The three great families that owned the tin mines were expropriated and the mines nationalized. All of the great haciendas and landed elites were expropriated and the land distributed to the peasants. The coalition which had represented these interests in politics, known as La Rosca, was displaced, universal suffrage was introduced, the military was disarmed, and pongueaje, the last form of colonial unpaid labor service, was abolished.

On the face of it this political revolution and the changes in economic institutions which it apparently brought ought to have led to a dramatic change in the development prospects for Bolivia. But it didn’t. The next figure from Jonathan Kelley and Herbert S. Klein’s seminal book Revolution and the Rebirth of Inequality shows the impact of the revolution on inequality. By 1960, 8 years after the revolution this had fallen by about 30%.

But the figure also shows that by the late 1960s inequality had increased back to levels which were greater than those before 1952!

What went wrong?

In Why Nations Fails  we also emphasize that there is always conflict over institutions, and extractive institutions will be challenged not only by those who lose out from them and want to create a more inclusive society but also by those who wish to take over these extractive institutions and become the beneficiaries from extraction. It was this latter group that triumphed in 1952 in Bolivia.

But when institutions persist, sometimes they do so in different forms. The new extractive coalition that emerged after 1952 in Bolivia could not do the extraction using the same instruments as before. The new elites of the MNR could not simply take over the haciendas of the old elite. But there are many ways to skin a cat. Just how the cat was skinned after 1952 and the implications of this for economic institutions were researched in the late 1960s by the political anthropologist Dwight Heath. The title of the essay he wrote, “New Patrons for Old: Changing Patron-Client Relationships in the Bolivian Yungas”, is revealing.

What Heath showed is that after the revolution the MNR set themselves up as the new elite. He studied in detail how they interacted with different elements in society, for example, the colonos and arrenderos, the poorest peasants who had previously worked on the large haciendas. Before 1952 these workers were embedded in patron-client relationships with the hacienda owners, the hacendados. To get access to land they had to provide political services for the hacendados, for example voting in the way they were told.

As the next figure from Heath’s paper shows, after 1952 these people became “ex-colonos” and “ex-arrenderos” and were no longer in patron-client relations with the ex-hacendados. Instead, however, they had to engage in similar relations with new patrons, the institutions that the MNR had set up to allocate land such as the sindicato (trade union) or agrarian judge, both controlled by the MNR.

So poor people had again to deliver political servicesand had to be subservient to authority — this time to the MNR — in exchange for access to land rather than have secure property rights to their own land. The political and economic insecurities they faced meant that they still had few incentives.

Though there were improvements after 1952, particularly an expansion of education, this did not reach the poor rural people and in consequence Bolivia stayed poor.

There are fundamental problems with the US penal system in general, which locks up and puts under parole hundreds of thousands of young men (and women), mostly for non-violent offenses. But the comparison of the incarceration rates of whites and African-Americans, which is shown again in the next figure, is particularly jarring. Almost 5 out of every 100 male African-Americans are in jail, a rate more than five times that of white Americans.

Of course, this might all be because African-Americans commit more crime. But history suggests that there is more to it.

A recent book by Michelle Alexander, The New Jim Crow: Mass Incarceration in the Age of Colorblindness suggests that the treatment of African-Americans in our penal system is a continuation of Jim Crow politics of the South. She starts the book with the following story:

Jarvious Cotton cannot vote. Like his father, grandfather, great-grandfather and great-great-grandfather, he is being denied the right to participate in our electoral democracy. Cotton’s family tree tells the story of several generations of black men who were born in the United States but who were denied the most basic freedom that democracy promises — the freedom to vote for those who will make the rules and laws that govern one’s life. Cotton’s great-great-grandfather could not vote as a slave. His great-grandfather was beaten to death by the Ku Klux Klan for attempting to vote. His grandfather was prevented from voting by Klan intimidation. His father was barred from voting by poll taxes and literacy tests. Today Jarvious Cotton cannot vote because he, like many black men in the United States, has been labeled a felon and is currently on parole.

Alexander’s book is polemical and not heavy on the history or evidence. So if you are the skeptical type, you may not be convinced that there is something necessarily wrong with our prisons or that there is a systematic Jim Crow-like discrimination against African-Americans in our penal system.

But, David M. Oshinsky’s powerful (and disturbing) history of Mississippi prisons and convict leasing program during the Jim Crow era, Worse Than Slavery: Parchman Farm and the Ordeal of Jim Crow Justice should probably convince even the skeptics that there is something quite suspect in the history of US penal system that appears, at least on the surface, to have shaped our present.

Oshinsky tells the story of Parchman Farm, the Mississippi state penitentiary, which came to symbolize almost all of the injustices and brutality of Jim Crow rule.

Emancipation of blacks in the aftermath of the Civil War did not bring equality in the US South. As we also discuss in Chapter 12 of Why Nations Fail, especially after Union troops were withdrawn from the South and Reconstruction ended, Southern elites were able to re-create institutions of essentially the same degree of extractiveness as the antebellum ones — albeit under a different guise. Gone was slavery, but in came the Black Code of Alabama and vagrancy laws ensuring that black workers could still be coerced and could not leave their employers. Blacks were emancipated, but Ku Klux Klan intimidation and literacy requirements meant to disenfranchise them made sure that they couldn’t vote after the end of Reconstruction. Blacks were equal on paper, but this was “separate but equal,” where their schools and hospitals were far from equal. And in every sphere of life, they were repressed and made subservient to whites — at least until the Civil Rights movement started to change it all.

In Mississippi, the antebellum system started being re-created even before Union troops left. An important element of this was the subjugation of blacks by mob violence and by the local sheriff and the justice system. Part of this was beatings and lynchings of blacks (some Northern Senators claimed that during this period, “two or three black men” were being lynched in Mississippi every day). But an equally sinister and perhaps even more consequential part was the prison system that developed starting in 1868.

The impetus came from a practical problem: now that blacks were no longer slaves and could not be directly disciplined and punished by their masters, how should they be kept under control? Locking them up — when mob violence and lynchings didn’t do the job — seemed like a natural idea, but this would cost the state a lot of money, especially at a time when resources were scarce and the prison system was both underdeveloped and severely gutted by the Civil War.

An innovative solution to this problem came from a businessman named Edmund Richardson who made a deal with state authorities in 1868 to lease convicts to use as cheap labor on his Yazoo Delta plantation. He promised to feed them and guard them. In return, the state paid him money, transported them to his plantation, and allowed him to use the convicts in whichever way he wanted — for all practical purposes totally unmonitored.

What started with Richardson grew into a huge industry. The demand for cheap labor to work in cotton plantations was high and so was the pent-up anger in Mississippi against blacks who were freed by Northerners. So convict leasing programs multiplied and local authorities obliged by locking up scores of young black men on totally minor or trumped-up charges to provide the labor necessary for the program.

This part of Oshinsky’s book makes truly harrowing reading: children locked up for “illegal gambling” or “being a tramp” or for the most minor instances of theft, or sometimes children locked up just because of the deep racial prejudices of the local authorities and the good people of Mississippi. In all cases, they headed to the plantations as convict labor either directly or via the local court system which imposed on them costs and fines that they could not pay (and thus they would be sent to the state penitentiary because of these unpaid debts). The system only became worse with the arrival of railway companies and other industries hungry for cheap labor.

Oshinsky describes, for example, the arrangement between the local sheriff and a turpentine operator in need of men in the words of a journalist (p. 71):

“Together they made up a list of some eighty negroes known to both as good husky fellows, capable of a fair day’s work.” The sheriff was promised five dollars plus expenses for each negro he “landed”. Within three weeks, he had arrested all eighty of them “on various petty charges — gambling, disorderly conduct, assault, and the like.”

From the get go, there was no room for confusion. The convict leasing program was designed for blacks, not for whites. Fittingly, the conditions for convict laborers were awful. Physical abuse, malnourishment and death from overwork were commonplace.

When convict leasing programs spread to other parts of the South, the outcomes were similar — even if few could match the brutality of the Mississippi system. In other parts of the South too, the convict leasing was associated with trumped-up charges against blacks, and inhumane work conditions. For example, the Greenville and Augusta Railroad Company started demanding convicts faster than South Carolina authorities could supply them, despite their efforts to lock up as many people as possible as potential convicts. Between 1877 and 1879, out of the 285 convicts working for the company, 128 died from gunshots, accidents and disease. And this huge death rate was not a surprise given their living conditions, described by the captain of the convict camp as (p. 60):

The English language does not possess words sufficiently strong to express the stench that rose from [this] place.

The situation was similar in other parts of the South. Many argued that 10 years was the “utmost length of a time that a convict can be expected to remain alive in a Georgia penitentiary”.

What the convict leasing program came to mean is well summarized by a list of quotations that Oshinsky provides at the beginning of the book:

The abuses of [our criminal justice] system have often been dwelt upon. It had the worst aspects of slavery without any of its redeeming features. The innocent, the guilty, and the depraved were herded together, children and adults, men and women, given into complete control of practically irresponsible men, whose sole object was to make the most money possible (Frank Sonborn, keynote address, in Ninth Atlanta Conference on Negro Crime, 1904).

And:

The convict’s condition [following the Civil War] was much worse than slavery. The life of a slave was valuable to his master, but there was no financial loss… if a convict died. (L. G. Shivers A History of the Mississippi Penitentiary, 1930).

In Mississippi, the system reached its end in one sense and its apogee in another with the opening of the Mississippi State penitentiary at Parchman Farm. Starting in 1894, there were restrictions on the leasing of convicts. Now instead, they would work as coerced laborers, under no better circumstances, at the cotton plantations of the state at Parchment Farm

Oshinsky describes this in the words of Hastings Hart:

I have visited Parchman repeatedly and I have found that their cotton was very profitable but that profit was secured by reducing the men to a condition of abject slavery.

And Parchman Farm is described in the 1919 Proceedings of the Annual Congress of the American Prison Association as:

The most profitable prison farming on record thus far in the State of Mississippi.

Brutality and exploitation at Parchman Farm continued well into the 1960s, and was only stopped by the Civil Rights movement. In 1970, a New York attorney, Roy Haber, started collecting information about abuses at Parchment Farm (which was not easy given the intimidation from the authorities against him and violence against inmates who cooperated with him). Finally he was able to compile a list of murders, rapes, beatings and tortures at Parchman Farm between 1969 and 71, which ran into 50 single spaced pages, and the snippets that Oshinsky recounts are truly disturbing (pp. 241-245).

Convict leasing and hard labor at Parchman plantation are gone. But with this history of a penal system designed to lock up and repress blacks, it is natural to wonder — or even hypothesize — that what we are seeing today is a nationwide continuation of both that system and its long-run consequences. After all, as journalist Ray Stannard Baker noted, the distinctive logic of the Jim Crow penal system required a particular type of justice (p. 63):

One thing impressed me especially… A [black man] brought in… was punished much more severely than a white man arrested for the same offense.

Against this background, Michelle Alexander’s claims about the origins of mass incarceration do not seem as incredulous, for example when she writes (p.225):

Mass incarceration as we know it would not exist today but for the racialization of crime in the media and political discourse. The War on Drugs was declared as part of a political ploy to capitalize on white racial resentment against African Americans…

Could this be the basis of the new Jim Crow? Could the incarceration of so many black men be a continuation under a different guise of the penal system that developed in the South after Reconstruction? Could this be, paraphrasing Robert Michels and our own use of his Iron Law of Oligarchy, “the Iron Law of Discrimination”?

But the bottom line comes down to how the U.S. Constitution sorted out the quagmire by giving the central government the power to tax and transferring the debt obligations of states to the central government (i.e., “bailing out” the states). This arrangement was not only more stable (because it avoided the free-rider problems) but also enabled the U.S. government to establish a reputation as a credit-worthy borrower, thus reducing its future borrowing costs. Sargent also notes the importance of the federal government not bailing out the states once more when, after 1829, many states started running large government deficits, which they were not able to sustain — Sargent suggests that this decision led to fiscal discipline at the state level.

Sargent draws the conclusion that the current situation in Europe is also likely untenable in the same way that the United States was in an unstable arrangement before 1788.

Though there is much to agree with Sargent’s conclusions, one thing in his discussion is notable in its absence: political economy.

Was the transition from the Articles of Confederation to the U.S. Constitution just a process of better (albeit slow) understanding and learning by clever and well intentioned leaders? Sargent implies that the answer is yes.

But one could have developed a political economy perspective where this transition was shaped by its economic and political implications for different groups.

In fact, one such perspective was developed in 1913 by Charles A. Beard in his imminently original and seminal An Economic Interpretation of the Constitution of the United States.

Beard started by dismissing explanations for the unique sequence of events leading to the U.S. Constitution based on some distinctive cultural characteristics of the American people. He also dismissed accounts that only emphasized the genius of the founding fathers. Instead, he wrote (p. 16):

class and group divisions based on property lie at the basis of modern government; and politics and constitutional law are inevitably a reflex of these contending interests.

So Beard argued that a defining set of factors leading to the U.S. Constitution were the political powerful groups who stood to benefit from it. Or in his words (p. 63):

Large and important groups of economic interests were adversely affected by the system of government under the Articles of Confederation, namely, those of public securities, shipping and manufacturing, money at interest; in short capital as opposed to land.

Importantly, Beard doesn’t deny that other factors were at play, or that the economic system that the U.S. Constitution created was more “efficient” — meaning that it created fewer instabilities. But the point is that this wasn’t the only or even perhaps the most important reason why the U.S. Constitution was adopted and ratified. It was ratified because those who stood to gain — the creditors, the manufacturers, the merchants and the politicians — were sufficiently powerful. (Some of the details of Beard’s account are hotly debated, see, for example, this paper, though the general political economy approach to constitutional design he advocated seems to have withstood the test of time).

The lessons for Europe are little more complex than a story like Sargent’s where institutional changes took place because they were finally understood to be more efficiency-enhancing. First, the coalitions in favor of a stronger fiscal union may be different today (for example, banks rather than capital owners in general may be the main beneficiaries of bailing out indebted countries). Second, the same economic interests may not be sufficiently politically powerful or may be facing a more determined opposition in Europe than in the United States 230 years ago. Third, the redistribution that a move towards a fiscal union will entail and the accompanying further bailouts of constituent polities may be more extensive and thus more difficult to pull off. Fourth, the institutional heterogeneity and the institutional weaknesses in some of the European countries such as Greece may be more dramatic today, making a fiscal union less attractive or less feasible.

One implication of all this is that what was a political equilibrium in the founding of the U.S. Constitution may not be a political equilibrium today in Europe, at least not in a form that includes all members of the European Union — even if such an arrangement would be efficiency-enhancing and growth-promoting.

This can be seen from the fact that what was a political equilibrium in the United States turned out not to be one in Latin America. After independence, Latin American countries also faced similar problems, including decisions on how to pay off the debts that had built up during their independence wars and how to build nations from smaller and sometimes competing polities. Some places like Argentina did manage to create a federal state, though Buenos Aires opted out for some time. Even in this case, as we point out in Chapter 13 of Why Nations Fail, they did it with a centralizing constitution that created many perverse incentives, shaping the future problems that Argentina would face. In other places, such as the putative Federal Republic of Central America, which lasted between 1823 and 1838, and Gran Colombia, which lasted only a decade between 1821 and 1831, no such agreement turned out to be stable.

So the sort of union that emerged in the U.S. Constitution and helped solve the free-rider problems and build government reputation in financial markets is not the only possible endpoint. Where Europe will end up will ultimately be determined not so much by what is the best arrangement for Europe as a whole but the political equilibrium between and within countries.

We discussed how the evidence from Göbekli Tepe is particularly telling.

A National Geographic article on Göbekli Tepe by Charles C. Mann, the author of the excellent 1491 and its even more engaging sequel, 1493, is definitely worth reading in this context.

Mann tells the story of German archaeologist Klaus Schmidt, whose research on Göbekli Tepe challenged the established wisdom at the time and pinpointed the role of religion and religious hierarchy before the transition to agriculture. But it also tells the story of how the conventional wisdom on the Neolithic Revolution, which goes back to the Australian archaeologist Gordon Childe, has been changing.

Mann writes of the Neolithic Revolution:

The new research suggests that the “revolution” was actually carried out by many hands across a huge area and over thousands of years. And it may have been driven not by the environment but by something else entirely.

He also explains based on Schmidt’s work why Göbekli Tepe symbolizes the sort of religion and religious hierarchy that emerged before the transition to agriculture. He quotes from Schmidt:

“These people were foragers,” Schmidt says, people who gathered plants and hunted wild animals. “Our picture of foragers was always just small, mobile groups, a few dozen people. They cannot make big permanent structures, we thought, because they must move around to follow their resources. They can’t maintain a separate class of priests and craft workers, because they can’t carry around all the extra supplies to feed them. Then there is Göbekli Tepe, and they obviously did that.”

Mann continues:

Discovering that hunter-gatherer had constructed Göbekli Tepe was like finding that someone had built a 747 in a basement with an X-Acto knife.

He also explains why Göbekli Tepe reverses the conventional wisdom:

The construction of a massive temple by a group of foragers is evidence that organized religion could have come before the rise of agriculture and other aspects of civilization…. When foragers began settling down in villages, they unavoidably created a divide between the human realm — a fixed huddle of homes with hundreds of inhabitants — and the dangerous land beyond the campfire, populated by lethal beasts.

He sums it up again quoting from Schmidt:

“Twenty years ago everyone believed civilization was driven by ecological forces. I think what we are learning is that civilization is a product of the human mind.”

We would add that it’s probably a product of the human mind in a very specific sense: a product of human institutions.

Perhaps the most famous version of the argument that technology shapes institutions is advanced by Karl Marx, who stated:

The handmill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist.

Alas, Marx was largely wrong about feudalism. 

As the French historian of the feudal world Marc Bloch pointed out in his book Land and Work in Medieval Europe, milling by hand went back a long way. Nobody quite knows exactly when the handmill started being used, but it was certainly many centuries before feudalism. (We know that the first dated watermill was in 18BC at Cabrira in an old palace of Kind Mithridates of Pontus, in modern Turkey).

Bloch writes on the handmill (page 143):

It was in fact the first machine whose use seemed capable of ameliorating the lives of countless numbers of human beings. The astonishing thing is that, having it at their disposal, they were so slow at bringing it into general use. 

The handmill did not cause feudalism, quite the contrary. Bloch noted (pages 152-153):

From the 10^th century onwards, however, a profound change took place in the economic and legal framework of rural life. Using their power of command – which was called the `ban’ — and fortified by the right to deal out justice … the lords … succeeded in setting up certain monopolies very much to their own advantage, monopolies concerning the use of the baking oven, the wine press, the breeding boar or bull, the sale of wine and beer … monopolies in the supply of horses for treading of corn … and lastly … a monopoly over the mill… From this point onwards the lord’s mill was the only one where tenants of land on which it was erected were allowed to grind their corn.

With lords in charge of the watermills, they then systematically suppressed and broke up handmills.

So contrary to Marx’s claim, it wasn’t technology driving the political organization of society, but the political organization and institutions of society determining what technology could be used.

Sounds familiar?

But we also saw that the distribution of domesticable plants and animals doesn’t show a distinct pattern singling out southeastern Turkey and the banks of River Jordan as the places where the Neolithic Revolution should have taken place.

This should not be surprising. Economic success is all about innovation and technology. But technology itself depends on institutions — and on institutional innovations.

The Neolithic Revolution was not only a set of technological innovations associated with farming and herding. It was also an institutional revolution — people became sedentary and social and political life changed.

Diamond’s argument, which has essentially become the conventional wisdom on this topic, is that the the introduction of farming was a direct result of the greater benefits from farming in terms of greater domesticable crop and animal species, and this major technological change then caused institutional change.

Though popular, this argument is at odds with the archaeological evidence, which instead shows extensive social and institutional change prior to the transition to farming in the Middle East.

Consider the hill of Göbekli Tepe in southeastern Turkey. Soon after 9600BCE people came and carved massive T-shaped pillars out of limestone, an example of which is shown in the next picture.

Many pillars were 8 feet high and weighed 7 tons and had been brought from as far as 100 meters away. They were sunk into circular structures cut into the hill, and many of the pillars were carved with wild animals, snakes, wild cattle, gazelles, wild boars.

Here is the important thing: There is no evidence of domesticated plants or animals in the area from this period. The site shows a level of social organization previously unknown before the Neolithic Revolution.

Another important site is Çatalhöyük also in Turkey, shown below.

Archaeological evidence suggests that this was a sedentary town of perhaps 500 people dependent on hunting and gathering. The town appears to have had a very rich religious and symbolic life. People were buried under houses, which embedded the skulls of bulls in their walls, and included clay figurines and wall paintings.

But this is the sort of stuff that is supposed to happen after the Neolithic Revolution, not before.

The archaeologist Bruce Smith in his book The Emergence of Agriculture describes the transition which took place in the Middle East in the following way (page 79):

their inhabitants had clearly shifted to permanent year-round settlements as early as 12,500 years ago and invested considerable labor in constructing houses and storage facilities.

When people established sedentary settlements, their concepts of who owned resources likely became more restrictive as they strengthened their claim on the surrounding countryside, which they viewed more and more as being for their exclusive use. By 12,5000 BP, then, hunting and gathering societies began to adopt a way of life that set the logistic, economic, and organizational groundwork for the emergence of village farming communities…many of the basic elements of social organization essential to village life were already in place before the first experiments with cultivation…

In other words, the existing evidence, in contrast to what is presumed in Diamond’s argument and the conventional wisdom, is that institutional innovation did not follow transition to agriculture, but preceded it. In fact, it was this institutional innovation which allowed the technological changes at the heart of the Neolithic Revolution.

So most likely, the Neolithic Revolution is also not about geography but all about institutions.

James A. Robinson (Harva

That being said, the dominant explanation about world inequality at the start of the early modern period (around 1500) is all about geography. This explanation, developed and popularized in Jared Diamond’s Guns, Germs and Steel, links inter-continental inequality circa 1500 to the historical distribution of domesticable animal and crop species. Where there were a lot of these the Neolithic Revolution — the transition from hunting and gathering to herding and farming — happened earlier and was more productive. In these places population density took off, and this spurred both technological progress and the emergence of complex societies.

A fascinating argument.  But it is not an explanation for modern world inequality.

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 then once the Incas, for example, were exposed to all the technologies they had not been able to create themselves, such as modern writing, guns and the heavy plow, and imported European animals and crops, their income levels ought to have started to converge to those of the Spanish. Yet nothing of the sort happened. In the 19th and 20th 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.

Of course, 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 differences 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. Diamond’s thesis does not tell us why these crucial technologies are not diffusing and equalizing incomes across the world.

Moreover, whatever the drawbacks of the Inca Empire in the early 16th century, it was undoubtedly more prosperous and had developed a more complex society than anywhere in North America. North America became more prosperous subsequently because it enthusiastically adopted the technologies and advances of the Industrial Revolution while Peru, like the rest of South America, did not. This cannot be explained by pointing to differential geographic endowments of North and South America. In fact, according to the logic of Diamond’s theory, which links prosperity and the presence of complex societies to geographic factors, one would have to presume that geography favored South America — but as we’ll argue in the next blog post, there are good reasons to think that even early prosperity is not about geography, so one shouldn’t even presume this.

Could the uneven dissemination and adoption of technologies underpinning modern world inequality be related to the factors emphasized by Diamond? For example, Diamond suggests 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.

Another fascinating argument. But again not much of an explanation for modern world inequality.

Consider Africa. Though the Sahara Desert did present a significant 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 differences 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.

Another major problem for Diamond’s argument is that it has little to say about inequality within continents, which is an essential part of modern world inequality. For example,  the orientation of the Eurasian landmass might explain how England managed to benefit from the innovations of the Middle East without having to reinvent them. But it doesn’t explain why the Industrial Revolution happened in England rather than in Eastern Europe or in the Ottoman Empire.

More critically, as Diamond himself also recognizes, China and India benefited 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 — the distribution of domesticable plants and animals.

The next map shows the distribution of sus scrofa, the ancestor of the modern pig, and the Auroch, ancestor to the modern cow. Both species were widely distributed throughout Eurasia and even North Africa.

The second map below 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 shows 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).

Though all of these ancestral species are present in Eurasia, their wide distribution suggests that inequality within Eurasia cannot be explained by a theory based on the incidence of these species. In fact, this wide distribution also suggests that any theory that explains the transition to agriculture purely on the basis of geographic factors — as Diamond’s theory as well as the conventional wisdom on this topic do — is at best incomplete.

We’ll see in the next blog post that there are good reasons to think that this conventional wisdom may be more than incomplete. In fact, it may have the cart before the horse.

An interesting article in The Economist’s Buttonwood column asks: Who are these rapacious elites in today’s Western economies?

Buttonwood suggests that two plausible candidates are too-big-fail huge-risk-taking bankers and public sector employees with their cushy jobs, which they protect using their power as voters and sometimes through public-sector unions.

Banks, which have huge political clout, as the world witnessed not only in the midst of the 2008-2009 crisis but again in the European debt restructuring debacle of the last two years, are a great candidate indeed. Buttonwood questions whether they have really been an impediment to prosperity. The answer is probably yes: excessive risk-taking by the banks created lots of economic distortions and is in part responsible for the crisis. The inflated salaries in the banking industry may have also damaged the economy by attracting a lot of the talent that should have gone into more innovative activities (as suggested by the evidence in this paper and this paper).

But what about public-sector employees? What about unions? Don’t they, as Buttonwood suggests, also exercise their power to block new technologies and create similar distortions?

On the face of it, this is a plausible hypothesis. In democratic societies organized groups can wield power, and it is only natural that they will exploit this power to their benefit — and to the great detrimental of others. Muncur Olson, in fact, suggested in The Rise and Decline of Nations such groups as the most important threat to the economic longevity of Western democracies.  In his magisterial Levers of Riches, Joel Mokyr uses the Luddites destroying textile machines as the exemplar of the resistance against the creative destruction wrought by new technologies. More recently, the print unions on Fleet Street had blocked the introduction of the superior offset litho printing process until their defeat by Rupert Murdoch’s News International in 1987. And of course unions do create a non-level playing field, advantaging their members at the expense of those left out.

So perhaps unions in general and public-sector unions in particular are the new extractive elites resisting technological change.

But here is the problem with this perspective. In most cases, unions and workers, even if they appear politically powerful, don’t seem to be able to stop the introduction of new technologies. Luddites feature in history books not as successful blockers, but to illustrate the futility of standing on the path of new technologies. Print unions did delay the introduction of superior printing technology but were ultimately cast aside.

And there is a good reason for this. The power of the Luddites in 19th-century Britain was limited — certainly compared to the near-absolute power of the Russian and Austria-Hungarian elites who strenuously resisted the introduction of factories and railways. Unions can mobilize their members to strike and can act as a powerful interest group, but their power is also probably limited relative to those of the very rich both in democratic and non-democratic societies — and in the US, the power of unions was probably seriously, perhaps irreversibly, damaged by Ronald Reagan’s victory over the air traffic controllers’ strike.

In consequence, in the US today, the fear is not that unions will take over the political process, but that the rich elite — including but not limited to the banking elites — will and in fact have already done so.

This makes us believe that, though the unions, when they have the power, can also act as extractively as other groups in pursuing their interests at the expense of the rest of us, they are not the main elites threatening the inclusivity of Western institutions.

That being said, it is probably true that unions have been in a more rent-seeking mode in the second half of the 20th century compared to their pivotal role in the development of inclusive institutions in the 19th and early 20th centuries. For example, the story of democracy in Britain would have likely been very different without the labor movement, which mobilized the disenfranchised to demand voting rights for all. Similarly, the US labor movement played a central role in giving voice to workers and improving working conditions. Is anything different today? The answer is not clear. But one possibility is that in fighting for broad-based issues such as democracy or limits on harsh, even coercive, working conditions for most workers, the labor movement in the 19th and early 20th centuries was both more effective and more clearly on the side of greater inclusivity in economic and political institutions. This may have changed once unions’ demands shifted to higher wages, more generous health insurance and better pensions for their narrow membership.

On the other hand, some also argue that a strong labor movement is even more necessary today as a counterweight against the creeping political inequality in favor of the very wealthy and the politically-connected corporations. We think that some sort of organization to counterbalance the political power of the mega-rich is indeed necessary. Whether this role can be — and should be — played by unions is a question that requires more thought and research (i.e., we don’t know the answer).

Our original reaction was to ignore it. But we have been asked about our reactions to this review a number of times, so we have decided that perhaps it is worth responding to some of its main claims.

Here, we would like to focus on some of the main criticisms that Fukuyama levels at Why Nations Fail.

First, Fukuyama writes “They are making almost the identical point to that one made in the 2009 book by Douglass North, John Wallis, and Barry Weingast”.

Our work in general, and Why Nations Fail in particular, built on North’s seminal ideas (for example, those in Structure and Change in Economic History and on North and Weingast’s seminal paper in 1989 Journal of Economic History as well as on North, Wallis and Weingast (NWW). But there are also major differences — which would have been really obvious to Fukuyama. The most important one is about the role of politics. In our book, we argue that a framework built on the primacy of politics — political institutions being forged and changing as a result of conflict and in turn shaping economic institutions and then innovation and investment — will go a long way. Our framework also clarifies that what we call extractive institutions are there by design. NWW put much more emphasis on economic and social factors. For example, their concept of “open access order,” far from being similar to “inclusive political institutions” as Fukuyama argues, is defined as a “social order” similar to Seymore Martin Lipset’s “development complex” (page 3). In particular, NWW emphasize the existence of business and other non-government organizations, impersonal exchange and beliefs supporting cooperation in society as the foundations of “open access orders”.

Though our work owes much to North and his co-authors, it is disingenious to imply that we have just re-created their argument under a different guise. In fact, NWW are themselves very explicit that when they talk of political change, they build on our past work, in particular our earlier book, Economic Origins of Dictatorship and Democracy as well as our earlier work (see, for example, their Chapter 5).

Overall, it should be clear that our work, though it builds on NWW, takes a different approach, and the two works not only build on each other but are quite complementary.

Second, Fukuyama argues that our distinction between inclusive and extractive is “sharply bifurcated”. This is clearly meant as a criticism, but the exact meaning is not quite clear. If by this Fukuyama means that inclusive and extractive political (and economic) institutions are defined as extreme cases, this is exactly right. As we state in the book, most countries are in shades of gray, but it is most useful to start with the black and the white to understand what’s going on. If, on the other hand, by this Fukuyama means that we think societies in reality are fully inclusive or fully extractive, this is obviously not true as most of the book is about degrees of extraction and small steps towards inclusive institutions.

Our discussion of China, for example, which Fukuyama further comments on, is all about this: we argue China did not start growing by becoming fully inclusive, but by taking some important — and yet limited — steps towards inclusive economic institutions.

Third, Fukuyama accuses us of not unpacking the constituent parts of inclusive and extractive institutions. He even writes: “There is for example a large literature comparing the separate impacts of a modern state, rule of law, and democracy on growth, which tends to show that the first two of these factors have a far greater influence on outcomes than democracy.” Now there are two problems with Fukuyama’s statement. First, the literature he seems to have in mind is the one on cross-country growth empirics, which sometimes runs kitchen-sink regressions including several indices at the same time. But few economists would take such regressions seriously given the endogeneity and reverse causality concerns. Second, a large part of our book is in fact devoted to explaining why many extractive (and inclusive) aspects will travel together — because of the feedbacks between these different aspects.

In fact, this is an important point which is perhaps somewhat easy to miss (or at the very least Fukuyama has missed it): there is a very good reason for broad concepts such as “extractive institutions,” because extraction is often undertaken using one of many specific institutions that are on the whole different ways of “skinning a cat”. So, for example, when after the Civil War, slavery was abolished and black Americans were enfranchised, this did not put a conclusive end to extractive institutions in the US South, but opened the way to the emergence of a different complex of specific institutions to achieve the same objective. Slavery went, but then came Jim Crow, “separate and equal” schooling, vagrancy laws, convict labor, and a whole gamut of restrictions against the movement and labor market freedoms of freed slaves. Former slaves were given the right to vote, but literacy tests for voting and the Ku Klux Klan made sure that they were effectively disenfranchised. Just focusing on a specific institution of extraction would miss the continuity in the nature of extractive institutions in the US South. It would also miss the similarities in the nature of extractive institutions across the world, which we tried to illustrate, for example, in Chapter 13 of Why Nations Fail.

Fourth, Fukuyama claims that China’s rapid growth invalidates our theory. Why this is not the case is discussed both in Chapter 5 and Chapter 15 of Why Nations Fail, so it’s a little surprising to see him make this claim. We also discuss the spectacular economic performance of the Soviet Union until the 1970s. We don’t think Fukuyama would argue that the rapid growth of Soviet Union for over four decades invalidates the theory that markets are better than central planning in generating innovation and economic growth. It doesn’t — for the same reason that Chinese growth so far doesn’t invalidate our theory. As a matter of fact, China is still much poorer relative to the United States than the Soviet Union was in 1970. If China is able to reach levels of income per capita comparable to those of Spain or Portugal based on its extractive political institutions, then this would invalidate our theory. But, as we explain in detail in the book (and we have also discussed elsewhere, for example here and here), growth under extractive institutions is part of our theory, so it is certainly not inconsistent with our framework. It is just that our theory suggests that such growth will not be sustained.

Our theory does not explain all sources of success and failure of nations. Nor do we claim to be the final word on this huge question. There are thus both many new and interesting approaches to be developed and many intelligent critiques of our work to be written. We look forward to such future approaches and critiques.

Burma shows another: the regime itself gradually letting go of the reins.

In September 2010 in Foreign Policy, we argued that this “soft landing” strategy, though far short of meaningful political reform and flawed in many ways, could be the first step of a longer process of political opening in Burma.

We have had an opportunity to answer some more questions about Burma in a recent interview.

The gradual process of reform in Burma has indeed continued, with Aung San Suu Kyi being allowed to run for and being elected to parliament but boycotting the opening session (over the wording of oath of office imposed by the junta). The European Union deemed this political opening to be significant enough to suspend most of the sanctions against Burma for one year.

Both the Arab and the Burmese paths towards more inclusive institutions come with serious pitfalls.

The Arab path opens the way to another group coming to power and re-creating yet another extractive regime as has been the case with many of the post-colonial governments that overthrew the colonial regimes after World War II or the Bolshevik Revolution that kicked out the czarist regime in Russia — both the military and the Muslim Brotherhood our candidate would-be usurpers in Egypt, for example.

The Burmese path risks creating the appearance of change without real change, and is also vulnerable to a reversal down the road if the new cadre of the military, still completely and forcefully dominating Burmese institutions, wishes to change direction.

Unfortunately, there is no easy way out of extractive institutions.