Growth under extractive political institutions

Growth under extractive political institutions is economic expansion within a political order that concentrates power in a narrow elite and restricts broad participation. The book argues that such growth can occur, sometimes rapidly, but is not equivalent to inclusive prosperity: its sources are limited, its gains unevenly distributed, and its political foundations liable to conflict and reversal.

Meaning and Limits

The chapter presents growth under extractive political institutions as a qualification to the broader claim that extractive institutions usually produce stagnation and poverty. It does not claim that every extractive order performs alike, or that extraction makes all growth impossible. Rather, it identifies circumstances in which elites can generate economic expansion while retaining control, and distinguishes that expansion from sustained growth founded on inclusive institutions and ongoing technological change.

The distinction matters because aggregate output does not reveal who controls productive assets or receives the gains. Extractive institutions may allow a ruling group to protect its own property and direct resources toward profitable activities, even as most people lack rights and remain poor. Growth, in this account, is therefore a political outcome as well as an economic one: it can enlarge total wealth without dispersing power, and the distribution of gains helps determine whether the ruling elite will continue to support it.

Two Routes to Growth

The first route operates when political elites directly allocate resources to high-productivity activities under their control. The book’s Caribbean example is a plantation economy organized around enslaved labor. In seventeenth- and eighteenth-century Barbados, Cuba, Haiti, and Jamaica, a small planter elite held political power and owned the assets, including the enslaved people who worked on the plantations. Most of the population had no rights, while the elite’s property was protected. The islands nonetheless became among the world’s richest places because they produced sugar for international markets. This wealth depended on a narrow, export-oriented system, not on broad economic opportunity; growth stalled when shifting to new activities threatened the planters’ incomes and political power.

The Soviet Union illustrates the same route through a different mechanism. From the first Five-Year Plan in 1928 until the 1970s, its political and economic institutions were highly extractive and markets heavily constrained. The state nevertheless achieved rapid industrialization by shifting resources out of agriculture, where they were used very inefficiently, and into industry. This was growth through centralized direction, not through open competition or broadly inclusive markets. The case shows that an extractive state may mobilize resources on a large scale, while also revealing the limits of treating mobilization alone as a foundation for durable prosperity.

The second route arises when extractive political institutions coexist with economic institutions that are partly inclusive. Rulers may permit some economic opening when their hold on political power seems secure enough that competition and change are unlikely to displace them. In other cases, historical circumstances may leave a regime with relatively inclusive economic institutions that its rulers choose not to block. This route depends on the relationship between economic opportunity and political security: economic activity can expand, but the elite’s willingness to preserve it remains conditional on its assessment of the threat to its power.

Centralization and Political Security

Both routes require a degree of political centralization. Plantation elites needed the capacity to maintain order and defend their property. Military rulers and ruling parties likewise needed sufficient control to undertake reforms without losing their grip on power. In the Soviet and Chinese cases discussed by the book, central state authority also made it possible to coordinate economic activity and channel resources toward selected sectors. Centralization is thus not incidental to growth under extraction: it supplies the authority to protect elite assets, reallocate resources, and implement policy.

The book also stresses the contrast with extractive orders lacking that capacity. Where political authority is fragmented, elites may struggle to defend assets or coordinate production, making even limited growth difficult. Centralization, however, solves only one problem. It can enable resource allocation and short-term expansion, but it does not remove the incentives that concentrate power, generate elite conflict, or discourage change that might undermine the ruling group.

Why Growth Often Stops

Growth sustained by command and reallocation is intrinsically limited. When both political and economic institutions are extractive, the incentives for technological change and creative destruction are weak: established powers can block innovations and competitors that threaten their position. A state may for a time accelerate growth by assigning resources and people administratively, but the book argues that this process reaches limits. The Soviet Union’s growth slowed in the 1970s. It had achieved military and space technologies, and for a period could compete with the United States in the space and nuclear race, yet technological change remained limited across much of the economy. Expansion without broad innovation and creative destruction could not be sustained and eventually ended abruptly.

The arrangements behind extractive growth are also fragile because they intensify competition to control the state. Concentrated wealth and power give rival groups strong reasons to displace the ruling elite and capture its advantages. The struggle may become civil war, lawlessness, or state collapse. In this way, political centralization that initially makes growth possible can be undermined by the conflict generated within the same extractive order. The book points to the later Roman Empire and the Maya cities as examples in which struggles over concentrated power could undo political arrangements, and notes that such conflict may leave societies persistently short of central authority.

Even the partly inclusive route carries a built-in danger. Rulers who initially permit competition may later conclude that they would gain more by limiting entry, increasing their share, or taking wealth from others than by sustaining economic progress. Political power can then be used to make economic institutions more extractive, eroding the conditions on which growth depended. For growth to endure, the book argues, political institutions must ultimately change from extractive toward inclusive ones.

Political Incentives and Distribution

This framework rejects the claim that disappointing economic performance is usually explained by leaders’ ignorance of good policy. In Ghana, Kwame Nkrumah’s government pursued state industrial projects whose design made little economic sense: a footwear factory involved transporting hides from the north to a tannery more than 500 miles away, then sending leather to Kumasi and shoes back toward the main market in Accra; a mango-canning plant was placed where mangos did not grow and was planned to produce more than world demand. Yet advisers, including Tony Killick and Sir Arthur Lewis, knew that the policies were unsound. The book attributes their persistence not to a lack of available expertise but to Nkrumah’s use of economic policy to secure political support and sustain an undemocratic regime.

A parallel lesson appears in the experience of Kofi Busia. Foreign-exchange shortages and balance-of-payments crises made existing controls unsustainable. On December 27, 1971, Busia signed an agreement with the International Monetary Fund that included a major currency devaluation. The resulting unrest in Accra grew until the military, led by Acheampong, overthrew him and reversed the devaluation. Busia’s case demonstrates why advice to adopt economically sound policies may not be enough: politicians act within political institutions that shape the costs of reform and the support on which their survival depends.

The same emphasis on incentives explains why a ruler may reject policies that would increase national wealth. Joseph Mobutu extracted wealth from Congo while he and the surrounding elite became exceptionally rich. He built a palace at Gbadolite, his birthplace, with an airport able to receive a supersonic Concord jet that he frequently rented from Air France, and acquired castles and extensive property in Brussels. Greater national prosperity might have increased the resources available to him, but the book stresses that inclusive economic arrangements could also redistribute income and power in ways that made a predatory ruler and other political elites worse off. Aggregate growth therefore does not automatically align with the interests of those who control the state.

The post-1688 English settlement offers a contrast in institutional incentives rather than a claim that England was already fully democratic. Parliamentary control strengthened the position of property rights and allowed Parliament to raise and spend taxes on priorities including a navy that protected overseas trade. Many parliamentarians had investments in trade and industry, giving them a stake in enforcing those rights. Access to policymaking broadened relative to royal rule, but remained sharply restricted: in the eighteenth century fewer than 2 percent of the population could vote, only men were eligible, and growing industrial cities such as Birmingham, Leeds, Manchester, and Sheffield lacked independent representation. The comparison clarifies the book’s larger point: institutions shape which interests policies serve, while limited political access can coexist with economic expansion.

The argument also applies to privatization. In Egypt, international financial institutions and economists promoted market liberalization and the sale of state assets, but politically connected businesspeople influenced how the privatization program was carried out. Rather than opening markets to competition, the transfer of public assets could favor wealthy insiders and preserve monopoly. The book compares this pattern with Mexico, where privatization turned state monopolies into privately owned ones. Formal reform, like growth itself, cannot be understood apart from who has the power to shape its implementation and capture its returns.