Path dependence

Path dependence is the process by which existing political and economic institutions channel later change, making inherited arrangements consequential even when societies confront new opportunities or shocks. It helps explain why countries facing similar turning points can diverge sharply, and why an extractive order may adapt without becoming inclusive. But it does not mean history has a fixed destination: institutional drift is contingent, and critical junctures can either reinforce inherited patterns or help societies break from them.

Inherited Institutions and the Direction of Change

The concept begins with the way institutions shape the choices available to those who come after them. The book argues that political institutions determine who holds power and how that power can be exercised; those political arrangements, in turn, shape economic institutions and the incentives they create. Because societies become organized in particular ways, those patterns tend to persist. Yet persistence is not simply inertia: political and economic institutions interact, reproducing some arrangements and obstructing others.

The contrast between the United States and Mexico illustrates why new conditions do not automatically produce a common institutional model. In the late nineteenth century, the world economy expanded as steamships and railways widened international trade. Resource-rich Mexico could profit from exporting raw materials to industrializing North America and Western Europe. Under Porfirio Díaz, the state dismantled some colonial institutional barriers to trade, but this was change along a path shaped by existing arrangements, not a replacement of them with institutions like those in the United States. Díaz and his allies pursued a model in which elites could amass fortunes while much of the population remained excluded.

That continuity affected both the gains and the costs of growth. Frontier land in the United States was opened more broadly through a succession of legislative measures, including the Land Ordinance of 1785 and the Homestead Act of 1862, although Indigenous peoples were sidelined. Across much of Latin America, by contrast, frontier lands went to the politically powerful and those with wealth and connections, further strengthening their position. In Mexico, the Yaqui people of Sonora were among those excluded from the new order: between 1900 and 1910, possibly 30,000 were deported and effectively enslaved on the henequen plantations of Yucatán. The export economy could grow, but its benefits and burdens followed inherited inequalities.

Institutional Drift and Critical Junctures

Path-dependent change unfolds through the interplay of institutional drift and critical junctures. Institutional drift is the gradual, contingent emergence of differences between societies. Like genetic drift between isolated populations, it can result from small changes accumulating over time, but it has no predetermined direction and need not be cumulative. Differences may open up, disappear, and later reappear. Their importance lies partly in how they shape a society’s response when circumstances change abruptly.

A critical juncture is a major event or combination of factors that disrupts an existing political or economic balance. The Black Death shows how one shock could push societies in different directions: in Western Europe, where peasants had comparatively greater power and autonomy, it helped dissolve feudalism; in Eastern Europe, it contributed to the Second Serfdom. By 1600, Western and Eastern Europe had become sharply different, though the initial contrasts had been modest. In the West, workers were increasingly free of feudal dues and regulations and entered a growing market economy; in the East, a market economy expanded through the labor of coerced serfs producing goods demanded in the West.

Atlantic trade was another critical juncture, but its effects depended on existing political differences. In England, the Crown could not monopolize trade with the Americas as effectively as the monarchies of Spain and France. Trade and colonization therefore enriched a substantial group of merchants with relatively few ties to the Crown. Their opposition to royal control contributed to the English Civil War and the Glorious Revolution. In Spain and France, by contrast, monarchs and groups allied with them captured more of the gains. The Fronde Rebellion, which confronted French kings between 1648 and 1652, did not lead to the same outcome: in England, opponents of absolutism were more numerous and wealthy, making their victory more likely. The opening of Atlantic trade did not prescribe one result; it amplified differences in how power and commerce were already organized.

Feedback, Persistence, and Unequal Power

Path dependence is also sustained by a feedback loop between extractive political and economic institutions. When political power is concentrated in a narrow elite and weakly constrained, that elite can shape economic rules to extract resources from the wider population. The wealth produced by those rules then helps the elite preserve its political dominance. In Latin America, colonial elites used political power to create institutions that enriched them at others’ expense; the resources they accumulated could support armies and security forces that defended their monopoly of power. Extractive economic institutions thus do not merely accompany extractive politics: they help finance its continuation.

This feedback explains why a change of rulers need not change the institutional path. When challengers break through under extractive political institutions, they may face few constraints and have incentives to preserve the same system. The book points to Porfirio Díaz and the elite around him in late nineteenth-century Mexico: new leaders could take power while maintaining extractive political arrangements and creating similar economic institutions. In Sierra Leone, too, independence did not by itself undo the colonial foundations of extractive rule. Postindependence politicians continued institutions such as marketing boards and indirect rule; beneficiaries could use the resulting resources to maintain private forces, buy judges, or manipulate elections. The system’s resilience came not from its serving society as a whole, but from the advantages it secured for those able to defend it.

The same institutional logic can be seen in the contrast between inclusive and extractive arrangements. Inclusive political institutions distribute power broadly while retaining a sufficiently centralized state capable of enforcing law and order. Pluralism without state capacity is not enough: the book contrasts the institutional conditions for inclusive economies with Somalia, where political power was widely dispersed but no real authority could control or sanction conduct. Without centralization, law enforcement, or basic security, the distribution of power produced disorder rather than inclusive institutions. Conversely, extractive political institutions concentrate power and permit elites to erect economic barriers that prevent broad participation. Institutional paths depend not only on who has power, but also on whether the state can enforce rules and whether political power is constrained and pluralistic.

Contingency and the Possibility of Change

Path dependence explains persistence without turning history into inevitability. Extractive institutions can generate some growth when they achieve a minimum degree of political centralization, since elites may want to expand the resources they can extract. But this growth is unlikely to be sustained. Innovation entails creative destruction: new economic activity can displace established interests and unsettle political power. Elites who fear that disruption may resist it, while the large rewards attached to unchecked power encourage rival groups to struggle for control, creating forces toward political instability.

Nor is the vicious circle of extractive institutions absolute. Inclusive institutions also generate a virtuous circle, in which inclusive economic arrangements strengthen the durability of inclusive political ones. Botswana illustrates how a critical juncture can be used to move onto a different path. After independence, Seretse Khama, Quett Masire, and the Botswana Democratic Party did not establish a dictatorship or extractive arrangements for the enrichment of a few. When diamonds began generating revenue in the 1970s, that income provided a fiscal base for investment in public services rather than civil war over control of the state. The outcome drew on existing Tswana institutions, which had some centralized authority and pluralistic features, as well as economic elites who benefited from secure property rights. It also depended on contingent leadership: Khama and Masire were not Siaka Stevens or Robert Mugabe.

The concept therefore joins long-term institutional inheritance to moments when history could turn. Existing institutions provide the ground on which shocks and opportunities have their effects; small differences formed through drift can become decisive at a critical juncture. Political conflict then shapes which rules persist, whose interests they serve, and whether later institutions reproduce extraction or widen participation. Path dependence is not a claim that societies cannot change. It explains why change is difficult, uneven, and historically specific—and why the same upheaval can deepen exclusion in one place while opening a route to more inclusive institutions in another.