Welcome to Global History @ LSE

This is the blog of a student taking the Global History MSc at the London School of Economics.

I am studying part time from October 2010 to September 2012 and I will be posting my lecture notes, seminar notes, reading notes and essays online.

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How valid is the claim that the twentieth century experience of economic development was ‘Divergence: Big Time’?

John Stuart Mill wrote of late nineteenth century capitalism that “[h]itherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being.” As Brad DeLong (2008) explains, as late as 1871 (the last edition of Political Economy issued in Mill’s lifetime) Mill still did not think it accurate to substitute “hitherto” for “formerly.” The same cannot be said of the economic development of the twentieth century; the toil of the poorest human beings has been lightened considerably and, although there remains ambiguities, by many measures the poor world has converged on, not diverged from, the rich world.

Economic development is a term which can be defined in many ways. The most common, and straightforward, of which is a simple measurement of Gross Domestic Product GDP per capita. The historical GDP data used by Lant Pritcett (1997) led him to conclude that the growth rates of poor countries have not kept up with, nor converged on, the growth rates of rich countries over the last century leading to “Divergence, Big Time” in per capita income. Using Pritchett’s figures it is hard to argue that the world did not seen divergence in economic development in the twentieth century. With a theoretical lower bound on income at around $250 at purchasing power parity and the distribution of per capita income today, income and growth rates must have diverged across the last 150 years. From 1870 to 1990 the average absolute gap in incomes of all countries from the leader had grown from $1,286 to $12,662, an order of magnitude (Pritchett, 1997, pp 9-12).

However, the data used by Pritchett is not definitive; although both inequality within countries and inequalities between countries have increased it does not logically follow that inequality between all individuals has increased, because the first claim refers to individuals and the second refers to the per capita income of countries (Sala-I-Martin, 2006, pp 382-383). Even if the wealthiest have increased their income most quickly in India and China, by taking into account the increases in income at the bottom of the scale in these countries the “Divergence, Big Time” identified by Pritchett in the latter half of the twentieth century disappears, rather we have “Convergence, period!” (Sala-I-Martin, 2006, pg 392). Over the whole of the twentieth century, income inequality, as measured by the Gini coefficient, remained somewhat higher in 2000, at 0.637 (Sala-I-Martin 2006, pg 384), than it was at the end of the nineteenth century, between 0.588 and 0.610 (Bourguignon and Morrisson 2002, pg 731). There are problems comparing Gini coefficients constructed from two different data sets but the rough agreement between Pritchett and the data from Bourguignon and Morrisson (2002) and Sala-I-Martin (2006) reinforce the finding.

Although there is evidence that the world has seen some convergence in per capita income in the latter half of the twentieth century, the results necessarily remain ambiguous because large amounts of data are of uncertain quality. However, other measures of economic development show distinct and unequivocal signs of convergence. The most important of these is not per capita income but the poverty rates of the rich and poor world. By this measure the 20th Century has been a massive success, particularly in China and India, the worlds’ two most populous countries. Bourguignon and Morrisson offer an estimate for global poverty rates in 1890 of 71.7% and for 1910 of 65.6% (2002, pg 731).[1] Although development has been unequal throughout the twentieth century the reduction in poverty in the last century has been truly transformative for billions of people. Even in the later part of this century the decline in absolute poverty continues, by Chen and Ravaillon’s calculations from 1981 to 2001 “[e]xpressed as a proportion of world population the decline is from 33% to 18%” (2004, pg 151).

In fact, this may be an underestimate for the progress made in eliminating poverty as Sala-I-Martin argues that by properly aggregating the data by taking into account the population size of poor countries the “poverty rate [of $1 a day] in 2000 was 7 percent.” In fact, despite a near quadrupling of world population in the twentieth century, extreme poverty fell in by both relative and absolute measures from 1,127.7 million people (Bourguignon and Morrisson 2002, pg 731) to 1089 million people (Chen and Ravaillon 2004 pg 153) or 322 million people (Sala-I-Martin 2006, pg 374). Even if you find Sala-I-Martin’s data somewhat overcooked, the trend is undeniable, economic development in the twentieth century has seen massive convergence, not divergence, for one of the most important measures.

Other measures also lend credence to the idea that the twentieth century was one of convergence in economic development, not divergence. The most high profile of these complementary measures is the Human Development Index which measures income, life expectancy and educational standards. HDI has shown significant convergence since 1950 (Crafts, 2004, pg 6) between all regions, even those which have experienced strong divergence in per capita income, like sub Saharan Africa. HDI is not the only non-monetary measure of wellbeing which can be quantified and compared. A range of other indices such as health, mortality and even Beer production (Kenny, 2005, pg 8) strongly suggest a convergence in wellbeing across the world. The most basic measures of wellbeing such as life expectancy and child mortality (which combine with other measures for the composite HDI measure) show convergence. In the middle of the 20th Century infant mortality began to decline in the developing world with this change was a concomitant increase in life expectancy (Deaton 2004, pg 28).

It is safe to argue that we have seen a convergence of many non-GDP measures of economic development. However, this aggregate convergence clouds a lot of regional differences. Even within one continent we see massive disparities in performance. Sub Saharan Africa has been ravaged by the AIDS epidemic and some have seen their life expectancy reduced to levels last seen in the 1950s (Deaton, 2004, pp 30-31). In contrast North Africa has seen rapid increases in life expectancy. The latest World Development Report (2010) highlights that Algeria, Tunisia and Morocco were some of the most successful states for improving their HDI scores, despite both relatively low GDP growth and the health disaster to their immediate south. Were “Divergence, Big Time” to be really true, it could perhaps better be used as a description for differences between poor countries than for differences between rich and poor countries.

In conclusion, while the penalties for getting institutions and policies wrong has been very high in the twentieth century in terms of accelerating GDP growth (Crafts, 2004, pg 7), other indicators have been broadly positive for economic convergence throughout the last century. The divergent average growth rates developing economies enjoyed (or suffered) between 1960 and 1990 highlights the high stakes of getting economic policy right or wrong; the worst states shrunk by an average of 2.7% per annum, while the best grew by 6.9% per annum (1997, pg 14).

However, by the end of the century, very fast growth in two very large and very poor countries, India and China, had gone some way to reversing this divergence in growth (Sala-I-Martin 2006). Although it is unclear to what extent total per capita income had diverged by the end of the twentieth century, it is fair to conclude that a claim of “Divergence, Big Time” is difficult to substantiate for anything but a very narrow reading of the term “economic development.” In fact, the latest figures from the IMF’s World Economic Outlook support this view. GDP growth at the end of the last century was roughly similar in both developing and developed worlds, 2.8% and 3.8% respectively. The last decade has seen significantly stronger growth in the developing world and this trend is predicted to continue, with growth of 2.7% predicted for 2011 for the developed world and 7.1% for the developing (IMF, 2010, pg 177).

From the outset GDP was never intended as the sole criterion of economic development, even Simon Kuznets said of his measure that “the welfare of a nation can scarcely be inferred from a measurement of national income”. The data on life expectancy, infant mortality and educational achievement all corroborate Kuznets’ 70 year old caveat. As well as the above indicators, the most important measure of economic convergence we have, extreme poverty, has been converging for most of the twentieth century. Whether we use Sala-I-Martin’s (2006) optimistic data or Chen and Ravaillon’s more modest calculations (2004), it is clear a smaller proportion of the earth’s population than ever before is living in extreme poverty. Although economic development still remains patchy and uneven across the different regions of the globe it is fairer than ever to conclude that the world has seen anything but “Divergence, Big Time.”
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Were later industrialisations systematically different from earlier?

The splitting industrialisations into “late” and “early” varieties owes a lot to Alexander Gerschenkron (1962). He argued that industrialisation would not occur spontaneously or quickly  in backwards countries, thus later industrialisations would be different to earlier ones. To overcome these deficiencies he argued that i) institutional substitutes would have to be created and that ii) later industrialisers would need qualitatively different substitutes to earlier industrialisers. In contrast, Jones (1988) argues that growth occurs naturally on the removal of restraints; hence, later industrialisers would appear similar, in that they would industrialise once their poor institutions are removed. Of course, industrialisation cannot be thought of too broadly otherwise our question becomes useless. That China now makes iPods and Germany then made railway tracks should not lead us to argue that their industrialisations are therefore irreconcilably different. Technology changes through time and sets an upper limit on a society’s potential wealth (North, 1996, part II), it is the convergence on a contemporary upper limit which we should examine. Institutions play a dominant role in prescribing the incentives affecting how individuals and organisations behave (North, 1996), the structure of these institutions in industrialising countries must be the focus of our study.

Arguably, the first state to begin to industrialise was Sung China (Jones, 1988, ch 4). This is somewhat problematic for Gerschenkron’s theories on late industrialisation, as it exposes the limits of his linear pattern for industrialisation. An alternative theory suggests that the removal of obstacles to growth, for example the removal of self reinforcing rent seeking (Murphy et al, 1993), may offer a better schematic for successful industrialisations. While some of Gerschenkron’s work on Europe has been questioned by the later historiography his general approach “still seems a fruitful way of approaching the problem of European industrialisation” (1991, 24).

Gerschenkron argued that there are a number of identifiable trends in the institutions of late industrialisers which set their experience apart from earlier industrialisers (1962, 353-354). Institutional substitutes appear to have operated in a number of developing countries. Active industrial policies in Germany (Chang, 2002, pp 32-35) and America (Chang, 2002, pp 24-32) have been credited some with their industrial success in catching up and overtaking England in the 19th Century. Amsden (1988, pp 143-144), citing data from East Asia, argues further that industrial policy has been different depending on the context of industrialisation.

However, the importance of avoiding rent seeking remained central in the experience of all industrialisers, whether late or early. For example, while the institutions of South Korea certainly seem more activist than those of early modern England, one thing which unites the two is the importance of evading rent seeking activities. While rent-seeking in Latin America helped the continent fall behind the rest of the world (North et al, 2000), the South Korean government remained “cold-blooded” in allowing poorly managed firms to fail where necessary. Furthermore, some of the evidence from industrialising Europe suggests that there is continuity between many different industrialisations. In Imperial Russia, before the 1850s, the state’s policy sought to “impede rather than promote economic development,” (Gregory, 1991, pg 77), a pattern closely matching Jones’ own description of a state of “greed and lethargy… sufficient to smother the prospects of re-growth” (1988, pg 146).

Once again, in this case the impetus to growth rests more on the elimination of rent-seeking growth impeding institutions than on the creation of Gerschenkronian institutional substitutes. One of the reasons that there is a continuity in the institutions of industrialising countries is the damage done by rent seeking, and the improvement in growth prospects that results in rent seeking’s elimination. Murphy et al. explain that rent seeking can put “a severe tax on innovative activities and thereby move resources into established production or the public rent-seeking sector. The result would be a sharp reduction in economic growth.” (1993, pg 413) There are are therefore large returns to the elimination of rent-seeking.

However, there are a number of differences identifiable in the institutions of later industrialisers than in the earlier industrialisers of the North Atlantic. Alice Amsden argues that there are unique institutions adopted in South Korea (and other East Asian “Tiger” economies) which aided its industrialisation. In her words, “Korea is evidence for the proposition that if and when late industrialization arrives, the driving force behind it is a strong interventionist state.“ (1988, pg 55) Furthermore, she argues that this modern, or post-war, interventionist state has behaved in a qualitatively different manner to states in the past.

“The First Industrial Revolution was built on laissez-faire, the Second on infant industry protection. In late industrialization, the foundation is the subsidy—which includes both protection and financial incentives. “ (1988, pp 143-144)

Amsden may have resorted to hyperbole in the above quotation in order to downplay the continuity in the success of industrialising states in adopting institutions which avoid rent-seeking, however the pattern of industrialisation does appear to roughly match her sentiment. Similarly, Wade approvingly cites Krugman and Stiglitz expressing similar sentiments to Gerschenkron that the financial system best suited to industrialising countries does not conform to an ideal type, but rather needs to be suited to the country’s individual circumstances (2003, pg 368). There do appear to be notably differences in the institutions adopted by later industrialisers even if there remain significant continuities also.

While the institutions which foster (or fail to stifle) growth may appear somewhat similar through time as examined above, there remains debate on the extent to which later industrialisers rely on past technological advancement compared with earlier industrialisers. Amsden has argued that South Korea’s industrialisation proceeded through a process of “Industrializing through Learning.” In this process imported technologies allow a country to industrialise by leapfrogging on the achievements of the already developed. She claims that the “First Industrial Revolution in Britain… [had] the distinction of generating new products and processes,” whereas the Korean did not, at least initially (Amsden, 1988, pg 3). In fact, as Mokyr argues, the British Industrial Revolution relied a great deal on imported technology (1993, pp 36-37). The experience of industrialisation often, if not always, involves the adoption of best practice techniques from abroad, the technological “trade deficit” may have been greater in South Korea than in England, but both relied on external invention and innovations to varying degrees.

While institutions and technology remain important, geography play a very real role in shaping economic performance (see Kruman 1991; Diamond 1997; Harman, 1999 esp. part 1) . As Sachs (2003) argues, even under conditions where either Jones’s “bad” institutions have been removed, or where Gerschenkron’s enlightened state has created the “good” institutions, there may still be large barriers to economic development. This geographic constraint is one reason to argue firmly that “late” industrialisers will always be different, from past industrialisations and from one another. Likewise, South Korea’s industrialisation took place despite its domestic paucity of natural resources (Amsden, 1989, pg 11), England may not have industrialised were it not for abundant supplies of coal (Allen, 2009).

With a world as geographically varied as our own and with the swift technological progress of the last two centuries there will always be differences in economic experience across space and time. However, as Karl Polanyi (2001 [1944]) argues, all industrialisation constitute a “Great Transformation” for the societies and people involved; in this broad way all “late” and “early” industrialisations are, in fact, very similar. There is evidence that this similarity extends deeper, the institutions adopted in different countries during industrialisation bare striking similarities given the disparate locations, cultures and technologies involved. The removal of institutions which encourage rent-seeking or actively seek to discourage growth, such as those followed in Imperial Russia, seem vital for industrialisation. For example, even where institutions appear different to those in earlier industrialises, compare South Korea’s industrial policy with Germany’s, the importance of avoiding rent seeking remains paramount. However, the focus on removing bad institutions should not lead us to ignore the very real institutional differences which appeared in later institutions. The financial arrangements present in England, Germany and South Korea certainly differed in significant respects. However as Acemoglu and Johnson (2003) argue secure property rights have far stronger positive effects on growth than do the different forms of financial intermediation practised in each country. Therefore, although it is possible to identify significant differences in later industrialisers I do not think it is necessary to label these differences systematic.

Bibliography

Acemoglu, D. and Johnson, S. (2003) “Unbundling Institutions”, NBER Working Paper No. 9934

Allen, Robert C. (2009) “Why was the Industrial Revolution British?”  http://www.voxeu.org/index.php?q=node/3570 (last accessed 11am 1st November 2010)

Amsden, Alice H. (1992) Asia’s Next Giant – South Korea and Late Industrialization (New York: Oxford University Press)

Chang , H. J. (2002) Kicking Away the Ladder (Glasgow: Anthem Press)

Diamond, J (1997) Guns, germs, and steel : the fates of human societies (New York; W.W. Norton & Co)

Harman, C. (1999) A People’s History of the World (London : Bookmarks)

Gerschenkron, A. (1962) Economic Backwardness in Historical Perspective by (USA: Harvad Univerity Press)

Gregory, (1991) “The role of the state in promoting ecoomic development: the Russian case and its general implications” in Sylla, R. and Toniolo, G. (eds), Patterns of European Industrialization (Great Britain: Routlege)

Jones, E.L. (1988) Growth Recurring (USA: The University of Michigan Press).

Krugman, P (1991) “Increasing Returns and Economic Geography” in Journal of Political Economy, vol. 99, no. 3 pp. 483-499

Mokyr, J (1999) “‘Editor’s Introduction: the new economic history and the industrial revolution”, in Mokyr, J. ed, The British industrial revolution. An economic perspective (Boulder, CO : Westview Press)

Murphy, Shleifer and Vishny (1993) “Why Is Rent-Seeking So Costly to Growth?” in Papers and Proceedings of the Hundred and Fifth Annual Meeting of the American Economic Association  Vol. 83, No. 2 , pp. 409-414

North, D. (1996) “Epilogue: Economic Performances Through Time” in Alston, L. Eggerston T. and D. North (eds.) Empirical Studies in Institutional Change, (USA: University of Cambridge Press) pp 342-356

North, D. Summerhill, W. & Weingast B. (2000) “Order, Disorder and Economic Change: Latin America versus North America” in B. Bueno de Mesquita & H.L. Root (eds.) Governing for Prosperity (New Haven, Yale University Press) pp 17-58

Polanyi, K. (2001 [1944]) The Great Transformation (Boston, MA : Beacon Press)

Sachs, J.(2003) “Institutions Matter, but not for Everything”, in Finance and Development 38-41.

Sylla, R. & G. Toniolo (1991) “Introduction: patterns of European industrialistion during the nineteenth centruy” in Sylla, R. and Toniolo, G. (eds), Patterns of European Industrialization (Great Britain: Routlege) pp 1-28

Sylla R. (1991) “The Role if the Banks” pp 45-63 in Sylla, R. and Toniolo, G. (eds), Patterns of European Industrialization (Great Britain: Routlege)

Wade, R (1990) Governing the Market (USA: Princeton University Press)

A. Gerschenkron, ‘The Approach to European Industrialization: A Postscript’, in Economic Backwardness in Historical Perspective (USA: Harvard University Press, 1962) pp 353-364

[page 353] Europe in the 19thC was a continent in which many different states were at many different states of backwardness. The degree of backwardness had a distinct impact on the way in which the state developed economically. The variations in the course and character of their industrialisation can be surmised in six propositions.

  1. “The more backwards a country’s economy, the more likely was its industrial8isation to start discontinuously as a sudden great spurt proceeding at a relatively high rate of growth of manufacturing output.
  2. [354] The more backwards a country’s economy, the more pronounced was the stress in its industrialisation on bigness of both plant and enterprise.
  3. The more backwards a country’s economy, the greater was the stress upon a country’s stress on producers’ goods as against consumers’ goods.
  4. The more backwards a country’s economy, the heavier was the pressure upon the level of consumption of the population.
  5. The more backwards a country’s economy, the greater was the part played by special institutional  factors designed to increase supply of capital to the nascent industries and, in addition, to provide them with less decentralised and better informed entrepreneurial guidance; the more backwards the country, the more pronounced was the coerciveness and comprehensiveness of these factors.
  6. The more backwards a country, the less likely was its agriculture to play any active role by offering to the growing industries the advantages of an expanding industrial market based in turn on the rising productivity of agricultural labour.”

The countries of Europe could roughly be split up into three groups, advanced, moderately backwards and very backwards. Although not a discrete scale, the effects of number 5 can be seen in qualitative differences in industrialisation.

[355] In moderately backwards countries Factories were directed with banks towards capital and entrepreneurial guidance; in very backwards countries they were directed by banks and the state.

[356] There are historical similarities across all successful industrialisations. England is like Germany is like Russia. But there are big differences which are important to examine. In moderately backwards Germany capital was directed by banks whereas in very backwards Russia the state played a large role in directing capital.

Certain things are held to be essential for industrialisation; the abolition of archaic modes of agricultural production with a concomitant increase in productivity; the creation of an influential elite materially or ideologically interested in economic change; the necessary social capital in an area’s residents; a value system favouring entrepreneurial endeavour. [357] However, there are considerable conceptual and empirical problems with a simplistic modernisation story of industrialisation.

It is difficult to say whether certain preconditions are in fact necessary for industrialisation to occur. Industrialisation may have begun in Russia even without the abolition of serfdom, for example, yet it is commonly held that the end of serfdom was a necessary condition for the onset of industrialisation.

Just because something was necessary for industrialisation in one country, for example England, it does not mean it is necessary for industrialisation in all countries. Empirically this is true, either the preconditions for English industrialisations were not present in late industrialisers or were present to a very small extent.

[358] Therefore, to some extent countries substituted for these missing preconditions, as described in point 5 above. Capital for enterprise in advanced countries could have been provided by previously accumulated wealth, in backwards countries banks and states created similar conditions in the course of industrialisation which were not present because of their backwardness. [359] This substitution was not necessarily a conscious substitution; people groped for effective methods and substitutions were created as needed.

Gerschenkron’s approach allows him to “predict” what he expects to find, and give him the ability to test his theory. He looked Italian industrialisation, where as a moderately backwards country he expected to find banks playing a central role in the process, he did indeed find banks playing a central process in Italy’s industrialisation. This method of industrialisation was imported from Germany where it had already proved successful.

[360] Gerschenkron’s work is an attempt to explain the deviations from England’s method of industrialisation. It uses the degree of backwardness as an organising concept. Russia’s industrial structure was shaped by its backwardsness, it focussed on capital goods because it had to import much productive technology and because technological development in the immediately preceding period had been more focussed on capital goods. [361] However, as well as this economic factor, capital goods were favoured for political reasons, for improving the Russian states backwards war making apparatus.

[362] The Bulgarian experience, which saw no industrial take off, shows us that lacking the correct institutions it is possible to miss out on industrialisation. [353]There are advantages to backwardness because the stock of knowledge on which can be drawn increases, but there are also disadvantages and it is easy to miss the opportune moment for industrialisation as Italy did.

[364] The degree of backwardness may not be the defining characteristic of how a country will industrialise, but it remains a very useful  conceptual tool.

D. Feeny, ‘The decline of property rights in man in Thailand, 1800-1913’, Journal of Economic History, 49 (1989), 285-96.

Abstract [page 285] Like many land-abundant, labor-scarce economies, Thailand had a well-developed system of property rights in man. Over the nineteenth century corvée slavery were abolished and replaced by military conscription, head tax , and more precise property rights in land. Concomitant trends include extensive commercialization, the growth of international trade, imperialist threats to Thai sovereignty, and the growth of a centralized unitary state.

II

Looking at preindustrial Europe and the Americas provides a number of generalisation about the evolution of property rights in man. [286] Slavery and serfdom are associated with places where land is abundant and labour is scarce. Whether property rights in man takes the form of slavery of serfdom depends on the economy. Slavery is favored where property right are well defined and economic activity is cheaply supervised. Serfdom is favoured where property rights are weak and there is an information asymmetry which favour supervision by he lord.

The model used in this paper involves treating the behaviour of agents in changing institutional frameworks as endogenous. It exploits the metaphors of supply and demand. Demand for change arises when current intuitions leave some benefits uncaptured – i.e the relative real rise in a production factor will lead to a rise in the demand for property rights in that factor to be better defined. [287] The supply of institutional change relies on the flexibility of the political order. The expected net benefit to elite decision makes matters a great deal in defining supply.

III

Early 19th C Thailand was largely a subsistence rice economy but intra-Asian trade was significant. The volume of trade increased though the early 19th C but a major increase occurred in 1855 with the Bowring Treaty with Great Britain and similar treaties with other Western Powers and Japan which established free trade and the exemption of foreign powers from domestic law. The reduction in tariffs reduced central revenue [288] and gave the state an incentive to overhaul its system of public administration. An incentive to bring the Western Powers under domestic control created the impetus for a modern legal system.

Rice exports grew 4.43% by volume and 5.64% by value from 1864 to 1910. The cost of imports did not increase as much and the terms of trade moved in favour of rice. In the same period real wages measured in rice declined by 1.35% per year from 1850 to 1914 (0.7% from 1864 to 1914). This created weaker incentives for well defined property rights in man and stronger incentives for well defined property rights in land.

IV

The paper outlines what property rights in man were like in early 180s Thailand. Thai Society was divided into five categories: the Monarch, members of the royal family, the nobility, commoners and slaves.

[289] Nobles had direct control of the commoners, known as phrai. Phrai were split into three groups who owed different amounts of corvée.

  1. phrai luang who owed 6 months of labour a year to the monarch or 18-24 baht
  2. phrai som who owed 2 months a year to their noble an 1 month per year to the monarch or 6 baht
  3. phrai suai who were obligated to work for 8 days for the monarch or pay 1.5 baht.

There were seven categories of slave, but under two broad headings, war slaves and debt slaves. As there were no well defined property rights in land, people often acted as collateral on loans.

In contrast to property rights in man, property rights in land well less well defined. In theory all land belonged to the king, but in practice land could be used privately so long as no damage was done to it (a usufruct property regime), or not left unattended for a long period of time.

[290] V

The evolution of property rights in Thailand occurred in the context of commercialisation, a struggle for control of manpower between king and nobles, and the centralisation of power in Bangkok. Migration to Bangkok increased the number of wage labourers, commercialisation made payment in money easier and the king could rely on wage labourers rather than serfs for labour. By accepting monetary payment for corvée obligations the king could undercut the nobles and increase his relative power. Competition between noble and monarch reduced the corvée obligations to stop peasants fleeing their onerous workloads. [292]To modernise the state under Chulalongkorn (1868-1910) a head tax replaced the corvée obligation’s nonmilatary role and a conscripted army allowed the king to maintain an army as required.

Parallel to the dismantling of corvée is the abolition of slavery. To undercut the nobility’s power further it was in the king’s interest to reduce the practice of slavery – nobles used slaves extensively as they were both collateral and the spoils of war. [294] In 1868 an edict was issued which meant that the wife’s consent was required to sell her or her children. A gradual reduction in the price of slaves was decreed in 1874, so that all slave children would be freed by 21 – in 1890 this was extended to all slaves and in 1905 slavery was abolished. The price of slaves was to be reduced by 4 baht per month until freedom occurred. [295] This gradual method stopped and large fiscal strain on the state from occurring and reduced opposition from slave owners.

Although humanitarian interests had a role, Thailand had to regain sovereignty and set up a legal system under which foreign powers wold agree to be ruled. The economics were also conducive, the increase in the value of land and rice was well known and this shifted people’s incentives away from slave ownership and towards land ownership for both production and collateral. Evidence suggests that the abolition of slavery allowed labour to move more freely.

[296] Conclusions

Domestic and international political motives, rather than pure economic incentives appears to have played a large role in dismantling human property right regimes. Neither corvée or slavery were abolished because they were unprofitable or because an elite had stopped enjoying their benefits – however economic trends made them relatively less attractive. Rice farming methods of Thailand in the period relied on farmer proprietors and was unsuited to slavery. Economics played a role, but ideological and normative factors played major roles.

How valid is the claim that the twentieth century experience of economic development was ‘Divergence: Big Time’?

 Before we answer the above question we have to define our terms. Convergence means the closing of the gap between two variables, Divergence means the widening of the gap between the two.

If we are going to evaluate whether or not the world has seen “Divergence, Big Time” we are going to have to work out which variables are worth examining.

The most common one used is GDP per capita, so we can start there. GDP per capita is the final value of the goods and services produced in a country divided by the number of people in that country. This is a rough and ready metric on income within a predefined area.

  • Advantages
    • It is easy to measure.
    • We have good data for nearly all now developed countries going back to around 1870.
    • We have reasonably good data for most developing countries today going back to the immediate post war period.
    • It is the best measure we have of how good a society is at producing things which fulfil people’s material needs.
  • Limitations
    • It does not describe the distribution of income. Equatorial Guinea has vast oil wealth, but most of it has not reached the average citizen, many of whom still live in absolute poverty.
    • It does not capture other measurements of wellbeing. This brings us to…

There are other metrics worth using. For example, the UN has developed the Human Development Index, which looks at a broader range of metrics than just income. It combines three measures.

  • Life expectancy at birth.
  • Adult literacy rate (given a 2/3 weighting in this measure) & a combined primary, secondary, and tertiary gross enrolment ratio (given a 1/3 weighting).
  • Standard of living, as indicated by the natural logarithm of gross domestic product per capita at purchasing power parity.
    • Advantages – More things matter than just income. Very often income is used as a proxy for improvi2ng outcomes like life expectancy and literacy (richer people live longer, and read more) therefore a measure like HDI shows gets directly to those important metrics.
    • Limitations – It can lead to downplaying the importance of income. HDI is Subject to diminishing returns. Literacy can only reach 100%, life expectancy 70/80 whereas there is a less well defined upper limit on income. HDI ignores the power which citizens of wealthy nations enjoy by virtue of being citizens of wealthy nations.

There are also other metrics which can be used equally legitimately.

  • War deaths per capita – dying in war is unpleasant. Has the tendency to die in war become more egalitarian or less? War deaths per capita is the least encouraging measure. The world remained a warlike place in the developing world throughout the end of the 20th C.
  • Free press – No substantial famine has ever occurred in a country with a relatively free press. I haven’t found anything conclusive but there remain significant differences in various part of the world on press freedom. India has a rigorous free press whereas China does not. According to http://en.rsf.org/ so far this year:
    • 25 Journalists killed
    • 2 media assistants killed
    • 157 journalists imprisoned
    • 9 media assistants imprisoned
    • 112 netizens imprisoned
  • Extreme poverty – have the number of people in extreme poverty in poor countries converged on the rate for rich countries (0%). Yes – lots of the movement has been from China and India. The Millennium Development goal to half 1990 level is on target to be reached.

What are poor countries being asked to converge on? This table from Lant Pritchett shows the bunching up of wealthy countries at the top of the income scale. There has been Convergence, Big Time, for the countries that have made it.

 

Pritchett also gives us figures to suggest that we have seen divergence, big time, since the begninning of the industrial revolution. Since the 1950s it is argued we have at best seen stagnation if not outright regression.

  1910 1950 1992
Gini coefficient 0.61 0.64 0.66
Mean world income (PPP at 1992 prices, $) 1450 1806 2801
Extreme poverty (headcount %) 66 55 24
Number of extreme poor (million) 1128 1376 1294
% of world inequality explained by between-country inequality (based on Theil index) 37 60 60

Maddison shows that the long term and continuing pattern in income is one of divergence. In 1000 AD Western Europe and Africa had roughly equal GDP per capita ($400), but by 1998 Africa had reached the income Europe had in the early 19th C whereas Europe’s income was now 13 times that. Since 1950 inequality has not so much continued to diverge as stagnate.

However, there have been other works which suggest that the world’s fortunes have not been massively divergent.

Xavier Sala-i-Martin (2005) Rather than the “divergence, big time” famously described by Pritchett [1997], we find that individual incomes have followed a process of “convergence, period!”

http://www.columbia.edu/~xs23/papers/pdfs/World_Income_Distribution_QJE.pdf

Large poor countries became somewhat less poor, having a massive effect in terms of convergence. Inequality between countries has increased and has inequality within countries. However, if a large country becomes more unequal while growing fast enough world inequality can indeed fall. This, Sala-i-Martin argues, is what has happened in China (and to a lesser extent India) and is why we have seen “Convergence, Period.”

So the picture for income is unclear, what about non-income related measures of welfare?

In almost everything that matters we have seen some degree of convergence. Health, education, rights and infrastructure have been converging and have been converging for some time.

Looking at the data they show us that it takes one tenth of the income that it did in 1870 to live the same amount of time. Life expectancy for countries with a GDP per capita today of $300 have the same life expectancy as countries of 1870 with a GDP per capita income of $3000. Life expectancy has also become far more egalitarian than it was in 1870.

Although Sala-I-Martin argues we have seen income convergence world wide, it has been very uneven. The convergence of HDI is much more broad based.

We have to ask then, if it is not income that has driven convergence in HDI, what is? There could be large returns to small increases in income for the very poorest people. A little extra food can hugely improve the immune system for example.

But that is not all… Mozambique saw it’s per capita income decline over the period 1950-99 but its life expectancy, literacy and primary enrolment all increased.

Public Health… Better immunisation plays a role. Some of these reforms are self-reinforcing, Increase in primary enrollment and literacy have helped the efficacy of other public health. Urban mortality is lower than rural mortality.

Economic policy is hard. Public Health theory is much easier. ORT saves over a million children’s lives a year and it is just a sugar/salt solution. Washing hands. Globalisation of knowledge appears more benign than globalisation of production.

Has the world seen Divergence, Big Time?

It depends both on your datasets, on what weighting you give to different countries and whether you are interested in income or other indicators.

Divergence, Big Time

  • World wide trends versus trends in China and India. Martin Wolf argues that World Trends without China is like Hamlet without the Prince but China’s history and progress is very different to that of the world in general.
  • China’s size means that when it does something stupid or clever it has global ramifications. But it is not necessarily accurate to say it represents global patterns.

The twentieth century experience of economic development has been wildly divergent, regardless of what these aggregate figures tell you.

  • The iron curtain in NE Asia and E Europe
  • Africa has been attempting to build states for a lot of the 20th C, the prologue to economic development
  • Poverty was an Asian phenomenon, but it has now become and African phenomenon. While parts of Asia have begun to converge on the wealthy world, Africa’s prospects continue to diverge (although there has been recent progress riding on surging demand for raw material from Asia).

Austin, Gareth. ‘Reciprocal Comparison and African History: Tackling Conceptual Eurocentrism in the Study of Africa’s Economic Past’, African Studies Review, 50 (2007), pp 1-28.

[1] Abstract: This article argues for constructive responses to the dominance, in the analysis of African economic history, of concepts derived from Western experience. It reviews the existing responses of this kind, highlighting the fact that some of the most influential ideas applied to African economies, past and present, have been coined in the context not of Europe or North America but rather of other relatively poor regions formerly under European colonial rule. These “Third World” contributions have been enriching for African studies, though they have been duly criticized in African contexts, in accordance with the usual scholarly pattern. It is argued here that the main requirement for overcoming conceptual Eurocentrism in African history, in the interests of a more genuinely “general” social science and “global” history, is reciprocal comparison of Africa and other continents—or, more precisely, of specific areas within Africa with counterparts elsewhere. Pioneering examples of such comparisons are reviewed and, to illustrate the possibilities, a set of propositions is put forward from African history that may be useful for specialists on other parts of the world. The article concludes with suggestions for ways in which Africanists can best pursue the project of reciprocal comparison, and with a plea for us to be more intellectually ambitious.

This article is about Africanists can best respond to the continued Eurocentrism of the study of Africa. [2] A lot of the tools used by Africanists come from Europe (but this flow has not been reversed). The “stylised facts” of western history, agriculture, statecraft, capitalism etc. has influenced the questions which Africanists have asked. [3] This article looks at Eurocentrism in the recent literature of African economic historiography, Africanists views of Africa have been shaped also by other regions of the “Third World”, part three argues that Eurocentric generalisations should not be abandoned but instead bettered and improved by Africanists, part four looks at the recipricol comparisons from various scholars.

Conceptual Eurocentrism in African Economic Historiography: The Last Quarter Century

Most economic history of Africa has been undertaken using frameworks imported from “the West.” Some were influenced by the categories associated with Karl Marx or Max Weber, Adam Smith or Karl Polanyi. Ultimately their “abstractions were usually underpinned, explicitly or implicitly, by narratives of European history.” [4] Most common now is a “rational-choice” framework which looks at transaction costs, contract theory and the actions of individuals and societies seeking a set of institutions which may-but may not- provide solutions.

We have to consider to what extent rational-choice political economy is Eurocentric in its intellectual inspirations. First, there is considerable difference between the paper or book on Africa and the overarching historical model. Second, the broad sense of property in rational-choice political economy-as entitlements to use resources in permitted ways-fits well in African history.

Rational-choice political economy was developed in the mid-20th C in the USA and Britain and reflect its time and location. Coase and Williamson had to describe the world around them. [5] In a mcro-form rational-choice political economy sees a certain way of setting up institutions as right, but is not teleological,in that it can see that failures have occurred rather frequently throughout history. It has been inspired by western history but can be used in ways which are not Eurocentric.

Models from the Third World in African Economic History

Most African history has been written from a Western perspective, but there has also been much work using the Caribbean, Southeast Asia, and recently South Asia as reference points.

[6] W. A. Lewis’s famous model of “economic development with unlimited supplies of labour” (Lewis 1954) would have been inspired not only by Western history, but by travels around the poorer parts of the world.  This dual economic surplus-labour/capitalist-production framework has been applied fruitfully to South Rhodesia and South Africa (however, low wages in the surplus labour zones were often in fact caused by state repression).

Sen’s theory of entitlement and work on famines is relevant to Africa; famines rarely occur because food production shinks, but instead because people cannot get access to it. Other Indian Economists have also played a large role in shaping Africanists views of Africa. [7] Models drawn from Latin America and Asia have played a large role.  Ideas such as “rent-seeking” and “urban bias” have large roles to play in understanding Africa.

There is as much South-South academic criticism as there is North-South academic criticism. [8] Lewis is criticised (see above), Sen is taken to task for under politicising his account of famine, he also neglects the very real difficulties of agricultural production.

Toward Better Generalizations: The Method of “Reciprocal Comparison” and African History

Does it matter if the concepts of African history have an exotic Western provenance? [9] Early economic work on Africa illustrated that markets had existed long ago in Africa, and that homo economus had existed in Africa too; this helped Africa, but by living up to a Westerner’s model, Adam Smith.  That something developed outside Africa does not mean that it cannot be helpful to Africanists. Two example are given on page 9 on Niger Delta canoehouses and Kikuyu society.

In other cases Western models are not so useful. [10] Many European metanarratives are not useful, Africanists need to alter them to make them relevant – you cannot retreat away from comparative analysis on grounds of historiographical exceptionalism or postmodernist epistemology.

Pomeranz’s work on reciprocal comparison is useful, we can treat China, Europe and Africa all as deviations from the norm of the other and ask “why?” What is also useful is a disaggregation of the units of analysis. Why was the Niger Delta not the Yangzi Delta or the Netherlands etc?

This is made difficult by a couple of things. First of all:

[F[amiliarity with at least the basics of European history tends to be expected from specialists on non-Western countries, whereas the converse is not the case.

There are also multiple narratives on most topics and in most regions of Africa, let alone sub-Saharan Africa. These need to be unpacked and explored before reciprocal comparisons can begin to make sense. [11] There have been many books on Africa attempting to pick out rends and potential “building blocks” for Africa as a whole and its macro regions.

An important part of reciprocal comparison is to derive models from Africa and then to apply them to other parts of the world. For example, Goody argues that because the plough was used less south of the Sahara agricultural surpluses (and hence complementary activty) was lower in that region. Goody traces patterns in state formation and inheritence from this. However, even in this Austin argues that too much weight may be being placed on agricultural surplus over other sources of wealth.

[12-13] Lots of important scholarship has come out of Africa. Collier studied the franc zone and gave valuable insights into disperate countries using the same currency. Fenoaltea’s study of the slave trade from an African perspective allowed him to offer an alanysis of slavery in a European context, from the Roman’s onward. Thomas studied witchcraft in both Africa and England. Penninggroth uses emancipation in Fantes on the Gold coast to spread light on the experience of blanks in the US South.

Some Lessons from African Experience for the Comparative Study of Long-Term Economic Development

[14] Study of Africa can help us look at the world in different ways. For example, “in sub-Saharan Africa, before and in many cases during and after the colonial period, there was no strong or necessary correlation between agricultural intensification (increase in the quantity of labor and/ or capital applied per unit of land) and overall productivity (i.e., “total factor productivity,” the ratio of output to the totality of inputs). Thus intensive agriculture was not necessarily more advanced” This labour intensive agriculture is different to the capital intensive agriculture observed in late modern Europe.  Labour and capital were limited in Africa but abundant land was available, this has consequences for analyses which pit an “industrious” asian revolution against and “industrial” European revolutions.

[16] Studies in Africa can also lead us to alter our view that rent-seeking and economic growth are opposed. Slavery represents the extraction of an economic rent, but it would be anachronistic to say that this did not contribute to the development of Europe and America. Africa has also taught us that rent-seeking is self perpetuating (there are increasing returns to scale) and likely to be stable. However, under certain circumstances, rent seeking can be unstable, as in the 1980s.

[17] A study of Africa also leads us to question the primacy which states are given in analyses such as North’s. Much of Africa has often been stateless, yet not economically undynamic. However, looking at the privately and state enforced slave trade, certain advantagous of statehood come to the fore in terms of trade and economic efficiency.

[18] Reflections

There have been few reciprocal comparisons involving Africa, but those that have been done are of a high quality. African studies has much to offer the world, for example the “informal sector” is a widely used term and framework, and originated in Africa.

Conceptual Eurocentrism continues to operate at a range of levels of abstraction. Ultimately, reciprocal comparison needs to supersede it on all those levels.

Kenny, Charles (2005) “Why Are We Worried About Income? Nearly Everything that Matters is Converging” in World Development Vol. 33, No. 1, pp. 1–19

[1] Summary. — Convergence of national GDP/capita numbers is a common, but narrow, measure of global success or failure in development. This paper takes a broader range of quality of life variables covering health, education, rights and infrastructure and examines if they are converging across countries. It finds that these measures are converging as a rule and (where we have data) that they have been converging for some time. The paper turns to a discussion of what might be driving convergence in quality of life even as incomes diverge, and what this might mean for the donor community.

Everyone is interested in economic convergence; it would represent the catching up of the poor world with its rich contemporary. Basically, everywhere started poor, but now some places are wealthy. Income has been the sole, or at least overriding criteria, for some time and this stems from a humanitarian impulse to see improvements in the global standard of living. Kenny quotes Lucas:

[I]s there some action a government could take that would lead the Indian economy to grow like Indonesia s or Egypts? If so, what exactly? If not, what is it about the ‘‘nature of India’’ that makes it so? The consequences for human welfare involved in questions like this are simply staggering: once one starts to think about them, it is hard to think about anything else (Lucas, 1988).

[2] This interest in income comes from the linking of income to most if not all quality of life measures. Even if income isn’t your main focus in a humanitarian sense, an increasing income in a poor country will probably help you achieve your aim. As income has diverged many have inferred that quality of life was diverged as well. However, while income has diverged, quality of life measures are converging almost across the board.

The link between the quality of life an income

GDP per capita is an incomplete measure of wellbeing, this is one of the reasons HDI was introduced by the UN. In fact, from infant mortality to life expectancy to war deaths per capita, there is very little correlation between income, income growth and other quality of life indicators. If you have been seeking to increase someone’s life, then increasing their income may not be the easiest way to do so.

Evidence for the convergence in measures of the quality of life

This paper builds on the work of Crafts, Ram and Ingram.

HDI of poor and rich countries are converging, despite relative inequality and massive poverty remaining common. [2-3] Calorific intake, primary enrolment and urbanisation are all converging.

Methods of measuring convergence and methodological issues

 There is a discussion of different measures of convergence and divergence here which kinda goes over my head. I will revisit if necessary.

Data quality is an issue, with income and all other quality of life data.

[4] Weighting is also problematic, should China count the same as Sierra Leone, or should measures be weighted to reflect China’s massive population? Using individual data rather than national per capita data can massively change our analysis.

Which quality of life measures to use is also a  question which is important. There seems little scientific way to select which measure to use and how much importance to give it. However, effort has been made to use measures for which there is good coverage in area and time.

Results

The results presented in Appendix Tables 11–13 suggest almost every potential quality of life variable shows significant variation across countries. In turn, this suggests that, either throughout history some quality of life indicators have been higher in some parts of the world than others, or that, in some point in the past, there must have been divergence. The available evidence suggests elements of both stories, although with a predominance of the second. The evidence also suggests that more recently (for most of the 20th century) the story is reversed—it is one of convergence [my emphasis].

Maddison shows that the long term and continuing pattern in income is one of divergence. In 1000 AD Western Europe and Africa had roughly equal GDP per capita ($400), but by 1998 Africa had reached the income Europe had in the early 19th C whereas Europe’s income was now 13 times that. Since 1950 inequality has not so much continued to diverge as stagnate.

[5] However, apart income GDP, and depending on which measure of convergence you use, all or nearly all other measures have converged since the industrial revolution worldwide.

Health

There is a historical minimum life expectancy of around 24 (younger than this and presumably societies just collapse). Divergence occurred from the early modern period until the end of the 19th C and then convergence in life expectancy began.  This convergence in life expectancy has been driven by a convergence in infant mortality. Calorific intake improved in many places and this has in part driven the convergence, although this factor is unlikely to have been enough to enough to explain all the convergence.

Education

Divergence in literacy levels can be traced back before the 18th C. By 1913 literacy in India was 13% and in the UK around 96%. Global literacy in the rich world has reached ~100% and the poor world’s literacy has improved too, closing the gap. Between 1950-99 global literacy rose from 52% to 81%, driven largely by improvements in the poor world.

A driving factor in this is the increased availability of primary education. Tertiary education has also become more common in the developing world.

Social Indicators

Female literacy as a percentage of male literacy (an important measure of economic potential and gender equality), has converged since the 1970s from 59% to 80%. The percentage of children not in the global labour force has also decreased from 76% to 90%.

War deaths per capita is the least encouraging measure. The world remained a war like place in the developing world throughout the end of the 20th C.

Other, more lighthearted but important, measures have also converged. Beer production per capita has nearly doubled since 1950, representing an increase in “non-necessary” production.

What is going on?

Why have we seen convergence in quality of life measures accompany divergence in income?

There  could be large returns to small increases in income for the very poorest people. A little extra food can hugely improve the immune system for example.

How do we explain the performance of Africa over the last 50 years? GDP per capita has increased from $477 to just $561 over the 40 years (1960–99), falling from 4.8% to 1.9% of the average for a high-income country. Compare this to an under-five survival rate which has risen from 746 to 839 per 1,000 live births over the same period—or 77% of the high income survival rate to 84% of that rate. In terms of infant survival (86–91%), life expectancy (57–60%, despite the impact of the AIDS crisis reducing life expectancy by three years 1992– 99) and gross primary enrollment (35–70%), the trend is also one of convergence (all figures from World Bank, 2000). While Africa remains far behind, it is catching up on these measures, which is more than can be said for its performance on income.

Ingram argues that income tends to have a declining marginal impact on quality of life. Small increases in income reap massive rewards.

However, there appears to be more going on (even if the above argument appears very important). Mozambique saw it’s per capita income decline over the period 1950-99 but its life expectancy, literacy and primary enrollment all increased.

Looking at the data they show us that it takes one tenth of the income that it did in 1870 to live the same amount of time. Life expectancy for countries with a GDP per capita today of $300 have the same life expectancy as countries of 1870 with a GDP per capita income of $3000. Life expectancy has also become far more egalitarian than it was in 1870.

Better immunisation plays a role. Increase in primary enrollment and literacy have helped the efficacy of other public health campaigns, who can now use posters, where they before had to rely on word of mouth. 

To back up this “public health policy not just income helps improve quality of life” argument it has been observed that urban mortality is lower than rural mortality – something only achieved in Europe and the US after extensive public health campaigns.

Conclusions

Different income measures yield different degrees of divergence. For example, the proportion of people living in extreme poverty (less than $1 a day) has decreased tremendously; a massive convergence with the rich world. However, income has diverged in more general terms.

While aid, the Washington Consensus or globalisation have had mixed outcomes with respect to income, by other measures they should surely deserve some degree of credit for the almost across the board improvement in quality of life measures.

The debate today rests on the assumption that there has been a failure in the developing world, because there has been so little improvement in income, perhaps this pessimism is misplaced.

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Falling behind and catching up

There are two contrary things which have happened since the instigation of industrialisation two centuries ago. The first is a divergence in income and the second is a convergence in nearly all other measures of human wellbeing.

One of the questions we have to address is “will globalisation lead to convergence or divergence for the world’s citizens?”

The case for convergence.

As markets integrate, some maintain, material inequality will diminish.

  • There is a modernisation argument. Once poor countries get started on industrial development and the insitutions of a modern state they will continue to develop. This view was popular in the 1950s, but has fallen out of favour today.
  • Late-development. As popularised by Rostow and Gerschenkron, they argue that there are certain advantages of backwardness which can be exploited. This allows for faster growth for poorer countries, leading to them converging on the technological limit of wealth which the richest countries have hit.
  • Neoclassical growth theory argues that market integration will lead to price equalisations of land, labour and capital and thus increased demand for the poor world’s labour and resources which will cause convergence in income and prices.
  • New Growth Theory argues that a similar process as described above occurs for the diffusion of knowledge – a non-rivalous, non-excludable public good – which allows countries to catch up.

This leads to closing inequalities.

The case for divergence.

  • Marxist argue that capitalist production involves the extraction of surplus value from labour. Thus it creates and reproduces inequality because a capitalist income is in effect an economic rent, extracted from labour for by owning capital. Market integration leads to this process merely becoming international.
  • Dependency – Labour is not fully marketable and there will always be some degree of coercion between core and peripheral economies which keep the rich rich and poor poor.
  • Geography – (from Krugman) – Different economic processes have different economies of scale, therefore different developmental paths will lead to a differing economic mix. Because some economies enjoy larger returns to scale, and there are not intrinsic reasons certain industries are in certain places, inequality will naturally occur in a global environment.
  • In contrast to the case for convergence, increasing amounts of knowledge are protected and do not diffuse easily. Those with this knowledge will be wealthier than those without it.
  • Complementary factors play a role. Certain industries, skills and workers cluster in certain places. This produces network effects and positive externalities to which the returns are higher.

This leads to increasing inequalities.

What question does this lead us to ask?

  • How has the world distribution of income changed since the beginning of modern economic growth? 
  • What are the reasons for increasing or decreasing inequality in incomes?
  • Did all benchmarks of growth follow similar pathway? Did quality of life follow the same path as income?Ineq

Measuring inequality.

There are two ways of measuring inequality. World inequality and international inequality.International inequality shows us the inequality between the per capita income of average members of different nations. It offers a good measure because we have the relevant data to make this measure useful for a large number of countries across a long timescale. World inequality treats each individual as a unit and takes into account intra and well as international inequality. It gives a better picture but we only have data from the middle of the 20th C.

There are different measures which we can use to describe world and international inequality.

We can sue the Gini Coeffiecent, the Theil Index or a simple ratio of the richest 10% to the poorest 10%. Each tells us something different and has different methodological flaws and benefits.

There are also different Indices which we can measure. Income is one measure of wellbeing, but there are more. For example, literacy, life expectancy at birth and child mortality.

We also have to think about the level of aggregation which we use. We can aggregate the income/life expectancy of the world, down to the aggregate income/health of London, each is useful in certain ways, but each also obscures certain things.

What data do we have on the past?

Next we turn to the data which we have on international and world inequality back into the 19th C and before. Much of this data come from Angus Maddison, good obit here. He trailblazed the study of income of those living in the distant past. Without his work we would have a lot less to work with in Global History and would have to rely a great deal more on conjecture.

There are limits to his data, administration and statistical records are sketchy for much of the past. For example, large land empires like the Muhgal and Ottoman decentralised much of their administration – local administrators had less need for complex statistics and could rely on local knowledge, hence a dearth of records. On top of this locational problem there are difficulties in certain economic sectors too. As most wealth came from land for much of the world’s history, income information from land is well recorded. Handicrafts and transport are both more mobile and harder to tax, so records are scarcer. Both of these lead to a bias in the data, where we have no information it is safest to assume nothing has happened, this biases our view of the poor past towards it being undynamic.

However, the data sets are still magnificent and all we have to work with. 

  1820 1910 1950 1992
Gini coefficient 0.50 0.61 0.64 0.66
Mean world income (PPP at 1992 prices, $) 659 1450 1806 2801
Extreme poverty (headcount %) 84 66 55     24
Number of extreme poor (million) 887 1128 1376 1294
% of world inequality explained by between-country inequality (based on Theil index) 12 37 60 60

A few things stand out. World inequality was high in 1800 but got higher through to the 1950s where it has held steady since. The proportion of the extremely poor as sunk massively. Much of this increase inequality came from international not world changes, in some countries everyone got rich, in some very few or none did.

There is a slow down in 1950. The lead in growth rates between Europe & its offshoots and the rest of the world shrinks, a relative slowdown occurs. Catchup growth begins in Japan, and then later Southeast Asia as a whole. Different clusters of countries drive these changes.

The dominance disequalising force in the 19th C was the relatively slow growth of Asia. Income per capita in India between 1820 and 1950 rose 10% in total, in China over the same period the total was 17%, the US economy expanded 800% over the same period.

This leads us to some otehr questions which we will address.

  • Origins of inequality. When did it begin?
  • Cultural exceptionalism: Did regions have distinct features? Politics (colonialism, despotism)? Institutions? Resources? Scale of trade?
  • European convergence
  • Catching-up does work, or does it?

The period 1950-1992 (from when Maddison’s data ends) shows the effects of catch up in Asia. Three groups of countries; poor countries with low and variable growth, middle income countries with high and variable growth, and the wealthy world with low but steady growth.

The story of the modern era has been one of income divergence, but a subplot (or the main story, depending on your position) has been the convergence of various quality of life indicators.

What is driving this?

  • High-return-to-small-change hypothesis – altering behaviour slightly can massively increase survival, better personal hygeine and widespread, but cheap, vaccinations can massively boost quality of life.
  • Public health hypothesis – public health policy has been directed far better than economic policy in these contries, fewer differing national interests and fewer differences of opinion on what to do.
  • Urbanization hypothesis – as the poor world urbanises, more people more closer to doctors and they benefit from economies of scale.
  • Triumph of globalization hypothesis – the globalisation of knowledge on health and nutrition allow people to live better lives.

Is this divergence between income and other quality of life indicators important or mere trivia? Three quotes 

The income measure has always overplayed the difference between India and the United States.

Kenny, World Development 

Technologies, which appeared to have done little in increasing Third World income, have improved other measures of the quality of life … globalization has been too quickly dismissed by some as a driver of development.

Kenny, World Development 

HDI convergence is more a logical than an empirical result, arising from the index’s definition, and so is of little interest in the debate about world inequality.

Bob Sutcliffe, World Inequality and Globalization Oxford Review of Economic Policy, 20(1), 2004, 15-37.

HDI converges on well known limits, whereas maximum potential income continues to increase at 2/3% a year. HDIs are bound to converge by definition. However, the improvements in wellbeing are not trivial.

What has driven the improvement in people’s quality of life?

  1. Globalisation > Income > Health?
  2. Globalisation > Knowledge > Health?

Each of the above two mechanisms, increased income leading households to better care for themselves, or increased knowledge of best practice leading states and households to alter behaviour at relatively little cost are both viable explanations. 

Above is the Preston curve of life expectancy at birth S.H. Preston, ‘The changing relation between mortality and level of economic development’, Population Studies, 29(2), 1975.

Preston aruges that int data shows that the association between income and health is strong in poorer countries because of public policy failures. People can only afford to increase public policy if income increases. Therefore any improvement income-dependent.

Conclusions:

  • International inequality in income increased 1820 – 1950, remained stable 1950-92.
  • 1820-1950: ‘dominant disequalizing force’ is the stagnation in India and China
  • 1950-1992: Selective catching up.
  • 1992 onward: a faster and broader catch-up?
  • Catching up faster in health and education.
  • Did globalization play a differential role in income (technology of production) and HDI (technology of health)?
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