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Title Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Author(s) KOYAMA, Mark; MORIGUCHI, Chiaki; SNG, Tuan-Hwee

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Issue Date 2017-07

Type Technical Report

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HIAS-E-51

Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Mark Koyama Department of Economics, George Mason University

Chiaki Moriguchi The Institute of Economic Research, Hitotsubashi University

Tuan-Hwee Sng Department of Economics, National University of Singapore July 2017

Hitotsubashi Institute for Advanced Study, Hitotsubashi University 2-1, Naka, Kunitachi, Tokyo 186-8601, Japan

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Geopolitics and Asia’s Little Divergence:

State Building in China and Japan After 1850

Mark Koyama, Chiaki Moriguchi, Tuan-Hwee Sng?

July 2017

Abstract

We provide a new framework to account for the diverging paths of political development in China and Japan during the late nineteenth century. The arrival of Western powers not only brought opportunities to adopt new technologies, but also fundamentally threatened the sovereignty of both countries. These threats and opportunities produce an unambiguous impetus toward centralization and modernization for small states, but place conflicting demands on larger states. We use our theory to study why China, which had been centralized for much of its history, experienced gradual disintegration upon the Western arrival, and how Japan rapidly unified and modernized.

Keywords: China; Japan; Geopolitics; State Capacity; Political Fragmentation; Political Centralization; Economic Modernization

?Mark Koyama, Department of Economics, George Mason University. Email: mkoyama2@gmu.edu. Chiaki Moriguchi, Institute of Economic Research, Hitotsubashi University. Email: chiaki@ier.hit-u.ac.jp. Tuan-Hwee Sng, Department of Economics, National University of Singapore. Email: tsng@nus.edu.sg. We are grateful for comments from Tyler Cowen, Nathan Nunn, Jack Paine, Jean-Laurent Rosenthal, Noam Yuchtman, and participants at the 2015 World Economic History Congress in Kyoto, the Frontiers in Chinese Economic History Conference in Berkeley, the CUHK 6th Annual Conference on Chinese Economy, George Mason Economic History and Development Workshop, and the 2016 NBER Japan project meeting. Pei Zhi Chia provided valuable research support. We gratefully acknowledge financial support from Hitotsubashi University IER Joint Usage and Research Center Grant (FY2016) and Singapore Ministry of Education Academic Research Fund Tier 1 (FY2014-FRC3-002).

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

1 Introduction

We investigate the process of state building and economic modernization through a comparative study from Asia: why did Japan successfully build a modern state in the late nineteenth century, while China did not? Both China and Japan came under increasing threat from the Western powers during the nineteenth century. This was a “critical juncture” for both economies, to use the terminology of Acemoglu and Robinson (2012). In response, Japan undertook a program of state building and modernization; in China, however, a more limited attempt to modernize the state proved unsuccessful and the power of the central state was weakened. This transformation set the stage for nearly a century of political turmoil in China, and the onset of sustained economic growth in Japan.

The divergence between China and Japan after 1850 poses a potential conundrum to the economic history and political economy scholarship.1 It is puzzling, first of all, from the perspective of the large literature that stresses the importance of external wars as engines of state building: both China and Japan were confronted with external threats in the second part of the nineteenth century, but only Japan embarked on a comprehensive program of modernization. Second, the dichotomous outcome we observe is at odds with what one might expect from a superficial assessment of the internal political histories of the two countries. China had a longer history of continuous statehood (Fukuyama, 2011) and the Qing state in 1800 was more centralized than was Tokugawa Japan. A third reason to revisit this particular case study is that the initial East Asian divergence in state building was not driven by internal conditions such as the pressures of industrialization as in variants of the modernization hypothesis (Lipset, 1963) or by the threat of democracy as modeled by Acemoglu and Robinson (2001), but was rather a response to radical changes in the external environment brought forth by the rise of the West.

To address this puzzle we develop a unified framework to study how states manage the twin goals of defense and development—when these goals are complementary and when are they in conflict? To illustrate the utility of the framework, we use it to account for China’s and Japan’s diverging paths of political development and for the difference in their attitudes toward broad-based reforms in the second half of the nineteenth century.

Our main contribution is to the literature on the role of institutions in long-run growth and economic history (e.g., North, 1981, 1990; North et al., 2009; Acemoglu et al., 2005). In recent years, increasing attention has been paid to the importance of states being both effective in providing basic public goods and strong enough to prevent rent-seeking interests from vetoing

1For conciseness, we use “1850” to represent the time point at which the break between premodern and modern eras occurred in China and Japan. Therefore, post-1850 represents the period after the First Opium War (1839–42) in China and the period after the Black Ship Incident (1853) in Japan.

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

pro-growth policies (North et al., 2009; Besley and Persson, 2011; Hoffman, 2015a).2 We study the problem of state building in the context of a hostile external environment to offer a novel understanding of why external threats could encourage the rise of a strong and effective state in some instances but not in others.

The second novel feature of our analysis is that we highlight the spatial dimension of state building. The literature on state capacity usually treats state building as a spatially uniform process: state capacity, once built, applies uniformly throughout the country.3 But clearly, the state is not omnipresent—by default, it will be more effective in some locations (e.g., in and around the capital city) than in others (e.g., in peripheral regions). This makes maintaining effective control a more complicated task in a large state than in a small one, which, in turn, has implications on their respective abilities and willingness to pursue socioeconomic reforms.

Thirdly, the seminal contributions in this literature have thus far focused on Western Europe (e.g., North and Weingast, 1989; North et al., 2009; Dincecco, 2009; Dincecco and Katz, 2014). It is only recently that scholars have considered the process of state formation and modernization in other parts of the world such as Latin America (Arias, 2013) or East Asia (Slater, 2010; Vu, 2010; He, 2013; Paik and Vechbanyongratana, 2017). While there is an extensive literature on the developmental state in East Asia (e.g., Haggard et al., 1997; Doner et al., 2005), it focuses largely on the post-1945 experience instead of on the original point of divergence in state building that took place in the nineteenth century as this paper does.

The conventional wisdom emphasizes Meiji Japan’s eagerness and commitment to emulate the West in implementing broad-based reforms and the lack thereof in China as a key ingredient of their post-1850 divergence (Fairbank and Reischauer, 1989; Paine, 2003; Ma, 2004).4 Less well known is the fact that like China, Japan, too, experienced considerable popular resistance toward reform, but it overcame the resistance through resolute state policy (Aoki, 1971; Tanaka, 2004). Hence, we argue that the observed differences in reform attitude between the two countries were not exogenously formed. Instead, they were, at least in part, shaped by the interaction of external challenges and domestic constraints in the two economies. In the spirit of the scholarship that highlights the role of war in state building (Tilly, 1990; Hoffman, 2015b; Gennaioli and Voth, 2015) and work that emphasizes how the size of a polity determines its economic policies (Alesina and Spolaore, 2003; Rosenthal and Wong, 2011), we build a model in which the respective needs

2Recent surveys are provided by Dincecco (2015) and Johnson and Koyama (2017). 3The only exception that we are aware of is Acemoglu et al. (2015), who study subnational variations in state

capacity in Colombia. Michalopoulos and Papaioannou (2014) provide evidence that in many African countries the reach of central government does not extend into the periphery where ethnic level institutions have a greater impact on developmental outcomes than national institutions. The implications of polity size for fiscal capacity in Qing China are also considered by Sng (2014) and Ma and Rubin (2017).

4As Mokyr (1990, 231) put it, “Japan adopted European technology rapidly lock, stock, and barrel, while China tried for decades to import European arms while preserving its old social and economic institutions”.

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

to deal with external threats and provide domestic order interact to influence the incentives and actions of policymakers. We use the model to explain (1) the political status quo in China and Japan (centralization in China and decentralization in Japan) before the mid-nineteenth century; (2) why China moved toward decentralization while Japan became politically centralized upon the arrival of Western powers; and (3) why despite considerable societal resistance to reform in both countries, ruling elites in Japan pushed forward with comprehensive reform while the Chinese leadership displayed ambivalence and was reluctant to change. While we focus on the political economy dimensions of the decision to modernize or not, our analysis complements other recent work that emphasizes the cultural and ideological determinants of the success of Meiji Japan and comparative failure of late Qing China (see, for instance, Iyigun and Rubin, 2017).

Our analysis draws attention to the relative size of China and Japan in shaping their institutional responses to the threats that they faced in the late nineteenth century. We build on the Hotelling-style linear city model employed in Ko, Koyama, and Sng (2014) to study how geopolitics generate systematic tendencies toward state centralization or state decentralization. It predicts that a singular external threat, such as the historical threat posed by the steppe nomads along China’s northern frontier, generates a systematic tendency toward centralization. However, powerful threats from multiple fronts have a differential impact on states of different sizes. The weakest states would collapse while other small states would seek centralization (resource pooling) and reform (resource augmentation) to cope with the threats. But for large states that are handicapped more by organizational diseconomies of scale than by resource constraint, the threats can lead to the decentralization of political authority and a weaker desire for reform.

The point we emphasize is that to the rest of the world, the rise of the West brought not only opportunities to adopt radically new technologies and practices (such as steam engines, railroads, and public education), but also powerful threats to national sovereignty. These geopolitical threats endangered the survival of the smallest states with the least resources most, while large states faced great costs of implementing reforms to adopt the new technologies due to organizational complexities. By comparison, states in the middle of the spectrum, like Japan, were most incentivized to embark on a program of centralization and modernization.

For China, traditionally a land-based continental empire with a stronger military-political establishment in the north than in the south, the rise of European naval power demanded urgent actions to bolster coastal defense and strengthening the presence of the state in South China, at a time when it was facing renewed pressure along its Inner Asian land frontier from the Russians (Liu and Smith, 1980). The inefficiency of coordinating the twin responses from a single center on the one hand, and the central authority’s unwillingness to concede too much autonomy to the

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

provinces on the other contributed to the Qing dynasty’s wavering between centralization and decentralization from the mid-nineteenth century through until the dynasty’s collapse in 1912.

Our model further highlights that for a large state, the goals of defense and development are not congruent. To take full advantage of the new economic and technological possibilities, a large state like China needs to decentralize and allow provincial authorities to take the lead in implementing initiatives such as building schools and roads that serve local needs. However, decentralization may generate collective action problems in defense and diplomacy. Here again, the rise of the West meant that Chinese policymakers were confronted with conflicting objectives.

Dealing with the challenge of the West was not easy for Japan either. Like the leaders of Qing China, the political leadership in Japan reacted to the mid-nineteenth century crisis under huge uncertainty (Jansen, 2000; He, 2013). But as an island state, Japan’s national and local objectives of security and reform were broadly complementary; the contradiction between political centralization and local state building did not exist. Hence, it took less time for the Japanese leaders to reach a consensus over what had to be done politically to confront the mid-nineteenth century crisis: the feudal system of the Tokugawa period had to be replaced by a centralized government so that Japan could pool its relatively limited resources to mount a coordinated response to the threat of Western imperialism.

Our analysis does not only shed light on the diverging developments in China and Japan. It also illuminates the loss of sovereignty to small East Asian states such as Korea, Sulu, and Vietnam during the same period and the demise of large empires including Tsarist Russia and Ottoman Turkey in the early twentieth century. To further derive generalizable insights from our framework, we also highlight the parallels between our cases and an earlier historical episode: the ninth-century unification of Anglo-Saxon England and fragmentation of the Carolingian empire.

The remainder of the paper is organized as follows. In Section 2, we first provide the historical background on nineteenth-century East Asia to derive the observations to be explained by our model, presented in Section 3. In Section 4, we discuss how our theory sheds light on the divergence between China and Japan after 1850. We then discuss the application of our framework on other episodes of state formation and fragmentation as well as potential limitations and extensions in Section 5. Section 6 concludes.

2 The Puzzle: State Centralization and

Modernization in East Asia

Why did the emergence of geopolitical threats from the West in the second half of the nineteenth century have differential effects on state building in different parts of East Asia? The existing

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Figure 1

(a) Traditionally, the Chinese state had a stronger pres- ence in the north than in the south as reflected in the distribution of the counties. Source: CHGIS (2007).

(b) From the mid-1800s to its collapse in 1912, the Qing state faced foreign encroachment by land (from Inner Asia) and by sea (from the sea).

literature points out that external threats and war can encourage investments in state building but it does not explain how the same set of geopolitical threats can have a different impact in different countries. In this section we outline the geopolitical situation facing China and Japan in the nineteenth century and how they responded to the new challenges posed by the West.

Before 1850, the Qing dynasty (1644–1912) ruled a large empire stretching across 14 million square kilometers. Despite its territorial size, political authority was concentrated in the hands of the emperor who ruled through a centralized bureaucracy that had a stronger presence in North China than in South China (Figure 1a). Officials were recruited via imperial examination and selection was meritocratic. There was no hereditary nobility and no separation of social classes (Fairbank, 1992). In comparison to Tokugawa Japan, China had a long legacy of organized rule by a central government. It should have been easier for China to maintain a centralized system of government than it was for Japan to build one as Asia transitioned into the modern era. Nevertheless, this was not what occurred.

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Table 1: Timeline for late Qing China

Year Event Description

1839–42 Opium War China cedes Hong Kong to Britain. 1850–64 Taiping Rebellion Peasant uprising sweeps southern China. 1856–60 Second Opium War Anglo-French expedition defeats Qing Army. 1858 Treaty of Aigun China cedes 600,000 km2 to Russia. 1861–95 Self-Strengthening Movement China launches limited reforms. 1894–95 Sino-Japanese War China cedes Taiwan and pays huge indemnity. 1899–1901 Boxer Rebellion Eight-Nation Alliance invaded North China. 1901–12 New Policies Unveiled Qing court announces Meiji-style political,

economic, military, and educational reforms. 1911–12 Chinese Revolution Provinces take opportunity of mutiny in

Wuchang to declare independence.

2.1 External Threats and State Disintegration in Qing China

A large existing literature links China’s long tradition of political centralization to the recurring geopolitical threat that it faced from the Eurasian steppe (Barfield, 1989; Turchin, 2009). Prior to the Opium Wars, all major invasions of China came via the north. This changed drastically after the First Opium War (1839–42). China’s defeat in the hands of Britain meant that the Western powers now posed a direct threat to China’s coast. The Treaty of Nanking, signed in 1842 to restore peace, saw the establishment of Hong Kong as a British colony and the opening of Shanghai and other Chinese ports to foreign trade and residence. It was followed by a series of “unequal treaties” that committed China to grant extraterritorial rights and give up tariff autonomy to the Western powers. Table 1 summarizes the chronology of these events.

Besides confronting unprecedented naval threats from the sea, China also had to deal with steady encroachment by Russia, who had by now replaced the steppe nomads as China’s main threat along its north-west land frontier. In 1858, when fighting a joint Anglo-French invasion, China ceded its territories north of the Amur River to Russia to avoid fighting a two-front war (Figure 1b). Further Russian encroachment precipitated what historians referred to as “the great policy debate of 1874,” which saw senior Chinese statesmen in disagreement over whether China should place its defense priority on its land or maritime frontiers (Liu and Smith, 1980).5

5The contemporaneous Blackwood’s Edinburgh Magazine observed in its July 1852 issue that China was increasingly sandwiched between foreign pressures along its north-west frontier and along its south-east coast. On the one hand, “Russia, the great nascent power of the Old World, has rolled her armies across Siberia up to the foot of the Great Wall, and now casts a covetous eye upon the northern portion of the Celestial Empire”. On the other hand, “Britain […] has reached with her fleets every harbour of the Flowery Land” (113).

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

The geopolitical changes coincided with a shift toward limited political decentralization within China, which first took place in the 1850s to provide a more flexible and responsive approach to counter the Taiping Rebellion (Kuhn, 1980). Apart from allowing provincial scholar-generals to raise their own armies, the imperial court also granted them more fiscal autonomy (Shi and Xu, 2008). After the rebels were put down, political decentralization was partially but not fully rolled back as the provinces continued to enjoy substantial autonomy on fiscal and administrative matters.6 To deal with the rising Western threat, the imperial court permitted some provincial appointment holders to undertake greater responsibilities in foreign affairs. In particular, the viceroy of Zhili province was entrusted with the responsibilities of coordinating defense matters in the coastal provinces and dealing with the Western powers (Chu and Liu, 1994).

The Qing state also initiated the Self Strengthening Movement in the 1860s. Some of its more significant endeavors include: setting up foreign language schools in Beijing, Shanghai, and Guangzhou to build foreign affairs expertise and to translate Western works of science and technology; opening new mines and constructing iron foundries, steel mills, machine factories, arsenals, and shipyards; the establishment of military and naval academies; creating new industries and enterprises including railway and telegraph lines, cotton-spinning and weaving companies, and steam navigation companies.

Its achievements notwithstanding, the Self Strengthening Movement was largely confined to the adoption of Western military technology and armaments. It was significantly less ambitious in agenda and limited in terms of its social and economic impact when compared with Japan’s Meiji Restoration, where reforms went beyond military modernization and involved, among other things, an overhaul of the land ownership system, the introduction of compulsory education, and state-led investment on a nationwide rail transport network (Jansen, 2000). As Figure 2 illustrates, China lagged behind Japan in railroad construction in the run-up to the Sino-Japanese War of 1894–5. In the construction of telegraph lines, setting up of post offices, and use of steamships too, China was overshadowed by its eastern neighbor (Li, 2008).7

A major impediment to reform in late-Qing China was the significant disagreement within the political leadership. Reformers in the government were often attacked and labeled as traitors and sycophants by conservative and hardline officials, who argued against the need for China to change its institutions and practices (Hao and Wang, 1980).

The general public, too, displayed significant resentment toward what they perceived as foreign encroachment on China (Baark, 1997; Rowe, 2009). Anti-missionary riots and assaults

6For quantitative evidence, see Shi (2009, 59). 7Moreover, even the achievements of the Self Strengthening Movement such as the Fuzhou Shipyard was

undermined by the absence of a centralized fiscal system and reliance on ad hoc local financing arrangements as documented by Pong (1987).

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Figure 2: Railroad construction in Qing China and Meiji Japan

Source: Jin and Xu (1986); Tang (2013).

occurred periodically and received support from the gentry and commoners, who viewed the missionaries and hitherto unknown technologies such as telegraphs and railways with grave suspicion.8 China’s first operational railway, the 14.5-kilometer Wusong Railway, was torn down in 1877 amid unrest among the local population (Wang, 2015).

After China’s comprehensive defeat at the hands of Japan in 1894–95, its political leadership began to contemplate a major overhaul of the existing institutions (Hao and Wang, 1980). In the early 1900s, the imperial court announced Meiji-style reforms in government, military, education, and other areas. However, the dynasty collapsed in 1912 after a mutiny in Wuchang triggered a chain of events that caused the provinces to declare their independence from Beijing.

2.2 From Tokugawa to Meiji Japan

During the Tokugawa period (1603–1868), Japanese society was organized into four hereditary classes of samurai, farmers, artisans, and merchants. The emperor was merely a figurehead while the shogun, the most powerful lord in Japan, ruled only 15% of the country directly (Figure 3). The bulk of the remaining country was territorially divided into some 260 domains, each headed by a local lord (daimyo).

Most of these domains were very small. In the 1860s, 166 out of the 266 domains had

8Wright (1957, 274) observed that “Christianity in the 1860’s was attacked not […] by officials, but by the populace and non-office-holding lower literati; it was menaced not be proscription but by mob riots.”

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Figure 3: Japan before the Meiji Unification.

(a) Adversaries of Boshin War

Domain Annual Output (koku)

Shogunate 4,000,000 Kaga 1,350,000 Choshu 990,000 Satsuma 870,000 Kumamoto 790,000 Owari 780,000 Saga 720,000 Fukuoka 570,000 Kii 540,000 Tosa 500,000 Notes: (i) Data source: Hansei ichiran. Map adapted from http://www.fas.harvard.edu/?chgis/japan/; (ii) Output of Shogunate based on official estimate, others are actual out- puts in 1869; (iii) Anti-Shogunate coalition in bold.

(b) Largest domains by output

annual outputs below 50,000 koku.9 By comparison, the Shogunate was rated at 4 million koku. However, there were eighteen sizable local domains. Their lords were regarded as “province holders” (kunimochi daimyo) by contemporaries and behaved “more like sovereigns than like vassals” (Ravina, 1999, 21). Four of these domains—Satsuma, Choshu, Saga, and Tosa—would form the coalition that overthrew the Shogunate in 1868 (Figure 3b).

Before the late Tokugawa period, the Shogunate was able to maintain a monopoly over foreign and inter-domain affairs. However, there was no central treasury in Tokugawa Japan, nor was there a central army (Jansen, 2000). The Shogunate had no right to tax other domains and the local domains maintained their own administrators, armies, tax systems, and legal codes (Totman, 1993). Many domains issued their own paper monies or copper cash. The absence of fiscal and military institutions at the national level and the autonomy of local domains implies that Tokugawa Japan was fiscally and militarily fragmented. If we accept Max Weber’s definition of a modern state as an entity claiming a monopoly of legitimate violence, Tokugawa Japan was not a single state but comprised a league of smaller political entities (Weber, 1968).10

Due to fear of foreign influence, the Shogunate outlawed Christianity and banned Japanese

9Japanese domains were measured in terms of economic output instead of land area. One koku is equivalent to 180.4 liters of rice, historically interpreted as the amount required to feed a person for a year.

10See Sng and Moriguchi (2014) for a similar argument. Further support of this interpretation comes from the theory of the firm, which equates ownership with the control of residual rights to assets (Grossman and Hart, 1986). Since a daimyo was the residual claimant to the fiscal resources of his domain, he, not the shogun, owned the domain.

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Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850

Table 2: Timeline for Major Events in late Tokugawa and early Meiji Japan

Year Event Description

1853 Black Ships Incident American ships arrive off coast of Japan and de- mands the opening of Japan.

1862 Namamugi Incident Satsuma’s assault on British nationals results in bombardment of its capital Kagoshima.

1864 Shimonoseki Campaign British, French, Dutch, and American ships bombard Choshu.

1868 Meiji Restoration Tokugawa forces defeated in civil war; Anti- Shogunate coalition forms government.

1871–73 Reform accelerates Introduction of new currency system, land tax, pub- lic education, and universal conscription.

1877 Satsuma Rebellion 80,000 disaffected samurai revolt against reforms. 1894–95 Sino-Japanese War Japan defeats the Chinese army and navy.

ships from traveling abroad. Only Chinese and Dutch ships were permitted to enter Nagasaki, the sole major port open to foreign trade before 1858. As geopolitical threats were relatively subdued, the seclusion policy was enforced with relative ease until the 1850s.

Things changed radically in the mid-nineteenth century after a small British expeditionary force defeated China, the traditional linchpin of East Asian political order, in the Opium War (Table …

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