Part IV. Britain, China, and the Irrelevance of Stage Theories
And Followers Could Leap Over Stages
At any event the results of the compounding of ancient Chinese (and Arab and Ottoman and Inca and African) inventions with modern European creativity lie around you right now—computers, electric lights, electric machinery, precision tooling, plastic printers, plastic fabrics, telephones, pressed wood, plywood, plaster-board, plate glass, steel framing, reinforced concrete, automobiles, machine-woven carpets, central heating and cooling, all invented in the nineteenth and twentieth centuries in a Europe that practiced science and innovation with a lunatic enthusiasm, and had no emperor to gainsay the practice. Therefore the old stage theories dating from the eighteenth century, which use an analogy with the growth of trees, are inapt. Smith, Marx, the German Historical School, Modernization Theory, the American economic historian Walt Whitman Rostow were all off the mark.76 Countries do not resemble trees in growing strictly on their own, from the leaf, the blossom, or the bole.
And likewise, for the same reasons, the tree-like and stage-dependent metaphors that characterizes modern “growth theory” in technical economics are misleading. No stages must be grown through of acorn, sapling, young tree, old oak. The younger “trees” can skip stages by borrowing leaves or whole branches directly from the older trees—just as the West borrowed from China, and now China is borrowing from the West. At the meetings of the International Economic History Association in September 1994 I asked a Uruguayan economic historian much infected by the new growth theory how long he thought it would take his country to catch up to the North. “Two centuries,” he replied. A theory, it seems, can drive sober scholars insane. It is contradicted by the historical evidence, from Germany in the nineteenth century to Taiwan in the twentieth, that a country that honors and liberates its bourgeoisie can achieve modern standards of living in a couple of generations.
The other popular and anti-economic metaphor is of a footrace, in which, naturally, countries that start later must take longer to catch up. Thus Gustav Schmoller of the German Historical School in 1884 justifying mercantilist regulations protecting the silk industry in Prussia:
Berlin in 1780-1806 stood almost on a level with all the other places where the silk industry was carried on. It was mainly through the silk industry that Berlin became an important factory town, and the town whose inhabitants were distinguished by the best taste in Germany. Of course people in Berlin could not yet produce quite so cheaply as the manufactures of Lyons which were three centuries older; in many of the finer wares they were behind Krefeld, Switzerland and Holland; but they had caught up with Hamburg and Saxony. 77
But earlier and later starts for the footrace do not matter in a world in which people can listen to each other, and learn. They can cut across the race track, or take a taxi to the head of the marathon.
For the same reason the recent theories popular in schools of business of “competitiveness” are not persuasive. Michael E. Porter’s book in 1990 The Competitive Advantage of Nations was largely ignored by economists, but created a stir among business-school academics. It speaks in baseball terms of competiveness as depending on success in four corners of a “diamond” originating from a “home base.” The long distances in the great free-trade area of United States, for example, gave it a competitive advantage in the making of very large engines for motor trucks. Howard Davies and Paul Ellis, though, put their finger on the central confusion underlying Porter’s book—it confuses “‘competitiveness’ construed as productivity and ‘competitiveness’ construed as the market share held by a sub-set of industries.”78 Being productive, producing a great deal with few inputs, is a good idea. No one would dispute that. It is called Getting Rich By Being Smart. But getting a large market share has little to do with Getting Rich, or Being Smart. Market share is determined by what economists since David Ricardo have called comparative advantage, not by absolute advantage. That India has a comparative advantage in outsourced computer advice, and a large market share, does not make India richer than the United States, which itself has in fact an absolute advantage in computer advice—merely better uses for its graduate engineers than answering hysterical calls from elderly lady professors of economics in Chicago about the wretched Microsoft product she has been condemned to use.
The best that human frailty is likely to achieve in confusing comparative and absolute advantage is an old book of 1985 by Lester C. Thurow, an economist and then-dean of the business school at MIT. The Zero-Sum Solution: Building a World-Class American Economy treats income as being extracted like success in a footrace or American-football yardage from non-Americans, especially from Asian non-Americans (it is 1985 and the anti-Japanese panic is at its height). “To play a competitive game is not to be a winner,” Thurow declares. “Free-market battles can be lost as well as won.”79
Thurow is off the mark. If the “competitive” game is free exchange and innovation, then almost everyone who plays the game wins, if not as a producer, then as a consumer. 80 Modern economic growth has not been “zero sum,” a point on which as I have said most economic historians of whatever politics agree. In the trade-and-imitate game the people in different countries exchange goods and services. Superior technologies in one place are soon enough adopted in another. It is not easy, but it happened massively 1800 to the present. In the long run it doesn’t matter that Davy, Swan, Edison, Latimer, Whitney, and Coolidge co-invented the incandescent light bulb in England and the United States. It burned brightly, and promptly, in Naples and Beijing. If you insist on looking at exchange and innovation as games, then they are games in which almost everybody wins, like square dancing. The “beaten” countries in the “competitive” game such as Britain end up richer than some of the “winners.” True, looked at from the factory floor a market with competing suppliers in Japan—or for that matter in California—is zero sum, which gives Thurow’s assertions an air of plain common sense. You can hear recent versions of the same xenophobic common sense from Lou Dobbs nightly on CNN. The game metaphor looks at one side of the economy, the producing side. Mercantilists of all ages have favored it. But as Adam Smith said, “Consumption is the sole end and purpose of all production [and therefore it is the end and purpose of all exports]; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”81 We do not live to work, or to export. We work, or export, to live.
The metaphor of the zero-sum footrace in the theories of Defoe or List or Schmoller or Thurow or Porter or Dobbs or your local politician gets some of its appeal from a wider tragedy in which it plays, namely, the tragedy that eventually the rest of the world caught on to what northwestern Europe and its offshoots had stumbled into during the eighteenth and nineteenth centuries. Britain was first, and what happened in Britain has therefore been of interest. A Britain tragically surpassed in the footrace of nations tells a story easy to lament. The historian David Landes, for example, has long interpreted modern history as a footrace between Britain and the rest, in for example his classic work of 1965, reprinted and extended as a book in 1969, containing a conference paper of 1954, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. His metaphor of “leadership” in a race pervades his rhetoric, as in his chapter headings—”Closing the Gap,” “Short Breath and Second Wind”—and “Some Reasons Why,” taken from a poem about a cavalry charge. He asks in the middle third of the book, “Why did industrial leadership pass in the closing decades of the nineteenth century from Britain to Germany?”82 He answers that the British racers in the lead slacked off, and were beaten. “Thus the Britain of the late nineteenth century basked complacently in the sunset of economic hegemony. . . . Now it was the turn of the third generation, the children of affluence ['affluence'? British real national income per head in 1880 was about $3500 in 1990 prices, equal in real terms to that of Sri Lanka in 2001], tired of the tedium of trade and flushed with the bucolic aspirations of the country gentleman. . . . They worked at play and played at work.”83
The evidence for such Victorian economic failure is slight. And in truth it would be strange if a Britain “beating” the world in the 1850s suddenly by the 1870s could do little right. The facts show that nothing so strange occurred. 84 Similar facts undermine the current fable in which the United States is cast in the role of the leader suddenly unable to finish the race. But what is more important here is that the entire business of thinking of ranks and league tables and races and football yardage in which nations are “beaten” or “decline” or “lose” tells the story the wrong way. The prize for merely second place was not poverty, or even loss of political hegemony. “Beaten” Britain is still the fifth-largest economy in the world, the second-largest source of direct foreign investment, a permanent member of the United Nations Security Council, and London is the second-largest financial center in the world. Before the British, the leading cases of “failure” were the Dutch of the eighteenth and nineteenth centuries. With what result? Disaster? Poverty? True, the Netherlands has ended small and militarily weak, a tiny linguistic island in a corner of Europe. Yet by any historical or international standard it remains fabulously wealthy (at $38,000 per year per head in 2006), and indeed is still among the most influential investors in the world. Relative “decline” is no decline at all. As his children grow up, a father does not lament that his share in the poundage of the house declines. And on the other side of the league tables, after all, a relatively primitive Russia in modern times literally beat Napoleon, and then for an encore, though still relatively primitive, literally beat Hitler.
The foot-race metaphor mixes up political dominance with economic prosperity. The fevered essays in most issues of Foreign Affairs that predict the “rise” of China, say, or the “decline” of the United States freely mix the two. The rise and decline of nations, to borrow the book title by the economist the late Mancur Olson (1981), or the rise and fall of the great powers, to borrow the title by the historian Paul Kennedy (1987), suggests that coming in first matters vitally, in the style of Teddy Roosevelt’s “strenuous life.” It doesn’t. Kennedy is the most explicit, but the assumption that military strength explains why Westerners have a lot of cargo pops up all over.85 It is nonsense, even from wise heads. The brilliant ornithologist and world historian Jared Diamond, for example, wrote in 1997 that “technological and political differences as of A.D. 1500 were the immediate cause of the modern world’s inequalities.”86 Why? Because “empires with steel weapons were able to conquer.” But does military conquest make the conqueror rich? True, it makes him richer than his victims dead from smallpox and steel swords. But it does nothing to explain the gigantic enrichment 1800 to the present of the West and the North, and now the East and the South. Being Top Nation militarily is caused by being rich. It does not on the whole cause the riches. Killing aborigines or bossing around impoverished traditional peoples is not the way to get plate glass, political freedom, long retirement, stereo sets, magnesium ladders, the forty-hour week, and the higher education for serious spiritual growth.
As the inventive panoply multiplies it becomes easier and easier to take advantage of it, and to adapt the panoply to one’s own purposes, good or bad. The metaphors of a tree’s growth or a football game or a foot race should give way to one of an exchange of ideas—though even the mutual advantage of a mere “exchange” of ideas is itself not quite apt. Tunzelmann has wisely remarked that technology “cannot be reduced to information, such as often found in economist’s treatments. . . [It] has to be learned . . . through processes only partially understood.” 87 These are what the chemist and philosopher Michael Polanyi called “tacit knowledge.”88 Tunzelmann gives Polanyi’s example of learning to ride a bicycle: “no amount of printed instruction on how to ride will enable most people to hop on a bicycle for the first time and confidently pedal off.” Another economic historian, the late John R. Harris, showed in detail that transfers of furnaces technology for making iron and glass between so similar nations as Britain and France 1710 to 1800 depended on tacit knowledge difficult to convey.89 It is a point that the sociologist of science Harry Collins has made about experiments. The tacit practices of one laboratory are difficult to reproduce, especially at the frontier of science where things are necessarily difficult.90 Likewise here. And therefore the merely economic metaphor of a smooth “exchange of ideas” does not tell the whole story.
Anyway, England in the eighteenth century could not possibly have experienced the present-day Chinese growth rate of real income per head of 10 percent per year, even in its greatest booms—the Chinese of course depend on inventive ideas developed earlier in the West, such as earth-moving equipment and computers. The doubling of income per head in a mere seven years that such a rate implies could not happen before very recent times, with gigantic piles of the already-invented ideas such as the light bulb waiting to be adopted, if one will but let people use them for their profit and cease from sneering at and stealing from and executing those who do. Remember Edgerton and “the shock of the old.” Invent as you will paper or cast iron slowly over many centuries, it will not be enough for the breakthrough. What’s needed, wrote Madame Chen Zhili, State Councilor of China for Education, Science, Technology, and Culture in a touching preface to Temple’s popularization of Needham in 2007, is “innovation [which] is the spirit of a nation and the endless momentum for a nation’s prosperity.”91 The innovation in China did not depend on China reaching the correct stage of growth, but on Madame Chen Zhili and her colleagues in the Central Committee finally allowing local mayors and businesspeople to try out experiments in non-communist economics, such as not shooting manufacturers or re-educating land speculators. Neighboring Burma and North Korea show what happens if you carry on with socialist or militarist policies to the contrary.
China and India, in other words, can take off the shelf the inventions laboriously developed by the Watts and the Edisons of the past three centuries—and by the Chinese and Indian inventors of earlier centuries, together with the Inca potato-breeders and the brass-casters of Benin, all of whose inventions had been taken up eagerly by the curious Westerners. Indians invented fine cotton cloth, which then became the staple of Manchester, but latterly in its mechanized form became the staple of Mumbai. The Chinese invent cast iron, which then became the staple of Swedish Uppland and English Cleveland and American Gary, but latterly with some additional chemical engineering the staple of the Kamaishi Works in Japan and now the Anshan works in China. And so Sweden in the late nineteenth century and then Japan in the early and middle twentieth century and China in the early twenty-first century caught up astonishingly quickly.92
A poor country that adopts thorough-going innovation, therefore, can catch up to the West in about two generations. It has happened repeatedly. Consider such miracles of leaping over putatively inevitable stages as Taiwan or Hong Kong or Singapore. Perhaps we should stop being gobsmacked every time it happens. Give people liberty to work and invest, and treat them with dignity, and you get fast catching up. Goldstone puts it this way: “What Japan’s success does demonstrate is something that has been shown in Korea and Taiwan as well—that a unified people under firm government direction determined to import and implement Western industrial technology can do so in about four decades. This is about the time it has taken to transform South Korea from an African level of agricultural poverty to one of the world’s leading industrial economies; similarly for Taiwan. Both have risen to this level from minimal beginnings after the Korean War of the 1950s and the Chinese Civil Wars of the 1940s.”93
Richard Easterlin would agree with the speed implied by the metaphor of “taking technology off the shelf.” He wrote in 2003 that “Since the early 1950s, the material living level of the average person in today’s less-developed countries. . , which collectively account for four-fifths of the world’s population, has multiplied by threefold,” much faster than presently rich countries grew in the nineteenth century.94 It has led to Paul Collier’s Top 5½ Billion. Similarly rapid has been the rise in life expectancy and the fall in fertility and the rise of literacy: on all counts it is “a much more rapid rate of advance . . . than took place in the developed countries in the past.”
In other words, what does not need much scientific inquiry is how the Indians and Chinese, having been denied innovation for decades by imperial edict and warlord destruction and socialist central plan and lack of widespread education (the last is Easterlin’s argument), can get rich quickly by gaining peaceful access to well-stocked shelves of inventions, from the steam engine to the forward contract to the business meeting.95 Routine economics says that after decades of disastrous economic luck the misallocations and spurned opportunities will be so great that considerable fortunes can be made pretty easily, and the average income of poor people can be raised pretty easily, too. Economists say, “People will pick up $500 bills on the sidewalk”—unless, indeed, you jail people who specialize in picking up the bills, as once in Albania and still in Cuba. If Brazil and South Africa can be persuaded to adopt the liberal economic principles that are enriching China and India (and that enriched Britain and Italy more slowly and therefore less obviously), there is no reason why in forty years the grandchildren of presently poor Brazilians and South Africans cannot enjoy Western European standards of living. That’s not ideological prejudice, some wild neo-con fantasy in support of American imperial power. It’s a soberly obvious historico-experimental fact, which has already curbed American power. On the other hand, if Brazil and South Africa persist in unhelpful economic policies (such as South-African labor laws based on German models and supported by leftist ideologues and trade unionists eager to give the really poor corrupting handouts to keep them away from the job market), they can retain a gigantic underclass and an inferior position relative to the United States, just as long as they find that attractive.
So the modern spread of economic growth is no great puzzle. It is worth scientific inquiry, of course, but has the character of normal science, or normal investment. Permit people to take technologies off the shelves and adapt them to Brazilian or South African circumstances for personal profit, and the local bourgeoisie will do well for the nation, too. The Bourgeois Deal is “Let me get very rich by buying innovations low and selling them high (and please refrain from stealing from me, or from anyone else), and I’ll make you pretty rich, too.” The bigger scientific puzzle is how the shelves, or the sidewalks, got so well stocked in the first place.
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[back] Readers of a certain age will pause at the name Rostow. Yes, he was the same man who advised President Johnson to carry on fighting in Vietnam. In part for that reason, after the late 1960s Rostow, who in the 1940s and 1950s had been a Nobel-worthy pioneer in applying economics to economic history, became persona non grata in economic history.
[back] Schmoller 1884 (1897), italics supplied.
[back] Davies and Ellis 2000, p. 25 of internet version.
[back] Thurow, p. 59.
[back] Compare Krugman 1996 attacking Thurow and James Fallows on just these grounds, for what he calls "pop internationalism."
[back] Smith 1776, IV.viii.49, p. 179. I will give citations to Smith in book-chapter-paragraph form because of the numerous editions with varying pagination, but page citations are to the Glasgow edition.
[back] Landes 1969, p. 326, ita
