EH483: The Development and Integration of the World Economy in the 19th and 20th Centuries: Introductory Lecture

Lecturers = Dudly Baines – Albrecht Ritschl – Tirthankar Ray – Kerry Hickson = Monday 1300-1400 in the New Academic Building. Seminars are on Tuesdays.

The coursework for this unit will include two formative essays of 1500 words (pah, my undergrad essays were 4000 words) and one assessed essay of 2500 words. These will be due towards the end of the course. There will also be a three hour exam in May 2011.

All the details and deadlines are in the Notes for Students on Moodle.

Enough admin, to the meat!

There is an element of comparative development of the world economy. The unit is economics focussed and 19th century focussed. The course will be very long run to begin with and we wil then drill down into more detail later.

Objectives of the course

Explain the origins and evolution of  international inequality in the “modern world.”

Comparative elements – Demography, geography, trade, urbanisation, culture, institutions, technology and policy.

Case Study elements – Industrialisation, catch-up, fall behind, factor price integration.

GDP per capita (1990 international $)

  1870 1913 1950 1973 1998
UK 3191 4921 6907 12022 18714
W.Europe 1974 3473 4594 11534 17921
US 2445 5301 9561 16689 27331
Latin America 698 1511 2554 4531 5795
Japan 737 1387 1926 11439 20413
Other Asia 543 640 635 1231 2936
Africa 444 585 852 1365 1368

Shares of World GDP (%)

  1870 1913 1950 1973 1998
UK 9.1 8.3 6.5 4.2 3.3
W.Europe 33.6 33.5 26.3 25.7 20.6
US 8.9 19.1 27.3 22.0 21.9
Latin America 2.5 4.5 7.9 8.7 8.7
Japan 2.3 2.6 3.0 7.7 7.7
Other Asia 36.0 21.9 15.5 16.4 29.5
Africa 3.6 2.7 3.6 3.3 3.1

Every region is richer now then it was in 1870 (the time when a truly modern economy began to appear), but some are regions are richer than others. Two things stand out.

Some areas expereinced rapid growth and some did not. We need to look to the genesis of this rapid growth. It was not an increase in the use of land or other inputs which started this growth, but an increase in productivity.

The world became more unequal and we see a great deal of divergence between economies that industrialised and those that did not.

Growth

Classical economics looked at incereasing inputs to creat more wealth. Growth rested on using inputs more efficiently.

Growth was assumed to run out at some opoint, however, this has evidently not happened.

Marx helped introduce the idea that industry could grow even when land and other inputs became scarce.

Innovation has been treated as exogenous in many growth models driving progress forward. This is of course not good enough. Endogenous growth theories are essential.

Inequality

Economics helps us describe interpersonal inequality, this can be scaled up with some modification to help us look at international inequality.

Key concepts

  • Factor Endowments
  • Factor Rewards

Classical economics looked at three factors, each controlled by a different class: Landlords controlling land, Workers controlling labour, and capitalists controlling finance and physical capital. The distribution of income is dictated by different factor endowments and factor rewards. Labour’s share is dictated by what is required to fulfil its own subsistence and reproduction; the Landlord’s share is dictated by the fertility and scarcity of land; and the capitalist’s share by the demand for loanable funds (However, Marx argued that a capialist’s income was a form of economic rent on the labour of the workers).

Neoclassical economics looks at the world differently. My lecturers argues that the shape of the world changed somewhere around 1850 and the borders between the different classes break down.  Individuals and households are now better described as possessing a portfolio of skills and capital. The market then sets their rewards on the basis of the demand for the productive factors they can supply.

Two issues complicate this

Factor Ownership – Risk and uncertainty – transaction costs – institutions. These shape both the supply and rewards of certain productive facotrs. For example;

  • Gender plays a role in reducing the rewards which women receive in return for their skills.
  • Slaves versus free labour
  • Spain – their two tier labour market

Technology – change alters the composition of skills and factors in demand. This leads to wage inequality. Some factors are complimentary; for example you couldn’t print the Gutenberg Bible without the creation of the wine press. Network externalities – in high density areas the same skills can receive larger rewards because there is a greater interaction with complimentary factors.

You can map this discussion of interpersonal inequality onto international inequality.

Nations have different endowments. Different rewards persist in the presence of trade cost, transaction cost, formal institutions, culture, political system, geography, demography  etc.

Market integration should lead to a convergence of costs, prices and incomes. This however is far from inevitable.

What made the The 19th Century special? The period encompassing the industrial revolution also saw a transport revolution which helped increase trade, Smithian specialisation and productivity advancements:

  • The cost of freight fall

  • Industrialisation
  • The introduction of more uniform legal codes
  • Communications costs plummeted
  • This was the 1st Globalisation
  • trade and mobility of factors
  • population growth
  • urbanization
  • technological and institutional change

Convergence seen in the North Atlantic (and Dominions), but the rest of the world sees Divergence, Big Time.

The course will address the question of why did some areas experience this revolution and why did some not?

  • Marx – markets did not determine rewards – political economy – colonialism
  • Rostow argued that there was one process – modernization – and that this proceeded at different speeds. Parts of the world were merely not yet ready.
  • Some argue that Geography played the most important role. Tropical countries didn’t develop, so it must be harder to develop in the tropics, natural
  • resources like coal helped the UK develop so countries without these natural endowments were not able to develop.
  • Some areas did not develop because of Markets and risks – risks of commodity market fluctuations – risks of financial integration.

Other reasons to be examined include:

  • Some countries had better institutions (property rights, commercial culture, civic mindedness), which allowed them to utilise their endowments.
  • Some areas developed effective contract law and contract design so that the risks of economic activity were reduced.
  • Culture may have played a role. For example there may have been a bias against innovation in some places.

A further part of the course will examine “catch-up” development. What policies, factors and contingent events aided countries in catching up with the developed world.

  • Gerschenkron examined late industrialisers like the US, Germany and Russia and saw how the later the industrialisation, the more the state had to intervene to shape markets.
  • Alice Amsden has argued that Southeast Asia Industrialised by ‘getting prices wrong’. They forced surpluses out of productive agriculture into unproductive activities to prompt industrialisation.
  • “Death of distance.” As space becomes smaller it is easier and easier to trade knowledge, goods and services. This process has accelerated over time, particularly since the 1970s.

The course will also examine on whether growth counts as development. Is a measure like the Human Development Index better? Does equality or equity have an important role to play?

All will be revealed over the next year.

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About Left Outside
I blog, I drink, I study at the LSE, I work at a wine shop.

One Response to EH483: The Development and Integration of the World Economy in the 19th and 20th Centuries: Introductory Lecture

  1. Pingback: EH483: The Development and Integration of the World Economy in the 19th and 20th Centuries: Introductory Lecture (via Global History @ LSE) « Left Outside

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