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.

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.

Protected: EH481: Reading and Tasks List 2010 (Rather a lot of LSE information here so I’m password protecting this one)

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K. Pomeranz, The Great Divergence: China, Europe, and the Making of the Modern World Economy (USA: Princeton University Press, 2000)

[page 3] The 19th and 20th C social sciences sought to find the difference between Europe and the rest of the world. It sought to answer the question “why did Europe develop?” Different theories have been proposed; some argue that Europe developed by exploiting its colonies and living off the surplus. Others emphasise the exploitation of Europeans and the productivity enhancements the Industrial Revolution brought.

[4] Contrary to many arguments, Europe and Asia were very similar up until 1800. Europe was less labour intensive than Asia and more capital intensive, but was reaching ecological limits which would cause it to switch to more labour intensive forms of production. (Capitalism is a system which seeks to reduce the amount of labour input for each product output, i.e. it strives to be less labour intensive than before) In the 18th C resource extraction from the New World helped keep European labourers off the fields and in factories.

The core regions of Europe and Asia were similar in their institutions and endowments. This mean that a comparative approach will not reveal why one region forged ahead and the other fell behind. Therefor we need to look at how the regions interacted. The pre-1800 world was polycentric. Lots of the earths conjunctions worked to the European’s favour rather than the Asians’. This was not because the designed them, but was a quirk of fate.

[5] Much scholarship has fallen into a World System Theory mould or put European success down only to internal factors. Neither approach is satisfactory. Sadly, recent scholarship has given undue attention to internal factors and downplayed external events. Three ways stand out:

  1. Recent scholarship has found “capitalism” in the west as far back as the Dark Ages, making Europe’s path look unique. However, similar “capitalisms” can be found in India, China and Japan’s past.
  2. The above led to dominance being given to internal european processes. But this ignores too much of the New World’s role in the Old. This is ideologically convenient for boosters of neoliberal capitalism.
  3. Industrialisation was initially a British phenomenon which then spread  to the rest of Europe. however, literature treats industrialisation as a European phenomenon. This makes extra-European connections seem less important; New World played a large role in the first industrial revolution in Britain. Empire has been treated as something created by superiority, rather than as something which helped create the superiority.

[6] We also have unuseful use of European level units of comparison. England is not comparable to China as a unit. China is continental in size, whereas England is 2/3 of a medium sized island off the coast of continental European. [7] Therefore, it makes sense to compare subregions in China with the individual countries and regions of Europe. For example the Yangzi Delta is imilar in many ways to European states like Holland and the UK.

[8] Reciprocal comparisons needed to avoid biases sources. Both sides are deviations from the expectations of the other.

[9] A series of reciprocal comparisons between Europe, India, China and Japan produce several similarities in agriculture and proto-industrial development as late as 1750. We should not confuse the point at which Europe became the wealthiest area of the world with the point at which it broke out of a Malthusian world into one of sustained per capita growth. Manu places reached the same limit of economic development as Europe had. Europe grew because of historically contingent events, like the location of coal and the opening of the New World. The idea the without the New World or coal that Europe would have developed nonetheless is not supported by pre=1800s stagnation in living standards vis a vis the rest of the Old World.

[10] Jones argues that preindustrial Europe was far ahead of the rest of the world in the accumulation of human and physical capital. It is argued that the demography of Europe and economic behaviour of european individuals left enough surplus for non-farm industrial workers to exist. However, comparisons between Europe and Asia show that European social patterns and demography were not unique.

There were booms in Asia and productivity improving innovations which raised per capita income. We must look at a Fall of Asia as well as a Rise of Europe. Asia was not at its population density maxima in the 18th and 19th C, there was room to expand. Do not ignore the tremendous resources inflow from the New World to Europe. This was different to frontier expansion in Europe or Asia. The clearing of the German forests for arable land and wood has parallels in Bengal, but there is no Asia equivalent for the bounty the New World Provided.

[12] You cannot attribute a fall of Asia to its coming to its Malthusian limits. China was only as full as large parts of Europe was – i.e. Britain. If Europe was not at crisis at the end of the 18th C then neither were large parts of Asia

Sugihara has argued that Europe became more capital intensive than Asia around 1500 as Asia became more labour intensive (although our author dates this divergence to around the 18th C). A large source of Europe’s GDP growth in the early modern period came from exporting manufactures to the large markets which Asia’s “industrious revolution” had created.

[13] However, the differences in the way labour was used was not essential but was contingent on a number of events. Population distribution, due to market distortions, made population growth in developed areas more likely relative to undeveloped areas in Europe rather than Asia, leading to the capital intensity of production to increase.

[14] Braudel, Wallerstein, Chaudhuri and North pay less attention to the levels of wealth with which Europe entered the 18th and 19th C and more to the institutions which existed. European institutions, allegedly better protected private property etc, better rewarded those who efficiently used labour, land and capital than Asian institutions. [15] Brenner makes a similar but potentially complementary argument. The divergent regimes are the result of class struggle:

  • In Wester Europe the peasants won the first round against their land lords after the black death, freeing them from coerced labour; in eastern europe the serfs lost.
  • In France the smallholders won the second round and big landowners and small holders were left with little incentive to improve the quality of the land. In England big landowners won and improved productivity while freeing labour for the factories.

This left England most resembling a neoclassical economic model of free markets and led it to develop first and most strongly.

Braudel and his school instead focus on the retained wealth of a small number of landowners and capitalists. This wealth was often accumulated by force. This capital was then invested in productive endeavour, beginning development. For Wallerstein it is the interaction between Eastern and Western Europe that signals the beginnings of a world economy.

There are problems with all these Eurocentric stories, but institutions do matter a great deal for development. There is little evidence that European institutions were much better than Asia ones until the Industrial revolution was underway. There was no decisive lead in capital stock or institutions with respect to the most advanced regions of Japan or China.

Industrialisation outside England was limited until the 1860s so a broad european miracle seems less convincing. People in other parts of the world acted in the same ways as Europeans to reduce their fertility (to boost per capita, not just total consumption and investment). Technological innovation had given Europe an edge by 18000, but alone this was not enough to cause an industrial revolution. 

[18] Consumption patterns differentiate Europe, China and Japan from the rest of the world, but not from one another. Increased productivity in these regions routinely increased demand and consumption patters which favour europe seem to stem from external factors.

Europe’s financial markets were more efficient, but there was no developmental bottleneck which advanced financial products could relive at this early stage. Direct competition between european and asian merchants did occur, and when it did and the Europeans were not allowed to use force the Europeans possessed no obvious advantage. Land and energy were the most important constraints on early development, exactly the things relieved by New World products.

New legal forms in Europe (limited liability etc.) did matter for developemtn. But these were not enough to prompt development. Overseas interstate [20] rivalries did matter.

There were further econoligcal barriers to further growth in all the most densely populated, market driven and commercial areas of Eurasia. All areas attempted to relieve pressure through trade with the rest of the Old World. But lack of demand in the Old World meant that it was difficult to development large scale manufacturing. Europe’s land constraint was eased by a shift from wood to coal and by large imports (ghost acres) or food and non-food agriculturals from the New World. The New World also provided a large market for manufactured goods.

The New World slave periphery was different to China’s hinterland because it relied on manufactured imports in a way which China’s interior (with its proto-industry) did not. This dynamic continued well into the 19th C, from indipendence, emancipation and beyond.

Global History for Global Citizenship by Patrick Karl O’Brien: A Summary

Why is it important to study Global History?

Nietzsche said that ” knowledge of the past has always been desired in the services of the present.” That is still true, because Globalisation is the leitmotiv of our time Global History’s diffusion into systems of preparatory and higher education is unavoidable. Secondly, as science heads towards the ever smaller scale, Higgs boson and quarks, so other subjects have scaled in the opposite direction. Lastly, despite the large time scales, huge areas involved and heterogeneity of cultures involved, Global History is possible. So, we can do it, there is space for it and it is needed to understand the present.

It is important to historicise globalisation. Were it not for globalisation, of knowledge, of techniques and cultures, Global history would not be possible. However, without global history we can be left with multiple overlapping and contradictory descriptions of globalisation.

Historians have already shown that a global world existed for some before the 19th C transport and industrial revolution. Globalisation as an interrelated geopolitical, political, social, economic, religious and cultural process runs through history like a thread. But it can be divided into four heuristic stages.

Archaic globalisation: The ancient civilisations and their interactions up to the 14th C and the beginning of European exploration and expansion overseas.

Proto-globalisation: 14th C tp 1840s. Columbus, De Gama, Magellan and other’s journeys of discovery and overseas settlement. The expansion of overseas commerce and the relative decline in importance of overland commerce.

Modern globalisation: 1846 to 1948. As Marx said “Bourgeoisie exploiting the world” – a different sort of empire and globalisation which gave the world global systems of production and communication.

Contemporary globalisation: 1948 onwards. The independence of India in 1948 and the foundation of the People’s Republic of China were a profound qualitative change from what occurred under the previous round of globalisation.

These aren’t true categories in any epistemological sense, but they are useful to direct out analysis. We can examine the extend intensity, velocity and outcomes of connections over time through time and explore the forces changing the world.

The Hot and Cold War which occurred from 1939-1989 had a profound effect on the world. There is a greater demand for human rights, peaceful conditions of commerce, environmental protection and diffusion of development beyond the borders of states through some form of global governance.

Today’s globalisation is different to that of the past both quantitatively and qualitatively. To study of Global History is not to be an apologist for any neoliberal or neoconservative ideology, Global History can teach us the malign as well as benign outcomes of Globalisation.

For example, those who have studied the difficulty with which areas develop are not so enthrall to Ricardian principles. They can see, have studied, how forming states and domestic economies is a protracted and complex process. A process easily thrown off course by uncontrolled engagement with powerful geopolitical, economic and cultural forces from beyond porous borders.

Public History

Modern popular history often promotes patriotic (and xenophobic) narratives on economic development. These have drawn wide criticism for their ignorance of Japan, China, India, Africa and other “knowable” others. An over reliance on Marx’s of Adam Smith’s critique of Asiatic modes of production is not useful.

Global History has to engage with these dominant and parochial narratives because if it does not, their proponents will a) write school textbooks and b) promote their ideas through the television and through popular writing.  This publication is often done to promote an ideology – usually unfeted free enterprise or Stalinism.

Modern History, partly due to its genesis, is far too focussed on the local and the national. Global history allows us to approach global politics, society, culture, geopolitics, demography and social change. Global History can do this because it attempts to decentre itself and to be multidisciplinary.

Global History can help a global civil society grow to match a global political and economic realm. No objective understanding of the past is possible but an understanding of social and political processes is needed. This is not a new mission because all historians have always written with a mission, even if an ironic detachment was need to be taken seriously. What is different now is that Globalisation and Global History allow historians to show that we are all Global Citizens.

EH481: Economic Change in Global History: Approaches and Analysis – Indicative reading

Here.

  • K Pomeranz, The Great Divergence (2000)
  • J Diamond, Guns, Germs and Steel (1998)
  • E Jones, Growth Recurring: Economic Change in World History (1988, 2000)
  • D Landes, The Wealth and Poverty of Nations (1998)
  • A Frank, Re-Orient: Global economy in the Asian Age (1998)
  • D North, Institutions, Institutional Change and Economic Performance (1990)
  • C Bayly, The Birth of the Modern World 1780-1914: Global Connections and Comparisons (2004)
  • A G Hopkins (ed), Globalization in World History (2002)
  • D Smith, D Solinger & S Topik (eds), States and Sovereignty in the Global Economy (1999)
  • J Osterhammel and N Petersson (eds), Globalization: A Short History (2005)
  • B Gills and W. Thompson (eds), Globalization and Global History (2006)

Pritchett, L “Divergence, Big Time” in The Journal of Economic Perspectives, Vol. 11, No. 3. (Summer, 1997), pp. 3-17.

From here.

The topic of this paper is the massive divergence which has been observed between currently rich countries (European Countries and their offshoots plus Japan) and the other countries. No grouping is really all that accurate, but the theme of divergence in growth rates, productivity and wealth split the world into two fairly distinct groups.

The period discussed is that since 1870s. This if often chosen as a start date for “modern” economic history. First of all, for rich countries decent economic information is available more or less uninterrupted since this date. Also 1870 follows on from a series of major events, US Civil War, Franco-Prussian War, and Japan’s Meiji Restoration.

The above table is used to illustrate a number of things. First of all, there was some sort of Golden Age for capitalism between the end of the war and the end of the 1970s. There is a strong convergence within this subset of countries; the poorest six countries in 1870 had five of the six fastest national growth rates for the time Period. 1870 to 1960. The five richest in 1870 had the five slowest growth rates.

Secondly, Even with the catch up of the poorest countries growth rates are relatively uniform: the standard deviation of the growth rates is only .33. Evans (1994) formally tested the hypothesis that the growth rates of European countries and their offshoots (not Japan) were equal in the period and could not reject it.

Thirdly, although there has been substantial variation over time there has been no substantial acceleration of growth rates over time. Growth rates have been remarkably stable.

Unfortunately all these observations are drawn from a self selecting group of countries which are now rich; the observation they have grown strongly and consistently over the last 100+ years and that they are now rich is almost tautological. Countries like Japan which did converge are included, but countries which didn’t like Argentina are not.

A Lower Bound for GDP

There is a paucity of data for historically poor for a variety of obvious reasons. However, there is a physical limit on how poor a country can be, “even deprivation has its limits.” Pritchett argues that $250 expressed in 1985 purchasing power equivalents is the lowest GDP per capita could have been in 1870.

No one has ever observed lower living standards in the modern poor world; this level is set well below modern levels of “absolute poverty” and is at the limit of viable nutritional intake; a lower standard of living and the population could not expand.

PPP is very important in measuring living standards in poor countries (see disclaimer here), tradeable goods cost more or less the same everywhere, but haircuts etc are much cheaper in poor countries. $70 in 1985 US market exchange rate dollars = our P$250 minimum GDP per capita level.

Divergence, Big Time

If you accept: a) the current estimates of relative incomes across nations; b) the estimates of the historical growth rates of the now-rich nations; and c) that even in the poorest economies incomes were not below P$250 at any point-then you cannot escape the conclusion that the last 150 years have seen divergence, big time.

If we assume that all countries have grown at roughly the same rate and backcast from now then we come to the conclusion that soem countries had incomes lower than P$100 in 1870, since this is impossible then we must have seen massive divergence.

The magnitude of the divergence is staggering. 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.(pp 9-12 are well illustrated and should be read in full). Bairoch (1993) argues that developed countries and developing countries were largely economically equal as late as 1800, this implies and even more startling era of divergence since.

Divergence is not a thing of the past

There are a number of countries catching up and growing at historically unprecedented rates (Korea, Taiwan, etc), but manuy continue to stagnate and some have even regressed (i.e. negative growth rates since 1960). Many countries have seen slowdowns and some have seen “meltdowns.”Annual growth rates amongst developing countries from 1960-1990 range from -2.7 percent to 6.9 percent.

There has been no obvious acceleration of growth in most developing countries, either relatively or absolutely, and no reversal in divergence. Almost nothing that is true about the growth rates of developed countries is true of that for developing countries.

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

Taken from here.

North is attempting to delineate what can and what cannot be learned about the way societies change over time. Section I is on the process of economic change, section II is on what questions we should ask and section III speculates on what questions can be answered and which cannot.

I

North explains that “a theory of economic performance through time would entail an integration of institutional change, demographic change and the change in the stock of knowledge.” In this essay he chooses to focus on the change of institutions because economics is the study of a process and processes are embodied in the institutions of a society.

Institutions are created by humans to structure human institutions in order to reduce uncertainty in pursuit of their goals (or those making the rules) in social, political and economic exchange.

Institutions are defined as the formal rules (constitutions, statute and common law, regulations etc.) , informal constraints (norms of behaviour, conventions, internally imposed codes of conduct etc.) and the enforcement characteristics of each.

Institutions are not Organisations. Think of Institutions as the rules of the game and Organisations as the players. “Organizations and their entrepreneurs are the actors; they will introduce new institutions or technology when they perceive that they can improve their competitive position by such innovation.”

North now goes into more detail on the processof institutional change.

The institutions of a period define what organisations will exist. Organisations exist under a condition of scarcity and therefore competition. The rate of innovation and change in the institutions which govern our organisations is governed by the incentive structure constructed by this competition.

This is not the competitive conditions of the economic theory of perfect competition but rather the institutional environment of the organizations–the framework of rules and norms–which determines the incentives for innovative activities. An improvement in an organisation is not necessarily an improvement in productivity but could be the creation of a monopoly or the redistribution of wealth in some advantageous way.

Sometimes the innovation involves a change in formal rules and structures [like the repeal of the corn laws] so a study of institutional change must take embody a theory of political change. Sometimes changes involve a gradual change in informal norms of exchange [like the end of religious prohibitions on usury].

Whether organisations change institutions in ways which boost productivity or by redistributing wealth depends on the incentive structure of currently existing institutions. If institutions and the way they evolve are the key to economic performance through time what determines the way they evolve?

The immediate answer is that individual entrepreneurs who are in the position of modifying the rules of the game in political or economic markets and have implicit or explicit theories about the consequences of policies act upon those theories to modify the rules to improve their competitive position; the perceptions of entrepreneurs shape their policies and over time it is the way these perceptions evolve that determines the way institutions evolve. There is no implication that results of the choices that are made will coincide with intentions; indeed more often than not the belief systems that underlie perceptions produce unintended and unanticipated results.

II

This approach to understanding economic performance through time is at odds with the mainstream literature.

Arnold Toynbee popularised the term “Industrial Revolution” in a series of lectures in 1880-81 and historians have ever since usually onsidered technological change to be the most important determinant for economic performance. For example “take off” theories of development. This is wrong, technologies give us our upper bound, but do not tell us about why this upper bound is so often missed. In contrast, Malthusian pressures have determined the gloomy lower bound.

The economic growth literature has seldom posed the questions which North wants answered. Growth accounting can explain the proportions with which human capital, physical capital, increasing returns, or technology contribute to economic growth but it cannot explain why poor countries don’t invest more in human or physical capital.

Studies of the Third World have often implicitly assumed incentives are aligned correctly, when they are almost always provide incentives for redistributive institutions are larger than those for productive activity. The failure of humans to organise themselves the provide the right incentives must be the centre of inquiry.

Too much study in economics looks at static equilibria, the study of economic performance through time needs a dynamic approach. Given the above, North now reveals his questions.

  1. Are institutions really the carriers of the process of economic change and if so what are institutions?
  2. If institutions play such a role how do they interact with the other key actors in the process of economic change, demographic change, and changes in the stock of knowledge?
  3. What are the sources of institutional change?
  4. What is the process of economic change? How useful are models drawn from evolutionary biology?
  5. How can we explain the diversity of economic performance through time?
  6. How far can we go in constructing a framework that can provide guidelines to improving the performance of third world and transition economies? Can we construct a dynamic theory of change?
  7. Where are we going?

III

In this section North  approaches each question in term.

Are institutions really the carriers of the process of economic change and if so what are institutions?

Mainstream economics neglects institutions. The evidence of the myriad levels of economic performance even amongst countries facing similar technological and demographic limits should illustrate how important institutions actually are.

However, while mainstream economics do not incorporate institutions into their theory, when they concern themselves with policy they do so in discussing changes in laws and regulations – formal institutions. But Informal institutions are also very important.

If institutions play such a role how do they interact with the other key actors in the process of economic change, demographic change, and changes in the stock of knowledge?

They interact in many ways, most of which we are yet to fully understand. Modern economic growth has its source in the stock of knowledge which is rooted in the scientific revolution of the sixteenth and seventeenth century, yet the roots of this revolution are far from clear.

The formal and informal institutions which led to this scientific revolution need to be understood to explain how it led to the massive changes in demographics and technology which followed.

What are the sources of institutional change?

The source of change reflects the perceptions of economic and political entrepreneurs who perceive ways in which they can improve their position.

In this context, actors do not act as neoclassical theory would suggest. This approach assumes pervasive scarcity and individuals making choices reflecting their preferences. The aggregate of this preference is then constructed  in the context of fixed resources, private goods and given technology. This model is good for illustration the benefits of a decentralised market system but is less useful in understanding institutional change.

When solving economic problems frictions arise [transaction costs] is the context of imperfect information and imperfect enforcement of agreements, and markets are the creatures of political forces. In the real world beliefs define the actions of actors.

We must model beliefs if we are to understand any social science.

Risk versus uncertainty comes into play when discussing someone’s beliefs. Risks can be described as a probability distribution and can be insured against. This is impossible for uncertainty and economics has not created a body of work on this subject. However, all human endeavour is conducted on the basis of some sort of uncertainty – religions, myths, taboos and half baked ideas all serve as the basis of (sometimes life and death) decision making.

The study of economic performance through time must entail the study of how humans learn and meld beliefs and preferences; why they develop these choices in the face of such uncertainty; and why some ideas die out and others prosper.

What is the process of economic change? How useful are models drawn from evolutionary biology?

There are parallels between Darwinian Evolution and the process of economic change. However, Institutional change is largely Lamarkian, change is intentional and is intended to improve the position of those making the changes.

Part of our the scaffolding on which society is built is genetic, part of being human, and part of it is cultural, also I guess part of being human, but in a different way.

Experimental Economists have found evidence which lends support to the position of evolutionary psychologist, human beings cooperate in small groups when transaction costs are small but noncooperative outcomes are favoured in large groups or under conditions of private information. Stephen J Gould and others have suggested that cultural evolution still has a large role to play in the architecture of how humans act. A look to the variety of human societies which share the same genetic material, suggests that cultural evolution play a large role.

Initially the architecture of the  structure is genetic, but interaction with the physical environment and those from the socio-cultural linguistic environment affect this. Categories of experiences are formed which become models on which we decide actions and predict outcomes, as we use these models we update them through confirmation and falsification.

No one individual can understand the whole world but each develops their own models. These models would diverge were it not for ongoing communications from those of a similar cultural background. The interaction of these models creates a culture, provides a method for intergenerational transfer, a means for internal communications, and a method to explain experiences outside the experience of our specific individual. This last function explains the helpes existence of irrational beliefs, some explanation is better than no explanation.

All this implies that individuals are constantly somewhat irrational, unknowledgeable and subject to experiences which may reinforce rather than dismiss incorrect beliefs. North proposes some more questions on what this means for the study of economic performance through time.

  1. What difference does it make that the agents fall far short of substantively rational behavior (full knowledge of all possible contingencies, exhaustive exploration of the decision tree, and a correct mapping between actions, events,and outcomes)?
  2. Is it possible that the agents simply get it wrong in terms of modeling the process of change or representations of the environment?
  3. It may be that the past experiences of the actors lock them in to a belief system and institutional framework that however well they have solved previous problems are strikingly bad at solving new problems.

How can we explain the diversity of economic performance through time?

History is a record of unanticipated consequences and outcomes of decisions made in the face of uncertainty. It could hardly be otherwise.

Economic History is the study of the huge increase in wealth and well-being of humanity, but is is also the study of actions which have produced death, war and famine on a colossal scale. Even what look today like the best laid plans (the US Constitutions) have in fact been aided hugely by chance.

One of the biggest challenges to economic growth for a society is the move from personal to impersonal exchange – a necessary component for greater specialisation and enlarged trade. For example, Genoese traders outperformed Islamic traders in the 11th and 12th century because the Islamic traders relied on in-group social communication networks to enforce collective action while the Genoese formed formal and legal enforcement mechanisms. Thus, due to path dependency, the Genoese could gain more from specialisation and enlarged trading networks.

Institutions change through time and impact one another in unpredictable ways. Because Islamic traders relied on personal exchange, they couldn’t specialise as much as the Genoese, which impaired change in the stock of knowledge which altered the path of demographic change which impacted the change of institutions etc.

How far can we go in constructing a framework that can provide guidelines to improving the performance of third world and transition economies? Can we construct a dynamic theory of change?

A theory of dynamic change is not possible in the same way that a theory of general equilibrium is. We make changes based on new information all the time. To predict those changes would require us to predict that future knowledge, at which point it ceases to be future knowledge and simply becomes knowledge and then becomes now. The past can inform the present and the future, but it cannot predict it.

We know something about the evolution of formal institutions but we know very little about how informal rules change, and these can be just as important.

We need to understand path dependency because it plays a major role in constraining change, if institutions exist which retard economic growth then we need to know hoe easy it is to change them.

Where are we going?

The foregoing discussion suggests that our potential foresight is relatively limited. Forecasting what humans will learn and how the human environmental landscape will change in consequence of that learning and non-human alterations is beyond our capacity and in consequence imposes severe temporal limits on our understanding of economic performance in the future.

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.

This is for my benefits so I can revise wherever I am but is open to anyone curious about the course, whether they’re currently studying at LSE or thinking about signing up.

LecturesLecture in the New Theatre, c1981 by LSE Library.

SeminarsDr Peter Loizos (left) and students, c1981 by LSE Library.

ReadingStudent in the library, 1981 by LSE Library.

EssaysStudent in the library, 1981 by LSE Library.

You can see my lecture notes etc by clicking on the pictures above. Browsing by courses is also available if you use the links below.

All images are taken from the LSE archive on Flikr. This site has no official link to the London School of Economics and Political Science. This site cannot verify the content of external links. Some rights reserved under a Creative Commons Attribution-NonCommercial 3.0 Unported License.