Sunday, January 13, 2013

The California School of Economic History

In the Great Divergence, Kenneth Pomeranz states that

Much of modern social science originated in efforts by late nineteenth- and twentieth-century Europeans to understand what made the economic development path of western Europe unique; yet those efforts have yielded no consensus.

From Adam Smith's The Nature and Causes of the Wealth of Nations, to Max Weber's The Protestant Ethic and the Spirit of Capitalism, to Karl Marx's Das Kapital right down to recent books like Hernando de Soto's The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else and Daron Acemoglu's and James A. Robinson's Why Nations Fail the search for the causes of European or western "exceptionalism"continues.

These works have either focussed on the development of institutions beginning with the ideal free market as per Smith's description or of superior cultural norms as per Weber's thesis, or of superior "modes of production" as in the case of Marx.

"Economists seek the 'causes' in a timeless theory of economic development, while economic historians find them in a dynamic process of historical change," wrote Robert C Allen. "Economic history has become particularly exciting in recent years since the scope of the fundamental question - 'why are some countries rich and others poor?'- has gone global. Fifty years ago, the question was 'why did the Industrial Revolution happen in England rather than France?' Research on China, India, and the Middle East has emphasized the inherent dynamism of the world's great civilizations, so today we must ask why economic growth took off in Europe rather than Asia or Africa."

Jack Goldstone has given a name to a group of fellow scholars who have for over a decade now tried to piece together the story behind the world economy as the California School of Economic History. He says that

Instead of seeing the rise of the West  as a long process of  gradual advances in Europe while the rest of the world stood still, they have turned this story around. They argue that societies in Asia and the Middle East were the world leaders in  economics; in science and technology; and in shipping, trade and exploration until about AD 1500. At the time Europe emerged from the Middle Ages and entered its Renaissance, these scholars contend, Europe was far behind many of the advanced societies elsewhere in the world and did not catch up with and surpass the leading Asian societies until about AD 1800. The rise of the West was thus relatively recent and sudden and rested to a large degree on the achievements of other civilisations and not merely on what happened in Europe. Indeed some of these scholars suggest that the rise of the West may have been a relatively short and perhaps temporary phenomenon.

The new institutional economic thinking regarding the "rise of the West" which comes from the work of Douglass North and Barry Weingast which look at the political foundations of capitalism have gained ascendancy in recent times. The World Bank and the World Economic Forum collect and produce data in the form of league tables which compare the legal, cultural and scientific institutions across the globe and rank countries based on how well they conform to western norms.

The augmented Washington Consensus espoused by the International Monetary Fund emphasises the role of
markets and institutions. This is based on the theoretical models of economists and the empirical, econometric "validation" of such theories. This leads to a sort of timeless theory which sceptics like William Easterly have deconstructed by highlighting the methodological flaws inherent in their methods.

This is why the findings of economic historians are all the more valid and significant. Allen states that

According to the California School, China's legal system was comparable to Europe's and property was secure, the Chineses family system kept the fertility rate low so that the population grew no more rapidly in China than in Europe, markets for commodities and for land, labour, and capital were as evolved as those in Europe. As a result, productivity and living standards were similar at both ends of Eurasia. The reason that the Industrial Revolution happened in Europe does not, therefore, lie in institutional or cultural differences but rather in the continent's accessible coal reserves and gains from globalization.

Peer Vries talks about its impact on the age old question as follows

The California School has changed the way we look at the economic history of the world, especially the pre-industrial world of Eurasia. It has rightly pointed at the enormous importance of Asia in the economy of the early modern world and at its very high level of development. It has done so in a couple of years. It is no longer possible to write a book on the rise of the West like the one David Landes wrote only ten years ago, with immense success. That alone is a major feat. One should not, however, thereby be tempted to confront it uncritically. The biggest compliment one can make colleagues in scholarship is to seriously engage with them.  

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