Why

Nations Fail
The Origins of Power,
Prosperity, And Poverty

Daron Acemoglu and

James A. Robinson

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 This paperback edition published in 2013

First published in Great Britain in 2012 by

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Copyright © Daron Acemoglu and James A. Robinson, 2012, 2013

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 CONTENTS

PREFACE • 1
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 • 7
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 • 45
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 • 70
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 • 96
How institutions change through political conflict and how
the past shapes the present

3
 5.
“I’VE SEEN THE FUTURE, AND IT WORKS”:
GROWTH UNDER EXTRACTIVE INSTITUTIONS • 124
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 • 152
How institutions evolve over time, often slowly drifting apart

7.
THE TURNING POINT • 182
How a political revolution in 1688 changed institutions in
England and led to the Industrial Revolution

8.
NOT ON OUR TURF: BARRIERS TO DEVELOPMENT • 213
Why the politically powerful in many nations opposed the
Industrial Revolution

9.
REVERSING DEVELOPMENT • 245
How European colonialism impoverished large parts of the world

10.
THE DIFFUSION OF PROSPERITY • 274
How some parts of the world took different paths to prosperity
from that of Britain

11.
THE VIRTUOUS CIRCLE • 302
How institutions that encourage prosperity create positive feedback
loops that prevent the efforts by elites to undermine them

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 12.
THE VICIOUS CIRCLE • 335
How institutions that create poverty generate negative
feedback loops and endure

13.
WHY NATIONS FAIL TODAY • 368
Institutions, institutions, institutions

14.
BREAKING THE MOLD • 404
How a few countries changed their economic trajectory by
changing their institutions

15.
UNDERSTANDING PROSPERITY AND POVERTY • 428
How the world could have been different and how understanding
this can explain why most attempts to combat poverty have failed

ACKNOWLEDGMENTS • 463

BIBLIOGRAPHICAL ESSAY AND SOURCES • 465

REFERENCES • 483

INDEX • 511

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 PREFACE
This book is about the huge differences 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 differences are significant, 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

2 • Why Nations Fail

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 suffering 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 first 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

6
impediments they face stem from the way political power in Egypt is exercised and
monopolized by a narrow elite. This, they understand, is the first thing that has to change.
Yet, in believing this, the protestors of Tahrir Square have sharply
P r e face • 3

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 different
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 benefitt 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

4 • Why Nations Fail

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 different 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

7
had as little interest as the Ottomans in promoting Egypt’s prosperity. Though the Egyptians
shook off 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
difficult 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

Preface • 5

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.

8
 1.
SO CLOSE AND YET SO DIFFERENT
The Economics of the Rio Grande

The City of 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 defi 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-five 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 inefficiency 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 different. 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

8 • Why Nations Fail

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 neighbours. They also
don’t have access to many public amenities. Roads are in bad condition south of the fence.
Law and order are 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 neighbours, 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 Institutional (PRI). How could the two halves of what is essentially
the same city be so different? There is no difference 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 different, but
this has nothing to do with the disease 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 different. Could it be that the residents of Nogales, Arizona, are
grandchildren of migrants from Europe, while those in the south are descendants of Aztecs?

9
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 No-

So close and Yet So Different • 9

gales, 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 differences between the two
halves of Nogales that you’ve probably long since guessed: the very border that defines 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 different world shaped by different
institutions. These different institutions create very disparate incentives for the inhabitants of
the two Nogales’s and for the entrepreneurs and businesses willing to invest there. These
incentives created by the different institutions of the Nogales’s and the countries in which
they are situated are the main reason for the differences 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 different 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

1 0 • WHY NATIONS FAIL

de la Plata, “River of Silver,” since the local people possessed silver. The indigenous peoples
on either side of the estuary—the Charrua’s 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

10
centralized political authorities. Indeed, it was such a band of Charrua’s who clubbed de Solís
to death as he explored the new domains he had attempted to occupy for Spain.
In 1534 the Spanish, still optimistic, sent out a first 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 first stay of the Spaniards there was
short lived. They were not after good airs, but resources to extract and labour to coerce. The
Charrua’s 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 labour. 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 find a new place
that would offer 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 different proposition from the Charrua’s and the
Querandí. After a brief conflict, 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

SO CLOSE AND YET SO DIFFERENT • 1 1

new aristocracy. They adapted the existing systems of forced labour 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 effective. 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

11
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 labour.
When Cortés and his men arrived at the great Aztec capital of Tenochtitlan on November 8,
1519, they were welcomed.

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