Why Nations Fail: The Origins of Power, Prosperity, and Poverty

by Daron Acemoğlu

The leaders of the Satsuma domain realized that economic growth—perhaps even Japanese survival—could be achieved only by institutional reforms, but the shogun opposed this because his power was tied to the existing set of institutions. To exact reforms, the shogun had to be overthrown, and he was. The situation was similar in China, but the different initial political institutions made it much harder to overthrow the emperor, something that happened only in 1911. Instead of reforming institutions, the Chinese tried to match the British militarily by importing modern weapons. The Japanese built their own armaments industry. As a consequence of these initial differences, each country responded differently to the challenges of the nineteenth century, and Japan and China diverged dramatically in the face of the critical juncture created by the Industrial Revolution. While Japanese institutions were being transformed and the economy was embarking on a path of rapid growth, in China forces pushing for institutional change were not strong enough, and extractive institutions persisted largely unabated until they would take a turn for the worse with Mao’s communist revolution in 1949.