Why Nations Fail: The Origins of Power, Prosperity, and Poverty (46 page)

All in all, French armies wrought much suffering in Europe, but they also radically changed the lay of the land. In much of Europe, gone were feudal relations; the power of the guilds; the absolutist control of monarchs and princes; the grip of the clergy on economic, social, and political power; and the foundation of
ancien régime
, which treated different people unequally based on their birth status. These changes created the type of inclusive economic institutions that would then allow industrialization to take root in these places. By the middle of the nineteenth century, industrialization was rapidly under way in almost all the places that the French controlled, whereas places such as Austria-Hungary and Russia, which the French did not conquer, or Poland and Spain, where French hold was temporary and limited, were still largely stagnant.

In the autumn of 1867, Ōkubo Toshimichi, a leading courtier of the feudal Japanese Satsuma domain, traveled from the capital of Edo, now Tokyo, to the regional city of Yamaguchi. On October 14 he met with leaders of the Chōshū domain. He had a simple proposal: they would join forces, march their armies to Edo, and overthrow the shogun, the ruler of Japan. By this time Ōkubo Toshimichi already had the leaders of the Tosa and Aki domains on board. Once the leaders of the powerful Chōshū agreed, a secret Satcho Alliance was formed.

In 1868 Japan was an economically underdeveloped country that had been controlled since 1600 by the Tokugawa family, whose ruler had taken the title shogun (commander) in 1603. The Japanese emperor was sidelined and assumed a purely ceremonial role. The Tokugawa shoguns were the dominant members of a class of feudal lords who ruled and taxed their own domains, among them those of Satsuma, ruled by the Shimazu family. These lords, along with their
military retainers, the famous samurai, ran a society that was similar to that of medieval Europe, with strict occupational categories, restrictions on trade, and high rates of taxation on farmers. The shogun ruled from Edo, where he monopolized and controlled foreign trade and banned foreigners from the country. Political and economic institutions were extractive, and Japan was poor.

But the domination of the shogun was not complete. Even as the Tokugawa family took over the country in 1600, they could not control everyone. In the south of the country, the Satsuma domain remained quite autonomous and was even allowed to trade independently with the outside world through the Ryūkyū Islands. It was in the Satsuma capital of Kagoshima where Ōkubo Toshimichi was born in 1830. As the son of a samurai, he, too, became a samurai. His talent was spotted early on by Shimazu Nariakira, the lord of Satsuma, who quickly promoted him in the bureaucracy. At the time, Shimazu Nariakira had already formulated a plan to use Satsuma troops to overthrow the shogun. He wanted to expand trade with Asia and Europe, abolish the old feudal economic institutions, and construct a modern state in Japan. His nascent plan was cut short by his death in 1858. His successor, Shimazu Hisamitsu, was more circumspect, at least initially.

Ōkubo Toshimichi had by now become more and more convinced that Japan needed to overthrow the feudal shogunate, and he eventually convinced Shimazu Hisamitsu. To rally support for their cause, they wrapped it in outrage over the sidelining of the emperor. The treaty (Ōkubo Toshimichi had already signed with the Tosa domain asserted that “a country does not have two monarchs, a home does not have two masters; government devolves to one ruler.” But the real intention was not simply to restore the emperor to power but to change the political and economic institutions completely. On the Tosa side, one of the treaty’s signers was Sakamoto Ryūma. As Satsuma and Chōshū mobilized their armies, Sakamoto Ryūma presented the shogun with an eight-point plan, urging him to resign to avoid civil war. The plan was radical, and though clause 1 stated that “political power of the country should be returned to the Imperial Court,
and all decrees issued by the Court,” it included far more than just the restoration of the emperor. Clauses 2, 3, 4, and 5 stated:

Shogun Yoshinobu agreed to resign, and on January 3, 1868, the Meiji Restoration was declared; Emperor Kōmei and, one month later after Kōmei died, his son Meiji were restored to power. Though Satsuma and Chōshū forces now occupied Edo and the imperial capital Kyōto, they feared that the Tokugawas would attempt to regain power and re-create the shogunate. (Ōkubo Toshimichi wanted the Tokugawas crushed forever. He persuaded the emperor to abolish the Tokugawa domain and confiscate their lands. On January 27 the former shogun Yoshinobu attacked Satsuma and Chōshū forces, and civil war broke out; it raged until the summer, when finally the Tokugawas were vanquished.

Following the Meiji Restoration there was a process of transformative institutional reforms in Japan. In 1869 feudalism was abolished, and the three hundred fiefs were surrendered to the government and turned into prefectures, under the control of an appointed governor. Taxation was centralized, and a modern bureaucratic state replaced the old feudal one. In 1869 the equality of all social classes before the law was introduced, and restrictions on internal migration and trade
were abolished. The samurai class was abolished, though not without having to put down some rebellions. Individual property rights on land were introduced, and people were allowed freedom to enter and practice any trade. The state became heavily involved in the construction of infrastructure. In contrast to the attitudes of absolutist regimes to railways, in 1869 the Japanese regime formed a steamship line between Tokyo and Osaka and built the first railway between Tokyo and Yokohama. It also began to develop a manufacturing industry, and (Ōkubo Toshimichi, as minister of finance, oversaw the beginning of a concerted effort of industrialization. The lord of Satsuma domain had been a leader in this, building factories for pottery, cannon, and cotton yarn and importing English textile machinery to create the first modern cotton spinning mill in Japan in 1861. He also built two modern shipyards. By 1890 Japan was the first Asian country to adopt a written constitution, and it created a constitutional monarchy with an elected parliament, the Diet, and an independent judiciary. These changes were decisive factors in enabling Japan to be the primary beneficiary from the Industrial Revolution in Asia.

I
N THE MID-NINETEENTH CENTURY
both China and Japan were poor nations, languishing under absolutist regimes. The absolutist regime in China had been suspicious of change for centuries. Though there were many similarities between China and Japan—the Tokugawa shogunate had also banned overseas trade in the seventeenth century, as Chinese emperors had done earlier, and were opposed to economic and political change—there were also notable political differences. China was a centralized bureaucratic empire ruled by an absolute emperor. The emperor certainly faced constraints on his power, the most important of which was the threat of rebellion. During the period 1850 to 1864, the whole of southern China was ravaged by the Taiping Rebellion, in which millions died either in conflict or through mass starvation. But opposition to the emperor was not institutionalized.

The structure of Japanese political institutions was different. The shogunate had sidelined the emperor, but as we have seen, the
Tokugawa power was not absolute, and domains such as that of the Satsumas maintained independence, even the ability to conduct foreign trade on their own behalf.

As with France, an important consequence of the British Industrial Revolution for China and Japan was military vulnerability. China was humbled by British sea power during the First Opium War, between 1839 and 1842, and the same threat became all too real for the Japanese as U.S. warships, led by Commodore Matthew Perry, pulled into Edo Bay in 1853. The reality that economic backwardness created military backwardness was part of the impetus behind Shimazu Nariakira’s plan to overthrow the shogunate and put in motion the changes that eventually led to the Meiji Restoration. 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.

This and the previous three chapters have told the story of how inclusive economic and political institutions emerged in England to make the Industrial Revolution possible, and why certain countries benefited
from the Industrial Revolution and embarked on the path to growth, while others did not or, in fact, steadfastly refused to allow even the beginning of industrialization. Whether a country did embark on industrialization was largely a function of its institutions. The United States, which underwent a transformation similar to the English Glorious Revolution, had already developed its own brand of inclusive political and economic institutions by the end of the eighteenth century. It would thus become the first nation to exploit the new technologies coming from the British Isles, and would soon surpass Britain and become the forerunner of industrialization and technological change. Australia followed a similar path to inclusive institutions, even if somewhat later and somewhat less noticed. Its citizens, just like those in England and the United States, had to fight to obtain inclusive institutions. Once these were in place, Australia would launch its own process of economic growth. Australia and the United States could industrialize and grow rapidly because their relatively inclusive institutions would not block new technologies, innovation, or creative destruction.

Not so in most of the other European colonies. Their dynamics would be quite the opposite of those in Australia and the United States. Lack of a native population or resources to be extracted made colonialism in Australia and the United States a very different sort of affair, even if their citizens had to fight hard for their political rights and for inclusive institutions. In the Moluccas as in the many other places Europeans colonized in Asia, in the Caribbean, and in South America, citizens had little chance of winning such a fight. In these places, European colonists imposed a new brand of extractive institutions, or took over whatever extractive institutions they found, in order to be able to extract valuable resources, ranging from spices and sugar to silver and gold. In many of these places, they put in motion a set of institutional changes that would make the emergence of inclusive institutions very unlikely. In some of them they explicitly stamped out whatever burgeoning industry or inclusive economic institutions existed. Most of these places would be in no situation to benefit from industrialization in the nineteenth century or even in the twentieth.

The dynamics in the rest of Europe were also quite different from those in Australia and the United States. As the Industrial Revolution in Britain was gathering speed at the end of the eighteenth century, most European countries were ruled by absolutist regimes, controlled by monarchs and by aristocracies whose major source of income was from their landholdings or from trading privileges they enjoyed thanks to prohibitive entry barriers. The creative destruction that would be wrought by the process of industrialization would erode the leaders’ trading profits and take resources and labor away from their lands. The aristocracies would be economic losers from industrialization. More important, they would also be political losers, as the process of industrialization would undoubtedly create instability and political challenges to their monopoly of political power.

But the institutional transitions in Britain and the Industrial Revolution created new opportunities and challenges for European states. Though there was absolutism in Western Europe, the region had also shared much of the institutional drift that had impacted Britain in the previous millennium. But the situation was very different in Eastern Europe, the Ottoman Empire, and China. These differences mattered for the dissemination of industrialization. Just like the Black Death or the rise of Atlantic trade, the critical juncture created by industrialization intensified the ever-present conflict over institutions in many European nations. A major factor was the French Revolution of 1789. The end of absolutism in France opened the way for inclusive institutions, and the French ultimately embarked on industrialization and rapid economic growth. The French Revolution in fact did more than that. It exported its institutions by invading and forcibly reforming the extractive institutions of several neighboring countries. It thus opened the way to industrialization not only in France, but in Belgium, the Netherlands, Switzerland, and parts of Germany and Italy. Farther east the reaction was similar to that after the Black Death, when, instead of crumbling, feudalism intensified. Austria-Hungary, Russia, and the Ottoman Empire fell even further behind economically, but their absolutist monarchies managed to stay in place until the First World War.