Why Nations Fail Illustrated
Lecture 7
Origins of Inclusive Institutions #3
Australia, France & Western Europe, and Japan
20 November, 2018
Masayuki Kudamatsu
Chapter 10, pp. 340-341, and pp. 362-363
Today's Road Map
Australia
French Revolution
Spread of French Revolution to Western Europe
Term paper preparation #3
Meiji-Japan
Australia as Britain's penal colony
Destination for British convicts since January 1788
Image source: libguides.loretotoorak.vic.edu.au
Economic institutions in colonial Australia
Initial plan: Extractive institutions
Forced labor for convicts
Given only food in return for their labor
Guards & soldiers keep their produce
But convicts didn't work hard
No one else would work for guards
Aboriginals were sparsely populated
Economic institutions in colonial Australia (cont.)
Revised plan: Inclusive institutions
Convicts: allowed to sell their produce in their spare time
Given land once completing their sentences
Allowed to run businesses and hire other convicts
Similar to what happened
in British colonies of North America (Lecture 6)
Propserity in colonial Australia
Guards also became rich
Set up monopolies to sell goods to convicts
Ranch sheep to export wool
e.g.
John Macarthur, a former solider
Some convicts became rich
e.g.
Henry Cable, an illiterate convict
By 1798, ran a hotel and a shop
By 1809, owned 9 farms of 470 acres, many shops & houses
Image source: Wikimedia Commons
Conflict over institutions in colonial Australia
Demand from ex-convicts and their families
End to transportation of convicts from Britain
(to keep their wages high)
Trial by a jury of their peers
Access to free land
Plan by British government (John Bigge)
Ban convicts from owning lands
Prohibit anyone from paying wages to convicts
| economic institutions | ||
|---|---|---|
| Secure for everyone |
Property rights | Insecure for majority of people |
| Free | Occupational choice |
Forced labor |
| Free | Entry of new businesses | Prevented by monopolies |
| Unbiased | System of laws | Biased for the powerful/rich |
| Promoted | Public service provision | Discouraged |
Economic Institutions
Inclusive
Extractive
Property rights
Secure for everyone
Insecure for
majority of people
Occupational choice
Free
Forced labor
Entry of
new businesses
Free
Prevented by
monopolies
System of laws
Unbiased
Biased for
the powerful / rich
Public service provision
Provided
Limited
Demanded
by ex-convicts
British govt's
plan
Interpreting this conflict by the book's theory
Conflict over institutions in colonial Australia (cont.)
Ex-convicts soon demanded political participation as well
Elections to participate as equals to the elite
Parliaments in which they could hold office
Movement led by journalist William Wentworth, the son of convicts
Birth of inclusive political institutions
Ex-convicts: allowed to sit on juries
1831
1840
Transportation of convicts from Britain: stopped
1842
Legislative council: created
2/3 of seats elected (the rest appointed)
Many ex-convicts with enough property:
could vote & stand for office
Ex-convicts' demands: gradually accepted by the elite
Birth of inclusive political institutions (cont.)
Discovery of gold in 1851 (pp. 340-341)
Everyone is allowed to dig for gold
as long as paying an annual mining license fee
i.e. Inclusive economic institutions
Image source: National Geographic
Birth of inclusive political institutions (cont.)
From 1856 onwards
All men over 21 years old: enfranchised
Secret ballots: introduced (the world's first)
The diggers (those who became rich with gold mining):
demand more inclusive political institutions
Image source: Hirst (2006)
Inclusive Economic Institutions
Economic Growth
Inclusive Political Institutions
This is an example of the feedback loop
Open access
to gold mines
Universal suffrage with secret ballots
2nd path towards inclusive institutions
In both Australia and the United States:
Low
population
density
Lack of
precious
metals
Climate
unsuitable for
plantation
Inclusive economic institutions
Non-elite become rich
& demand political participation
Inclusive political institutions
And not just for U.S. & Australia
Source: Figure II of Acemoglu, Johnson, & Robinson (2002)
The less densely populated in 1500, the richer today
Today's Road Map
Australia
French Revolution
Spread of French Revolution to Western Europe
Term paper preparation #3
Meiji-Japan
Extractive institutions in 18th-century France
Peasants in rural areas
Restricted from moving out of their villages
Required to pay feudal dues to monarch, noblility, and church
Cities
Guilds monopolized manufacturing
| economic institutions | ||
|---|---|---|
| Secure for everyone |
Property rights | Insecure for majority of people |
| Free | Occupational choice |
Forced labor |
| Free | Entry of new businesses | Prevented by monopolies |
| Unbiased | System of laws | Biased for the powerful/rich |
| Promoted | Public service provision | Discouraged |
Economic Institutions
Inclusive
Extractive
Property rights
Secure for everyone
Insecure for
majority of people
Occupational choice
Free
Restricted
Entry of
new businesses
Free
Prevented by
monopolies
System of laws
Unbiased
Biased for
the powerful / rich
Public service provision
Provided
Limited
Inclusive elements of political institutions in France
Key aristocrats handpicked by the monarch
Give advice to the monarch (mild constraint on the king)
Centralization by Louis XIV (in power for 1661-1715)
To finance the standing army
Aristocrats & churches:
exempted from tax, though
Somewhat similar to 16th-century England (Lecture 3)
Image Source: Wikimedia Commons
Lead-up to French Revolution
Early 18th-century
Economic growth under Louis XIV
(supposedly) led to the emergence of merchants
1756-1763
Seven Years' War with Britain caused a fiscal crisis
Lead-up to French Revolution (cont.)
1787
To raise new taxes, Louis XVI convened Assembly of Notables
Image Source: Wikimedia Commons
They concluded to convene Estates-General
Lead-up to French Revolution (cont.)
1789
Estates-General, representing all subjects, gathered
Image Source: Wikimedia Commons
And turned into National Constituent Assembly
French Constitution of 1791
Taxes shall be collected from all the citizens ... in the same manner
Article 9
Article 11
All citizens are eligible to any office
Also later
The National Assembly ... completely abolishes the feudal system.
Article 1
Abolish guilds and any occupational restrictions
| economic institutions | ||
|---|---|---|
| Secure for everyone |
Property rights | Insecure for majority of people |
| Free | Occupational choice |
Forced labor |
| Free | Entry of new businesses | Prevented by monopolies |
| Unbiased | System of laws | Biased for the powerful/rich |
| Promoted | Public service provision | Discouraged |
Economic Institutions
Inclusive
Extractive
Property rights
Secure for everyone
Insecure for
majority of people
Occupational choice
Free
Restricted
Entry of
new businesses
Free
Prevented by
monopolies
System of laws
Unbiased
Biased for
the powerful / rich
Public service provision
Provided
Limited
Today's Road Map
Australia
French Revolution
Spread of French Revolution to Western Europe
Term paper preparation #3
Meiji-Japan
Extractive institutions in 18th-century Europe
Peasants owed various fees & taxes to lords
e.g.
230 different payments in Nassau-Usingen
for slaughtering an animal, selling/buying property, etc.
Guilds regulate economic activities in cities
e.g.
Guilds in Cologne & Aachen
blocked the adoption of spinning and weaving machines
Similar episode in Kassel (Lecture 3)
Extractive institutions in 18th-century Europe (cont.)
Severe restrictions on the lives of Jews
Had to live in a small, walled part of the town (Jewish ghetto)
Could not farm or trade in weapons, spices, wine, or grain
Had to pay a special poll tax
e.g.
In Frankfurt, Jewish people:
Map of Frankfurt in 1628
Image source: Wikimedia Commons
Spread of French Revolution
Austria (cf. Lecture 4) and its allies:
Fearful of the spread of the revolution
Invaded the Revolutionary France in 1792
But France conquered much of Europe thanks to:
Mass conscription introduced in 1793
Napoleon Bonaparte
Image source: Wikimedia Commons
The area ruled by Napoleon
Image source: Map 17 of Why Nations Fail
Inclusive institutions exported
Napoleon imposed Code Napoleon in every territory he controlled
Abolishing feudal land relations
Stamping out guilds in cities
Stripping the clergy of their privilege
After the defeat of Napoleon
Code Napoleon remained in effect
in many areas
Those areas conquered by Napoleon:
Industralization took off
by the mid 19th century
Image source: mafr.fr
Evidence: Mayer Amschel Rothschild
Image Source: Wikimedia Commons
1744:
Born in Frankfurt's Jewish ghetto
Became a leading dealer in metals & antiques
but couldn't open a shop outside the ghetto
1796:
France occupied Frankfurt
Jews were emancipated
Mid-19th century:
His bank became Europe's largest
Evidence: 19 German polities in 19th-century
Source: Table 1 of Acemoglu, Cantoni, Johnson, and Robinson (2011)
Evidence: 19 German polities in 19th-century (cont.)
Source: Adopted from Figure 2b of Acemoglu, Cantoni, Johnson, and Robinson (2011)
Occupied by Napoleon
Others
Today's Road Map
Australia
French Revolution
Spread of French Revolution to Western Europe
Term paper preparation #3
Meiji-Japan
Japan during the Edo era: Extractive institutions
No freedom of occupation (士農工商)
High rates of taxation on farmers
Shogun monopolized foreign trade (「鎖国」）
| economic institutions | ||
|---|---|---|
| Secure for everyone |
Property rights | Insecure for majority of people |
| Free | Occupational choice |
Forced labor |
| Free | Entry of new businesses | Prevented by monopolies |
| Unbiased | System of laws | Biased for the powerful/rich |
| Promoted | Public service provision | Discouraged |
Economic Institutions
Inclusive
Extractive
Property rights
Secure for everyone
Insecure for
majority of people
Occupational choice
Free
Restricted
Entry of
new businesses
Free
Prevented by
monopolies (?)
System of laws
Unbiased
Biased for
the powerful / rich
Public service provision
Provided
Limited
Japan during the Edo era
Satsuma domain (薩摩藩)
Allowed to trade with foreign countries via Ryukyu Islands
But political institutions weren't fully absolutist
After Meiji Restoration:
Inclusive economic institutions
Individual property rights on land
Freedom to practice any trade
Construction of infrastructure by the state
Steamship line from Tokyo to Osaka (1869) (cf. Lecture 6)
Railway from Shinbashi to Yokohama (1872) (cf. Lecture 4)
Image source: Wikimedia Commons
| economic institutions | ||
|---|---|---|
| Secure for everyone |
Property rights | Insecure for majority of people |
| Free | Occupational choice |
Forced labor |
| Free | Entry of new businesses | Prevented by monopolies |
| Unbiased | System of laws | Biased for the powerful/rich |
| Promoted | Public service provision | Discouraged |
Economic Institutions
Inclusive
Extractive
Property rights
Secure for many(?)
Insecure for
majority of people
Occupational choice
Free
Restricted
Entry of
new businesses
Free
Prevented by
monopolies (?)
System of laws
Unbiased
Biased for
the powerful / rich
Public service provision
Provided
Limited
Japan after Meiji Restoration
Political institutions after Meiji Restoration
Taxation centralized
Constitutional monarchy with parliament from 1889
Inclusive
Extractive
Both
Plurality
and
Centralized
State
Either
Absolutist
or
Lack of
Centralization
Why Japan, not China?
China (cf. Lecture 4)
No institutionalized constraints on the Emperor
Rebellions imposed constraints, but not institutionalized
Japan
The Emperor was sidelined
Tokugawa shogun didn't fully control all domains
e.g.
Satsuma domain allowed to trade with foreign countries
Why Japan, not China? (cont.)
Industrial Revolution in Britain / U.S.
posed military threats to China and Japan
First Opium War (阿片戦争) in 1839-1842
Arrival of U.S. warships in Japan (黒船来航) in 1853
China:
Emperor resisted institutional reform, importing modern weapons
Japan:
Shogun, resisting reform, ousted by Satsuma and other domains
Meiji-Japan built its own armaments industry
Society A:
(slightly) more inclusive
Society B:
(slightly) more extractive
Critical Juncture
Power balance tilted for the ruled
Inclusive institutions
Power balance tilted for the rulers
Extractive institutions
Theory of institutional divergence (cf. Lecture 5)
Today's Road Map
Australia
French Revolution
Spread of French Revolution to Western Europe
Term paper preparation #3
Meiji-Japan
Inclusive
Extractive
Both
Plurality
and
Centralized
State
Either
Absolutist
or
Lack of
Centralization
How to measure political institutions?
We need to measure the degrees of:
(1) plurality
(2) centralization
Measurement of plurality
Executive constraints from Polity IV dataset
"Extent of institutional constraints on the decision-making powers of the chief executive" (Polity IV Project: Data User's Manual, p. 62)
Known to positively affect GDP per capita (Acemoglu & Johnson (2005))
Takes the integer values from 1 to 7
See pp. 63-66 of Polity IV Project: Data User's Manual
for what each value represents
See the column entitled "exconst"
If your country has values of -66, -77, -88:
See p. 17 of Polity IV Project: Data User's Manual
Measurement of centralization
Tax revenue as % of GDP (cf. Lecture 3)
Positively associated with GDP per capita
Source: Figure 6a of Besley and Persson (2013)
Plurality and Centralization go hand in hand
Source: Daron Acemoglu (2013) "State Building: A Political Economy Perspective" Slides for Nemmers Prize Lecture, p. 15
For your term paper
Compare your country's data values to the rest of the world
Trace your country's data values over time
Week Ten
Chapter 13
Weeks 8-10: Persistence of Extractive Institutions
Week Eight
Chapter 9
Week Nine
Chapter 12
Colonization of
Southeast Asia by
Europeans in 17c
Slave trade in
sub-Saharan
Africa
British colonization
of South Africa
in 19c
Guatemala
Sierra Leone
Ethiopia
before/after
the 1974 coup
US South
before/after
American Civil War
Zimbabwe
Argentina
Colombia
North Korea
Uzbekistan
NEXT WEEK
Your to-do list until next class
Read Chapter 9 & its summary on page 299
and post questions on Prulu
1
2
3
Visualize economic performance & entry regulation
of the country of your choice (if you haven't)
Collect the data on political institutions
in the country of your choice