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.
FROM ENCOMIENDA TO LAND GRAB
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 Libe
rals 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
because the country has extensive areas of land that it needs to exploit by cultivation using the multitude of workers who today remain outside the movement of development of the nation’s productive elements, you are to give all help to export agriculture:
1. From the Indian towns of your jurisdiction provide to the owners of fincas [farms] of that department who ask for labor the number of workers they need, be it fifty or one hundred.
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.
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.
FROM SLAVERY TO JIM CROW
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 wa
s 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.
Why Nations Fail Page 39
