We document how the Black Death of 1348 interacted with political competition to drive a major divergence in development. We leverage the interaction between the timing of the exogenous labor supply shock and a sharp boundary between the politically concentrated, low competition East and the politically fragmented, high competition West of Europe. Using novel panel data 1200-1800, we find that after the shock, urban construction and the development of city institutions fell by one-third and remained depressed where political competition was low ex ante. This holds (1) comparing neighboring and otherwise similar cities on either side of the boundary, (2) comparing cities subject to the same ruler within states spanning the boundary, and (3) using dynastic shocks as an IV for local political concentration. We show this urban divergence shifted outside options in labor markets and predicts the subsequent institutionalization of serfdom and the spread of farms using labor coercion.