ACCOUNTING FOR THE GREAT DIVERGENCE

Stephen BroadberryLondon School of Economics

October 2012

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

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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

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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

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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

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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

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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

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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

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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

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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

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

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England/

GB Holland/

NL Italy Spain

1270 759 957 1300 755 1,482 957 1348 777 876 1,376 1,030 1400 1,090 1,245 1,601 885 1450 1,055 1,432 1,668 889 1500 1,114 1,483 1,403 889 1570 1,143 1,783 1,337 990 1600 1,123 2,372 1,244 944 1650 1,100 2,171 1,271 820 1700 1,630 2,403 1,350 880 1,563 1750 1,710 2,440 1,403 910 1800 2,080 2,617 1,244 962 1,752 1820 2,133 1,953 1,376 1,087 1850 2,997 2,397 1,350 1,144

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

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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

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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

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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

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

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Japan China India 730 480 900 520 980 1,328 1086 1,244 1120 962 1150 600 1280 646 1300 1400 948 1450 688 946 1500 909 1570 898 1600 787 852 682 1650 834 638 1700 897 843 622 1750 814 737 573 1800 874 639 569 1850 933 600 556

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

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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

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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

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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

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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

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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

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

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England/

GB Holland/

NL Italy Japan China India

730 401 900 428 980 1,328 1086 754 1,244 1120 962 1150 518 1280 679 525 1300 755 1,376 1400 1,090 1,245 1,601 948 1450 1,055 1,432 1,668 525 946 1500 1,114 1,483 1,403 909 1570 1,143 1,783 1,337 898 1600 1,123 2,372 1,244 572 852 682 1650 1,110 2,171 1,271 557 638 1700 1,563 1,403 1,350 627 843 622 1750 1,710 2,440 1,403 596 737 573 1800 2,080 1,752 1,244 639 639 569 1850 2,997 2,397 1,350 679 600 556

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

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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

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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

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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

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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

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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

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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

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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

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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

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

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At current

prices At constant 1700 prices

1270s 39.9 30.8 1300s 48.8 33.6 1350s 51.2 46.7 1400s 53.7 42.5 1450s 61.6 46.9 1550s 41.9 39.5 1600s 41.9 41.2 1650s 35.5 36.0 1700s 40.3 38.5 1750s 42.2 45.4 1800s 51.5 54.7 1850s 55.2 55.8 1860s 60.0 55.7

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)

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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

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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

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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

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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

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TABLE 5: Annual days worked per person in England

Period Blanchard/Allen

and Weisdorf Clark and

van der Werf Voth

1433 165 1536 180 1560-1599 257 1578 260 1584 210 1598 259 1600-1649 266 1650-1699 276 1685 312 1700-1732 286 1733-1736 295 1760 258 1771 280 1800 333 1830 336 1867-1869 293-311 1870 318

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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

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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

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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

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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

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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

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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

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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

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TABLE 6: Female age of first marriage

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Period Range Unweighted

average England 1600-1849 23.4 to 26.5 25.4 Japan 1680-1860 18.8 to 24.6 22.1 China 1550-1931 17.2 to 20.7 18.6 India 1911-1931 12.9 to 13.3 13.0

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

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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”

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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

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3.3 Accounting for the Great Divergence

• A. Black Death: led to permanent upward shift of GDP p.c. in NSA, which did not occur in rest of Europe or Asia

• B. Long distance trade: accelerated divergence: – In Europe, openness strengthened position of

merchants in GB & Holland, but not in Spain or Portugal

– In Asia, Japan and China turned inwards and although India remained open, merchants unable to impose constraints on executive

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Accounting for Great Divergence

• C. Agriculture: different agricultural systems mattered: – Large pastoral share put NW Europe on a path to

high-value-added, capital-intensive, non-human-energy-intensive production

– These techniques spread from agriculture to industry and services, which accounted for a growing share of output

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Accounting for Great Divergence

• D. Marriage patterns also mattered:– High female age of first marriage in NW Europe,

led to lower fertility and more human capital – Early female marriage in India & China, Japan an

intermediate case• E. Industrious revolution more important in

explaining Little Divergences within Europe and Asia than Great Divergence: similarities between NSA and Japan

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4. CONCLUSIONS

• A. Measurement• Traditional view of early modern origins of Great

Divergence is confirmed• But revisionists correct to point to regional variation

within both continents• Little Divergence within Europe: reversal of fortunes

between North Sea Area and Mediterranean Europe• Little Divergence within Asia: Japan overtook China

and India

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Conclusions

• B. Explaining the Great Divergence• Black Death led to permanent p.c. income gain in

NSA, but not in rest of Eurasia• Long distance trade accelerated divergence through

effects on merchant class• Pastoral agriculture put NSA on capital-intensive path• Late marriage in NSA lowered fertility• Industrious revolution more important in explaining

Little Divergences within Europe and Asia

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More research needed!

• I would claim that historical national accounting has now made a substantial contribution to understanding the Great Divergence

• But there is more to be done• Historical national accounts needed for more countries,

reaching further back in time • More regional disaggregation needed within large

countries• Much more comparative data needed on the

explanatory variables

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