12 happens to be very powerful, however, it is also possible that those institutions end up prevailing, despite not being the best ones for growth and development.

The _World Development Report_ 2006 discusses a number of examples, both historical and contemporary, of different institutional developments that appear to have been driven by different degrees of political and economic inequality. One revealing comparison – which draws on work by Acemoglu, Johnson and Robinson (2001), and Engerman and Sokoloff (1997) – is that between European colonies in North and South America. Those colonies, such as present-day Mexico, Peru or Brazil, where initial factor endowments enabled the colonizers to establish extractive institutions based on highly-concentrated property and control structures (such as the _encomienda_ and _mita_ systems used, for example, in the Andean silver mines; or the _capitanias hereditárias_ in northeastern Brazil), tended to do less well in the long-run than those colonial backwaters, such as present-day Canada and northern United States, where conditions were not ripe for producing any of the day’s most desirable commodities, such as gold, silver, or sugar.

In these places, instead of imposing concentrated patterns of land ownership and indentured or slave labor institutions, colonists were left to their own devices. The absence of large native populations (who could be exploited and dispossessed) or slaves (who were not imported, since soils and climates were not suitable for the crops that would justify the investment) meant that free populations of European descendants were soon in the majority. Rather than making rules designed to prevent the exploited native (or enslaved) masses from sharing in prosperity, these colonists soon demanded greater autonomy in decision making. Because population density was low and there was no way to extract resources from indigenous peoples, early commercial developments in Canada and the United States had to import British labor. And, relative to much of the colonial world, the disease environment was benign, stimulating settlement. Indeed, the Pilgrim fathers decided to migrate to the United States rather than Guyana because of the high mortality rates in Guyana.<sup>12</sup> Limited supplies of labor gave workers a greater bargaining power, forcing elites to extend political rights and create equal access to land and the law.

The World Development Report 2006, following Acemoglu, Johnson and Robinson (2001) and Engerman and Sokoloff (1997), argues that these initial institutional differences between North and South American colonies have persisted for centuries, and led to important differences in economic outcomes between the two sets of countries. The argument is that institutions that rely on a high concentration of property and control over resources, and that lead to limited opportunities for investment and innovation for large segments of the population, are less efficient. Because talent and ideas are widely distributed in the population, economies in which the property of all people is secure and in which there is equality before the law for all, rather than just for some, tend to do better. Similarly, political systems that provide access to services and public goods for all are associated with superior long-term economic performance.

12 See Crosby (1986), 143–44.