Divided We Stand, United We Fall

Having just had the chance to listen to Gregory Clark give a seminar on Survival of the Richest: Malthus, Darwin and Modern Economic Growth (pdf) this paper, Divided We Stand, United We Fall: The Hume-North-Jones Mechanism for the Rise of Europe, by Cem Karayalcin looked interesting.

One of the biggest challenges for economic history is to explain the "great divergence" between Europe and the rest of the world. This occurred relatively recently. The question is What enabled Europe, with all its laggards, to dominate the previously successful Eastern economies? Why did Asia, and in particular China and India, suddenly stagnate and why did Europe start growing, leading eventually to the Industrial Revolution, before any other region of the world. As noted at the Economic Logic blog

Some of the standard answers have been that this is due to 1) cultural aspects, but within the time line we are talking about here, this is endogenous; 2) chance events (steam engine, proximity of coal), but European countries away from such events also grew faster than Asian ones; 3) resource grab from America, but would Asia really have benefited from such manna?

The Karayalcin article emphasises one important mechanism (among many others in operation) which highlights the contrast between the European states system and Eastern empires. Political competition for a mobile tax base in a states system forces rulers to provide relatively more secure property rights. This mechanism is one which leads rulers to expropriate less and to provide relatively more public services to their footloose subjects.

Rulers who do not face such competition would be more likely to choose higher expropriation rates relative to what they provide in return. The Song Chinese and the Ottoman and Mughal Indian states in their consolidation periods did in fact face such competition and chose to expropriate less from their subjects, leading to their "golden periods." However, their consolidation into unified, stable empires radically diminished the potential mobility of their subjects and removed a structural barrier to high levels of expropriation. The resulting fall in rates of capital accumulation and growth led these empires into a long period of decline.

Europe was fortunate in that it avoided unification and consolidation into a single empire. The states system that emerged there led to political competition among its rulers to keep and expand a tax base composed of subjects that could, in the long run, move from one state to another in search of lower rates of expropriation and higher levels of "public services." The economic and political privileges won by the footloose subjects translated into higher rates of capital accumulation and economic growth that propelled the rise of Europe.

But this does still leave the question, Within Europe, why did the Industrial Revolution occur in the England first and not elsewhere? Did England offer lower rates of expropriation and a higher level of "public services" for tax paid? Why? If capital accumulation is important, did England have more capital? And if so why? Were wages higher in England than elsewhere in Europe, thereby making capital relatively cheap and therefore giving an incentive to invest in labour saving physical capital. But this in turns raises the question of Why were wages so high?

There are two parts to the Karayalcin paper. In the first a simple theoretical model is put forward which demonstrates the points Karayalcin wants to make. In the second section he uses history to justify the assumptions which underlie his results. Evidence is provided on things like mobility within Europe since medieval times and the lack of mobility in the Asian empires, and the differences in taxation burdens.

(HT: Economic Logic)