Reading Snippet - Why Nations Fail (5)

How political and economic institutions develop - the historical view

From the archaeological view, political and economic institutions are the necessary setups for human societies to develop. How the different states developed distinctively different institutions and why some became extractive and some inclusive could be explained by the historical view.

Under this view, at each point along the historical axis, different parties are trying to influence the political and economic institutions. There are also indirect historical events unfolding that would open up or set options for the state to take (e.g. the migration of tribes from the Stepp towards Western Europe). As the parties interacted and certain options were realised, this would shift the political and economic institutions' shape, and gradually evolve into their historical or present shape.

A number of fine points to note here. First of all, most of the interactions & decisions are small steps that would affect the next set of available interactions or decisions. For example, if decision was made to end monopoly, then the next set of actions could be to re-introduce monopoly, or to maintain free market. Another point is that decisions & interactions could reverse progress, e.g. medieval Venice went from partially inclusive to being extractive during the 13th Century. This leads to the third point that the impact is not 'cumulative' as in inclusiveness would accumulate through a string of historical interactions or vice versa; instead, it should be viewed as 'Brownian motion' in which the historical timeline has numerous interaction points which affects the setup of the institutions and influences what the institutions could look like at the next interaction point.

What this also means is that even if two states look very similar initially, the small differences at their starting points could affect the set of options available to each state and result in divergent paths. Also, even if two states were extremely similar at the start, the small interactions taken at each point could lead to gradual divergence as the possible options became more and more different as decisions were made.