There is no doubt that good institutions are important in determining a country’s wealth. But why have some countries ended up with good institutions, while others haven’t? The most important factor behind their emergence is the historical duration of centralized government. Until the rise of the world’s first states, beginning around 3400 BC, all human societies were bands or tribes or chiefdoms, without any of the complex economic institutions of governments. A long history of government doesn’t guarantee good institutions but at least permits them; a short history makes them very unlikely. One can’t just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history of tribal organization.
That cruel reality underlies the tragedy of modern nations, such as Papua New Guinea, whose societies were until recently tribal. Oil and mining companies there pay royalties intended for local landowners through village leaders, but the leaders often keep the royalties for themselves. That’s because they have internalized their society’s practice by which clan leaders pursue their personal interests and their own clan’s interests, rather than representing everyone’s interests.
The various durations of government around the world are linked to the various durations and productivities of farming that was the prerequisite for the rise of governments. For example, Europe began to acquire highly productive agriculture 9,000 years ago and state government by at least 4,000 years ago, but subequatorial Africa acquired less productive agriculture only between 2,000 and 1,800 years ago and state government even more recently. Those historical differences prove to have huge effects on the modern distribution of wealth.