Some months ago, Patrick Karl O’Brien came out with an interesting book titled “The Economies of Imperial China and Western Europe”(15 Oct 2020), a subject that drew my interest in the context of my research about the modern history of China. What Patrick Karl O’Brien refers to in his book are the today still ongoing discussions surrounding the Great Divergence.
For example, one thousand years ago, a traveler to Baghdad or the Chinese capital Kaifeng would have discovered a vast and flourishing city of broad streets, spacious gardens, and sophisticated urban amenities. Paris, Rome, and London, in fact, any European city, could have fit into a comer of those great Asian metropolises. Until around 1200. the only large non-Muslim city of Western Eurasia was the Eastern Orthodox capital Constantinople. Then by 1600, three of the five largest cities in this region were in Europe, and in 1850, London dwarfed all other urban communities in history with 2.5 million inhabitants. That is, in short, what economic scholars and historians call the Great Divergence, but how it occurred is still being discussed, and one could say it is a historical conundrum of modern times.
Yet as Kenneth Pomeranz added: European merchants had far more difficulty selling their goods in Asia than in finding markets at home for Asian goods, both for elite and mass consumption. (It is possible that despite eating just as well. Asians had less of other goods than did Europeans, that the Chinese and Japanese probably did as well.) True, the largest single source of Asian manufactured exports to Europe, the Indian subcontinent, was also one large Asian region for which many scholars believe that workers’ living standards were unusually low (as much because of very unequal income distribution as because of actual levels of per capita production. But Chinese textiles and other goods also found a significant EuroAmerican market (and not only among the rich) throughout the eighteenth and much of the nineteenth centuries.
As we earlier pointed out, by 1000 CE, at the beginning of Europe’s transformation, the most prosperous and urbanized societies were all in Eurasia, in the Middle East, India, and China.
The West and the rest?
Back in Nov. 2020, I posted an article referring to The Last Embassy: The Dutch Mission of 1795 and the Forgotten History of Western Encounters with China by Tonio Andrade and from there went on to look at Eastern and Western culture but mostly from a psychological and marriage pattern point of view whereby in this article I like to take a look at its economic aspects including the hotly debated ‘Great Divergence’.
Whereby it is aptly to start once again with Andrade who writes: The Dutch mission of 1795 is one of the most significant counterexamples to British diplomacy during this period and can help us deepen our understanding of Sino-Western relations, but it has not just been neglected; it has been misunderstood.1
One reason, according to Andrade, why the Dutch mission didn’t achieve the influence of British accounts is that the Dutch Republic itself ceased to exist. Even as the Dutch Ambassador was drinking tea with the Chinese emperor at a party, French troops marched on Amsterdam. The successor to the United Provinces of the Netherlands, the Batavian Republic, was a French puppet state. This meant that the Dutch were now at war with Great Britain, which seized Dutch ships and territories, leaving the Dutch in China with no funds to buy daily necessities. It wasn’t long before the Dutch East India Company itself was abolished. In the meantime, China was beset by rebellions, and the old emperor, who had treated the emissaries so well, relinquished his throne to his son, who had great trouble restoring control Peace returned to China around the same time it returned to Europe. Still, by then, the world had changed irrevocably. The promising relations established during the embassy were never pursued.
The Chinese emperor and his court didn’t trust Macartney, who refused to carry out the requisite kowtow’ bow’s and made extravagant requests. They were concerned because the British had a reputation as an aggressive people who attacked and pillaged in the Western Oceans and, quite possibly, near the land borders of the Great Qing itself. They decided to dismiss Macartney early and get him out of China as soon as possible. His lordship returned to England with little to show for his efforts but a couple of imperious letters to his king.
Although Macartney tried to put a brave face on it, he and others in his entourage felt humiliated. Stung by criticism in Europe, they increasingly blamed their failure on the Qing court, which they portrayed as arrogant and inflexible, blind to Britain’s virtues.
Lord Macartney’s mission to China is as famous as the Dutch embassy is neglected, and it had a very different outcome. Its failure is one reason that historians came to view the history of Sino- Western diplomacy as a culture clash.2
Europeans, frustrated that they were unable to interact with China based on equality, concluded that China must be brought to the Western international system forcibly if necessary. They were conceived to be the natural mode of interstate interaction. This dynamic supposedly helped lead to the bitter Sino-European conflicts of the nineteenth century: the Opium War, the Arrow War, the Sino-French War, and the Boxer Rebellion, among others. Western and Chinese scholars argued that Qing inflexibility was one of the major reasons for China’s tumultuous and bloody nineteenth century.
Historians like Andrade have challenged this narrative, pointing out that Qing rulers were more pragmatic and cosmopolitan than previously assumed; that relations with maritime Europeans were guided by realpolitik; and that even in the West, diplomacy as we have seen about 1919 less “Westphalian” than widely portrayed, being heavily influenced by extra-European diplomatic practices.
Ultimately, the British encounter with China was a clash, and the British experience has overwhelmingly dominated the literature on Sino- Europe relations. Scholars had paid much less attention to non-British diplomacy in China, particularly for the late 1700s and early 1800s, when the British sent their failed missions.
This was not only different from the Dutch Embassy, the subject of Andrade’s new book, but also the American mission to China in 1843-44, and the treaty of Wangxia that resulted from it was the reflection of a strong and autonomous China policy; a policy that found another voice in the Open Door notes a statement of principles initiated by the United States in 1899 and 1900 for the protection of equal privileges among countries trading with China and in support of Chinese territorial and administrative integrity. The statement was issued in circular notes dispatched by U.S. Secretary of State John Hay to Great Britain, Germany, France, Italy, Japan, and Russia.
Underneath drawing depicting the proponents of the Open Door policy (the United States, Great Britain, and Japan) pitted against those opposed to it (Russia, Germany, and France), 1898:
The 1899 Open Door notes provided that each great power should maintain free access to a treaty port or any other vested interest within its sphere, only the Chinese government should collect taxes on trade, and no great power having a sphere should be granted exemptions from paying harbor dues or railroad charges.
Also, Patrick Karl O’Brien, in his book about the history of economics early on, mentions the Macartney incident, which O’Brien writes has since been labeled as ‘the last stand’ of Chinese Conservatism.
In contrast, under the Song Dynasty, which ended in 1279, European and Islamic travelers realized that China was leading the world in technology. And China does have kind of an Enlightenment.
The material foundations for the rise, strength, and persistence of Europe’s increasingly derogatory views of China (and India) were obviously locatable in the emergence, development, and diffusion of a widening range of western technological innovations tenuously linked to advances in science maturing into institutionalized disciplines for the generation of systemic and reliable knowledge successfully applied to the problems of navigation, transportation, agriculture, mining, industry, commerce, bodily health and, above all, to geopolitical power.
Jesuits and foreign merchants had noted Chinese deficiencies in all of these spheres (especially in weaponry, navigation, and the development of scientific instruments) over the eighteenth century. Following from displays of disinterest in die western knowledge and commodities brought to China by the Macartney mission, British and European commentaries on the scientific and technological, and economic backwardness of the empire became sharper in tone, more common and comprehensive. They gradually widened from critiques of specified examples of the institutions to a derogation of Chinese civilization as a whole.
Max Weber’s views of the Chinese state and the institutions that its patrimonial bureaucracy sustained have been exposed as being even more contestable than his more famous thesis on “The Protestant Ethic and the Spirit of European Capitalism” Weberian endeavors to be systematically comparative have continued, however, to inform almost all scholarship designed to juxtapose and explain the rise of the West and the clear retardation and decline of China.
This started to change with Joseph Needham’s (1900–1995) multi-volume project on Science and Civilization in China has revealed an early but extraordinary range of contributions to science, technology, and moral philosophy. Chinese foods, medicines, manufactured commodities, modes of transport and forms of communication that flowed to the West over the centuries-long before Europeans confronted the Chinese with their own distinctive and superior range of useful knowledge of machinery, artifacts, and desirable commodities, along with threats to the empire’s security, stability and traditional way of life based upon an economy dominated by agriculture and household forms of production.
Present-day scholars such as Kenneth Pomeranz in The Great Divergence: China, Europe, and the Making of the Modern World Economy (2000) and Robert Marks The Origins of the Modern World: A Global and Environmental Narrative from the Fifteenth to the Twenty-First Century (2019) agree on rough comparability in the economic performance of China and Europe, and in England until the early 1800s, which contrasts with others who claimed the Great Divergence took already place two hundred years before in 1850 London dwarfed other urban communities.
Peter C. Perdue, a professor of Chinese history at Yale University, has summarized the basic idea as follows. China and Europe were basically similar in nearly all significant economic indices, including standard of living, market development, agrarian productivity, and institutional structures that affected growth. This fundamental similarity invalidates arguments stressing deeply rooted European singularities. The “great divergence,” a sudden, unexpected leap by England ahead of the rest of Eurasia, came from two fortuitous circumstances: convenient coal supplies and access to the abundance of the New World. This huge windfall allowed England to escape the ecological trap toward which the entire continent was headed. The geological contingency which put coal and the Americas closer to the western than the eastern end of Eurasia dramatically reversed the fate of its regions.
Many credit the much-touted European demographic system, featuring late marriage, low percent married, but unrestricted fertility within marriage, with keeping down European populations. Asians, by contrast, were viewed as breeding heedlessly because of early and universal marriage. But, fertility control within marriage kept Chinese populations below their maximum, too, ensuring them life expectancies equal or greater than most of Europe and roughly comparable living standards. The special European demographic structure was not, in the end, economically significant.
Allocation of capital, labor, and land by competitive markets in China was, if anything, freer than in Europe. Imperial China, by and large, had free labor, substantial migration, frequent land sales, and enforceable property rights, which allowed efficient resource use, while even in the most modern parts of Europe, entailment restricted land sales, and urban guilds restricted artisans. In the rest of Europe, much more severe controls, from apprenticeship to serfdom, severely constrained investment and kept urban-rural income gaps high. Given these barriers, it is hard to make a case that income inequalities were any larger in China than in comparable regions of Europe.
In A Culture of Growth, Joel Mokyr (who earlier already had written The Enlightened Economy: An Economic History of Britain 1700-1850) mentions that the subject has its historical and economic riddles, and an attempt to address these covers issues like ‘useful knowledge,’ that economic progress is desirable, eschewing any notions that the accumulation of wealth and material goods is somehow sinful or vain. And once the possibility and desirability of economic progress had been accepted, a concrete agenda of policy measures and institutional change had to be formulated, elaborated, proposed, and implemented for long-term progress to take place. This agenda became increasingly concrete and detailed in the eighteenth century and was implemented, in different ways, in some European nations in the late eighteenth century and then more widely in the nineteenth century. There was, of course, no unique way of carrying out this agenda. In some countries, the “policies’ were largely based on private initiative and spontaneous organization. In others, the state needed to play a proactive role. Whatever the exact agenda, the policies had unintended consequences. At least in that regard, they were like all evolutionary processes: messy and imprecise, full of false starts and dead ends.
Mokyr suggests that the key to Europe’s rise was the Enlightenment, which created a sustained agenda for seeking out useful knowledge. But he sees the rise of the Enlightenment, in the late 17th century, as being more of a lengthy, incremental change that occurred in the minds of Europe’s literary elite. Europe was neither better organized nor more dynamic than various Asian societies. Still, by the middle 1600s, Europe had effectively adopted a novel means of acquiring and validating (in both the narrower and wider senses) useful knowledge. Mokyr refers to this as the republic of letters, which designates a community of scholars (philosophes, literati, etc.) who were both socially cosmopolitan and geographically decentralized. These scholars often advanced contentious (but not revolutionary) ideas while sharing generally liberal attitudes toward collaboration and disclosure. This republic of letters effectively created two interrelated markets: one for ideas, where mathematics and experimentation both became more important, and a second for competitive scholars, especially those who were seeking fame, fortune, and influence across the continent. Here he makes the interesting observation that reputation was scalable because one Galileo would outshine two lesser scientists of the time. In any case, over several generations, a selection system was effectively put into place to disseminate useful knowledge. Consequently, Mokyr does not see the rise of science and technology in Europe as an extension of earlier cultures but instead as a repudiation of those cultures.
Whereby Gordon F. Mulligan, referring to the ongoing discussion, wrote: Any reading of Mokyr’s book should probably be complemented by a reading of Deirdre McCloskey’s The Bourgeois Virtues (2006). In this and other contrarian books, she claims that economic growth depends less on investment and trade and more on personal beliefs or the ideas that people find attractive. In fact, she claims that the wealth of nations could not grow dramatically until people were finally convinced that there was dignity in enterprise and fairness in markets. In the end, Mokyr pays more attention to the various players (Francis Bacon, Newton, and the like) in his republic of letters. At the same time, McCloskey shows more concern for the shifting sentiments of the general population.
In How Europe Made the Modern World: Creating the Great Divergence Jonathan Daly writes that arguing that Europe made the modem world with all its positive features is not to deny the horrific ones, including vast and exploitative colonial empires, the annihilation of indigenous cultures, and especially dehumanizing chapter in the ancient practices of slavery and slave-trading, “scientific racism.” and history’s single most destructive armed conflict: World War II. Obviously, the devastation of culture-built environments and lives did not foster Europe’s success. Neither, presumably. Could mere oppression and dehumanization. Scholars are divided about colonialism, imperialism, and Atlantic slavery to Europe’s wealth and development.- It seems most likely that all such evils were tragic consequences of Europeans’ extraordinary aggregation of power, not their main cause. Indeed, key elements of Europe’s making of the modern world evolved gradually, beginning in the medieval era. Long before the rise of colonialism and slave-based plantations.
How to explain Europe developing into what now is called the great divergence?
Although all human communities have felt drawn to wander, early modem Europeans developed a fevered interest in exploration. Ingenious navigation techniques. Instruments and vessels, borrowed, improved upon, and invented, made possible in the late 1400s the launching of Spanish- and Portuguese-sponsored seafaring expeditions into the unknown and the discovery of oceanic pathways to all the comers of the Earth. By the early 1500s. European explorers, merchants, scholars, and missionaries had begun to knit the continents and oceans together into a vast and interconnected network of economic, cultural, commercial, and intellectual exchange. Ceaseless openness to learning horn other peoples, an attitude not reciprocated toward the Europeans by any other culture in the premodern era, ensured continuous and ever-accelerating development in Europe until the entire world became linked together into our modem global systems of economic, demographic, cultural, intellectual, and scientific exchange.
Storing and sharing information in ever-more efficient ways was also a crucial feature of modern society. The expansion in early modern Europe of the economy, educational opportunities, and literacy stimulated greater demand for books than in any other cultures and drove entrepreneurs to mechanize printing. The resultant printing revolution transformed Europe and the world so that the earlier invention of punting in China did not. For one thing, printing presses in early modern Europe turned out scores of times more books, both in the aggregate and as separate titles, than they did in China, despite its larger population. For another, scholars and artists collaborated to produce extraordinarily detailed and accurate illustrations for technical and scientific manuals, providing a dramatic impetus to the development of technology and science. Finally, printing contributed mightily to the Protestant Reformation, which dramatically enhanced individual freedom and the concept of rights.
Rights and liberties, a precious achievement of the modem world, began gestating in medieval Europe, thanks largely to the weakness of central political authority. Secular and ecclesiastical lords, monastic communities, cities and towns, and even ordinary people in the European Middle Ages customarily received grants of immunity, privilege, and right from rulers and lords seeking their support and loyalty. In time, medieval European rulers regularly summoned representatives “of the land” to discuss important governance matters. Such representative assemblies were ubiquitous, some survived into modem times, and these served as models for parliamentary democracy around the world. Even in the church, movements arose to distribute decision-making power. All such practices and ideas contributed to political empowerment and resistance theories that have inspired revolutions and other political change ever since.
Systematic thought and the discovery and recovery of ancient Greek. Hellenistic and Golden Age Islamic writings on the natural world gave birth to an enterprise of nature-study in early modern Europe that steadily accumulated significant results and built up an impressive body of knowledge. The printing revolution, highly developed institutions of higher learning, and a robust tradition of intellectuals working together contributed to the emergent Scientific Revolution of the early modern era.
Investigations of nature occurred commonly in all major cultures, but only early modern Europe engendered modem science, based on systematic inquiry, empirical research, meticulous recordkeeping. collaborative endeavor, the mathematical analysis of data, extraordinary leaps of imagination, and the positing of “laws of nature.”
The excitement of sharing knowledge about intellectual advances in Europe concerning the law. The arts, theology, and philosophy, including natural philosophy, fostered a continuous web of breakthroughs and contributed to the advent of multiple intellectual spheres. People also exchanged information about commerce, politics, business, and other endeavors. The means of communication among intellectuals included networks of correspondence, first across Europe and then worldwide; scholarly journals to publish research findings; and learned societies focused primarily on natural philosophy but gradually aimed to bring together intellectuals, artisans, and entrepreneurs many fields. As classical and vocational schools multiplied in late medieval and early modem Europe, literacy, and numeracy expanded more precociously than in any other world region. Newspapers, pamphlets, and lending libraries gained popularity. More and more Europeans, first in Holland and England, patronized coffeehouses, seeking camaraderie, self-improvement, debate, and knowledge. On these foundations emerged a profusion of free-standing voluntary associations devoted to nearly every conceivable endeavor. Thus, arose the Republic of Letters, the world’s first public sphere. Women in Europe and America took part in this Republic in many ways: as organizers of intellectual debate in their salons, as patrons of scholarly research, and as participants in a wide-ranging conversation. Never before in history had so many diverse people come together to advance learning and knowledge: to tackle social, economic, political, and cultural challenges: and to build up public and private networks and institutions, essentially creating an alternative to top-down control and governance. That alternative was modem Western society, the model for social organization around the world today.
Other areas where Europeans opened important new pathways to the modern world: in art. military affairs, female emancipation, and freeing humanity from reliance on muscle power. All human cultures express themselves in artistic creation. Once a powerful aesthetic was worked out in traditional societies, it set a pattern for hundreds or even thousands of years in the early 1300s. Italian Renaissance artists broke that mold and freed themselves from traditional restraints. Over the next several hundred years, European artists vied with each other incessantly to create new approaches, styles, genres, and media. Although military technology and techniques emerged slowly throughout Eurasia, Chinese alchemists devised an explosive powder over one thousand years ago. It was only in early modem Europe that an “arms race” enabled European explorers and conquerors to project more power abroad than any other peoples in history. These ‘gifts of Mars’ were complemented by ‘gifts of Venus’: contributions of women to development thanks to various forms of emancipation that transpired earlier than in other cultures. Early modem European women, especially in the northwest, achieved greater literacy and numeracy, had more opportunity for professional advancement and enjoyed a higher status both inside and outside the home than did women in the other advanced Eurasian cultures. Finally, early modern northwestern Europeans were the first to integrate labor-saving devices and fossil fuel into their economy in a continuous development pattern, culminating in a higher standard of living.
Together these developments, with roots in the Middle Ages, enabled Europe to rise to unprecedented power and influence and give birth to the modern world. Such is the argument in this book. But can we ever be sure what precise mix of elements made possible Europe’s rise and its engendering of the modern world? Not with certainty. Historical developments are unique. Rerunning the script of history with one or another element left out. To test the results is impossible.
Nor will scholars be satisfied who emphasize the negative features of Europe’s rise to world preeminence. Such features are numerous and grievous. They include, beyond the ones mentioned above, the obliteration of biodiversity and other forms of ecological damage, weapons of unimaginable destructive power, sophisticated tools of social control, means of rapidly disseminating misinformation in compelling forms, methods of genetic manipulation, and computer systems that may someday vie with humans for control of our planet. Of course, all of these evils are byproducts of the modem world, its dialectical flipside. Along with benefits, like vaccines for yellow fever and polio, there are drawbacks. Whether one sees more of the former or the latter seems to depend on one’s philosophy and outlook.
In China, indeed the longest enduring major society today, the law evolved differently. First, the Confucian principles of harmony, stability, community-mindedness. And persuasion rather than command, deference to authority, respect for tradition, and the unity of things fostered a preference for informal conflict resolution. In theory, the ruler and his officials were supposed to be guided by an underlying force of righteousness called the Way. Though in practice, there were no legal restraints on their power. Second, no specialized legal profession emerged. Legal experts were typically government officials, the main subject matter of whose training was the study of Confucian philosophical writings. All officials were required to acquire some legal expertise on the job: some of them, especially in central state judicial agencies, gained more specialized knowledge. Nearly all such learning concerned penal and administrative law. Third, Chinese law and justice were not purely secular. According to Asim Doğan, the early Ming ruling elite endowed law codes with religious meaning: religion and laws were unified as indispensable components of their social practices and belief system. As such, justice was conceived as restoring order and harmony and injustice as disrupting them.
Complainants in China typically sought to resolve disputes and grievances privately, using oaths, rituals, animal sacrifices, lodging “indictments” in temples and before statues, and other noil-legal acts.
However, scholars who have studied Confucian teachings have criticized the claim that the philosophy promoted unquestionable loyalty to one’s superiors and the state. The core of Confucian philosophy itself was already Humanistic and Rationalistic; it “[does] not share a belief in divine law and [does] not exalt faithfulness to a higher law as a manifestation of divine will.”3
One of the central teachings of Confucianism is that one should remonstrate with authority. Many Confucians throughout history disputed their superiors to not only prevent the superiors and the rulers from wrongdoing but also to maintain the independent spirits of the Confucians.4
At the other end of Eurasia, over two thousand years ago. Roman jurists developed the world’s first extensive and sophisticated civil law system for settling disputes among diverse peoples within a vast multiethnic empire. They conceived of a law that applied to everyone, just gentium (law of nations). Winning acquiescence from conquered peoples was facilitated by the practice of respecting local norms and mores (customary law), so long as they did not offend Roman values. Such law was primarily participatory, with the elite but amateur judges, legal experts, and administrators (praetors) contributing to the system’s evolution. Experts in the law elaborated precise and clear legal definitions and distinctions and composed procedural manuals, commentaries on the law. And collections of jurisprudence. Throughout the empire, judges applied statute law and had the authority to follow and set legal precedents. Over the centuries, they created a vast and systematic but supple corpus of law that set out most of our modern legal systems’ main branches and sub-branches today. This was the first system of law that emerged on a secular foundation, that is. Not based on divine revelation, and conceptualized the law as a quasi-autonomous sphere of activity at least partially separate from both religion and state. Roman law powerfully influenced all the legal systems that emerged in the region over the next millennium: Islamic, Byzantine, European civil, and English common law.
In his book Contours of the World Economy (2007), Angus Maddison produced the following chart with estimates of GDP per capita at purchasing power parity in 1990 international dollars for selected European and Asian nations between 1500 and 1950, produced a chart showing the explosive growth of Western Europe and Japan from the early 19th century:
By 1850, per capita incomes in Japan were approximately a quarter of the British level. However, 18th-century Japan had a higher life expectancy, 41.1 years for adult males,[failed verification] compared with 31.6 to 34 for England, between 27.5 and 30 for France, and 24.7 for Prussia.5
Economic historian Tuan-Hwee Sng has argued that the large size of the Chinese state contributed to its relative decline in the 19th century.6
The vast size of the Chinese empire created a severe principal-agent problem and constrained how the country was governed. In particular, taxes had to be kept low due to the emperor’s weak oversight of his agents and the need to keep corruption in check. Its huge tax base long masked the Chinese state’s fiscal weaknesses. However, economic and demographic expansion in the eighteenth century exacerbated the problems of administrative control. This put a further squeeze on the nation’s finances and left China ill-prepared for the challenges of the nineteenth century.
One reason Japan was able to modernize and adopt the technologies of the West was due to its much smaller size relative to China.7
Justin Yifu Lin argued that China’s large population size proved beneficial in technological advancements before the 14th century. The large population size was not an important factor in technological advancements that resulted in the Industrial Revolution. Early technological advancements depended on “learning by doing” (where population size was an important factor, as advances could spread over a large political unit), whereas the Industrial Revolution was the result of experimentation and theory (where population size is less important).8
A 2017 study in the American Economic Review found that “globalization was the major driver of the economic divergence between the rich and the poor portions of the world in the years 1850–1900.”9
The states that benefited from globalization were “characterized by strong constraints on executive power, a distinct feature of the institutional environment that has been demonstrated to favor private investment.”10
Stephen Broadberry who teaches at Oxford University and critic of Pomeranz, The Great Divergence: China, Europe, and the Making of the Modern World Economy (2000) and Robert Marks The Origins of the Modern World: A Global and Environmental Narrative from the Fifteenth to the Twenty-First Century (2019) produced following charts:
A. Shares in world GDP, 1300-1870
B. Shares in world GDP, 1750-2000
C. Shares in world industrial production, 1750-2000
According to Broadberry, as transport costs fell and the world became more integrated, it became profitable for industrialists to concentrate production in a small number of regions, where agglomeration effects increased productivity sharply. As transport costs fell still further, however, it became possible for production to become more dispersed once more. It became possible to ship intermediate goods, making the location of manufacturing in low wage economies more profitable. This led to deindustrialisation in western economies and as countries like Japan and the Newly Industrialising Countries (NICs) succeeded in industrialising, their wages increased and they too became subject to similar deindustrialisation forces. In recent decades, China has seen the largest gains in industrial output shares.
The East and the rest?
While, as pointed out before the economic development during the Chinese Republican era, remains under researched, thanks to among others the International Monetary Fund we know much more about the post-1950 Communist era wherein the latter case pre-1978 China had seen annual growth of 6 percent a year (with some painful ups and downs along the way), whereby post-1978 China saw average real growth of more than 9 percent a year with fewer and less painful ups and downs. In several peak years, the economy grew more than 13 percent. And per capita income has nearly quadrupled in the next 15 years.
Thus where we had the ‘Japanese economic miracle‘ which was soon followed by the Japanese asset price bubble (バブル景気,) an economic bubble in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst, and Japan’s economy stagnated. The year of the conclusion of the Japanese asset price bubble coincided with the Gulf War and the dissolution of the Soviet Union. The subsequent period of economic stagnation has been referred to as the lost decade.
During which China kept on growing which as of around 1997 in tandem with the rise of the Asia Tigers, with by now China (largely surpassing England at the height of 1900 ‘Great Divergence’) by 2020 as some claim became the largest economy in the world with a GDP (PPP) of $24.16T surpassing the USA which in 2020 had only $20.81T GDP (PPP). Whereby this is up to debate, the US only admitting that it is entering a period of intense competition with China, as the second-biggest economy.
Top trade negotiators from China and the United States recently held their first telephone call since Joe Biden entered the White House, and stressed the importance of improving their bilateral trade ties. Whereby Kurt Campbell, the U.S. coordinator for Indo-Pacific affairs on the National Security Council, said Wednesday. U.S. policy toward China will now operate under a “new set of strategic parameters,” Campbell said, adding that “the dominant paradigm is going to be competition.”
Meanwhile, however, subnational economic cooperation continues apace. An Economic and Trade Cooperation Forum between Chinese provinces and U.S. states was held on May 22. According to China’s Commerce Ministry, the meeting involved “about 150 local government representatives and business people from Chinese provinces and cities including Shanxi, Hunan, Jiangxi, Hubei, Jiangsu, Heilongjiang, Zhejiang, and Tianjin, as well as U.S. states and cities, including the State of California, the State of New York, the State of Iowa and the City of Chicago.”
But not all is rosy, for now, Beijing has been unable to address the persistent inequality that characterizes the country’s socio-economic landscape: China in fact consists of two Chinas. The top one percent in China has a greater share of wealth than the bottom 50 percent, and a 2019 Chinese central bank report revealed that among 30,000 urban families surveyed, 20 percent held 63 percent of total assets while the bottom 20 percent owned just 2.6 percent. Across China, the top 20 percent earn 10.2 times what the poorest 20 percent earn. As a result, China’s Gini coefficient (a measure of inequality that ranges from zero to one) has reached 0.47, among the highest in the world and far beyond the level that Chinese officials themselves have claimed would be destabilizing.
Yet China’s labor costs are higher than most of the ASEAN countries. China has reached critical mass as its living standards are nearly equal to that of the developed world. A majority of Chinese blue-collar workers born in the 1980s and 1990s are concerned about their salary, financial benefits, social issues, and workplace rights. Business costs are increasing as the government introduces new legislation requiring companies to boost employee compensation and HR benefits. The costs of operating a factory in the US and China are roughly equivalent while US workers are far more productive than their Chinese counterparts.
International Monetary Fund analysis suggests that such inequality stems from educational disparities and continued limits on freedom of movement (as well as technological changes that have increased the wages of more skilled workers). The Stanford economist Scott Rozelle has detailed Beijing’s failures to put in place the educational opportunities, in terms of both access and quality, necessary for many in rural China to be able to participate effectively in the country’s rapidly emerging technological revolution. The long-term ramifications are significant: high levels of income inequality can limit economic growth and sustainability, weaken investment in health and education, and slow economic reform.
1. Tonio Andrade, The Last Embassy: The Dutch Mission of 1795 and the Forgotten History of Western Encounters with China, June 2021, p.4.
2. Andrade, The Last Embassy, p.2.
3. Juergensmeyer, Mark (2005). Religion in global civil society. Oxford University Press. p. 70.
4. See, for example, Xu Fuguan 徐復觀, Xueshu yu Zhengzhi zhi jian 學術與政治之間. (Taipei: Taiwan Xuesheng Shuju, 1980), 101–126, 331–395, 497–502.
5. Kenneth Pomeranz, Kenneth, The Great Divergence: China, Europe, and the Making of the Modern World Economy,2000, p.37.
6. Sng, Tuan-Hwee, Size and dynastic decline: The principal-agent problem in late imperial China, 1700–1850″. Explorations in Economic History. 54: 107–127. doi:10.1016/j.eeh.2014.05.002
7. Mark Koyama, Chiaki Moriguchi, Tuan-Hwee Sng, Geopolitics and Asia’s Little Divergence: A Comparative Analysis of State Building in China and Japan after 1850.
8. Justin Yifu Lin, Demystifying the Chinese Economy, 2011.
9. Pascali Luigi, Pascali, The Wind of Change: Maritime Technology, Trade, and Economic Development
10. The Long Run: “Globalisation and Economic Development: A Lesson from History”.
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