Thursday, July 28, 2005

Why did European economies suddely outperform Asian economies?

A fascinating book has recently been published on this subject, edited by Peter Bernholz and Roland Vaubel: POLITICAL COMPETITION, INNOVATION AND GROWTH IN THE HISTORY OF ASIAN CIVILIZATIONS (Cheltenham, UK: Edward Elgar. 2004. xii + 225 pp. $100 (cloth), ISBN: 1-84376-919-0).

The question explored by the book is: was political fragmentation in Europe the key reason why post-Reformation Europe grew at historically unprecedented speeds, outdoing Asian growth? The idea is that just as competition between firms improves economic performance within a country, so economic competition between countries might also improve the performance of that bloc of countries.

The question was originally raised by David Hume and Immanuel Kant in the eighteenth century. Recent expositions of the thesis are Jean Baechler's THE ORIGINS OF CAPITALISM and Eric Jones's _THE EUROPEAN MIRACLE.

The papers in this volume resulted from a conference held in Heidelberg in September 2002. Contributors include historians, sociologists, economists and a socio-psychologist. The thesis is tested by examining the four major Asian "empires" -- China, Japan, India, and the Middle East.

The book has three general essays on creativity and fragmentation, and four Asian case studies.

The introductory essay by the editors provides some background to the general arguments and the case studies in the book, arguing for the importance of geographic mobility, religious diversity, political stability, peace, and "institutional pluralism within the political units."

The social psychologist, D.K. Simonton, uses earlier estimates of Asian creativity, to argue for the importance of political fragmentation and of cultural homogeneity. Jean Baechler discusses the debate on the hypothesis claiming that it "is not a yardstick to be applied rigidly and mechanically ... but a hypothesis and a method of inquiry" (whatever that means!).

Deepak Lal's account of India and Timur Kuran's discussion of the Islamic Middle East agree that growth in these two societies was stunted by their monolithic nature. (I conclude that different belief-systems can be equally "monolithic" in relation to their effect on economic growth).

On the other hand, Pak Hung Mo's study of China argues the drawbacks of centralized control, and G√ľnther Distelrath's study of Japan describes the difficulties confronted by Japan at times of "total decentralization."

So: political fragmentation helps to explain bursts of creativity in some cases, but not in others!

Thinking through this book raises some rather simple questions:

1. Is there an optimum degree of fragmentation?

2. How come Reformed Europe hit upon precisely this degree of fragmentation?

3. In a global context, there was plenty of "political competition" between Northern Europe and Southern Europe, but also between Europe and the Ottoman Empire. The Ottoman Empire itself was in political competition with Africa to the South, and with other Islamic kingdoms to the East and the North. A similar picture can be painted of East Asia, with the struggle between India and China for hegemony there (as a result of which the area came to be divided into "Indian Asia" and "Chinese Asia").

4. If the hypothesis is correct, why was it that the transition in South America from a unified empire to separate countries in the early nineteenth century did not facilitate substantially speedier growth?

5. Finally, if political fragmentation encourages cultural and economic growth only under certain conditions, what exactly are these conditions? (No prizes for guessing my hypothesis: it has to do precisely with the cultural revolution that was the Reformation).

We know that the Reformation was not bloodless because the Unreformed parts of Europe not only resisted being reformed themselves, but also had a vested interested in trying to prevent any part of their previously relatively united "continent" from being reformed.

Northern Europe succeeded in being reformed only because thousands of common people were prepared to die for their beliefs.

This was bottom-up Reformation.

By contrast, top-down reformation (such as we see in China today, and we saw in recent history in Japan and Singapore, and in various African countries in the Sixties - and saw earlier for example in Marxist-Leninist Russia) does succeed for a time but usually only for one or two or a maximum of three generations (which I posit as being roughly 70 years). Why? Because an elite can "control" liberalisation for a certain length of time, so that the population benefits but the elite benefits even more…but there eventually comes a point where the country has to decide between the elite and the population. At that point, the country collapses into chaos (Africa), stasis (Japan) or dictatorship (Iran).

Only a genuine revolution in the hearts and minds of ordinary people ensures a bottom-up Reformation which transforms equally and simultaneously the social, educational, political, and economic structures. That is the only thing that has historically ever led to sustained growth.

Modern global elites insist on ignoring this simple fact. That is why the World Bank and related organisations have consistently failed in their attempts to encourage growth in so-called "developing societies": a focus on structures and mechanics is no substitute for the organic growth represented by changed beliefs and behaviours. Jesus of Nazareth compared this change to the way that yeast grows and the way a tree grows.

Those who refuse to understand these rather simple truths will never gain insight into what creates genuine growth as distinct from the artificially-engineered or manipulatory bubbles that fill out the globalised economy today.

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