Chapter 4 explores how small institutional differences can lead to divergent paths of development during major events or changes in history, called critical junctures. The Black Death was one such critical juncture, and it had profound and lasting impacts on societal institutions in Western and Eastern Europe.

The Black Death, which struck Europe in the 14th century, devastated populations and challenged the feudal system. The pandemic led to a scarcity of labor, empowering peasants to demand better conditions. In Western Europe, this led to the dissolution of feudalism and the rise of a more inclusive labor market with rising wages. In contrast, Eastern Europe responded by intensifying feudal controls in what became known as the “Second Serfdom,” further entrenching extractive institutions.

This divergence between Western and Eastern Europe highlights how small pre-existing differences in institutions can lead to different outcomes when societies encounter critical junctures. These institutional differences, although minor initially, accumulate over time through a process of “institutional drift,” leading to significant divergences in societal development.

The chapter also discusses the role of contingency in history. For instance, England’s development of inclusive institutions was not preordained but was contingent on various factors, including its victory over the Spanish Armada, which was far from guaranteed.