Mornings on the Zanzibar archipelago in the Indian Ocean figure with lines of handsome women elegantly carrying firewood and pails of water on their heads, fishing craft with fishermen arching poles, and dhows with their single sails silhouetted against the sun like a brass gong vibrating over the canes in Couva. During Ottoman rule, hundreds of dhows would sail every year across the Indian Ocean from Arabia, Persia and India with the monsoon winds blowing in from the northeast, bringing iron, cloth, sugar, spices and dates. When the monsoon winds shifted to the southwest in March or April, the traders would leave, with their ships packed full of tortoiseshell, copal, cloves, coir, coconuts, rice, ivory and slaves. The Maluku archipelago in modern Indonesia in the Banda Sea came to be known as the Spice Islands due to the nutmeg, mace and cloves that were originally exclusively found there.
What these distant climes share in common with these leaves of brown islands that cling to the blue rim of the Caribbean basin is a history of extractive European economic and political institutions that would condemn them to underdevelopment. Extractive institutions in Guatemala have enriched the elite for four centuries. Guatemala remains a polarized country with a minority of European-descended elites controlling politics and economics while an indigenous majority remains on the margins. Repressive violence continues to be the norm- a practice rooted in the colonization of the region.
The same process of vicious circles was evident in ancient Maya city-states that began around 500 BC, preventing them from become an empire. The same is also true for plantation economies. Extractive institutions create huge inequalities and greater wealth and unchallenged power for those in control. Extractive institutions then not only pave a yellow brick road for the next regime to be even more extractive despite the loss of El Dorado but they engender continuous conflict. Inside the iron law of oligarchy it is challenging to chart a new path as with the Glorious Revolution in England or the Meiji Restoration in Japan.
Inclusive economic institutions foster economic activity, growth in productivity and economic prosperity. In 1860, a census of the British colony of Barbados unmasked that of the 60,000 inhabitants, 39,000 were African slaves who were property of the remaining one third. In fact, they were the possessions of 175 sugar planters who owned most of the land and who had well enforced rights over their slaves. Of the 40 judges and justices on the island, 29 of them were the largest planters. Barbados did not strive at that time to have inclusive economic institutions. Two thirds of the population had no access to education or economic opportunities or incentives to nurture their talents.
Christopher Codrington was a planter in Barbados (1668–1710) and a friend of the King. He amassed a great fortune from his sugar plantations. He was a fellow of All Souls, Oxford where he would endow the library at All Souls that carries his name. A library of books built on the backs of slaves without schools. In 1935, Eric Williams failed to receive a fellowship at All Souls. Just as virtuous circles enable inclusive institutions to persist, vicious circles create influential forces that buttress the persistence of extractive institutions. Such institutions are not unbreakable and history is never destiny- but extractive institutions exhibit resilience. They create potent negative feedback loops that allow extractive political institutions to forge from limited-liberty extractive economic institutions which in turn create a basis for the persistence of politically extractive institutions. Under inclusive economic institutions, wealth is never concentrated among the sparse elite who use their economic prowess to impose their political will disproportionately. Additionally there are more limited gains from holding political power and thus weaker inducements for any group or individual to try to take control of the state. Rich nations are rich because they have developed inclusive institutions over the last three centuries. At first, they are fragile and are inclusive only in a limited sense to begin with; but the butterfly effect amplifies frail flutters into storms of virtuous circles.
Once these inclusive institutions persist, there is no need for the same confluence of factors to re-emerge for them to survive. The initial interplay between existing institutions and the opportunities and challenges need not recur. Inclusive institutions open a path for two engines of prosperity: technology and education. Development is freedom and is always accompanied by technological improvements that enable people (labour), land, and capital (plant and machinery) to become productive. The contrast of South and North Korea and the United States and Latin America illustrates a general principle.