China's developmental resettlements

The human costs of China's Three Gorges dam project are reasonably well known. Since construction began in 1994 between 1.3 million and two million people have been involuntarily resettled to higher ground and to other provinces. The project has created massive environmental hazards for China (link), and has also created a gigantic human cost among the families and communities who were forcibly relocated.

Less well known are earlier waves of "hydraulic refugees" along the Yellow River beginning with construction of the Sanmenxia Dam in 1954 (completed in 1960). And subsequent water control projects through the next several decades have created yet other large-scale displacements along the Yellow River across north-central China. The movements of peoples created by these major projects of post-Revolution-era civil and social engineering have continued to reverberate until the present.

image: Yellow River topography

In the Sanmenxia Dam case the total number of forced migrants is probably lower than the Three Gorges Dam project, though reliable statistics are not readily available. Some estimates of displaced persons created by the Sanmenxia Dam cite 300,000 migrants. But the longterm effects on individuals, families, and communities have been perhaps even more severe. The project was designed without strong geological or hydrological expertise, and it has failed fundamentally to achieve the intended goals of the project. (Journalist Xie Chaoping was arrested in 2010 for writing a sober appraisal of the failures of Sanmenxia in The Great Relocation; link.)

French scholar Florence Padovani has studied the topic of involuntary relocation in China in detail. Her contribution to Forced Migration and Global Processes: A View from Forced Migration Studies provides quite a bit of factual background on the important hydraulic relocations. Here is Padovani's definition of forced migration:

Forced migration, as it is understood here, involves populations which are uprooted by development programs. These individuals are internally displaced; even when they move thousands of kilometers away from their birthplace, they remain inside national borders. (92)

And here is her summary description of the relocation of population for the SMD project:

The way resettlement was implemented in the SMD case is typical of the way the government at that time considered people to be displaced. The authorities, from top to bottom, adopted the same line of action in a unified rhetoric. As for the resettlers, they did manage to raise their voices through very traditional ways, such as petitioning the central government ..., but also through street demonstrations and even physical fights. ...  We can summarize resettlement policy during the revolutionary period by the following points: First, the vast majority of displaced people were rural dwellers, mainly farmers. Second, they were not involved in preliminary assessment projects and were informed of the government's plan at the last moment. Host communities were not involved in resettlement plans either, so some serious conflicts erupted when newcomers settled on their land. And third, displaced people were not well compensated and their relocation was not well planned, leading to their impoverishment. (97)

Padovani's ethnographic study of Three Gorges Dam emigrants in the Shanghai region sheds much light on the human consequences of forced migration in China (link). This research provides a report of interviews with a few dozen migrants in the Shanghai region.The great majority of displaced people are farmers. So their life prospects following a move are bleak. They need access to land, secure housing, and access to unskilled employment. And none of these  are in ready supply in most destinations. More intangibly, they need access to kinship networks and mutual aid societies of the kind that were available in their home communities. But forced migration has thoroughly shattered those sources of mutual aid. So the lives of these million-plus migrants have not been made more hospitable as a result of the project. 

The disintegration of the social network due to forced migration means that the 'domestic order" (local and personal ties), "civic order" (equality and solidarity), and "market order" (economic performance) have to be rebuilt. (107)

image: The Chinese Dust Bowl, The Walrus (link)

Yellow River communities have experienced another wave of resettlement in the past thirty years, this time along the upper reaches of the river in Gansu and Inner Mongolia, in response to the combined pressures of development and desertification. Irrigated farming communities have been uprooted multiple times as local authorities have sought to make use of scarce land and water resources. (Benoit Aquin's photo essay on this region in The Walrus is a great exposure of these dustbowl conditions.)

Reading the story of these massive dam projects and their state-sponsored programs of involuntary resettlement illustrates some of the perverse processes of development that James Scott describes in Seeing like a State: How Certain Schemes to Improve the Human Condition Have Failed. Scott doesn't consider modern Chinese examples, but he finds a raft of critical problems of environmental impact, social disruption, and human suffering associated with major water projects in other countries. His summary thoughts seem to apply to China's development experience as well:

I believe that many of the most tragic episodes of state development in the late nineteenth and twentieth centuries originate in a particularly pernicious combination of three elements. The first is the aspiration to the administrative ordering of nature and society, an aspiration that we have already seen at work in scientific forestry, but one raised to a far more comprehensive and ambitious level.... The second element is the unrestrained use of the power of the modern state as an instrument for achieving these designs. The third element is a weakened or prostrate civil society that lacks the capacity to resist these plans. (88-89)

(Here is an earlier post on Scott's critique of state-driven modernization projects; link.)

The Sanmenxia Dam is an unmistakeable failure; siltification and massive pollution have turned out to be irresolvable problems along the length of the middle and lower reaches of the Yellow River. Experts are now calling for the removal of the dam altogether. There are very strong indications that the TGD is likewise an environmental and social disaster, though this is still not completely resolved. And for the several million people who were forcibly relocated, the Three Gorges Dam has often turned out to be a catastrophic turning point in their personal lives.

Saskia Sassen on austerity and social exclusion

The previous post summarized some of Kathleen Thelen's thinking about the prospects for a more egalitarian capitalism in our future. Saskia Sassen offers a more negative view of the direction of the development of European capitalism in her most recent book, Expulsions: Brutality and Complexity in the Global Economy.

Here is a post in Open Democracy in which Sassen summarizes her current thinking. Her view is that there is something new in the political economy of liberalization and austerity -- the systematic exclusion and expulsion of a significant portion of the population from the economy altogether. She writes:

Low growth, unemployment, inequality, and poverty are no longer reliable markers for capturing the 'economic cleansing' afflicting European institutions and societies throughout Europe. This 'works' on the backs of all those who have simply been expelled.

This seems pretty descriptive in the urban environment in which I live in Detroit metro. The factors Sassen highlights -- high unemployment, even higher rates of discouraged workers, and high rates of foreclosure and abandonment fit the Detroit experience very well. The most recent development -- water shutoff notices to tens of thousands of Detroit residents -- only reinforces the point of exclusion.

Thanks, Saskia, for providing the link!

Poverty and economics

How important should the subject of poverty be within the discipline of economics? Some economists appear to think it is a very small issue compared to the magnificent mathematics of general equilibrium theory. Others believe that economics should fundamentally be about the sources of human well-being and misery, and that understanding poverty is absolutely fundamental for economics. How should we try to sort this out?

Among the contemporary economists who have given the greatest attention to poverty and deprivation, Amartya Sen and Jean Dreze are particularly outstanding. Their research on well-being, quality of life, and hunger set a standard for the point of view that says that life quality and deprivation need to be at the top of the list of economic research goals. Here I'm thinking of books like Inequality Reexamined, Poverty and Famines: An Essay on Entitlement and Deprivation, and Hunger and Public Action.

The neoclassical free market purists stand at the other end of the garden.  The economists of the Chicago School put primary emphasis on the beneficent effects of untrammeled market behavior, and they give little attention to the "market imperfections" that poverty and deprivation represent. (The word "poverty" does not occur in the index of John Van Overtveldt's good intellectual history of the Chicago School, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business.) Poverty seems to be viewed as a normal and fair result of the workings of market institutions: some people make large contributions and earn high income, and others make small or zero contributions and earn low income.

The closing chapter of Milton Friedman's Capitalism and Freedom is entitled "The Alleviation of Poverty." Here Friedman admits that poverty is a problem, but conceives of only two solutions: private charity (which he agrees will not work in a large complex society) and direct transfers from tax revenues to payments to the poor (which is limited by the willingness of citizens to provide taxes for this purpose). The mechanism he prefers is a negative income tax: persons with incomes below a given threshold would receive payments determined by their income levels. "In this way, it would be possible to set a floor below which no man's net income (defined now to include the subsidy) could fall" (192).

What this analysis leaves out is any consideration of the economic mechanisms that produce poverty within an affluent society, and how institutions could be adjusted so that poverty and inequality tended to fall over time as a consequence of the normal workings of economic institutions. Take race in America, for example -- a set of institutions that many observers see as being crucial mechanisms in the production of urban poverty. Writing in 1962, Friedman argues that racial discrimination in employment is essentially impossible within a competitive market system (link). But we now understand the geography and social structuring of poverty much better. Racial segregation in housing has not disappeared; it has only worsened. Low-quality and ineffective schools are concentrated in low-income and racially segregated neighborhoods, so poor people have reduced educational opportunities. Access to jobs is also constrained by geography and educational opportunity. (Here is a recent post on the mechanisms of racial disparities; link). So it seems clear that our economy systematically reproduces poverty in inner cities rather than reducing it. And the situation of rural poverty is not substantially better.

This all has to do with the dynamics of income at the bottom end. But we have also seen persistent widening of income at the top end. American capitalism has produced ever-widening inequalities of income for at least the past forty years. Consider these two graphs of income by percentile provided by Lane Kenworthy:

(Source: Lane Kenworthy, Consider the Evidence blog (link))

So the idea that a properly functioning market economy will tend to reduce poverty and narrow the extremes of income inequality has been historically refuted -- at least in the case of American capitalism.

It is apparent that the ills of poverty are debilitating to the families who experience it; their quality of life is dramatically lower than it needs to be in an affluent society. So that is one reason for economists to give higher priority to the study of the mechanisms and structures that reproduce poverty in the United States. But there is a more systemic reason as well: if 15% of all Americans live in poverty (46 million people), and if 22% of children live in poor households (16 million children), this implies a huge drain on the productive capacity of the American economy. Education, health, and inclusion are important components of economic growth; and each of these is harmed by the persistence of poverty. So economists ought to be in the lead when it comes to placing a priority on poverty research.

We need to have a much more systematic understanding of the institutions and structures through which access to income and the necessities of life is created. And this implies that the mainstream might be well advised to take counsel from structuralist economists like Lance Taylor. Here is how Taylor describes the intellectual foundations of structuralist macroeconomics in Reconstructing Macroeconomics: Structuralist Proposals and Critiques of the Mainstream:

In the North Atlantic literature, structuralism's intellectual foundations lie within a complex described by labels such as [original, neo-, post-]-[Keynesian, Kaleckian, Ricardian, Marxian] which nonmainstream economists have adopted; numerous variants exist in developing countries as well. The fundamental assumption of all these schools is that an economy's institutions and distributional relationships across its productive sectors and social groups play essential roles in determining its macro behavior. (1)

This emphasis on study of the concrete institutions embodied in a given economy, and the distributive characteristics that these create, seems like a very good starting point for arriving at a better understanding of the economic foundations of poverty than we currently have.

Change in peasant China

Image: Shanxi countryside

In 1978 China's government initiated a major change in the agricultural economy. It began a rapid transition from communal agriculture to the household responsibility system, which returned the responsibilities and incentives associated with farming to the farmer rather than the commune. This was the beginning of the market-friendly reforms that led to the transformation of agriculture, industry, and transport in a remarkably short time.

These market-oriented reforms have also stimulated a continuing economic revolution in China, with growth rates exceeding 10% in many years and an intensive period of infrastructure build-out (roads, high speed rail, telecommunications).

Much has transpired in the Chinese countryside since 1978. Rural incomes have risen; significant numbers of rural people have transitioned from farming into better-paying market and logistical activities; and many millions of young people have exited the countryside in search of work in manufacturing and construction. On balance, how has this tumultuous 35 years affected the quality of life for China's rural population?

In 1990 William Hinton offered his own predictions about the effects of the rural reforms in The Great Reversal: The Privatization of China, 1978-1989. Hinton believed the future was dire for China's peasants, as they would be squeezed by market forces into even lower-productivity farming techniques and the wealth of the countryside would be extracted by urban elites. Hinton was a continuing supporter of collective agriculture because he believed it permitted economies of scale and more reliable support for the welfare of the people in the countryside. It seems that no one in China continues to advocate this view.

Deng Xiaoping took a different perspective. He believed that all of China would benefit from the accumulation of wealth created by market incentives. His famous words -- "To get rich is glorious" -- legitimated the workings of the market in creating inequalities. And he evidently believed that these processes of economic growth and market incentives would be good for the rural sector as well as the urban sector.

So how has it worked out? How has China's agricultural economy performed in the past three decades? Is China food-self-sufficient? Have rural people gained income? Is rural poverty falling significantly? What is the trend in the quality of life of China's rural populations? And what happened to the range of income inequalities in the countryside?

Here are a few important data points.

First, it appears to be true that China has made rapid progress in reducing poverty in its population. According to Li Xiaoyun's tables below, just under 13% of China's population lives in extreme poverty at incomes lower than $1.25 per day in 2011. (The next three slides are taken from an extensive presentation on China's poverty strategies by  Professor Li Xiaoyun, China Agricultural University; link.) This is a dramatic reduction from an estimate in excess of 80% at this level in the late 1970s. This means that rural incomes have risen substantially since 1978.

Moreover, there have been nationally coordinated programs of poverty alleviation that have been supported by meaningful levels of central and provincial resources.

The central government has attempted to target its poverty alleviation efforts towards the most backward regions in the country. 

Here is a very interesting poverty map for Yunnan Province in the southeast part of the country (link):

Second, it is also true that China's income inequalities have increased sharply during the same period. The share of income flowing to the poorest 40% has fallen from 20% to 14% from 1990 to 2009. Studies indicate that the Gini coefficient for income inequality has risen sharply during that time. It seems likely that wealth inequalities have increased even more. Here are charts documenting the rise of income inequalities in China from the 2005 China Human Development Report (link):

The following figure documents the overall rise in urban/rural income inequalities in China since 1997 extending the data represented in Fig. 2.2 above through 2010 (Liu M., link). Interestingly, this graph suggests that urban/rural inequalities leveled off in about 2003.

Third, food security has improved. China is a net exporter of rice (link) and has substantially increasing its production of pigs and poultry, and it has not suffered famine or extensive malnutrition since the Great Leap Forward famine of 1959. Nutritional levels throughout poor areas have improved in the past twenty years, although there are still significant levels of underweight or stunted children under 5 (fig. 3.14, CHDR 2005).

What has been less visible to the western public is the dynamics of life quality that these changes have created in the countryside. What is needed is disaggregated studies of quality-of-life indicators like education, health, nutrition, and longevity. World Bank reports and China's own major statistical reports do not highlight these kinds of data. However, the UNDP has prepared six triennial reports on China's performance with respect to the Human Development Index (link), and it turns out that Chinese researchers are in fact doing careful work on the task of measuring these characteristics in rural areas. Three leading Chinese scholars focused on poverty alleviation (Wu Guobao, Chinese Academy of Social Sciences; Liu Minquan, Peking Univerisity; Li Xiaoyun, China Agricultural University) provide a good snapshot into a world of policy research currently underway in China.

How are the government's pronouncements about poverty alleviation viewed by the Chinese public? I had a very interesting conversation with a man in his thirties in Taiyuan, Shanxi on this question. He is employed in a semi-professional job. His view was very skeptical. He believes the government says it is working toward helping the poor and reducing inequalities, but he doesn't think these efforts are very broad. His view is that anti-poverty programs are directed towards just a few locations and a relatively small part of the rural population. And he thinks it is very unfair that the inequalities between rich and poor are increasing so rapidly. When I asked him what he thought the greatest problems were that China faces, he listed these: a one-party state that gives ordinary people no voice in the issues they care about; a lack of freedom of expression; and the unfairness of increasing inequalities between rich and poor. This was a very frank assessment by one person which perhaps sheds some light on how many young people are thinking in China today.

(Here is a 2003 volume on poverty alleviation in China published by the Development Studies Network in Australia, including a number of valuable research articles on the subject; link. The China Health and Nutrition Survey conducted by the Carolina Population Center and the National Institute of Nutrition and Food Safety at the Chinese Center for Disease Control and Prevention is also a valuable data source; link.)

How to think about work

Work defines a large portion of life in any society, traditional or modern.  How should we think about the social and economic forces that create "work"? What are the institutions and practices through which individuals use their bodies, brains, skills, and talents to create value within a given set of economic relationships? These questions are just as relevant in consideration of the medieval economy -- serfs and freemen, artisans, highwaymen, retainers, soldiers, the odd banker -- as they are for the contemporary economy. (It would be very interesting to analyze Marc Bloch's account of feudalism from the point of view of the kinds of skilled work he identifies in the medieval manorial economy in Feudal Society: Vol 2: Social Classes and Political Organisation.)

So what does the division of labor look like in the contemporary economy? And how is it changing?

The Bureau of Labor Statistics maintains a "Standard Occupational Classification System" encompassing tens of thousands of job types, organized into 23 major groups (link). (My own profession, philosophy professor, falls in category 25-1120 "Arts, Communications, and Humanities Teachers, Postsecondary".) Here is the table of major groups of occupations:

The International Labour Organisation maintains a different classification system of occupations (link).  This system includes managers, professions, technicians and associate professionals, clerical support workers, service and sales workers, skilled agricultural, forestry, and fishery workers, craft and related trades workers, plant and machine operators and assemblers, elementary occupations, and military workers.

It is interesting and important to observe the trends of change that can be observed in the distribution of tasks across categories of worker over time -- the evolution of the division of labor in society. A good beginning would be a table indicating the percentage of the labor force in each category.  It would be very interesting to see the shifting distribution across these categories over the past 75 years -- though I can't easily locate a study that provides this kind of analysis.  Presumably a century-long comparison would demonstrate a major shift in the BLS groups from group 45 (agriculture) to groups 47, 49, and 51, and a later shift to service occupations like groups 31, 35, 37, 41, and 43 in the past thirty years. (The BLS SOC is revised periodically, most recently in 2010, so comparison across time is presumably non-trivial.)

It is evident that there is a generally falling scale of authority, compensation, skill, and prestige across both sets of categories. So the division of labor, as expressed in these classification systems, proceeds from low-skill, low-specialization at the bottom, to high-skill, high-specialization at the top.

So the question of skill and division of labor is not exclusively one of sociological theory; it is a statistical feature of the social order that is amenable to direct empirical research. But the arrangement of the occupations in a society is not solely a question of economic efficiency. It is also directly tied up with the distribution of power and authority in society. Assigning a person the title of "manager" or "director" not only reflects the individual's skills; it also assigns him or her a measure of power and authority.

(It is mildly interesting to note that there is a whole slice of specialized work in contemporary society that is not included in either classification: extra-legal activities like smuggling, piracy, gambling, organized crime, drug dealing, etc. These activities also have their own specialized division of labor, ranking of skills, and rates of return.)

The talent supply chain

I had an interesting discussion with a senior executive of Kelly Services that provided some very striking new perspectives on the world of work. Kelly Services is a global workforce solutions company, providing temporary and medium-term workers with a very wide range of specialized skills (link). One thing that was particularly striking is the fact that Kelly provides advanced technical and scientific expertise to corporations and government agencies as independent contractors. In fact, according to their website they have over 11,000 scientists and engineers available for placement. On any given day they have placed roughly 150,000 workers around the world, and are administering another 100,000 or so who are provided by independent contractors. So Kelly Services has a strong real-world knowledge base about the talent needs of the current global economy.

The most striking part of our conversation is this. Our traditional thinking about a job and a career is badly out of date. We think of the normal work situation as fulltime longterm employment in a specific location and with a salary and benefits. But this situation isn't even the majority situation anymore. We know that a lot of employers don't offer benefits, but that isn't the big news. According to this executive, almost half of workers in the US economy are self employed or part-time or temporary. These workers don't have benefits usually, and they don't have job security. What they have is a specific set of talents to sell in a national or global market, and their standard of living depends entirely on the value of this set of talents.

Think of the crowdsourcing system that has gained some visibility recently. Amazon's Mechanical Turk system is an example (link), and InnoCentive provides an example for problems at a higher level of difficulty (link). Here is how it works. A company has a problem to solve. It formulates a clear and unambiguous description of the problem and posts a prize for the first one or two people who come up with a solution. There are an unknown number of people who are earning their livings through his kind of work.

Or think of this challenging idea. A company like Kelly can reposition itself as a "talent chain management" company. They enter into contract with a large corporation to take on some or all of the company's talent supply needs, from custodians to junior accountants to research scientists. The company is relieved of the costs of recruitment, human resource management, benefits, and sometimes supervision. The company gets high quality work at the time and place it needs, and Kelly manages the process. (Here is a report from the Wharton School on "Talent on Demand" (link).)

So what are the foreseeable social consequences of these changes in the ways that work and talent are mobilized? Several are quite straightforward. These developments imply a rapid deepening of inequalities in the future between people with good education and training and those without. As governors in many states are saying, high school dropouts won't find decent jobs in the future because they haven't cultivated the skills and talents that bring a high rate of return. And as Secretary of Education Arne Duncan says on every possible occasion, all workers need some post-secondary education or training. Simply a willingness to show up and perform repetitive labor won't support a decent life.

But this also has consequences beyond income. If more and more work is performed by private contractors and freelance individuals, the elements of the social security net that have traditionally been provided by employers will be gone -- retirement contributions, healthcare insurance, longterm disability insurance, etc. All of these would need to be funded by the individual or socially through national insurance plans. Self-funding works for workers at the high end of the salary range; but it doesn't work for people at the lower end.

These tendencies are at work already. The growing separation between incomes in the top end of the distribution and the lower quintiles reflects these tendencies; so does the shrinking labor market for "good" manufacturing jobs; and so does the declining percentage of employers who offer health insurance to their workers.

So the conclusions are stark. Encourage all young people to invest in their educational opportunities; make sure that these opportunities are provided for rich and poor alike; but prepare for a world in which there is more and more deprivation for the bottom 60% of society. Progressives will want to address this coming crisis of poverty and deprivation directly by reinforcing the safety net and improving educational opportunities for disadvantaged people, and conservatives seem more willing to ignore or even justify the inequalities that we will see. But one way or another, it's hard to see where the opportunities for a "middle class" life will come for more than half of society.

(Kelly Services has created an iPad app called Talent Project (link).  The app provides a portal into a collection of research papers and data on the future of work.  There is a mountain of interesting data and research on the talent economy here.)

Contingent pathways in Eurasian history

Economic historians and historians of Asia have been deeply involved in a debate with long roots: Why did modern economic development occur first and most consistently in western Europe in the seventeenth century, and why did China not capitalize on its many advantages in the early Qing Dynasty to take the lead?  Those advantages included advanced scientific and medical knowledge; extensive population; and an effective central state governing a vast population.

There has been a strong case made by a group of historians led by Ken Pomeranz, Bin Wong, and James Lee that this way of characterizing world history embodies a host of misconceptions, including the idea that there is one best pathway to modern economic development (link).  Pomeranz's The Great Divergence: China, Europe, and the Making of the Modern World Economy. and Wong's China Transformed: Historical Change and the Limits of European Experience led the way in this line of thought.  And this group also challenges the idea that the Chinese economy was backward in 1600; instead, they argue that agriculture was comparably productive and that the standard of living in China was also comparable to the standard of living of working people in western Europe.  This group argues that more specific features of the historical setting led to the "great divergence," including New World metals, the labor power of slaves, and the fortuitous geographical location of deposits of coal in Great Britain.

Bin Wong and Jean-Laurent Rosenthal took up this line of thought in Before and Beyond Divergence: The Politics of Economic Change in China and Europe.  They disagree with a number of the positions defended by Pomeranz and Wong, and they argue that Late Imperial China was in fact a conducive business environment for modern economic growth, and that it possessed long-distance credit institutions that would have been comparably effective in supporting the expansion of business activity in China.  But if it wasn't differences in the economic environment that brought about divergent pathways in Europe and China, then what was the cause of divergence?  They point to a new factor: the political and military competition that Europe experienced and China did not (link).

Prasannan Parthasarathi brings a new voice and new perspective into this extended debate (Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850).  He focuses on India rather than China, and he argues against a number of the historiographic premises that infuse the current debate.  In particular, he challenges the idea that there must be some small number of important structural or institutional differences that explain the great divergence -- the acceleration of modern growth in Europe and the continuation of pre-modern institutions and slow growth.

Parthasarathi takes the view that there is no single large factor that accounts for differences in economic development among Europe, China, and India.  He argues instead for a large number of contextual and contingent factors that were present in the three settings, leading to significant differences in development.

More critical for the arguments of this book, however, are findings that the economic "situation" or context shapes the decisions, choices and actions of individuals. These advances in economic thinking indicate that divergent paths of development need not imply -- nor require -- deep differences in economic institutions, for context matters.
The approach to divergence taken in this work moves away from seeing economic development in the eighteenth century in binary terms, as either leading to modern industry or its failure. Instead, it points to the existence of plural paths of change, which were the products of the pressures and needs that the dynamic and diverse economies of Europe and Asia faced. (1)

Parthasarathi offers an innovative set of methodological principles for comparative economic history.

First, in the seventeenth and eighteenth centuries there were a variety of economic and political goals which produced plural paths of development. Second, different paths of economic change were the products of human agency and choice, and were shaped by social, political and economic context. … Finally, there is a political dimension to economic life. State actions were critical in determining paths of development in both Europe and Asia from the seventeenth to the nineteenth centuries. (9)

He finds that two pressures in particular account for a lot of the difference in development between Europe and Asia.

The first emanated from the global trading system, in which the position of Europeans was very different from that of both Indians and Chinese. ...

The second pressure that differed across Europe and Asia lay in the realm of ecology, specifically in the supply of wood. While Britain and parts of France and central Europe faced shortages of wood, which was essential for fuel, building material and countless other uses, Scandinavia and Russia had plentiful supplies. Similar differences existed in Asia. (10)

Like Pomeranz and Li in the case of China, Parthasarathi finds that the standard of living in Bengal was comparable to that of England in the eighteenth century. He provides estimates of "grain earnings" for weaving labor in Britain, South India, and Bengal in mid-eighteenth century: 40-140, 65-160, and 55-135 lbs. per week (table 2.4). The ranges for both Indian wage estimates are higher, not lower, than Britain. This challenges the "immiseration" thesis that powered the Malthusian and Smithian interpretations of Asian economies. (Parthasarathi concedes that the estimates of real wages across countries are exceptionally difficult for the early modern period, and that Robert Allen's estimates of Indian real wages are substantially lower.)

Parthasarathi also argues, surprisingly, that more recent price data about finished cottons show that Indian cottons did not enter the English market so strongly because they were cheap, but because they fulfilled specific market needs for higher quality textiles.

In many markets around the world Indian cottons were more expensive than locally made cloth. This was the case in Southeast Asia where low-quality cotton cloths were manufactured in large quantities, but higher-quality Indian cottons, despite being more costly, were in great demand. (34)

In the late seventeenth century consumers in Europe embraced the cotton textiles of India for their beauty, convenience an d fashionability. (89)

But European manufacturers were fast to imitate Indian cottons:

The future was to be with cotton, however. From its home in the Indian subcontinent, the art of turning the cotton boll into cloth of extraordinary beauty, comfort and versatility migrated to Europe.Imitation in the seventeenth century led 150 years later to Western Europe becoming the center of the world's cotton manufacturing. The migration of this industry marked a great transformation in the global economy. (89)

This transformation involved several processes of great importance, including technology transfer and innovation and expansion of the slave trade.

Parthasarathi's treatment of the role of scientific and technical knowledge in India is particularly important. Parthasarathi finds that the status of science and technology in India was substantially different than the standard narrative would have it. In Mysore, for example, he finds:

There is extensive evidence for a push towards agricultural improvement, with policies designed to expand irrigation, bring fertile land under cultivation and promote the adoption of valuable cash crops, including sandalwood, sugar and black pepper. A sophisticated system of revenue incentives was designed to meet these aims. In addition, under Tipu Sultan, efforts were made to improve the breeding of cattle, which were critical not only for agricultural operations, but also for the transport of goods and military supplies. The push for improvement in Mysore also extended to manufacturing. The European-style military that Mysore sought to create required the expansion of metal-working facilities, especially iron. In the 1780s, orders were issued for the construction of twenty new iron-smelting furnaces within the kingdom. Mysore also developed a major armaments industry, which cast cannon in both brass and iron. (207)

The stereotype of Indian "backwardness," like its cousin view of Chinese "stagnation," is not grounded in the facts.

Parthasarathi's book is detailed and careful; but more importantly, it pursues economic history through a new lens. The reader is led through parts of the story that are familiar -- the importance of coal for Britain, for example -- but is then challenged to look at these developments in different ways. Parthasarathi offers a number of surprising but carefully supported claims: India's cotton industry was substantially more sophisticated than the standard account would have it. The standard of living for Indian workers was comparable to that of English workers. The policies of the states of Britain, France, and the Ottoman Empire had substantial effects on the nature and course of development. Pursuit of scientific and technical knowledge was an explicit priority for the states of India from the seventeenth century forward (186). Better history of science is needed in Indian history.

Almost all of these findings challenge one or another part of the standard narrative of economic development across Eurasia.  Parthasarathi's work is an important contribution to the debate.

China's rural transition

Roughly half of China's population is still rural, living in villages and towns and dependent primarily on farming. In 1985 that percentage was about 76%, so there has already been a massive transformation of China's economy and society towards greater urbanization. (Albert Nyberg and Scott Rozelle treated this process in an important World Bank publication, Accelerating China's Rural Transformation.)

There are two basic processes through which urbanization can occur. Rural people can migrate to cities, or cities can grow up around rural people. Both processes have been underway for thirty years in China. Estimates vary, but approximately 210 million migrants work in Chinese manufacturing and construction industries, and the vast majority of these men and women are from rural origins. The percentage of migrant workers in urban industries is staggering; W. K. Chan reports in Wuhan, for example, that 43% of manufacturing workers and 56% of construction workers are non-Hukou migrants (link).  But almost all of China's cities have also sprawled out into their peripheries, into what was previously farm land and villages. This is true in Shanghai and Suzhou, Wuhan, and hundreds of other major cities.

The "urban development" part of the story has forced displacement of farming villages from their land, as farm land is absorbed into factories, power plants, development zones, and other urban uses. This is one of the most potent sources of protest in China today. Some portion of that population finds employment in the industries that follow this development -- in the vast assembly plants of Foxconn, for example in at least nine cities in China. (Foxconn was actively recruiting thousands of workers in Chengdu during a recent visit there.)  Another portion is subsidized for some period of time by the government in compensation for the loss of their farm land and occupations.

In the medium term, Chinese agriculture is shedding workers, and the rest of the economy needs to grow enough to employ this part of the population. This is part of the urgency that policy makers feel for sustaining very high rates of economic growth.

One portion of the population that is least likely to make a smooth landing in the new economic conditions is the elderly. China faces a major social issue in a growing population of aging farmers, and the circumstances of this group are predictable: in need of health care, short on pensions, and often separated from their children who have migrated to better conditions in cities. (Here is a World Bank report on this subject; link.)

So my question here is a simple one: what is the theory of rural-to-urban transition under which the Chinese leadership is operating? There are a range of possible theories:

• Help employment in industrial and construction activities grow as fast as workers and farmers are expelled from the rural economy, so their standard of living rises overall.
• Grow rural industry and high-value specialized agriculture so rural people can remain in place.
• Plan for an extended time during which a much more extensive social safety net will be provided in the form of income supplements, subsidized healthcare, and retirement income until "surplus rural population" can be absorbed by the urban economy.
• Hope for the best and trust to market-based adjustments.

There is a rural development strategy that would actually make the problem more acute:

• Stimulate rapid improvement in the productivity of agriculture. As a unit of rice is produced more productively, it requires fewer units of labor. So the net result of productivity improvements in agriculture is a drop in rural farm-based employment even as it increases income to the individual farmer.

Here is one answer to the question of theory of rural transition that is based on Chinese government policy thinking in the late 1990s. The following analysis is contained in the Nyberg-Rozelle 1999 World Bank report, Accelerating China's Rural Transformation, based on close cooperation with the Institute of Rural Development in the Chinese Academy of Social Sciences. This close collaboration suggests that it intends to express then-current ideas about strategy and policy within the Chinese government.

Since the founding of the People's Republic, the leaders of China have been preoccupied with one overarching goal; the modernization of the nation. Our [Chinese] vision for the early part of the 21st century perceives the rural economy as an integral part of this modernization effort, with equitable increases in income, and the elimination of poverty, achieved in large part by transferring rural labor to the urban−industrial economy—all accomplished in an environmentally sustainable manner. We envision an enormous government effort in transforming its role into an investor for public services and goods and fostering a market environment—enabling individual farm and nonfarm producers, consumers, and traders to make more efficient decisions and improve their welfare. 

In pursuit of this vision, two issues remain central to the government's rural development objectives: food security and poverty alleviation. China has made remarkable progress in meeting these goals; the economy, including the rural sector, has grown at phenomenal rates during the reform period. The growth of food supplies has exceeded the growth of domestic demand and China exports horticultural, livestock, other agricultural, and aquacultural products. The growth of rural industry has been an important element of recent growth as the rural economy continues to diversify. Increased productivity and income growth have reduced the massive pre-reform poverty problem, improved the standard of living of most residents, and launched the structural transformation of China from a traditional rural to a modern society.

This summary involves some of almost all the options mentioned above -- improvement of farm productivity, growth of urban jobs, growth of rural industry, and establishment of a more extensive safety net. In practice, however, it seems that the government has given the greatest emphasis in its economic policies to the growth of urban jobs and out-migration from the rural sector.

In their 2003 report "Scenario Analysis on Urbanization and Rural-Urban Migration in China", Shenghe Liu, Li, and Zhan (researchers at the Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences) summarize Chinese policy thinking on the rural question in these terms:

It has become a common consensus that the most headachy “agriculture, farmers and rural areas” (three nong) problems in China are unable to be solved by farmers themselves, inside the agriculture sector and rural areas. Promotion of the urbanization process is needed to help more rural surplus labor forces seek employment in non-agricultural activities and in cities and towns, serving the purpose of reducing the agricultural population, improving agricultural productivity and increasing the farmers’ income. In summary, reducing rural population through active promotion of urbanization is considered to be the only best way to make farmers rich. Thus, the prospects and scenarios of China’s urbanization and rural-urban migration are bound to have tremendous impacts on its agricultural development and policy making.  (link)

Or in other words, Liu, Li and Zhan reiterate the idea that rural-to-urban migration is a key part of Chinese policy for improvement of income and wellbeing in the rural areas.

Here is a short clip summarizing a study by the Institute for Rural Studies at Central China Normal University, finding that the Gini coefficient in the countryside has increased significantly. It also makes the point that a very large component in the growth of rural incomes is remittances from migrants who have found higher-paying jobs in manufacturing and construction.



Here are some resources available on the web on the subject of rural transformation in China.  A very useful treatment of the issue is Francis Tuan, Somwaru and Diao's working paper for the International Food Policy Research Institute (link). Scott Rozelle et al have a very useful paper, "The Evolution of China's Rural Labor Markets during the Reforms," that focuses on the opportunity and challenge of increasing non-farm labor in rural areas (link). A useful resource on urban-to-rural migration is a slide presentation by Kam Wing Chan from 2008, "Internal Labor Migration in China: Trends, Geographical Distribution and Policies" (link). Chan is also the author of Cities with Invisible Walls: Reinterpreting Urbanization in Post-1949 China.

Chinese authors are writing about the human side of these transformations -- rural poverty, migrant insecurity, the difficulties of urban life for poor people. Here is a book by Xin Zhang, whose title is loosely translated by a friend as An Analysis of Social Classes in China. I wish I was able to read it.

The great divergence

It has been ten years since Ken Pomeranz published The Great Divergence: China, Europe, and the Making of the Modern World Economy., a book that forced some real rethinking about the economic history in Europe and China. Along with Bin Wong in China Transformed: Historical Change and the Limits of European Experience, he called for a deep questioning of many of the basic premises of much twentieth century economic history, which was premised on the backwardness and stagnation of China and the dynamism of Western Europe. Industrial revolution and sustained economic growth were unique products of the west, and China was incapable of these transformations at the beginning of the modern epoch -- 1600, let us say.

So the central problematic for "European exceptionalism" was to identify some set of features of western society lacking in China that could account for takeoff. Was it merchant culture? Perhaps Newtonian science? Was it European family and reproductive behavior? Or perhaps it was some feature of Christianity?

Pomeranz doesn't like these theories. More basically, he doesn't accept the premise of European economic superiority in 1600, whether in institutions or ideology. He considers agriculture first and holds that Chinese agriculture was as productive in terms of land and labor as English farming; it was not undergoing involution through population increase; and it supported a rural standard of living that was competitive with that of Europe and England, his primary focus.

Pomeranz doesn't doubt that there were sharp differences in European and Chinese economic development in the 18th century. This is the "great divergence" to which he refers. But he doubts that there are grand socio-cultural explanations for this fact; instead he focuses on contingent conjunctival circumstances that gave England a lead that it maintained for 200 years. These include the fortuitous location of coal in Britain, the fact of New World wealth, and the returns if slave labor in North America. None of these is a deep systemic factor but rather a lucky break for Britain.

Bin Wong adds a different theme to the debate. He recognizes that Europe and China possessed complex political-economic systems that were different from each other. And he agrees that these systems had consequences for development. But he agrees with Pomeranz that neither system is inherently superior. And he calls for an economic history that pays attention to the differences as well as similarities. Each process of development can be illuminated by comparison to the other.

So where is the debate today? This was the focus of a productive conference at Tsinghua University in Beijing last week. Some of the primary contributors to economic history participated, including Robert Allen, Bozhong Li, and James Lee. It isn't possible to summarize the papers, but several themes emerged. The most basic is the need to bring substantially more factual detail to the debate. What we need at this point isn't more theorizing about large causes; it is more fine grained factual discovery across both Europe and China.

Three areas in particular have gotten much more factual in the debate in ten years. the first is agricultural productivity. Historians like Robert Allen and Bozhong Li have substantially sharpened our knowledge of the farm economies of England and China.

Second is the question of the historical standard of living in various places. Essentially this depends on price data, wage data, and a system for comparing consumption across countries. Here too there has been a great refinement of our knowledge. Robert Allen has contributed much of this.

Third is population behavior. The Malthusian theory of the difference between China and Europe is a stumbling block, and of course this theory was created in a fact-free universe. Now comparative historical demography has advanced a long way thanks to researchers like James Lee. The Eurasian Population and Family History Project has now refuted the Malthusian view.

A key idea in the Pomeranz debate is Philip Huang's idea that Chinese agriculture was "involutionary". The work provided by Bozhong Li demonstrates that this theory is simply incorrect when applied to the lower Yangzi River delta. Moreover, China's development after 1970 makes the theory implausible in any case. As Li pointed out at the conference, "It is inconceivable China's modern development could have occurred in the conditions of involution described in the debate." China was clearly not caught in an inescapable involutionary trap.

So there is work to be done still on the origins of the great transformation. And it is valuable for this work to take place with a global and comparative perspective. But most valuable will be detailed factual research that adds significantly to what we know about the past.

Many capitalisms?

Professor Luciano Segreto lectured in Michigan this week on the subject of a comparison between US and European capitalisms.  Segreto is professor of International Economic History, Financial History, and the History of Regional Economic Development at the University of Florence.  His lecture was fascinating in many ways, but of special interest here is whether there is one capitalism or many.  Segreto's view is that there are multiple capitalisms that have been implemented in various countries -- England, France, Germany, Italy, the United States, and Japan, to consider a short list; and that these systems of political economy differ in significant ways.  He identifies different structures of the markets, different relations between technology and economic development, and significantly different ways in which finance and banking systems have been implemented as important dimensions of difference across these systems of political economy.

The idea that there are distinct versions of capitalism is not a new one. Peter Hall and David Soskice's Varieties of Capitalism: The Institutional Foundations of Comparative Advantage looks at recent work on the important institutional variations that exist across existing forms of market economies.  Charles Sabel's historical investigations of alternative pathways of capitalist development represent one important line of thought on the question, and Frank Dobbin's investigation of the different ways that the technology of the railway were incorporated in Britain, France, and the United States represents another important line of thought.  For Sabel the distinctions have to do with the ways in which skilled labor and workers were incorporated into the political economy (World of Possibilities: Flexibility and Mass Production in Western Industrialization (Studies in Modern Capitalism); link); for Dobbin it is the differences in political culture defining the role of state involvement in central economic institutions that made the largest difference (Forging Industrial Policy: The United States, Britain, and France in the Railway Age; link).

In listening to Professor Segreto I was drawn to a different way of analyzing the differences across historically realized capitalisms in the past century and a half.  We might imagine that there are three "attractors" that define a modern capitalist political economy: the values associated with the market and independent decision making by corporations and entrepreneurs; the value associated with the establishment of regulations protecting the common good and the safety and health of the public; and the value associated with securing the welfare of the whole population, involving a social security system and a willingness to redistribute income and wealth through taxation. This suggests the following diagram:

 

The graph is offered only for the purpose of illustration of the idea. I have included the country's 2011 HDI (link) and 5-year growth rate (link), but I don't have data to allow scaling of these economies according to the three dimensions mentioned here.  But I'm sure that a capable graduate student would be able to come up with some available measures to do a much more rigorous job of pacing national economies in this tri-polar graph.  Measures of regulation might include degree to which key industries like energy, chemicals, pharmaceuticals, and food are effectively regulated by independent agencies. Measures of welfare-state commitments would include breadth of health system coverage, unemployment coverage, old age coverage, and percentage of GDP devoted to social programs.  And measures of free markets might include the degree to which companies can make choices unencumbered by regulations on safety, labor relations, market concentration, etc., as well as the effective rate of corporate taxation.

The United States and the United Kingdom seem to be on the low side among OECD countries in terms of both effective regulation and commitment to social welfare principles; Russia and China seem to afford quite a wide scope of business freedom but limited regulation of environment and safety and limited commitment to a social safety net; Sweden, France, and Germany have substantially greater commitment to effective state regulation of industry and to a high social minimum; Greece seems to have had high social welfare commitments but relatively low regulation of industry; and so forth.

We might label the three extremes of the diagram as "unencumbered business/corporate system," "technocratic state," and "social welfare state."

It is significant that the political ideology of the right in the United States has for the past three decades waged a determined struggle against two of the poles of this analysis -- regulation and social welfare policies.  Under the legislative and executive influence of politicians with this "small government" ideology, the political economy of the United States has been pushed further and further into the corner of untrammeled free market activity by corporations and individuals. Along the way the idea that government serves as a key guarantor of the public good has dwindled in importance.

Is this a useful way of characterizing the political economies of the contemporary world? And how would readers readjust the locations of the twelve economies listed relative to the poles of the diagram?

Woodward Avenue

How does a rust belt city relaunch itself? How can the stakeholders of Detroit, Cleveland, or Milwaukee begin to reinvent their cities and get on a track that leads to greater prosperity, health, and educational attainment that can eventually result in opportunity and quality of life for the urban majority?

The factors that led to Detroit's crisis were extended and multiple -- loss of manufacturing jobs, white flight, collapsing city revenues, sudden decline in the public school system, city government mismanagement and corruption, and state and federal neglect, to name several. And the crisis has extended over many decades. Tom Sugrue documents that the seeds of decline began earlier than the standard narrative -- white flight was well underway in the 1950s (The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit). The 1967 uprising was a major punctuation mark in the process, but it was an effect as much as a cause of the decline.

So what can be done today? A key part of the puzzle is bringing good jobs back into the city. This is why there has been so much excitement about the decisions by Compuware, Quicken Loans, and Blue Cross/Blue Shield to relocate their headquarters back into the city. The impact is substantial -- something like 10,000 jobs have been brought back into the city, with more to come. Along with the jobs comes a flurry of collateral developments -- student interns who come to love the city, demand for housing, new restaurants and cafes along Woodward, and a significant multiplier of jobs associated with these new service businesses.

There is a lot of purposiveness in these business developments, with a good portion of civic-mindedness in the mix. These business leaders wanted to make a difference in the city of Detroit, and their decisions about where to locate their companies help to carry this out. There is a deliberate effort on the part of this group of new-economy business leaders to attract innovative companies to the corridor. Detroit has a long tradition of creativity and the arts. Business leaders want to extend this tradition in the direction of innovative high-tech startups that can take root in Detroit. The goals for the Madison Building restortation illustrate this goal -- beautiful open-design space for innovative companies that should strike synergies in the coming years. Twitter opened a Detroit office in the building in the spring.

It's not simply Michigan chauvinism to say that Detroiters are resourceful. This is an important resource for the future for the city. But the people of the city need some concrete things in order to turn their talents into success -- jobs, healthcare, decent education, and better urban transportation.

A leading land use planner for one of the auto companies offered a theory about Detroit's eventual recovery to me about ten years ago. His theory was that the key to success is the recovery of tens of thousands of professional jobs in the core of the city. At its peak in the 1950s he estimated that there were perhaps 150,000 such jobs in the city of Detroit, and this constituted an economic engine for the city through direct and indirect economic effects. At the low point in the 1990s he estimated that this number had fallen to perhaps 20-30,000 jobs -- not enough to support the development the city needed. He projected that if the city could return to 80-90,000 well-paying professional jobs, almost all its other problems would be solvable.

The steps taken by major and small companies in the past five years to locate their operations downtown are a very significant step towards that goal. It seems likely that the three major relocations into the city have resulted in 8-10,000 jobs in the city, and these workers are adding a lot to the vitality of the city as well.

So that's part of the reason why Woodward Avenue is a happening place today. There are appealing cafes along the street serving lunch to workers in the Compuware Building, there is Motown music blasting from an informal market across the street, and there is a sense of a lively urban environment. What will it look like in ten years?

David Graeber's reflections on money, debt, and violence

David Graeber's Debt: The First 5,000 Years has hit a chord with a lot of people who are concerned about rising inequalities in the United States and elsewhere.  Graeber is an economic anthropologist, a discipline that pays close attention to the ways that material arrangements worked in detail in pre-state societies. One of the great works in this field is Marshall Sahlins' book, Stone Age Economics, which paid very close ethnographic attention to how the social arrangements worked in hunter-gatherer societies when it came to gathering and consuming food and other necessities of life. (My main recollection is that Sahlins found that hunter-gatherers worked much shorter days than their successors, the farmers, and had much more time to enjoy the finer things of life, including stories and jokes.)  Graeber is also described as one of the intellectual sources of the Occupy Wall Street movement, and anti-globalization activism has been an important part of his life for a long time.  (Here is a story in Bloomberg that gives a lot of interesting background.)

The book is difficult to characterize.  It's about debt and money through history, but it's really not a work in economic history.  It offers a lot of ethnographic detail about borrowing, lending, gifting, and reciprocating, but it's not really a work of anthropology.  And it offers morally valenced language to describe debt and credit, but it's not really a polemical critique of the present financial system.  It is certainly an engaging, interesting, and thought-provoking book, and Graeber appears to know a great deal about the social and institutional histories of the main civilizations of Eurasia.

One line of thought is perfectly clear in the book: Graeber wants to demolish the myth of the truck-and-barter origins of money.  This is the standard story within classical and neoclassical economics. But Graeber thinks it is a complete fiction.  He regards this as a just-so story that doesn't make any sense ethnographically, and has never been observed in real pre-state societies.

The story, then, is everywhere. It is the founding myth of our system of economic relations. It is so deeply established in common sense, even in places like Madagascar, that most people on earth couldn't imagine any other way that money could possibly have come about.

The problem is there's no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not. (28)

Graeber's case for this position seems to be a sound one.  But why exactly does it matter?  It seems to be a bit analogous to literal-minded social contract arguments: that the state is legitimate because it descends from a primordial agreement among all citizens to create its authority.  But discrediting the origins story doesn't really tell us anything about the functioning system.  We have an economic system today that coordinates activity through money and credit, and it doesn't really matter very much if we know exactly how it came about.  I think that Graeber is focused on the issue because he thinks the myth helps to convey the view that the contemporary economist's view of human activity -- self-serving actions designed to maximize one's own utility -- is in fact an historical universal, applying to pre-modern and non-western social settings as well as to the New Orleans cotton exchange.

It's money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things. (44)

Graeber's view, by contrast, is that most human activity doesn't conform to this model; that the gift relation and the practice of open-ended reciprocity are much more characteristic of the human condition.

There are many startling facts and descriptions that Graeber produces as he tells his story of the development of the ideologies of money, credit, and debt.  One of the most interesting to me has to do with The Wonderful Wizard of Oz.

L. Frank Baum's book The Wonderful Wizard of Oz, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform -- vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold. ... According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn't have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn't have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn't have the courage to intervene). ... "Oz" is of course the standard abbreviation for "ounce." (52)

(This is roughly as startling to me as an interpretation of Star Wars as an extended allegory on Reaganism (intervention in Nicaragua, scary military officers in the background, etc.). This doesn't quite work, though, since Star Wars appeared in 1977, three years before Reagan's first election as president.)

One of Graeber's recurring themes is that money and debt are reciprocals of each other.  He tells many stories about IOU's being passed around within a community: John promises to give X to Alice; Alice passes on the IOU to Robbie in exchange for a beer; Robbie takes the IOU to the nail shop and exchanges it for a pound of nails from Bert; and Bert eventually comes back to John to redeem the IOU. In this circuit, the statement of debt serves as a basis for folk currency within a local society.  But Graeber argues that the establishment of Bank of England resulted in bank notes that were no more or less than IOU's from the state (49).

Another theme that comes into the book is the close connection that Graeber draws between money and currency, and violence and war.  He argues that trust and extended credit arrangements work very well during periods of peace; whereas a period of extended warfare puts a premium on the portability and anonymity of precious metals.  So warfare pushes societies (and monarchs) towards the use of currency made out of precious metals.  He goes further: monarchs needed to pay their armies, in Europe, central Asia, and East Asia; and precious metals (coins) work best for the heavily armed and footloose soldiers who made up those armies.

As a result, while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal. (213)

And:

The Atlantic Slave Trade as a whole was a gigantic network of credit arrangements. Ship-owners based in Liverpool or Bristol would acquire goods on easy credit terms from local wholesalers, expecting to make good by selling slaves (also on credit) to planters int he Antilles and America, with commission agents in the city of London ultimately financing the affair through the profits of the sugar and tobacco trade. (149)

Graeber has a preferred alternative to a society based on barter, market exchange, debt, warfare, slavery, and peonage.  It is what he calls a "human economy":

This is why I developed the concept of human economies: ones in which what is considered really important about human beings is the fact that they are each a unique nexus of relations with others -- therefore, that no one could ever be considered exactly equivalent to anything or anyone else.  In a human economy, money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so. (207)

An intriguing, and somewhat perplexing, part of Graeber's analysis is his effort to link the value systems of Eurasia's great civilizations to the social creation of money, credit, and debt.  A central thrust here is his analysis of the "Axial Age" -- the period from 800 bc to 600 ad when there was great creativity in the emergence of new spiritual leaders and movements.  There was, simultaneously, extensive warfare; and there was the simultaneous invention of currency in several widely separated places.  He illustrates this nexus with the case of China:

The golden age of Chinese philosophy was the period of chaos that preceded unification [during the Warring States period], and this followed the typical Axial Age pattern: the same fractured political landscape, the same rise of trained, professional armies and the creation of coined money largely in order to pay them. We also see the same government policies designed to encourage the development of markets, chattel slavery on a scale not seen before or since in Chinese history, the appearance of itinerant philosophers and religious visionaries, battling intellectual schools, and eventually, attempts by political leaders to transform the new philosophies into religions of state. (235)

So what is the connection he wants to draw between value systems, social violence, and money?  It is unclear to me; somehow Graeber weaves together a fascinating narrative involving each of these. He does think there is a connection, but it's difficult to see what is thought to be causal in the story.

In fact, some of the historical connections are so uncannily close that they are very hard to explain any other way. Let me give an example. After the first coins were minted around 600 bc in the kingdom of Lydia, the practice quickly spread to Ionia, the Greek cities of the adjacent coast. The greatest of these was the great walled metropolis of Miletus, which also appears to have been the first Greek city to strike its own coins.  It was Ionia, too, that provided the bulk of the Greek mercenaries active in the Mediterranean at the time, with Miletus their effective headquarters. Miletus was also the commercial center of the region, and perhaps, the first city in the world where everyday market transactions came to be carried out primarily in coins instead of credit. Greek philosophy, in turn, begins with three men: Thales, of Miletus (c. 624 bc- c546 bc), "Anaximander, of Miletus (c. 610 bc- c546 bc), and Anaximenes, of Miletus (c. 585 bc- c525 bc) -- in other words, men who were living in that city at exactly the time that coinage was first introduced. (244)

He pulls out "materialism" as a thread in the philosophical systems that emerged in the Axial Age -- China as well as Greece -- and suggests an analogy between the idea of an abstract fundamental physical substance that is the substrate of everything physical, and the idea of an abstract unit of measure of all commodities, money (245); but it's hard to see a consistent and compelling idea here about the intertwining development of philosophy and economics.  Here is the closest he comes to a statement of the nature of the connection he finds:

What we see then is a strange kind of back-and-forth, attack and riposte, whereby the market, the state, war, and religion all continually separate and merge with one another. (248)

Where does it all lead?  After a walk through the Middle Ages (major improvement in quality of life over the Axial Age, according to Graeber), we get to capitalism:

Starting from our baseline date of 1700, then, what we see at the dawn of modern capitalism is a gigantic financial apparatus of credit and debt that operates -- in practical effect -- to pump more and more labor out of just about everyone with whom it comes into contact, and as a result produces an endlessly expanding volume of material goods. (346)

Does he bring this parable to a practical piece of advice?  He does, actually:

In this book I have largely avoided making concrete proposals, but let me end with one. It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one's debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all agree to arrange things in a different way. (390)

As I mentioned at the start, Graeber is also an activist who has been strongly involved in anti-globalization protests in the past fifteen years.  His Direct Action: An Ethnography is an interesting cross-over book bringing together his anthropologist's training and his activist experience; it is an ethnography of the anarchist activism movement as he has experienced it.  I'll discuss this work in a future post.

Here are two interviews with Graeber that give a pretty good idea of his style and critical views about the present (link, link).  Both are very interesting to listen to.