Discussion Questions on: Robert Allen: Global Economic History: A Very Short Introduction: http://amzn.to/2geOoHp:
Before Class Begins: Background Reading Quiz: Answer all 8 multiple choice questions before the first lecture:
(1) What does Allen say about the state of the world economy before 1500?
- that economies were poor; the rate of growth was very slow; and inequalities across countries were moderate
- that economies were poor; the rate of growth was very slow; and inequalities across countries were very high
- that economies were moderately rich; the rate of growth was very slow; and inequalities across countries were moderate
- that economies were poor; the rate of growth was fast; and inequalities across countries were moderate
- that economies were moderately rich; the rate of growth was moderately fast; and inequalities across countries were moderate
- none of the other answers
(2) How does prosperity in the world today compare to that of the year 1500?
- the world today is richer by a factor of more than 10
- the world today is richer, but by a factor of less than 5
- the world today is about as prosperous as in 1500, but much more unequal
- the world today is about as prosperous as 1500, but much less unequal
- it makes no sense to compare societies as different from each other as ours and theirs
- none of the other answers
(3) How does inequality in the world today compare to that of the year 1500?
- the world today is much more unequal, but all but the poorest countries are richer than the average country was in 1500
- the world today is much more unequal, and middle income countries are about as rich as the average country in 1500
- the world today is about as equal as it was in 1500--and the average country is much richer
- the world today is about as equal as it was in 1500, and the average country is about as well off
- it makes no sense to compare societies as different as ours and theirs
- none of the other answers
(4) What does Allen say are the principal causes of the wealth of the rich nations in the world today?
- the development and deployment, through inventions, investment, and organizational trial and error, of the machine-based technologies of the Industrial Revolution
- exploitation of the resources of emerging market economies
- the institutions installed as a result of the Glorious Revolution of 1688 in Britain
- the ideological repression of the working class in the Global North by propaganda
- the superior natural resource endowments found in all western European and North American economies
- none of the above answers
What does Allen say are the principal factors that determine whether a country today is among the rich nations?
- a relatively high initial wage level; plus adoption of the standard four Hamiltonian development policies in the 19th century, or a "Big Push" state-led development in the 20th century
- a relatively low initial wage level; plus adoption of the standard four Hamiltonian development policies in the 19th century, or a "Big Push" state-led development in the 20th century
- a relatively high initial wage level; plus adoption of the standard four Hamiltonian development policies in the 19th century, and avoiding the mistake of a "Big Push" state-led development in the 20th century
- a relatively high initial wage level, or a "Big Push" state-led development in the 20th century
- a relatively high initial wage level; plus adoption of the standard four Hamiltonian development policies in the 19th century
- none of the other answers
(6) How do living standards and productivity levels in non-rich countries compare to those of the year 1500?
- significantly better than those of 1500
- about the same as 1500
- worse than those of 1500 because of deforestation and other resource depletion factors
- superior in manufacturing, but inferior in agricultural productivity
- superior, but only because of the spread of information technologies like smartphones
- none of the other answers
(7) How do living standards and productivity levels in non-rich countries compare to those of rich countries today?
- vastly inferior--the largest relative gap ever in world history
- about the same relative gap as found throughout history
- poorer countries today are closer in relative wealth to rich countries than they have been in the past
- civilizations are really too different across time and space for any such comparisons to make sense
- we really do not have a solid enough quantitative base of evidence to say
- none of the other answers
(8) What does Allen have to say about the likely future of the world economy?
- prosperity will continue to grow, but currently-poor countries will find it difficult to engage in the "Big Push" needed to bring them closer to the rich
- resource depletion will soon bring Modern Economic Growth to its end
- the next two generations are likely to see a "Singularity" that will transform human life out of all recognition
- convergence to a common level of prosperity, for the way to engage in a "Big Push" to catch up to the world's rich nation is now well known
- unfavorable, for World War III will be much more destructive than World War II, and we are unlikely to be able to avoid it for more than another generation
- none of the other answers
Passages from: Robert Allen: Global Economic History: A Very Short Introduction: http://amzn.to/2geOoHp: Passages from Allen
The present division between rich and poor largely emerged since Vasco da Gama sailed to India and Columbus discovered the Americas.... We can divide the last 500 years into three periods. The first... from 1500 to about 1800... the mercantilist era.... The second period of catch-up in the 19th century, [when] Western Europe and the USA made economic development a priority and tried to achieve it with a standard set of four policies: creation of a unified national market by eliminating internal tariffs and building transportation infrastructure... an external tariff... banks to stabilize the currency and finance industrial investment; and... mass education.... Western Europe and North America... joined Britain to form today’s club of rich nations. In the 20th century, the[se] policies... proved less effective.... The countries that have closed the gap with the West in the 20th century have done so with a Big Push that has used planning and investment coordination to jump ahead...
In 1820, Europe was already the richest continent. GDP per head was twice that of much of the world.... [In] the Netherlands... average income (GDP)... [was] $1,838 per person.... Britain was... second richest economy... an income of $1,706 in 1820.... Canada, Australia, New Zealand, and the USA... between $1,100 and $1,200. The rest of the world lagged behind, with per capita incomes between $500 and $700. Africa was the poorest continent at $415. Today’s rich countries have average incomes of $25,000–$30,000, much of Asia and Latin America average $5,000–$10,000, while sub-Saharan Africa has reached only $1,387...
There are exceptions to income divergence. East Asia... bucked the trend and improved its position [with] Japan... the greatest success of the 20th century.... Equally dramatic has been the growth of South Korea and Taiwan. The Soviet Union was another... less complete.... China may be repeating the trick today...
From 1750 to 1880, the British Industrial Revolution was the major event. In this period, Britain’s share of world manufacturing increased from 2% to 23%... [as] British competition... destroyed traditional manufacturing in Asia.... 1880 to the Second World War was marked by the industrialization of the USA and continental Europe.... Their shares reached 33% and 24%, respectively, in 1938...
My index is the cost of maintaining a man at ‘bare-bones subsistence’ (the least-cost way of staying alive).... Boiled grain or unleavened bread provide most of the calories, legumes are a protein-rich complement, and butter or vegetable oil provides a little fat... typical fare around the world in 1500... oats in northwestern Europe, maize in Mexico, millet in northern India, rice in coastal China, and so on... 1,940 calories per day. Non-food spending is restricted to scraps of cloth, a bit of fuel, and the odd candle. Most spending is on food, and, indeed, on the carbohydrate at the core...
[In] the 15th century... [European] labourers earned about four times bare-bones subsistence. By the 18th century, however, a great divergence had occurred.... In the Middle Ages, Florentine workers ate bread, but by the 18th century they could afford only polenta...
In the poor countries of the world... real wages are still at bare-bones subsistence. In 1990, the World Bank defined a world poverty line at $1 per day.... Bare-bones subsistence... baskets averaged $1.30 per person per day when priced in 2010. More than one billion people (15% of the world’s population) live below that line today, and the proportion was far higher in 1500. Labourers in Beijing were this poor in the 19th century. China’s remarkable growth in recent decades has boosted the labourer’s standard of living to only six times subsistence--a level that British workers realized 150 years ago...
In 1498, Vasco da Gama reached Cochin in India, and filled his ship with pepper. The price in Cochin was about 4% of the price in Europe (Figure 5). The other 96% of the price difference was transport costs. By 1760, the gap between the Indian and English prices in Figure 5 had dropped by 85%, and that reduction is a measure of the efficiency gain from the all-sea route...
Their favourite organization was an East Indies company that combined imperialism with private enterprise...
In the Middle Ages, about three-quarters of the population was engaged in farming, most manufacturing was carried out in cities, and the ‘rural non-agricultural population’ consisted of village craftsmen, priests, carters, and the servants of country houses. In 1500, Italy and Spain were the most advanced.... The Low Countries (principally modern-day Belgium) were an extension... and England was little more than a sheep walk.... By the eve of the Industrial Revolution... England was the most transformed country. The fraction of the population in agriculture had dropped to 45%. England was the most rapidly urbanizing country in Europe. London grew from 50,000 in 1500 to 200,000 in 1600 to 500,000 in 1700 and, finally, to one million in 1800. The ‘rural non-agricultural share’ of the population was 32% in 1750. Most of these people were engaged in manufacturing.... The economy of the Low Countries developed along similar lines...
The constancy in the share of the urban population in Spain masks great changes – the populations of old industrial cities collapsed while Madrid expanded on the basis of American loot...
Living standards were high in London and Amsterdam... [with] great demands on agriculture for food and labour. The result was agricultural revolutions... [and] energy revolutions in both England and the Netherlands.... The high-wage economy generated a high level of literacy, numeracy, and skill formation in general...
The Industrial Revolution... was a turning point... for it inaugurated the era of sustained economic growth...
Technological change was the motor... the steam engine, the machines to spin and weave cotton, and the new processes to smelt and refine iron and steel using coal instead of wood... [plus] a host of simpler machines that raised labour productivity in unglamorous industries like hats, pins, and nails. There was also a range of new English products, many of which, like Wedgwood porcelain, were inspired by Asian manufactures. In the 19th century, engineers extended the 18th-century mechanical inventions.... The steam engine was applied to transportation with the invention of the railway and the steamship. Power-driven machinery... was applied to industry generally...
The crux in explaining why the Industrial Revolution was... in Britain is... why British inventors spent so much time and money doing R&D... to operationalize what were often banal ideas. The key is that the machines they invented increased the use of capital to save labour. Consequently, they were profitable to use where labour was expensive and capital was cheap, that is, in England. Nowhere else were the machines profitable. That is why the Industrial Revolution was British.... [But] by the 1820s, improved cotton machinery could be profitably installed on the continent, and by the 1850s, it proved profitable to install even more improved machinery in low-wage economies such as Mexico and India. By the 1870s, factory cotton production began to shift into the Third World...
The steam engine emphasizes the importance of economic incentives in inducing invention. The science of the engine was pan-European, but the R&D was conducted in England because that was where it paid.... The purpose of the Newcomen engine was to drain mines, and Britain had many more mines.... Early steam engines burned vast quantities of coal, so they were cost-effective only where energy was cheap. John Theophilus Desaguliers wrote in the 1730s that the Newcomen engines were ‘now of general use... in the Coal-Works, where the Power of the Fire is made from the Refuse of the Coals, which would not otherwise be sold’. They were scarcely used anywhere else. Despite the scientific breakthroughs, the steam engine would not have been developed had the British coal industry not existed...
By the middle of the 19th century... steam was... applied widely.... Half of the growth of labour productivity in Britain in the mid-19th century was due to steam. This long-run pay-off is an important reason that economic growth continued through the century...
Before 1850, steel was an expensive--and minor--product of the iron industry, which mainly produced plates and rails from wrought iron refined from pig iron in the puddling furnace. The technical problem... [for] the addition of other elements including carbon... [to] be precisely controlled [needed] A temperature in excess of 1500° C.... The converter, invented independently around 1850 by Henry Bessemer and William Kelly.... Carl Wilhelm Siemens... built a regenerative furnace.... In 1865, Pierre-Émile Martin used the Siemens... open hearth furnace... [which] became the dominant technology until it was superseded by the basic oxygen process the 1960s.... The four inventors of mass-produced steel were an Englishman, an American, a German living in England, and a Frenchman. There was no international lag there....
In most industries... important discoveries were made in all of the leading industrial economies. From the global perspective, what is striking is the difference between the rich countries, who, as a group, pushed technology forward, and the rest of the world, which seemingly made no innovations at all...
An important feature of the late 19th century was the development of entirely new industries--automobiles, petroleum, electricity, chemicals. Another feature of the new industries was that many were related to developments in the natural sciences. Countries with strong university programmes in these areas reaped economic benefits...
In 1990, for instance, Zimbabwe had $3,823 of capital per worker, and each worker produced $2,537 per year. Not bad for 1820. Malawi had $428 of capital, and GDP per worker was $1,217--about the same as India early in the 19th century, and considerably below the levels realized in the UK, USA, and Western Europe at the same time.... The obvious question is why Peru, Zimbabwe, Malawi, and India do not adopt the technology of the Western countries and become rich themselves. The answer is that it would not pay. Western technology in the 21st century uses vast amounts of capital per worker. It only pays to substitute that much capital for labour when wages are high relative to capital costs.... When capital per worker is high, it takes a lot more capital per worker to increase output per worker by $1,000 than is required when capital per worker is low...
Most doubtful is the suggestion that the advanced parts of China like the Yangzi Delta had incomes as high as those of England and the Netherlands (Figure 3). On the other hand, the positive assessment of Chinese markets and institutions gains credence since reassessments of other empires (such as that of Rome) have come to similar conclusions, and the California School is right that the Industrial Revolution happened in Britain because of coal and commerce. What is notable about Asian history is the absence of such triggers...
The Industrial Revolution in the West drove Asian manufacturers out of business for two reasons. First, manufacturing became more productive in Europe, cutting costs there. Second, steamships and railways made international competition more intense.... The principle of comparative advantage has come more powerfully into play.... Government policy was the third factor.... The USA and Western Europe met the challenge of cheap British imports with the standard development strategy of internal improvements, external tariffs, investment banks, and universal education. Colonies were not in a position to entertain such a strategy since their economic policies were subordinated to the interests of the colonial power. Independent states had the option of pursuing national development, although not all of them made the effort or succeeded in it.... Underdevelopment was the product of 19th-century globalization and Western industrial development...
Industrial development required moving the economy away from the pattern dictated by comparative advantage. The nationalist view is that India needed the standard development policies that helped Western Europe and the USA catch up to Britain--that is, tariffs, investment banks, internal improvements, and universal schools. What is most striking about colonial rule is how little this programme was pursued...
The incorporation of the Americas into the global economy has had enormous ramifications for the Old World and the New. The native American population collapsed, and indigenous civilizations were replaced by European. Northern Europe was propelled towards industrialization, and the Americas themselves exemplify the worldwide split between a rich North and a poor South...
The eastern seaboard of North America was broad enough and fertile enough to support a significant economy, and the interior of the continent could be reached by the St Lawrence, Mohawk-Hudson, and Mississippi Rivers. In contrast, most economic activity in Latin America was in the interior of Mexico and the Andes. Rivers did not connect these regions to the coast, so the cost of exporting was high...
The native population was distributed unevenly across the Americas. Most natives lived in Mexico (21 million) or the Andes (12 million); only about 5 million lived in the USA, with only 250,000 in the original 13 colonies. The quarter-million living on the east coast in 1500 were reduced to only 14,697 in 1890, when they were fully enumerated in the US census for the first time. Most of the fall occurred in the 17th century and, indeed, often before European settlement. The Pilgrims’ landing in Massachusetts in 1620 was preceded by epidemics in 1617–19. The Pilgrims saw this as God’s blessing...
[In] Pennsylvania exports... were important to the colony’s economy and amounted to about 30% of total output in 1770. The foreign exchange earned on these sales paid for English consumer goods...
Why was literacy high in the colonies? For the same reason it was high in England: economic advantage. The dependence of the colonists’ standard of living on trade and foreign markets meant that reading, writing, and calculation brought rewards. The legal system also made literacy valuable since contracts and land titles were written documents. The Puritans’ desire to read the Bible may have played a role in pushing Massachusetts literacy above that in England or Pennsylvania, but the dependence of their economy on trade and shipping gave them a powerful economic motive for schooling...
Vera Cruz, its port on the Caribbean, was no further from Europe than New Orleans. The problem for Mexico, however, was the high cost of moving goods between the sea and the interior plateau, which was thousands of metres in elevation. Almost the only product that Mexico and the Andes could export was silver...
The [U.S.] economy took off in the antebellum period (1790–1860). The population increased by a factor of eight, and income per head doubled. The industrialization of the USA also depended on four supportive policies that constituted the ‘standard model’ for economic development in the 19th century. The first was mass education.... The other three policies were originally proposed by Alexander Hamilton in his Report on Manufactures (1792)... transportation improvements to expand the market, a national bank to stabilize the currency and... credit, and a tariff.... Without the tariff, the southern and western purchases of manufactures would not have led to US industrialization since Britain would have satisfied the demand, as it did in the colonial period.... American government arsenals in Springfield and Harper’s Ferry in the 1820s fabricated interchangeable parts for muskets. American firearms exhibited in the Crystal Palace Exhibition of 1851 so impressed the British that they sent a delegation to study the ‘American system’. Interchangeability spread to private arms producers like Colt, then to watch manufacturers in the mid-19th century, and, next, to bicycles, sewing machines, farm machinery, and, finally, automobiles, where they were a building block of Ford’s assembly-line system. The success of the American economy depended on the application of inventive engineering across the full spectrum of industries. The incentive to mechanize was provided by the high cost of labour. The successful response required a large pool of potential inventors. The interplay between challenge and response made the USA the world’s productivity leader by the First World War...
Economic development in the Porfiriato was a mixed success. On the one hand, some impressive industrial growth was achieved. GDP per capita rose from $674 in 1870 to $1,707 in 1911. On the other, there was little local contribution to technological progress since foreign engineers simply installed foreign-designed factories, and that absence ultimately meant that development did not spread beyond the state-promoted industries. Moreover, the gains from growth were not distributed widely. Real wages trended downward under Diaz’s rule. Revolution broke out in 1911...
The supply of technology was... much greater in the USA than in Mexico. This was not a question of religious differences or of medieval or irrational features of Hispanic culture.... Alexander von Humboldt... lived in Mexico during 1803.. [and] was impressed by Mexican science: "No city of the new continent, without even excepting those of the United States, can display such great and solid scientific establishments as the capital of Mexico." He instanced its university, school of mines, art institutes, botanical garden, and savants. The scientific culture was spread to the populace through public lectures, and scientific learning extended far into the provinces. A European traveller cannot undoubtedly but be surprised to meet in the interior of the country, on the very borders of California, with young Mexicans who reason on the decomposition of water in the process of amalgamation with free air. It was not the absence of the Enlightenment that held Mexico back, but a general shortage of skills in the work force. Literacy is an indicator. In the USA, over 70% of adult white males were literate at the end of the 18th century, and close to 100% by 1850. The black slaves (14% of the population), on the other hand, were almost entirely illiterate, so overall literacy for men was about 86%. In Mexico, the white population was also highly literate, and the rest were not: ‘the cast of whites is the only one in which we find... anything like intellectual cultivation’. In Mexico, whites comprised only 20% of the population, so the overall literacy rate was of that order. There was no comparable expansion in education in Mexico before the 20th century. The Revolution led to more schooling, but in 1946 over half of the adults were still illiterate...
The immediate explanation is contained in Figures 17 and 18. They show that the real prices of palm oil and cocoa have trended downwards since the early 20th century.... The second reason that cocoa and palm oil do not generate higher incomes is because productivity is low and stagnant. In part, the story is biological. The Germans and the Belgians undertook basic research on the oil palm, but, ironically, the benefits have been realized in Southeast Asia to the detriment of Africa. Compared to other continents, there has been very little research to improve African crops...
By 1850, Europe and North America had pulled ahead of the rest of the world. How the poor countries could catch up was the new problem. Colonies could do little, since their options were restricted by the imperial power. Independent states, however, could apply the standard model--railways, tariffs, banks, and schools--that had worked for the USA and Western Europe. This strategy, however, proved less and less fruitful as time went by. In Tsarist Russia, Japan, and Latin America, the standard model generated modest economic growth, but not enough to close the gap.... Tsarist Russia, Japan, and Latin America could not do that with the standard model. A corollary was the slow growth of labour demand that fell short of the growth in population. As a result, Tsarist Russia and Latin America suffered from high inequality and political instability...
The only way large countries have been able to grow so fast is by constructing all of the elements of an advanced economy--steel mills, power plants, vehicle factories, cities, and so on--simultaneously. This is Big Push industrialization. It raises difficult problems since everything is built ahead of supply and demand. The steel mills are built before the auto factories that will use their rolled sheets. The auto plants are built before the steel they will fabricate is available and, indeed, before there is effective demand for their products. Every investment depends on faith that the complementary investments will materialize. The success of the grand design requires a planning authority to coordinate the activities and ensure that they are carried out. The large economies that have broken out of poverty in the 20th century have managed to do this, although they varied considerably in their planning apparatus...
In the case of the Soviet Union, there are really two questions. First, what went right? Why did the GDP per head grow so rapidly from 1928 to the 1970s?... Soviet institutions were effective in building large-scale, modern factories. Channelling investment into heavy industry increased the capacity to build structures and equipment, and soft budget constraints created jobs for people who would otherwise have been unemployed in a surplus labour economy.... At the outset, planning did not require much vision since the object was to fit Western technology to Russian geography. Second, what went wrong? Why did growth slow in the 1970s and 1980s? The possible answers range from the transient to the fundamental and include the end of the surplus labour economy, the squandering of investment on Siberian development, the arms race with the USA which drained R&D resources from civilian industry, the increased difficulty of planning once technological catch-up was completed and the task was to design the future, the impossibility of central control (what would happen to the US economy if the president had to manage it?), and the cynicism of dictatorship...
Japan accomplished this advance by reversing the technology policy that it had pursued in the Meiji and Imperial periods. Instead of adjusting modern technology to its factor prices, Japan adopted the most modern, capital-intensive technology on a vast scale. The investment rate reached about one-third of national income in the 1970s. The capital stock grew so rapidly that a high-wage economy was created within a generation. Factor prices adjusted to the new technological environment, rather than the other way around. Japanese industrialization in the post-war period required planning, and the key agency was the Ministry of International Trade and Industry (MITI). The policy tools that Japan had perfected in the 1920s and 1930s were used to accelerate the growth rate. MITI concerned itself with two kinds of problems. One related to the scale of production--the issue that defeated ISI in Latin America. Steel was one of Japan’s great successes. Production had increased from 2.4 million tons in 1932 to a peak of 7.7 million tons in 1943, then dropped to 0.5 million in 1945, and had returned to 4.8 million in 1950. A key feature of steel production is that costs are minimized with large-scale, capital-intensive mills.... MITI’s objective in the 1950s was to restructure Japan’s industry so that all steel was produced in mills of efficient size. MITI’s power came from its control of the banking system and its authority to allocate foreign exchange, which was needed to import coking coal and iron ore.... Despite a large increase in wages, Japan was the world’s low-cost steel producer due to its commitment to modern capital-intensive technology. Over 100 million tons were produced in 1975. Who was going to buy all that steel? Shipbuilding, automobiles, machinery, and construction were major domestic purchasers. Those industries had to expand in step with the steel industry. Ensuring that result was a second planning problem. Their technologies also had to be decided, and a large-scale, capital-intensive approach was taken with these as with steel. In the case of automobiles, for instance, Japanese firms had more capital per worker than their US counterparts, and the Japanese capital was more effective since ‘just in time’ delivery meant that much less of it consisted of unfinished components.... A final planning problem related to the international market.... The USA elected to cut tariffs but only if other countries did likewise (multilateral trade liberalization)... [because] the USA emerged from the Second World War as the world’s most competitive economy, so expanding its export opportunities seemed more rewarding than unnecessarily protecting its home market. Japan’s export success called this assumption into question. Japan, however, had established itself as the USA’s bulwark against Communism in East Asia, and its geopolitical importance maintained its trade options.... Japan grew rapidly by closing three gaps with the West--in capital per worker, education per worker, and productivity. This was done by 1990, and Japan was then like any other advanced country: it could grow only as fast as the world’s technology frontier expanded--a per cent or two each year. The post-1990 growth slowdown was inevitable...
The crucial comparative question about China is not ‘why have China’s mediocre market institutions performed better than central planning?’, but rather ‘why have its mediocre market institutions worked as well as they have?’ The answer may come down to legacies from the planning period or other features of China’s society or its policies that distinguish it from poor countries generally...
China is on course to catch up with the West, but what of Africa, Latin America, and the rest of Asia?... Many poor countries in Asia and Latin America would have to grow at 4.3% per person per year to catch up to the rich countries in 60 years.... Much poorer countries, like many in sub-Saharan Africa, would have to grow even faster.... Very few countries have sustained such rapid growth.... Between 1955 and 2005... only ten. Oman, Botswana, and Equatorial Guinea are special cases.... Singapore and Hong Kong are city states.... The interesting cases are.... Japan, South Korea, Taiwan, Thailand, and China. In addition, the Soviet Union could be added since income per head grew at 4.5% per year from 1928 to 1970 if the Second World War decade is left out. These countries had to close three gaps... in education, capital, and productivity. Mass schooling closed the education gap... state-led industrialization closed the capital and productivity gaps. Large-scale, capital-intensive technologies were adopted even when they were not immediately cost-effective.... Which of the many initiatives followed by these countries was the most effective, however, remains the subject of a great deal of debate. Also, it is not so clear whether the successful policies can be transplanted to other countries...
Housekeeping:
