Why Nations Fail: The Origins of Power, Prosperity, and Poverty (53 page)

Sierra Leone’s development, or lack thereof, could be best understood as the outcome of the vicious circle. British colonial authorities built extractive institutions in the first place, and the postindependence African politicians were only too happy to take up the baton for themselves. The pattern was eerily similar all over sub-Saharan Africa. There were similar hopes for postindependence Ghana, Kenya, Zambia, and many other African countries. Yet in all these cases, extractive institutions were re-created in a pattern predicted by the vicious circle—only they became more vicious as time went by. In all these countries, for example, the British creation of marketing boards and indirect rule were sustained.

There are natural reasons for this vicious circle. Extractive political institutions lead to extractive economic institutions, which enrich a few at the expense of many. Those who benefit from extractive institutions thus have the resources to build their (private) armies and mercenaries, to buy their judges, and to rig their elections in order to remain in power. They also have every interest in defending the system. Therefore, extractive economic institutions create the platform for extractive political institutions to persist. Power is valuable in regimes with extractive political institutions, because power is unchecked and brings economic riches.

Extractive political institutions also provide no checks against abuses of power. Whether power corrupts is debatable, but Lord Acton was certainly right when he argued that absolute power corrupts absolutely. We saw in the previous chapter that even when Franklin Roosevelt wished to use his presidential powers in a way that he thought would be beneficial for the society, unencumbered by constraints
imposed by the Supreme Court, the inclusive U.S. political institutions prevented him from setting aside the constraints on his power. Under extractive political institutions, there is little check against the exercise of power, however distorted and sociopathic it may become. In 1980 Sam Bangura, then the governor of the central bank in Sierra Leone, criticized Siaka Stevens’s policies for being profligate. He was soon murdered and thrown from the top floor of the central bank building onto the aptly named Siaka Stevens Street. Extractive political institutions thus also tend to create a vicious circle because they provide no line of defense against those who want to further usurp and misuse the powers of the state.

Yet another mechanism for the vicious circle is that extractive institutions, by creating unconstrained power and great income inequality, increase the potential stakes of the political game. Because whoever controls the state becomes the beneficiary of this excessive power and the wealth that it generates, extractive institutions create incentives for infighting in order to control power and its benefits, a dynamic that we saw played out in Maya city-states and in Ancient Rome. In this light, it is no surprise that the extractive institutions that many African countries inherited from the colonial powers sowed the seeds of power struggles and civil wars. These struggles would be very different conflicts from the English Civil War and the Glorious Revolution. They would not be fought to change political institutions, introduce constraints on the exercise of power, or create pluralism, but to capture power and enrich one group at the expense of the rest. In Angola, Burundi, Chad, Côte d’Ivoire, the Democratic Republic of Congo, Ethiopia, Liberia, Mozambique, Nigeria, Republic of Congo Brazzaville, Rwanda, Somalia, Sudan, and Uganda, and of course in Sierra Leone, as we will see in more detail in the next chapter, these conflicts would turn into bloody civil wars and would create economic ruin and unparalleled human suffering—as well as cause state failure.

On January 14, 1993, Ramiro De León Carpio was sworn in as the president of Guatemala. He named Richard Aitkenhead Castillo as his minister of finance, and Ricardo Castillo Sinibaldi as his minister of development. These three men all had something in common: all were direct descendants of Spanish conquistadors who had come to Guatemala in the early sixteenth century. De León’s illustrious ancestor was Juan De León Cardona, while the Castillos were related to Bernal Díaz del Castillo, a man who wrote one of the most famous eyewitness accounts of the conquest of Mexico. In reward for his service to Hernán Cortés, Díaz del Castillo was appointed governor of Santiago de los Caballeros, which is today the city of Antigua in Guatemala. Both Castillo and De León founded dynasties along with other conquistadors, such as Pedro de Alvarado. The Guatemalan sociologist Marta Casaús Arzú identified a core group of twenty-two families in Guatemala that had ties through marriage to another twenty-six families just outside the core. Her genealogical and political study suggested that these families have controlled economic and political power in Guatemala since 1531. An even broader definition of which families were part of this elite suggested that they accounted for just over 1 percent of the population in the 1990s.

In Sierra Leone and in much of sub-Saharan Africa, the vicious circle took the form of the extractive institutions set up by colonial powers being taken over by postindependence leaders. In Guatemala, as in much of Central America, we see a simpler, more naked form of the vicious circle: those who have economic and political power structure institutions to ensure the continuity of their power, and succeed in doing so. This type of vicious circle leads to the persistence of extractive institutions and the persistence of the same elites in power together with the persistence of underdevelopment.

At the time of the conquest, Guatemala was densely settled, probably with a population of around two million Mayas. Disease and exploitation took a heavy toll as everywhere else in the Americas. It was not until the 1920s that its total population returned to this level.
As elsewhere in the Spanish Empire, the indigenous people were allocated to conquistadors in grants of
encomienda
. As we saw in the context of the colonization of Mexico and Peru, the
encomienda
was a system of forced labor, which subsequently gave way to other similar coercive institutions, particularly to the
repartimiento
, also called the
mandamiento
in Guatemala. The elite, made up of the descendants of the conquistadors and some indigenous elements, not only benefited from the various forced labor systems but also controlled and monopolized trade through a merchant guild called the Consulado de Comercio. Most of the population in Guatemala was high in the mountains and far from the coast. The high transportation costs reduced the extent of the export economy, and initially land was not very valuable. Much of it was still in the hands of indigenous peoples, who had large communal landholdings called
ejidos
. The remainder was largely unoccupied and notionally owned by the government. There was more money in controlling and taxing trade, such as it was, than in controlling the land.

Just as in Mexico, the Guatemalan elite viewed the Cadiz Constitution (
this page
–
this page
) with hostility, which encouraged them to declare independence just as the Mexican elites did. Following a brief union with Mexico and the Central American Federation, the colonial elite ruled Guatemala under the dictatorship of Rafael Carrera from 1839 to 1871. During this period the descendants of the conquistadors and the indigenous elite maintained the extractive economic institutions of the colonial era largely unchanged. Even the organization of the Consulado did not alter with independence. Though this was a royal institution, it happily continued under a republican government.

Independence then was simply a coup by the preexisting local elite, just as in Mexico; they carried on as usual with the extractive economic institutions from which they had benefited so much. Ironically enough, during this period the Consulado remained in charge of the economic development of the country. But as had been the case pre-independence, the Consulado had its own interests at heart, not those of the country. Part of its responsibility was for the development of infrastructure, such as ports and roads, but as in Austria-Hungary,
Russia, and Sierra Leone, this often threatened creative destruction and could have destabilized the system. Therefore, the development of infrastructure, rather than being implemented, was often resisted. For example, the development of a port on the Suchitepéquez coast, bordering the Pacific Ocean, was one of the proposed projects. At the time the only proper ports were on the Caribbean coast, and these were controlled by the Consulado. The Consulado did nothing on the Pacific side because a port in that region would have provided a much easier outlet for goods from the highland towns of Mazatenango and Quezaltenango, and access to a different market for these goods would have undermined the Consulado’s monopoly on foreign trade. The same logic applied to roads, where, again, the Consulado had the responsibility for the entire country. Predictably it also refused to build roads that would have strengthened competing groups or would have potentially undone its monopoly. Pressure to do so again came from western Guatemala and Quezaltenango, in the Los Altos region. But if the road between Los Altos and the Suchitepéquez coast had been improved, this could have created a merchant class, which would have been a competitor to the Consulado merchants in the capital. The road did not get improved.

As a result of this elite dominance, Guatemala was caught in a time warp in the middle of the nineteenth century, as the rest of the world was changing rapidly. But these changes would ultimately affect Guatemala. Transportation costs were falling due to technological innovations such as the steam train, the railways, and new, much faster types of ships. Moreover, the rising incomes of people in Western Europe and North America were creating a mass demand for many products that a country such as Guatemala could potentially produce.

Early in the century, some indigo and then cochineal, both natural dyes, had been produced for export, but the more profitable opportunity would become coffee production. Guatemala had a lot of land suitable for coffee, and cultivation began to spread—without any assistance from the Consulado. As the world price of coffee rose and international trade expanded, there were huge profits to be made,
and the Guatemalan elite became interested in coffee. In 1871 the long-lasting regime of the dictator Carrera was finally overthrown by a group of people calling themselves Liberals, after the worldwide movement of that name. What liberalism means has changed over time. But in the nineteenth century in the United States and Europe, it was similar to what is today called libertarianism, and it stood for freedom of individuals, limited government, and free trade. Things worked a little differently in Guatemala. Led initially by Miguel García Granados, and after 1873 by Justo Rufino Barrios, the Guatemalan Liberals were, for the most part, not new men with liberal ideals. By and large, the same families remained in charge. They maintained extractive political institutions and implemented a huge reorganization of the economy to exploit coffee. They did abolish the Consulado in 1871, but economic circumstances had changed. The focus of extractive economic institutions would now be the production and export of coffee.

Coffee production needed land and labor. To create land for coffee farms, the Liberals pushed through land privatization, in fact really a land grab in which they would be able to capture land previously held communally or by the government. Though their attempt was bitterly contested, given the highly extractive political institutions and the concentration of political power in Guatemala, the elite were ultimately victorious. Between 1871 and 1883 nearly one million acres of land, mostly indigenous communal land and frontier lands, passed into the hands of the elite, and it was only then that coffee developed rapidly. The aim was the formation of large estates. The privatized lands were auctioned off typically to members of the traditional elite or those connected with them. The coercive power of the Liberal state was then used to help large landowners gain access to labor by adapting and intensifying various systems of forced labor. In November 1876, President Barrios wrote to all the governors of Guatemala noting that

The
repartimiento
, the forced labor draft, had never been abolished after independence, but now it was increased in scope and duration. It was institutionalized in 1877 by Decree 177, which specified that employers could request and receive from the government up to sixty workers for fifteen days of work if the property was in the same department, and for thirty days if it was outside it. The request could be renewed if the employer so desired. These workers could be forcibly recruited unless they could demonstrate from their personal workbook that such service had recently been performed satisfactorily. All rural workers were also forced to carry a workbook, called a
libreta
, which included details of whom they were working for and a record of any debts. Many rural workers were indebted to their employers, and an indebted worker could not leave his current employer without permission. Decree 177 further stipulated that the only way to avoid being drafted into the
repartimiento
was to show you were currently in debt to an employer. Workers were trapped. In addition to these laws, numerous vagrancy laws were passed so that anyone who could not prove he had a job would be immediately recruited for the
repartimiento
or other types of forced labor on the roads, or would be forced to accept employment on a farm. As in nineteenth- and twentieth-century South Africa, land policies after 1871 were also designed to undermine the subsistence economy of the indigenous peoples, to force them to work for low wages. The
repartimiento
lasted until the 1920s; the
libreta
system and the full gamut of vagrancy laws were in effect until 1945, when Guatemala experienced its first brief flowering of democracy.