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

intervention as four U.S. warships, commanded by Matthew C. Perry, entered Edo Bay in July 1853, demanding trade concessions similar to thoseEngland obtained from the Chinese in the Opium Wars. But this critical juncture played out very differently in Japan. Despite their proximity and frequent interactions, by the nineteenth century China and Japan had already drifted apart institutionally.
    While Tokugawa rule in Japan was absolutist and extractive, it had only a tenuous hold on the leaders of the other major feudal domains and was susceptible to challenge. Even though there were peasant rebellions and civil strife, absolutism in China was stronger, and the opposition less organized and autonomous. There were no equivalents of the leaders of the other domains in China who could challenge the absolutist rule of the emperor and trace an alternative institutional path. This institutional difference, in many ways small relative to the differences separating China and Japan from Western Europe, had decisive consequences during the critical juncture created by the forceful arrival of the English and Americans. China continued in its absolutist path after the Opium Wars, while the U.S. threat cemented the opposition to Tokugawa rule in Japan and led to a political revolution, the Meiji Restoration, as we will see in chapter 10 . This Japanese political revolution enabled more inclusive political institutions and much more inclusive economic institutions to develop, and laid the foundations for subsequent rapid Japanese growth, while China languished under absolutism.
    How Japan reacted to the threat posed by U.S. warships, by starting a process of fundamental institutional transformation, helps us understand another aspect of the lay of the land around us: transitions from stagnation to rapid growth. South Korea, Taiwan, and finally China achieved breakneck rates of economic growth since the Second World War through a path similar to the one that Japan took. In each of these cases, growth was preceded by historic changes in the countries’ economic institutions—though not always in their political institutions, as the Chinese case highlights.
    The logic of how episodes of rapid growth come to an abrupt end and are reversed is also related. In the same way that decisive steps toward inclusive economic institutions can ignite rapid economic growth, a sharp turn away from inclusive institutions can lead to economic stagnation. But more often, collapses of rapid growth, such asin Argentina or the Soviet Union, are a consequence of growth under extractive institutions coming to an end. As we have seen, this can happen either because of infighting over the spoils of extraction, leading to the collapse of the regime, or because the inherent lack of innovation and creative destruction under extractive institutions puts a limit on sustained growth. How the Soviets ran hard into these limits will be discussed in greater detail in the next chapter.
    I F THE POLITICAL and economic institutions of Latin America over the past five hundred years were shaped by Spanish colonialism, those of the Middle East were shaped by Ottoman colonialism. In 1453 the Ottomans under Sultan Mehmet II captured Constantinople, making it their capital. During the rest of the century, the Ottomans conquered large parts of the Balkans and most of the rest of Turkey. In the first half of the sixteenth century, Ottoman rule spread throughout the Middle East and North Africa. By 1566, at the death of Sultan Süleyman I, known as the Magnificent, their empire stretched from Tunisia in the East, through Egypt, all the way to Mecca in the Arabian Peninsula, and on to what is now modern Iraq. The Ottoman state was absolutist, with the sultan accountable to few and sharing power with none. The economic institutions the Ottomans imposed were highly extractive. There was no private property in land, which all formally belonged to the state. Taxation of land and agricultural output, together with loot from war, was the main source of government revenues. However, the Ottoman state did not dominate the Middle East in the same way that it could dominate its heartland in Anatolia or even to the extent that the Spanish state dominated Latin American society. The Ottoman state was continuously challenged by Bedouins and other tribal powers in the Arabian Peninsula. It lacked not only the ability to impose a stable order in much of the Middle East but also the