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Ec104 2014 Topic2 Notes

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  EC104: World Economy- History and Theory   Lecture 2.1: Reading Quick Links 16) Allen 17b) Broadberry 17c) B-berry & Gupta 21) Pommeranz Topic 2: The Great Divergence Lecture 2.1: When was the Great Divergence? RECOMMENDED READING   16) *Allen, R., et al (2010). “Wages, prices and living standards in China, 1738-1925: in comparison with Europe, Japan and India”, Economic History   Review 64: 8-38.   17b) Broadberry, S. (2013) “Accounting for the great divergence.” Economic History Working Papers, 184/13. London School of Economics and Political   Science. 17c) *Broadberry, S. & Gupta, B. (2006). “The Early Modern Great Divergence: Wages, Prices and Economic Development in Europe and Asia,   1500-1800”, Economic History Review 59: 2-31.     21) Pomeranz, K. (2000). The Great Divergence: Europe, China, and the Making of the Modern World Economy, Princeton: Princeton University Press. Chapter 1   Introduction to the Great Divergence By 1850, Europe, especially the United Kingdom and the Netherlands, were clearly richer and more technologically sophisticated than any country in Asia. It is clear that this has not always been the case. In many historical periods, Asian countries have been relatively prosperous compared with their European counterparts, notably China during the Song Dynasty (960-1278 CE). This emerging gap in incomes and technology between East and West, as well as North and South, is known as the “Great Divergence.” Needham’s Puzzle  Joseph Needham, in the book series Science and Civilization in China  (1954-onwards) demonstrated that, at least by 1400 CE, China was technologically sophisticated and innovative, and perhaps ahead of Europe in many areas. He then posed the famous Needham Puzzle: Why was China so advanced, and if it was, why did it not then experience an industrial revolution? In order to assess why China fell behind, and why Northwestern Europe surged ahead, we need to know when this happened, and to what extent. Different schools of thought have proposed different timings, which then change their preferred causal explanations. Unfortunately, data on incomes and wages become increasingly difficult to reconstruct as we go further back in history. Attempts to measure the “when” of the Great Divergence thus hinge on using better and more comparable data. The California School While there have always been economists commenting on the relative development of China and Europe going back at least to Adam Smith, the modern debate over the timing of the China-Europe gap began with Ken Pommeranz’s The Great Divergence  (2000). Pommeranz, and later other members of the California School including Bin Wong, Jack Goldstone, and Andre Gunder Frank. Their thesis is generally that Europe and China had comparative levels of technological and economic development until the late Qing dynasty, circa 1800. This “late divergence” thesis implies that we should be searching for causal stories about divergence among factors present during the late 18 th  and 19 th  centuries: the industrial revolution and the first globalization, rather than in long-run features of Chinese culture or institutions. Revising the Revisionists The claims of the California School, however, are backed up mostly by anecdotal evidence about technology and development, because until recently, information about real incomes and wages for earlier periods was scarce for Europe, and entirely unavailable for Asia. (Angus Maddison’s “guesstimates” were helpful for provoking debate, but rested on poor to non-existent empirical evidence.) Recent work by scholars such as Allen, Broadberry, Gupta, van Zanden, Ma, and others have tried to  EC104: World Economy- History and Theory provide more concrete estimates of wages, incomes, and living standards, in order to settle debates about the timing and extent of divergence. They have largely come down on the side of falsifying the California School interpretation, and showing that some regions of Europe were clearly ahead of China even as early as 1400, and that Europeans had higher wages, more and better access to manufactured goods, had higher levels of urbanization, long before the late Qing dynasty and the industrial revolution. Wages (in grams of silver per day) The first and easiest way to measure the gap in welfare is to examine wages converted into a common commodity, such as silver, which was traded internationally. These show that Chinese (Beijing) wages in the 18 th  century were well below those of London and Amsterdam, although they were comparable to poorer parts of Europe such as Milan or Leipzig until the 1840s. Source: Allen et al., (2011), “Wages, prices, and living standards in China, 1738–1925: in comparison with Europe, Japan, and India,” Economic History Review, Vol. 64, 8-38. Real Wages and Welfare Ratios Silver wages only tell half the story. To evaluate standards of living, we need real wages: nominal wages deflated by the price of the goods purchased. To obtain this, Allen et al. (2011) calculate the price of nutritionally-equivalent subsistence baskets of goods for the various cities, in local prices. They then divide the silver wage by the cost of the basket, which yields a “welfare ratio,” expressing how many times a worker could buy the subsistence basket for themselves and their families with the wages they could earn. (Note: In many Asian countries, this ratio is often less than one!)  EC104: World Economy- History and Theory Source: Allen et al., (2011) Silver Wages vs. Grain Wages  The units we use to measure relative wages matter a great deal to our evaluation of standards of living, especially when prices diverge between regions. By asking how much grain a worker can purchase with their wages, we get a better result of nutritional standards of living. However, as workers move further from subsistence, they purchase fewer nutritional goods, and more manufactures and services (this is known as Engel’s Law). Broadberry and Gupta (2006) measure both grain and silver wages for China and Europe, and find that, while grain wages are fairly close, indicating roughly equivalent standards of living in terms of nutrition, silver wages are not. European workers are paid far more in terms of silver, which indicates a higher standard of living in terms of manufactured goods and access to services. This indicates an earlier divergence than the California School suggests.   GRAIN WAGES (kg/day) vs. SILVER WAGES (g/day), SOUTHERN ENGLAND AND YANGZI Year China Silver China Grain England Silver England Grain China/Britain Silver China/Britain Grain 1550-1649 1.5 4.5 3.8 5.2 39% 87% 1750-1849 1.7 3 11.5 7.8 15% 38% Source: Broadberry and Gupta (2006) GDP PER CAPITA (1990 GK$) Year Holland/NL England/GB Italy Japan India China 730 483 900 534 980 1247 1020 1518 1050 1458 1090 754 603 1204 1120 560 1063 1150 1270 759  EC104: World Economy- History and Theory Income per Capita A more thorough (but more difficult) way to measure standards of living is by calculating real GDP/capita. Broadberry (2013) has assembled the most recent comparable estimates for incomes for various countries in Europe and Asia. The results are not only suggestive of the timing of the Great Divergence, but also that there have been various “reversals of fortune” and “little divergences,” where countries within regions rose and fell in relative incomes prior to the industrial revolution. The Great Divergence and the Little Divergences Broadberry’s results suggest that the Great Divergence likely dates back to 1400-1500, when British and Chinese incomes were relatively similar, and then diverge sharply after 1650. However, there are also several other notable features of this new evidence. First, China was, during the Song dynasty, a wealthy region of the world, with incomes about as high as Britain in the late 1600s. Second, Britain (1000-1650) was not rich, compared with Renaissance Italy or the Netherlands during the Golden Age, and only became the global income leader in the mid-19 th  century, following the industrial revolution. China, meanwhile, became poorer over time, losing over a third of its GDP/capita during the Qing Dynasty. Within Asia, China falls behind Japan, which surges ahead during the Tokugawa period. 1300 755 1482 1400 1245 1090 1601 960 1450 1432 1055 1668 554 983 1500 1483 1114 1403 1127 1570 1783 1143 1337 968 1600 2372 1123 1244 791 682 997 1650 2171 1110 1271 838 638 1700 1403 1563 1350 879 662 841 1750 2440 1710 1403 818 573 685 1800 1752 2080 1244 876 569 597 1850 2397 2997 1350 993 556 594 Sources: Broadberry (2013), Broadberry et al. (2014)

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