Why Nations Fail: The Origins of Power, Prosperity, and Poverty (54 page)

Just as before 1871, the Guatemalan elite ruled via military strongmen.
They continued to do so after the coffee boom took off. Jorge Ubico, president between 1931 and 1944, ruled longest. Ubico won the presidential election in 1931 unopposed, since nobody was foolish enough to run against him. Like the Consulado, he didn’t approve of doing things that would have induced creative destruction and threatened both his political power and his and the elite’s profits. He therefore opposed industry for the same reason that Francis I in Austria-Hungary and Nicholas I in Russia did: industrial workers would have caused trouble. In a legislation unparalleled in its paranoid repressiveness, Ubico banned the use of words such as
obreros
(workers),
sindicatos
(labor unions), and
huelgas
(strikes). You could be jailed for using any one of them. Even though Ubico was powerful, the elite pulled the strings. Opposition to his regime mounted in 1944, headed by disaffected university students who began to organize demonstrations. Popular discontent increased, and on June 24, 311 people, many of them from the elite, signed the Memorial de los 311, an open letter denouncing the regime. Ubico resigned on July 1. Though he was followed by a democratic regime in 1945, this was overthrown by a coup in 1954, leading to a murderous civil war. Guatemala democratized again after only 1986.

The Spanish conquistadors had no compunction about setting up an extractive political and economic system. That was why they had come all the way to the New World. But most of the institutions they set up were meant to be temporary. The
encomienda
, for example, was a temporary grant of rights over labor. They did not have a fully worked-out plan of how they would set up a system that would persist for another four hundred years. In fact, the institutions they set up changed significantly along the way, but one thing did not: the extractive nature of the institutions, the result of the vicious circle. The form of extraction changed, but neither the extractive nature of the institutions nor the identity of the elite did. In Guatemala the
encomienda
, the
repartimiento
, and the monopolization of trade gave way to the
libreta
and the land grab. But the majority of the indigenous Maya continued to work as low-wage laborers with little education, no rights, and no public services.

In Guatemala, as in much of Central America, in a typical pattern
of the vicious circle, extractive political institutions supported extractive economic institutions, which in turn provided the basis for extractive political institutions and the continuation of the power of the same elite.

In Guatemala, extractive institutions persisted from colonial to modern times with the same elite firmly in control. Any change in institutions resulted from adaptations to changing environments, as was the case with the land grab by the elite motivated by the coffee boom. The institutions in the U.S. South were similarly extractive until the Civil War. Economics and politics were dominated by the southern elite, plantation owners with large land and slave holdings. Slaves had neither political nor economic rights; indeed, they had few rights of any kind.

The South’s extractive economic and political institutions made it considerably poorer than the North by the middle of the nineteenth century. The South lacked industry and made relatively little investment in infrastructure. In 1860 its total manufacturing output was less than that of Pennsylvania, New York, or Massachusetts. Only 9 percent of the southern population lived in urban areas, compared with 35 percent in the Northeast. The density of railroads (i.e., miles of track divided by land area) was three times higher in the North than in southern states. The ratio of canal mileage was similar.

Map 18 (
this page
) shows the extent of slavery by plotting the percentage of the population that were slaves across U.S. counties in 1840. It is apparent that slavery was dominant in the South with some counties, for example, along the Mississippi River having as much as 95 percent of the population slaves.
Map 19
(
this page
) then shows one of the consequences of this, the proportion of the labor force working in manufacturing in 1880. Though this was not high anywhere by twentieth-century standards, there are marked differences between the North and the South. In much of the Northeast, more than 10 percent of the labor force worked in manufacturing. In contrast in much of the South, particularly the areas with heavy concentrations of slaves, the proportion was basically zero.

The South was not even innovative in the sectors in which it specialized: from 1837 to 1859, the numbers of patents issued per year for innovations related to corn and wheat were on average twelve and ten, respectively; there was just one per year for the most important crop of the South, cotton. There was no indication that industrialization and economic growth would commence anytime soon. But defeat in the Civil War was followed by fundamental economic and political reform at bayonet point. Slavery was abolished, and black men were allowed to vote.

These major changes should have opened the way for a radical transformation of southern extractive institutions into inclusive ones, and launched the South onto a path to economic prosperity. But in yet another manifestation of the vicious circle, nothing of the sort happened. A continuation of extractive institutions, this time of the Jim Crow kind rather than of slavery, emerged in the South. The phrase
Jim Crow
, which supposedly originated from “Jump Jim Crow,” an early-nineteenth-century satire of black people performed by white performers in “blackface,” came to refer to the whole gamut of segregationist legislation that was enacted in the South after 1865. These persisted for almost another century, until yet another major upheaval, the civil rights movement. In the meantime, blacks continued to be excluded from power and repressed. Plantation-type agriculture based on low-wage, poorly educated labor persisted, and southern incomes fell further relative to the U.S. average. The vicious circle of extractive institutions was stronger than many had expected at the time.

The reason that the economic and political trajectory of the South never changed, even though slavery was abolished and black men were given the right to vote, was because blacks’ political power and economic independence were tenuous. The southern planters lost the war, but would win the peace. They were still organized and they still owned the land. During the war, freed slaves had been offered the promise of forty acres and a mule when slavery was abolished, and some even got it during the famous campaigns of General William T. Sherman. But in 1865, President Andrew Johnson revoked Sherman’s orders, and the hoped-for land redistribution never took place. In a debate on this issue in Congress, Congressman George Washington Julian presciently noted, “Of what avail would be an act of congress totally abolishing slavery … if the old agricultural basis of aristocratic power shall remain?” This was the beginning of the “redemption” of the old South and the persistence of the old southern landed elite.

The sociologist Jonathan Wiener studied the persistence of the planter elite in five counties of the Black Belt, prime cotton country, of southern Alabama. Tracking families from the U.S. census and considering those with at least $10,000 of real estate, he found that of the 236 members of the planter elite in 1850, 101 maintained their position in 1870. Interestingly, this rate of persistence was very similar to that experienced in the pre–Civil War period; of the 236 wealthiest planter families of 1850, only 110 remained so a decade later. Nevertheless, of the 25 planters with the largest landholdings in 1870, 18 (72 percent) had been in the elite families in 1860; 16 had been in the 1850 elite group. While more than 600,000 were killed in the Civil War, the planter elites suffered few casualties. The law, designed by the planters and for the planters, exempted one slaveholder from military service for every twenty slaves held. As hundreds of thousands of men died to preserve the southern plantation economy, many big slaveholders and their sons sat out the war on their porches and thus were able to ensure the persistence of the plantation economy.

After the end of the war, the elite planters controlling the land were able to reexert their control over the labor force. Though the economic institution of slavery was abolished, the evidence shows a
clear line of persistence in the economic system of the South based on plantation-type agriculture with cheap labor. This economic system was maintained through a variety of channels, including both control of local politics and exercise of violence. As a consequence, in the words of the African American scholar W.E.B. Du Bois, the South became “simply an armed camp for intimidating black folk.”

In 1865 the state legislature of Alabama passed the Black Code, an important landmark toward the repression of black labor. Similar to Decree 177 in Guatemala, the Black Code of Alabama consisted of a vagrancy law and a law against the “enticement” of laborers. It was designed to impede labor mobility and reduce competition in the labor market, and it ensured that southern planters would still have a reliable low-cost labor pool.

Following the Civil War, the period called Reconstruction lasted from 1865 until 1877. Northern politicians, with the help of the Union Army, engineered some social changes in the South. But a systematic backlash from the southern elite in the guise of support for the so-called Redeemers, seeking the South’s redemption, re-created the old system. In the 1877 presidential election, Rutherford Hayes needed southern support in the electoral college. This college, still used today, was at the heart of the indirect election for president created by the U.S. Constitution. Citizens’ votes do not directly elect the president but instead elect electors who then choose the president in the electoral college. In exchange for their support in the electoral college, the southerners demanded that Union soldiers be withdrawn from the South and the region left to its own devices. Hayes agreed. With southern support, Hayes became president and pulled out the troops. The period after 1877 then marked the real reemergence of the pre–Civil War planter elite. The redemption of the South involved the introduction of new poll taxes and literacy tests for voting, which systematically disenfranchised blacks, and often also the poor white population. These attempts succeeded and created a one-party regime under the Democratic Party, with much of the political power vested in the hands of the planter elite.

The Jim Crow laws created separate, and predictably inferior,
schools. Alabama, for example, rewrote its constitution in 1901 to achieve this. Shockingly, even today Section 256 of Alabama’s constitution, though no longer enforced, still states:

An amendment to strike Section 256 from the constitution was narrowly defeated in the state legislature in 2004.

Disenfranchisement, the vagrancy laws such as the Black Code of Alabama, various Jim Crow laws, and the actions of the Ku Klux Klan, often financed and supported by the elite, turned the post–Civil War South into an effective apartheid society, where blacks and whites lived different lives. As in South Africa, these laws and practices were aimed at controlling the black population and its labor.