buy support, which led to enormous hyperinflation. In
January 2009, it became legal to use other currencies,
such as the South African rand, and the Zimbabwean dollar
vanished from circulation, a worthless piece of paper.
What happened in Zimbabwe after 1980 was
commonplace in sub-Saharan Africa since independence.
Zimbabwe inherited a set of highly extractive political and
economic institutions in 1980. For the first decade and a
half, these were maintained relatively untouched. While
elections took place, political institutions were anything but
inclusive. Economic institutions changed somewhat; for
example, there was no longer explicit discrimination
against blacks. But on the whole the institutions remained
extractive, with the only difference being that instead of Ian
Smith and the whites doing the extracting, it was Robert
Mugabe and the ZANU-PF elites filling their pockets. Over
time the institutions became even more extractive, and
incomes in Zimbabwe collapsed. The economic and
political failure in Zimbabwe is yet another manifestation of
the iron law of oligarchy—in this instance, with the
extractive and repressive regime of Ian Smith being
replaced by the extractive, corrupt, and repressive regime
of Robert Mugabe. Mugabe’s fake lottery win in 2000 was
then simply the tip of a very corrupt and historically shaped
iceberg.
N ATIONS FAIL TODAY because their extractive economic
institutions do not create the incentives needed for people
to save, invest, and innovate. Extractive political institutions
support these economic institutions by cementing the
power of those who benefit from the extraction. Extractive
economic and political institutions, though their details vary
under different circumstances, are always at the root of this
failure. In many cases, for example, as we will see in
Argentina, Colombia, and Egypt, this failure takes the form
of lack of sufficient economic activity, because the
politicians are just too happy to extract resources or quash
any type of independent economic activity that threatens
themselves and the economic elites. In some extreme
cases, as in Zimbabwe and Sierra Leone, which we
discuss next, extractive institutions pave the way for