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People across the social sciences and also hopefully outside academia. So I thought I'd start with a story to try to motivate what the whole book is about. Okay, so. And the story is about. So the book is about what? Well, the book is about this picture, I suppose you could say, even though for some reason technological incompetence, it's a rather fuzzy picture. The book is about, you know, in some sense, what many people in development economics are interested in, which is the norm, the enormous inequality that exists in the world today, what causes it today and how did it emerge? So this is a picture just of historical income per capita, which comes from Angus Madison, which kind of picks up this phenomenon of this enormous divergence in levels of prosperity in the last 250 years between some parts of the world and other parts of the world. And the book is about what caused that, but it's also what causes it today. But it's also very historical in the sense that we focus a lot trying to understand how it emerged. So the story I'm going to tell you is a story, sort of historical origins and how differences in income levels emerged in the Americas. And I'll try to use that story as a way of sort of, I'll try to abstract from that story, some concepts which form the basis of the book. So what's the story? Well, if you think about the history of the Americas, you go back sort of 500 years when the project of colonization of the Americas was taking place. The Americas, there were certainly differences in prosperity technology within the Americas, and there were differences in the types of Europeans that went here or there. But the Europeans all more or less had the same kind of idea and the same motivation. So, for example, in 1516, the Spanish first started investigating the Rio Plate estuary, exploring the River Plate estuary. At the time, what now became Argentina was inhabited by groups of people. The people who were in the. What's now Buenos Aires and the southern Uruguay, the Charuas and the Kerandi, were essentially Stone Age people with Stone Age technology, mobile, not sedentary, hunter and gatherers. The Spanish called this area Buenos Aires because the Rio de la Plata. Well, the Buenos Aires because they thought the air was nice, and the Rio de la Plata because they found silver. And they got very excited about the silver. Then they discovered that the silver didn't actually come from there. The silver came from the Inca empire, thousands of miles away up in the Andes. And then they found something else which was very problematic, which was that the Charus and the Keranti were very difficult people to deal with. They ran around, they attacked them, they fired arrows at them. You know, they couldn't. They couldn't get. You know, they couldn't get them under control. So they started sending out expeditions. And they sent one expedition up the Parana river and it discovered the Guarani. Now, the Guarani were a completely different bunch of people from the Charruas and the Kerendi. They were a sedentary, hierarchical society up the river in what's now Paraguay. And so the Spanish abandoned Buenos Aires, they moved up the river and they took over the Guarani, because their idea of how to run a colony was to take over the indigenous society and then base the society on the exploitation of the indigenous people. And that provided a kind of model for the entire Spanish colonization of the Americas in Central, in Mexico, in South America. So the early colonial society developed on the basis of exploitation of minerals and gold and silver, but principally the indigenous people, because even when it came down to having gold and silver, that wasn't much use unless you had a lot of indigenous people to mine it. So this is a very similar pattern to the colonization everywhere. So what emerged was a political system dominated by a very narrow group of Spaniards, and underneath them, a large indigenous population being Exploited to the benefit of the Spaniards. What happened in North America? Well, in North America, the colonization of North America. The United States started systematically in 1607, when the Virginia Company set up a colony in Jamestown. What model of colonization did they have? They had the same model. The way you colonize the Americas is you capture, first of all, you capture the Indian chief. And once you capture the Indian chief, then all of the Indians come. The indigenous people come, they work for you. You kind of live in this sort of rentier society, hopefully with gold and silver and precious metals problem in Virginia. Virginia was like Buenos Aires without the Guarani up the Parana River. So they couldn't find any large populations of sedentary indigenous people in the Americas. So that was a problem. What did they do early on? Well, they starved to death. Because after all, you know, you didn't work when you colonized the Americas. You exploited the indigenous people. So they didn't bother planting crops and foods in Jamestown. And by the second winter, 2/3 of them had starved to death. So then what happened? Well, the Virginia Company, after all, was a profit making enterprise. So it said, okay, there's no indigenous people to exploit. Let's exploit the English people. Okay, so after three years, they started introducing a new regimen. They basically introduced this draconian rules. Here's some of these rules. You see, the first rule is kind of interesting. No man or woman shall run away from the colony to the Indians upon pain of death. Okay, why was that the first rule? You can see that punishment by death is the sort of punishment of first resort in these rules. But why this emphasis on running away to the Indians? Because when you started trying to coerce the indentured laborers that the Virginia Company had sent out, they immediately ran off and went to live with the Indians. So it was very difficult to coerce. So they spent several years trying to coerce them. And then they decided coercing them wasn't a successful strategy. It was very unsuccessful. So then they tried something else. They said, okay, if we can't coerce these people, let's try to incentivize them. So in 1619, they switched to a system. They abolished basically all of these coercive institutions. They gave 50 acres of land to all the settlers and they introduced a general assembly which gave universal male suffrage. This is the 17th century, so we've got to be reasonable. Universal male suffrage. So they completely changed the political institutions from this draconian control by the Virginia Company. They set up these nascent democratic institutions where the settlers themselves could Decide on the political and the economic institutions, and they started giving people access to land. They freed them from their indentured contracts. So they also gave them freedom of kind of economic choice and economic occupation. So these two very different types of societies that emerged had enormous consequences for how Latin America and North America developed. So if you go back 400, 500 years, the development levels were very, very similar. In fact, if anything, development levels were higher in Latin America. So if you look at the technology or the organization of the Inca empire or the Mexicas in the central Valley of Mexico, they had more sophisticated technology. They had public goods, they had money. They had stuff that people in Northern Indians and indigenous people in North America didn't have. But that proved to be important for the way those societies got shaped in the colonial period. That initial divergence reproduced itself again and again over time. So think about this headright system. When you get to the 19th century, you have in all of Latin, all the Americas, Latin America, North America, South America, you have frontier expansion. So there's these huge populations expanding. The world economy is expanding. Land becomes much more valuable. You have these big open areas. Frontier. How does the frontier get allocated in North America? Well, there's the Northwest Ordinances, there's the Homestead Act. Laws get passed giving open access to land in the frontier. How do Latin American countries deal with the frontier? The frontier becomes completely oligarchized and divided up between members of the political elite in country after country. Costa Rica maybe being the one exception to that. So these initial differences in the way the polity and the economy were organized had enormous consequences which reproduced themselves over time. Okay. And in the book, we argue that this is the historical roots, in some sense, of both the institutional divergence and the economic divergence within the Americas. I'll say a little bit more about what I mean by institutional divergence. So let me try to abstract a few kind of concepts from that. That story. Okay. You know, how do I know any of this matters? Well, the most famous, the largest and most intense system of forced labor in the Spanish colonial period was what's called the Potosi mita. So the Potosi mita was an enormous system of forced labor for mobilizing indigenous workers to work in the silver mines in Potosi in Bolivia. This was a huge catchment area in modern Peru and Bolivia, from which a seventh of the adult males always had to be working in the silver mines. And this is some research by a student of mine in Daron, Melissa Dell. Looking today at the Potosi meter. And today, if you look at the boundary of the Potosi meter. And you look at places that are inside what was the meter catchment area and outside the meter catchment area, within the meter catchment area, Even right at the boundary, you see much worse development outcomes. Consumption is about. Consumption per capita is about a third less. Involvement in market activities is much lower. There's much lower infrastructure, until recently, much lower educational outcomes. This line is the boundary, and that line is supposed to show you consumption. How would I know this was true? Well, here's a very specific example of the legacy of a very specific colonial institution from Latin America. Okay, so how to make sense of this divergence? I think there's, you know, there's lots of ways you could sort of approach this. In the book, we talk about alternative, different alternative hypotheses stemming from economics and sociology and history and other things. What I'm going to sort of emphasize today and what the book is about is sort of. It's the way these societies were organized that was important. Okay, I told you a sort of specific story in some sense about what caused this differential organization. It wasn't about the fact that it was the British that colonized Virginia and it was the Spanish that colonized Paraguay. That's irrelevant in the story. What's important in some sense is initial conditions. Okay, now, that's only one source of variation in how societies get organized. Okay, this is a very specific story, you could say, about a specific historical period and a specific historical kind of dynamic. But what I want to try to do is to abstract from that some concepts which we can hopefully apply more generally to think about institutional variation and institutional dynamics and institutional change, and to try to understand and use that, to talk about kind of economic divergence and economic change as well. Okay, So I want to emphasize here that I want to use this language that Tim mentioned at institutions. I want to say that, you know, what are institutions? Well, institutions are just in some sense, the rules, the rules that govern economic and political behavior. And, you know, I think I want to be just kind of very specific. I was trying to be very specific, give very specific examples about those difference. The differences in the way the economy worked in colonial Latin America or colonial North America, the differences in the way politics works and in the way political power was distributed, and to say that it's that that really matters for this economic divergence within the Americas. Okay, so now you have these huge differences in incomes between North America and Central and Latin America, and that's the root of that. So let me try to abstract some concepts from that. So and just here's some sort of terminology which I hope will be useful, which is at the sort of the core of the book as a kind of way of organizing your thinking about institutional differences and institutional change. And this is a sort of very simplistic dichotomy. And, you know, so I'm going to call the types of institutions that economic institutions that were set up in colonial Latin America, like the Potosi mita, this huge system of forced labor, we're going to refer to that as a sort of extractive economic institution. So what does extractive mean? Well, the Potosi mita was like slavery or coerced labor more generally, was specifically designed to. To control one group of people to the benefit of other people, to extract wealth and income from one group of people and transfer it to another. So extractive economic institutions, as I'll discuss, come in kind of many forms. But coerced labor is in some sense one of the most obvious. 1 the opposite of that is going to be we're going to refer to as inclusive economic institutions. So by inclusive economic institutions, I mean in some sense, economic institutions that allow people to take advantage of their talents and their ideas, that allow a sort of free allocation of resources. It's a very, very natural idea to economists, in some sense, most of microeconomics, if you study microeconomics, it's all about inclusive economic institutions, about how allowing people to make their own choices in markets, allocate scarce resources efficiently. And in some sense, that's what economic, inclusive economic institutions is about. And, you know, in the example of North America, I was kind of emphasizing free labor. And, you know, of course, you could say, hold on, what about slavery? That's true that slavery, of course, is very important in the United States, and I'll come back to that. But the crucial period where both political and economic institutions, at least for white people, were being determined in North America was before the slave economy took off. So when I'm talking about colonial Virginia, this was before slavery took off completely. And I guess we see that as the sort of pivotal period. But I'll certainly talk about slavery. Slavery is certainly an example of an extractive economic institution, and it's an example of an economic institution that held back the south of the US For a very long time. But I want to also emphasize here not just the economics of these things, but the politics that lies behind that. So the reason that the Potosimita got set up was because indigenous people had no political power to influence the type of society that they lived in. All the Powers wielded by the people who benefited from the potosimita. So lying behind extractive economic institutions is something I'm going to call extractive political institutions. Extractive political institutions are just political institutions that concentrate political power very narrowly in society. And what lies behind inclusive economic institutions is also fundamentally a distribution of political power. But there's two parts of that. One is, you know, you could say, well, it's obvious that the opposite to kind of narrowly distributed political power, like in the Spanish colonial world would be broadly distributed political power. And in fact, in some sense, you know, the story about colonial Virginia is a story about how the initial conditions spread political power widely within the settler population. That was why it was very difficult for the. That was why it was very difficult for the Virginia company to exploit people. We're going to call that broad distribution of political power pluralism. Pluralistic. Okay, but that's not the only element, in some sense that you need to talk about the creation of inclusive economic institutions that favor economic development. And that's because, you know, let me give you an example. Somalia is an example, a very pluralistic distribution of political power. If you read about, you know, the history of the Somali clans, the Somali clans, you know, this is a sort of society without a state, without really political institutions. But Somali clans were very democratic, in a sense, very pluralistic. How did clans make decisions? Well, adult men. Sorry, here we go again. Adult men would get together and decide what to do. They'd decide who to raid. They decide where to move their cows, where to go to pasture. So this was a very. Most stateless societies actually have very egalitarian distribution of powers, at least within men. But of course, Somali society was also very chaotic and anarchic. This was not a society where there was any institution able to provide public services or order necessary to have something like modern economic development. So we also want to emphasize that political centralization is key to having developing inclusive economic institutions, because inclusive economic institutions are about these market institutions that I talked about, but they're also about the provision of public services and the key role for the state in providing order. So if you look around the world today, of course, one place I'm going to is to say, if I look around today and I look at societies that are poor, then I want to say those societies are places with extractive economic institutions. And part of that story is really a story about a kind of failure of the development of state institutions. It's not just about extraction in the sense of the Potter Zimita. It's Also about the inability of states to provide order and services. Okay, so these concepts are extractive, inclusive political institutions, extractive and inclusive economic institutions. There's many synergies between those things. And here's a sort of simple way of thinking about that. And I want to emphasize a few things about this. You know, you can see why the synergies. You know, you can see why there's sort of synergies between extractive political institutions and extractive economic institutions. And understanding the sort of synergies are important for understanding the enormous persistence in the organization of society. So I started off by telling a story about the Americas, which meant that. Which kind of implied that if you wanted to understand why Guatemala was poorer than Canada, you have to go back, you know, 500 years. And the reason for that is that once societies get set up in a particular way, that's very persistent over time. And you could see that that's kind of built into this, you know. So, you know, if you think that societies have extractive political institutions, political power is narrowly concentrated, then society would tend to get set up in a very extractive way, like in the Spanish colonial period. That, of course, creates enormous inequality, as it did in colonial and modern Latin America. But that inequality of wealth and assets tends to reinforce the initial distribution of political power. So you'd expect that, for example, extractive economic institutions and extractive political institutions mutually reinforce each other and tend to persist over time. Whereas you'd expect that for similar reasons, inclusive political and inclusive economic institutions tend to reinforce each other, that a broad distribution of political power tends to distribute income and assets more broadly, which tends to reinforce that distribution of political power. So the diagonals, using a kind of more nerdy term, the diagonals are very sort of stable here. Now, in the off diagonals, you have mix between inclusive institutions and extractive institutions, and they're very unstable. Okay, so let me give you one very topical example, which is Tunisia. So what did Tunisia have for a long time? Well, since independence, it had very extractive political institutions. It basically had a dictatorship, but it had reasonable economic institutions. It had reasonably inclusive economic institutions. That's not stable. Why is that not stable? It's not stable because concentrated political power can't really live with broad economic rights. There's always an incentive to basically take over the economy. And that's basically what's happened in Tunisia, that over time, the political power concentrated in the Ben Ali family, led to more and more and more intervention in the economy. It led to 5% on every contract. It led to 10% on every contract, it led to 15% of every contract, it led to a cut in people's businesses. So the inclusivity of the economic institutions gradually was eroded over time by the very concentrated political power. So why do I emphasize this so much? Because this element of sort of persistence is kind of very important, I guess, in our way of thinking about the world that in some sense, if you want to think about the inequality in the world today, you need to think about how institutions got formed historically and how they persisted over time. So I guess I'd say that's one reason why you have to sort of study the history of societies in order to think about kind of world inequality. Okay, so why emphasize inclusive institutions? Well, as I said, I think that's a very conventional thing for economists. They unleash all sorts of good things. Factor accumulation, investment, efficient allocation of resources, broad based participation. I think that Moses Findlay, the great classical economic historian, argued that the reason that the classical world was so technologically uncreative was because of slavery. Because. Because slaves can generate a lot of income, possibly in a sugar plantation. But of course you can't force a slave to think creatively or have ideas or invent stuff. And slaves of course, have no incentive to do so. So if you have something like the Roman economy, which was based on slavery, essentially slave production, industry and agriculture, it's very difficult to have technological dynamism. And I guess that's a sort of obvious idea, but I think it's a powerful idea about why you'd expect extractive economic institutions not to generate technological change or innovation. We want to emphasize a lot here that growth, economic growth unleashed by inclusive economic institutions is a process of. You know what, Schumpeter? Something I learned a long time ago in Preston Murashima's class reading Capitalism, Socialism and Democracy, Schumpeter coined this term of creative destruction that innovation generates creative destruction by, you know, there's winners and there's losers and there's new forces and old forces go out and that's very powerful. So inclusive economic institutions create this economic growth. So why would you have extractive economic institutions? Why would extractive economic institutions ever occur in society? Well, that's for the reason that, that's for the obvious reason in some sense that any set of economic and political institutions distributes wealth and power in particular ways. And what may be good for some group of powerful people may not be good for the society as a whole. If you think about, go back to the Spanish colonial world, you could say that the type of Economic institutions like the Potosimita was very bad for the prosperity of Bolivia or Peru, but it was extremely good for the people who were benefiting from this extraction. So that's a sort of simple and familiar idea. But that's really the logic that kind of underpins extractive economic institutions. Okay? So extractive economic institutions, for the obvious reason, will not generate economic growth now. At least they won't do so in a sustained way. Okay? So there's some possibility of growth under extractive political institutions. And I want to emphasize again, very much the off diagonals. You know, when I was emphasizing this mismatch between extractive and inclusive, I wanted to emphasize that that's a sort of unstable situation or that's an unsustainable situation. Okay? That could be unsustainable for different ways. You know, one can imagine a situation like in the Soviet Union, for example. Go back to think about the Soviet Union, which had an extractive political institutions in our terminology. So there was a dictatorship. It had very extractive economic institutions in the sense that there was a kind of command system which organized the way the economy functioned. And I vividly remember Mika Morishima talking about. He had all these wonderful examples from the Soviet era about how difficult it was to actually get. And he had this example, I remember very well, of the roofing factory. So the roofing factory was first told, you should produce roofing according to weight on the base of weight. So they produced this incredibly thick roofing that was so thick and heavy you couldn't put it on a house. So then they thought, that's a bad idea. So let's get them to produce roofing according to area. So then they produce this incredibly thin roofing that broke as soon as you picked it up. But how did the Soviet Union generate economic growth under extractive institutions? Well, basically the central planning took people who were producing nothing in the rural sector and stuck them in factories. Now, while that moving those people was going on, that generated big improvements in labor productivity. It didn't generate technological change, but it generated very rapid growth for quite a long time. And in fact, it generated such rapid growth that lots of economists and the CIA were fooled into thinking that the Soviet Union was going to overtake Western countries. And, you know, this is perhaps vividly illustrated by Paul Samuelson. I don't want to beat up on Paul Samuelson, but this is just the picture I always have in my mind, Paul Samuelson, continual predictions that the Soviet Union, this is the Soviet Union at the bottom here. This is us. That the Soviet Union was going to catch up with the U.S. now, this was happening in 1961. It was going to happen in the year 2000. By 1970, it had been delayed to 2010, and the next edition had it happening in 2020. So you could say the verdict is still out. You know, the Soviet Union still has, well, nine years to go. But just to show you that this process of growth was so rapid and spectacular at the time that many people thought that this was sort of the wave of the future. And indeed, many people in the former colonial world in the 1960s had the same idea that Soviet was the way to go. Okay. Of course, this wasn't sustained. It wasn't sustained because it couldn't generate technological change. Other instances of growth under extractive institutions are unsustained because, as in the Tunisian example, that there's just. There's a sort of. There's a kind of inconsistency between this system. So you can't have inclusive economic. You can't have, in a sustained way, inclusive economic institutions and extractive political institutions. And the same the other way around, you can't have extractive economic institutions with inclusive political institutions because the polity is going to open those institutions and make them more inclusive. Okay. All right. So how long do I have left, Tim? Okay, so out of that American experience, I wanted to make this distinction between extractive and inclusive economic and political institutions. And I'm going to end up by sort of giving some examples today of particularly poor countries and trying to sort of illustrate the different ways in which they have extractive economic and political institutions. One of the ways which makes it sort of complicated, I think, is that. And one of the things we grappled with a lot is that there's a lot of variety. There's many ways to skin a cat, my mother would have said. And so there's a lot of variety in what tools are used to kind of extract. And I'll give some examples of that. But to go back to my first slide on the lay of the land, I now have the task of sort of explaining in some sense how the great divergence happened. So you already got the idea that in the Americas that the great. This divergence within the Americas, this sort of little great divergence happened because North America US Developed kind of inclusive economic institutions, and Latin America developed extractive political and economic institutions, and that created this divergence. Particularly. What explains the timing of this divergence? Well, the timing of divergence is basically determined by the British Industrial Revolution. So it's really, you know, that Divergence comes when societies with inclusive economic institutions are able to take advantage of all of this new technology, forms of organization, power, transportation, that come with the Industrial Revolution, whereas those things don't disseminate to countries with extractive economic institutions. So that means that to understand the timing of that divergence, we want to sort of study how the Industrial Revolution took place. And that's really a story of the emergence of inclusive political and economic institutions in Britain. Okay, so I need to talk more about the dynamics. So far, I've only emphasized how these things tend to be very persistent over time. And once you get stuck with extractive institutions, you tend to keep having extractive institutions, or once you have inclusive institutions, you tend to keep having inclusive institutions. Institutions. But obviously there's a possibility for change, even though that's unlikely or difficult. And the origins of that great divergence really come from the development of inclusive institutions, political institutions, and then economic institutions in Britain. And here's the sort of language we use to try to talk about this. Implicit in this view is a lot of conflict. Okay, so there's a lot of conflict over institutions. If you think about extractive institutions, we could always organize society to, you know, the benefit of the Spanish colonists and the indigenous people, all, you know, at the expense of the indigenous people. There's going to be a lot of conflict over that. The indigenous people don't like that. They'd like to reorganize society. They'd like to change the system. There's going to be struggle. There's always conflict over institutions, conflict over political institutions, conflict over over economic institutions. But conflict in itself doesn't change necessarily the system. Conflict could be unsuccessful. So you have successful conflict, perhaps in Tunisia, but you have unsuccessful conflict in Syria, because in some sense, the dominance of the regime is too strong to be overthrown. So what we emphasize is that there's some moments, and I'm giving you some very specific examples in the context of European history in a second, there are some moments where big shocks to the system in some sense create a much greater flux in terms of power relations which allow for a change. And we use a terminology which is kind of hallowed in political science called a critical juncture. So a critical juncture is a sort of confluence of events which in some sense allow for the possibility of undermining the status quo. So let me give you a very specific example about which comes from European history, which is the Black Death. Okay, so if you go back to before the Black Death, which comes in the 1340s, in the middle of the 14th century, you see very, you don't see very large differences between economic or political institutions in Western or Eastern Europe. You have, you know, a sort of feudalism. You have serfdom. What happens when the black death comes? Perhaps 30, 40% of the population gets wiped out. In England, very well documented, what happens. Laborers have disappeared, labour is scarce. Landlords start competing for labor. Workers start saying, well, you know, these feudal services we had to do, we don't want to do them anymore. You know, the wages you are paying us, we'd like higher wages. Now the elites try to stop this. They pass this statute of laborers to try to put a lid on wages. But there's lots of court cases showing that, you know, these contracts got renegotiated. So the scarcity of labor created in some sense empowered a lot of the people at the bottom of the social scale and allowed them to change economic institutions. Now in Eastern Europe, something very different happened, okay, that the same incentives and same power struggle was there, but there's another logic at play. Because when labor is very scarce, in some sense it becomes even more valuable to coerce it. Okay, so labor may have less scarce, they may have more power, but it's even better to coerce them. So what happened in Eastern Europe is that the other motive won out over the. Over the motive that won out in Britain. And instead of having a relaxation in feudalism, you had a kind of intensification which accumulated in the so called second serfdom. So here's a situation where differences weren't so large to start with necessarily. But then the interaction between small differences and this large critical juncture led to a big institutional divergence. Now, Britain didn't look so different from Western Europe at that time. But then along came another critical juncture which was the discovery of the Americas and the expansion of Atlantic trade. There were small differences in economic institutions, political institutions, but you know, they all had the same sort of thing. 17th century Stuart monarchs in Britain had this project of establishing absolutism. There was absolutism in Spain, absolutism in France. There were parliaments which had slightly different abilities or perquisites or prerogatives. But there were small differences that mattered when this critical juncture came along. And one thing became very important was the ability to control or monopolize trade. The British monarchy was much less good at monopolizing trade. The Spanish monarchy was very good at monopolizing trade. What was the consequence of that? Well, that shifted political power quite dramatically in Britain because the monarchy couldn't control trade. A large class of independent merchants arose, which created a demand for a very different set of economic institutions than had been favored by the Stuarts, the sort of putative, absolutist monarchy in Britain. So that led to this divergence between Britain and the rest of Western Europe. So if you think about this is just sort of telling you the story of, in some sense, how there's this gradual institutional divergence that take place going back in history. You wouldn't think Britain was a sort of. Britain was a backward kind of marginal place for most of history, and even right up to this period before this, during the Tudor period. But this interaction between small differences in institutions and critical junctures ultimately led to a very large divergence in institutions that culminated in these political conflicts in the 17th century, the civil War and then the Glorious Revolution, which created a very different type of political system where policy was determined not by the monarchy or the Privy Council, but by Parliament. Parliament was open to pressure from society in a way which is completely different. So the political revolutions led to large changes in economic policies and economic institutions after the Glorious Revolution that we argue were critical for determining the Industrial Revolution. So that, again, that's a very kind of traditional argument. But what we want to try to put that in as a context is a sort of historical discussion of how institutions diverged historically in Europe between Western and Eastern Europe, and then between different parts of Western Europe, particularly between Britain and. And the rest of Western Europe. So this is our sort of diagram to try to talk more generally about institutional divergence. This is a different story about institutional divergence than the story I told in the case of the Americas. That's a kind of very clean situation, because colonialism had such a large impact on the way those societies function that it's kind of a nice way, I think, to illustrate some of the building blocks of the theory. But of course, it doesn't help you explain what went on in this European case or how British political and economic institutions diverge from those in the rest of Europe. Okay, I think I said enough about that. I'm not going to talk about Mexico. Okay, so this is just summarizing the emergence of inclusive institutions in Britain. I told Tim I'd have too many slides, and I deleted some, and I still have too many. Okay, so how did world inequality emerge? Well, world inequality emerged because after this radical transformation of British institutions, there were some parts of the world that had reached inclusive institutions by different paths. North America, one case. I haven't got time to talk about that. We talk about a lot in the book is Australia. So Australia is a sort of fascinating case which has many parallels to the struggle over institutions in Jamestown after 1607. In Western Europe, institutions diverged from Britain in the 17th century, but they weren't very different. They followed very similar paths in the late medieval and the first part of the early modern period. But many parts of the world had very intense extractive institutions. Eastern Europe, the Ottoman Empire, those places were not equipped to sort of take advantages of the new technologies and types of organization emanating from the industrial revolution. And also they were very threatened by them because of this process of creative destruction. So creative destruction redistributes income and wealth, but it also redistributes power. And one of the ways we try to illustrate that in the book is by the antipathy in both the Austro Hungarian and the Russian Empire to railway construction. So in both empires, they saw building railways as being something very destabilizing. Building railways was going to create a proletariat, it was going to create political instability, and it was going to make it very difficult to govern in the way they had. So they saw industrialization and development of transportation systems as something which would undermine. Create a destruction, which would undermine the political status quo. So those parts of the world kind of kept their extractive institutions and they persisted over time, so they diverged even further. Other parts of the world, of course, had extractive institutions thrust upon them by European colonialism. So the story about Latin America is a story about how extractive institutions were created by European colonization. Of course, that's something which happened all over the world. Okay, that happened in Asia. It happened in sub Saharan Africa. Although the story that we tell in sub Saharan Africa, I think is again, it's a very different. It's a very different story about historical development of institutions where European colonialism in some sense, just part of a long kind of path dependent process of institution creation. For example, even before formal colonization, sub Saharan Africa was heavily impacted by the Sub Saharan Africa's political and economic institutions were heavily impacted by the slave trade in a very extractive direction. So towards extractive political institutions and extractive economic institutions. And in some sense. But you know, in some sense, the most striking example, you know, in Africa would be South Africa. So South Africa, it's not a coincidence that South Africa has had levels of inequality, has levels of inequality very similar to Latin American countries. It's very like a Latin American country. South Africa was set up under the apartheid system to exploit black labor, African labor, for the benefit of the 20% of the white people in society. And, and how did that system work? Well, it worked because white people had all the political power, so they were able to structure labor market institutions, economic institutions, the ownership of assets in a way which benefited them at the expense of the Africans. So that's a sort of striking example. And the same thing happened in Rhodesia, in Namibia and other places. So those types of societies are very similar in some sense to the Latin American case. But other parts of Africa, there's other kind of longer run historical mechanisms influencing their institutional dynamics. So if you think about the, you know, there's many ways in some sense you could get to extractive institutions. And I think colonialism is part of the story, but it's not the whole story, you know, as you can see just by thinking about Western versus Eastern Europe. Okay, so in some sense, you know, it's this variation in institutions, this historically determined variation, institutions that creates this great divergence in the sense that the Industrial revolution disseminates to some parts of the world and not other parts of the world that creates this income divergence. How does that persist into the modern world? It persists because these institutional nexuses are very persistent over time, as I already kind of emphasized. So in the book, we use this concept of a sort of vicious circle and a virtuous circle to try to emphasize how once you create inclusive institutions, they tend to have these kind of feedback loops that reinforce themselves. And that's the same is true with kind of extractive institutions. So let me not talk about any of that, about extractive. Let me kind of end, I should probably end soon by talking about why nations fail today and try to be a bit more optimistic. And maybe I can talk about some of the implications of theory. So this is a very sort of grand theory. And, you know, you'll be, you know, and you'll probably be, it'll probably be clear that it doesn't have very tight kind of predictions about what, you know, what will happen or, you know, what could happen. But there are some implications I think that I'd like to like to emphasize, you know, but I, and I think, you know, we do emphasize this persistence a lot. But I always think, you know, one of the examples we give in the book is that, you know, if you think about the Americas, you take, take the Americas and you line up the Americas from the sort of richest to the poorest countries. So the top you have the US And Canada. The middle you have Argentina or Chile. At the bottom you might have Guatemala or You know, Bolivia, Peru. And you go back, you know, 50 years, the rankings almost identical. You go back 100 years, the rankings almost identical. If you go back 150 years, the rankings almost identical. So that suggests to me that there's some very persistent features determining the inequality of natures. Now you could say, well, any persistent feature could be explained by some persistent characteristic like, you know, geography or something like that. But I'll argue strenuously against that if someone wants to raise it in the questions and answers. Okay, so we sort of talk about this development of this emergence of inclusive institutions in Britain and how different historical paths led to this variation institutions in the world at the time of the Industrial Revolution, how that impacted the diffusion of the Industrial Revolution in some sense and created, you know, modern world inequality. So that today, if we look around the world and we look at, you know, we compare poor versus rich countries and we ask about their political and economic institutions, we're going to characterize, you know, rich countries as having relatively inclusive economic and political institutions, and. And poor countries having extractive political and economic institutions. Let me just give you some examples because, you know, to try to emphasize the sort of variation in that. So what are some of the countries you talk about? Well, you know, here's a great story that you may have missed, which is when President Mugabe won the lottery in Zimbabwe. So there's not only a powerful man, he's a lucky man too. And it's from the BBC, so it must be true. So President Mugabe's name drawn from thousands of customers, top prize in a lottery organized by a partly state owned bank. So here's a country where. Here's a country, a sort of development disaster over the last couple of decades, where clearly political power is very concentrated around President Mugabe and the army and his. A kind of clique of people. And they're able to, you know, both organize political institutions, they're able to kind of undermine any chance of kind of more democratic society, and they're able to organize the economy to their own benefit. Okay, here's a very different type of example from another Latin American country, which is Colombia. Who are these gentlemen? These gentlemen are Colombian paramilitary leaders. George Forte. You see, he signs himself George Forte, Jorge Quarenta. The gentleman at the top is Don Berner, and the gentleman at the bottom with the nice looking sunglasses is called Diego Vecino. These are all, you know, kind of nom de guerres in some sense. What is this pact? Well, this is a pact where. Who are these people? These are sort of Gangsters, basically, who had private armies who went around murdering people, extorting, kidnapping, you know, massacring, stealing land, dealing drugs. This is an agreement they signed with a bunch of politicians. The politicians include the governor of Cordoba, that's the department in Colombia where this Santa Fe de Ralito is, where the pact was signed. The governor of Sucre, next door. National senators, national senator, national congressman, another national congressman. So these gangsters got together with these national politicians and signed a pact calling for the refounding of Colombia. Okay, so what was their idea of refounding Colombia? Their idea of refounding Colombia was fixing the 2002 elections. So around about a third of the congressmen and senators in Colombia that were elected in 2002 were elected by these guys with their guns. Now, what's the point of this? The point is that in Colombia, the central state doesn't control vast areas of the country. Instead, Don Bernard and George Forte control vast areas of the country. The Colombian state is just incapable of providing order or services in possibly a half of its territory. Okay. Of course, there's many other examples of this in sub Saharan Africa. In the Congo, for example, would be another example where the central state has very little control over what goes on in large amounts of the country. So this is a case, the Zimbabwean case is not a case of weak state centralization. President Mugabe actually kind of took over a fairly bureaucratized, effective state by African standards, albeit a very extractive state, another state set up for the benefit of white people at the expense of Africans. And, you know, he took over the state, and instead, you know, he created a different ruling clique and set it up for their benefit. In Colombia, that's not. That's a different problem. It's more fundamental, as in the case of Somalia, where there's this fundamental lack of a state which is able to provide order and services in large parts of the country where you can't have a situation where you can't have a situation of inclusive economic institutions when George Forte could come along and kidnap you or kill you or take your land. And the state is incapable of providing public services. So this is a different type of failure of inclusive institutions. Here's another example, my last example from Uzbekistan. Here's another example of very extractive political and economic institutions. After the fall of the Soviet Union, Uzbekistan was taken over by Ismail Karimov, who was a former Soviet official. So he's, you know, he's life president. He's lining up his daughter, maybe he has two daughters, one of them for the next who's going to take over? He wins elections with 98% of the vote. What happens to the state? What does the state do? Well, the main export of Uzbekistan is cotton. I think it's about 60% of exports. How do they pick cotton? Well, during the Soviet period, there were a couple of hundreds of collective farms growing cotton. They disappeared with the Soviet system and the tractors got rusty and human capital deteriorated. So President Karimov came up with another great idea. We have all these school children sitting around in schools, not doing anything. Why don't they go and pick the cotton? So every year, when the cotton ripens, the schools are emptied and the children are sent off into the schools, into the fields to pick cotton for a couple of months. So that's, you know, this is now. So child labor is organized by the state is the way that the cotton harvest is brought in in Uzbekistan. So here's another example of a kind of very narrow distribution of political power, creating a very kind of extractive form of economy. Okay. Of course, thinking about the British case, the British case, Britain started off with extractive political and economic institutions. There was a lot of conflict over that. And out of that, inclusive political and economic institutions emerged. So clearly there's a possibility for change, despite the fact that I've been emphasizing a lot, this kind of persistence, and we talk about several examples of that which I haven't got time to go in. The US south is a wonderful example. Of course, the US south is a case where there was a very extractive system, the slave economy, before the Civil War. The Civil War freed slaves and enfranchised black men, but it didn't really change power relations fundamentally in the US South. And after 1877, when the north gave up reforming the South, a very similar type of economy recreated itself, albeit with different instruments. Slavery was gone, but instead there was the Ku Klux Klan, there was Jim Crow, there was segregationist legislation, there was vagrancy laws. Many other ways were used to get the black labor force under control. But the change, the dramatic change that took part in the southern economy starting in the 1940s and 1950s and 1960s, which is something else that Tim wrote a seminal paper about, actually is an example of a transformation in political power. Think of the civil rights movement, which had a fundamental impact on the distribution of political power in the US south, which then had a fundamental impact on the economic institutions. And we also talk about Botswana. So Botswana is a wonderful case of a very successful sub Saharan African country where historical struggles going back to the 19th century between the Swana tribes, both with Afrikaners after the great trek, then with British colonial powers, and then after independence led to very relatively inclusive political and economic institutions in Botswana. Unfortunately, I haven't got time to talk about King Karma and so. All right, so let me wrap up because I do want to let people ask questions and express outrage or overwhelming approval. Yes. And just to say so this is a sort of very whirlwind tour. As I said, the book is 570 pages. And so it's very difficult to do it justice in such a short amount of time. But I hope I've given you some kind of flavor of the ideas. We try to use these historical stories to abstract some very simple building blocks from these historical stories which can help explain kind of differences in incomes today and in terms of institutional differences. But then try to trace back, using this very kind of simple ideas about dynamics, how this institutions diverged kind of in the world. And let me just end by kind of saying one thing. I think one of the things that sort of, you know, struck me in sort of studying is studying this for a long time is that, you know, this is a, you know, there's a. Although at some level this looks, you know, you could say this was sort of very, you know, it's sort of very pessimistic or it's a very historically grounded. I guess I just think that that's how the world is. It also implies that the world could have looked very different. So this is one very big difference between this and a sort of geographical view of the world such as Jared Diamond's is that there's no reason here that any particular part of the world is more prosperous than another part of the world. There's no reason why Peru couldn't have much higher levels of income than the United States today. That wasn't historically, it wasn't sort of determined by anything other than particular conditions, a particular juncture where institutions in that society got created. And I think that applies all over the case in a lot of the research I've always been done. I've always been sort of struck by. I've never understood why it was that in many African countries, for example, they have just as much economic potential as other parts of the world. I don't think there's any reason why, if historically institutions or society in a place like Sierra Leone or Ghana had been structured differently, those places couldn't be just as prosperous as England or North America today. So I think that part of the theory is kind of, you Know, I think that's very. That's sort of very optimistic for the future in some sense. But obviously I'm also emphasizing a lot that it's very difficult to break the particular institutional equilibrium that societies are in. So it's possible to make large improvements in development outcomes, but it's very difficult for that change to be engineered, I guess. I would say so. Okay.
