Notes and Ideas from Global Economic History: A Very Short Introduction
One of two impulse purchases at the MIT Press book store cash register, Global Economic History by Robert C. Allen is part of the Oxford University Press “A Very Short Introduction” series.
This series offers readers a scholarly introduction to various topics by a leading academic writer in the respective field. I chose this title because of the questions I have about why the US and Europe outpaced the rest of the world starting with the Industrial Revolution.
What I like about this book (and what will lead to me buying more from the series) is that it covered a lot of ground without dumbing down the text. I felt like I had completed thorough lecture that entertained and held my attention without sacrificing the substance of the concepts. The printed version of the book is the perfect size for putting into your pocket to read later while commuting. It’s also ideal for travel reading, since it won’t take up much space in your bag and can be read in small bursts.
Perhaps because of my interest, or because of the nature of the book, or both, I took a copious notes. Get ready to drink from the firehose:
In the 15th century, everyone on earth lived at the bare bones subsistence level (enough calories and macronutrients to survive). England accelerate out of this in the Industrial Revolution.
Bare bones subsistence is a poverty trap. Labor, while slow, is cheap and available, which provides no incentive to innovate. High wages contribute to economic growth by sustaining good health and supporting widespread education. The Industrial Revolution was the result of high wages – and not just their cause.
One aim of technology is to reduce geographic disadvantages.
Literacy and numeracy have been necessary conditions for economic success.
Industrial Revolution was the result of the first wave of globalization.
Full-rigged ships drove Europe’s rise: Portugese, Spanish, Dutch, and English global trade advantages.
Four implications of global economic success:
- Growth in urbanization and rural manufacturing drove up demand for labor
- Growing cities and high wage economy increased demand for food – this led to agricultural revolution
- Growing urban demand increased demand for energy alternaties
- High wages generated high level of literacy, numeracy and skill formation
Political power of Crown government in England gave it the ability to take property and quell protests again machinery and tax commerce (the workers). Contrast that to France which gave too much property rights by not adopting an equivalent to the Private Acts. That led to the few able to block canals and other common benefits.
Reorientation from mysticism to scientific culture led to open questions and experimentation.
Highe wag and low energy price gave England economic incentive to mechanize. With more capital and energy at their disposal, British workers became more productive – the secret of economic growth. In Asia and Africa, the cheapness of labor led to opposite results.
Cotton industry grew in Englad with research and development because capital cheaper than labor. Machines owed nothing to scientific discoveries – years of experimental engineering was the driver. Make improvements on a single technology multiple times – improvements made it economically possible to introduce technology into low labor markets (by decreasing the cost of building).
Steam engine R&D was pan European but England advanced the technology because of capital advantages and access to coal.
Continual improvement made steam global. Train on iron rails showed viability of railroad. Power looms inspired by an automaton duck: If the steam powered duck could defecate, could steam do something useful?
Steam power is an example of general purpose technology (GPT). Other GPTs are electricity and computers. It takes decades to develop GPTs – value is created over time. Incremental tinkering over time leads to transformational leaps.
While Britain did not have a policy to “industrialize”, most countries since have had a strategy to emulate its success. This economic development strategy comes in four parts:
- Create large national markets with no internal tariffs
- Erect uniform external tariffs
- Create banks to stabilize currency and provide capital
- Establish mass education to speed adoption and innovation of technology
The reason poor countries are poor is because they use technology that was developed by rich countries.
They don’t use newest technology, because it doesn’t pay. Low labor/high capital costs prevent it.
Three factors drove difference between success and failure: 1. Technology, 2. Globalization (lower transportation costs) and 3. State policy. Comparative advantages in trade determined who won or lost. In Asia and Middle East, labor was redeployed from rudimentary manufacturing to agriculture and they became exporters of raw product. They became modern underdeveloped countries.
While Mexican economy grew in colonial period, the society was remarkably unequal in wealth distribution and status. 10% of elites had 62% of income – this much inequality proved bad for growth – uneven distribution of economic growth.
The success of the American economy depended on the application of inventive engineering across the full spectrum of industires. The incentive to mechanize came from high labor costs. The successful response required a large pool of inventors.
Virtually all inventors are literate. Illiterates would have no access to technical literature…inventors operated businesses in which they corresponded, entered contracts, obtained patents, and negotiated with clients – one had to read and write. In USA, most white males were potential members of the inventor class. In Mexico, 80% were excluded. The scope for a creative engineering response was correspondingly reduced.
Mexican populations were less commercially active so had fewer incentives to be able to read or write…egalitarian societies in New England and the Middle Atlantic states demanded widespread education. Inequality in Mexico and Andes meant elites had little incentive to educate the masses – the same was true in the Caribbean.
Africa had an overabundance of land and most people were able to provide for themselves – little incentive to produce a variety of goods – little commerce because of their self-sufficiency.
Willingness for African kings to engage in the slave trade fueled by the desire for European goods and the Europeans desire for cheap labor in the colonies.
African colonialism created remarkably bad institutions. Indirect rule reaped benefits for the colonialists. The tribal chiefs could rein along tribal line, not national interests.
Colonial governments employed transportation improvements but ignored the other three elements: no banks, no single market, and no uniform tariffs.
African agriculture didn’t do well because of fall in farm export prices stemming from competition with Asian producers created an expansion of production in Africa. African poverty is a vicious circle in which low wages keep down export prices and low prices keep down wages.
Lack of industry in Africa comes from 1. Competitive advantage, 2. Absence of complementary firms, and 3. Low wages make adopting captial intense unviable.
The best policy to effect economic development, therefore, remains very much in dispute.
In reading this book, I came to realize the solution to developing world problem all come down to: Can you help workers become more productive? Higher productivity means higher wages, which leads to better education, better commerce, more invention, and an upward spiral of the quality of life.
If you are seeking to make a difference in social problems, you need to solve for this main question. Once you answer that, you unlock the economic development that leads to better lives.