the Parliamentarians didn’t intend on extending power to commoners, women, or really anyone but themselves. However, their victory still created more pluralistic institutions because they at least divided power between multiple groups.

The Glorious Revolution definitively tipped the balance of power away from the monarchy and toward Parliament. However, this didn’t necessarily have to make England more pluralistic instead, Parliament could have banded together to impose new extractive institutions on the country. One reason this didn’t happen was that Parliament was made up of businessmen who engaged in international trade, competed with one another, and cared more about protecting their property and wealth than about taking power for themselves. In fact, the authors suggest that representative bodies like Parliament are generally more likely to create pluralistic institutions because they represent multiple groups whose interests don’t align.

Acemoglu and Robinson again stress that political institutions don’t have to include everyone or be truly egalitarian in order to create economic prosperity. Instead, they just need to be inclusive enough that their members choose a competitive market over monopolies. The wealthy men who dominated the English Parliament stood to benefit more from competition than monopolies, so they chose to create inclusive economic institutions. In turn, Acemoglu and Robinson argue, such competitive markets make political institutions more egalitarian over time. Moreover, because Parliament was theoretically supposed to represent the people, petitions could have some effect on its decisions. Thus, the Glorious Revolution gave commoners a proverbial foot in the door of politics they didn’t have true representation, but their concerns were at least heard, and when they banded together, they had a certain amount of political power.

Again, just like pluralism, centralization and the expansion of the state were crucial to building inclusive institutions. This is because they allowed the state to actually enforce its decisions. Thus, while tax bureaucracy might seem like an irrelevant topic, it was actually an important political tool in 17th and 18th century England because it helped Parliament collect taxes as fairly as possible. In turn, Parliament was able to fund the country’s pro-business activities and establish the rule of law (which is the idea that the law applies to everyone, thereby preventing elites from abusing their power).

Parliament didn’t invest in transportation and privatize land because it wanted to help enrich the whole population rather, it did so to increase profits for its members and their close allies. However, Parliament represented a wide range of businessmen and not just a tiny group of oligarchs. Therefore, the best way to protect their profits was not by using the state’s power to gift them land, resources, and labor (like in post-independence Mexico), but by protecting their equal rights to participate in a competitive market.

While protectionist policies made the market less competitive internationally, they made it more competitive domestically. English textile manufacturers therefore had a strong incentive to grow, which is why they eagerly adopted industrial technologies. Translating this into the language of Acemoglu and Robinson’s theory, inclusive economic institutions created an inclusive and competitive market. Private property rights let entrepreneurs reap the benefits of their investments, and a level legal and economic playing field allowed the best products and firms to succeed. In other words, the competitive market incentivized innovations.

The Industrial Revolution highlights how inclusive economic institutions spur innovation and growth by protecting intellectual property. While the German political system punished and stifled innovation, the English patent system encouraged and rewarded it. By protecting Watt’s patent rights, England empowered him to spread his invention as widely as possible and rewarded him for doing so. What’s more, by protecting other inventors’ patents, too, the English government made it possible for Watt to learn about their inventions and build on them. This same effect rapidly improved loom technology, too: inventors knew they would receive credit and profit for their individual contributions, so they could freely work together and build off of one another’s ideas.

Strong property rights and an equal economic playing field let virtually any English male take up trades like roadbuilding. These inclusive economic institutions rewarded whoever did the best job, not whoever had the most power or access. In fact, effective amateurs replacing lackluster professionals and wool factories replacing domestic weavers are both classic examples of creative destruction. In both cases, new technologies made old ones obsolete. While this disrupted old social arrangements and put many people out of work, it ultimately made the economy more efficient and productive.

Again, while they didn’t include everyone (or even most of society), inclusive political institutions in England made it possible for more people to gain political rights over time. But this was primarily because of the inclusive economic institutions they created. The Industrial Revolution enriched new classes of people, allowing the basic conflict behind the Glorious Revolution to repeat itself: new aristocrats demanded and seized power for themselves, which made the political system a little bit more inclusive, too.

English history supports Acemoglu and Robinson’s theory of economic change: political changes during critical junctures created inclusive political institutions, which built inclusive economic institutions, which in turn spurred innovation and generated sustainable economic growth. If other nations had built the right institutions earlier in history, the authors suggest, they might have been able to industrialize in the same way.

As in every society, in 17th century England, conflict over power was the engine behind political change. While Acemoglu and Robinson argue that different groups are always competing for power, including the masses and the elite, the masses didn’t take power in the Glorious Revolution. Instead, a pluralistic group of elites did. However, this shift moved English institutions far enough toward inclusiveness that it built inclusive economic institutions in the short term and an egalitarian democracy in the long term.

Like everything in history, the Glorious Revolution was contingent it depended on human decisions, earlier historical events, and the small institutional differences they created. In other words, were it not for the Black Death, the Roman Empire, or even the defeat of the Spanish Armada, the Glorious Revolution might not have happened, and the Industrial Revolution might not have kicked off in England.