The Great Divergence: China, Europe and the Making of the Modern World Economy
- Kenneth Pomeranz
In his seminal work on Britain's Industrial Revolution, The Workshop of the World (1961), J. D. Chambers described how an American visitor, touring the textile towns and villages, exclaimed over the workmen's cottages, with their stone fresh from the masons' yards. Kenneth Pomeranz, an up-to-date American visitor, reviews this period ('industrial revolution' is not a term he appears to favour, preferring 'sustained industrial growth') from the perspective of the Far East.
Briefly, his thesis is that the conditions for an industrial revolution existed in the Yangtze Delta of China, in Japan and in Gujarat in India. Population levels matched those of Europe, whereas Asian techniques in agricultural land management and the use of fuel, Pomeranz suggests, were superior to those in Europe. But as we all know, Europe went on to enjoy an Industrial Revolution; the Asian economies hit a cul-de-sac. The East Asia hinterlands boomed after 1750, but this local growth inhibited those regions from exporting to the faster-growing Yangtze Delta. As a result, growth at the core of the East Asia economy essentially stopped, and what growth did take place was forced along labour-intensive paths. That represents the 'great divergence'.
My immediate reaction is to applaud the novelty of this analysis. Only 10 years ago it would have been difficult to find literature to support Pomeranz's thesis in relation to China; 25 years ago it would have been hard to make such a case in respect of Japan.
The self-evident question is why Europe and Asia performed so differently — why was there this divergence? Pomeranz's answer is essentially twofold: first, Europe enjoyed large coal resources, which were accessible and therefore cheap. And second, it benefited from what Pomeranz calls “the fruits of overseas coercion”, by which he means slavery. “The slave trade . . . enabled Europe to exchange an ever-growing volume of manufactured exports for an ever-growing volume of land-intensive products.”
These arguments seem to offer both too little and too much. On the importance of slavery, Pomeranz quotes an estimate that the fruits of overseas coercion could not have been responsible for more than 7% of gross investment by late-eighteenth-century Britons, and for Europe as a whole the figure would have been far less. Coal of itself was of limited relevance to the Industrial Revolution, being mainly used for domestic fuel. What mattered was the alliance of coal, iron and steel, which was given sharp impetus by the Seven Years' War and later again by the campaigns against Napoleon. British iron- and steel-making skills, based on earlier manufacture of clocks and guns, were of a high order. One indicative story relates how the German industrialist Alfred Krupp took an assumed name and lived in Sheffield to learn the steelmakers' skills.
There is something of a paradox in the thesis of this cogent and well-researched book. A great divergence between the economic performances of Asia and Europe would be remarkable only if there had been a widespread expectation of convergence. There is little evidence that the Industrial Revolution had been expected by economists of the time to reproduce itself in the East. That is not because China, Japan and India were viewed as remote countries of which we know little, but rather because there were fundamental differences in the structure of the two regions.
First, and probably most important, were the very different legal systems. The German economist Max Weber argued that a rational legal system was necessary for the smooth functioning of a capitalistic economy. A recent study by Hernando de Soto, seeking to explain why capitalism has proved so effective in North America and Western Europe but failed to deliver in Russia, South America and Africa, points to the absence of legally enforceable property rights. Second, the Industrial Revolution was a British rather than, as Pomeranz tends to argue, a European phenomenon. He himself points out that European industrialization was still quite limited outside Britain until at least 1860 — remarkably late by UK standards.
Until the mid-nineteenth century, a small island to the north-west of continental Europe (Scots and Welsh contributed, as well as English) produced a crop of entrepreneurs possessing financial skills allied to outstanding qualities in mechanical engineering. Many were harsh, demanding and narrow-minded, as we know from the literature; but they were also honest — although one George Hudson, the subsequently disgraced 'railway king', was the exception.
Their successors fared less well, later in the nineteenth century, in the age of electrical power and the internal-combustion engine. That was another great divergence — between Britain and continental Europe, in Britain's favour, until around 1860, and from then onwards between Britain and North America and continental Europe, to Britain's disadvantage. It's a moot point whether or not this latter divergence continues.