Sunday, November 20, 2011

Beyond divergence

As I've noted in previous posts, there has been a major debate in economic history in the past 20 years about what to make of the contrasts between economic development trajectories in Western Europe and East Asia since 1600.  There had been a received view, tracing to Adam Smith and Thomas Malthus, that European "breakthrough" was the norm and Asian "stagnation" or "involution" were the dysfunctional cases. E. L. Jones represents this view among recent comparative economic historians (The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia). 

Then Kenneth Pomeranz and Bin Wong challenged this received view in a couple of important books.  Pomeranz argued in The Great Divergence: China, Europe, and the Making of the Modern World Economy. that the premises were wrong. He argued that Chinese productivity and standard of living were roughly comparable to those of England up to roughly 1800, so China's economy was not backward.  And he argued against the received view's main theories of Europe's breakthrough -- the idea that European economic institutions and property rights were superior, or the idea that Europe had a normative or ideological advantage over China.  Instead, he argued that Europe -- Britain, to be precise -- had contingent and situational advantages over Asia that permitted rapid growth and industrialization around the end of the eighteenth century.  These advantages included large and accessible coal deposits -- crucial for modern steam technology -- and access to low cost labor in the Americas (hidden acreage).  Bin Wong made complementary arguments in China Transformed: Historical Change and the Limits of European Experience, where he addressed the parallel processes of development of political and economic institutions in the two sets of polities. Wong's most fundamental insight was that both processes were complex, and that balanced comparison between them is valuable.

Now the debate has taken a new turn with the publication of R. Bin Wong and Jean-Laurent Rosenthal's Before and Beyond Divergence: The Politics of Economic Change in China and Europe. Rosenthal is an accomplished historian of European economic development, and Wong is an expert on Chinese economic, social, and political history. So their collaboration permits this book to bring together into one argument the full expertise available on both ends of Eurasia.

The book aims to unsettle the debate in fundamental ways. Wong and Rosenthal take issue with a point that is methodologically central to Pomeranz, concerning the units of comparison.  Pomerantz wants to compare England with the lower Yangzi region in China, and he gives what are to me convincing arguments for why this makes sense.  W&R want to compare Europe with China, making England a special case. And they too have good reasons for their choice.  

Second, they disagree with the temporal framing that has generally been accepted within this debate, where economic historians have generally focused their research on the early modern period 1600-1900). Against this, they argue that the causes of divergence between Europe and China must be much earlier.  They set their clock to the year 1000, and they examine the large features of political and economic development that started around that time.

Finally, they offer crippling objections to a number of standard hypotheses about Imperial China as a place to do business. They show that there were alternative credit institutions available in Ming and Qing China. They show that the Chinese state was sensitive to levels of taxation, and kept taxes low (generally comparable to European levels). And they show that Imperial social spending (the granary system, for example) was generally effective and well managed, contributing to economic prosperity. So the traditional explanations for Chinese "stagnation" don't work as causal explanations.

They find one major difference between Europe and Asia during the first part of the second millennium that seems to matter. That is the multiplicity of competing states in Europe and a largely hegemonic Imperial state in China and the scale of the relevant zones of political and economic activity. Chapter 4, "Warfare, Location of Manufacturing, and Economic Growth in China and Europe," lays out this argument. Here are the key points.
We believe that the most persuasive explanation for Europe's late eighteenth- and early nineteenth-century transformations is best provided by comparing the politics of economic change within China and Europe in the centuries that preceded their visible economic divergence. (6)
To explain these differences in factor prices, we will stress conditions that are the outcomes, we will argue, of more basic differences in the spatial scale of polities in China and Eu rope. In this analysis we parallel Robert Allen's recent work on the progress of industrialization in England (2009a). Indeed, Allen puts special emphasis on relatively high wages and low fuel costs in explaining why the technologies we as-sociate with industrialization were developed and deployed in England. (7)
From the perspective of what individuals choose, we think that some of the most important factors influencing different likelihoods of economic change in the early modern era  were unintended consequences of actions taken for reasons largely unrelated to improving the economy. (8)
Instead, we take the contrasting spatial scales of Chinese and Europe an polities as key factors that both let and led rulers in these regions to develop different political priorities and policies. (14)
The competing states of Europe were frequently drawn into conflict; and conflict often resulted in warfare.  R&W argue that this fact of competition had a fateful unintended consequence.  It made fortified cities much safer places than open countryside. And this in turn changed the calculation about where "manufacture" could occur at lowest cost.  Labor costs were higher in cities, so absent warfare, producers were well advised to pursue a putting-out system involving peasant workers (proto-industrialization; link). But with the threat of marauding armies, European producers were pushed into urban locations.  And this in turn gave them incentives to develop labor-saving, capital-intensive techniques.  Putting the point bluntly: China didn't have an industrial revolution because it was too safe an environment for labor-intensive production.

Another important feature of Before and Beyond Divergence is its use of simple economy models to explore the incentive characteristics of various historical circumstances.  For example, they provide a simple representation of the costs of contracting in China (76-77), the costs of warfare on manufacturing (108-109), and a mathematical analysis of credit and interest in China (135). Their perspective is one that essentially presupposes the idea of decision-making based on prudence, or a rough-and-ready rational choice framework. They believe that various historical circumstances change the price and opportunity environment for producers and consumers. So once we can estimate the magnitude of these changes, we can also gauge the approximate magnitude of the change in behavior that results.  Or in other words, their approach is one of economic historians, not simply historians of economic institutions and behaviors. They are reluctant to consider cultural or normative sources of behavior.

Certainly this book too will generate a lot of critical response. It is an important contribution.


Nathan Tankus said...

This is a good post. I'm near the end of a China/Japan history course (it's focused a lot more on China then Japan) so this is very topical for me. I think one problem with the framing a lot of the literature has (I haven't read this latest book) is it assumes that it was a kind of "failure" for China not to have industrialized. I don't think this is necessarily true. At least i think that that is a point that needs to be proven. David Graeber in his book on debt has a pretty good discussion of this point.

Greg said...

I'm glad someone has finally pointed out that it was the insecurity of property rights in Europe, from the fall of the Roman Empire through to the mid twentieth century, that drove progress. One small comment:

Wong and Rosenthal seem to be emphasizing supply-side factors. I'd like to point out that demand was just as important: the costliness of disputation drove the search for supernormal profits in manufacturing (and in trade, piracy, conquest, and traditional activities, of course).

Two further points. Besides driving manufacturing into cities, this insecurity drove military R&D and investment (much of which had civilian applications) and created a large group, military engineers, trained to solve practical problems. It also created the profession of lawyer, and it forced the use of appeals to evidence rather than to authority in its schools (which became universities).

Wong and Rosenthal's contribution is very welcome. The idea that for progress, it was necessary for property to be somewhat insecure is worth reflecting on.

... said...

I was just going to ask what Daniel Little thouhgt about what David Graeber had to say about the relation of China to capitalism compared to Europe. But some one beat me too it!

This is an interesting interview where he talks about the topics in his book

Daniel Little said...

Thanks for asking about David Graeber. I'm reading the book and will post about it soon.

Anton said...

I am surprised no one is mentioning Ian Morris' book "Why the West Rules for Now" which largely builds on Wong and Pomeranz work but also addresses both long-termist and short- termist issues in dealing with the issue in hand. For example, Ian Morris goes much,much further back in time, almost in pre history to answer the question about " the great divide"