How the East Was Lost: Coevolution of Institutions and Culture in the 16th Century Portuguese Empire
Abstract: In 1498 Portuguese explorers discovered the sea route to Asia and for nearly 100 years no other nation managed to follow suit. This monopoly allowed Portugal to establish a vast maritime empire that positioned it to dominate the intercontinental trade in spices and other valuable goods between Asia and Europe, until then the domain of caravans through the Levant. But the Portuguese failed to exploit their lead. Even before the British and Dutch finally managed to navigate to Asia, a century later, the Portuguese enterprise in Asia was already in decline. We argue that the failure of the Portuguese enterprise must be understood in the context of the transition of a medieval society into the modern era, where new opportunities made possible by new technologies and circumstances put a strain on prevailing beliefs and institutions. These new opportunities required changes in culture and institutions to be fully taken advantage of, in particular the embrace of commerce as opposed to violence as the key organizing principle. The Portuguese made some moves towards those changes, yet the transition was slow, imperfect and incomplete. In contrast, the British and Dutch reached Asia with a culture that was more suited to commerce, and institutions (e.g. joint-stock companies) that allowed them to very quickly usurp Portugal’s hegemony in the region.