The Korean Peninsula is the setting for one of the book’s clearest demonstrations that institutions can redirect the fortunes of societies with a shared history. Divided at the 38th parallel after Japan’s surrender in 1945, it became home to two governments that organized their economies in radically different ways. The resulting contrast between South Korea’s prosperity and North Korea’s poverty was not an ancient or culturally predetermined divide: the book argues that it followed from the political systems imposed on either side of the border.

A Shared History, Divided in 1945

Before the Korean War and division, the peninsula had a long common history and an exceptional degree of homogeneity in language, ethnicity, and culture. In the summer of 1945, as the Second World War ended and Japanese colonial rule collapsed, Korea was split into two spheres of influence. The United States administered the South and Russia the North. The division transformed a shared political and social space into two different regimes, each with its own institutions and incentives.

War and a Family Separated

The consequences of the border became personal during the Korean War. When the North Korean army invaded the South in June 1950, it initially advanced as far as Seoul. As its forces retreated that autumn, two brothers were separated: Hwang Pyŏng-Wŏn avoided conscription, remained in the South, and worked as a pharmacist; his brother, a doctor treating wounded South Korean soldiers in Seoul, was taken north by the retreating army. They met again in Seoul in 2000, after the two governments agreed to a limited family-reunification program.

Their reunion revealed the material and political distance the border had come to represent. Hwang Pyŏng-Wŏn’s brother worked for the North Korean air force, yet lacked a car and did not have a telephone he could freely use; his daughter’s phone required a code. He declined an offer of money because he feared the government would demand it on his return. The coat he wore to the reunion was borrowed from the government, and he could not take it home. Although he said he lived well, his brother thought he looked thin and in poor condition, and noticed that he seemed nervous when they parted.

Two Economic Paths

The divide is visible not only in the brothers’ circumstances but also in broad measures of living standards. South Korea’s were comparable to those of Portugal and Spain, while North Korea’s were closer to those of a sub-Saharan African country—about one-tenth of the South Korean average. North Koreans could expect to live roughly ten years less than their southern counterparts. Satellite images of nighttime light make the contrast stark: South Korea shines, while North Korea is almost entirely dark because of its lack of electricity.

These differences emerged after 1945, when the two governments adopted sharply different ways of organizing their economies. South Korea’s early political and economic institutions were shaped by Syngman Rhee, an anticommunist leader elected president in 1948 with significant support from the United States. The country was not a democracy under Rhee or his successor, General Park Chung-Hee. Yet both governed a market economy that recognized private property, and after 1961 Park directed state credit and subsidies toward successful firms to accelerate economic growth.

The Border, Not Culture

The Korean case challenges explanations that treat culture as the independent cause of prosperity or poverty. The peninsula’s shared history and prewar cultural homogeneity make the later divergence difficult to explain as an inherited national trait. Instead, the border separated people into different political regimes, which created different rules and incentives; any cultural differences that subsequently developed are presented as consequences of those divergent paths, not their cause.

The comparison also clarifies the book’s broader argument about institutions: political systems shape economic possibilities, and shared identity does not prevent radically different outcomes when authority and incentives diverge. The Korean Peninsula’s significance lies in this contrast between common origins and opposed institutional futures.