Wednesday, 26 January 2011

Why China missed the industrial revolution?

It should be obvious that China has been one of the world's most dynamic economies in recent decades, but why did it need to play catchup with the west. How did China fall so far behind Europe in the first place? This column at argues that the industrial revolution occurred in Europe rather than China because European entrepreneurs were eager to adopt machines to cut down on high labour costs. China didn’t “miss” the industrial revolution – it didn’t need it.

Jan Luiten van Zanden writes on "Before the Great Divergence: The modernity of China at the onset of the industrial revolution". He argues
The industrial revolution was a process of mechanisation in which expensive labour was substituted for by machines driven by coal – as Bob Allen (2009) has demonstrated. Chinese factor costs were not at all conducive to such a change.

Whereas entrepreneurs in Europe were very eager to develop new technologies that increased labour productivity via the capital-labour ratio, Chinese businesses barely had any incentive to do so. That the industrial revolution emerged in England was therefore not accidental or the result of luck, but the long-run effect of its fundamentally different factor prices, reflecting its different economic and institutional trajectory.
Can't help but think that the likes of Joel Mokyr may say there is more to it than this.
  • Allen, Robert C (2009), The British Industrial Revolution in Global Perspective, Cambridge University Press.

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