ACCOUNTING FOR THE GREAT DIVERGENCE

1. ACCOUNTING FOR THE GREAT DIVERGENCE Stephen Broadberry London School of Economics October 2012

2. 1. INTRODUCTION • Great Divergence debate has had big impact on economic history • Traditionally, economic historians saw Industrial Revolution as culmination of process of gradual improvement in Europe, with Asia stagnating • Pomeranz questioned eurocentric bias of this view

3. Pomeranz • As late as 1800, richest parts of Asia (Yangzi Delta, South India, Japan) seen as on same development level as richest parts of Europe (GB and Holland) • Great Divergence seen as C19th phenomenon, attributable to coal and colonialism • But revisionists did not present systematic quantitative data

4. Accounting • The title of the lecture is “Accounting for the Great Divergence” and I want to use the word “accounting” in 2 ways: measurement and explanation • Measurement: revisionists have exaggerated development level of most advanced Asian economies in 1800 • Traditional view of early modern origins of Great Divergence is hence confirmed

5. Measurement • Nevertheless, revisionists correct to point to regional variation within both continents • Within Europe, Little Divergence between North Sea Area and Mediterranean Europe, as Britain and Holland overtook Italy and Spain • Within Asia, another Little Divergence occurred, with Japan overtaking China and India

6. Explanation • Black Death led to permanent upward shift of p.c. incomes in NSA, which did not occur in rest of Europe or Asia • Long distance trade accelerated divergence through effects on position of merchant class • Mixed agriculture with large pastoral component put NSA on path to high-value-added, capital-intensive, non-human-energy-intensive production

7. Explanation • High female age of first marriage in NSA led to lower fertility and more human capital • Industrious revolution more important in explaining Little Divergences within Europe and Asia than Great Divergence: similarities between NSA and Japan

8. 2. MEASURING ECONOMIC GROWTH BEFORE 1870 • Until recently, most accounts of economic growth before 1870 largely qualitative • Maddison (2001) provided first systematic dataset, but large amount of “guesstimation”, with many observations set at $400 in 1990 international prices • This is equivalent to most people living at “bare bones subsistence”, or $1 per day, with a small rich elite • Recent work has established estimates based on hard data

9. 2.1 Europe • For some European countries (e.g. GB, NL), abundant quantitative information has survived, so sectoral HNA can be provided in great detail • For other countries (e.g. Italy, Spain), information more limited, short-cut method for reconstructing GDP developed • Agriculture: demand depends on population, real wage and relative price of food • Non-agriculture: urbanisation

10. Revisions for Europe • Data sources: • England/GB: Broadberry, Campbell, Klein, Overton and van Leeuwen (2011) • Holland/NL: van Zanden and van Leeuwen (2012) • Italy: Malanima (2011) • Spain: Álvarez-Nogal and Prados de la Escosura (2012) • New estimates revise upwards level of p.c. GDP in medieval W. Europe, which was richer than Maddison thought

11. TABLE 1: GDP per capita levels in Europe (1990 international dollars)

12. Europe’s Little Divergence • Before Black Death in 1348, p.c. incomes substantially higher in Italy and Spain than in England and Holland • Reversal of fortunes between North Sea Area and Mediterranean Europe: by 1800 p.c. incomes substantially higher in GB and NL than in Italy and Spain • Italy, England and Holland all experienced substantial increase in p.c. incomes across Black Death, as population fell sharply

13. Europe’s Little Divergence • Spain did not share in this Malthusian response to Black Death • Italian incomes increased but fell back to pre-Black Death level as population growth returned after 1450 • Little Divergence occurred with surge in p.c. incomes in NSA, led initially by Holland with Golden Age 1500-1650, then by GB after 1650

14. 2.2 Asia • Raw data available in abundance for some Asian economies (e.g. China), but still needs much processing • For China, can produce annual estimates of GDP from output side, with gaps during dynastic changes • Data for Japan and India less abundant, but sufficient to use short-cut method developed for Europe

15. Revisions for Asia • Data sources: • Japan: Bassino, Broadberry, Fukao, Gupta and Takashima (2012) • China: Broadberry, Guan and Li (2012) • India: Broadberry and Gupta (2012) • New estimates suggest upward revision of early GDP p.c. compared with Maddison’s estimates, but not generally on same scale as in Europe

16. TABLE 2: GDP per capita levels in Asia (1990 international dollars)

17. Asian Little Divergence • Japan had very low levels of p.c. GDP at start of 2nd millennium, then experienced modest but steady growth at 0.06% p.a. through to mid-C19th • Japan’s more dynamic growth after Meiji Restoration in 1868 thus built on this earlier progress • Chinese p.c. GDP, by contrast, was on a downward trajectory from its high-point during Song Dynasty

18. Asia’s Little Divergence • On these estimates, Japan overtook China during the C17th • India shared in Chinese pattern of declining p.c. GDP from 1600, at height of Mughal Empire under Akbar • However, Japan already slightly ahead of India by 1600, when our Indian series starts

19. Asia’s Little Divergence • Asian Little Divergence thus parallels European Little Divergence quite closely • If North Sea Area economies of GB, NL and Belgium are added together, they show continuous upward trajectory from mid-C14th to mid-C19th, much as in Japan • Just as stagnation and decline characterises Europe outside NSA, so too we find stagnation and decline in Asia outside Japan

20. Regional variation • Of course China is a large economy, and it would be desirable to disaggregate further • Perhaps the Yangzi Delta was on a par with Japan until the C19th? • Li and van Zanden have produced a comparison of GDP per capita in Yangzi Delta and NL in 1820s • Li and van Zanden find per capita incomes in the Yangzi Delta 53.8% of the level in the Netherlands during the 1820s

21. Regional variation • This suggests a p.c. GDP figure of around $1,050 for Yangzi Delta (in 1990 international dollars), slightly above Japanese level • Recent paper by Tirthankar Roy finds p.c. incomes in Bengal were around 20% of British level in 1760s • This is a bit lower than average for India (34% in 1750, falling to 27% by 1801), as would be expected for a relatively poor region

22. 2.3 Great Divergence • Let’s now put together Europe and Asia in Table 3 and focus on the Great Divergence • China was richer than England in 1086. However, we have to remember that England was a relatively poor part of Europe in the C11th • Comparing China with the richest part of medieval Europe, it seems likely that Italy was already ahead by 1300

23. TABLE 3: GDP per capita levels in Europe and Asia (1990 international dollars)

24. Great Divergence • But need to be careful here, since a smaller region of China such as the Yangzi Delta may still have been on a par with Italy in 1500 • This would be consistent with accounts in earlier, qualitative literature • However, with rise of Holland during its Golden Age, there can be little doubt that Great Divergence already well underway during C16th and C17th

25. Great Divergence • By this stage, discrepancy between aggregates for China and Holland too large to be bridged by regional variation • Pomeranz (2011) now accepts that his earlier claim of China on a par with Europe as late as 1800 was exaggerated, and settles for earlier date of 1700 • Japan followed similar trajectory to North Sea Area, but at much lower level, and continued to fall behind West until after Meiji Restoration in 1868

26. 3. EXPLAINING ECONOMIC GROWTH • Armed with estimates of economic growth before 1870, now turn attention to accounting for Great Divergence in sense of explanation • Begin by explaining Europe’s Little Divergence before turning to Asia’s Little Divergence and Great Divergence between Asia and Europe

27. 3.1 Europe’s Little Divergence A. Black Death • Catching-up process in NSA starts with Black Death of mid-C14th • GB and Holland experienced an increase in per capita incomes • Spain did not share in this Malthusian response to Black Death • Álvarez-Nogal and Prados de la Escosura explain this by high land-to-labour ratio in frontier economy during Reconquest

28. Black Death • Instead of reducing pressure on scarce land resources, Spanish population decline destroyed commercial networks and isolated scarce population, reducing specialisation & division of labour • Although Italy shared in p.c. income gains after 1350, they disappeared after return to population growth from 1450

29. B. Long distance trade • Reversal of Fortunes pivots around 1500, when p.c. incomes approximately $1,500 in both Italy and Holland • NSA forged ahead after 1500, led initially by Holland during its Golden Age (1500-1650), later by GB • GD often linked to developments in trade: • New routes to Asia around south of Africa • Europe’s encounter with Americas

30. Trade and institutions • Might have expected Spain and Portugal to have been gainers from these changes, since both were pioneers and had Atlantic as well as Mediterranean coasts • Acemoglu, Johnson & Robinson explain success of GB & Holland (and failure of Spain & Portugal) through an interaction between Atlantic access and institutional constraints on executive power

31. AJR • In GB & Holland, constraints on rulers sufficient to ensure rulers unable to appropriate bulk of gains from trade • In Spain & Portugal, rulers sufficiently strong to exploit opportunities themselves and prevent strong merchant class from constraining their powers to appropriate

32. C. Agriculture • Success of NSA may also be linked to agriculture and structural change. • Agriculture in NSA more animal oriented. This did not create more kilocalories per person, but food was more processed • Characteristics important for future growth: • High value added • Capital intensive • Non-human energy intensive

33. TABLE 4: Share of pastoral sector in English agricultural value added, 10-year averages (%)

34. Agriculture and structural change • North Sea Area pulled ahead of Mediterranean Europe as high-value-added, capital-intensive, non-human-energy-intensive techniques spread from agriculture to industry and services • And as industry and services became more important with structural change (partly as result of trade)

35. D. Marriage patterns • Hajnal argued that northwest Europe had different demographic regime from rest of continent, characterised by later marriage and hence limited fertility • Although he originally labelled this European Marriage Pattern, he later realised it applied only to NW Europe • This linked to labour market opportunities for females, which de Moor and van Zanden link in turn to pastoral agriculture

36. Marriage patterns • Fewer children associated with more investment in human capital • Development in North Sea Area characterised by human as well as physical capital intensity • These developments helpful in breaking out of Malthusian Trap

37. E. Industrious revolution • One other difference between NW Europe and southern Europe which has received attention is attitudes to work • Idea can be traced back originally to Max Weber and protestant ethic, but most recent version is “Industrious Revolution” • This term widely associated with de Vries’s work on Europe, but actually coined by Hayami working on Japan

38. Industrious Revolution • Basic idea is that people worked harder to obtain new goods made available by long distance trade and industrial innovation • Following Reformation, number of holidays in Europe reduced by around 50, and during industrial revolution St Monday disappeared, removing another 50 holidays • Can see this as increasing labour intensity in SR, but as incomes increased, savings also increased, providing funds for investment and increasing capital intensity in LR

39. TABLE 5: Annual days worked per person in England

40. 3.2 Asia’s Little Divergence • Although idea of Chinese decline since Song Dynasty not new, and Japanese post-Meiji growth widely seen as building on foundations laid in Tokugawa Shogunate, there is no prior literature on an Asian Little Divergence • Here draw out parallels with European Little Divergence

41. A. Black Death • Black Death did not play an important role in Asian Little Divergence, in contrast to Europe • No signs of positive effect from Black Death on p.c. incomes in Asia • Not surprising in Japan, which remained isolated from Black Death • However, large decline in China’s population during C14th

42. Black Death • This did not have positive effect on p.c. incomes since coincided with Mongol interlude • Mongol interlude destroyed institutional framework that had underpinned high p.c. incomes of Song Dynasty • This reduced specialisation and division of labour, closer to experience of Spain than to that of England or Italy

43. B. Long distance trade • While European states engaging in voyages of discovery during C15th, Asian states turned inwards • Both Japan and China adopted restrictive closed door policy to long distance trade, which suggests won’t help in explaining Little Divergence within Asia • Indeed, within Asia, India was most open to trade

44. Trade and institutions • Returning to AJR, however, India’s participation in long distance trade did not lead to emergence of merchant class strong enough to impose constraints on executive • Indian merchants thus shared similar position to Spanish or Portuguese merchants rather than British or Dutch merchants • Note that it was European rather than Asian companies that brought Asian goods to Europe

45. C. Agriculture • Agriculture much less animal oriented in both China and Japan than in Europe, so this factor again sheds little light on Little Divergence within Asia • But this is important in explaining Great Divergence

46. D. Marriage patterns • Hajnal: different marriage pattern in NW Europe compared with rest of Europe • Although female age of marriage in China and India much lower, Japan was an intermediate case, closer to experience of NW Europe • Average age 22.1 in Japan, compared with 25.4 in England, but 18.6 in China and 13.0 in India

47. TABLE 6: Female age of first marriage

48. E. Industrious revolution • This later marriage in Japan also linked to labour force participation of women, which underpinned industrious revolution • de Vries influenced by Hayami’s work on Tokugawa Japan when arguing for an industrious revolution in Europe • On closer inspection, Hayami’s interpretation is a bit different for Japan

49. Industrious revolution • Indeed, Hayami generalised his idea to an East Asian industrious revolution, based on rice cultivation, and seen as basis of an alternative to western capital-intensive industrialisation • This idea picked up by Pomeranz, who argues for a Chinese industrious revolution • However, Huang argues that this is a misinterpretation of what he calls “involution”

50. Industrious revolution • For Huang, Chinese over-population led to smaller landholdings, driving women to work in proto-industry just to remain at subsistence • This leaves out crucial demand side of de Vries’s notion of an industrious revolution: working harder to consume luxury goods • In Western Europe and Japan, harder work brought rising income & consumption per head