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The main idea of the book is that if we want to think about
the prosperity or poverty of nations, we have to think about
the politics of it—in particular, we have to think about
institutions that provide incentives for innovation and
investment, or a level playing field. But, sadly, those
institutions are rather rare in history. What we see much
more are what we call in the book 'extractive institutions,'
which have been designed by a few people—the elite in society—
to extract resources from the rest of society, and they don't
generally encourage investment or innovation, and they
certainly don't provide a level playing field for people to
use their talents.
I think the best way to understand why this theory,
rather than those that have been proposed
over the centuries, emphasizing the importance of
geography, culture, or enlightened leadership, is the
right way for thinking about the prosperity of nations,
we can consider an example.
Consider how what we view as the extractive institutions
in South America have formed over the last past centuries,
versus the more inclusive institutions in North America.
If you look at the way that the Spanish conquistadors
conquered Latin America, the main things they were
interested in were gold, silver, and people to enslave,
and to capture and put to work to produce goods and
food for them. And when they found places which were
empty or sparsely settled, they had no interest in
those places, they moved away. And places such as
Buenos Aires, for example, with a great climate and
fertile land around it, was not what the Spaniards were
interested in. When the English colonialists went to
North America, they had a remarkably similar strategy
for colonization as the Spaniards in the South.
They first tried to capture the Indians; that didn't work
because they were too sparsely settled and they didn't
have the Aztec or the Inca empires to turn to, so as a
second strategy, they tried to bring in indentured servants,
to become the enslaved people to produce food and goods
for the elite. That didn't work either, and people ran away,
and wanted their freedom, and it was finally
upon the realization that those strategies would not work
in North America, that they started to introduce the first
bits of inclusive institutions. They introduced the
head rights system, giving incentives, and land to settlers;
and then also a general assembly so that the settlers could
govern themselves. And I think what's remarkable about
this story is that it emphasizes that it wasn't some English
culture, or some different vision of leadership that led to
the outcomes that were so divergent between North and
South America; it was certainly not geography because
at the time the Europeans arrived it was actually the South
that was more developed and the North that was less developed.
It was the politics of it, and in particular that the Spanish
conquistadors could take over existing hierarchies and use
force to enslave people in the South, but they couldn't do
the same in the North because there were not enough
people to enslave, and when they brought their own lower
strata of the society, those people rose up and didn't give
them the same opportunities. And those beginnings of
institutions have persisted and led to a more inclusive
system in the North and a more extractive system in the South,
and when we see today more innovation, more investment,
and a more level playing field in places such as the
United States or Canada, than in Mexico, Peru or Bolivia,
those are the continuations of these trends that had started
in an institutional and political way with the discovery
of the new world in the 15th century and 16th century.
You know, when we started working on this, the sort of topics
that we cover in this book were not popular among economists,
who focused on such things as unemployment,
monetary policy, business cycles, but big picture questions
about long-run development weren't popular, and when
they were posed, they were posed in entirely non-political
contexts. And both James and I realized that you could
really not divorce the economic trajectory of a nation
from its political dynamics, and we brought a political aspect,
a political viewpoint to this problem, and we started writing
academic papers, both on the theory and empirical and
historical analysis of these problems, and about four years
ago we finally decided it was time to sort of push this
agenda and try to write a book that was both more
comprehensive, so forced us to be more holistic and
recognize different aspects of the problem, and also
perhaps reach a broader audience.