This book, which has created a huge response, gives substance to the reality of what can be called political economy, or the intimate interlay of political and economic institutions in the history of nations.
The authors wanted to find what are the causitive factors to poverty and failed institutions in the world today, finding that usual explainations involving geography, cutlutre, or virtues of one sort or another were not adequate to explain them. They begin with the striking contast between Negalas New Mexico and its cross boarder counterpart in Mexico; neither place so separated by location or even culture. The difference they found was due to the political and economic institutions of the two nations, how they evolved through their history and how the relationship to poverty and the desire to prosper so deeply differed.
A thing that struck me almost immediately about the theory was how it resembled S. J. Gould's theory of "Punctuated Equilibrium" that augments Darwin's theory of Evolution by Natural Selection, but not in the intentional error in Social Darwinism, but through the role of historical contingencies and institutional drift that are seldom intended. In discussing the history of England from the Magma Carta through the Industrial Revolution that authors point out that it was not preordained that England should be the place for the breakthrough that multiplied the efficiency and wealth of her economy, but that a set of gradual changes in the political and economic institutions that resulted in a weakening of the absolute monarchy, unlike those of many other European nations, i.e. Spain and France, and the creation of inclusive economic systems that led to inclusive political institutions in the Gloriuous Revolution of 1688 and eventually to the Industrial Revolution. The political-economic climate in the Eighteenth Century saw an increase in the stability of private property and of reliable finance and a decline of Royal control of land and investiment, especially granting of monopoly. The use of the petition in Parliment was a big check on the Monarchy and other vested interests.
The reality is much more complicated in nearly all cases. Not only did Great Britian practice monopoly in international trade, but even when the alternative to inclusive institutions, called extractive, where an oligarchy controls most of the wealth and most people are poor, that typifies most nations over most of history, the usual condition is in shades of grey. Even extractive, elitist systems employ some inclusive institutions, and inclusive institutions can revert to the more common extractive institutions.
The freedom to innovate and share your inventions is quite essential to building an inclusive political and economic system. The incentive to make opportunities rests on the security of your right to control your own property and ideas. Quite often in history innovations are repressed, sometimes actively by the people in charge. Innovations create what the authors call "Creative destruction" which is what that means, innovations destroy the status quo, they make current jobs obsolete. This is a threat to entrenched power structures. The authors recount the story of a cleaver glass blower who went to the Roman Emperor, who arbritrated change in the empire, with a recipe for unbreakable glass. This emperor promptly had the man executed. We live in somewhat a different time when computers running a spreadsheet can replace bookeepers; although electric cars reappeared quickly when oil started to get expensive.
Even extractive nations, such as the Roman Empire, are capable of growth, but it cannot be sustained for long. What often causes to such political systems, where an elite has most of the wealth and control, and more and more people are impoverished, is that infighting and intrigue eventually weaken them. Now large numbers of Roman inhabitants had a measure of freedom and wealth at the beginning of the Empire, but by its end this had deteroiated. As for what followed the Fall of Rome; much of the Dark Ages was promoted by a decay of infrastructure that had once promoted the reach of Rome's military and economy. A diverse marketplace and financal services had existed, but as the Emperors looted the citizenery, even as a wealthy elite, these amenities vanished. The Europe that followed was a place of sustained decline.
The urge to look for parallels in recent history, recent American or European history, is irreistable. It is important to stress that even in these hard times with 10% unemployment, that American per capita wealth is ten times what it is in China and about 40-50 times what it is in the poorest nations of the world. Still, there are worries about threats to the freedoms we have now. The lopsided income distribution and the tendancy of a new elite, in which most of the wealth of the Nation has become concentrated, to threaten our open institutons; cannot be ignored. This book warns that the emergance of elites whose power is not checked can lead to the emergence of extractive institutions. This seems to be the fate of failed natons.