The big picture: how (and when and why) the West grew rich

The big picture: how (and when and why) the West grew rich Stanley

L. Engerman

Unic~ersityof Rochester,

*

Department

of Economics,

Rochester,

NY 14627, USA

This paper surveys the analysis of Nathan Rosenberg and L.E. Birdzell, Jr. in How the West Grew Rich. They deal with two major questions: (1) the explanation of the original onset of economic growth in the Western world; (2) the circumstances that permitted this economic growth to continue, without decline or stagnation, for several centuries. Their focus on the critical role of the relationship between economic and political spheres, particularly the importance of political decentralization and individual freedoms, is examined. Also discussed is the attention given to the impact of the expansion of trade and to the causes and consequences of the scientific and technological changes of the modern era. The arguments of Rosenberg and Birdzell are briefly compared and contrasted with those of other economic historians who have dealt with similar questions.

1. Introduction In How the West Grew Rich, Nathan Rosenand L.E. Birdzell, Jr. (1986) deal with two of the major issues of modern economic history: (1) what explains the original onset of economic growth in the Western world; (2) why was this economic growth able to continue, without decline or stagnation, for several centuries, and, indeed, to experience sharp acceleration over time. Their answers and analysis attracted considerable attention in professional journals as well berg

as some more popular outlets. Perhaps the spirit and message were best captured in a 1986 review by Donald N. McCloskey, in the New York Times book review: This book is an argument for capitalism, in the same way that the successes of Hong Kong or the failures of Moscow are arguments for capitalism. But this is no pamphlet. It is jammed with economic argument and historical fact.. . This lively and intelligent book is not meant to see details. It is an essay in interpretation and not a tome. It carries on the project of historical research begun by Marx. And it contributes brilliantly to the argument in favor of Adam Smith’s deal - leave me alone and I’ll make you rich. The authors themselves, it might be noted, prefer not to use the word capitalism since it implies a set of definite ideological commitments and does not reflect the ‘pragmatic character’ of European institutions and the Western ‘lack of ideological commitment to any economic principle other than economic effectiveness and survivability’ (p. xi). ’ They do claim, however, that, by 1 The authors

Correspondence to: Stanley L. Engerman, University of Rochester, Department of Economics, Rochester, NY 14627, USA. * John H. Munro Professor of Economics and Professor of History, University of Rochester, Rochester, New York. I wish to thank Michael Edelstein, David Eltis, Joel Mokyr, and two referees for comments on an earlier draft. Research Policy 23 (1994) 547-559 North-Holland 0048.7333/94/$07.00 0 1994 - Elsevier SSDI 0048-7333(94)01005-W

Science

would prefer the term mixed economy, but feel that its current usage, which “assumes that an age of purer capitalism occurred earlier”, makes it presently inappropriate to describe “the changing sets of economic institutions that arose in Western European countries during the West’s centuries of economic growth” (p. xi). While they focus on economic institutions, they point out throughout the changes in politics, culture, and society involved with the commitment to Western economic growth, another theme found in Adam Smith. Smith claimed that “commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals” (1937, p. 385).

B.V. All rights reserved

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whatever evolving secret of economic

name, it is to Western Europe and its institutions that we must turn for the the onset and maintenance of modern growth.

2. Definitions

and implications

At the start of this examination of several of the major themes of Rosenberg and Birdzell, it will be useful to point to some of the definitions contained within their title, and to describe some of their broader implications. The West is rather broadly defined as those areas where, in the last two hundred years “progress and prosperity have touched the lives of somewhat more than the upper tenth of the population” - “Western Europe, the United States, Canada, Australia, Japan, and a few other places” (p. 3). Although they remain quite skeptical of the measures of national income accounting, and none of the familiar tables of comparative income rankings are to be found, if we consider the basic 19 high-income OECD countries listed by the World Bank for 1990, this includes countries with about one-seventh of the world’s population, over two-thirds of its measured GNP, and have a per capita income almost 14 times that of the rest of the world (World Bank, 1992, pp. 196, 218-219). In regard to one of the many hypotheses in the literature concerning factors in economic growth, it seems that all of the developed areas are in the temperate climatic zone, although, of course, not all the temperate zone countries can be considered to be developed economically (Kamarck, 1976). Yet, however broad the definition of the West, there is a familiar aspect to the detailed examinations presented. Although there are some, rather brief, discussions of other areas, much of the pre-1880 analysis, particularly that for the eighteenth and nineteenth centuries, is focused on England, and the material for the period from 1880 to date is basically drawn from the US. This is, of course, not surprising since these countries were, in those periods considered, the leading industrial nations, setting the precedents for others to follow. Within the period of Western economic expansion there has been a sequence of new leaders, both of regions within countries and

of countries, a growth and dynamism in reaction to the changing needs of location and resources. 2 The general Westward movement of European economic growth is usually argued to have begun with the economic leadership of Italian cities and the Low Countries by around the fourteenth or fifteenth century; a shift to Portugal and Spain after 1500 (with the development of their extensive overseas colonial empires); by 1600 Holland assumes leadership; then sometime by the second half of the eighteenth century, it is England; 100 years later it is the US, and today is it now either Japan or Germany (at least the Western part of Germany). Other Western nations followed closely, without their assuming leadership, and perhaps it can be argued that it is the wide diffusion of growth among nations that is the striking characteristic of Western development. Angus Maddison (1980, p. 7) presents data for 16 ‘Western’ countries between 1870 and 1976, showing a marked inverse correlation between the 1870 level of per capita income and the rate of growth over the next century, with the ratio of the per capita income of the richest of these nations to the poorest falling from 5 : 1 in 1870 to less than 2: 1 in 1976. 3 In terms of the historiographic debate, it is very clear who was not in the West, and whose failures in today’s world provide the counterpoint to the successful Western experience. Most explicitly discussed is the nature of what can be referred to as ‘The European Miracle’. According to Eric Jones (19871, another economic historian concerned with the emergence of economic growth in the West, the leading contenders for world economic leadership since the tenth century had been China, India, and the Islamic empires. China, perhaps the richest large country in

2 Such patterns

of change are even longer-standing, Smith (1937, p. 394) observed, in discussing economic change in post-Elizabethan England, that “It is now more than two hundred years since the beginning of the reign of Elizabeth, a period as long as the course of human prosperity usually endures.” 3 For a similar analysis of convergence in levels of productivity among the Western economies in this period, see Abramovitz (1986, 1992). It seems clear that since the late nineteenth century (unlike the earlier part of that century) there has been convergence in per capita incomes among the Western nations. Such a convergence has not been characteristic of the global economy to date.

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/ How the West grew rich

the world in the fourteenth century (Elvin, 19731, recently had a per capita income less than 2% that of the high-income OECD economies, but it is an economy that has made rapid strides in recent years. Similarly, India, with a per capita income possibly equal to that of England’s at the end of the sixteenth century, also had, in 1990, a per capita income less than to 2% that of the high-income OECD economies, while Turkey, the major part of the old Ottoman Empire, is found among the World Bank’s lower-middle income countries. 4 Africa and the Americas, relatively heavily populated at the end of the Middle Ages, are generally considered to have been too limited technologically, although both included well-developed societies and had extensive trading networks. The population decimation, by disease, of the native-American population throughout the Americas after European contact precluded indigenous economic development, however rich its societies prior to the sixteenth century. Development in the Americas was in the areas settled by Europeans. There are a number of contentions as to why the West has clearly won the economic development sweepstakes. The correlations, if any, between the gains to the winners and the costs to the losers who have not succeeded as well in this economic competition, are discussed by Rosenberg and Birdzell. They conclude that the West did not need to profit from the rest of the world in order to grow, but they do leave open the possibility that some ‘non-Western countries’ may have been injured by ‘overseas political adventures’ after Western development became secure (p. 18). ’ Little is said about the questions of whether the worse form of exploitation was economic or cultural, or, if the former, whether it was by exploitation in the buying and/or selling of goods with the less developed world or by the exploitation resulting from a pressured dependency relationship, these not being central to the argument.

The estimates in this paragraph of 1990 per capita income are from the World Bank (1992, pp. 218-219), based upon exchange rate adjustments. Adjustment for differences in purchasing power parity would modify some comparisons, but not alter the basic points here. The comparison of per capita incomes in Mughal India and England in 1600 is from Goldsmith (1987, p. 102).

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Similarly, particularly for the twentieth century, excluded from the West are the USSR and the remainder of what were called the Eastern European ‘nonmarket industrial economies’, who had not been able to benefit from the Western road to prosperity, and whose per capita incomes were considerably below those of the high-income OECD economies, even before their recent problems (see World Bank, 1992, pp. 218-219). Rosenberg and Birdzell date the West’s (slow and gradual) “take-off’ to after a time “when the West was as least as poor as its contempora~ economies” (p. 37) - the Middle Ages. They claim that the institutions of Western society functioned normally in the thirteenth century but, after the Black Death and other disasters of the fourteenth century, recovery by the 1400s meant a new set of institutions were developing, and that innovations - in trade, technology, and organization - became “a significant factor in Western growth as early as the mid-fifteenth century” (p. 20). Some scholars date the emergence of a gap between the West and elsewhere to an earIier period. David Landes (1969, 1986) argues that the West was clearly richest prior to the Industrial Revolution, and places the crucial take-off in the period between 1000 and 1350, claiming that Western dominance was clear by 1500. Others historians, however, argue it came much later, Paul Bairoch’s (1981) income estimates suggesting that marked shifts in relative income levels did not occur until after 1750. De-

5 There are several ways to demonstrate the sharp relative decline in non-Western economic conditions in the modern era. Maddison (1983) presents data for 16 developing nations for various years in the nineteenth and twentieth centuries. Six passed the 1700 level of English per capita income only in the first half of the twentieth century, seven in the second half, one (Bangladesh) still trailed, while two (Spain and ~g~ntina) had achieved this 1700 British level in the nineteenth century. Bairoch (1981) argues, rather controversially, that the level of per capita income of Third World and developed countries was about the same in 1750, but that over the subsequent two centuries the developed countries grew at 0.88% per annum, and the Third World at 0.04% per annum. From 1950 to 1977, the developed countries grew at 3.6% per annum, the Third World at 2.1% per annum. Thus, after 1950, with the direct interests and concerns of the West, the Third World’s per capita income increased more in 4 years than it had in the preceding two centuries.

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pending on the mix of political, military, and economic factors considered, most historians seem to place the transition to Western dominance and prolonged economic growth somewhere between 1300 and 1500. It seems generally agreed both that any initial lead was quite small relative to the differences we now observe, the OECD economies now having a per capita income level about 57 times that of the low-income countries (World Bank, 1992, pp. 218219), and also that Western growth rates prior to the industrialization of the nineteenth century must have been relativeIy low by the standards of subsequent years. Rosenberg and Birdzell present a three-stage pattern of economic growth, each stage with a differing cause and set of consequences. G In the late Medieval and the Early Modern Era, starting with the Italian cities of the twelfth century and accelerating in the mid-fifteenth century, trade in commodities across political boundaries was the key. In the era of the classic Industrial Revolution, 1750-1880, when England was the West’s economic leader, critical were the rise of the factory system and the applications of empirical innovations. After 1880, when the US assumed Western leadership, scientific research became the key to economic development. Despite these shifts, however, it is suggested that the critical political and economic policy components leading to, and permitting, economic growth remained basically unchanged and, indeed, it was these policies that permitted the flexibility of adjustment to the changing economic requirements across Western Europe and many of its overseas offshoots. Rosenberg and Birdzell provide a rather broad definition for rich, going beyond the basic concepts of national income accounting. They point to “a single widely shared value - the value of advancing the material welfare of human beings, as measured by the means available to the great

h W.N.

Parker (1984, pp. 191-213; cf. also Parker, 1991) presents another variant of a three-stage system with overlapping time periods, describing each with a familiar economist: to 1750 (Maithusianf; 1500-1900 (Smithian); and, after 1770 (Schumpeterian). There is little attention now given to the stage theories made familiar by earlier German historians or to the precise stages of growth as delineated by W.W. Rostow.

majority of individuals to choose and shape the quality of the lives they lead” (p. 303). ’ They stress the benefits of expanding economic output, such as increased life expectancy, the avoidance of famine, hunger, and plague, and the “move toward literacy, education, and variety of experience” (pp. 3-4). There is no overall trade-off perceived between economic and moral progress, the authors arguing that: “it is only as a result of the material success of the Western world that the pronounced shift in [moral] values occurred” as well as claiming that “such values as social justice, equaiity, and a concern for the environment, simply __. have not dominated life in any of the past societies from which the West differentiated itself” (p. 303). ’

3. Polities, economics, and the rise of the West The story of the economic rise of the Western world is one of the classic themes of all varieties of history, not just economic history. It is one popular since at least the nineteenth century and it is still able to generate considerable interest, as the reactions to works such as I-iow the West Grew Rich demonstrate. Classic studies of the rise of capitalism have been presented by Karl Marx (1936), Werner Sombart (1916-I927), Max Weber (19301, and R.H. Tawney (192X$, among others. These have been followed, more recently, by works by major historians including those by

7 Rosenberg and Birdzell would appear to deny that these gains from material progress were at the expense of any spiritual or cultural worsening of human existence. They do point out, however, that “the West has been remarkably willing to pay the price of growth, in the form of changing the whole structure and interpretation of Western life”, “for that path involves a diffusion of power and a degree of individualism which is incompatible with many modes of social life” ip. 328). s Smith (as well as others in the Scottish Enlightenment) made similar connections. This belief accounts for the continuing intellectual problems generated by the expansion of slave economies in the eighteenth and nineteenth centuries. It has recently become clear that environmental issues have been more important to the West than to others (see Jones, 1991), and indeed this issue promises to provide a ‘new imperialism’ for Western involvement in the economies of the less developed nations.

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/ How the West grew rich

William McNeil1 (1963), Fernand BraudeI (1981, 1982, 19841, Immanuel Wallerstein (1974, 1980, 1989), and Perry Anderson (1975a,b). Among the prominent works by economic historians in the past two decades are those by David Landes (19691, Douglass C. North and Robert Paul Thomas (1973), W.W. Rostow (19751, Eric Jones (1987, 19881, Douglass C. North (1981, 1990), William N. Parker (1984, 19911, and Joel Mokyr (19901, as well as an extended essay in economic history by the Nobel Prize winning economic theorist, J.R. Hicks (1969). 9 Of particular interest here in framing questions for analysis concerning the rise of the West are the works of North (with and without Thomas), which focus on the importance of the creation of the appropriate set of economic and political institutions and the proper allocation of property rights, and those of Jones, with their attention to natural forces and environmental features and the manner in which responses to them helped to set the conditions which influenced the pattern of economic change. Jones also makes explicit an argument that economic growth may be expected to have been the typical outcome of human decisions, but that bad governmental decisions and inappropriate policies have frequently prevented its accomplishment. Thus the question of how did the West grow rich is obviously not a new one, nor, given its long history, would it be easy to come up with a completely new or novel answer. Rather, the impact of How the West Grew Rich comes from focusing on one particuIarly important set of components of the process of Western dominance, one that highhghts a specific interpretation of the past and can also be is used to present

y Other useful works on this topic, aimed more at text markets, include Hughes (19701, Davis (1973), DeVries (1976), and Cameron (1989). See also the essays in Raechler et al. (1988). and for different approaches, see Easterlin (1981) and Findlay (1992). There is a rather considerable Marxist literature on the so-called transition from feudalism to capitalism that deals with similar issues from a seemingly different perspective. For presentation and analysis of this literature, see Hilton (1978) and Holton (1985), and for a brief (negative) commentary on the usability of this work because of its misunderstanding of the analogy between political and economic power, see Rosenberg and Birdzell (1986, pp. 102-106).

551

a clear message for the present and for the future. The attention given to the political circumstances necessary for economic progress highlights what can be regarded as its necessary condition, with many other frequentiy discussed features considered to be complementary to, or derivative from, the political structure. Other familiar factors regarded by some scholars as the important causes of economic development are denied by Rosenberg and Birdzell, in their rejection of a number (specifically nine) of single-cause explanations, generally because these factors had been present in many societies without their necessarily generating economic growth. Thus their presence need not, and has not, led to growth in a large number of cases, although the counter-example of the possible existence of countries having appropriate economic and/or political conditions without generating economic growth is not raised (perhaps it does not exist), nor is there a fully specified discussion of the relation between the time that appropriate conditions are achieved and the onset of accelerated economic growth. “’ To Rosenberg and Birdzell, the “immediate sources of Western growth were innovations in trade, technology, and organization in combination with accumulation of more and more capital, labor, and applied natural resources” (p. 20). Underlying this, however, was the importance of having “the freedom of the economic sphere from political influence” (p. viii), as well as from religious restrictions, and the role of “efficient government” in contributing “to the security of life and to advances in material welfare” (p. ix). This set of political circumstances permitted the emergence of markets and of a competitive process that determined the rewards generated by eco-

‘” Presumably

the political freedoms and the economic gains both came from the same set of conditions, and it therefore makes little historical sense to ask whether economic growth was an unexpected byproduct of the drive for political freedom or if political freedom was seen to be the most efficient way to achieve the desired pace of economic change. Rather, both were desirable and they came together historically without any deliberate planning to achieve either. The single-cause explanations discussed are science and invention, natural resources, psychological explanations, luck, misconduct, inequalities of income and wealth, exploitation, colonialism and imperialism, and slavery (Rosenberg and Birdzell, 1986, pp. 9-20).

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nomic change. ‘i Attention is given to change, innovation, novelty, and diversity in permitting the economic system to operate effectively over the long run, and it is this that not only led to the original generation of Western growth but also to the Western ability to have growth continue and accelerate, unlike the paths taken by those other societies that may have achieved, for their times and for limited time periods, relatively high income levels but were unable to continue their advance or to avoid eventual decline. In tracing the basis of Western European political fragmentation, Rosenberg and Birdzell have, perhaps surprisingly, some good things to say about feudalism, and its dispersion of power, leading to the absence of a single power center which could control trade. More traditional is their praise for the rise of towns, where the merchant class flourished, property rights were developed and enforced, and the concept of political freedom developed for subsequent extension time individual freedom elsewhere. ‘* Over emerged in the Western European countryside,

The question of the optimum political framework for economic growth is hard to answer, since too much freedom for too many people may limit, not promote, change. In his 1885 publication, Popular Government, Henry Maine raises this issue - the true difference between the East and the West lies merely in this, that in Western countries there is a larger minority of exceptional persons who, for good reasons or bad, have a real desire for change. All that has made England famous, and all that has made England wealthy, has been the work of minorities, sometimes very small ones. It seems to me quite certain that, if for four centuries there had been a very widely extended franchise and a very large electoral body in this country, there would have been no reformation of religion, no change of dynasty, no toleration of Dissent, not even an accurate Calendar. The threshing machine, the power loom, the spinning jenny, and possibly the steam-engine, would have been prohibited. Even in our day, vaccination is in the utmost danger, and we may say generally that the gradual establishment of the masses in power is of the blackest omen for all legislation founded on scientific opinion, which requires tension of mind to understand it and self-denial to submit to it (Maine, 1976, p. 112). The external benefits ultimately generated by cities must be seen to have been abnormally large. As of 1500, only 2.0% of the population of the British Isles resided in urban areas with a population over 10 000. For Italy, the estimate is 12.4%, and for the Low Countries, about 18.5%. The figure for Europe overall was 5.6% (DeVries, 1984a, p. 39).

so that, as pointed out by Adam Smith (1937, p. 365; 1978, p. lSl>, “it is only in the western and south-western provinces of Europe, that it [slavery (serfdom)] has gradually been abolished altogether”, a contrast from its presence “all over Muscovy and all the eastern parts of Europe, and the whole of Asia, that is, from Bohemia to the Indian Ocean, all over Africa, and the greatest part of America” where “it is still in use”. This point about the limited extension of individual freedom was further developed at about the same time by the agricultural reformer and political pamphleteer, Arthur Young (1772, p. 211, who argued that less that 5% of the world’s population lived in societies with liberty and freedom, almost all of those being in Western Europe and the British overseas colonies, with the rest being ‘slaves of despotic tyrants’. The limited provenance of individual liberty, and also of economic change, were thus clear at this time of expansion of Western economic growth. Rosenberg and Birdzell trace the changing economic fortunes of the West to its expansion of political freedom, and argue that this economic expansion was possible because it was based upon improving the economic circumstances of the less well-off members of society and bettering their living conditions. They attack some current romantic views on technology and production by arguing that early-day artisans and craftsmen were mainly involved in the production of goods for the wealthy, and thus the benefits of craftsmanship were only for a few, contrary to the benefits that were to come from factory production. Thus capitalist freedom was (and is) not only necessary for economic growth, but it also generated a more equitable distribution of income and of political power than did alternative socio-economic systems. It is difficult to imagine a more favorable report-card grade for Western institutions - they worked and, if allowed to, can continue to work for everybody’s benefit.

4. The role of the nation-states In the Rosenberg and Birdzell view on why the West, and not the others, grew rich there is particular stress on the role of the political system. They argue that advancing material output has been “a widely shared value” (p. 3031, sug-

XL. Engerman

/ How

gesting, perhaps, that it is not limitations on the tastes (or at least the tastes of the mass of the population) for goods, but other, political, constraints that precluded the worldwide onset and diffusion of economic development. Some point to various natural and geographic constraints (suggested by the absence of rapid growth in arctic and tropical areas) as limiting factors for economic development, but Rosenberg and Birdzell would also stress that for most of the world in which growth was possible the important constraints were political and institutional in nature. It may be that the rulers of society have had different ends in view than widespread material economic betterment, whether it was for interests of their own private wealth or else because of a concern with some other ultimate goals that limited society’s commercial and economic change in their own self interest. Or perhaps it was that the political rulers, owing to error and/or inertia, permitted inappropriate institutions to emerge and continue even if economic growth were aimed at. Whatever the reason for failure, however, it would appear that all the world should be developable, with the adoption of the one, correct, political and economic framework. l3 Rosenberg and Birdzell draw, in effect, upon the economic model of the perfectly competitive industry in linking the Western political system to Western economic development. The advantage of the Western system of nation-states was that each was large enough to impose its political and economic power over a sufficiently large area to be effective and important, but none was so large and monolithic so as to become an empire with both the static (the inflexibility of too large a scale) and the dynamic (the absence of pressures to develop further) inefficiencies analogous to those of the monopolistic firm. Western Europe, during its period of expansion, was characterized by relatively small, diverse units that permitted flexible adjustments to economic and military changes. The competition among the several units meant that continued adjustments to changing circumstances were necessary for successful sur-

I3 Given the authors’s emphasis on diversity and flexibility, it might be suggested that perhaps there is more than one correct route, but such alternative paths at any moment of time are difficult to discern.

fhe

West grew rich

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vival, or that when there were losers they were replaced by others willing to take those risks. The political fragmentation and decentralized power in Europe, as contrasted with the centralization of the Chinese and Islamic empires, led to multiple sources of decision-making and a pluralism and diversity of responses. In addition to the pressures competition generated, the plurality of policies meant, in effect, a diverse menu from which it would be possible for one set (and one leading nation) to emerge as effective for generating economic growth, unlike the limitations on alternatives generated by a centralized empire with its limited variation in decision-making. The constraints imposed economically, politically, and militarily by the set of nation-states had further long-run advantages for Western Europe. Trade across national markets required various legal and institutional arrangements to be determined by traders and merchants, not only by political leaders, and the desires of any nation not to be excluded from the benefits of trade meant that these privately generated institutions would have to be accepted. The availability of alternative nation-states for production meant that labor expelled from one nation could find other nations in which to locate, the competition for effective laborers and soldiers led to a concern with education and literacy, and the possibilities opened for capital mobility operated as a deterrent to widespread confiscation. Militarily, the maintenance of a system of relatively stable balance during the epoch of growth meant that there were a variety of power centers, with even the one strongest power unable to dominate the others, unlike the oriental despots, thus limiting any external territorial growth within the core area of Europe, as well as placing limits on the degree of internal political control. As Rosenberg and Birdzell (p. 138) note: It may be that a prerequisite to sustained economic growth is an economy trading across a geographical area divided among a number of rival states, each too small to dream of imperial wars and too fearful of the economic competition of other states to impose massive exactions on its own economic sphere. The reason for the specific number and nature of nation-states remains less clear. Whether due

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ultimately to geographic forces, which made uniform control difficult, or to the accidents of the balance of military power resulting from the influence of the prevailing optimum military technology, is not certain. For whatever reason, however, the Western European nation-state system is considered to have some quite desirable characteristics, for the political diversity and pluralism comes within a single market and cultural system, thus providing some of the beneficial economies of scale of a larger political and economic unit but without the heavy political costs of a monolithic empire. Most economists will find this application of the principles of a perfectly competitive industry to the Western system of nation-states, one which has also been used, implicitly or explicitly, by other writers, rather plausible. The advantages of competition in leading to an appropriate set of incentives to respond to constraints and changes, the existence of alternative innovators from which the successful ones will emerge, and the limited scale of political decision-making are seen to be reflected in the success of the West in a manner that monopoly-empires were unable to achieve. Less is said, however, about the costs of such a competitive political system except, perhaps that, no matter what, they were obviously less than were its benefits. For most of the period of expanded European expansion, from the fifteenth to the nineteenth centuries, much of the continent was at war (roughly half the time) with resultant drains on manpower, capital, and other resources (Wright, 1965, p. 6.53). Perhaps these costs were less than those confronted by empires, and, as argued by Jones (19871, the wars in Europe were less destructive than those in Asia. Perhaps as Sombart (1913), and others, have suggested, the needs of war and of geopolitical stability led to an encouragement of technological and industrial development. l4 Perhaps, as G. Parker (1988) suggests, the benefits of wartime developments emerging from intra-European conflict meant that the Europeans developed the superior military technologies which permitted them to dominate other continents. Nevertheless,

I4 See, however,

Nef (1950), and Mokyr (1990)

the West grew rich

the existence of this nation-state system was not without its economic costs and drawbacks. This question of possible costs would similarly apply to issues of competitive economic policy among the European nation-states, since conflicts for economic and political power led to the implementation of programs such as tariffs and trade restrictions which limited market-size, trading relations, and economic freedoms. While the British Navigation Acts, about which even Adam Smith had some good things to say, probably did help to accelerate the transition in economic power from the Dutch to the British, advocacy of such a policy, with its economic costs in the form of higher shipping expenditures, need not provide the most desirable message for today’s policymakers. ” Is the reason why the Western nations would not suggest such measures to the Third World nations today because they might feel themselves in the place of the Dutch or is it because they have learned the messages of past political economy and modern economic theory?

5. Governments

and economic

policy

That there was a crucial role to be played by decentralized power and multiple sources of decision-making is important in understanding the rise of the West, but it is also critical to examine what was done with the decision-making power within each nation-state. Rosenberg and Birdzell argue that it was the emergence of an economic sphere free from political and religious influences _ an autonomous economic sphere of activity that provided the basic conditions of economic development, so that economic growth was most rapid where the government was weakest and the

‘s Smith (1937, pp. 4299431) did point to some economic costs of the controls introduced by the Navigation Acts, but justified their implementation since “defence.. is of much more importance than opulence.” Thus, according to Smith, “the act of navigation is, perhaps, the wisest of all commercial regulations of England.” Note that Smith is here approving of only a part of the British scheme of regulations. For this period, DeVries (1984b) points to an absolute decline in per capita income in the Netherlands, while that of Britain was expanding.

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of the population most free. ” This autonomy economic sphere meant that individuals were free to organize new experiments, and to develop new products, technologies, and forms of organization; there was a market economy, with individuals free to make decisions in regard to consumption and production; and, in general, there was freedom from arbitrary political acts and confiscations of private property that would have dramatically limited individual actions in pursuit of future economic rewards. i’ The constraints on confiscations did not, of course, mean that individual rewards were certain and that wealth was protected against losses. Indeed, in regard to these possible losses of wealth, Rosenberg and Birdzell (p. 235) make the strong claim that this possibility has been one of the main virtues of capitalism: Historically, one of the most distinctive features: of capitalist economies has been the pracfice of decentralizing authority over investments to substantial numbers of individuals who stand to make large personal gains if their decisions are right, who stand to lose heavily if there decisions are wrong, and who lack the economic

or political power

at least some others from

proving

to preuent

them wrong.

Indeed, this particular cluster of features is among the stronger candidates for the definition of capitalism. While government economic policy in the West See Landes (1969, p. 19): “the scope of private economic activity was far larger in Western Europe than in other parts of the world and grew as the economy itself grew and opened new areas of enterprise untrammeled by rule or custom. The trend was self-reinforcing: those economies grew fastest that were freest.” While national law, moderated for international purposes, was crucial to setting the conditions for political and economic behavior, in the more successful cases laws provided the basic framework within which individuals could operate, not directly intervening in the broad range of choices and actions. Whatever the complexities involved in establishing this legal order, it was to expand, not limit, freedoms in the same manner as the political order. Berman (1983) places the origin of the crucial changes for the Western legal tradition in the eleventh century and stresses the flexibility and dynamic character of the Western legal tradition. This part of the story is told with a limited sense of struggle against the ruling elite, of changing power balances with the state, or of conflict of labor versus management, perhaps because these may have been less in the West than elsewhere or else because it was the particular outcomes of these struggles that helped generate growth.

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may have been more laissez-faire than in other places, crucial to the growth of the West was that when the government did intervene in the economy, as it often did, at least early on, it did so in support of the growth of industry and commerce, not with the intent to restrict or control their economic activities. This distinction - encouragement versus restriction - is not always easy to draw, definitely ex ante and possibly even ex post, in part because policies to encourage one segment of the economy act to restrict another part, in part because policies seeking to encourage at one time may act perversely and serve to hamper, not to spur, economic change. At the time of its early industrialization, England had restrictions on foreign trade, both for the metropolis and in regard to its overseas colonies, and the magnitude of its taxes probably exceeded those of France and much of the rest of Western Europe. Nevertheless these taxes followed well defined legislative rules and did not resemble the arbitrary levies characteristic of many other Western and non-Western countries. Rosenberg and Birdzell (p. vii) state that: the practice of laissez faire was only occasionally characteristic of Western economies. On the contrary, both nineteenth-century and earlier Western governments were very active in trying to facilitate manufacturing and trade. They go on to list a range of contributions of the government to economic growth, including ‘courts of law’, ‘legal modes of organization’, ‘subsidized railways, canals, and turnpikes’, protection of ‘domestic enterprise with tariffs and quotas’, ‘ a currency’, ‘free compulsory education and transport systems’, ‘ assistance to ocean transto encourage the port’, ‘grants of monopolies formation of new industries’, and ‘the grant of patents for new inventions’ (pp. vii-viii). Some of these are no doubt a necessary part of any laissez faire program, others would, given their political nature, seem to be difficult to fit into the customary sense of such policies. In regard to recent interpretations of mercantilism, Rosenberg and Birdzell take a perhaps unexpected tack, at least to those of us raised on certain views of Smith and of modern politics. They indicate that any linking of mercantilism and central planning is obviously inappropriate, since mercantilism was a system providing state aid to growth, with most decisions in regard to

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production, consumption, and investment left to private individuals. The early state system provided for security of property rights, law and order, and the reduction of internal trade barriers, while, via the introduction of tariff and shipping regulations, attempting to achieve self-sufficiency in trade and control over empire. The approving description of such methods - “the mercantilist partnership” (p. 134), in which “the political authorities thus became substantial personal participants in the profits of the mercantile and manufacturing enterprises” (p. 135), may seem surprising, even if these restraints are considered a rather unfortunate but disappearing legacy of feudalism rather than an undesired harbinger of capitalism. (While the argument for internalizing the externalities generated by political authorities has a certain appeal, observe the frequent reactions with charges of corruption when this is found to have occurred.) To point to the impact “of restricting imports and granting exclusive trading privileges to their own nationals” in “building a merchant class free to trade, on its own terms, because sufficiently influential members of the political class shared the profits” and to note that “the trading monopolies served as a teaching device, as if they had been invented to supply the royal governments with a concrete, short-term demonstration that they shared with the rising merchant class an interest in the expansion of trade” (pp. 135-136), is to present a view that is not quite Smithian, at least as usually understood. While some may regard praise of mercantilism as somewhat misleading as a guide to growth policy for today, not only might such policies help explain growth in the past, but they also could provide an explanation for the belief in neo-mercantilism in today’s world. Perhaps, as they claim, by Smith’s day the benefits of mercantilism had been achieved, thus explaining Smith’s urge that “the device be discarded” (p. 136). It might be that no infant industry tariffs were permitted to become senile industry tariffs, but it may not be clear politically when and how to provide for such a policy transition. There were major differences among the practitioners of mercantilism. Contrast the Dutch, British, and French handling of overseas trade by charters granted to private individuals (however political, or competitive, the allocation process) - with that of the Spanish, where overseas

trade was handled by the royal house, which led to rather limited overall economic expansion for the European metropolis. To that extent, then, it could be argued that the British and Western ‘partnership’ was at least a partnership of government and private interests, and that this was better than a royal monopoly, but it still poses questions about defining the most appropriate role for government. This question concerning the specifics of the governmental role resurfaces in regard to the mid-nineteenth century ‘follower’ countries on the European continent, for whom Gerschenkron (1962) argued both that the need existed for more and stronger governmental action than in the earlier, more gradual developers and that, historically, there was a stronger governmental policy input than there had been in the British case (at least as the latter is usually visualized). And, of course, a further extension of arguments about the need for a more active governmental partnership has been made for many of the less developed nations of the world in the twentieth century.

6. Science and technology Rosenberg and Birdzell argue that down to 1800 industrialization was demand led, spurred by declining transport costs and new channels of trade, and that it was not until after 1800 that increases in productivity become the prime mover in expanding industrial output - patterns consistent with what is now generally believed about productivity growth in eighteenthand nineteenth-century England. And while the precise role of science in the early economic growth of the West remains another widely debated issue, Rosenberg and Birdzell argue that it was only after 1700 that an empirically based science and technology emerged to influence economic development. l8 And it was only after the ending of the I8 The West had, however,

“surpassed other societies in the systematic study of natural phenomena by learned specialists - that is, in science - by the time of Galileo, say, 1600. The gap has been widening ever since. But the wealth of Western economies did not clearly draw ahead of the wealth of their predecessors and other economies for another hundred and fifty or two hundred years. Evidently the links between economic growth and leadership in science are not short and simple” (p. 242). For more details on the links between science, technology, and economic performance see the essays in Rosenberg (1982).

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first, British, Industrial Revolution, about 1850, that a more direct economically productive link between science, technology, and production was to become dominant. Thus the origins of Western growth and its first highly successful centuries relied more on organizationa innovations, broadiy defined, than on technoiogical changes, consistent with an argument that stresses the role of social and political factors in early economic development. Given the importance of ‘the link between science and wealth’ after the late nineteenth century, it is argued that it is important that the organization of science and innovation be decentralized, and that political hierarchies refrain from exercising direct authority over the innovative process. The diversity of sources of funding of research, the decentralization in invention and innovation, and the ability of those who succeed to capture their rewards are the basic ingredients of the successful Western performance, in contrast with the “ignominy memorialized in the eponym ‘Lysenkoism”’ (p. 255), when the political hierarchy prevails over the scientific establishment. Thus the policy for science-based economic growth is no different than it had been for tradebased economic growth.

7. Recent changes and their implications There are a number of questions posed by the dramatic world changes in the period since the book was written. First, the increased attention to the relative decline of the US (or is it attention to the increased relative decline) raises questions about the various explanations given to explain the earlier success of the US economy. Have the conditions necessary for a nation to expand changed, or is it, rather, that the conditions within the US economy have altered in a less than optimal way, for whatever reason? Will we benefit more from studying and adopting the Japanese model than, one century earlier, the British gained from studying the American case? There remains the possibility that this is primarily a long-cycle downturn and that all problems are exaggerated. The prospects for a capitalistic future looked (and were) quite different in the 1960s than they had seemed in the 1930s. Second, there has been a shift in the primary

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arguments of those opposing economic growth from a focus on limited resources and technological limits to an emphasis on environmental problems owing to increased growth. While some still argue that these problems will ultimately stop growth, for many we have again returned to a belief in the power of technology to provide for goods and services, and, possibly, even to provide for methods of limiting environmental damage once the appropriate incentives are given. Third, there has been the breakdowns in the former Soviet Union and Eastern Europe, and the major market reforms (with intended minimal political changes) in China. These have clearly demonstrated the economic and political advantages of the Western example, if not to all observers, certainly to most residents of those countries. The aim for a market-type economy, with or without the full set of political freedoms characteristic of the West, might provide some tests of the arguments linking these. The early problems of introducing a market economy, if not always for the first time at least in some cases after a rather long detour, have presented some interesting questions for economic historians. Markets do not begin to operate with full efficiency on an instantaneous basis, but apparently take time to develop the appropriate laws and beliefs. How long such a lead-in needs to be will help in understanding the conditions for economic growth in the past. And we now see the difficult politics of introducing a market (or any economic system change) under the watchful eye of the public effected by such a changes. As long as demand curves slope downward and supply curves slope upward, any change seems to leave someone unhappy, and if they can be vocal enough, anxious to limit at least some of the change. The education of a society to accept new measures, some of which wilf not benefit them (at least not as soon and by as much as they will benefit others) provides a central political dimension to any of these economic changes. Fourth, the precise relation between economic freedom and political and social freedom has come to appear more complex and less easy to ascertain. When the comparison was between a West without slavery and serfdom and with only limited numbers of contract laborers, and other areas that still contained considerable amounts of these economic controls as well as lacking the

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voting and political changes that existed in much of the West, the contrasts seemed clear, both economically and politically. The political changes that have accompanied economic growth may begin to impose constraints upon the economy, an issue raised earlier by Schumpeter, while elsewhere the onset of economic growth may permit what can be regarded as favorable political changes. And whether it will be economic freedoms or political freedoms that are to be granted first, and whether different countries will choose different routes, also remains uncertain. Perhaps for the first modern nations the linkage posited by Rosenberg and Birdzell was the only one; once, however, the trail has been opened it may be that different alternatives are feasible - at least for limited periods of time. Given that, owing to what Rosenberg and Birdzell have argued to be the spread of Western moral standards, our concepts of political and economic freedom may have become more inclusive of different individuals and groups, and our sense of the appropriate time over which benefits should accrue to them have become shortened, while the broadest generalizations linking these freedoms may remain true, it is doubtful that things will continue to look as clear-cut as they did in the previous century.

8. Concluding

remarks

How the West Grew Rich is a fertile work of comparative economic history. It provides many new insights and interesting interpretations of the historical past as well as of the current world economic situation. Central to its arguments, and linking Rosenberg and Birdzell’s views of the past, present, and future, are the critical roles of political decentralization and individual freedom in the achievement of economic growth in the West. Political decentralization and individual freedom were central to Western economic development, whether economic growth was dependent upon the expansion of trade or upon the outcome of scientific and technological change. Some might find the views of Rosenberg and Birdzell upon the extent of Western liberties and the diffusion of the benefits of its economic growth a bit optimistic - but their reply would, no doubt, be to ask where else such economic

growth has been so great, where else has its allocation throughout the population been so broad, and where else the extent of political liberty been so great, as in the West. It is that set of achievements that How the West Grew Rich explains, and it is to them that they point the readers to when questions of current economic policy are debated. It remains an appealing and a useful message.

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