Political Institutions and Long-run Economic Trajectory: Some Lessons from Two Millennia of Chinese Civilization

Why did China, given her economic and technological leadership in the 14th century or even in the 18th century as some have recently claimed, fail to become the first industrial nation? A multitude of hypotheses ranging from cultural and scientific traditions to factor endowments or natural resources have been proposed.1 One long-standing thesis to account for China’s long-term stagnation, made from a European comparative perspective, is the absence of dynamic inter-state competition occasioned by the precocious rise of a unitary and centralized state in historical China. This argument found numerous expressions in various academic and popular writings.2 This thesis is not without challenge. Firstly, we have the recent revisionist claim by China historians that the Imperial rule of benevolence in traditional China provided an institutional framework that taxed the peasantry lightly, protected private property rights and interfered little in the operation of well-established markets in land and labor (see Pomeranz 2000). Secondly, as pointed out by S. R. Epstein, the inter-state competition thesis also faces challenge on the European front. Political or jurisdictional fragmentation, as he emphasized, may have actually acted to shackle long-term growth in medieval and early modern Europe by way of massive coordination failures caused by the absence of undivided sovereignty over the political and economic spheres. This line of logic led him to surmise that England’s rise to global eminence in the 18th century had more to do with a conducive institutional environment emanating not from jurisdictional fragmentation but from her precocious institutional unification and centralization due to her initial weakness of entrenched ‘corporate’ interest (Epstein 2000: 36–37).