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Summary Economic History - BSE: business, society and economics (Bridging MBA - KUL)
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- Katholieke Universiteit Leuven (KU Leuven)
A complete summary of the slides and audio recordings for this course.
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ECONOMIC HISTORY#
PART 1 - ECONOMIC GROWTH, WELFARE AND INEQUALITY
Ch. 1 - The Great Divergence
Map 1
This map illustrates the Eurasian and African trade systems in the 15th century. What do we see:
- The core of the trading system and international economy is located in the far East (China, India) and in the Middle
East.
- Europe was, even literally, on the periphery of the global economy at that time.
- Trade routes by land and by sea, and even to North-East Africa departed from China. And to a lesser extent, India.
- Gradually they even explored the East coast and moved further South.
- The Chinese did not intend to conquer these areas. They mainly wanted to develop new trade compacts.
Map 2
This map illustrates the voyages of Zheng He.
- These exploration trips were under the command and directions of admiral Zheng He. Who was active from 1405
until 1433.
- Then the trade missions suddenly stopped. What was going on? The Chinese emperor forbid such trips from 1433
onward. Why is not immediately clear. But we can cite at least two possible causes or reasons:
1) The Chinese emperor feared that these Chinese contacts with other cultures and societies might influence
or change the authentic Chinese culture which they perceived as superior
2) The Chinese emperor feared that foreign ideas could threaten his position of power.
- In any case, we see that from 1433 the exploration urge of the Chinese stopped abruptly and that had important
consequences, not only for China, but also for the rest of the world.
- Because China was well on its way around the Southern cape of Africa, and in time would have achieved a direct
passage to the Mediterranean and even to Western Europe.
- If it was successful, world history would undoubtedly have looked completely different. Because from the beginning
of the 15th century, European nation states were also looking for a direct trade route to the Far East in order to
organise recreative trips to buy expensive products there such as spices, silk and porcelain.
1. Introduction
- We can therefore say, that 15th century was a turning point in world history.
- In 1433 the Chinese stopped their exploration and trade trips overseas.
- In 1492 Columbus discovered America
- Some European states gradually developed from that moment onward into large colonial empires like Great
Britain, France, Spain, Portugal, and even the Netherlands.
1
, - Contacts between the different continents and regions of the world increased noticeably from the 16th century.
- The process of globalization and market integration accelerated from the late 18th century, with the breakthrough
of the Industrial Revolution. Technological innovations such as the introduction of steam power gave Europe’s
economic development a huge boost and also gave it an enormous military advantage.
- From that moment onwards, a widening gap in economy, prosperity and military strength between the West and
the rest of the world came to the forefront. (The Rise of the West, Huntington)
- In other worlds, The Great Divergence began.
- But, when exactly must we date this fase, this new development? Around 1800, 1750, or even earlier?
- And, an even more interesting and important questions is: what were the causes, which explanations can be put
forward to better understand The Great Divergence?
- Much has been written about it.
2. How big was/is the gap?
- Big differences between poor and rich:
- 1800: 1/5th world population possesses 60% wealth
- 2010: 85%
- Wealth concentrated in the West - particularly after 1800
- How to measure this prosperity gap?
- data are not very reliable, eg. GDP
- GDP good indictor? Despite all criticism it is still a good measure, because international comparisons can be
made.
- major changes from 1800
- For example, the result of these exercises is this graph which provides a long-term perspective:
- Figure: regional distribution world GDP, 1000-2003
We clearly see that until the 18th century, China and India
represented the greatest share of the world GDP.
From then on it changed quickly with the rise of Europe, and from
the second half of the 19th century the importance of the US also
grew rapidly.
The graph perfectly illustrates the cause of the great Divergence
and at the same time the Great Convergence. Because we also
see that the reverse moment starts in the 1970s. India and China
are again conquering a larger share of the world’s GDP, from that
decade onwards, and this to the detriment of Western Europe and
the US.
- Figure: GDP per capita, in 1990 Dollars, 1500-1950
This next graph covers a shorter period of time. But it also clearly
shows that from the early 18th century Great-Britain, and from
the 19th century, other European countries, the GDP per capita
in real dollars increased rapidly. And this did not happen at all in
India and China. And there was even a slight decrease as you
can see in the first half of the 20th century.
- Before 1800 core industrial production outside the West;
- China and India together accounted for more than 50% before 1800, and barely 5% in early 1900s
- West and Industrial Revolution lead to big growth: 32% in 1800 en more than 80% in 20th century
- It is therefore clear that the Great Divergence should be situated between 1700 and 1900
- Since late 20th century: Great Convergence (the gap narrowed again)
- Explanation?
- Rise of the West not inevitable/necessary
- Unique cumulative process: roots in and outside Europe
- 3 visions:
- first and oldest view: assumes that the prosperity gap between the West and the East widened because
the West was dynamic and the East mainly static: autonomous, internal process
- second view: emphasises the similarities between the economy and social structures of the West and
the East. Was it a coincidence that the rest developed economically faster, or was there a specific
cause?
- third and most recent view: emphasises the increasing interaction between East and West and the
unequal relations between the two regions of the world. Where technological and military superiority,
oppression and imperialism would lead the West to dominate the world economically and politically. 2
, 3. An internal process
- The first view tries to explain why Europe could become the world’s economic leader. How it could evolve from the
periphery to the core of the global economy. Particular attention is paid to internal processes.
- Europe first at the edge of the Afro-Eurasian trade system; later world power
- Max Weber (1864-1920), et.al.
- Especially Max Weber embodied this group of researchers. He made clear that:
- The West is dynamic, the East is static, and that this lead to the global wealth gap
- The West:
- Protestant ethics of hard work and austerity
- New Western culture patterns: labour, discipline, freedom,… which in turn stimulated entrepreneurship
- Gradually an extension of bureaucratic, legal-rational state model (protect individual property rights)
and military system with professional army played an enormous role later
- More attention and belief in modern sciences (evolution from beliefs to experiments and research), this
had an enormous impact on the economy
- Demographic trends: from second half of 18th century the population in Europe increased sharply. This
demographic growth was an incentive according to him for many new technological developments and
innovations (eg. seeking higher food production). And this also caused many Europeans to migrate to
other parts of the world. This demographic movement was also linked to imperialism and colonialism.
- Unique situation emerged of a market economy: cfr. ‘The invisible hand’, an economy that was steered
to a lesser extend by the government (unique asset of Europe)
- The combination of all these developments produced an inevitable result: the Industrial Revolution.
- David Landes (1998)
- Endorsed Weber’s insights, but he also added several nuances:
- He stated that the core of the Great Divergence must be situated in Western Europe, and especially in
countries such as Great-Britain and France and even Belgium. And this meant that there were also
different development rates in European countries. And therefore spoke of a little Divergence on the
European continent itself.
- Emphasis on some factors, such as the emergence of a new economic system (capitalism), new
institutions (more powerful and central) which were also much smaller, and therefore more flexible than
the large empires in China and India. Individual property rights, and the relatively large individual
freedom of citizens as explanatory elements for a strong economic and social development of the West.
- Over the past years however, many doubts and remarks have been made regarding the views of Weber and Landes.
Doubts about this Eurocentric discourse. Which strongly relies on the dynamism and innovative strength of the West.
But do they not underestimate modern developments elsewhere in the world?
- Was China and India so static as they believed, so conservative?
- And is the Great Divergence not mainly a Western European, or even initially a British phenomenon?
- Moreover, is it true to say that work ethos and work force are typically European characteristics? Isn’t that a
racist thing to say?
- And wasn’t the rise of Europe mainly based on colonial and imperial systems?
- And should we not also include other countries and regions? What about non-European cultures? Maybe we
must integrate these cultures in our analysis.
- With these concerns in mind, more comparative research has been conducted since the 1990s.
NOTE: you must be able to analyse and compare both views and explain why you agree/disagree with their
opinion.
4. Major similarities
- The second view
- Breakthrough of the West 19th century = based on mineral raw materials, Industrial Revolution and European
imperialism:
- Asia in the 18th century: 66% world population and 60% wealth
- Asia early 20th century: 55% world population and 20% wealth
- Initially comparisons were mainly made between Europe and China, and it was concluded that there were certainly
more similarities than differences until around 1800:
- Before 1800: similarities > differences: cfr. agriculture, state organisation, respect for property rights,
knowledge, markets,…
- But, then why this accelerated breakthrough in Europe? (Pomeranz, 2000)
- He makes it very clear that until the end of the 18th century, the industrial development of some
regions in Great-Britain and China (eg. England and Yangtze-delta) was very similar (until Industrial
Revolution equal core regions)
- But Europe was struggling with a structural problem and had to develop a solution for it: European
way is inevitable and exception
3
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