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

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Absolutism reigned not just in much of Europe but also in Asia, and

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similarly prevented industrialization during the critical juncture
created by the Industrial Revolution. The Ming and Qing dynasties of
China and the absolutism of the Ottoman Empire illustrate this
pattern. Under the Song dynasty, between 960 and 1279, China led
the world in many technological innovations. The Chinese invented
clocks, the compass, gunpowder, paper and paper money, porcelain,
and blast furnaces to make cast iron before Europe did. They
independently developed spinning wheels and waterpower at more or
less the same time that these emerged at the other end of Eurasia. In
consequence, in 1500 standards of living were probably at least as
high in China as they were in Europe. For centuries China also had a
centralized state with a meritocratically recruited civil service.
Yet China was absolutist, and the growth under the Song dynasty
was under extractive institutions. There was no political
representation for groups other than the monarchy in society, nothing
resembling a Parliament or a Cortes. Merchants always had a
precarious status in China, and the great inventions of the Song were
not spurred by market incentives but were brought into existence
under the auspices, or even the orders, of the government. Little of
this was commercialized. The grip of the state tightened during the
Ming and Qing dynasties that followed the Song. At the root of all
this was the usual logic of extractive institutions. As most rulers
presiding over extractive institutions, the absolutist emperors of
China opposed change, sought stability, and in essence feared creative
destruction.
This is best illustrated by the history of international trade. As we
have seen, the discovery of the Americas and the way international
trade was organized played a key role in the political conflicts and
institutional changes of early modern Europe. In China, while private
merchants were commonly involved in trade within the country, the
state monopolized overseas trade. When the Ming dynasty came to
power in 1368, it was Emperor Hongwu who first ruled, for thirty
years. Hongwu was concerned that overseas trade would be
politically and socially destabilizing and he allowed international
trade to take place only if it were organized by the government and

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only if it involved tribute giving, and not commercial activity.
Hongwu even executed hundreds of people accused of trying to turn
tribute missions into commercial ventures. Between 1377 and 1397,
no oceangoing tribute missions were allowed. He banned private
individuals from trading with foreigners and would not allow Chinese
to sail overseas.
In 1402 Emperor Yongle came to the throne and initiated one of
the most famous periods of Chinese history by restarting government-
sponsored foreign trade on a big scale. Yongle sponsored Admiral
Zheng He to undertake six huge missions to Southeast and South Asia,
Arabia, and Africa. The Chinese knew about these places from a long
history of trading relations, but nothing had ever happened on this
scale before. The first fleet included 27,800 men and 62 large treasure
ships, accompanied by 190 smaller ships, including ones specifically
for carrying freshwater, others for supplies, and others for troops. Yet
Emperor Yongle put a temporary stop on the missions after the sixth
one in 1422. This was made permanent by his successor, Hongxi, who
ruled from 1424 to 1425. Hongxi’s premature death brought to the
throne Emperor Xuande, who at first allowed Zheng He a final
mission, in 1433. But after this, all overseas trade was banned. By
1436 the construction of seagoing ships was even made illegal. The
ban on overseas trade was not lifted until 1567.
These events, though only the tip of the extractive iceberg that
prevented many economic activities deemed to be potentially
destabilizing, were to have a fundamental impact on Chinese
economic development. Just at the time when international trade and
the discovery of the Americas were fundamentally transforming the
institutions of England, China was cutting itself off from this critical
juncture and turning inward. This inward turn did not end in 1567.
The Ming dynasty was overrun in 1644 by the Jurchen people, the
Manchus of inner Asia, who created the Qing dynasty. A period of
intense political instability then ensued. The Qings engaged in mass
expropriation of property and assets. In the 1690s, T’ang Chen, a
retired Chinese scholar and failed merchant, wrote:

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More than fifty years have passed since the founding of
the Ch’ing [Qing] dynasty, and the empire grows poorer
each day. Farmers are destitute, artisans are destitute,
merchants are destitute, and officials too are destitute.
Grain is cheap, yet it is hard to eat one’s fill. Cloth is
cheap, yet it is hard to cover one’s skin. Boatloads of
goods travel from one marketplace to another, but the
cargoes must be sold at a loss. Officials upon leaving their
posts discover they have no wherewithal to support their
households. Indeed the four occupations are all
impoverished.
In 1661 the emperor Kangxi ordered that all people living along the
coast from Vietnam to Chekiang—essentially the entire southern
coast, once the most commercially active part of China—should move
seventeen miles inland. The coast was patrolled by troops to enforce
the measure, and until 1693 there was a ban on shipping everywhere
on the coast. This ban was periodically reimposed in the eighteenth
century, effectively stunting the emergence of Chinese overseas trade.
Though some did develop, few were willing to invest when the
emperor could suddenly change his mind and ban trade, making
investments in ships, equipment, and trading relations worthless or
even worse.
The reasoning of the Ming and Qing states for opposing
international trade is by now familiar: the fear of creative destruction.
The leaders’ primary aim was political stability. International trade
was potentially destabilizing as merchants were enriched and
emboldened, as they were in England during the era of Atlantic
expansion. This was not just what the rulers believed during the Ming
and Qing dynasties, but also the attitude of the rulers of the Song
dynasty, even if they were willing to sponsor technological
innovations and permit greater commercial freedom, provided that
this was under their control. Things got worse under the Ming and
Qing dynasties as the control of the state on economic activity
tightened and overseas trade was banned. There were certainly

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markets and trade in Ming and Qing China, and the government taxed
the domestic economy quite lightly. However, it did little to support
innovation, and it exchanged the development of mercantile or
industrial prosperity for political stability. The consequence of all this
absolutist control of the economy was predictable: the Chinese
economy was stagnant throughout the nineteenth and early twentieth
centuries while other economies were industrializing. By the time
Mao set up his communist regime in 1949, China had become one of
the poorest countries in the world.