The Dragon and the West

A new CESifo paper by Guido Tabellini and Joel Mokyr, in a foretaste of their forthcoming book, delves into the factors that lie at the root of these political-institution differences.

Two aspects of this evolution are clear: China experienced an early centralization of state powers; Europe, prolonged fragmentation. China has practically always been an autocracy, while Europe was the birthplace of democracy. What happened in between is the interesting bit.

As it turns out, the internal structure of their societies, according to the authors, amplified such initial differences, shaping institutions through many channels. In Europe, social organizations such as landed élites during feudalism, self-governing cities, and ecclesiastic structures were territorially based, with some having exclusive control of their territories. These structures, referred to as “corporations”, were in effect strong powers with which European rulers had to bargain in the early stages of state formation.

China, in contrast, was organized around clans and lineages. These were weaker than their European counterparts, which made it easier for rulers to dominate the relationship.

Furthermore, the way in which cooperation was sustained in Europe created a demand for external legal enforcement, whereas in China lineage organizations were effective substitutes of the State in dispute resolution. These traits influenced the evolution of the respective legal institutions. In the case of Europe, they led to European state structures co-evolving with their legal institutions, giving prominence to the principle of the rule of law.

Next, the governance principles of such social organizations served to shape the ensuing political bodies. As the authors explain, procedures that had first emerged in Europe to regulate collective decisions within corporations were adapted and transplanted first to ecclesiastic organizations, and then to the emerging state institutions. These governance principles also shaped notions of fairness and legitimacy, which European rulers could only ignore at their peril.

Chinese society’s governance principles, in comparison, were more congenial to the consolidation of an autocratic regime.

Finally, European state institutions were also shaped by their interaction with the Western Church and with self-governing towns, both distinctive of Western Europe and without equivalent counterparts elsewhere. These differences in the internal organization of Chinese vs European society also had profound implications for how education was structured, what type of knowledge was accumulated, how innovation took place—and hence, ultimately, for why the industrial revolution occurred in Western Europe and not in China.

In short, the differences in social arrangements between China and Western Europe illustrate how the influence of culture on institutions and on economic development is not only or primarily a direct influence, through beliefs and ideas, but largely indirect, through the social arrangements that spread through society because of their complementarity with specific cultural traits.

What remains to be seen is which of these very different cultures can best support their respective politico-institutional systems in coping with the challenges posed by climate change, the rise of artificial intelligence—and the increasingly fraught geopolitical competition to prove whose system is best.