Why Nations Fail: The Origins of Power, Prosperity, and Poverty - Daron Acemoğlu, James A. Robinson (2012)

Chapter 11. THE VIRTUOUS CIRCLE

THE BLACK ACT

WINDSOR CASTLE, located just west of London, is one of the great royal residencies of England. In the early eighteenth century, the castle was surrounded by a great forest, full of deer, though little of this remains today. One of the keepers of the forest in 1722, Baptist Nunn, was locked in to a violent conflict. On June 27 he recorded,

Blacks came in the night shot at me 3 times 2 bullets into my chamber window and [I] agreed to pay them 5 guineas at Crowthorne on the 30th.

Another entry in Nunn’s diary read, “A fresh surprise. One appeared disguised with a message of destruction.”

Who were these mysterious “Blacks” making threats, shooting at Nunn, and demanding money? The Blacks were groups of local men who had their faces “blacked” to conceal their appearance at night. They appeared widely across southern England in this period, killing and maiming deer and other animals, burning down haystacks and barns, and destroying fences and fish ponds. On the surface it was sheer lawlessness, but it wasn’t. Illegal hunting (poaching) deer in lands owned by the king or other members of the aristocracy had been going on for a long time. In the 1640s, during the Civil War, the entire population of deer at Windsor Castle was killed. After the Restoration in 1660, when Charles II came to the throne, the deer park was restocked. But the Blacks were not just poaching deer to eat; they also engaged in wanton destruction. To what end?

A crucial building block of the Glorious Revolution of 1688 was the pluralistic nature of interests represented in Parliament. None of the merchants, industrialists, gentry, or aristocracy allied with William of Orange and then with the Hanoverian monarchs, who succeeded Queen Anne in 1714, were strong enough to impose their will unilaterally.

Attempts at restoring the Stuart monarchy continued throughout much of the eighteenth century. After James II’s death in 1701, his son, James Francis Edward Stuart, the “Old Pretender,” was recognized as the lawful heir to the English Crown by France, Spain, the pope, and supporters of the Stuart monarchy in England and Scotland, the so-called Jacobites. In 1708 the Old Pretender attempted to take back the throne with support of French troops, but was unsuccessful. In the ensuing decades there would be several Jacobite revolts, including major ones in 1715 and 1719. In 1745-46, the Old Pretender’s son, Charles Edward Stuart, the “Young Pretender,” made an attempt to take back the throne, but his forces were defeated by the British army.

The Whig political party, which as we saw (this page-this page) was founded in the 1670s to represent the new mercantile and economic interests, was the main organization behind the Glorious Revolution, and the Whigs dominated Parliament from 1714 to 1760. Once in power, they were tempted to use their newly found position to prey on the rights of others, to have their cake and eat it, too. They were no different from the Stuart kings, but their power was far from absolute. It was constrained both by competing groups in Parliament, particularly the Tory Party which had formed to oppose the Whigs, and by the very institutions that they had fought to introduce to strengthen Parliament and to prevent the emergence of a new absolutism and the return of the Stuarts. The pluralistic nature of society that emerged from the Glorious Revolution also meant that the population at large, even those without formal representation in Parliament, had been empowered, and “blacking” was precisely a response by the common people to perceptions that the Whigs were exploiting their position.

The case of William Cadogan, a successful general in the War of the Spanish Succession between 1701 and 1714 and in the suppression of the Jacobite revolts, illustrates the sort of encroachment of common people’s rights by the Whigs that led to blacking. George I made Cadogan a baron in 1716 and then an earl in 1718. He was also an influential member of the Regency Council of Lords Justices, which presided over major affairs of state, and he served as the acting commander in chief. He bought a large property of about a thousand acres at Caversham, about twenty miles west of Windsor. There he built a grand house and ornate gardens and laid out a 240-acre deer park. Yet this property was consolidated by encroaching on the rights of those around the estate. People were evicted, and their traditional rights to graze animals and collect peat and firewood were abrogated. Cadogan faced the wrath of the Blacks. On January 1, 1722, and again in July, the park was raided by mounted and armed Blacks. The first attack killed sixteen deer. Earl Cadogan was not alone. The estates of many notable landowners and politicians were also raided by the Blacks.

The Whig government was not going to take this lying down. In May 1723, Parliament passed the Black Act, which created an extraordinary fifty new offenses that were punishable by hanging. The Black Act made it a crime not only to carry weapons but to have a blackened face. The law in fact was soon amended to make blacking punishable by hanging. The Whig elites went about implementing the law with gusto. Baptist Nunn set up a network of informers in Windsor Forest to discover the identity of the Blacks. Soon several were arrested. The transition from arrest to hanging ought to have been a straightforward affair. After all, the Black Act had already been enacted, the Whigs were in charge of Parliament, Parliament was in charge of the country, and the Blacks were acting directly contrary to the interests of some powerful Whigs. Even Sir Robert Walpole, secretary of state, then prime minister—and like Cadogan, another influential member of the Regency Council of the Lords Justices—was involved. He had a vested interest in Richmond Park in southwest London, which had been created out of common land by Charles I. This park also encroached upon the traditional rights of local residents to graze their animals, hunt hares and rabbits, and collect firewood. But the ending of these rights appears to have been rather laxly enforced, and grazing and hunting continued, until Walpole arranged for his son to become the park ranger. At this time, the park was closed off, a new wall was constructed, and man traps were installed. Walpole liked hunting deer, and he had a lodge built for himself at Houghton, within the park. The animosity of local Blacks was soon ignited.

On November 10, 1724, a local resident outside the park, John Huntridge, was accused of aiding deer stealers and abetting known Blacks, both crimes punishable by hanging. The prosecution of Huntridge came right from the top, initiated by the Regency Council of Lords Justices, which Walpole and Cadogan dominated. Walpole went so far as to extract evidence himself as to Huntridge’s guilt from an informant, Richard Blackburn. Conviction ought to have been a foregone conclusion, but it wasn’t. After a trial of eight or nine hours, the jury found Huntridge innocent, partly on procedural grounds, since there were irregularities with the way the evidence had been collected.

Not all Blacks or those who sympathized with them were as lucky as Huntridge. Though some others were also acquitted or had their convictions commuted, many were hanged or transported to the penal colony of choice at the time, North America; the law in fact stayed on the statute books until it was repealed in 1824. Yet Huntridge’s victory is remarkable. The jury was made up not of Huntridge’s peers, but of major landowners and gentry, who ought to have sympathized with Walpole. But this was no longer the seventeenth century, where the Court of Star Chamber would simply follow the wishes of Stuart monarchs and act as an open tool of repression against their opponents, and where kings could remove judges whose decisions they did not like. Now the Whigs also had to abide by the rule of law, the principle that laws should not be applied selectively or arbitrarily and that nobody is above the law.

THE EVENTS SURROUNDING the Black Act would show that the Glorious Revolution had created the rule of law, and that this notion was stronger in England and Britain, and the elites were far more constrained by it than they themselves imagined. Notably, the rule of law is not the same as rule by law. Even if the Whigs could pass a harsh, repressive law to quash obstacles from common people, they had to contend with additional constraints because of the rule of law. Their law violated the rights that the Glorious Revolution and the changes in political institutions that followed from it had already established for everybody by tearing down the “divine” rights of kings and the privileges of elites. The rule of law then implied that both elites and nonelites alike would resist its implementation.

The rule of law is a very strange concept when you think about it in historical perspective. Why should laws be applied equally to all? If the king and the aristocracy have political power and the rest don’t, it’s only natural that whatever is fair game for the king and the aristocracy should be banned and punishable for the rest. Indeed, the rule of law is not imaginable under absolutist political institutions. It is a creation of pluralist political institutions and of the broad coalitions that support such pluralism. It’s only when many individuals and groups have a say in decisions, and the political power to have a seat at the table, that the idea that they should all be treated fairly starts making sense. By the early eighteenth century, Britain was becoming sufficiently pluralistic, and the Whig elites would discover that, as enshrined in the notion of the rule of law, laws and institutions would constrain them, too.

But why did the Whigs and parliamentarians abide by such restraints? Why didn’t they use their control over Parliament and the state to force an uncompromising implementation of the Black Act and overturn the courts when the decisions didn’t go their way? The answer reveals much about the nature of the Glorious Revolution—why it didn’t just replace an old absolutism with a new version—the link between pluralism and the rule of law, and the dynamics of virtuous circles. As we saw in chapter 7, the Glorious Revolution was not the overthrow of one elite by another, but a revolution against absolutism by a broad coalition made up of the gentry, merchants, and manufacturers as well as groupings of Whigs and Tories. The emergence of pluralist political institutions was a consequence of this revolution. The rule of law also emerged as a by-product of this process. With many parties at the table sharing power, it was natural to have laws and constraints apply to all of them, lest one party start amassing too much power and ultimately undermine the very foundations of pluralism. Thus the notion that there were limits and restraints on rulers, the essence of the rule of law, was part of the logic of pluralism engendered by the broad coalition that made up the opposition to Stuart absolutism.

In this light, it should be no surprise that the principle of the rule of law, coupled with the notion that monarchs did not have divine rights, was in fact a key argument against Stuart absolutism. As the British historian E. P. Thompson put it, in the struggle against the Stuart monarchs:

immense efforts were made … to project the image of a ruling class which was itself subject to the rule of law, and whose legitimacy rested upon the equity and universality of those legal forms. And the rulers were, in serious senses, whether willingly or unwillingly, the prisoners of their own rhetoric; they played games of power according to rules which suited them, but they could not break those rules or the whole game would be thrown away.

Throwing the game away would destabilize the system and open the way for absolutism by a subset of the broad coalition or even risk the return of the Stuarts. In Thompson’s words, what inhibited Parliament from creating a new absolutism was that

take away law, and the royal prerogative … might flood back upon their properties and lives.

Moreover,

it was inherent in the very nature of the medium which they [those aristocrats, merchants etc. fighting the Crown] had selected for their own self-defense that it could not be reserved for the exclusive use only of their own class. The law, in its forms and traditions, entailed principles of equity and universality which … had to be extended to all sorts and degrees of men.

Once in place, the notion of the rule of law not only kept absolutism at bay but also created a type of virtuous circle: if the laws applied equally to everybody, then no individual or group, not even Cadogan or Walpole, could rise above the law, and common people accused of encroaching on private property still had the right to a fair trial.

WE SAW HOW INCLUSIVE economic and political institutions emerge. But why do they persist over time? The history of the Black Act and the limits to its implementation illustrate the virtuous circle, a powerful process of positive feedback that preserves these institutions in the face of attempts at undermining them and, in fact, sets in motion forces that lead to greater inclusiveness. The logic of virtuous circles stems partly from the fact that inclusive institutions are based on constraints on the exercise of power and on a pluralistic distribution of political power in society, enshrined in the rule of law. The ability of a subset to impose its will on others without any constraints, even if those others are ordinary citizens, as Huntridge was, threatens this very balance. If it were temporarily suspended in the case of the peasants protesting against elites encroaching on their communal lands, what was there to guarantee that it would not be suspended again? And the next time it was suspended, what would prevent the Crown and aristocracy from taking back what the merchants, businessmen, and the gentry had gained in the intervening half century? In fact, the next time it was suspended, perhaps the entire project of pluralism would come crumbling down, because a narrow set of interests would take control at the expense of the broad coalition. The political system would not risk this. But this made pluralism, and the rule of law that it implied, persistent features of British political institutions. And we will see that once pluralism and the rule of law were established, there would be demand for even greater pluralism and greater participation in the political process.

The virtuous circle arises not only from the inherent logic of pluralism and the rule of law, but also because inclusive political institutions tend to support inclusive economic institutions. This then leads to a more equal distribution of income, empowering a broad segment of society and making the political playing field even more level. This limits what one can achieve by usurping political power and reduces the incentives to re-create extractive political institutions. These factors were important in the emergence of truly democratic political institutions in Britain.

Pluralism also creates a more open system and allows independent media to flourish, making it easier for groups that have an interest in the continuation of inclusive institutions to become aware and organize against threats to these institutions. It is highly significant that the English state stopped censoring the media after 1688. The media played a similarly important role in empowering the population at large and in the continuation of the virtuous circle of institutional development in the United States, as we will see in this chapter.

While the virtuous circle creates a tendency for inclusive institutions to persist, it is neither inevitable nor irreversible. Both in Britain and the United States, inclusive economic and political institutions were subject to many challenges. In 1745 the Young Pretender got all the way to Derby, a mere hundred miles from London, with an army to unseat the political institutions forged during the Glorious Revolution. But he was defeated. More important than the challenges from without were potential challenges from within that might also have led to the unraveling of inclusive institutions. As we saw in the context of the Peterloo Massacre in Manchester in 1819 (this page), and as we will see in more detail next, British political elites thought of using repression to avoid having to further open the political system, but they pulled back from the brink. Similarly, inclusive economic and political institutions in the United States faced serious challenges, which could have conceivably succeeded, but didn’t. And of course it was not preordained that these challenges should be defeated. It is due to not only the virtuous circle but also to the realization of the contingent path of history that British and U.S. inclusive institutions survived and became substantially stronger over time.

THE SLOW MARCH OF DEMOCRACY

The response to the Black Act showed ordinary British people that they had more rights than they previously realized. They could defend their traditional rights and economic interests in the courts and in Parliament through the use of petitions and lobbying. But this pluralism had not yet delivered effective democracy. Most adult men could not vote; neither could women; and there were many inequities in the existing democratic structures. All this was to change. The virtuous circle of inclusive institutions not only preserves what has already been achieved but also opens the door to greater inclusiveness. The odds were against the British elite of the eighteenth century maintaining their grip on political power without serious challenges. This elite had come to power by challenging the divine right of kings and opening the door to participation by the people in politics, but then they gave this right only to a small minority. It was only a matter of time until more and more of the population demanded the right to participate in the political process. And in the years leading up to 1831, they did.

The first three decades of the nineteenth century witnessed increasing social unrest in Britain, mostly in response to increasing economic inequities and demands from the disenfranchised masses for greater political representation. The Luddite Riots of 1811-1816, where workers fought against the introduction of new technologies they believed would reduce their wages, were followed by riots explicitly demanding political rights, the Spa Fields Riots of 1816 in London and the Peterloo Massacre of 1819 in Manchester. In the Swing Riots of 1830, agricultural workers protested against falling living standards as well as the introduction of new technology. Meanwhile, in Paris, the July Revolution of 1830 exploded. A consensus among elites was starting to form that the discontent was reaching the boiling point, and the only way to defuse social unrest, and turn back a revolution, was by meeting the demands of the masses and undertaking parliamentary reform.

It was no surprise then that the 1831 election was mostly about a single issue: political reform. The Whigs, almost one hundred years after Sir Robert Walpole, were much more responsive to the wishes of the common man and campaigned to extend voting rights. But this meant only a small increase in the electorate. Universal suffrage, even only for men, was not on the table. The Whigs won the election, and their leader, Earl Grey, became the prime minister. Earl Grey was no radical—far from it. He and the Whigs pushed for reform not because they thought a broader voting franchise was more just or because they wanted to share power. British democracy was not given by the elite. It was largely taken by the masses, who were empowered by the political processes that had been ongoing in England and the rest of Britain for the last several centuries. They had become emboldened by the changes in the nature of political institutions unleashed by the Glorious Revolution. Reforms were granted because the elite thought that reform was the only way to secure the continuation of their rule, albeit in a somewhat lessened form. Earl Grey, in his famous speech to Parliament in favor of political reform, said this very clearly:

There is no-one more decided against annual Parliaments, universal suffrage and the ballot, than I am. My object is not to favour, but to put an end to such hopes and projects … The principle of my reform is, to prevent the necessity of revolution … reforming to preserve and not to overthrow.

The masses did not just want the vote for its own sake but to have a seat at the table to be able to defend their interests. This was well understood by the Chartist movement, which led the campaign for universal suffrage after 1838, taking its name from its adoption of the People’s Charter, named to evoke a parallel with the Magna Carta. Chartist J. R. Stephens articulated why universal suffrage, and the vote for all citizens, was key for the masses:

The question of universal suffrage … is a knife and fork question, a bread and cheese question … by universal suffrage I mean to say that every working man in the land has a right to a good coat on his back, a good hat on his head, a good roof for the shelter of his household, a good dinner upon his table.

Stephens had well understood that universal suffrage was the most durable way of empowering the British masses further and guaranteeing a coat, a hat, a roof, and a good dinner for the working man.

Ultimately, Earl Grey was successful both in ensuring the passage of the First Reform Act and in defusing the revolutionary tides without taking any major strides toward universal mass suffrage. The 1832 reforms were modest, only doubling the voting franchise from 8 percent to about 16 percent of the adult male population (from about 2 to 4 percent of all the population). They also got rid of rotten boroughs and gave independent representation to the new industrializing cities such as Manchester, Leeds, and Sheffield. But this still left many issues unresolved. Hence there were soon further demands for greater voting rights and further social unrest. In response, further reform would follow.

Why did the British elites give in to the demands? Why did Earl Grey feel that partial—indeed, very partial—reform was the only way to preserve the system? Why did they have to put up with the lesser of the two evils, reform or revolution, rather than maintaining their power without any reform? Couldn’t they just have done what the Spanish conquistadors did in South America, what Austria-Hungarian and Russian monarchs would do in the next several decades when the demands for reform reached those lands, and what the British themselves did in the Caribbean and in India: use force to put down the demands? The answer to this question comes from the virtuous circle. The economic and political changes that had already taken place in Britain made using force to repress these demands both unattractive for the elite and increasingly infeasible. As E. P. Thompson wrote:

When the struggles of 1790-1832 signalled that this equilibrium had changed, the rulers of England were faced with alarming alternatives. They could either dispense with the rule of law, dismantle their elaborate constitutional structures, countermand their own rhetoric and rule by force; or they could submit to their own rules and surrender their hegemony … they took halting steps in the first direction. But in the end, rather than shatter their own self-image and repudiate 150 years of constitutional legality, they surrendered to the law.

Put differently, the same forces that made the British elite not wish to tear down the edifice of the rule of law during the Black Act also made them shun repression and rule by force, which would again risk the stability of the entire system. If undermining the law in trying to implement the Black Act would have weakened the system that merchants, businessmen, and the gentry had built in the Glorious Revolution, setting up a repressive dictatorship in 1832 would have entirely undermined it. In fact, the organizers of the protests for parliamentary reform were well aware of the importance of the rule of law and its symbolism to the British political institutions during this period. They used its rhetoric to bring home this point. One of the first organizations seeking parliamentary reform was called the Hampden Club, after the member of Parliament who had first resisted Charles I over the ship money tax, a crucial event leading up to the first major uprising against Stuart absolutism, as we saw in chapter 7.

There was also dynamic positive feedback between inclusive economic and political institutions making such a course of action attractive. Inclusive economic institutions led to the development of inclusive markets, inducing a more efficient allocation of resources, greater encouragement to acquire education and skills, and further innovations in technology. All of these forces were in play in Britain by 1831. Clamping down on popular demands and undertaking a coup against inclusive political institutions would also destroy these gains, and the elites opposing greater democratization and greater inclusiveness might find themselves among those losing their fortunes from this destruction.

Another aspect of this positive feedback is that under inclusive economic and political institutions, controlling power became less central. In Austria-Hungary and in Russia, as we saw in chapter 8, the monarchs and the aristocracy had much to lose from industrialization and reform. In contrast, in Britain at the beginning of the nineteenth century, thanks to the development of inclusive economic institutions, there was much less at stake: there were no serfs, relatively little coercion in the labor market, and few monopolies protected by entry barriers. Clinging to power was thus much less valuable for the British elite.

The logic of the virtuous circle also meant that such repressive steps would be increasingly infeasible, again because of the positive feedback between inclusive economic and political institutions. Inclusive economic institutions lead to a more equitable distribution of resources than extractive institutions. As such, they empower the citizens at large and thus create a more level playing field, even when it comes to the fight for power. This makes it more difficult for a small elite to crush the masses rather than to give in to their demands, or at least to some of them. The British inclusive institutions had also already unleashed the Industrial Revolution, and Britain was highly urbanized. Using repression against an urban, concentrated, and partially organized and empowered group of people would have been much harder than repressing a peasantry or dependent serfs.

The virtuous circle thus brought the First Reform Act to Britain in 1832. But this was just the beginning. There was still a long road to travel toward real democracy, because in 1832 the elite had only offered what they thought they had to and no more. The issue of parliamentary reform was taken up by the Chartist movement, whose People’s Charter of 1838 included the clauses

A vote for every man twenty-one years of age, of sound mind, and not undergoing punishment for crime.

The ballot.—To protect the elector in the exercise of his vote.

No property qualification for members of Parliament—thus enabling the constituencies to return the man of their choice, be he rich or poor.

Payment of members, thus enabling an honest tradesman, working man, or other person, to serve a constituency, when taken from his business to attend to the interests of the Country.

Equal Constituencies, securing the same amount of representation for the same number of electors, instead of allowing small constituencies to swamp the votes of large ones.

Annual Parliaments, thus presenting the most effectual check to bribery and intimidation, since though a constituency might be bought once in seven years (even with the ballot), no purse could buy a constituency (under a system of universal suffrage) in each ensuing twelve-month; and since members, when elected for a year only, would not be able to defy and betray their constituents as now.

By the “ballot,” they meant the secret ballot and the end of open voting, which had facilitated the buying of votes and the coercion of voters.

The Chartist movement organized a series of mass demonstrations, and throughout this period Parliament continually discussed the potential for further reforms. Though the Chartists disintegrated after 1848, they were followed by the National Reform Union, founded in 1864, and the Reform League, which was founded in 1865. In July 1866, major pro-reform riots in Hyde Park brought reform right to the top of the political agenda once more. This pressure bore dividends in the form of the Second Reform Act of 1867, in which the total electorate was doubled and working-class voters became the majority in all urban constituencies. Shortly afterward the secret ballot was introduced and moves were made to eliminate corrupt electoral practices such as “treating” (essentially buying votes in exchange for which the voter received a treat, usually money, food, or alcohol). The electorate was doubled again by the Third Reform Act of 1884, when 60 percent of adult males were enfranchised. Following the First World War, the Representation of the People Act of 1918 gave the vote to all adult males over the age of twenty-one, and to women over the age of thirty who were taxpayers or married to taxpayers. Ultimately, all women also received the vote on the same terms as men in 1928. The measures of 1918 were negotiated during the war and reflected a quid pro quo between the government and the working classes, who were needed to fight and produce munitions. The government may also have taken note of the radicalism of the Russian Revolution.

Parallel with the gradual development of more inclusive political institutions was a movement toward even more inclusive economic institutions. One major consequence of the First Reform Act was the repeal of the Corn Laws in 1846. As we saw in chapter 7, the Corn Laws banned the import of grains and cereals, keeping their prices high and ensuring lucrative profits for large landowners. The new parliamentarians from Manchester and Birmingham wanted cheap corn and low wages. They won, and the landed interests suffered a major defeat.

The changes in the electorate and other dimensions of political institutions taking place during the course of the nineteenth century were followed by further reforms. In 1871 the Liberal prime minister Gladstone opened up the civil service to public examination, making it meritocratic, and thus continuing the process of political centralization and the building of state institutions that started during the Tudor period. Liberal and Tory governments during this period introduced a considerable amount of labor market legislation. For example, the Masters and Servants Acts, which allowed employers to use the law to reduce the mobility of their workers, was repealed, changing the nature of labor relations in favor of workers. During 1906-1914, the Liberal Party, under the leadership of H. H. Asquith and David Lloyd George, began to use the state to provide far more public services, including health and unemployment insurance, government-financed pensions, minimum wages, and a commitment to redistributive taxation. As a result of these fiscal changes, taxes as a proportion of national product more than doubled in the last three decades of the nineteenth century, and then doubled again in the first three decades of the twentieth. The tax system also became more “progressive,” so that wealthier people bore a heavier burden.

Meanwhile, the education system, which was previously either primarily for the elite, run by religious denominations, or required poor people to pay fees, was made more accessible to the masses; the Education Act of 1870 committed the government to the systematic provision of universal education for the first time. Education became free of charge in 1891. The school-leaving age was set at eleven in 1893. In 1899 it was increased to twelve, and special provisions for the children of needy families were introduced. As a result of these changes, the proportion of ten-year-olds enrolled in school, which stood at a disappointing 40 percent in 1870, increased to 100 percent in 1900. Finally, the Education Act of 1902 led to a large expansion in resources for schools and introduced the grammar schools, which subsequently became the foundation of secondary education in Britain.

In fact, the British example, an illustration of the virtuous circle of inclusive institutions, provides an example of a “gradual virtuous circle.” The political changes were unmistakably toward more inclusive political institutions and were the result of demands from empowered masses. But they were also gradual. Every decade another step, sometimes smaller, sometimes larger, was taken toward democracy. There was conflict over each step, and the outcome of each was contingent. But the virtuous circle created forces that reduced the stakes involved in clinging to power. It also spurred the rule of law, making it harder to use force against those who were demanding what these elites had themselves demanded from Stuart monarchs. It became less likely that this conflict would turn into an all-out revolution and more likely that it would be resolved in favor of greater inclusiveness. There is great virtue in this sort of gradual change. It is less threatening to the elite than the wholesale overthrow of the system. Each step is small, and it makes sense to give in to a small demand rather than create a major showdown. This partly explains how the Corn Law was repealed without more serious conflict. By 1846 landowners could no longer control legislation in Parliament. This was an outcome of the First Reform Act. However, if in 1832 the expansion of the electorate, the reform of the rotten boroughs, and the repeal of the Corn Laws had all been on the table, landowners would have put up much more resistance. The fact that there were first limited political reforms and that repeal of the Corn Laws came on the agenda only later defused conflict.

Gradual change also prevented ventures into uncharted territories. A violent overthrow of the system means that something entirely new has to be built in place of what has been removed. This was the case with the French Revolution, when the first experiment with democracy led to the Terror and then back to a monarchy twice before finally leading to the French Third Republic in 1870. It was the case in the Russian Revolution, where the desires of many for a more equal system than that of the Russian Empire led to a one-party dictatorship that was much more violent, bloody, and vicious than what it had replaced. Gradual reform was difficult in these societies precisely because they lacked pluralism and were highly extractive. It was the pluralism emerging from the Glorious Revolution, and the rule of law that it introduced, that made gradual change feasible, and desirable, in Britain.

The conservative English commentator Edmund Burke, who steadfastly opposed the French Revolution, wrote in 1790, “It is with infinite caution that any man should venture upon pulling down an edifice, which has answered in any tolerable degree for ages the common purposes of society, or on building it up again without having models and patterns of approved utility before his eyes.” Burke was wrong on the big picture. The French Revolution had replaced a rotten edifice and opened the way for inclusive institutions not only in France, but throughout much of Western Europe. But Burke’s caution was not entirely off the mark. The gradual process of British political reform, which had started in 1688 and would pick up pace three decades after Burke’s death, would be more effective because its gradual nature made it more powerful, harder to resist, and ultimately more durable.

BUSTING TRUSTS

Inclusive institutions in the United States had their roots in the struggles in Virginia, Maryland, and the Carolinas during the colonial period (this page-this page). These institutions were reinforced by the Constitution of the United States, with its system of constraints and its separation of powers. But the Constitution did not mark the end of the development of inclusive institutions. Just as in Britain, these were strengthened by a process of positive feedback, based on the virtuous circle.

By the middle of the nineteenth century, all white males, though not women or blacks, could vote in the United States. Economic institutions became more inclusive—for example, with the passage of the Homestead Act in 1862 (this page), which made frontier land available to potential settlers rather than allocating these lands to political elites. But just as in Britain, challenges to inclusive institutions were never entirely absent. The end of the U.S. Civil War initiated a rapid spurt of economic growth in the North. As railways, industry, and commerce expanded, a few people made vast fortunes. Emboldened by their economic success, these men and their companies became increasingly unscrupulous. They were called the Robber Barons because of their hard-nosed business practices aimed at consolidating monopolies and preventing any potential competitor from entering the market or doing business on an equal footing. One of the most notorious of these was Cornelius Vanderbilt, who famously remarked, “What do I care about the Law? Hain’t I got the power?”

Another was John D. Rockefeller, who started the Standard Oil Company in 1870. He quickly eliminated rivals in Cleveland and attempted to monopolize the transportation and retailing of oil and oil products. By 1882 he had created a massive monopoly—in the language of the day, a trust. By 1890 Standard Oil controlled 88 percent of the refined oil flows in the United States, and Rockefeller became the world’s first billionaire in 1916. Contemporary cartoons depict Standard Oil as an octopus wrapping itself around not just the oil industry but also Capitol Hill.

Almost as infamous was John Pierpont Morgan, the founder of the modern banking conglomerate J.P. Morgan, which later, after many mergers over decades, eventually became JPMorgan Chase. Along with Andrew Carnegie, Morgan founded the U.S. Steel Company in 1901, the first corporation with a capitalized value of more than $1 billion and by far the largest steel corporation in the world. In the 1890s, large trusts began to emerge in nearly every sector of the economy, and many of them controlled more than 70 percent of the market in their sector. These included several household names, such as Du Pont, Eastman Kodak, and International Harvester. Historically the United States, at least the northern and midwestern United States, had relatively competitive markets and had been more egalitarian than other parts of the country, particularly the South. But during this period, competition gave way to monopoly, and wealth inequality rapidly increased.

The pluralistic U.S. political system already empowered a broad segment of society that could stand up against such encroachments. Those who were the victims of the monopolistic practices of the Robber Barons, or who objected to their unscrupulous domination of their industries, began to organize against them. They formed the Populist and then subsequently the Progressive movements.

The Populist movement emerged out of a long-running agrarian crisis, which afflicted the Midwest from the late 1860s onward. The National Grange of the Order of Patrons of Husbandry, known as the Grangers, was founded in 1867 and began to mobilize farmers against unfair and discriminatory business practices. In 1873 and 1874, the Grangers won control of eleven midwestern state legislatures, and rural discontent culminated in the formation of the People’s Party in 1892, which got 8.5 percent of the popular vote in the 1892 presidential election. In the next two elections, the Populists fell in behind the two unsuccessful Democratic campaigns by William Jennings Bryan, who made many of their issues his own. Grass-roots opposition to the spread of the trusts had now organized to try to counteract the influence that Rockefeller and other Robber Barons were exerting over national politics.

These political movements slowly began to have an impact on political attitudes and then on legislation, particularly concerning the role of the state in the regulation of monopoly. The first important piece of legislation was the Interstate Commerce Act of 1887, which created the Interstate Commerce Commission and initiated the development of the federal regulation of industry. This was quickly followed by the Sherman Antitrust Act of 1890. The Sherman Act, which is still a major part of U.S. antitrust regulation, would become the basis for attacks on the Robber Barons’ trusts. Major action against the trusts came after the election of presidents committed to reform and to limiting the power of the Robber Barons: Theodore Roosevelt, 1901-1909; William Taft, 1909-1913; and Woodrow Wilson, 1913-1921.

A key political force behind antitrust and the move to impose federal regulation of industry was again the farm vote. Early attempts by individual states in the 1870s to regulate railroads came from farmers’ organizations. Indeed, nearly all the fifty-nine petitions that concerned trusts sent to Congress prior to the enactment of the Sherman Act came from farming states and emanated from organizations such as the Farmers’ Union, Farmers’ Alliance, Farmers’ Mutual Benefit Association, and Patrons of Animal Husbandry. Farmers found a collective interest in opposing the monopolistic practices of industry.

From the ashes of the Populists, who seriously declined after throwing their weight behind the Democrats, came the Progressives, a heterogeneous reform movement concerned with many of the same issues. The Progressive movement initially gelled around the figure of Teddy Roosevelt, who was William McKinley’s vice president and who assumed the presidency following McKinley’s assassination in 1901. Prior to his rise to national office, Roosevelt had been an uncompromising governor of New York and had worked hard to eliminate political corruption and “machine politics.” In his first address to Congress, Roosevelt turned his attention to the trusts. He argued that the prosperity of the United States was based on market economy and the ingenuity of businessmen, but at the same time,

there are real and grave evils … and a … widespread conviction in the minds of the American people that the great corporations known as trusts are in certain of their features and tendencies hurtful to the general welfare. This springs from no spirit of envy or un-charitableness, nor lack of pride in the great industrial achievements that have placed this country at the head of the nations struggling for commercial supremacy. It does not rest upon a lack of intelligent appreciation of the necessity of meeting changing and changed conditions of trade with new methods, nor upon ignorance of the fact that combination of capital in the effort to accomplish great things is necessary when the world’s progress demands that great things be done. It is based upon sincere conviction that combination and concentration should be, not prohibited, but supervised and within reasonable limits controlled; and in my judgment this conviction is right.

He continued: “It should be as much the aim of those who seek for social betterment to rid the business world of crimes of cunning as to rid the entire body politic of crimes of violence.” His conclusion was that

in the interest of the whole people, the nation should, without interfering with the power of the states in the matter itself, also assume power of supervision and regulation over all corporations doing an interstate business. This is especially true where the corporation derives a portion of its wealth from the existence of some monopolistic element or tendency in its business.

Roosevelt proposed that Congress establish a federal agency with power to investigate the affairs of the great corporations and that, if necessary, a constitutional amendment could be used to create such an agency. By 1902 Roosevelt had used the Sherman Act to break up the Northern Securities Company, affecting the interests of J.P. Morgan, and subsequent suits had been brought against Du Pont, the American Tobacco Company, and the Standard Oil Company. Roosevelt strengthened the Interstate Commerce Act with the Hepburn Act of 1906, which increased the powers of the Interstate Commerce Commission, particularly allowing it to inspect the financial accounts of railways and extending its authority into new spheres. Roosevelt’s successor, William Taft, prosecuted trusts even more assiduously, the high point of this being the breakup of the Standard Oil Company in 1911. Taft also promoted other important reforms, such as the introduction of a federal income tax, which came with the ratification of the Sixteenth Amendment in 1913.

The apogee of Progressive reforms came with the election of Woodrow Wilson in 1912. Wilson noted in his 1913 book, The New Freedom, “If monopoly persists, monopoly will always sit at the helm of government. I do not expect to see monopoly restrain itself. If there are men in this country big enough to own the government of the United States, they are going to own it.”

Wilson worked to pass the Clayton Antitrust Act in 1914, strengthening the Sherman Act, and he created the Federal Trade Commission, which enforced the Clayton Act. In addition, under the impetus of the investigation of the Pujo Committee, led by Louisiana congressman Arsene Pujo, into the “money trust,” the spread of monopoly into the financial industry, Wilson moved to increase regulation of the financial sector. In 1913 he created the Federal Reserve Board, which would regulate monopolistic activities in the financial sector.

The rise of Robber Barons and their monopoly trusts in the late nineteenth and early twentieth centuries underscores that, as we already emphasized in chapter 3, the presence of markets is not by itself a guarantee of inclusive institutions. Markets can be dominated by a few firms, charging exorbitant prices and blocking the entry of more efficient rivals and new technologies. Markets, left to their own devices, can cease to be inclusive, becoming increasingly dominated by the economically and politically powerful. Inclusive economic institutions require not just markets, but inclusive markets that create a level playing field and economic opportunities for the majority of the people. Widespread monopoly, backed by the political power of the elite, contradicts this. But the reaction to the monopoly trusts also illustrates that when political institutions are inclusive, they create a countervailing force against movements away from inclusive markets. This is the virtuous circle in action. Inclusive economic institutions provide foundations upon which inclusive political institutions can flourish, while inclusive political institutions restrict deviations away from inclusive economic institutions. Trust busting in the United States, in contrast to what we have seen in Mexico (this page-this page), illustrates this facet of the virtuous circle. While there is no political body in Mexico restricting Carlos Slim’s monopoly, the Sherman and Clayton Acts have been used repeatedly in the United States over the past century to restrict trusts, monopolies, and cartels, and to ensure that markets remain inclusive.

The U.S. experience in the first half of the twentieth century also emphasizes the important role of free media in empowering broad segments of society and thus in the virtuous circle. In 1906 Roosevelt coined the term muckraker, based on a literary character, the man with the muckrake in Bunyan’s Pilgrim’s Progress, to describe what he regarded as intrusive journalism. The term stuck and came to symbolize journalists who were intrusively, but also effectively, exposing the excesses of Robber Barons as well as corruption in local and federal politics. Perhaps the most famous muckraker was Ida Tarbell, whose 1904 book, History of the Standard Oil Company, played a key role in moving public opinion against Rockefeller and his business interests, culminating in the breakup of Standard Oil in 1911. Another key muckraker was lawyer and author Louis Brandeis, who would later be named Supreme Court justice by President Wilson. Brandeis outlined a series of financial scandals in his book Other People’s Money and How Bankers Use It, and was highly influential on the Pujo Committee. The newspaper magnate William Randolph Hearst also played a salient role as muckraker. His serialization in his magazine The Cosmopolitan in 1906 of articles by David Graham Phillips, called “The Treason of the Senate,” galvanized the campaign to introduce direct elections for the Senate, another key Progressive reform that happened with the enactment of the Seventeenth Amendment to the U.S. constitution in 1913.

The muckrakers played a major role in inducing politicians to take action against the trusts. The Robber Barons hated the muckrakers, but the political institutions of the United States made it impossible for them to stamp out and silence them. Inclusive political institutions allow a free media to flourish, and a free media, in turn, makes it more likely that threats against inclusive economic and political institutions will be widely known and resisted. In contrast, such freedom is impossible under extractive political institutions, under absolutism, or under dictatorships, which helps extractive regimes to prevent serious opposition from forming in the first place. The information that the free media provided was clearly key during the first half of the twentieth century in the United States. Without this information, the U.S. public would not have known the true extent of the power and abuses of the Robber Barons and would not have mobilized against their trusts.

PACKING THE COURT

Franklin D. Roosevelt, the Democratic Party candidate and cousin of Teddy Roosevelt, was elected president in 1932 in the midst of the Great Depression. He came to power with a popular mandate to implement an ambitious set of policies for combating the Great Depression. At the time of his inauguration in early 1933, one-quarter of the labor force was unemployed, with many thrown into poverty. Industrial production had fallen by over half since the Depression hit in 1929, and investment had collapsed. The policies Roosevelt proposed to counteract this situation were collectively known as the New Deal. Roosevelt had won a solid victory, with 57 percent of the popular vote, and the Democratic Party had majorities in both the Congress and Senate, enough to pass New Deal legislation. However, some of the legislation raised constitutional issues and ended up in the Supreme Court, where Roosevelt’s electoral mandate cut much less ice.

One of the key pillars of the New Deal was the National Industrial Recovery Act. Title I focused on industrial recovery. President Roosevelt and his team believed that restraining industrial competition, giving workers greater rights to form trade unions, and regulating working standards were crucial to the recovery effort. Title II established the Public Works Administration, whose infrastructure projects include such landmarks as the Thirtieth Street railroad station in Philadelphia, the Triborough Bridge, the Grand Coulee Dam, and the Overseas Highway connecting Key West, Florida, with the mainland. President Roosevelt signed the bill into law on June 16, 1933, and the National Industrial Recovery Act was put into operation. However, it immediately faced challenges in the courts. On May 27, 1935, the Supreme Court unanimously ruled that Title I of the act was unconstitutional. Their verdict noted solemnly, “Extraordinary conditions may call for extraordinary remedies. But … extraordinary conditions do not create or enlarge constitutional power.”

Before the Court’s ruling came in, Roosevelt had moved to the next step of his agenda and had signed the Social Security Act, which introduced the modern welfare state into the United States: pensions at retirement, unemployment benefits, aid to families with dependent children, and some public health care and disability benefits. He also signed the National Labor Relations Act, which further strengthened the rights of workers to organize unions, engage in collective bargaining, and conduct strikes against their employers. These measures also faced challenges in the Supreme Court. As these were making their way through the judiciary, Roosevelt was reelected in 1936 with a strong mandate, receiving 61 percent of the popular vote.

With his popularity at record highs, Roosevelt had no intention of letting the Supreme Court derail more of his policy agenda. He laid out his plans in one of his regular Fireside Chats, which was broadcast live on the radio on March 9, 1937. He started by pointing out that in his first term, much-needed policies had only cleared the Supreme Court by a whisker. He went on:

I am reminded of that evening in March, four years ago, when I made my first radio report to you. We were then in the midst of the great banking crisis. Soon after, with the authority of the Congress, we asked the nation to turn over all of its privately held gold, dollar for dollar, to the government of the United States. Today’s recovery proves how right that policy was. But when, almost two years later, it came before the Supreme Court its constitutionality was upheld only by a five-to-four vote. The change of one vote would have thrown all the affairs of this great nation back into hopeless chaos. In effect, four justices ruled that the right under a private contract to exact a pound of flesh was more sacred than the main objectives of the Constitution to establish an enduring nation.

Obviously, this should not be risked again. Roosevelt continued:

Last Thursday I described the American form of government as a three-horse team provided by the Constitution to the American people so that their field might be plowed. The three horses are, of course, the three branches of government—the Congress, the executive, and the courts. Two of the horses, the Congress and the executive, are pulling in unison today; the third is not.

Roosevelt then pointed out that the U.S. Constitution had not actually endowed the Supreme Court with the right to challenge the constitutionality of legislation, but that it had assumed this role in 1803. At the time, Justice Bushrod Washington had stipulated that the Supreme Court should “presume in favor of [a law’s] validity until its violation of the Constitution is proved beyond all reasonable doubt.” Roosevelt then charged:

In the last four years the sound rule of giving statutes the benefit of all reasonable doubt has been cast aside. The Court has been acting not as a judicial body, but as a policymaking body.

Roosevelt claimed that he had an electoral mandate to change this situation and that “after consideration of what reform to propose the only method which was clearly constitutional … was to infuse new blood into all our courts.” He also argued that the Supreme Court judges were overworked, and the load was just too much for the older justices—who happened to be the ones striking down his legislation. He then proposed that all judges should face compulsory retirement at the age of seventy and that he should be allowed to appoint up to six new justices. This plan, which Roosevelt presented as the Judiciary Reorganization Bill, would have sufficed to remove the justices who had been appointed earlier by more conservative administrations and who had most strenuously opposed the New Deal.

Though Roosevelt skillfully tried to win popular support for the measure, opinion polls suggested that only about 40 percent of the population was in favor of the plan. Louis Brandeis was now a Supreme Court justice. Though Brandeis sympathized with much of Roosevelt’s legislation, he spoke against the president’s attempts to erode the power of the Supreme Court and his allegations that the justices were overworked. Roosevelt’s Democratic Party had large majorities in both houses of Congress. But the House of Representatives more or less refused to deal with Roosevelt’s bill. Roosevelt then tried the Senate. The bill was sent to the Senate Judiciary Committee, which then held highly contentious meetings, soliciting various opinions on the bill. They ultimately sent it back to the Senate floor with a negative report, arguing that the bill was a “needless, futile and utterly dangerous abandonment of constitutional principle … without precedent or justification.” The Senate voted 70 to 20 to send it back to committee to be rewritten. All the “court packing” elements were stripped away. Roosevelt would be unable to remove the constraints placed on his power by the Supreme Court. Even though Roosevelt’s powers remained constrained, there were compromises, and the Social Security and the National Labor Relations Acts were both ruled constitutional by the Court.

More important than the fate of these two acts was the general lesson from this episode. Inclusive political institutions not only check major deviations from inclusive economic institutions, but they also resist attempts to undermine their own continuation. It was in the immediate interests of the Democratic Congress and Senate to pack the court and ensure that all New Deal legislation survived. But in the same way that British political elites in the early eighteenth century understood that suspending the rule of law would endanger the gains they had wrested from the monarchy, congressmen and senators understood that if the president could undermine the independence of the judiciary, then this would undermine the balance of power in the system that protected them from the president and ensured the continuity of pluralistic political institutions.

Perhaps Roosevelt would have decided next that obtaining legislative majorities took too much compromise and time and that he would instead rule by decree, totally undermining pluralism and the U.S. political system. Congress certainly would not have approved this, but then Roosevelt could have appealed to the nation, asserting that Congress was impeding the necessary measures to fight the Depression. He could have used the police to close Congress. Sound farfetched? This is exactly what happened in Peru and Venezuela in the 1990s. Presidents Fujimori and Chávez appealed to their popular mandate to close uncooperative congresses and subsequently rewrote their constitutions to massively strengthen the powers of the president. The fear of this slippery slope by those sharing power under pluralistic political institutions is exactly what stopped Walpole from fixing British courts in the 1720s, and it is what stopped the U.S. Congress from backing Roosevelt’s court-packing plan. Roosevelt had encountered the power of virtuous circles.

But this logic does not always play out, particularly in societies that may have some inclusive features but that are broadly extractive. We have already seen these dynamics in Rome and Venice. Another illustration comes from comparing Roosevelt’s failed attempt to pack the Court with similar efforts in Argentina, where crucially the same struggles took place in the context of predominantly extractive economic and political institutions.

The 1853 constitution of Argentina created a Supreme Court with duties similar to those of the U.S. Supreme Court. An 1887 decision allowed the Argentine court to assume the same role as that of the U.S. Supreme Court in deciding whether specific laws were constitutional. In theory, the Supreme Court could have developed as one of the important elements of inclusive political institutions in Argentina, but the rest of the political and economic system remained highly extractive, and there was neither empowerment of broad segments of society nor pluralism in Argentina. As in the United States, the constitutional role of the Supreme Court would also be challenged in Argentina. In 1946 Juan Domingo Perón was democratically elected president of Argentina. Perón was a former colonel and had first come to national prominence after a military coup in 1943, which had appointed him minister of labor. In this post, he built a political coalition with trade unions and the labor movement, which would be crucial for his presidential bid.

Shortly after Perón’s victory, his supporters in the Chamber of Deputies proposed the impeachment of four of the five members of the Court. The charges leveled against the Court were several. One involved unconstitutionally accepting the legality of two military regimes in 1930 and 1943—rather ironic, since Perón had played a key role in the latter coup. The other focused on legislation that the court had struck down, just as its U.S. counterpart had done. In particular, just prior to Perón’s election as president, the Court had issued a decision ruling that Perón’s new national labor relations board was unconstitutional. Just as Roosevelt heavily criticized the Supreme Court in his 1936 reelection campaign, Perón did the same in his 1946 campaign. Nine months after initiating the impeachment process, the Chamber of Deputies impeached three of the judges, the fourth having already resigned. The Senate approved the motion. Perón then appointed four new justices. The undermining of the Court clearly had the effect of freeing Perón from political constraints. He could now exercise unchecked power, in much the same way the military regimes in Argentina did before and after his presidency. His newly appointed judges, for example, ruled as constitutional the conviction of Ricardo Balbín, the leader of the main opposition party to Perón, the Radical Party, for disrespecting Perón. Perón could effectively rule as a dictator.

Since Perón successfully packed the Court, it has become the norm in Argentina for any new president to handpick his own Supreme Court justices. So a political institution that might have exercised some constraints on the power of the executive is gone. Perón’s regime was removed from power by another coup in 1955, and was followed by a long sequence of transitions between military and civilian rule. Both new military and civilian regimes picked their own justices. But picking Supreme Court justices in Argentina was not an activity confined to transitions between military and civilian rule. In 1990 Argentina finally experienced a transition between democratically elected governments—one democratic government followed by another. Yet, by this time democratic governments did not behave much differently from military ones when it came to the Supreme Court. The incoming president was Carlos Saúl Menem of the Perónist Party. The sitting Supreme Court had been appointed after the transition to democracy in 1983 by the Radical Party president Raúl Alfonsín. Since this was a democratic transition, there should have been no reason for Menem to appoint his own court. But in the run-up to the election, Menem had already shown his colors. He continually, though not successfully, tried to encourage (or even intimidate) members of the court to resign. He famously offered Justice Carlos Fayt an ambassadorship. But he was rebuked, and Fayt responded by sending him a copy of his book Law and Ethics, with the note “Beware I wrote this” inscribed. Undeterred, within three months of taking office, Menem sent a law to the Chamber of Deputies proposing to expand the Court from five to nine members. One argument was the same Roosevelt used in 1937: the court was overworked. The law quickly passed the Senate and Chamber, and this allowed Menem to name four new judges. He had his majority.

Menem’s victory against the Supreme Court set in motion the type of slippery-slope dynamics we mentioned earlier. His next step was to rewrite the constitution to remove the term limit so he could run for president again. After being reelected, Menem moved to rewrite the constitution again, but was stopped not by Argentina political institutions but by factions within his own Perónist Party, who fought back against his personal domination.

Since independence, Argentina has suffered from most of the institutional problems that have plagued Latin America. It has been trapped in a vicious, not a virtuous, circle. As a consequence, positive developments, such as first steps toward the creation of an independent Supreme Court, never gained a foothold. With pluralism, no group wants or dares to overthrow the power of another, for fear that its own power will be subsequently challenged. At the same time, the broad distribution of power makes such an overthrow difficult. A Supreme Court can have power if it receives significant support from broad segments of society willing to push back attempts to vitiate the Court’s independence. That has been the case in the United States, but not Argentina. Legislators there were happy to undermine the Court even if they anticipated that this could jeopardize their own position. One reason is that with extractive institutions there is much to gain from overthrowing the Supreme Court, and the potential benefits are worth the risks.

POSITIVE FEEDBACK AND VIRTUOUS CIRCLES

Inclusive economic and political institutions do not emerge by themselves. They are often the outcome of significant conflict between elites resisting economic growth and political change and those wishing to limit the economic and political power of existing elites. Inclusive institutions emerge during critical junctures, such as during the Glorious Revolution in England or the foundation of the Jamestown colony in North America, when a series of factors weaken the hold of the elites in power, make their opponents stronger, and create incentives for the formation of a pluralistic society. The outcome of political conflict is never certain, and even if in hindsight we see many historical events as inevitable, the path of history is contingent. Nevertheless, once in place, inclusive economic and political institutions tend to create a virtuous circle, a process of positive feedback, making it more likely that these institutions will persist and even expand.

The virtuous circle works through several mechanisms. First, the logic of pluralistic political institutions makes usurpation of power by a dictator, a faction within the government, or even a well-meaning president much more difficult, as Franklin Roosevelt discovered when he tried to remove the checks on his power imposed by the Supreme Court, and as Sir Robert Walpole discovered when he attempted to summarily implement the Black Act. In both cases, concentrating power further in the hands of an individual or a narrow group would have started undermining the foundations of pluralistic political institutions, and the true measure of pluralism is precisely its ability to resist such attempts. Pluralism also enshrines the notion of the rule of law, the principle that laws should be applied equally to everybody—something that is naturally impossible under an absolutist monarchy. But the rule of law, in turn, implies that laws cannot simply be used by one group to encroach upon the rights of another. What’s more, the principle of the rule of law opens the door for greater participation in the political process and greater inclusivity, as it powerfully introduces the idea that people should be equal not only before the law but also in the political system. This was one of the principles that made it difficult for the British political system to resist the forceful calls for greater democracy throughout the nineteenth century, opening the way to the gradual extension of the franchise to all adults.

Second, as we have seen several times before, inclusive political institutions support and are supported by inclusive economic institutions. This creates another mechanism of the virtuous circle. Inclusive economic institutions remove the most egregious extractive economic relations, such as slavery and serfdom, reduce the importance of monopolies, and create a dynamic economy, all of which reduces the economic benefits that one can secure, at least in the short run, by usurping political power. Because economic institutions had already become sufficiently inclusive in Britain by the eighteenth century, the elite had less to gain by clinging to power and, in fact, much to lose by using widespread repression against those demanding greater democracy. This facet of the virtuous circle made the gradual march of democracy in nineteenth-century Britain both less threatening to the elite and more likely to succeed. This contrasts with the situation in absolutist regimes such as the Austro-Hungarian or Russian empires, where economic institutions were still highly extractive and, in consequence, where calls for greater political inclusion later in the nineteenth century would be met by repression because the elite had too much to lose from sharing power.

Finally, inclusive political institutions allow a free media to flourish, and a free media often provides information about and mobilizes opposition to threats against inclusive institutions, as it did during the last quarter of the nineteenth century and first quarter of the twentieth century, when the increasing economic domination of the Robber Barons was threatening the essence of inclusive economic institutions in the United States.

Though the outcome of the ever-present conflicts continues to be contingent, through these mechanisms the virtuous circle creates a powerful tendency for inclusive institutions to persist, to resist challenges, and to expand as they did in both Britain and the United States. Unfortunately, as we will see in the next chapter, extractive institutions create equally strong forces toward their persistence—the process of the vicious circle.