I checked the book and saw that it does not deal with the ascension of parliaments as a possible explanation for the great divergence, even though it fits: the first parliamentary countries in Europe were the first to take off. The first continent with parliamentary systems was the first to take off. The first Asian country to incorporate parliamentary model was the first to take off. Parliamentary countries are on average much richer than other countries today. Wish it would deal with it, even if to disprove...
Nope. It's all about climate. Before the advent of AC it wasn't really possible to industrialize if it was too hot. Workers just aren't productive enough in Lagos or Nachez for much of the year due to the crippling heat. In the UK, Germany, Japan, northern US you can work productively for much of the year with just rudimentary heating.
Would Houston be Houston or Singapore be Singapore without AC? No. Why?
The Russian/Soviet case is a little more complex, I believe. I seem to recall reading somewhere that in the late 19th, early 20th century, Russia had the highest growth rate in the world—something like 12% per annum. The war and the Revolution wrecked that, and they then imported a colossal amount of American expertise to build (and partially rebuild) their industrial base in the ’20s and ’30s. But I may be wrong.
As you surmised, it's not true that Catholic Italy is wealthier than Protestant Britain. Of course Northern Italy is wealthier that big swathes of Britain but so what. And the whole premise is dumb, since choosing two countries is hardly definitive. It's also easy to counter since Protestant Norway is much, much wealthier than Catholic Portugal. But again, so what?
There is some truth to the core idea that economic catch-up requires more than just opening up your economy. For the successful Asian countries (China, Malaysia, the tiger states), they did liberate their internal markets. But at the same time they were rather restrictive on imports, so that the new industries were not immediately destroyed by international competition. Only after some time of (external) protectionism and (internal) liberalism, when their industries were competitive enough, they opened their markets to the outside.
> From about 1600 to 1720, the Dutch had the highest per capita income in the world - at least double that of neighbouring countries at the time and about five times higher than that of the poorest countries today.
Compare also to the Ancient Greeks, who had "unlocked Steam Power in their tech tree", but didn't get an Industrial Revolution out of it.
Overall, it's important to understand that someone getting a paper or book published on a topic doesn't mean they're the final word on it. Sometimes talented, intelligent researchers are just wrong, such as Acemoglu in that paper on German industrialization and institutional reform you posted about a while ago. Economic history in particular is a fraught subject with disappointingly little day and live debates on just about every interesting question you can think of.
In case you're not familiar, these "very short introductions" are a series (<a href="https://en.wikipedia.org/wiki/Very_Short_Introductions">Wikipedia link</a>); they have them for a pretty broad range of topics and they're all similarly small. It's not just a subtitle on this one book!
There are 3 well known expert catchup stories in the latter half of the 20th century.
Hong Kong
Singapore
Dubai.
Why did they work?
If we're not addressing the fact that (a) they did work, and (b) other countries of similar size and start point didn't, I think we have to be suspicious of the story being told.
Wait. So when USAians say "Latino", do they actually mean "Latino - Native American métis" ? And that's why they aren't always considered "white" ? (But aren't also considered to be a separate "race" ?)
I feel like this review lacked framing. I overall liked it as a summary, but it left me wondering why I should care and how I should weigh it against my existing priors, especially given the reviewer's comments on its brief length and perhaps-overly-simplistic narrative. Did the book present a vast amount of data to defend its positions? (Presumably not, given the length.) Was it written by someone (or some group) especially well-positioned to resolve these long-running debates? (If so, hearing more about them would have been wonderful.) Is it considered an especially good source by other experts?
As it is, the review made it sound like the book tells a story, without doing a great job of arguing that it's a particularly good or true version of the story; and without some kind of discussion along those lines, I feel obliged to disregard it as just a "take", just a claim without great backing. That left me feeling disappointed and unenriched.
(Of course, this may just as well stem from me having unrealistic standards and expectations from reviews of economics texts on this blog.)
Can we talk about form? This essay goes too early and too much into what the work doesn’t say, or what the essay writer does or does not understand, instead of describing clearly the thesis of the book.
The problem with reading an introduction to economic history by Robert Allen is that the book mostly contains Robert Allen's views/theories on economic history. For a detailed critique of the high-wage argument and Allen's theory of the industrial revolution, see https://pseudoerasmus.com/2016/12/01/allen/.
His views on Soviet economic performance are detailed in his book 'Farm to Factory' (https://press.princeton.edu/books/paperback/9780691144313/farm-to-factory). I am convinced by his arguments that Soviet economic performance till the 60s was better than most people think. But the post-60s stagnation was a direct consequence of the centrally-directed catchup growth that was unable to generate sufficient innovation or allow obsolete firms/industries to fail. The economy could not adapt because the initial period created special interests (in heavy industries, the military etc) that would not allow their powerbase to be harmed. The canonical reference on this is the work by Joseph Berliner (https://mitpress.mit.edu/books/innovation-decision-soviet-industry) but the broader argument can be found in many books. Chris Miller (https://uncpress.org/book/9781469630175/the-struggle-to-save-the-soviet-economy/) is excellent on the topic of the buildup of special interests.
But seriously, as someone who found "How Asia Works" a good counterbalance to some of my libertarian tendencies, if you're looking for a good counterbalance to some of your libertarian tendencies, then you really might like "How Asia Works". Its explanations are satisfyingly mechanistic in a way that it sounds like GEH:VSI wasn't.
Example: Both South Korean and Malaysian governments in the mid-20th century decided they wanted to jump-start automotive manufacturing in their countries. They both set up massive government-overseen programs to build car plants and get cars sold, spearheaded by brilliant visionary (essentially) dictators. They both dumped huge amounts of money onto car moguls, and both used tariffs and other legal protections to incubate their nascent car economies. South Korea ended up with a globally competitive, massively successful car company (Hyundai) and Malaysia ended up with... a little local company that made bad cars whose name I don't even remember.
The difference? Malaysia (really Prime Minister Mahathir) picked some car companies to be the big car companies, gave them tons of support, and helped plan out how they would all be successful. One company would make small cars; the other would make big cars. That sort of thing.
The South Korean government (really Park Chung Hee) picked several car companies to *compete* for the title of "big South Korean car company". They all received financial support and legal protections, but those protections were (after a startup period) *contingent* on sales into foreign markets (note: sales, not profit. The goal was to make cars good enough that foreigners would be willing to buy them, not necessarily to make money off them). This forced the companies to compete both against each other and against the much better-established foreign market, with their much better cars. The end result was a car company that ruthlessly, tirelessly expanded and learned until it had good cars.
Meanwhile, the Malaysian car companies kind of just made some cars that technically worked, and got paid for it.
Point is, "How Asia Works" gives a nice peak behind the curtain of central economic planning and how it works or doesn't.
John Nye discusses how Britain was better at collecting taxes than France in "War, Wine and Taxes". The former handed out monopolies on making & selling alcohol, then was able to tax those monopolists. The latter had a lot more taxes on other things that everyone did their best to avoid, resulting in less actual revenue.
Pseudoerasmus sometimes discusses the high-wage thesis. My recollection is that he doesn't think it holds up because British wages weren't actually that high early in the IR (particularly compared to productivity).
One of the economic problems with Indian firms seems to be management. And I don't think it's always so simple to just replace management and expect the workers to accept it.
I love the "A very short introduction" series by Oxford University Press. I have read a few. These books are written by experts (thus differing from TED talks, open apparantly to anyone to speak on anything). They target intelligent lay people. Unlike present day TED talks, they don't dumb down concepts, and yet they manage to simplify them. I think it takes great skill in writing and expertise in the subject they are writing about.
Without having as much to say about modern development economics, I rather like Nick Szabo's (admittedly rather Libertarian) historical explanations for "why England?" in these posts:
The last two especially go into more detail than the traditional "good property rights + security of being an island" and basically argue that the plague gave some Malthusian "breathing room" and shifted investment to more efficient forms of capital (like converting land that was required for human-feeding crops to pasturage, which lets you keep labor-multiplying horses) combined with some accidents of geography (lots of navigable waterways and being a long, skinny island make it easier to transport bulk goods economically).
Combine that with all the other usual stuff (good institutions like property rights and common law, increasing literacy, cultural factors, and so forth) and you get a pretty interesting composite. The last one also makes some comparisons to China and Japan, but it's been a while since I've read it, and I don't think he touches more modern industrializations.
Any book about human development that attempts to qualify on the basis of completely disparate societal conditions and outcomes, without taking into account predispositions to success (i.e. qualities which set some societies apart from others), will be necessarily convoluted and fall short of a satisfactory explanation.
I disagree that the "better populations" explanation is necessarily "curiosity-stopping". Scott himself seems to adopt this kind of reasoning, with phrases like "hard-working and inventive population" and "a lot of local smart people". What are the conditions that lead to people working hard and being inventive? When is "a lot of local smart people" seemingly insufficient, and why?
Institution- and policy-centric explanations are wrong because they neglect the atomic substrate of any economy: individuals. Individuals make innumerable micro-scale decisions out of which larger economic patterns emerge. How are these decisions made? How are they coordinated? How are they conditioned by factors like cognitive capacity, market information, cultural norms?
Yes, if you have a population (like the Japanese) that knows through cultural programming how to make tidy queues at the train station, then top-down centralized policy-making will have some "raw material" to work with. But what if you have a population of illiterate warrior nomads? What if the process of cultural evolution has found a local minimum where theft and bribery are endemic? Tax and trade policy isn't going to change anything.
Why did the Ugandan economy collapse after Idi Amin expelled the Indians? Why did Zimbabwe collapse after Mugabe expelled the white farmers? It is the same territory and the same institutions. But different groups of people were making different kinds of decisions, and different kinds of decisions yielded different kinds of outcomes.
Consider economics as a sub-field of multi-agent reinforcement learning. Assume a population of robots. How do they need to be programmed -- what behaviors, abilities, biases, and assumptions need to be baked in -- in order to build a thriving, adaptable society in an uncertain environment?
These are just a few of the questions that arise from taking population differences into account.
> If you're 2000s Bangladesh trying to catch up to the West, you want semiconductor factories. Scrounging around a mostly-agrarian economy and eventually cobbling together enough expertise and capital to make a textile mill is one thing. Making a semiconductor factory is a lot harder.
Why do you need to cobble your semiconductor factory builders from the countryside and not other countries? I have a suspicion that foreign investors would love to do this but mostly don't due to various government roadblocks.
This claim seems to ignore the Special Economic Zones (SEZs) and their role in Chinese development,
"For example, China gets a lot of credit for its free-market reforms under Deng Xiaoping, but these reforms just took China from "literally Mao" to "kind of an average level of market freedom for developing countries"."
While China on average might be "average level of market freedom for developing countries," the SEZs, which were explicitly modeled on Hong Kong and Singapore, are much freer than are most developing countries. The authors of the economic freedom indices recognize this and want to create distinctive economic freedom measures for the SEZs to account for this.
In addition, China has been renowned for having the least unionization and labor rights in the world,
"For many years, labor standards existed largely on paper, while collective representation was non-existent. What evolved in this regulatory near-vacuum was a bare-knuckled
laissez faire version of capitalism bearing some resemblance to labor markets and conditions in the era of “liberty of contract” in the U.S. Indeed, some Chinese leaders adhered to a“scientific” understanding of the stages of socialist development that may have foretold, or even prescribed, a period of labor exploitation."
Meanwhile, many nations in the developing world have extensive labor regulation, with the result being that most workers are left out in the informal market where they have no rights at all, leaving a small, over-regulated formal sector.
Perhaps the original book addresses this, but as written any claim that doesn't recognize the radical free market free for all within the SEZs and with respect to labor rights in China is misleading at best.
> How come we are more certain that New California will soon get First World living standards than that India will?
If some of the Americans who move to New California experience less-than-First-World living standards, they'll just move back to wherever they came from, and have their First World living standards back.
In other words, New California will have First World living standards because it is competing against the First World to attract residents, and switching costs are low. (No one is stuck in New California because no one lives there yet.)
If a command economy is an effective catch-up strategy that languishes at the frontier, it would turn the Marxian dialectic on its head. Actually let's be charitable and say Marxian thinkers of the early 20th century were correct that a command economy could provide for the material needs of the populace. They were wrong that meeting material needs is all the populace would want, when in fact the frontier would keep receding past the horizon.
I actually once posed the question about China's development trajectory inverting the Marxian dialectic to a visiting Chinese official when I was a smartass student. The resulting exchange was... tense.
>And this part also isn't very clear. During the 1500s and 1600s, first the Netherlands and then Britain experienced a sort of mini-boom. Probably this was because of the Age Of Discovery in some way, although the book leaves us to fill in the details, including why this didn't happen to fellow Discoverers like France, Spain, and Portugal. Colonial trade goods played a role, but so did Northern European ships trading in various non-colonial ways, eg in the Mediterranean. Whatever the reason, these countries saw increasing wages, increasing literacy, urbanization, and the development of a strong mercantile class.
Bitcoin mining has made me worry a bit we're going down a path like the Spanish Empire.
If you have an isolates small town that uses gold as currency, the blacksmith, the farmer, the baker, etc. all increase the economy when they go to work everyday. Everyday their labor expands the economic pie. But imagine someone finds a goldmine on their property. They then have a huge personal incentive to spend all day mining the gold and thus increasing their share of the economic pie. But the gold mining does nothing to expand the town economy.
I think at least part of Spain's decline in the Age of Discovery was investing too much of their efforts into literal gold mining (and silver mining). They built fortresses, a giant navy, huge infrastructure, etc. all to accumulate gold. For a while, this is *individually* good as they can get an increasingly large share of global consumption. But *collectively* it's bad as it's turning a large part of the economy into a zero sum game. But as soon as it dries up, they're left with no way to produce more.
In contrast, England missed out on the gold. To be profitable, their colonies had to actually produce things that increased global consumption. They accidently stumbled on a system that aligned individual wealth creation with societal wealth creation. Soon Adam Smith and *Wealth of Nations* came along and people started to understand that producing stuff (or transferring goods around to minimize diminishing marginal utility), not gold accumulation was what made nations wealthy and the rest is history.
But I wonder how much of global economic history can be explained by looking at what percent of the economy isn't things like bitcoins and gold mines. And how much should we be worried about an increasing share of the economy going to those things (although from my calculations bitcoin mining is still much less than 0.01% of GDP)?
And now I'm kind of wondering if I'm just reinventing the concept of rent-seeking. Some quick googling and Dean Baker already made the bitcoin/rent-seeking comparison more than 7 years ago:
"While this can be quite profitable to an individual or firm that successfully claims a substantial portion of the newly created bit coins, it provides nothing of value to the economy as a whole. It is a case of pure rent-seeking, where large amount of resources are devoted to pulling away wealth that is created in other sectors. This is the story of much of the activity in the financial sector, such as high-frequency trading or the tax gaming that is the specialty of the private equity industry, but in few cases is the rent-seeking so clear and unambiguous."
So this probably isn't a very original thought at all, and rent-seeking and economic development seems likely to be fairly well studied, but I'll leave it up in case others are as slow as I was.
“ I was pretty boggled by this: either wages were so low that the machines weren't necessary (in which case these places can outcompete Britain), or these places were being outcompeted by Britain (in which case they would be incentivized to adopt the new machines, which they should be able to do better than Britain given how cheap the operators' wages would be).“. Is this necessarily true? Wouldn’t it be more about productivity and ultimately the marginal cost of goods including the cost of transportation and end market demand?
Me: Wow, this book review writer has really managed to channel Scott's writing style. I wonder if this was conscious or not. It definitely makes for a compelling entry in the book review competition!
As a New Zealander I can attest that artificially high minimum wages do nothing to industrialise your economy (increase productivity).
I also heard recently (on Planet Money podcast) that there was a study of where the money comes from for minimum wage increases at McDonalds, it came from higher prices rather than productivity enhancements.
According to some quick googling, so take with a grain of salt, in 2011 (when the book was published), the GDP per Capita (PPP) of Italy was 43,102, and the GDP per Capita (PPP) of Britain was 42,469. So, it does seem a bit marginal but reasonable-enough as a point. (Much more than if it was reliant on total GDP which is of course nigh-irrelevant to development.)
You need some of both central planning and free market to be truly successful, you can only get so far with either one alone.
Your population needs to be literate and most of it must be "on the same team" to be able to trust each other enough to conduct business (e.g. no strong nobles versus commoners clash or population groups that speak different languages or have religious disagreements).
Economic ideologies take 50 years to fully realise and succeed. Once they have though then people will grow discontent as progress slows down, a new plan/ideology to address the gaps of the old one is then required.
The Soviet economy didn't collapse in the 1970s, it just reached the limits of what it could do. Our neoliberal plan is reaching the end of its success about now.
> And this part also isn't very clear. During the 1500s and 1600s, first the Netherlands and then Britain experienced a sort of mini-boom. Probably this was because of the Age Of Discovery in some way, although the book leaves us to fill in the details, including why this didn't happen to fellow Discoverers like France, Spain, and Portugal.
If you read Yuval Noah Harari's "Sapiens", he answers your question this way: the Netherlands and Britain learned the value of capitalism faster than other countries like Spain and Portugal. Dutch and British businessmen learned to always repay debts on time, whereas Spanish monarchs tended to renege on debts, which meant people didn't invest there, which meant the Spanish and Portuguese were slower to develop technology and make discoveries.
Regarding why New California would have better chances at reaching First World standars of living than India, Scott says "if India invites US companies in, lowers tariffs, and has good institutions - then they too can quickly converge to US standards of living?”.
I think a "Big Push industrialization" would be much harder than just inviting some companies. New California would have access to the whole US supply chain, logistics networks and financial institutions. This is much harder to replicate in other countries.
Bullcrap. If China's government was utterly incompetent, it would have ended up like India. In 1990, Indian GDP per head was the same as Chinese. Chinese GDP per head is now five times Indian.
Chinese economic performance is not dissimilar to Turkish, over a country twenty times the size, with vast, desperately poor hinterlands. It has outperformed Thailand, Vietnam, and Malaysia, all of which started 1990 with several times Chinese GDP. China is very much overperforming in its size category.
And Chinese coastal regions like Jiangsu Province (100M people) are already hitting GDP per heads of 18,000USD - Grecian levels. Another 100M Cantonese are hitting 14,000USD. That's high income by World Bank standards.
I find it interesting that you used semiconductor factories as an example of an industry you don't just plop down. Because the world leader in semiconductor manufacturing is based in Taiwan, and Taiwan was pretty backwards until well after WW2. It got at least somewhat rich before getting into it, and it was cheaper in 1987(when TSMC was founded) than today, but it's not like the Brits or Americans own this one.
And for that matter, the #2 semiconductor manufacturer is South Korea's Samsung, and again South Korea was a brutally exploited Japanese colony until the end of WW2, and then got wrecked up by a war after that, with a hardly-great dictatorship besides. This isn't old money carrying itself forward.
If one has any serious interest in this topic I suggest starting with The Great Divergence: China, Europe, and the Making of the Modern World Economy (The Princeton Economic History of the Western World Book 6) by Kenneth Pomeranz. Discussion this issue without doing the work is like painting a portrait with a 4" brush and just as useful.
Guns, Germs, and Steel is a far more comprehensive take on the whole mess.
China's issue is, and has always been centralized government. Went the centralized government is good, China is amazing. But the ability of a government to do good is the same as its ability to do evil, so when that central government decides to, say, stop building oceangoing ships and go full isolationist, or implements bad policy, China gets screwed for a century.
This was unexpectedly interesting (I've never been into economics or tech/development models, so that's why it was unexpected on my part.)
It is consistent with some things I've been wondering about since getting into 19c history. It seems like England just had the perfect circumstances to soar ahead, and it soared ahead alone. Part my lack of interest in economics is that I'm inherently suspicion of modeling complex systems and deriving universal rules from them. This strengthened that feeling--it seemed like using one country's experience as a model for another might not make any sense, especially if you're in a different era. There's no reason to think it will evolve in the same way once a model exists to copy, and especially not once a bunch of countries catch up. And circumstances matter. I agree that there was a false sense of security derived from the US's unique situation--it was very favorable to rapid development. It's likely a lot of places missed the boat, although the process may restart. And I agree that while more bottom-up development was definitely the way to go at the beginning, it is likely the case that a period of central planning is needed for countries to develop today (this may be related to globalization and the symbiosis it enables). But I'm thinking this is semi-cyclical. Bottom-up is less effective today in large part because people have radically different expectations/incentives, but those can shift.
I'm guessing that certain cultural factors--ones that go beyond the usual speculations--are indeed key, and which ones will be effective depends on the circumstances of the era. The UK colonies and East Asia were in a perfect position to take advantage of their respective opportunities. The status quo and expectations of the public and elites in each country undoubtedly play a huge role in determining the possibilities, which gets ignored to an absurd degree. As does the fact that success is likely to be uneven, and at the expense of other nations. Access to various resources is also crucial, and that is often a matter of luck. I don't think you can generalize in any systematic way, though you can make observations about each country's development process and draw some broad, common sense conclusions.
The natural contrast to this would be a review of Deirdre McCloskey's economic history books; seems like _Bourgeois Equality_ would be the most direct comparison to this work. If anyone is going to make a strong case for a cultural explanation and against the effectiveness of planned economic development, it'd be McCloskey.
Culture is 100% important to look at when doing economies around the world. I read this book review other day and there are all kinds of cultural reasons for development.
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"Joseph Henrich, professor of evolutionary biology at Harvard .... Henrich presents a dazzling array of evidence to explain why variation exists among societies and why Europe in particular has played such an outsized role in human history."
> why did settler colonies (eg Canada, Australia, New Zealand, South Africa) converge to British levels of development so quickly
In the 19th Century, Australia didn't have to develop. The British made stuff and sent it to Australia, and Australians gave them money that grew on trees. Not exactly, but not far off; there was $10 billion in gold lying on the ground in Chewton Forest. Around 1890, Australians were the richest people in the world.
In the 20th Century, the gold ran out, and Australia went backwards. Industry never paid off, but a huge and lucrative service sector eventually made up for it.
I will give the HBD angle. The reason why mainstream developmental economics is full of such stuff is that they refuse to look at the true causes of growth. These are essentially related to having Western European psychological traits. Mostly, having high intelligence. There are some people who have looked at intelligence and growth. Usually they use some kind of euphemism related to human capital, test scores, "school quality" or whatever. The most mainstream person is probably Eric Hanushek. But even he works at some libertarian think tank, not a major research university. 🙃
I already compiled all the major works on intelligence and macroeconomics from 1983 to now.
There's a lot of papers in this area, called deep roots literature. Basically, they look far back in economic history and find generally that places that were doing well a long time ago, like in 1500, are also doing well know, and that most variation since 1500 can be explained by where people in some country are from. This stuff doesn't talk much about what Magic it is that Europeans bring, but the intelligence literature does that.
Not to say some other things don't matter. Communism is bad too. Freer markets good. There is some interaction with national intelligence and freedom of markets. Gregory Christainsen looked into this in recent work.
"is this true? A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work"
Since the UK has a higher population than Italy, this can't possibly be true mathematically.
The Google Of All Wisdom pegs Italy's GDP as of 2019 at around 2 trillion USD versus 2.8 for the UK (and per-capita values are 33K versus 42K)
I guess this might also lower your trust in his work
> If you're 2000s Bangladesh trying to catch up to the West, you want semiconductor factories. Scrounging around a mostly-agrarian economy and eventually cobbling together enough expertise and capital to make a textile mill is one thing. Making a semiconductor factory is a lot harder.
I am little surprised that Egypt was not mentioned at all as you one of the clearest examples of someone trying to implement top down industrialization and it not being long successful. Under Muhammad Ali, not that one, Egypt used what was effectively export tariffs on cotton to help establish a local industrial base - there were 30 cotton mills in Egypt by 1829 but these were not long term viable and they could not compete in the wake of https://en.wikipedia.org/wiki/Treaty_of_Balta_Liman
One hundred and forty comments and not one of you brings up the fact that maybe Britain's success had something to do with being the biggest empire in human history? When you're violently appropriating a significant percentage of the world's wealth, yeah, you're probably gonna be doing pretty well. Doesn't exactly take a genius to figure that one out.
Whether that disproves the Catholic vs Protestant hypothesis is another matter. For one thing, the richest areas of Germany are disproportionately Catholic and Southern. Nevertheless, Protestant-majority countries are richer in Europe, but it is not clear what is cause and what is effect.
Protestant countries tend to be more liberal, ceteris paribus, just as Catholic countries tend to be more liberal than Orthodox Christian countries. All of this is within Europe. When comparing countries across the globe, religion likely has a much weaker effect than culture, institutions and so on.
I really don't believe this. I'm sure the author is an established person in his field, but I am kind of bizarrely into Meiji-era Japanese history and I don't buy the focus on tariffs.
The main thing is, I tend to say that Japan is the *only* country to industrialize (or "economically westernize") prior to WW2 that was not, in some strong sense, already western. Each other country to westernize either had its capital west of the Urals, or was the United States of America. So when he says Japan is a weird anomaly, that is setting off my Wait What detector.
In particular, Japan did not have high tariffs. Japan was not allowed to have high tariffs; the Tokugawa shoguns got overthrown in large part because they opened the country to free trade, and the treaties that did that were upheld by the Restoration-era government for reasons of 'did not want to be invaded the way China is being'. See https://en.wikipedia.org/wiki/Treaty_of_Amity_and_Commerce_(United_States%E2%80%93Japan) for a brief summary; that notes that they were compelled to have very low tariffs until 1894, and has a link to the treaty that revised it - which treaty says they were allowed to go as high as five percent on the main goods discussed. Even if I'm misunderstanding that treaty (it's midnight), it still means that for the first 27 years of their westernization, they had practically no tariffs, and are only allowed to install any serious amount of tariffs ten years before they defeat a Great European Power at roughly equal odds.
Second, Russia is treated as a first-rate power consistently from the Napoleonic Wars through to the present day. Britain, France, and Piedmont fail dramatically to attack it in the Crimean War, despite what the Wikipedia page suggests is superior coalition numbers and, even if I'm misunderstanding it, is almost certainly not more than about 2-1 in the Russian's favor. When Britain and France want to invade China - a third-world country with a similar population advantage - they waltz in, victorious despite, again going by Wikipedia, 20-1 odds. (https://en.wikipedia.org/wiki/Second_Opium_War). Asking 'how Russia westernized' is rather like asking how trout became fish; it was one of the Great Powers of Europe, with everything this involves, from the Congress of Vienna onwards.
Third, Great Britain had tariffs during the 18th century; large-scale industrialization took off in the early 19th century, by which time Great Britain had started shifting to free trade. (https://en.wikipedia.org/wiki/Economic_history_of_the_United_Kingdom#The_Age_of_Mercantilism). And Great Britain's 'high taxes' in the 19th century were, again going by that Wikipedia page, seven percent. That was high by 19th-century standards, and is totally outside the Overton Window for lowness today - even Prospera wants a ten percent income tax!
And, fourth... everyone was trying Point Two! All the countries of the world were trying to protect their trade from foreign competition. Since the one that succeeded best in industrializing failed utterly and completely at doing so, I don't see why they would want to put that on the list.
So that is why I don't really buy the Standard Model. Also all the standard Economics 101 stuff about tariffs being bad, but I think it is striking that practically their only test case had low tariffs establishes it really quite clearly.
If I was going to try to describe a formula for success, I would say:
Rule of law, in the sense of not expecting the police/bandits/Afghan raiders to randomly steal your stuff. If the central government can do it, that's much less of an issue than if anyone who feels like it can do it.
Free (internal) markets, most importantly the abolition of guilds and government monopolies.
Not being invaded, fighting a civil war, or expecting one of these things to happen tomorrow, a term which excludes practically all third-world countries.
And either fairly low tariffs or being really, really big.
Given those four elements, in 30 years, Japan went from 'stuck in the 17th century' to 'conquering territories from its neighbors', and in another 10 became the first non-western country ever to defeat a Great Power. And that is the main fact any theory needs to explain, because it is the main case of a country that was not Western in the slightest proving the world wrong, and becoming a Great Power itself.
Uncommunisming in time to become a normal developed country doesn't appear to have worked for many countries in eastern europe and the Balkans which are 10-15 IQ points below the Chinese and are poorer than China now despite being far richer than it 20 years ago. Taiwan and Singapore didn't communism at all during their industrialization (nor the wild west of the US).
Also I'm skeptical of geographical explanations because the west coast of the US was separated from the rest of the industrialized world by thousands of miles of desert and mountains and prairie, and the panama canal didn't even exist yet. Meiji Japan was an island with few natural resources on the opposite side of the world from all the industrialized countries. Australia was also in a very inconvenient location for network effects.
It seems the high IQ countries all get industrialized in spite of their central planning or lack thereof and good geography or lack thereof. Except when the central planners are especially bad and provoke everybody else into trade embargos. North Korea has a high IQ and communisms like crazy but is still poorer than the UK was in 1700 before the beginning of the industrial revolution.
1700AD UK GDP per capita PPP in 1990 international dollars: $1,250
2015 North Korea GDP per capita PPP in 2016 dollars: $1,700
inflation divisor: 1.8363
2015 North Korea GDP per capita PPP in 1990 dollars: $928
"A quick check shows Italy has higher total GDP but lower GDP per capita [than the UK], which is a weird definition of 'richer' and lowers my trust in this work."
Seems unlikely, as Italy has a smaller population than the UK.
"GEH:VSI isn't very big on prescriptions, but I think it would probably suggest having a pretty heavily planned economy while you're playing catch-up, and then unwinding it once you're close to where you want to be."
This strategy does not work as vested interests built up during the planned period resist being unwound. The only reason Deng Xiaoping was able to do what he did in China is because Mao's Cultural Revolution and its purges prevented any special interests from building up. Stalin's purges also served the same function and the decline in the Soviet Union only really got going during Brezhnev's "stability of the cadres" era.
If your farmers can only produce a surplus of 20% beyond what they need to feed themselves, you can't have more than 17% of your population working in the factories without someone starving. (not that this wasn't seen as an acceptable cost, so long as the ones starving were Irish, Bengali or Ukranian) I don't buy any explanation that doesn't include farmers going from a majority of the population to a small minority. (in the Old World, at least. The Frontier had its own thing going on with bison and plains and cowboys)
The model we were taught at school was that a mix of superior crop rotations, better (and more capital-intensive) types of farming such as more advanced ploughs and seed drilling, and selective breeding were developed. This made much more food per acre and per farmer but the benefits mostly accrued (with dubious legality. see: the Enclosures) to the landowner.
This pool of labour not needed to work the land and forced from the land they traditionally subsistence-farmed was available to operate the woolen mills, mine the coal and build the canals/railways that drove the first indistrial revolution.
Is it even meaningful to argue that high wages in the UK and the low countries drove the IR when most people were primarily subsistance farmers rather than wage labourers?
"For example, why did settler colonies (eg Canada, Australia, New Zealand, South Africa) converge to British levels of development so quickly?" Abundant land --> higher wages? (See: Henry George)
The big question this raises for me is "what comes next"? So, you've gone down the following path:
Stage 1: Strong government: build a solid industrial framework from raw materials, to manufacturing, to production, to retail.
Stage 2: Liberalise and let things take their course, only stepping in if things go wrong
The problem is this assumes there will be no further paradigm shifts beyond industrialisation. But there will be, and we already have an idea what the next step looks like. It's the green technology revolution.
And the Chinese government is currently monopolising all of the raw materials which will be used to produce the next generation of Green tech. They're one step ahead of all the "libertarian" (ish) western governments on this.
So it seems to me that we need more of a synthesis/compromise between libertarianism and a more planned economy. Otherwise we miss out on critical investments for the future which won't necessarily pay off in the short term. Some kind of state capitalism (a la China, Norway, Singapore) seems inevitable for future-proofing.
I'm a little dubious about the neat conclusion that industrialisation and automation took off because workers were *too* well-paid. As to French and British textile mills, it was the French https://frenchmoments.eu/textile-history-in-france/ and Belgians https://www.discoveringbelgium.com/medieval-flemish-cloth-industry/ who had the advantages early on in that industry. England grew rich in the mediaeval and early modern period exporting wool to the Continent for the thriving textile industries there. Not to toot my own horn, but to quote from a review I did of a biography of Dame Julian of Norwich:
"Norwich wasn’t some little village or bucolic backwater; it was the capital of the most populous county in England, and had good claim to be the second most important city after London. To quote Wikipedia:
“The engine of trade was wool from Norfolk's sheepwalks. …Throughout this period Norwich established wide-ranging trading links with other parts of Europe, its markets stretching from Scandinavia to Spain and the city housing a Hanseatic warehouse. To organise and control its export to the Low Countries, Great Yarmouth, as the port for Norwich, was designated one of the staple ports under terms of the 1353 Statute of the Staple.
By the middle of the 14th century the city walls had been completed. At around two and a half miles (4 km) long, these walls, along with the river, enclosed a larger area than that of the City of London. …Around this time, the city was made a county corporate and became capital of one of the most densely populated and prosperous counties of England.”
Britain was perhaps peculiarly well-positioned to be the heartland of the Industrial Revolution; iron and coal were its begetters, and Britain was fortunately rich in these resources. But there were other hampering factors than "plagues killed off everybody, this meant that wages rose for those who remained alive to be workers, high wages = high costs = budding capitalist entrepreneurs need to invent machines to do the work". From Charlotte Bronte's novel "Shirley", written in but set in 1812 during the Napoleonic Wars and at the height of Luddites and frame-smashing:
"Shirley, A Tale is a social novel by the English novelist Charlotte Brontë, first published in 1849. It was Brontë's second published novel after Jane Eyre (originally published under Brontë's pseudonym Currer Bell). The novel is set in Yorkshire in 1811–12, during the industrial depression resulting from the Napoleonic Wars and the War of 1812. The novel is set against the backdrop of the Luddite uprisings in the Yorkshire textile industry.
The novel's popularity led to Shirley's becoming a woman's name. The title character was given the name that her father had intended to give a son. Before the publication of the novel Shirley was an uncommon but distinctly male name. Today it is regarded as a distinctly female name."
(1) An exchange between a mill-owner and another man helping him defend against workers coming to smash the new machinery:
"Helstone says these three are your gods; that the 'Orders in Council' are with you another name for the seven deadly sins; that Castlereagh is your Antichrist, and the war-party his legions."
"Yes; I abhor all these things because they ruin me. They stand in my way. I cannot get on. I cannot execute my plans because of them. I see myself baffled at every turn by their untoward effects."
"But you are rich and thriving, Moore?"
"I am very rich in cloth I cannot sell. You should step into my warehouse yonder, and observe how it is piled to the roof with pieces. Roakes and Pearson are in the same condition. America used to be their market, but the Orders in Council have cut that off."
(2) Backstory!
Trade was Mr. Moore's hereditary calling: the Gérards of Antwerp had been merchants for two centuries back. Once they had been wealthy merchants; but the uncertainties, the involvements, of business had come upon them; disastrous speculations had loosened by degrees the foundations of their credit. The house had stood on a tottering base for a dozen years; and at last, in the shock of the French Revolution, it had rushed down a total ruin. In its fall was involved the English and Yorkshire firm of Moore, closely connected with the Antwerp house, and of which one of the partners, resident in Antwerp, Robert Moore, had married Hortense Gérard, with the prospect of his bride inheriting her father Constantine Gérard's share in the business.
...When he came to Yorkshire, he — whose ancestors had owned warehouses in this seaport, and factories in that inland town, had possessed their town-house and their country-seat — saw no way open to him but to rent a cloth-mill in an out-of-the-way nook of an out-of-the-way district; to take a cottage adjoining it for his residence, and to add to his possessions, as pasture for his horse, and space for his cloth-tenters, a few acres of the steep, rugged land that lined the hollow through which his mill-stream brawled. All this he held at a somewhat high rent (for these war times were hard, and everything was dear) of the trustees of the Fieldhead estate, then the property of a minor.
...As to the mill, which was an old structure, and fitted up with old machinery, now become inefficient and out of date, he had from the first evinced the strongest contempt for all its arrangements and appointments. His aim had been to effect a radical reform, which he had executed as fast as his very limited capital would allow; and the narrowness of that capital, and consequent check on his progress, was a restraint which galled his spirit sorely. Moore ever wanted to push on. "Forward" was the device stamped upon his soul; but poverty curbed him. Sometimes (figuratively) he foamed at the mouth when the reins were drawn very tight.
In this state of feeling, it is not to be expected that he would deliberate much as to whether his advance was or was not prejudicial to others. Not being a native, nor for any length of time a resident of the neighbourhood, he did not sufficiently care when the new inventions threw the old workpeople out of employ. He never asked himself where those to whom he no longer paid weekly wages found daily bread; and in this negligence he only resembled thousands besides, on whom the starving poor of Yorkshire seemed to have a closer claim.
The period of which I write was an overshadowed one in British history, and especially in the history of the northern provinces. War was then at its height. Europe was all involved therein. England, if not weary, was worn with long resistance — yes, and half her people were weary too, and cried out for peace on any terms. National honour was become a mere empty name, of no value in the eyes of many, because their sight was dim with famine; and for a morsel of meat they would have sold their birthright.
The "Orders in Council," provoked by Napoleon's Milan and Berlin decrees, and forbidding neutral powers to trade with France, had, by offending America, cut off the principal market of the Yorkshire woollen trade, and brought it consequently to the verge of ruin. Minor foreign markets were glutted, and would receive no more. The Brazils, Portugal, Sicily, were all overstocked by nearly two years' consumption. At this crisis certain inventions in machinery were introduced into the staple manufactures of the north, which, greatly reducing the number of hands necessary to be employed, threw thousands out of work, and left them without legitimate means of sustaining life. A bad harvest supervened. Distress reached its climax. Endurance, overgoaded, stretched the hand of fraternity to sedition. The throes of a sort of moral earthquake were felt heaving under the hills of the northern counties. But, as is usual in such cases, nobody took much notice. When a food-riot broke out in a manufacturing town, when a gig-mill was burnt to the ground, or a manufacturer's house was attacked, the furniture thrown into the streets, and the family forced to flee for their lives, some local measures were or were not taken by the local magistracy. A ringleader was detected, or more frequently suffered to elude detection; newspaper paragraphs were written on the subject, and there the thing stopped. As to the sufferers, whose sole inheritance was labour, and who had lost that inheritance—who could not get work, and consequently could not get wages, and consequently could not get bread—they were left to suffer on, perhaps inevitably left. It would not do to stop the progress of invention, to damage science by discouraging its improvements; the war could not be terminated; efficient relief could not be raised. There was no help then; so the unemployed underwent their destiny—ate the bread and drank the waters of affliction.
Misery generates hate. These sufferers hated the machines which they believed took their bread from them; they hated the buildings which contained those machines; they hated the manufacturers who owned those buildings. In the parish of Briarfield, with which we have at present to do, Hollow's Mill was the place held most abominable; Gérard Moore, in his double character of semi-foreigner and thorough-going progressist, the man most abominated."
Back in 2002 the Discovery Channel had a good introductory series called "Industrial Revelations" hosted by Mark Williams; the first episode puts the beginnings of the Industrial Revolution back to the 18th century, when the cloth-weaving towns of the North were boomtowns and there was a need to supply them and export the goods. Coal was the wonder fuel of the day, and that led to mines, and that led to the need for machinery to pump out the mines, and that led to steam engines, and that led to...
> Overall there was a lot in this book that was unsatisfying.
Other people have noted that *A Very Short Introduction* is a series. The way I've seen them used is as replacements for introductory classes.
Basically, if a graduate student wants to take Advanced Thing, but never took Introduction to Thing, they can read the relevant *A Very Short Introduction* book carefully and come out with an understanding roughly equivalent to what's left over in the average undergrad's brain who took the class a year ago. The books aren't really meant to have a strong thesis or definitively answer the controversial questions of the discipline.
> A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work.
I think this is missing the point. Some people say that the reason the UK, Germany, and US are rich is the Protestant Work Ethic. Allen's just pointing out that this can't be the *main* explanation because Italy is about as rich as these countries.
If Protestantism vs. Catholicism were the real culprit, we'd expect Catholic Italy and France to be closer to Catholic Mexico in development. What we actually see is that the UK, Germany, France, and Italy are all roughly in the same place despite their different traditions. That means there's got to be something else going on.
> Maybe it shouldn't have thrown culture out so quickly?
Perhaps Allen's unstated assumption is that culture is shaped by economic development, and not the other way around?
"Alexander Hamilton in the US. They and others independently converged on a four-pronged plan:[...] 4. Establish mass education to speed the adoption and invention of technology.
The USA and most of Western Europe tried this in the early 1800s, and it went pretty well."
I think this might be the nicest thing you've ever said about mass education.
Shameless book review suggestion: Joel Mokyr's "Culture of Growth", which looks at endogenous factors specific to culture as the primary explanation of the Great Divergence.
It very much rejects geographic determism, colonialism et al. Not very popular in our current zeitgeist but a faboulous and thought-provoking read (plus a great deal of intellectual history to boot).
A lot of this discussion, and the discussion in the comments, seems to assume that Europe is somehow significantly better than the rest of the world (Europe, specifically) and this needs to be explained. I'd like to point out that this is a recent trend - before Europe, the Middle East was the fount of knowledge and innovation, with contributions from places like China (and this knowledge was what was carried over to Europe, in part). Just because Britain happened to industrialise and invade a bunch of countries for wealth doesn't imply that Europeans have always been superior to everyone else.
Regarding the tariff question, there is an important paper by Doug Irwin that shows the relationship between industrial development and import tariffs is not really straightforward as the book reviewed implies.
From the abstract: "The paper shows that: (i) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; (ii) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; (iii) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff."
I've read this book too and it tackles a subject for too big for its size.
The Hanging With History podcast (that's me) has the causes of the Industrial Revolution as the core idea around which it is organized. It's a big subject if you want to look at all the angles.
Culture, religion and technology are certainly possible contributors and need a careful look.
As just one example, a lot of the comments here have looked at religion at the level of Protestant vs Catholic. The Protestant religion in England underwent a lot of development and fracturing. A possible contribution was late 16th/early 17th century Puritan psychology, which I find is poorly understood these days. And that particular outlook only lasted a few decades, changing into something else, something we are more familiar with today. Also, the rise of Methodism and similar during the time of various labor movements had some interesting effects I'm still working on teasing out.
I've done over 300,000 words on the subject and haven't even reached the 18th century yet. And I hope I'm not particularly long winded. McCloskey is halfway through a 6 volume approach to the subject that mainly emphasizes changes in culture and values. So yeah, a little book like GEH is just for those who want to dip their toes in. When it comes to culture I've spent hours developing my "minimally murdery" theme.
Pseudoerasmus and Anton Howes are great sources for people who want to follow developments in economic history as they occur today.
"Catholic Italy [is richer than] Protestant Britain" (is this true? A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work.)
British GDP (and currency valuations if you're working on dollar rather than PPP comparisons) has been doing weird things lately because of Brexit so it's very hard to be certain until it stabilises. Also the UK population is higher than Italy, which should make it impossible for Italy to have higher total but lower per-cap.
I have probably read 50 to 100 books on the IR and the "Great Divergence", and my take on most of the "one big theory narratives" is that they tend to point out something which is necessary and try to imply that it is sufficient.
Some common themes:
Intermediate levels of state fragmentation and competition
Good institutions (markets, prop rights, rep democracy, rule of law)
This is just a partial list off the top of my head, and most of these sub causes have various, sometimes even contradictory takes on the issue (for example which institutions are essential?j
I don’t agree they are all even necessary, but most probably are, which leads us to a more complex picture where there are countless ways of NOT seeing sustainable growth rates and improvements in problem solving. But there are also various ways which ARE possible for human progress. Great Britain led the charge in proving that advances in human prosperity are possible. Other nations at other times took this general recipe and built upon it or adapted it in their own special ways to their conditions and history and culture. In some cases the adaptation was easy and the environment conducive (North America). In other places it is a more drastic adaptation (China). And of course there is the topic of catch up vs lead growth and how the fundamentals for one may be very different than the other.
Central planning doesn't work. It never has. It never will. The information necessary to centrally plan is not available (because it's only in people's heads), and cannot be gathered in a timely manner.
And yet.
The price system *is* the central planning that you want. It requires free markets, though, and people doubt that markets can arise from nothing. People are, in their heart of hearts, economic creationists. And we all know how accurate creationism is.
<i>The author is most impressed with China, which seems to have gotten this part right (maybe by accident): they communismed until they reached the technological frontier, then uncommunismed in time to get on the path to being a normal developed country. GEH:VSI isn't very big on prescriptions, but I think it would probably suggest having a pretty heavily planned economy while you're playing catch-up, and then unwinding it once you're close to where you want to be.</i>
How's this compare with India? Haven't they come a pretty long way in the last 30 years with comparatively less centralized planning? Or maybe they haven't come as far, and therefore the China approach still looks better?
"Do artificially high wages through eg minimum wage policies or UBI help as much as naturally high wages?"
Are there "naturally high wages", or generally, any kind of "natural wages", arrived at through some pure perfect market self-corrective calculations, or there are just wages, subject to all kinds of non-market pressures (from monopolies, laws, culture, negotiating power, zoning, racism, sexism, optics, all the way to pure violence - e.g. the terrorizing, firing, beating, and sometimes even downright murder of workers asking for more, all-too-common in developing countries, but common in the US as well in the 20th century) - that those pretending to see a "free market at play" conveniently overlook?
"A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work."
It was true from 1976 to 2011. Northern Italy is still richer than Britain.
"By the early 20th century, a clear gap had emerged between Europe, North America, and Japan (on one side), and everyone else (on the other)."
Much of Latin America was doing well at the time, as well -thus Japanese emigration to Brazil.
" Given that the average developing country has an average-for-developing-countries level of market freedom, but does not experience a China-level economic miracle,"
China is around the world average in GDP/capita.
"This wasn't a very conclusive section, but I appreciated the confirmation that the Soviet economy actually worked pretty okay until 1970 or so, then became a basketcase for kind of unclear reasons."
Soviet slowdown started in the early 1960s; Soviet GDP per capita became surpassed by Italy in 1951, Japan in 1962, and Portugal in 1967.
"The Mystery of Capital" by Hernando de Soto, covers much of the same territory. He concluded that developing countries have tons of entrepreneurial spirit, and a fantastic work ethic, but are hamstrung by a weak, ineffective, corrupt, and byzantine bureaucracy. It is almost impossible for an entrepreneur in many parts of Latin America to start a business, get a loan, buy a piece of property with a title, and to enforce claims on that property in court. In theory, these countries have laws on the books that let you do these things, but in practice, the system is so corrupt and difficult to navigate that only large (usually foreign) corporations with lots of lawyers and government contacts can do them.
The conclusion is that you need both (1) free markets, and (2) a strong and effective central government that enforces the rule of law and makes investments in public infrastructure. Libertarians like to focus on (1), while ignoring (2), although "state capacity libertarianism" is beginning to catch on. Early Soviet Russia did well with (2) early on, but then the bureaucracy metastasized into a purely parasitic organ, because there was no (1) to reign it in. China has so far done well at balancing both (1) and (2), which is why it's booming.
There is a cultural element at play here. China and Japan had long traditions of powerful autocratic central governments, and experience with managing complex bureaucracies. They were thus able to create strong and effective government institutions, which allowed them to transition from a feudal system to a more modern economy. Other areas are still contending with various tribal/sectarian/religious/warlord/gangster divisions. Because of these divisions, the central government is weak and ineffective, laws are not enforced, infrastructure is terrible, and doing business involves a lot more bribes and favors, and a lot less investing in actual industrial capacity.
I think a combination of Escape from Rome and the Catholic Church's family and marriage project does a lot to explain the West's head start on the Industrial Revolution. Export-led growth explains much of the catch up of Japan, China, and others.
This graph looks to me like Italy had a higher GDP per capita than the UK for about 20 years up until 2011, when the book was written – then the UK has been doing better since. It lowers my trust in the review that it lowered the reviewer's trust in the book that the author was using current data instead of data from the author's future.
If you're interested in development, you should really read how Asia works by Joe Studwell. Despite the title it's mostly about economic development and industrial policy, and the differences between countries that got it right and those that didn't.
Scott, this is completely off topic, but related generally to book reviews:
I'd love to know whether you write or take notes as you read, that you later refine into the review, or whether you read the whole thing and summarize your impressions and recollections at the end.
This post mentions Mexico in contrast with the US and other non-Iberian Western societies. For those specifically interested in this set of questions, I recommend a still-ongoing YouTube series, the first part of which can be found here: https://youtu.be/SPs6tjXsf7M
This is partly quite absurd. You talk about "China." "China" includes Taiwan and Hong Kong. Arguably it includes Singapore in some senses (dominant Chinese ethnic group, language, traditions). These massively succeeded, far beyond the PRC, without "communism" in any sense. At one point HK's total GDP was bigger than the PRC's GDP. So what sense does it make to say China benefited economically from communism bringing it up to speed?
What in the world do you think that you are talking about? Reality or this one little book you just read? Do you have any idea what happened economically under Mao? Any at all? The mass starvation? The businesses destroyed--basically, all of them? The bizarre backyard steel foundries melting down tools to make crap steel to meet quotas? The ruinous collective farms that destroyed agriculture? Do you know anything at all about industrial policy under the Republic of China? And now you are announcing that this terrible state of affairs, the destruction of an entire nation and its people and its culture and its economy, was beneficial to lay the foundation for a modern industrial economy? Because you read one book and it contradicted some vague notions you acquired along the way, so, eh, maybe yeah communism works well if you just exit at the right time. Ugh, read Dikotter or "Tombstone." Read something, not this one little halfwitted book you bought on a whim and decided to muse about publicly over an idle hour.
As far as the USSR is concerned, you'd really have to stand in the snow of Moscow for an hour waiting for a lump of "bread" that's heavy enough to build with to understand Soviet economic "development." Pre-Bolshevik Russia had a very fast-growing economy and exported vast amounts of food. Red Russia had mass starvation. A pair of jeans was but a distant dream. It wasn't just a starving waste dump, pre-communist Russia. It had factories and scientific journals and advanced education. It was growing fast. The communists didn't just destroy culture and freedom to speak and think. They destroyed Russian business and agriculture. Hence, mass starvation. Hence, shortages of all kinds. No consumer goods. Dreary cities with stacks of identical towers stretching into the waste.
Okay, I'm done. This review is a work of staggering ignorance. It's embarrassing, or should be.
One of the problems I (as a historian, alas not an economic historian) have with basically all explanations is this: they all seem to perfectly explain why the industrial revolution took place where it took place, but not really why not earlier somewhere else. There were always regions with higher wages, more innovation, larger iron or coal repositories, a specific mercantile/industrious culture etc. We probably all know by now that rudimentary steam engines were used in ancient Greece, Medieval Middle Eastern tinkerers built elaborate automata etc. So why did they not go the next step and made them into large scale industrial machinery?
I think this is also why many researchers still hold up the influence of colonialism/imperialism so highly. Not primarily for political reasons (to prove a debt of the West or so), but because it was a scale of connection and domination that had never been reached before and thus could be responsible for this singularity. But I have to admit that even this seems ultimately unconvincing to me....
The preface to Hazlitt's _Time Will Run Back_ argued in the mid-60s that the Soviet economy was already a basket-case (and indeed had been so more-or-less continuously since about 1928). Of course, the whole theme of his novel was that a centrally-planned economy would _necessarily_ be a basket-case, but even so — it remains my suspicion that all that really changed in the ’70s was that the West-at-large became generally _aware_ of Soviet basketude, or perhaps were more willing to see it (rather than pleasant fictions) after the highly visible crises and failures of socialist economic policies the West experienced during that decade.
Oh, and you might be interested in my pet theory that the high British wages that kicked off the Industrial Revolution were caused by the Corn Laws, and that this is the only time in history protectionism has actually been good for a country (and then only accidentally by way of unintended consequences).
The note on wages is a bit circular. If wages are high then that means there is surplus-value in the system, and therefore room to justify investment in innovation. In other words, Britain was already successful by some metric before the Industrial Revolution turned it into a visible economic boom.
"The reluctance to invoke colonialism too heavily is even less well-explained"
What? It is perfectly explained by the fact that the question to be answered is, to a large extent, exactly "{why did the West / why was the West able to} colonize most of the globe, as opposed to a different one of the dozens of similarly-sized geographic regions of the globe?".
"[e.g. Britain] the high taxes paid for infrastructure, and the poor property rights let governments use eminent domain to build canals, railroads, et cetera."
What? British canals and railways were built by private companies. They usually had an act of Parliament giving them the right to use eminent domain along the planned route (broadly written into the act). The government did regulate the companies heavily (including a huge reorganization of the railways, merging dozens of mostly-independent companies into four, still privately-owned regional railways in 1923), with somewhat inconsistent results (as usual), but e.g. the railways were only nationalized in 1948. Similar things can be said about turnpikes (often converted from previously free-to-use public roads).
"only in Britain was it worth actually building machinery" -- funny, that. The stories of early mechanization attempts, particularly in textiles (flying shuttle, spinning jenny) are full of "and then an angry mob of competing weavers/spinners broke into his house/workshop and smashed the machinery"; a good number of early threshing machines were burned, too. Perhaps this is part of why a strong central government mattered?
3. "Create banks to stabilize the currency and provide businesses with capital"
What? Banks 1) also were private companies (which is why they could go bankrupt and why runs on banks happened so often), 2) extended the government currency, at the time still largely based in silver or gold, 3) on the business financing side, usually mostly restricted themselves to discounting relatively short-term bills of exchange, otherwise they would be exposed to too high a risk of a run; long-term investment (stocks and bonds) took place outside banks. There is actually a decent case that rather than stabilizing the currency, these local banks tended to at the very least exacerbate "naturally-occurring" liquidity shortages, or indeed outright destabilized the currency by generally amplifying liquidity swings.
This book is useless because it avoids the admittedly crude essentialist explanations for prosperity. Attempting to explain why China is richer than DR Congo when China's population has an average IQ 20+ points higher than DR Congo will inevitably lead to contrived explanations and motivated reasoning. We can argue about the origin of or solution for population IQ differences, but removing them from your model of how the world works will only prevent you from understanding.
I don't believe this was true in 2011 when the book was published, either in absolute or per-capita terms. Historically, I don't think it has been true for several centuries. (Probably since an inflection point some time in the Early Modern period.) Certainly Italy today is also a developed, wealthy G8 nation (their debt ratio nonwithstanding), which is probably the broader point.
Not to get into a discussion of "Protestant work ethic" (a theory I'm not a huge fan of), but that's part of the econometric background behind it.
Your last paragraph carries a hidden assumption which I think you need to question. Try this alternative hypothesis:
"If a development-economics problem can't be solved with free markets and free people, it can't be solved at all."
Yes, that does mean that societies which failed to catch the first wave are kinda fscked. But how do you know reality isn't like that?
When you look at apparent exceptions like Japan closely, I think you find that the "strong central government" was smart enough to keep its hands off economic life and offer the implied contract that as long as nobody overtly threatened the elite at the very top said elite would continue to allow effectively laissez-faire conditions.
I also think that no account of the wealth of nations can ignore the distribution of Spearman's g. Whatever you think that's measuring, the correlation between IQ averages and post-Industrial-Revolution success seems far too strong to ignore.
* I think one could distinguish usefully between partial planning (South Korea) and total planning (USSR, Mao.) If you pay attention to *all* of Econ 101 you learn that government can have many useful roles. But markets are useful too. As for the USSR doing well, it was importing grain from at least the 1960s, despite containing a world breadbasket (Ukraine); launching satellites but having trouble feeding your people despite having the means isn't "doing well" IMO.
* http://www.lowtechmagazine.com/2011/09/peat-and-coal-fossil-fuels-in-pre-industrial-times.html argues that the Dutch Golden Age was fueled by cheap energy -- peat (which ran out) and wind power (which didn't, also cheap water transport.) Likewise Britain was using a lot of coal for domestic heating and probably industry even before the Industrial Revolution -- steam engines started life pumping water out of coal mines.
* It's probable to me that Japan and Korea had more cohesion and government legitimacy than some ex-colony with effectively random borders and conflicting interest groups. The newly independent countries had to try to work out things Japan did back in the 1600s.
* New California would likely be filled by high know-how and -trust Americans and the legitimacy of a democratic territorial government overseen by Congress.
It's worth noting that GEH's thesis: high-wages>>innovation/industrialization/Industrial Revolution 1.0 is familiar to me from undergraduate economic history I took in the 1980s. Seems like this is a fairly standard publication intended for economic history survey courses.
I checked the book and saw that it does not deal with the ascension of parliaments as a possible explanation for the great divergence, even though it fits: the first parliamentary countries in Europe were the first to take off. The first continent with parliamentary systems was the first to take off. The first Asian country to incorporate parliamentary model was the first to take off. Parliamentary countries are on average much richer than other countries today. Wish it would deal with it, even if to disprove...
Nope. It's all about climate. Before the advent of AC it wasn't really possible to industrialize if it was too hot. Workers just aren't productive enough in Lagos or Nachez for much of the year due to the crippling heat. In the UK, Germany, Japan, northern US you can work productively for much of the year with just rudimentary heating.
Would Houston be Houston or Singapore be Singapore without AC? No. Why?
The Russian/Soviet case is a little more complex, I believe. I seem to recall reading somewhere that in the late 19th, early 20th century, Russia had the highest growth rate in the world—something like 12% per annum. The war and the Revolution wrecked that, and they then imported a colossal amount of American expertise to build (and partially rebuild) their industrial base in the ’20s and ’30s. But I may be wrong.
As you surmised, it's not true that Catholic Italy is wealthier than Protestant Britain. Of course Northern Italy is wealthier that big swathes of Britain but so what. And the whole premise is dumb, since choosing two countries is hardly definitive. It's also easy to counter since Protestant Norway is much, much wealthier than Catholic Portugal. But again, so what?
There is some truth to the core idea that economic catch-up requires more than just opening up your economy. For the successful Asian countries (China, Malaysia, the tiger states), they did liberate their internal markets. But at the same time they were rather restrictive on imports, so that the new industries were not immediately destroyed by international competition. Only after some time of (external) protectionism and (internal) liberalism, when their industries were competitive enough, they opened their markets to the outside.
> During the 1500s and 1600s, first the Netherlands and then Britain experienced a sort of mini-boom.
> (the fact that [the UK] was full of giant coal and iron deposits didn't hurt)
Yep. Netherlands' (proto-?) Industrial Revolution was powered by another fossil fuel : water-transported peat :
https://www.lowtechmagazine.com/2011/09/peat-and-coal-fossil-fuels-in-pre-industrial-times.html
> From about 1600 to 1720, the Dutch had the highest per capita income in the world - at least double that of neighbouring countries at the time and about five times higher than that of the poorest countries today.
Compare also to the Ancient Greeks, who had "unlocked Steam Power in their tech tree", but didn't get an Industrial Revolution out of it.
Pseudoerasmus has some specific things to call attention to with respect to high British wages:
https://pseudoerasmus.com/2016/12/01/allen/
Overall, it's important to understand that someone getting a paper or book published on a topic doesn't mean they're the final word on it. Sometimes talented, intelligent researchers are just wrong, such as Acemoglu in that paper on German industrialization and institutional reform you posted about a while ago. Economic history in particular is a fraught subject with disappointingly little day and live debates on just about every interesting question you can think of.
In case you're not familiar, these "very short introductions" are a series (<a href="https://en.wikipedia.org/wiki/Very_Short_Introductions">Wikipedia link</a>); they have them for a pretty broad range of topics and they're all similarly small. It's not just a subtitle on this one book!
Commenting before I read the other comments.
There are 3 well known expert catchup stories in the latter half of the 20th century.
Hong Kong
Singapore
Dubai.
Why did they work?
If we're not addressing the fact that (a) they did work, and (b) other countries of similar size and start point didn't, I think we have to be suspicious of the story being told.
> mestizos are ~80% of Mexicans
Wait. So when USAians say "Latino", do they actually mean "Latino - Native American métis" ? And that's why they aren't always considered "white" ? (But aren't also considered to be a separate "race" ?)
I feel like this review lacked framing. I overall liked it as a summary, but it left me wondering why I should care and how I should weigh it against my existing priors, especially given the reviewer's comments on its brief length and perhaps-overly-simplistic narrative. Did the book present a vast amount of data to defend its positions? (Presumably not, given the length.) Was it written by someone (or some group) especially well-positioned to resolve these long-running debates? (If so, hearing more about them would have been wonderful.) Is it considered an especially good source by other experts?
As it is, the review made it sound like the book tells a story, without doing a great job of arguing that it's a particularly good or true version of the story; and without some kind of discussion along those lines, I feel obliged to disregard it as just a "take", just a claim without great backing. That left me feeling disappointed and unenriched.
(Of course, this may just as well stem from me having unrealistic standards and expectations from reviews of economics texts on this blog.)
Can we talk about form? This essay goes too early and too much into what the work doesn’t say, or what the essay writer does or does not understand, instead of describing clearly the thesis of the book.
Very Short Introductions is a whole series, there's hundreds of them, generally by leading scholars, published by Oxford University Press. https://global.oup.com/academic/content/series/v/very-short-introductions-vsi/
The problem with reading an introduction to economic history by Robert Allen is that the book mostly contains Robert Allen's views/theories on economic history. For a detailed critique of the high-wage argument and Allen's theory of the industrial revolution, see https://pseudoerasmus.com/2016/12/01/allen/.
His views on Soviet economic performance are detailed in his book 'Farm to Factory' (https://press.princeton.edu/books/paperback/9780691144313/farm-to-factory). I am convinced by his arguments that Soviet economic performance till the 60s was better than most people think. But the post-60s stagnation was a direct consequence of the centrally-directed catchup growth that was unable to generate sufficient innovation or allow obsolete firms/industries to fail. The economy could not adapt because the initial period created special interests (in heavy industries, the military etc) that would not allow their powerbase to be harmed. The canonical reference on this is the work by Joseph Berliner (https://mitpress.mit.edu/books/innovation-decision-soviet-industry) but the broader argument can be found in many books. Chris Miller (https://uncpress.org/book/9781469630175/the-struggle-to-save-the-soviet-economy/) is excellent on the topic of the buildup of special interests.
Mumble mumble "How Asia Works" mumble mumble....
But seriously, as someone who found "How Asia Works" a good counterbalance to some of my libertarian tendencies, if you're looking for a good counterbalance to some of your libertarian tendencies, then you really might like "How Asia Works". Its explanations are satisfyingly mechanistic in a way that it sounds like GEH:VSI wasn't.
Example: Both South Korean and Malaysian governments in the mid-20th century decided they wanted to jump-start automotive manufacturing in their countries. They both set up massive government-overseen programs to build car plants and get cars sold, spearheaded by brilliant visionary (essentially) dictators. They both dumped huge amounts of money onto car moguls, and both used tariffs and other legal protections to incubate their nascent car economies. South Korea ended up with a globally competitive, massively successful car company (Hyundai) and Malaysia ended up with... a little local company that made bad cars whose name I don't even remember.
The difference? Malaysia (really Prime Minister Mahathir) picked some car companies to be the big car companies, gave them tons of support, and helped plan out how they would all be successful. One company would make small cars; the other would make big cars. That sort of thing.
The South Korean government (really Park Chung Hee) picked several car companies to *compete* for the title of "big South Korean car company". They all received financial support and legal protections, but those protections were (after a startup period) *contingent* on sales into foreign markets (note: sales, not profit. The goal was to make cars good enough that foreigners would be willing to buy them, not necessarily to make money off them). This forced the companies to compete both against each other and against the much better-established foreign market, with their much better cars. The end result was a car company that ruthlessly, tirelessly expanded and learned until it had good cars.
Meanwhile, the Malaysian car companies kind of just made some cars that technically worked, and got paid for it.
Point is, "How Asia Works" gives a nice peak behind the curtain of central economic planning and how it works or doesn't.
John Nye discusses how Britain was better at collecting taxes than France in "War, Wine and Taxes". The former handed out monopolies on making & selling alcohol, then was able to tax those monopolists. The latter had a lot more taxes on other things that everyone did their best to avoid, resulting in less actual revenue.
Pseudoerasmus sometimes discusses the high-wage thesis. My recollection is that he doesn't think it holds up because British wages weren't actually that high early in the IR (particularly compared to productivity).
https://pseudoerasmus.com/2016/12/01/allen/
One of the economic problems with Indian firms seems to be management. And I don't think it's always so simple to just replace management and expect the workers to accept it.
I love the "A very short introduction" series by Oxford University Press. I have read a few. These books are written by experts (thus differing from TED talks, open apparantly to anyone to speak on anything). They target intelligent lay people. Unlike present day TED talks, they don't dumb down concepts, and yet they manage to simplify them. I think it takes great skill in writing and expertise in the subject they are writing about.
Without having as much to say about modern development economics, I rather like Nick Szabo's (admittedly rather Libertarian) historical explanations for "why England?" in these posts:
https://unenumerated.blogspot.com/2007/08/why-industrial-revolution.html
https://unenumerated.blogspot.com/2006/01/letter-from-industrial-revolution.html
https://unenumerated.blogspot.com/2010/10/malthus-and-capital.html
https://unenumerated.blogspot.com/2010/12/some-conjectures-and-facts-regarding.html
The last two especially go into more detail than the traditional "good property rights + security of being an island" and basically argue that the plague gave some Malthusian "breathing room" and shifted investment to more efficient forms of capital (like converting land that was required for human-feeding crops to pasturage, which lets you keep labor-multiplying horses) combined with some accidents of geography (lots of navigable waterways and being a long, skinny island make it easier to transport bulk goods economically).
Combine that with all the other usual stuff (good institutions like property rights and common law, increasing literacy, cultural factors, and so forth) and you get a pretty interesting composite. The last one also makes some comparisons to China and Japan, but it's been a while since I've read it, and I don't think he touches more modern industrializations.
I'm not saying it's culture . . . but it's culture.
Any book about human development that attempts to qualify on the basis of completely disparate societal conditions and outcomes, without taking into account predispositions to success (i.e. qualities which set some societies apart from others), will be necessarily convoluted and fall short of a satisfactory explanation.
I disagree that the "better populations" explanation is necessarily "curiosity-stopping". Scott himself seems to adopt this kind of reasoning, with phrases like "hard-working and inventive population" and "a lot of local smart people". What are the conditions that lead to people working hard and being inventive? When is "a lot of local smart people" seemingly insufficient, and why?
Institution- and policy-centric explanations are wrong because they neglect the atomic substrate of any economy: individuals. Individuals make innumerable micro-scale decisions out of which larger economic patterns emerge. How are these decisions made? How are they coordinated? How are they conditioned by factors like cognitive capacity, market information, cultural norms?
Yes, if you have a population (like the Japanese) that knows through cultural programming how to make tidy queues at the train station, then top-down centralized policy-making will have some "raw material" to work with. But what if you have a population of illiterate warrior nomads? What if the process of cultural evolution has found a local minimum where theft and bribery are endemic? Tax and trade policy isn't going to change anything.
Why did the Ugandan economy collapse after Idi Amin expelled the Indians? Why did Zimbabwe collapse after Mugabe expelled the white farmers? It is the same territory and the same institutions. But different groups of people were making different kinds of decisions, and different kinds of decisions yielded different kinds of outcomes.
Consider economics as a sub-field of multi-agent reinforcement learning. Assume a population of robots. How do they need to be programmed -- what behaviors, abilities, biases, and assumptions need to be baked in -- in order to build a thriving, adaptable society in an uncertain environment?
These are just a few of the questions that arise from taking population differences into account.
> If you're 2000s Bangladesh trying to catch up to the West, you want semiconductor factories. Scrounging around a mostly-agrarian economy and eventually cobbling together enough expertise and capital to make a textile mill is one thing. Making a semiconductor factory is a lot harder.
Why do you need to cobble your semiconductor factory builders from the countryside and not other countries? I have a suspicion that foreign investors would love to do this but mostly don't due to various government roadblocks.
Joseph Henrich's WEIRD book presents an interesting psychological/behavioral theory that perhaps impacts global economic divergence.
This claim seems to ignore the Special Economic Zones (SEZs) and their role in Chinese development,
"For example, China gets a lot of credit for its free-market reforms under Deng Xiaoping, but these reforms just took China from "literally Mao" to "kind of an average level of market freedom for developing countries"."
While China on average might be "average level of market freedom for developing countries," the SEZs, which were explicitly modeled on Hong Kong and Singapore, are much freer than are most developing countries. The authors of the economic freedom indices recognize this and want to create distinctive economic freedom measures for the SEZs to account for this.
In addition, China has been renowned for having the least unionization and labor rights in the world,
"For many years, labor standards existed largely on paper, while collective representation was non-existent. What evolved in this regulatory near-vacuum was a bare-knuckled
laissez faire version of capitalism bearing some resemblance to labor markets and conditions in the era of “liberty of contract” in the U.S. Indeed, some Chinese leaders adhered to a“scientific” understanding of the stages of socialist development that may have foretold, or even prescribed, a period of labor exploitation."
https://dokumen.pub/a-new-deal-for-chinas-workers-2016017881-9780674971394.html
Meanwhile, many nations in the developing world have extensive labor regulation, with the result being that most workers are left out in the informal market where they have no rights at all, leaving a small, over-regulated formal sector.
Perhaps the original book addresses this, but as written any claim that doesn't recognize the radical free market free for all within the SEZs and with respect to labor rights in China is misleading at best.
> How come we are more certain that New California will soon get First World living standards than that India will?
If some of the Americans who move to New California experience less-than-First-World living standards, they'll just move back to wherever they came from, and have their First World living standards back.
In other words, New California will have First World living standards because it is competing against the First World to attract residents, and switching costs are low. (No one is stuck in New California because no one lives there yet.)
Or am I missing something?
If a command economy is an effective catch-up strategy that languishes at the frontier, it would turn the Marxian dialectic on its head. Actually let's be charitable and say Marxian thinkers of the early 20th century were correct that a command economy could provide for the material needs of the populace. They were wrong that meeting material needs is all the populace would want, when in fact the frontier would keep receding past the horizon.
I actually once posed the question about China's development trajectory inverting the Marxian dialectic to a visiting Chinese official when I was a smartass student. The resulting exchange was... tense.
>And this part also isn't very clear. During the 1500s and 1600s, first the Netherlands and then Britain experienced a sort of mini-boom. Probably this was because of the Age Of Discovery in some way, although the book leaves us to fill in the details, including why this didn't happen to fellow Discoverers like France, Spain, and Portugal. Colonial trade goods played a role, but so did Northern European ships trading in various non-colonial ways, eg in the Mediterranean. Whatever the reason, these countries saw increasing wages, increasing literacy, urbanization, and the development of a strong mercantile class.
Bitcoin mining has made me worry a bit we're going down a path like the Spanish Empire.
If you have an isolates small town that uses gold as currency, the blacksmith, the farmer, the baker, etc. all increase the economy when they go to work everyday. Everyday their labor expands the economic pie. But imagine someone finds a goldmine on their property. They then have a huge personal incentive to spend all day mining the gold and thus increasing their share of the economic pie. But the gold mining does nothing to expand the town economy.
I think at least part of Spain's decline in the Age of Discovery was investing too much of their efforts into literal gold mining (and silver mining). They built fortresses, a giant navy, huge infrastructure, etc. all to accumulate gold. For a while, this is *individually* good as they can get an increasingly large share of global consumption. But *collectively* it's bad as it's turning a large part of the economy into a zero sum game. But as soon as it dries up, they're left with no way to produce more.
In contrast, England missed out on the gold. To be profitable, their colonies had to actually produce things that increased global consumption. They accidently stumbled on a system that aligned individual wealth creation with societal wealth creation. Soon Adam Smith and *Wealth of Nations* came along and people started to understand that producing stuff (or transferring goods around to minimize diminishing marginal utility), not gold accumulation was what made nations wealthy and the rest is history.
But I wonder how much of global economic history can be explained by looking at what percent of the economy isn't things like bitcoins and gold mines. And how much should we be worried about an increasing share of the economy going to those things (although from my calculations bitcoin mining is still much less than 0.01% of GDP)?
And now I'm kind of wondering if I'm just reinventing the concept of rent-seeking. Some quick googling and Dean Baker already made the bitcoin/rent-seeking comparison more than 7 years ago:
"While this can be quite profitable to an individual or firm that successfully claims a substantial portion of the newly created bit coins, it provides nothing of value to the economy as a whole. It is a case of pure rent-seeking, where large amount of resources are devoted to pulling away wealth that is created in other sectors. This is the story of much of the activity in the financial sector, such as high-frequency trading or the tax gaming that is the specialty of the private equity industry, but in few cases is the rent-seeking so clear and unambiguous."
So this probably isn't a very original thought at all, and rent-seeking and economic development seems likely to be fairly well studied, but I'll leave it up in case others are as slow as I was.
“ I was pretty boggled by this: either wages were so low that the machines weren't necessary (in which case these places can outcompete Britain), or these places were being outcompeted by Britain (in which case they would be incentivized to adopt the new machines, which they should be able to do better than Britain given how cheap the operators' wages would be).“. Is this necessarily true? Wouldn’t it be more about productivity and ultimately the marginal cost of goods including the cost of transportation and end market demand?
Me: Wow, this book review writer has really managed to channel Scott's writing style. I wonder if this was conscious or not. It definitely makes for a compelling entry in the book review competition!
...scrolls to the top. Oh.
As a New Zealander I can attest that artificially high minimum wages do nothing to industrialise your economy (increase productivity).
I also heard recently (on Planet Money podcast) that there was a study of where the money comes from for minimum wage increases at McDonalds, it came from higher prices rather than productivity enhancements.
According to some quick googling, so take with a grain of salt, in 2011 (when the book was published), the GDP per Capita (PPP) of Italy was 43,102, and the GDP per Capita (PPP) of Britain was 42,469. So, it does seem a bit marginal but reasonable-enough as a point. (Much more than if it was reliant on total GDP which is of course nigh-irrelevant to development.)
Nice review. This was my favorite review so far, although it appears the you may not have reviewed the best book. :-)
You need some of both central planning and free market to be truly successful, you can only get so far with either one alone.
Your population needs to be literate and most of it must be "on the same team" to be able to trust each other enough to conduct business (e.g. no strong nobles versus commoners clash or population groups that speak different languages or have religious disagreements).
Economic ideologies take 50 years to fully realise and succeed. Once they have though then people will grow discontent as progress slows down, a new plan/ideology to address the gaps of the old one is then required.
The Soviet economy didn't collapse in the 1970s, it just reached the limits of what it could do. Our neoliberal plan is reaching the end of its success about now.
> And this part also isn't very clear. During the 1500s and 1600s, first the Netherlands and then Britain experienced a sort of mini-boom. Probably this was because of the Age Of Discovery in some way, although the book leaves us to fill in the details, including why this didn't happen to fellow Discoverers like France, Spain, and Portugal.
If you read Yuval Noah Harari's "Sapiens", he answers your question this way: the Netherlands and Britain learned the value of capitalism faster than other countries like Spain and Portugal. Dutch and British businessmen learned to always repay debts on time, whereas Spanish monarchs tended to renege on debts, which meant people didn't invest there, which meant the Spanish and Portuguese were slower to develop technology and make discoveries.
Regarding why New California would have better chances at reaching First World standars of living than India, Scott says "if India invites US companies in, lowers tariffs, and has good institutions - then they too can quickly converge to US standards of living?”.
I think a "Big Push industrialization" would be much harder than just inviting some companies. New California would have access to the whole US supply chain, logistics networks and financial institutions. This is much harder to replicate in other countries.
Bullcrap. If China's government was utterly incompetent, it would have ended up like India. In 1990, Indian GDP per head was the same as Chinese. Chinese GDP per head is now five times Indian.
Chinese economic performance is not dissimilar to Turkish, over a country twenty times the size, with vast, desperately poor hinterlands. It has outperformed Thailand, Vietnam, and Malaysia, all of which started 1990 with several times Chinese GDP. China is very much overperforming in its size category.
And Chinese coastal regions like Jiangsu Province (100M people) are already hitting GDP per heads of 18,000USD - Grecian levels. Another 100M Cantonese are hitting 14,000USD. That's high income by World Bank standards.
I find it interesting that you used semiconductor factories as an example of an industry you don't just plop down. Because the world leader in semiconductor manufacturing is based in Taiwan, and Taiwan was pretty backwards until well after WW2. It got at least somewhat rich before getting into it, and it was cheaper in 1987(when TSMC was founded) than today, but it's not like the Brits or Americans own this one.
And for that matter, the #2 semiconductor manufacturer is South Korea's Samsung, and again South Korea was a brutally exploited Japanese colony until the end of WW2, and then got wrecked up by a war after that, with a hardly-great dictatorship besides. This isn't old money carrying itself forward.
If one has any serious interest in this topic I suggest starting with The Great Divergence: China, Europe, and the Making of the Modern World Economy (The Princeton Economic History of the Western World Book 6) by Kenneth Pomeranz. Discussion this issue without doing the work is like painting a portrait with a 4" brush and just as useful.
Guns, Germs, and Steel is a far more comprehensive take on the whole mess.
China's issue is, and has always been centralized government. Went the centralized government is good, China is amazing. But the ability of a government to do good is the same as its ability to do evil, so when that central government decides to, say, stop building oceangoing ships and go full isolationist, or implements bad policy, China gets screwed for a century.
Standard dangers-of-autocracy stuff.
This was unexpectedly interesting (I've never been into economics or tech/development models, so that's why it was unexpected on my part.)
It is consistent with some things I've been wondering about since getting into 19c history. It seems like England just had the perfect circumstances to soar ahead, and it soared ahead alone. Part my lack of interest in economics is that I'm inherently suspicion of modeling complex systems and deriving universal rules from them. This strengthened that feeling--it seemed like using one country's experience as a model for another might not make any sense, especially if you're in a different era. There's no reason to think it will evolve in the same way once a model exists to copy, and especially not once a bunch of countries catch up. And circumstances matter. I agree that there was a false sense of security derived from the US's unique situation--it was very favorable to rapid development. It's likely a lot of places missed the boat, although the process may restart. And I agree that while more bottom-up development was definitely the way to go at the beginning, it is likely the case that a period of central planning is needed for countries to develop today (this may be related to globalization and the symbiosis it enables). But I'm thinking this is semi-cyclical. Bottom-up is less effective today in large part because people have radically different expectations/incentives, but those can shift.
I'm guessing that certain cultural factors--ones that go beyond the usual speculations--are indeed key, and which ones will be effective depends on the circumstances of the era. The UK colonies and East Asia were in a perfect position to take advantage of their respective opportunities. The status quo and expectations of the public and elites in each country undoubtedly play a huge role in determining the possibilities, which gets ignored to an absurd degree. As does the fact that success is likely to be uneven, and at the expense of other nations. Access to various resources is also crucial, and that is often a matter of luck. I don't think you can generalize in any systematic way, though you can make observations about each country's development process and draw some broad, common sense conclusions.
The natural contrast to this would be a review of Deirdre McCloskey's economic history books; seems like _Bourgeois Equality_ would be the most direct comparison to this work. If anyone is going to make a strong case for a cultural explanation and against the effectiveness of planned economic development, it'd be McCloskey.
Culture is 100% important to look at when doing economies around the world. I read this book review other day and there are all kinds of cultural reasons for development.
-----------
"Joseph Henrich, professor of evolutionary biology at Harvard .... Henrich presents a dazzling array of evidence to explain why variation exists among societies and why Europe in particular has played such an outsized role in human history."
https://www.city-journal.org/religious-origins-of-western-difference
> why did settler colonies (eg Canada, Australia, New Zealand, South Africa) converge to British levels of development so quickly
In the 19th Century, Australia didn't have to develop. The British made stuff and sent it to Australia, and Australians gave them money that grew on trees. Not exactly, but not far off; there was $10 billion in gold lying on the ground in Chewton Forest. Around 1890, Australians were the richest people in the world.
In the 20th Century, the gold ran out, and Australia went backwards. Industry never paid off, but a huge and lucrative service sector eventually made up for it.
Weirdly reminded of this old classic Poul Anderson story:
https://archive.org/stream/Astounding_v45n03_1950-05_cape1736#page/n5/mode/2up
I will give the HBD angle. The reason why mainstream developmental economics is full of such stuff is that they refuse to look at the true causes of growth. These are essentially related to having Western European psychological traits. Mostly, having high intelligence. There are some people who have looked at intelligence and growth. Usually they use some kind of euphemism related to human capital, test scores, "school quality" or whatever. The most mainstream person is probably Eric Hanushek. But even he works at some libertarian think tank, not a major research university. 🙃
I already compiled all the major works on intelligence and macroeconomics from 1983 to now.
https://emilkirkegaard.dk/en/2020/08/economists-and-intelligence-a-collection/
Some other people prefer instead to look at ancestry, and they proceed to talking about the "European origins of economic growth", and so on.
https://link.springer.com/article/10.1007/s10887-016-9130-y
There's a lot of papers in this area, called deep roots literature. Basically, they look far back in economic history and find generally that places that were doing well a long time ago, like in 1500, are also doing well know, and that most variation since 1500 can be explained by where people in some country are from. This stuff doesn't talk much about what Magic it is that Europeans bring, but the intelligence literature does that.
Not to say some other things don't matter. Communism is bad too. Freer markets good. There is some interaction with national intelligence and freedom of markets. Gregory Christainsen looked into this in recent work.
https://www.researchgate.net/publication/341736066_Rushton_Jensen_and_the_Wealth_of_Nations_Biogeography_and_Public_Policy_as_Determinants_of_Economic_Growth
"is this true? A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work"
Since the UK has a higher population than Italy, this can't possibly be true mathematically.
The Google Of All Wisdom pegs Italy's GDP as of 2019 at around 2 trillion USD versus 2.8 for the UK (and per-capita values are 33K versus 42K)
I guess this might also lower your trust in his work
> If you're 2000s Bangladesh trying to catch up to the West, you want semiconductor factories. Scrounging around a mostly-agrarian economy and eventually cobbling together enough expertise and capital to make a textile mill is one thing. Making a semiconductor factory is a lot harder.
I am little surprised that Egypt was not mentioned at all as you one of the clearest examples of someone trying to implement top down industrialization and it not being long successful. Under Muhammad Ali, not that one, Egypt used what was effectively export tariffs on cotton to help establish a local industrial base - there were 30 cotton mills in Egypt by 1829 but these were not long term viable and they could not compete in the wake of https://en.wikipedia.org/wiki/Treaty_of_Balta_Liman
One hundred and forty comments and not one of you brings up the fact that maybe Britain's success had something to do with being the biggest empire in human history? When you're violently appropriating a significant percentage of the world's wealth, yeah, you're probably gonna be doing pretty well. Doesn't exactly take a genius to figure that one out.
On Italy vs Britain, the author's statement was true as of publication.
https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=IT-GB
Whether that disproves the Catholic vs Protestant hypothesis is another matter. For one thing, the richest areas of Germany are disproportionately Catholic and Southern. Nevertheless, Protestant-majority countries are richer in Europe, but it is not clear what is cause and what is effect.
Protestant countries tend to be more liberal, ceteris paribus, just as Catholic countries tend to be more liberal than Orthodox Christian countries. All of this is within Europe. When comparing countries across the globe, religion likely has a much weaker effect than culture, institutions and so on.
I really don't believe this. I'm sure the author is an established person in his field, but I am kind of bizarrely into Meiji-era Japanese history and I don't buy the focus on tariffs.
The main thing is, I tend to say that Japan is the *only* country to industrialize (or "economically westernize") prior to WW2 that was not, in some strong sense, already western. Each other country to westernize either had its capital west of the Urals, or was the United States of America. So when he says Japan is a weird anomaly, that is setting off my Wait What detector.
In particular, Japan did not have high tariffs. Japan was not allowed to have high tariffs; the Tokugawa shoguns got overthrown in large part because they opened the country to free trade, and the treaties that did that were upheld by the Restoration-era government for reasons of 'did not want to be invaded the way China is being'. See https://en.wikipedia.org/wiki/Treaty_of_Amity_and_Commerce_(United_States%E2%80%93Japan) for a brief summary; that notes that they were compelled to have very low tariffs until 1894, and has a link to the treaty that revised it - which treaty says they were allowed to go as high as five percent on the main goods discussed. Even if I'm misunderstanding that treaty (it's midnight), it still means that for the first 27 years of their westernization, they had practically no tariffs, and are only allowed to install any serious amount of tariffs ten years before they defeat a Great European Power at roughly equal odds.
Second, Russia is treated as a first-rate power consistently from the Napoleonic Wars through to the present day. Britain, France, and Piedmont fail dramatically to attack it in the Crimean War, despite what the Wikipedia page suggests is superior coalition numbers and, even if I'm misunderstanding it, is almost certainly not more than about 2-1 in the Russian's favor. When Britain and France want to invade China - a third-world country with a similar population advantage - they waltz in, victorious despite, again going by Wikipedia, 20-1 odds. (https://en.wikipedia.org/wiki/Second_Opium_War). Asking 'how Russia westernized' is rather like asking how trout became fish; it was one of the Great Powers of Europe, with everything this involves, from the Congress of Vienna onwards.
Third, Great Britain had tariffs during the 18th century; large-scale industrialization took off in the early 19th century, by which time Great Britain had started shifting to free trade. (https://en.wikipedia.org/wiki/Economic_history_of_the_United_Kingdom#The_Age_of_Mercantilism). And Great Britain's 'high taxes' in the 19th century were, again going by that Wikipedia page, seven percent. That was high by 19th-century standards, and is totally outside the Overton Window for lowness today - even Prospera wants a ten percent income tax!
And, fourth... everyone was trying Point Two! All the countries of the world were trying to protect their trade from foreign competition. Since the one that succeeded best in industrializing failed utterly and completely at doing so, I don't see why they would want to put that on the list.
So that is why I don't really buy the Standard Model. Also all the standard Economics 101 stuff about tariffs being bad, but I think it is striking that practically their only test case had low tariffs establishes it really quite clearly.
If I was going to try to describe a formula for success, I would say:
Rule of law, in the sense of not expecting the police/bandits/Afghan raiders to randomly steal your stuff. If the central government can do it, that's much less of an issue than if anyone who feels like it can do it.
Free (internal) markets, most importantly the abolition of guilds and government monopolies.
Not being invaded, fighting a civil war, or expecting one of these things to happen tomorrow, a term which excludes practically all third-world countries.
And either fairly low tariffs or being really, really big.
Given those four elements, in 30 years, Japan went from 'stuck in the 17th century' to 'conquering territories from its neighbors', and in another 10 became the first non-western country ever to defeat a Great Power. And that is the main fact any theory needs to explain, because it is the main case of a country that was not Western in the slightest proving the world wrong, and becoming a Great Power itself.
Uncommunisming in time to become a normal developed country doesn't appear to have worked for many countries in eastern europe and the Balkans which are 10-15 IQ points below the Chinese and are poorer than China now despite being far richer than it 20 years ago. Taiwan and Singapore didn't communism at all during their industrialization (nor the wild west of the US).
Also I'm skeptical of geographical explanations because the west coast of the US was separated from the rest of the industrialized world by thousands of miles of desert and mountains and prairie, and the panama canal didn't even exist yet. Meiji Japan was an island with few natural resources on the opposite side of the world from all the industrialized countries. Australia was also in a very inconvenient location for network effects.
It seems the high IQ countries all get industrialized in spite of their central planning or lack thereof and good geography or lack thereof. Except when the central planners are especially bad and provoke everybody else into trade embargos. North Korea has a high IQ and communisms like crazy but is still poorer than the UK was in 1700 before the beginning of the industrial revolution.
1700AD UK GDP per capita PPP in 1990 international dollars: $1,250
2015 North Korea GDP per capita PPP in 2016 dollars: $1,700
inflation divisor: 1.8363
2015 North Korea GDP per capita PPP in 1990 dollars: $928
"A quick check shows Italy has higher total GDP but lower GDP per capita [than the UK], which is a weird definition of 'richer' and lowers my trust in this work."
Seems unlikely, as Italy has a smaller population than the UK.
"GEH:VSI isn't very big on prescriptions, but I think it would probably suggest having a pretty heavily planned economy while you're playing catch-up, and then unwinding it once you're close to where you want to be."
This strategy does not work as vested interests built up during the planned period resist being unwound. The only reason Deng Xiaoping was able to do what he did in China is because Mao's Cultural Revolution and its purges prevented any special interests from building up. Stalin's purges also served the same function and the decline in the Soviet Union only really got going during Brezhnev's "stability of the cadres" era.
Is this part of the readers book reviews series? It doesn't have the normal disclaimer, so I assume it's by Scott, but confusing in the context
Has nobody mentioned agriculture yet?
If your farmers can only produce a surplus of 20% beyond what they need to feed themselves, you can't have more than 17% of your population working in the factories without someone starving. (not that this wasn't seen as an acceptable cost, so long as the ones starving were Irish, Bengali or Ukranian) I don't buy any explanation that doesn't include farmers going from a majority of the population to a small minority. (in the Old World, at least. The Frontier had its own thing going on with bison and plains and cowboys)
The model we were taught at school was that a mix of superior crop rotations, better (and more capital-intensive) types of farming such as more advanced ploughs and seed drilling, and selective breeding were developed. This made much more food per acre and per farmer but the benefits mostly accrued (with dubious legality. see: the Enclosures) to the landowner.
This pool of labour not needed to work the land and forced from the land they traditionally subsistence-farmed was available to operate the woolen mills, mine the coal and build the canals/railways that drove the first indistrial revolution.
Is it even meaningful to argue that high wages in the UK and the low countries drove the IR when most people were primarily subsistance farmers rather than wage labourers?
"For example, why did settler colonies (eg Canada, Australia, New Zealand, South Africa) converge to British levels of development so quickly?" Abundant land --> higher wages? (See: Henry George)
The big question this raises for me is "what comes next"? So, you've gone down the following path:
Stage 1: Strong government: build a solid industrial framework from raw materials, to manufacturing, to production, to retail.
Stage 2: Liberalise and let things take their course, only stepping in if things go wrong
The problem is this assumes there will be no further paradigm shifts beyond industrialisation. But there will be, and we already have an idea what the next step looks like. It's the green technology revolution.
And the Chinese government is currently monopolising all of the raw materials which will be used to produce the next generation of Green tech. They're one step ahead of all the "libertarian" (ish) western governments on this.
So it seems to me that we need more of a synthesis/compromise between libertarianism and a more planned economy. Otherwise we miss out on critical investments for the future which won't necessarily pay off in the short term. Some kind of state capitalism (a la China, Norway, Singapore) seems inevitable for future-proofing.
I'm a little dubious about the neat conclusion that industrialisation and automation took off because workers were *too* well-paid. As to French and British textile mills, it was the French https://frenchmoments.eu/textile-history-in-france/ and Belgians https://www.discoveringbelgium.com/medieval-flemish-cloth-industry/ who had the advantages early on in that industry. England grew rich in the mediaeval and early modern period exporting wool to the Continent for the thriving textile industries there. Not to toot my own horn, but to quote from a review I did of a biography of Dame Julian of Norwich:
"Norwich wasn’t some little village or bucolic backwater; it was the capital of the most populous county in England, and had good claim to be the second most important city after London. To quote Wikipedia:
“The engine of trade was wool from Norfolk's sheepwalks. …Throughout this period Norwich established wide-ranging trading links with other parts of Europe, its markets stretching from Scandinavia to Spain and the city housing a Hanseatic warehouse. To organise and control its export to the Low Countries, Great Yarmouth, as the port for Norwich, was designated one of the staple ports under terms of the 1353 Statute of the Staple.
By the middle of the 14th century the city walls had been completed. At around two and a half miles (4 km) long, these walls, along with the river, enclosed a larger area than that of the City of London. …Around this time, the city was made a county corporate and became capital of one of the most densely populated and prosperous counties of England.”
Britain was perhaps peculiarly well-positioned to be the heartland of the Industrial Revolution; iron and coal were its begetters, and Britain was fortunately rich in these resources. But there were other hampering factors than "plagues killed off everybody, this meant that wages rose for those who remained alive to be workers, high wages = high costs = budding capitalist entrepreneurs need to invent machines to do the work". From Charlotte Bronte's novel "Shirley", written in but set in 1812 during the Napoleonic Wars and at the height of Luddites and frame-smashing:
"Shirley, A Tale is a social novel by the English novelist Charlotte Brontë, first published in 1849. It was Brontë's second published novel after Jane Eyre (originally published under Brontë's pseudonym Currer Bell). The novel is set in Yorkshire in 1811–12, during the industrial depression resulting from the Napoleonic Wars and the War of 1812. The novel is set against the backdrop of the Luddite uprisings in the Yorkshire textile industry.
The novel's popularity led to Shirley's becoming a woman's name. The title character was given the name that her father had intended to give a son. Before the publication of the novel Shirley was an uncommon but distinctly male name. Today it is regarded as a distinctly female name."
(1) An exchange between a mill-owner and another man helping him defend against workers coming to smash the new machinery:
"Helstone says these three are your gods; that the 'Orders in Council' are with you another name for the seven deadly sins; that Castlereagh is your Antichrist, and the war-party his legions."
"Yes; I abhor all these things because they ruin me. They stand in my way. I cannot get on. I cannot execute my plans because of them. I see myself baffled at every turn by their untoward effects."
"But you are rich and thriving, Moore?"
"I am very rich in cloth I cannot sell. You should step into my warehouse yonder, and observe how it is piled to the roof with pieces. Roakes and Pearson are in the same condition. America used to be their market, but the Orders in Council have cut that off."
(2) Backstory!
Trade was Mr. Moore's hereditary calling: the Gérards of Antwerp had been merchants for two centuries back. Once they had been wealthy merchants; but the uncertainties, the involvements, of business had come upon them; disastrous speculations had loosened by degrees the foundations of their credit. The house had stood on a tottering base for a dozen years; and at last, in the shock of the French Revolution, it had rushed down a total ruin. In its fall was involved the English and Yorkshire firm of Moore, closely connected with the Antwerp house, and of which one of the partners, resident in Antwerp, Robert Moore, had married Hortense Gérard, with the prospect of his bride inheriting her father Constantine Gérard's share in the business.
...When he came to Yorkshire, he — whose ancestors had owned warehouses in this seaport, and factories in that inland town, had possessed their town-house and their country-seat — saw no way open to him but to rent a cloth-mill in an out-of-the-way nook of an out-of-the-way district; to take a cottage adjoining it for his residence, and to add to his possessions, as pasture for his horse, and space for his cloth-tenters, a few acres of the steep, rugged land that lined the hollow through which his mill-stream brawled. All this he held at a somewhat high rent (for these war times were hard, and everything was dear) of the trustees of the Fieldhead estate, then the property of a minor.
...As to the mill, which was an old structure, and fitted up with old machinery, now become inefficient and out of date, he had from the first evinced the strongest contempt for all its arrangements and appointments. His aim had been to effect a radical reform, which he had executed as fast as his very limited capital would allow; and the narrowness of that capital, and consequent check on his progress, was a restraint which galled his spirit sorely. Moore ever wanted to push on. "Forward" was the device stamped upon his soul; but poverty curbed him. Sometimes (figuratively) he foamed at the mouth when the reins were drawn very tight.
In this state of feeling, it is not to be expected that he would deliberate much as to whether his advance was or was not prejudicial to others. Not being a native, nor for any length of time a resident of the neighbourhood, he did not sufficiently care when the new inventions threw the old workpeople out of employ. He never asked himself where those to whom he no longer paid weekly wages found daily bread; and in this negligence he only resembled thousands besides, on whom the starving poor of Yorkshire seemed to have a closer claim.
The period of which I write was an overshadowed one in British history, and especially in the history of the northern provinces. War was then at its height. Europe was all involved therein. England, if not weary, was worn with long resistance — yes, and half her people were weary too, and cried out for peace on any terms. National honour was become a mere empty name, of no value in the eyes of many, because their sight was dim with famine; and for a morsel of meat they would have sold their birthright.
The "Orders in Council," provoked by Napoleon's Milan and Berlin decrees, and forbidding neutral powers to trade with France, had, by offending America, cut off the principal market of the Yorkshire woollen trade, and brought it consequently to the verge of ruin. Minor foreign markets were glutted, and would receive no more. The Brazils, Portugal, Sicily, were all overstocked by nearly two years' consumption. At this crisis certain inventions in machinery were introduced into the staple manufactures of the north, which, greatly reducing the number of hands necessary to be employed, threw thousands out of work, and left them without legitimate means of sustaining life. A bad harvest supervened. Distress reached its climax. Endurance, overgoaded, stretched the hand of fraternity to sedition. The throes of a sort of moral earthquake were felt heaving under the hills of the northern counties. But, as is usual in such cases, nobody took much notice. When a food-riot broke out in a manufacturing town, when a gig-mill was burnt to the ground, or a manufacturer's house was attacked, the furniture thrown into the streets, and the family forced to flee for their lives, some local measures were or were not taken by the local magistracy. A ringleader was detected, or more frequently suffered to elude detection; newspaper paragraphs were written on the subject, and there the thing stopped. As to the sufferers, whose sole inheritance was labour, and who had lost that inheritance—who could not get work, and consequently could not get wages, and consequently could not get bread—they were left to suffer on, perhaps inevitably left. It would not do to stop the progress of invention, to damage science by discouraging its improvements; the war could not be terminated; efficient relief could not be raised. There was no help then; so the unemployed underwent their destiny—ate the bread and drank the waters of affliction.
Misery generates hate. These sufferers hated the machines which they believed took their bread from them; they hated the buildings which contained those machines; they hated the manufacturers who owned those buildings. In the parish of Briarfield, with which we have at present to do, Hollow's Mill was the place held most abominable; Gérard Moore, in his double character of semi-foreigner and thorough-going progressist, the man most abominated."
Back in 2002 the Discovery Channel had a good introductory series called "Industrial Revelations" hosted by Mark Williams; the first episode puts the beginnings of the Industrial Revolution back to the 18th century, when the cloth-weaving towns of the North were boomtowns and there was a need to supply them and export the goods. Coal was the wonder fuel of the day, and that led to mines, and that led to the need for machinery to pump out the mines, and that led to steam engines, and that led to...
https://www.dailymotion.com/video/x26nszh
> Overall there was a lot in this book that was unsatisfying.
Other people have noted that *A Very Short Introduction* is a series. The way I've seen them used is as replacements for introductory classes.
Basically, if a graduate student wants to take Advanced Thing, but never took Introduction to Thing, they can read the relevant *A Very Short Introduction* book carefully and come out with an understanding roughly equivalent to what's left over in the average undergrad's brain who took the class a year ago. The books aren't really meant to have a strong thesis or definitively answer the controversial questions of the discipline.
> A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work.
I think this is missing the point. Some people say that the reason the UK, Germany, and US are rich is the Protestant Work Ethic. Allen's just pointing out that this can't be the *main* explanation because Italy is about as rich as these countries.
If Protestantism vs. Catholicism were the real culprit, we'd expect Catholic Italy and France to be closer to Catholic Mexico in development. What we actually see is that the UK, Germany, France, and Italy are all roughly in the same place despite their different traditions. That means there's got to be something else going on.
> Maybe it shouldn't have thrown culture out so quickly?
Perhaps Allen's unstated assumption is that culture is shaped by economic development, and not the other way around?
"Alexander Hamilton in the US. They and others independently converged on a four-pronged plan:[...] 4. Establish mass education to speed the adoption and invention of technology.
The USA and most of Western Europe tried this in the early 1800s, and it went pretty well."
I think this might be the nicest thing you've ever said about mass education.
Shameless book review suggestion: Joel Mokyr's "Culture of Growth", which looks at endogenous factors specific to culture as the primary explanation of the Great Divergence.
It very much rejects geographic determism, colonialism et al. Not very popular in our current zeitgeist but a faboulous and thought-provoking read (plus a great deal of intellectual history to boot).
A lot of this discussion, and the discussion in the comments, seems to assume that Europe is somehow significantly better than the rest of the world (Europe, specifically) and this needs to be explained. I'd like to point out that this is a recent trend - before Europe, the Middle East was the fount of knowledge and innovation, with contributions from places like China (and this knowledge was what was carried over to Europe, in part). Just because Britain happened to industrialise and invade a bunch of countries for wealth doesn't imply that Europeans have always been superior to everyone else.
Regarding the tariff question, there is an important paper by Doug Irwin that shows the relationship between industrial development and import tariffs is not really straightforward as the book reviewed implies.
From the abstract: "The paper shows that: (i) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; (ii) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; (iii) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff."
Link: https://www.nber.org/papers/w7639
I've read this book too and it tackles a subject for too big for its size.
The Hanging With History podcast (that's me) has the causes of the Industrial Revolution as the core idea around which it is organized. It's a big subject if you want to look at all the angles.
Culture, religion and technology are certainly possible contributors and need a careful look.
As just one example, a lot of the comments here have looked at religion at the level of Protestant vs Catholic. The Protestant religion in England underwent a lot of development and fracturing. A possible contribution was late 16th/early 17th century Puritan psychology, which I find is poorly understood these days. And that particular outlook only lasted a few decades, changing into something else, something we are more familiar with today. Also, the rise of Methodism and similar during the time of various labor movements had some interesting effects I'm still working on teasing out.
I've done over 300,000 words on the subject and haven't even reached the 18th century yet. And I hope I'm not particularly long winded. McCloskey is halfway through a 6 volume approach to the subject that mainly emphasizes changes in culture and values. So yeah, a little book like GEH is just for those who want to dip their toes in. When it comes to culture I've spent hours developing my "minimally murdery" theme.
Pseudoerasmus and Anton Howes are great sources for people who want to follow developments in economic history as they occur today.
"Catholic Italy [is richer than] Protestant Britain" (is this true? A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work.)
British GDP (and currency valuations if you're working on dollar rather than PPP comparisons) has been doing weird things lately because of Brexit so it's very hard to be certain until it stabilises. Also the UK population is higher than Italy, which should make it impossible for Italy to have higher total but lower per-cap.
I have probably read 50 to 100 books on the IR and the "Great Divergence", and my take on most of the "one big theory narratives" is that they tend to point out something which is necessary and try to imply that it is sufficient.
Some common themes:
Intermediate levels of state fragmentation and competition
Good institutions (markets, prop rights, rep democracy, rule of law)
Good norms/mindsets/rhetoric
Individualism vs Clans
Fossil fuels
Scientific method and mathematical advance
Open acreage
Relaxed Malthusian pressures
Freedom and openness
Wage levels
Proper underlying technologies (printing, transportation, clocks, gunpowder)
Philosophy (Enlightenment)
Culture
Genetic factors (intelligence, cooperativeness, patience)
Colonial exploitation
This is just a partial list off the top of my head, and most of these sub causes have various, sometimes even contradictory takes on the issue (for example which institutions are essential?j
I don’t agree they are all even necessary, but most probably are, which leads us to a more complex picture where there are countless ways of NOT seeing sustainable growth rates and improvements in problem solving. But there are also various ways which ARE possible for human progress. Great Britain led the charge in proving that advances in human prosperity are possible. Other nations at other times took this general recipe and built upon it or adapted it in their own special ways to their conditions and history and culture. In some cases the adaptation was easy and the environment conducive (North America). In other places it is a more drastic adaptation (China). And of course there is the topic of catch up vs lead growth and how the fundamentals for one may be very different than the other.
Central planning doesn't work. It never has. It never will. The information necessary to centrally plan is not available (because it's only in people's heads), and cannot be gathered in a timely manner.
And yet.
The price system *is* the central planning that you want. It requires free markets, though, and people doubt that markets can arise from nothing. People are, in their heart of hearts, economic creationists. And we all know how accurate creationism is.
<i>The author is most impressed with China, which seems to have gotten this part right (maybe by accident): they communismed until they reached the technological frontier, then uncommunismed in time to get on the path to being a normal developed country. GEH:VSI isn't very big on prescriptions, but I think it would probably suggest having a pretty heavily planned economy while you're playing catch-up, and then unwinding it once you're close to where you want to be.</i>
How's this compare with India? Haven't they come a pretty long way in the last 30 years with comparatively less centralized planning? Or maybe they haven't come as far, and therefore the China approach still looks better?
"Do artificially high wages through eg minimum wage policies or UBI help as much as naturally high wages?"
Are there "naturally high wages", or generally, any kind of "natural wages", arrived at through some pure perfect market self-corrective calculations, or there are just wages, subject to all kinds of non-market pressures (from monopolies, laws, culture, negotiating power, zoning, racism, sexism, optics, all the way to pure violence - e.g. the terrorizing, firing, beating, and sometimes even downright murder of workers asking for more, all-too-common in developing countries, but common in the US as well in the 20th century) - that those pretending to see a "free market at play" conveniently overlook?
"A quick check shows Italy has higher total GDP but lower GDP per capita, which is a weird definition of 'richer' and lowers my trust in this work."
It was true from 1976 to 2011. Northern Italy is still richer than Britain.
"By the early 20th century, a clear gap had emerged between Europe, North America, and Japan (on one side), and everyone else (on the other)."
Much of Latin America was doing well at the time, as well -thus Japanese emigration to Brazil.
" Given that the average developing country has an average-for-developing-countries level of market freedom, but does not experience a China-level economic miracle,"
China is around the world average in GDP/capita.
"This wasn't a very conclusive section, but I appreciated the confirmation that the Soviet economy actually worked pretty okay until 1970 or so, then became a basketcase for kind of unclear reasons."
Soviet slowdown started in the early 1960s; Soviet GDP per capita became surpassed by Italy in 1951, Japan in 1962, and Portugal in 1967.
"Is it still possible to succeed?"
It's easier to succeed than ever.
"The Mystery of Capital" by Hernando de Soto, covers much of the same territory. He concluded that developing countries have tons of entrepreneurial spirit, and a fantastic work ethic, but are hamstrung by a weak, ineffective, corrupt, and byzantine bureaucracy. It is almost impossible for an entrepreneur in many parts of Latin America to start a business, get a loan, buy a piece of property with a title, and to enforce claims on that property in court. In theory, these countries have laws on the books that let you do these things, but in practice, the system is so corrupt and difficult to navigate that only large (usually foreign) corporations with lots of lawyers and government contacts can do them.
The conclusion is that you need both (1) free markets, and (2) a strong and effective central government that enforces the rule of law and makes investments in public infrastructure. Libertarians like to focus on (1), while ignoring (2), although "state capacity libertarianism" is beginning to catch on. Early Soviet Russia did well with (2) early on, but then the bureaucracy metastasized into a purely parasitic organ, because there was no (1) to reign it in. China has so far done well at balancing both (1) and (2), which is why it's booming.
There is a cultural element at play here. China and Japan had long traditions of powerful autocratic central governments, and experience with managing complex bureaucracies. They were thus able to create strong and effective government institutions, which allowed them to transition from a feudal system to a more modern economy. Other areas are still contending with various tribal/sectarian/religious/warlord/gangster divisions. Because of these divisions, the central government is weak and ineffective, laws are not enforced, infrastructure is terrible, and doing business involves a lot more bribes and favors, and a lot less investing in actual industrial capacity.
I think a combination of Escape from Rome and the Catholic Church's family and marriage project does a lot to explain the West's head start on the Industrial Revolution. Export-led growth explains much of the catch up of Japan, China, and others.
This graph looks to me like Italy had a higher GDP per capita than the UK for about 20 years up until 2011, when the book was written – then the UK has been doing better since. It lowers my trust in the review that it lowered the reviewer's trust in the book that the author was using current data instead of data from the author's future.
https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=chart&country=GBR~ITA
If you're interested in development, you should really read how Asia works by Joe Studwell. Despite the title it's mostly about economic development and industrial policy, and the differences between countries that got it right and those that didn't.
Scott, this is completely off topic, but related generally to book reviews:
I'd love to know whether you write or take notes as you read, that you later refine into the review, or whether you read the whole thing and summarize your impressions and recollections at the end.
This post mentions Mexico in contrast with the US and other non-Iberian Western societies. For those specifically interested in this set of questions, I recommend a still-ongoing YouTube series, the first part of which can be found here: https://youtu.be/SPs6tjXsf7M
This is partly quite absurd. You talk about "China." "China" includes Taiwan and Hong Kong. Arguably it includes Singapore in some senses (dominant Chinese ethnic group, language, traditions). These massively succeeded, far beyond the PRC, without "communism" in any sense. At one point HK's total GDP was bigger than the PRC's GDP. So what sense does it make to say China benefited economically from communism bringing it up to speed?
What in the world do you think that you are talking about? Reality or this one little book you just read? Do you have any idea what happened economically under Mao? Any at all? The mass starvation? The businesses destroyed--basically, all of them? The bizarre backyard steel foundries melting down tools to make crap steel to meet quotas? The ruinous collective farms that destroyed agriculture? Do you know anything at all about industrial policy under the Republic of China? And now you are announcing that this terrible state of affairs, the destruction of an entire nation and its people and its culture and its economy, was beneficial to lay the foundation for a modern industrial economy? Because you read one book and it contradicted some vague notions you acquired along the way, so, eh, maybe yeah communism works well if you just exit at the right time. Ugh, read Dikotter or "Tombstone." Read something, not this one little halfwitted book you bought on a whim and decided to muse about publicly over an idle hour.
As far as the USSR is concerned, you'd really have to stand in the snow of Moscow for an hour waiting for a lump of "bread" that's heavy enough to build with to understand Soviet economic "development." Pre-Bolshevik Russia had a very fast-growing economy and exported vast amounts of food. Red Russia had mass starvation. A pair of jeans was but a distant dream. It wasn't just a starving waste dump, pre-communist Russia. It had factories and scientific journals and advanced education. It was growing fast. The communists didn't just destroy culture and freedom to speak and think. They destroyed Russian business and agriculture. Hence, mass starvation. Hence, shortages of all kinds. No consumer goods. Dreary cities with stacks of identical towers stretching into the waste.
Okay, I'm done. This review is a work of staggering ignorance. It's embarrassing, or should be.
One of the problems I (as a historian, alas not an economic historian) have with basically all explanations is this: they all seem to perfectly explain why the industrial revolution took place where it took place, but not really why not earlier somewhere else. There were always regions with higher wages, more innovation, larger iron or coal repositories, a specific mercantile/industrious culture etc. We probably all know by now that rudimentary steam engines were used in ancient Greece, Medieval Middle Eastern tinkerers built elaborate automata etc. So why did they not go the next step and made them into large scale industrial machinery?
I think this is also why many researchers still hold up the influence of colonialism/imperialism so highly. Not primarily for political reasons (to prove a debt of the West or so), but because it was a scale of connection and domination that had never been reached before and thus could be responsible for this singularity. But I have to admit that even this seems ultimately unconvincing to me....
The preface to Hazlitt's _Time Will Run Back_ argued in the mid-60s that the Soviet economy was already a basket-case (and indeed had been so more-or-less continuously since about 1928). Of course, the whole theme of his novel was that a centrally-planned economy would _necessarily_ be a basket-case, but even so — it remains my suspicion that all that really changed in the ’70s was that the West-at-large became generally _aware_ of Soviet basketude, or perhaps were more willing to see it (rather than pleasant fictions) after the highly visible crises and failures of socialist economic policies the West experienced during that decade.
Oh, and you might be interested in my pet theory that the high British wages that kicked off the Industrial Revolution were caused by the Corn Laws, and that this is the only time in history protectionism has actually been good for a country (and then only accidentally by way of unintended consequences).
The note on wages is a bit circular. If wages are high then that means there is surplus-value in the system, and therefore room to justify investment in innovation. In other words, Britain was already successful by some metric before the Industrial Revolution turned it into a visible economic boom.
If nothing else, this review does a great job of matching Scott’s writing style.
"The reluctance to invoke colonialism too heavily is even less well-explained"
What? It is perfectly explained by the fact that the question to be answered is, to a large extent, exactly "{why did the West / why was the West able to} colonize most of the globe, as opposed to a different one of the dozens of similarly-sized geographic regions of the globe?".
"[e.g. Britain] the high taxes paid for infrastructure, and the poor property rights let governments use eminent domain to build canals, railroads, et cetera."
What? British canals and railways were built by private companies. They usually had an act of Parliament giving them the right to use eminent domain along the planned route (broadly written into the act). The government did regulate the companies heavily (including a huge reorganization of the railways, merging dozens of mostly-independent companies into four, still privately-owned regional railways in 1923), with somewhat inconsistent results (as usual), but e.g. the railways were only nationalized in 1948. Similar things can be said about turnpikes (often converted from previously free-to-use public roads).
"only in Britain was it worth actually building machinery" -- funny, that. The stories of early mechanization attempts, particularly in textiles (flying shuttle, spinning jenny) are full of "and then an angry mob of competing weavers/spinners broke into his house/workshop and smashed the machinery"; a good number of early threshing machines were burned, too. Perhaps this is part of why a strong central government mattered?
3. "Create banks to stabilize the currency and provide businesses with capital"
What? Banks 1) also were private companies (which is why they could go bankrupt and why runs on banks happened so often), 2) extended the government currency, at the time still largely based in silver or gold, 3) on the business financing side, usually mostly restricted themselves to discounting relatively short-term bills of exchange, otherwise they would be exposed to too high a risk of a run; long-term investment (stocks and bonds) took place outside banks. There is actually a decent case that rather than stabilizing the currency, these local banks tended to at the very least exacerbate "naturally-occurring" liquidity shortages, or indeed outright destabilized the currency by generally amplifying liquidity swings.
This book is useless because it avoids the admittedly crude essentialist explanations for prosperity. Attempting to explain why China is richer than DR Congo when China's population has an average IQ 20+ points higher than DR Congo will inevitably lead to contrived explanations and motivated reasoning. We can argue about the origin of or solution for population IQ differences, but removing them from your model of how the world works will only prevent you from understanding.
You should read 'Why Nations Fail', Acemoglu/Robinson.
``` (is this true? Britain has higher GDP today, but Italy was higher when this book was written) ```
https://knoema.com/mhrzolg/historical-gdp-by-country-statistics-from-the-world-bank-1960-2019
https://countryeconomy.com/countries/compare/italy/uk?sc=XE05
I don't believe this was true in 2011 when the book was published, either in absolute or per-capita terms. Historically, I don't think it has been true for several centuries. (Probably since an inflection point some time in the Early Modern period.) Certainly Italy today is also a developed, wealthy G8 nation (their debt ratio nonwithstanding), which is probably the broader point.
Not to get into a discussion of "Protestant work ethic" (a theory I'm not a huge fan of), but that's part of the econometric background behind it.
Your last paragraph carries a hidden assumption which I think you need to question. Try this alternative hypothesis:
"If a development-economics problem can't be solved with free markets and free people, it can't be solved at all."
Yes, that does mean that societies which failed to catch the first wave are kinda fscked. But how do you know reality isn't like that?
When you look at apparent exceptions like Japan closely, I think you find that the "strong central government" was smart enough to keep its hands off economic life and offer the implied contract that as long as nobody overtly threatened the elite at the very top said elite would continue to allow effectively laissez-faire conditions.
I also think that no account of the wealth of nations can ignore the distribution of Spearman's g. Whatever you think that's measuring, the correlation between IQ averages and post-Industrial-Revolution success seems far too strong to ignore.
Interesting review. Without reading comments:
* I think one could distinguish usefully between partial planning (South Korea) and total planning (USSR, Mao.) If you pay attention to *all* of Econ 101 you learn that government can have many useful roles. But markets are useful too. As for the USSR doing well, it was importing grain from at least the 1960s, despite containing a world breadbasket (Ukraine); launching satellites but having trouble feeding your people despite having the means isn't "doing well" IMO.
* http://www.lowtechmagazine.com/2011/09/peat-and-coal-fossil-fuels-in-pre-industrial-times.html argues that the Dutch Golden Age was fueled by cheap energy -- peat (which ran out) and wind power (which didn't, also cheap water transport.) Likewise Britain was using a lot of coal for domestic heating and probably industry even before the Industrial Revolution -- steam engines started life pumping water out of coal mines.
* It's probable to me that Japan and Korea had more cohesion and government legitimacy than some ex-colony with effectively random borders and conflicting interest groups. The newly independent countries had to try to work out things Japan did back in the 1600s.
* New California would likely be filled by high know-how and -trust Americans and the legitimacy of a democratic territorial government overseen by Congress.
Bit why would New California be more successful than Puerto Rico? Culture?
It's worth noting that GEH's thesis: high-wages>>innovation/industrialization/Industrial Revolution 1.0 is familiar to me from undergraduate economic history I took in the 1980s. Seems like this is a fairly standard publication intended for economic history survey courses.