HISTORY 3524-101: World Economy: History and Theoryelorantaj/worldeconomylecture5.pdf · HISTORY 3524-101: World Economy: History and Theory ... Often also certain civil liberties

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LECTURE 5: Asia Falling Behind? Following the Debate

HISTORY 3524-101: World Economy: History and Theory

Dr. Jari ElorantaProfessor of Comparative Economic and Business History

Appalachian State University, Department of HistoryOffice: Anne Belk Hall 249S (Office hours: see syllabus)

Phone: 262-6006E-mail: [email protected]

http://www.appstate.edu/~elorantaj


A. CHINESE HISTORY AND THEORY1. Brief introduction to Chinese history2. Stationary and roving bandits3. Democracies versus autocracies

B. CHINA’S ECONOMIC DEVELOPMENT1. Significance of the bureaucratic state in China

compared to Europe2. Chinese merchants versus the Europeans in their

societies3. Population and income growth, and decline4. Land shortage and the agricultural system5. State influence in the agriculture6. Urbanization in China versus Europe7. 15th century turn inwards and its consequences8. Lesson’s from Chinese experience?

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A. CHINESE HISTORY AND THEORY

A.1. Brief introduction to Chinese history:


A.2. Elaboration on the timeline

Rise of the Manchus (Qing Dynasty, 1644-1911 AD), conquerors, had assimilated a lot of Chinese culture before taking over, retained many earlier (Ming) traditions, continued the Confucian court practices and ritualsContinued the Confucian civil service systemObedience of subject to the ruler, Emperor, was enforced as a state creedManchu emperors supported the preservation of literature and cultureNot only concerned with making sure internal rebellion would not take place, but also external strength sought, conquered Outer Mongolia, later gained control of Central Asia, empire grew in sizeChief threat came by sea, first Western missionaries, soldiers etc.Maintenance of old traditions etc. became a hindrance when dealing with the West, growing challenges in terms of military prowess, assumed the cultural supremacy of the Chinese civilization would holdBy 19th century, China experienced growing internal pressures, economic woes, corruption, bureaucratic inflexibility etc.

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From the Jesuit Library at BeijingJesuits such as Matteo Ricci were willing to share books on technology and science with Chinese scholars. But without firsthand experience it was impossible for Chinese translators to convey how a man walking in a wheel drives a shaft that changes the pressure inside two pumps. The left-hand illustration is from Zonca, Trombe da Rota per Vavar Aqua, 1607. In the Chinese translation of the drawing, from Qi tushuo (Illustrations on Energy), 1627, the mechanisms were all lost. (Reproduced from Joseph Needham, Science and Civilization in China, vol. 4, with permission)

From the Jesuit Library at Beijing

Copyright © Houghton Mifflin Company. All rights reserved.


MAP. Ming China, 1368-1644.

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MAP. The Qing empire, 1644-1911.

• Page: 727


Brief introduction (continued):

Westerners arrive, new challengesIn China, like elsewhere in Asia, Portuguese were the pioneers,

soon also the Spanish arrived, followed by the British, French and the Dutch

Trade between China and West highly ritualistic by nature, Europeans not considered cultural equals

Trade the sole contact with the West, Christian missionaries not too successful in finding converts, with the exception of the Jesuits

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A.2. Stationary and roving bandits:

-First, one needs to consider what states are, in theoretical terms: 1) Investment role, regulation of the economy in various ways (different areas of the economy); 2) State or feudal (regional) government providing defense as a public good in return for compensation (problems: freeriders, geographic problems, protection of external trade and the ensuing property rights); 3) Pluralist decisionmaking entity (depending on regime type) changing points 1 and 2 according to endogenous and exogenous influences.-Why nation state? Demise of feudalism accompanied by rise of nation state because:(a) increasing trade (spread of markets and more formal exchange relationships) gave an incentive to provide protection at supra-local level(b) autonomous technical change increased size of optimal military unit (gunpowder revolution, navies)(c) conversion of direct military service into money payments allowed hiring of armies large enough to employ new military technologies becoming available. (the history of conscription!)-Criticism: Although feudalism undoubtedly better than anarchy, characterization of feudalism as some sort of “social contract” between peasants and knights unconvincing.


A.2. Stationary and roving bandits (continued):

-Mancur Olson (1993, reading for Sept 15th!) provides more convincing picture of feudal state based on analogy with bandits seizing control of an area.-Mancur Olson’s other work: alliances as producing a public good, public goods and interest group influence, impact of group encroachment on economic development-Olson notes that society cannot function without order, so there are huge incentives to organizing security. But whereas this can be done easily by voluntary agreement in small groups, in large groups there is problem of collective action and the free-rider problem: an individual bears all costs of any action he takes to provide security, but benefits spread over whole group. Thus, there is an incentive for an individual to shirk his responsibility and free-ride on efforts of others. (i.e., outcome: no collective security is forthcoming, see the previous discussion of the Prisoner’s Dilemma).-So why have most large societies normally avoided anarchy? Answer: in a world of “roving bandits”, there is an incentive for a “stationary bandit” to take control: Roving bandits arrive and steal all they can. When everything gone, move on, so they have no stake in the society they plunder. In world of roving bandits, no incentive to produce beyond subsistence (i.e., property rights are not secure).-Stationary bandit may at first sight seem as bad as roving bandits. Instead of moving on, stationary bandit sticks around and continues to rob you. However, he cannot take everything, otherwise you won’t be able to produce anything for him to rob in future. So stationary bandit has a stake in raising production in society, so there is more for him to take in future. Stationary bandit has an“encompassing interest”, which provides an incentive for him to provide public goods, which raise society’s income.-So government arises in large groups not because of “social contract” or “voluntary exchange” as North and Thomas argued, but because of self-interest of those with a capacity for organized violence. (see also Charles Tilly on the concept of the monopoly of violence)

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A.3. Democracies versus autocracies:

-What is an autocrat? Autocrat is a monopolist with an incentive to extract max revenue possible from society and use it for his own purposes. (i.e., no collective decision-making mechanisms based on some expression of popular will).-Autocrats have displayed quite a capacity for personal consumption, but the appetite of dictators for personal consumption dwarfed by their even more costlythe appetite for military power and prestige.But rational (=what is an irrational autocrat?) autocrat knows to limit his extraction to revenue maximizing tax rate, aware that if he taxes too much, he will reduce income and hence tax revenue. (i.e., appetite for external ambitions exceeds the capabilities of the economy).-How can we define a democracy? Obviously, these concepts are far from being uncontentious. A fairly common definition, based on Robert Dahl’s concept of polyarchy: usually equates democracy with a voting franchise for a substantial fraction of the citizens, a government brought to power in contested elections, and a popularly elected executive controlled by an elected legislature. Often also certain civil liberties such as free speech are included, yet less frequently applied in the practical adaptations.


A.3. Democracies versus autocracies (continued):

-For Gordon Tullock, to provide an even stricter definition, the term electoral system is more appropriate to describe a democracy, since he argues that universal adult suffrage is necessary for a country to be a democracy. Thus, as suggested by the tables above, most of these countries achieved the status of democracy, even in the strictest sense, in the interwar period. -Robert Dahl has recently defined specific criteria for “a democratic process”: 1) Effective participation; 2) Voting equality; 3) Enlightened understanding (meaning equal access to relevant information); 4) Control of the agenda (meaning that the policies are open to change); 5) Inclusion of adults. -One of the concepts immediately rejected here for both practical purposes and theoretical arguments presented by several authors is dictatorship. This term, with its origins in Ancient Rome, has changed meanings several times in history with such concepts as tyranny and despotism, and should be limited in use to describe emergency rule that suspends or violates temporarily the constitutional norms of accession to an exercise of authority. According to Juan J. Linz, a totalitarian state requires certain characteristics to fit the bill: 1) Monistic center of power, being the center of legitimacy of political power; 2) Exclusive, autonomous and usually intellectually elaborate ideology used by the leader and/or leading group for identification and as a basis for practical rule; 3) Mobilization of the citizenry for collective purposes, channeled through a single party. Furthermore, such a regime would resort to brutal use of violence against real or perceived opponents.

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-Authoritarian regimes (=autocracies) in turn, imply limited political pluralism, no elaborate or guiding ideology, lacking extensive ability to instigate political mobilization. This term is of course very generic, and the various types of authoritarian regimes include the autocratic-monarchic variants typical of the 19th century, military-bureaucratic regimes such as Japan in the 1930s, and various transitional authoritarian regimes. Here it is argued that depending especially on the degree of centralized rule, the variants of authoritarian influence on military spending decision-making should emerge.

Table 14. Two Different Measurements on the Number of Democracies and the Number States on the Aggregate, 1870—1940

A.B. C. D. E.

1870 2 39 6 37

1880 3 41 8 37

1890 4 42 8 38

1900 6 43 8 42

1910 8 48 9 44

1920 15 51 26 59

1930 22 64 24 64

1940 19 65 12 62

Sources: Dahl 1998, 8; Polity IIID 2000. A=year; B=number of democracies (Dahl); C=number countries (Dahl); D=number of democracies (based on PolityIIID and the criteria outlined in the text below); E=number of countries (based on Polity IIID and the criteria outlined in the text below).



-M. Olson works with very simplified idea of democracy, with no reference to universal suffrage etc. His notion of democracy is really just a situation with two candidates for presidency or two well-disciplined parties competing for power. -A “cheap” way of demonstrating superiority of democracy over autocracy would be to simply assume that democrats compete to get elected by being good to the whole electorate (e.g. Macmillan in Britain in the 1960s, “you’ve never had it so good”). But Olson assumes instead that democratic leaders still just as interested in maximizing their own welfare as autocrats (is this a fair assumption?). So they rationally calculate that they only need to get a majority of vote (=vote maximization) and these can be bought by redistributing from minority to majority.-Result: rational vote-buying democratic leader does not push tax rate to revenue-maximising level. Why not? Because majority earns a significant portion of market income of society and will not want to redistribute too much if it reduces income.-Thus, in Olson’s terminology, democratic majority party (how do groups behave?) has a more encompassing interest in productivity of society than an autocratic president.

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B. CHINA’S ECONOMIC DEVELOPMENT

B.1. Significance of the bureaucratic state in China compared to Europe

-China most developed economy during first millennium, but overtaken by Europe in the second millennium. Olson’s theory of autocracy: (a) Chinese state raised living standards above Europe during the first millennium by operating as stationary bandit, while Europe returned to “chaos” in Dark Ages (at least compared to earlier affluence, cf. Byzantine) after the collapse of Roman Empire.(b) Although Chinese state evolved into a meritocratic bureaucracy during the second millennium, it blocked development by stifling any other potential power base, including merchant class.-Although Chinese state evolved into a meritocratic bureaucracy during the second millennium, it blocked development by stifling any other potential power base, including merchant class.-China controlled by a bureaucratic state from early date. In Europe, recruitment of professionally trained public servants on meritocratic basis initiated by Napoleon at start of the 19th century . In China, started effectively in the 7th century under the T’ang dynasty (618-906) (Maddison, 1998, Table 1.1: list of dynasties).-Under Sung dynasty, from 960, procedures improved to ensure anonymity of candidates for examinations. Names of candidates no longer revealed to examiners and clerks copied responses to avoid recognition of calligraphy. Meritocratic basis of selection widened by improved provision of public education and the number of graduates grew substantially.-Bureaucracy were social elite, exempt from many levies, punishments and duties, and permitted to wear robes. Corruption discouraged by ban on appointment of officials to positions in their region of origin, coupled with regular rotation of officials to avoid close identification with local interests.-In contrast to Europe, no significant church hierarchy or doctrine to counterbalance bureaucratic power. Religious toleration continued but official ideology secular, promoting orthodoxy and obedience to state.


B.2. Chinese merchants versus the Europeans in their societies

-Virtually no lawyers or litigation in China, and only limited possibilities of challenging bureaucratic decisions. Citizens supposedly protected by Confucian virtue of bureaucracy.- Urban bourgeoisie (merchants, bankers, retailers, commodity brokers, shippers and industrial entrepreneurs) deferential to bureaucracy and dependent on their goodwill. Although they had guilds and other organizations, they did not have city charters and legal protection enjoyed by European merchants from middle ages on. (see also the previous discussion on competition between states!)-Chinese bureaucracy thus exercised strong central control over large area with no challenge from landed aristocracy, established church, judiciary, dissident intellectuals, military or urban bourgeoisie. -Economically, this had both advantages and disadvantages:(1) China was a large unified economic area. However, high transport costs meant this did not translate into a single national market.(2) New techniques sponsored by bureaucracy could be spread quickly using printed matter, so gap between best-practice and average practice probably smaller than in Europe. However, innovation could also be stifled.

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-Outside agriculture, Angus Maddison sees the bureaucratic system as having largely negative effects. Sees bureaucracy as preventing emergence of independent commercial and industrial bourgeoisie on European pattern. Entrepreneurial activity insecure in framework where legal protection for private activity v. inadequate. Any potentially lucrative activity subject to bureaucratic squeeze. Larger activities limited to state or publicly licensed monopolies. Potentially profitable activity in opening up world trade by exploiting China’s sophisticated shipbuilding and navigational knowledge simply forbidden.►Also: competition between jurisdictions in Europe limited power of state to suppress merchant classes. In China, centralization meant dissatisfied merchants could not take their capital to another state.

In sum, competition between states, the smaller size of the state and its markets, and the less prominent position of a competing group, the bureaucracy, gave the European merchants an advantage in their rent-seeking over the Chinese merchants.


B.3. Population and income growth, and decline

-Chinese pop grew very slowly before the Sung dynasty (960-1279). Maddison believes p.c. income stable in China, compared with decline in European living standards following collapse Roman Empire

-During Sung Dynasty, pop grew from 55 million to 100 million, while Maddison sees p.c. incomes rising slowly at 0.2% p.a., but with China pulling further ahead of Europe.

-During Mongol interlude (1279-1368), pop fell by > 30% to 68m. Partly due to initial brutality of Mongol conquest, but also result of plague which struck China at same time as Black Death in Europe.

-Under Ming dynasty, pop growth restored, reaching 160m by end of 16th century. During mid-17th century another serious fall in pop of 30%. Again, caused by combination of brutality during transition between regimes (from Ming to Ch’ing) & infectious diseases, e.g. smallpox.

-Maddison argues for stagnation in p.c. income during Ming-Ch’ing period, pointing in particular to evidence on agriculture (main sector) & stability of urbanization ratio.

-For Maddison, gain in p.c. income in China before second half of the 20th century limited to the Sung dynasty. Largely explained by one-off gain from move to south below the Yangtse with introduction of new strain of rice.

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What Happened to China?

Economic and social decline in the second half of the millennium – invasions, inward turn, diseases etc.!


Note! China’s decline.

What About GDP Per Capita?

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4. Land shortage and the agricultural system

-Because of climate and topography (large areas of mountain and desert), proportion of land suitable for crop production unusually small by international standards. China is land of ancient settlement, but at end of the 20th century, cultivated land only 10% of total area, compared with 30% in Europe and 50% in India. -Chinese land/labor ratio also very low by international standards. China’s pop has grown 22-fold from 55 million in 960 to 1.2 billion in 1995. Government and farmers have struggled to increase cultivated area by draining lakes, swamps and jungles, reclaiming land from sea, terracing hillsides and cutting down forests.-In doing this, centre of gravity of the Empire shifted from northwestern dry-farming area to the rice-growing area of lower Yangtse. Despite all this, cultivated area has expanded no more than 4 or 5-fold since the Sung dynasty.-Thus, to maintain living standards, Chinese have been under pressure to find new ways of extracting more food per hectare. Pressure on land has been very marked compared with Europe: no common land, forests destroyed and fallowing abandoned 8 centuries before Europe.


-Land shortage affected Chinese diet. Chinese eat less meat than Europeans, milk not consumed by adults and milk products rare. Concentration on crops influenced by land scarcity, since less land required when proteins and calories come from grains rather than animals.-Emphasis on grain and textile fibres rather than livestock and livestock products strengthened by official policy, since authorities found it easier to tax and control settled agriculturalists rather than pastoralists.-Chinese made heavy use of manure, intensive use of fertilizer induced by relative scarcity of land.-Given land shortage, irrigation played important role in Chinese agriculture. Made land more fertile, reduced risk of floods and lessened impact of droughts.

In sum, the land shortage influenced the geographic concentration on the Yangtse area and the cultivation of rice. Also, animal products played a relatively small role in the Chinese agriculture. Manure and irrigation played an important role in turn.

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5. State influence in the agriculture

-Official activity played major role in large scale irrigation projects. State also heavily involved in hydraulic works for transport, such as Grand Canal system linking the north and the south. Chinese irrigation very labor intensive, both in construction and in subsequent maintenance.

-Most important development was the switch from an agricultural system based on wheat and millet to intensive system of rice growing. Accompanied by shift in centre of population from NW (along middle stretch of Yellow River) to south (below Yangtse). Maddison sees this as yielding large one-off gain in productivity, since rice yields substantially higher than wheat yields.

EXAMPLE:Table 1.6: Maddison’s estimates of grain yield per unit of arable land.1st column starts with population2nd column derives total grain needed to feed this pop assuming 285 kg

of unhusked grain per head. (Units: million kg = 1000 metric tons).3rd column is amount of cultivated land for grain production, assumed

80% of total cultivated land in the 4 th column.grain yield = grain output ÷ cultivated area for grain.


►Grain output rose by factor of 5.3 from 1400 to 1820, in same proportion as population (by assumption). Cultivated area increased by factor of 3, with yields increasing by three-quarters.-Maddison sees increase in yields as arising from:(i) multiple cropping of rice, barley and wheat, which was negligible before 1400.(ii) introduction of maize and potatoes from Americas, with higher yields than indigenous crops.(iii) increased input of manure per hectare as pop of humans and animals grew faster than cultivated area.

In sum, Chinese state good at ensuring stable environment and ensuring diffusion of best-practice techniques in agriculture. Good for agricultural development and helped generate high living standards overall when agriculture was the dominant economic activity.

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6. Urbanization in China versus Europe

-Maddison’s data:Table 1.7: Urban ratio is 5 - 7% from mid-T’ang period to late Ch’ing

period. However, this includes some small settlements, so Maddison recalculates ratio for cities with > 10,000 inhabitants. This ratio also stable at 3 – 4%.

Table 1.8: extent of urbanization in Europe, using estimates of de Vries. Comparing Tables 1.7 and 1.8, situation very different in Europe and China:

-In T’ang period, China had an urban civilization while Europe did not.1000-1500: great leap in extent of urbanization in Europe, little change in

China. By 1500 Europe already more urbanized than China.-1500-1800: further dramatic growth of urbanization in Europe and stability

in China.-Thus, China had slower urban growth, but average size of cities larger

than in Europe:(i) In China, imperial capital had around 1 million inhabitants in all

dynasties and usually some other cities with >300,000.(ii) In Europe, 4 largest cities in 1500 were Naples (150,000), Milan, Paris

and Venice (100,000 each).


7. 15th century turn inwards and its consequences

-China was most dynamic force in Asian trade before the mid-15th century. Trade was encouraged so it could be taxed as source of revenue, and large navy operated for defense purposes.-Trade linked to defense since Chinese state operated system of tribute or gift exchange with other regimes in East Asia. Initial exchange of gifts between regimes followed up by private trade relations. Impressive ships of Chinese navy reinforced message that other regimes should not try to take on the superior Chinese civilization.-1405-1433: New departure, when emperor embarked on series of naval expeditions outside traditional sphere of Chinese interest. Expeditions to West seen by emperor Yung-lo as way of enhancing his legitimacy by displaying China’s power and wealth. His insecurity arose from fact that he had deposed his nephew in a military rebellion.-Under the Yung–lo Emperor, the Ming navy “consisted of some 3 800 ships in all, 1 350 patrol vessels and 1 350 combat ships attached to guard stations or island bases, a main fleet of 400 large warships stationed near Nanking and 400 grain transport freighters. Chinese ships differed substantially from those in the Indian Ocean or Portugal.

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Source: Maddison 2001.


-After death of admiral Cheng-lo, who led the expeditions, support for distant diplomacy faded. Broadening of China’s tributary relations with countries of “Western Oceans” did not enhance China’s security and cost of naval expeditions had exacerbated situation of fiscal and monetary crisis.-Bureaucracy had always opposed expeditions to “Western Oceans” as promoting eunuch interest. Not only stopped future expeditions, but also destroyed official records of past ventures.-Regime of prohibition and regulation of trade eventually sparked illicit private trade and piracy on large scale, and in 1567, Chinese authorities ended prohibition on private trade, except with Japan.-However, when commerce and industry became more important than agriculture, the Chinese were seriously handicapped; helps to explain relative decline of China. Institutions which work well in one era may not work so well when conditions change. Especially if individuals prevented from taking advantage of new situations as they evolve.

In sum, China’s turn inwards in the mid-15th century followed inflationary tendencies brought on by the expeditions as well as interest group competition. It had a crippling effect on the Chinese economy since the new opportunities could not be exploited legally. Thereby the Europeans gained control of much of world trade, even in Asia.

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8. Lessons from Chinese experience?

-Chinese state good at ensuring stable environment & ensuring diffusion of best practice techniques in agriculture. However, also positively damaging to emergence of private order institutions. Good for agric development & helped generate high living standards overall when agric was dominant econ activity.-However, when commerce & industry became more important, Chinese seriously handicapped; helps to explain relative decline of China. Institutions which work well in one era may not work so well when conditions change. Especially if individuals prevented from taking advantage of new situations as they evolve.


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HISTORY 3524-101: World Economy: History and Theoryelorantaj/worldeconomylecture5.pdf · HISTORY 3524-101: World Economy: History and Theory ... Often also certain civil liberties