Jun Xian mentioned about the good effects that will arise if you were to make the positive institutional differences during critical junctures

Before I talk about the impacts of negative differences, I would like to talk about some of the properties of these institutional differences

Institutional improvement is not a simple cumulative process. There will not be a snowballing effect. With a change of government, it is possible for an inclusive political institution to turn into an extractive one overnight

Plus, the authors commented that small institutional differences made can only last for short time. This means that the changes made can be reversed and later or re-emerging and then reversed again. This is classically seen on the case study on the Venice

After discussing about the properties of institutional differences, I will discuss about the impacts of negative institutional differences, in this case, the critical juncture will be the industrial revolution

The industrial revolution was a critical juncture, one that encouraged societies to allow and incentivize their citizens to invest in new technologies to achieve growth. However, many countries fail to partake in the spread of industry, choosing not to do so

There are two major barriers to entry to industrialization, namely lack of political centralization and absolutism

Lack of political centralization means The absence of a central government capable of enforcing law and order, upload property rights and encourage economic activities when necessary by investing in public goods

In the book, the authors argue that be it inclusive or extractive political institutions, political centralization is vital. Only when states can maintain the most rudimentary order, economic incentives will not be destroyed

Absolutism means Rule unconstrained by law or the wishes of others, though in reality, absolutists rule with the support of some small group or elite

To further explain the point of absolutism, I would like to use the case study of china

China, in the past, has a meritocratic system in the form of imperial examinations. This meant that there was upward social mobility in the country. In addition, China enjoyed a centralized state, meaning that the country will be able to maintain the most rudiment order. So is China a typical example of an inclusive political institution?

The answer is a big fat no. China did not enjoy political representation other than the monarchy. Other work classes such as the merchants had a precarious status in China and great innovations were not spurred by market incentives but brought to existence under the orders of government.

There was also absolutism. Absolutist emperors opposed change and sought stability. Two examples include Emperor Hongwu and Emperor Xuande in the Ming dynasty.

Just at the time when international trade and the discovery of the Americas were fundamentally transforming institutions of England, China cut itself off from the critical juncture and turning inward

Main reason for opposing trade is the fear of creative destruction. What is creative destruction? I will explain later. The China emperors see trade as something that will empower the merchants, which in turn will challenge their power. So international trade is sacrificed for political stability

Fear of creative destruction, as written by the author, is the “fear that change will reallocate political power from those that dominate today to new individuals and groups”

Looking back at the two main barriers to industrialization, you will realize that they have a similarity. Both are linked to fear of creative destruction

Process of political centralization will lead to creative destruction where power will be transferred to centralized state

Rulers did block the spread of industry to prevent creative destruction, so that they will not lose power

Thus, despite the industrial revolution happening as a critical juncture, many countries did not make positive institutional differences, explaining the divergence between the East and the West.

Just some food for thought.

Institutional differences that last. What happens when institutional differences are made in a country’s constitution? Will the effect finally last?

If you look at it with a certain perspective, political centralization = good thing, absolutism = bad thing. These two variables however, are inevitably linked. How can we prevent political centralization from ever evolving into absolutism? The author did not really address this issue.

Absolutism necessarily bad? To a certain extent, we can agree that some of the policies (e.g. housing, education) implemented in early Singapore were absolutistic. But look how far the HDB system and bilingualism has brought us? As for the leadership, that’s up for debate.

Now I will pass the time to guohao to talk about the other external factors that will result in countries breaking out of the institutional cycles