The short answer - extractive institutions which are the legacy of colonalism. I am not convinced - and while the authors use examples of European colonies that developed inclusive institutions - US and Australia in contrast to the majority of European colonies that evolved with extractive institutions, I was unable to detect the mechanism - what caused this difference? It seems that geography might be the answer -the US and Australia had large land masses that were quickly depopuluated of native populations - is that the mechanism? If so, going back to the 3 theories reviewed and rejected by Acemoglu and Robinson early in the book, isn't this then evidence for geography as the key determinant? I look forward to our discussion of this chapter at book club next month.