Great Divergence

Terminology and definition

The term "Great Divergence" was coined by Samuel P. Huntington in 1996 and used by Kenneth Pomeranz in his book The Great Divergence: China, Europe, and the Making of the Modern World Economy (2000). The same phenomenon was discussed by Eric Jones, whose 1981 book The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia popularized the alternate term "European Miracle". Broadly, both terms signify a socioeconomic shift in which European countries advanced ahead of others during the modern period.

The timing of the Great Divergence is in dispute among historians. The traditional dating is as early as the 16th century, with scholars arguing that Europe had been on a trajectory of higher growth since that date. Pomeranz and others argue that the period of most rapid divergence was during the 19th century. Citing nutrition data and chronic European trade deficits as evidence, these scholars claim that before that date Asia, especially China in the Yangzi delta, was wealthier and more advanced. Others, while accepting parity of incomes between the most prosperous parts of China and Europe around 1800, trace the first significant changes in European economies back to the 17th century. Others argue that the cultural factors behind the divergence can be traced to earlier periods and institutions such as the Renaissance and the Chinese imperial examination system.

Conditions in pre-Great Divergence cores

Unlike modern industrial economies, pre-modern economies were constrained by conditions which greatly limited economic growth. Although core regions in Eurasia had achieved a relatively high standard of living by the 18th century, shortages of land, soil degradation, deforestation, lack of dependable energy sources, and other ecological constraints limited growth in per capita incomes. Rapid rates of depreciation on capital meant that a great part of savings in pre-modern economies were spent on replacing depleted capital, hampering capital accumulation. Massive windfalls of fuel, land, food and other resources were necessary for continued growth and capital accumulation, leading to colonialism. The Industrial Revolution overcame these restraints, allowing rapid, sustained growth in per capita incomes for the first time in human history.

Western Europe

After the Viking, Muslim and Magyar invasions waned in the 10th century, Europe entered a period of prosperity, population growth and territorial expansion known as the High Middle Ages. Trade and commerce revived, with increased specialization between areas and between the countryside and artisans in towns. By the 13th century the best land had been occupied and agricultural income began to fall, though trade and commerce continued to expand, especially in Venice and other northern Italian cities. The 14th century brought a series of calamities: famines, wars, the Black Death and other epidemics. The resulting drop in the population led to falling rents and rising wages, undermining the feudal and manorial relationships that had characterized Medieval Europe.

In the Age of Exploration navigators discovered new routes to the Americas and Asia. Commerce expanded, together with innovations such as joint stock companies and various financial institutions. New military technologies favored larger units, leading to a concentration of power in states whose finances relied on trade. France and Spain developed absolute monarchies reliant on high taxes and state-backed monopolies, leading to economic decline. The Dutch Republic was controlled by merchants, while Parliament gained control of England after a long struggle culminating in the Glorious Revolution. These arrangements proved more hospitable to economic development. At the end of the 16th century London and Antwerp began pulling away from other European cities, as illustrated in the following graph of real wages in several European cities:

The West had a series of unique advantages compared to Asia, such as the proximity of coal mines; the discovery of the New World, which alleviated ecological restraints on economic growth (land shortages etc.); and the profits from colonization.

China

China had a larger population than Europe throughout the Common Era. Unlike Europe, it was politically united for long periods during that time.

During the Song Dynasty (960–1279), the country experienced a revolution in agriculture, water transport, finance, urbanization, science and technology, which made the Chinese economy the most advanced in the world from about 1100. Mastery of wet-field rice cultivation opened up the hitherto underdeveloped south of the country, while later northern China was devastated by Jur'chen and Mongol invasions, floods and epidemics. The result was a dramatic shift in the centre of population and industry from the home of Chinese civilization around the Yellow River to the south of the country, a trend only partially reversed by the re-population of the north from the 15th century.

In the late imperial period (1368–1911), comprising the Ming and Qing dynasties, taxation was low, and the economy and population grew significantly, though without substantial increases in productivity. Chinese goods such as silk, tea and ceramics were in great demand in Europe, leading to an inflow of silver, expanding the money supply and facilitating the growth of competitive and stable markets. By the end of the 18th century, population density levels exceeded those in Europe. China had more large cities but far fewer small ones than in contemporary Europe.

India

By the 1500s, India benefited from extensive external and internal trade. Its agriculture was highly efficient as well as its industry. Habib, however, did not see this as sufficient to later lead to an important capitalistic development. Unlike China, Japan and western and central Europe, India did not experience extensive deforestation until the 19th and 20th centuries. It thus had no pressure to move to coal as a source of energy. From the 17th century, Indian cotton textiles became popular in Europe, with some governments banning them to protect their wool industries. In the 18th century, they were the most important manufacturers in world trade.

India remained the world's leading cotton textile manufacturer up until the 19th century, with Bengal being the center of cotton production. In order to compete with India, Britain invested in labour-saving technical progress for textile manufacture during the Industrial Revolution, while implementing protectionist policies such as bans and tariffs to restrict Indian imports. At the same time, the East India Company's rule in India contributed to its deindustrialization, with the decline of native industry opening up a new market for British goods. Britain eventually surpassed India as the world's leading cotton textile manufacturer in the 19th century.

Japan

Japanese society was governed by the Tokugawa Shogunate, which divided Japanese society into a strict hierarchy and intervened considerably in the economy through state monopolies and restrictions on foreign trade; however, in practice, the Shogunate's rule was often circumvented. Japan experienced a period of relatively rapid economic growth before 1720, after which Japanese population levels and incomes stagnated and declined.

Korea

In its earlier days, Korea had healthy international trading relationships, receiving merchants from as far as the Middle East. Because of its strategic value to its neighboring countries, however, Korea had been invaded several times during its Goryeo and Joseon eras, starting with the Mongol invasion in the 13th century. Though repelled due to its strong navy and aid from China, the Japanese invasions in the late 16th century were particularly devastating to the peninsula and it never truly recovered until the modern era. Due to relatively frequent invasions, increased Western colonization of Asia, and the arrival of Christian missionaries, Korea began a long period of isolationism, maintaining diplomatic relationships primarily with China only. For the rest of the Joseon period, the country was marred by economic hardships, peasant revolts, and political factionalism until it was annexed by Japan in the early 20th century.

Possible factors

Beginning in the early 19th century, economic prosperity rose greatly in the West due to improvements in technological efficiency, as evidenced by the advent of new conveniences including the railroad, steamboat, steam engine, and the use of coal as a fuel source. These innovations caused the Great Divergence, elevating Europe and the United States to high economic standing relative to the East. Scholars have proposed numerous theories to explain why the Great Divergence occurred.

Coal

In the Industrial Revolution, coal and coke were extensively used in metallurgy and steam engines, being cheaper, more plentiful and more efficient than wood and charcoal. Coal-fired steam engines were also used in the railways and in shipping, revolutionizing transport in the early 19th century.

Kenneth Pomeranz drew attention to differences in the availability of coal between West and East. Due to regional climate, European coal mines were wetter, and deep mines did not become practical until the introduction of the Newcomen steam engine to pump out groundwater. In Chinese mines in the arid northwest, ventilation to prevent explosions was much more difficult.

Another difference was geographic distance; although China and Europe had comparable mining technologies, the distances between the economically developed regions and coal deposits were vastly different. The largest coal deposits in China are located in the northwest, within reach of the Chinese industrial core during the Northern Song. During the 11th century, China developed sophisticated technologies to extract and use coal for energy, leading to soaring iron production. The southward population shift between the 12th and 14th centuries resulted in new centers of Chinese industry far from the major coal deposits. Some small coal deposits were available locally, though their use was sometimes hampered by government regulations. In contrast, Britain contained some of the largest coal deposits in Europe.

Efficiency of markets and state intervention

Europe having had more free and efficient markets than other civilizations has been cited as a reason for the Great Divergence. In Europe, market efficiency was disrupted by the prevalence of feudalism and mercantilism. Practices such as entail, which restricted land ownership, hampered the free flow of labor and buying and selling of land. These feudal restrictions on land ownership were especially strong in continental Europe. China had a relatively more liberal land market, hampered only by weak customary traditions. Bound labor, such as serfdom and slavery were more prevalent in Europe than in China, even during the Manchu conquest. Urban industry in the West was more restrained by guilds and state-enforced monopolies than in China, where in the 18th century the principal monopolies governed salt and foreign trade through Guangzhou. Pomeranz rejects the view that market institutions were the cause of the Great Divergence, and concludes that China was closer to the ideal of a market economy than Europe.

State prohibition of new technology

Jared Diamond in the book Guns, Germs, and Steel argues that explicit outlawing of new technology was an important explanation for the divergence. For example, in China in 1432, a new Emperor outlawed the building of ocean-going ships, in which China was the world leader at the time. Diamond traces this to differences in geography. Outside Europe advanced cultures developed in areas whose geography was conducive to large, monolithic, isolated empires. In these conditions policies of technological and social stagnation could persist. On the other hand, Europe's geography favored balkanization into smaller, closer, nation-states, as its many natural barriers (mountains, rivers) provide defensible borders. As a result, governments that suppressed economic and technological progress soon corrected their mistakes or were out-competed relatively quickly. As an example of this national Darwinism, Diamond offers the disappearance of the counter-progressive Polish state. He argues that geographical factors created the conditions for more rapid internal superpower change (Spain succeeded by France and then by the United Kingdom) than was possible elsewhere in Eurasia.

The East stops innovating

The attitude of the east towards innovation is one of the other factors that might have played a much bigger role in the west’s advancements over the east. As David Landes explained, after a few centuries of innovations and inventions, it seemed like the east stopped trying to innovate and began to sustain what they had. They kept nurturing their pre-modern inventions and did not move forward with the modern times. China decided to continue a self-sustaining process of scientific and technological advancement on the basis of their indigenous traditions and achievements. The east’s attitude towards innovation showed that they focused more on experience, while the west focused on experimentation. The east did not see the need to improve on their inventions and thus from experience, focused on their past successes. While they did this, the west was focused more on experimentation and trial by error, which led them to come up with new and different ways to improve on existing innovations and create new ones (Lin, 1995 P 276).

Differences in wages and living standards

Classical economists, beginning with Adam Smith and Thomas Malthus, argued that high wages in the West stimulated labor-saving technological advancements. However, more recent studies have depicted living standards in 18th century China and pre-Industrial Revolution Europe as comparable. Life expectancy in China and Japan for adult males were 39.6 and 41.1 respectively, compared with 34 for England, between 27.5 and 30 for France, and 24.7 for Prussia. Chinese laborers in the Yangtze delta consumed 4,600 calories per day on average (laborers in China overall consumed 2,637 calories on average) compared with 2,000-2,500 calories per day for England. According to Pomeranz and others, there was modest per capita growth in both regions, the Chinese economy was not stagnant, and in many areas, especially agriculture, was ahead of Western Europe. Chinese cities were also ahead in public health.

Economic historian Robert Allen estimates that family incomes in the Yangtze delta, the richest region of China, were substantially higher than England in 1620 and was the equivalent of 19 pence per day in 1820, compared with 20 pence per day in the contemporary English Midlands, However, Allen states that Yangtze delta agricultural labor productivity was static between 1600 and 1800, while English and Dutch productivity caught up, greatly increasing from a much lower starting point. Yangtse workers worked fewer days, and the trend was for the number of days worked to decrease as farms became smaller, reducing family incomes.

Luxury consumption

Luxury consumption is regarded by many scholars to have stimulated the development of capitalism and thus contributed to the Great Divergence. Proponents of this view argue that workshops, which manufactured luxury articles for the wealthy, gradually amassed capital to expand their production and then emerged as large firms producing for a mass market; they believe that Western Europe's unique tastes for luxury stimulated this development further than other cultures. However, others counter that luxury workshops were not unique to Europe; large cities in China and Japan also possessed many luxury workshops for the wealthy, and that luxury workshops do not necessarily stimulate the development of "capitalistic firms".

Property rights

Differences in property rights have been cited as a possible cause of the Great Divergence. This view states that Asian merchants could not develop and accumulate capital because of the risk of state expropriation and claims from fellow kinsmen, which made property rights very insecure compared to those of Europe. However, others counter that many European merchants were de facto expropriated through defaults on government debt, and that the threat of expropriation by Asian states was not much greater than in Europe, except in Japan.

Government and policies are seen as an integral part of modern societies and have played a major role in how different economies have been formed. The Eastern societies had governments which were controlled by the ruling dynasties and thus, were not a separate entity. Their governments at the time lacked policies that fostered innovation and thus resulted in slow advancements. As explained by Cohen, the east had a restrictive system of trade that went against the free world market theory; there was no political liberty or policies that encouraged the capitalist market (Cohen, 1993). This was in contrast to the western society that developed commercial laws and property rights which allowed for the protection and liberty of the marketplace. Their capitalist ideals and market structures encouraged innovation.

Pomeranz (2000) argues that much of the land market in China was free, with many supposedly hereditary tenants and landlords being frequently removed or forced to sell their land. Although Chinese customary law specified that people within the village were to be offered the land first, Pomeranz states that most of the time the land was offered to more capable outsiders, and argues that China actually had a freer land market than Europe. Pomeranz does not address the most common form of land sale, known as the conditional sale. The conditional sale allowed the seller to return to the buyer many years after the sale, and many times, to demand extra payments. He also does not account for the inability of landlords to collect rent on second crops.

However, Robert Brenner and Chris Isett emphasize differences in land tenancy rights. They argue that in the lower Yangtze, most farmers either owned land or held secure tenancy at fixed rates of rent, so that neither farmers nor landlords were exposed to competition. In 15th century England, lords had lost their serfs, but were able to assert control over almost all of the land, creating a rental market for tenant farmers. This created competitive pressures against subdividing plots, and the fact that plots could not be directly passed on to sons forced them to delay marriage until they had accumulated their own possessions. Thus in England both agricultural productivity and population growth were subject to market pressures throughout the early modern period.

New World

A variety of theories posit Europe's unique relationship with the New World as a major cause of the Great Divergence. The high profits earned from the colonies and the slave trade constituted 7 percent a year, a relatively high rate of return considering the high rate of depreciation on pre-industrial capital stocks, which limited the amount of savings and capital accumulation. Early European colonization was sustained by profits through selling New World goods to Asia, especially silver to China. According to Pomeranz, the most important advantage for Europe was the vast amount of fertile, uncultivated land in the Americas which could be used to grow large quantities of farm products required to sustain European economic growth and allowed labor and land to be freed up in Europe for industrialization. New World exports of wood, cotton, and wool are estimated to have saved England the need for 23 to 25 million acres (100,000 km²) of cultivated land (by comparison, the total amount of cultivated land in England was just 17 million acres), freeing up immense amounts of resources. The New World also served as a market for European manufactures.

High-level equilibrium trap

The high-level equilibrium trap theory argues that China did not undergo an indigenous industrial revolution since its economy was in a stable equilibrium, where supply and demand for labor were equal, disincentivizing the development of labor-saving capital.

Culture

Max Weber argued in The Protestant Ethic and the Spirit of Capitalism that capitalism in northern Europe evolved when the Protestant work ethic (particularly Calvinist) influenced large numbers of people to engage in work in the secular world, developing their own enterprises and engaging in trade and the accumulation of wealth for investment. In his work The Religion of China: Confucianism and Taoism he focused on Chinese culture as an explanation for why capitalism did not develop in China. Chen (2012) similarly argues that cultural differences were the most fundamental cause for the divergence, arguing that the Humanism of the Renaissance followed by the Enlightenment (including revolutionary changes in attitude towards religion) enabled a mercantile, innovative, individualistic, and capitalistic spirit. In Ming Dynasty China, by contrast, some have argued that repressive measures stifled dissenting opinions and nonconformity. Even more fundamentally, aspects of traditional Chinese culture, especially Confucianism, taught that disobedience to one's superiors was tantamount to sin. In addition, Chen argues, merchants and artificers had less prestige than they did in Western Europe. He also sees the New World as an additional necessary factor, and trade as a supporting factor causing less developed areas to concentrate on agriculture supporting industrialized regions in Europe. Justin Yifu Lin has argued for the role of the imperial examination system in removing the incentives for Chinese intellectuals to learn mathematics or to conduct experimentation.

However, many people have questioned the view that Confucian teachings promoted unquestionable loyalty to one's superiors and the state. Scholars who have studied Confucianism have shown that one of the central teachings of Confucianism is that one should remonstrate with authority. Many Confucians throughout history disputed their superiors in order to not only prevent the superiors and the rulers from wrongdoing, but also to maintain the independent spirits of the Confucians. In addition, historians like Yu Yingshi and Billy So have shown that as Chinese society became increasingly commercialized from the Song dynasty onward, Confucianism had gradually begun to accept and in many cases, support business and trade as legitimate and viable professions, as long as merchants stayed away from immoral actions. Merchants in the meantime had also benefited from and utilized Confucian ethics in their business practices. This is true especially in the Ming-Qing dynasties, when the status of merchants was on the rise. Consequently, while Confucianism did not actively promote profit seeking, it did not hinder China’s commercial development either.

Of the developed cores of the Old world, India was distinguished by its caste system of bound labor, which hampered economic and population growth and resulted in relative underdevelopment compared to other core regions. Compared with other developed regions, India still possessed large amounts of unused resources. India's caste system gave an incentive to elites to drive their unfree laborers harder when faced with increased demand, rather than invest in new capital projects and technology. The Indian economy was characterized by vassal-lord relationships, which weakened the motive of financial profit and the development of markets; a talented artisan or merchant could not hope to gain much personal reward. Pomeranz argues that India was not a very likely site for an industrial breakthrough, despite its sophisticated commerce and technologies.

Aspects of Islamic law have been proposed as one explanation for the divergence for the Muslim world. Islamic institutions which had at earlier stages promoted development later started preventing more advanced development by hampering formation of corporations, capital accumulation, mass production, and impersonal transactions. Several other explanations have been proposed including the gradual prohibition of independent religious judgements (Ijtihad) and a strong communalism which limited contacts with outside groups and the development of institutions dealing with more temporary interactions of various kinds.

The eastern culture of respect and unquestionable devotion to the ruling dynasty was as a result of a culture where the control of the dynasty led to a silent society that did not ask questions or experiment without the approval or order from the ruling class. On the other hand, the West of the late medieval era did not have a central authority or absolute state, which allowed for a free flow of ideas (Rosenberg, Birdzell, 1986). The eastern culture also showed a dismissal of change due to their fear of failure and disregard for the imitation of outside inventions and euro science; this was different from the western view as the Europeans were willing to experiment and imitate others to benefit their society. They had a culture where change was encouraged, and their sense of anxiety and disregard for comfort led them to be more innovative.

In his book A Farewell to Alms, Gregory Clark argues that the human psychological traits (such as literacy, numeracy, and delayed gratification) needed for the divergence spread in England between 1200 and 1800 "at least culturally and perhaps also genetically".

Economic effects

The Old World methods of agriculture and production could only sustain certain lifestyles. Industrialization dramatically changed the European economy and allowed it to attain much higher levels of wealth and productivity than the other Old World cores. Although Western technology later spread to the East, differences in uses preserved the Western lead and accelerated the Great Divergence.

Productivity

When analyzing comparative use-efficiency, the economic concept of Total Factor Productivity (TFP) is applied to quantify differences between countries. TFP analysis controls for differences in raw material inputs across countries and is then used to calculate productivity. The difference in productivity levels, therefore, reflects efficiency of raw materials use rather than the raw materials themselves. TFP analysis has shown that Western countries had higher TFP levels on average in the 19th century than Eastern countries such as India or China, showing that Western productivity had surpassed the East.

Per capita income

Some of the most striking evidence for the Great Divergence comes from data on per capita income. The West's rise to power directly coincides with per capita income in the West surpassing that in the East. This change can be attributed largely to the mass transit technologies, such as railroads and steamboats, that the West developed in the 19th century. The construction of large ships, trains, and railroads greatly increased productivity. These modes of transport made moving large quantities of coal, corn, grain, livestock and other goods across countries more efficient, greatly reducing transportation costs. These differences allowed Western productivity to exceed that of other regions.

Economic historian Paul Bairoch has estimated the GDP per capita of several major countries in 1960 US dollars after the Industrial Revolution in the early 19th century, as shown below.

His estimates show that the GDP per capita of Western European countries rose rapidly after industrialization.

Agriculture

Before and during the early 19th century, much of continental European agriculture was underdeveloped compared to Asian Cores and England. This left Europe with abundant idle natural resources. England, on the other hand, had reached the limit of its agricultural productivity well before the beginning of the 19th century. Rather than taking the costly route of improving soil fertility, the English increased labor productivity by industrializing agriculture. From 1750 to 1850, European nations experienced population booms; however, European agriculture was barely able to keep pace with the dietary needs. Imports from the Americas, the reduced caloric intake required by the newly forming proletariat, and the consumption of appetite suppressants such as tea allowed England to cope with the food shortages. By the turn of the 19th century, much European farmland had been eroded and depleted of nutrients. Fortunately, through improved farming techniques, the import of fertilizers, and reforestation, Europeans were able to recondition their soil and prevent food shortages from hampering industrialization. Meanwhile, many other formerly hegemonic areas of the world were struggling to feed themselves — notably China.

Fuel and resources

The global demand for wood, a major resource required for industrial growth and development, was increasing in the first half of the 19th century. A lack of interest of silviculture in Western Europe, and a lack of forested land, caused wood shortages. By the mid-19th century, forests accounted for less than 15% of land use in most Western European countries. Fuel costs rose sharply in these countries throughout the 18th century and many households and factories were forced to ration their usage, and eventually adopt forest conservation policies. It was not until the 19th century that coal began providing much needed relief to the European energy shortage. China had not begun to use coal on a large scale until around 1900, giving Europe a huge lead on modern energy production.

Through the 19th century, Europe had vast amounts of unused arable land with adequate water sources. However, this was not the case in China; most idle lands suffered from a lack of water supply, so forests had to be cultivated. Since the mid-19th century, northern China's water supplies have been declining, reducing its agricultural output. By growing cotton for textiles, rather than importing, China exacerbated its water shortage. During the 19th century, supplies of wood and land decreased considerably, greatly slowing growth of Chinese per capita incomes.

Trade

During the era of European imperialism, periphery countries were often set up as specialized producers of specific resources. Although these specializations brought the periphery countries temporary economic benefit, the overall effect inhibited the industrial development of periphery territories. Cheaper resources for core countries through trade deals with specialized periphery countries allowed the core countries to advance at much greater pace, both economically and industrially, than the rest of the world.

Europe's access to a larger quantity of raw materials and a larger market to sell its manufactured goods gave it a distinct advantage through the 19th century. In order to further industrialize, it was imperative for the developing core areas to acquire resources from less densely populated areas, since they lacked the lands required to supply these resources themselves. Europe was able to trade manufactured goods to their colonies, including the Americas, for raw materials. The same sort of trading could be seen throughout regions in China and Asia, but colonization brought a distinct advantage to the West. As these sources of raw materials began to proto-industrialize, they would turn to import substitution, depriving the hegemonic nations of a market for their manufactured goods. Since European nations had control over their colonies, they were able to prevent this from happening. Britain was able to use import substitution to its benefit when dealing with textiles from India. Through industrialization, Britain was able to increase cotton productivity enough to make it lucrative for domestic production, and overtake India as the world's leading cotton supplier. Although Britain had limited cotton imports to protect its own industries, they allowed cheap British products into colonial India from the early 19th century. The colonial administration failed to promote Indian industry, preferring to export raw materials.

Western Europe was also able to establish profitable trade with Eastern Europe. Countries such as Prussia, Bohemia and Poland had very little freedom in comparison to the West; forced labor left much of Eastern Europe with little time to work towards proto-industrialization and ample manpower to generate raw materials.