The Great Divergence: China, Europe, and the Making of the Modern World Economy, by Kenneth Pomeranz. Princeton University Press, 2000, 382 pages.

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Why Is the West Rich?

by Jane Shaw

During the past few decades, classical liberal scholars have developed an explanation of why Western Europe prospered on a scale that had never before been seen. The current classical liberal or "new institutional economics" story has been expounded in both scholarly and popular works. Douglass North, Nathan Rosenberg and R. E. Birdzell, Deepak Lal, David Landes, Richard Pipes, Tom Bethell, and others have developed the theory, which goes something like this:

In the Middle Ages, especially in the slowly emerging cities, western European countries began to develop the institutions of private property rights and limited government. Property rights evolved out of feudal relationships (and escaped from them), and limited government stemmed from the fragmentation of Europe, which was divided into landed estates and little duchies as well as more broadly into spiritual and temporal domains. Gradually, the liberating institutions expanded to include commercial law, insurance, and other innovations that encouraged individualism, entrepreneurship, trade, and invention. By the late 18th century, the accumulation of all these small changes became a major force, especially in England, where inventions such as the steam engine and the spinning jenny launched the Industrial Revolution and rapid economic growth.

Implicit in this story is an understanding that other parts of the world, notably China, failed to develop such institutions and for that reason did not experience expansion of trade and innovation as Europe did. The usual explanation is that China had, from early on, a monolithic government that stifled individualism.

Now Kenneth Pomeranz comes along, seeking to blow this theory to smithereens. He doesn't think institutions matter much, at least not the institution of limited government: "There is little to suggest that western Europe's economy had decisive advantages before [the 1800s], either in its capital stock or economic institutions, that made industrialization highly probable there and unlikely elsewhere" (p. 16). Pomeranz disputes "various arguments that either the general structure of society or the specific rules surrounding commercial property gave European merchants a crucial advantage in amassing capital, preserving it from the state, or deploying it rationally" (18). He argues that China and Europe were essentially equivalent — on the measures that matter in his view, such as demographics and economic conditions — until the late 18th century. Both regions, he contends, experienced "serious ecological bottlenecks and spiraling poverty among too-numerous proto-industrial workers and underemployed farm laborers" in the 18th century (22).

Pomeranz contends that Europe, facing a "squeeze" as a growing population met the constraints of limited agricultural land, averted the problem by creating colonies. These overseas outposts, with vast expanses of land cultivated partly by slave labor, provided agricultural products that Europe could not produce on its own. In other words, to explain the Industrial Revolution, institutions — limited government, private property rights, technological innovation, commercial trading institutions, and even trade in manufactured goods — all take a back seat to Europe's reliance on colonial land and labor.

Pomeranz also argues that a stroke of luck — the ready availability of coal in England — spurred the Industrial Revolution. In contrast, the major coal reserves in China were too far away: "[T]he area housing most of China's coal became a backwater, far from major markets and far from invigorating interaction with other sorts of craftsmen [than miners]" (63).

Pomeranz's hypothesis has evoked admiration from some surprising people. For example, Gary M. Anderson, a public-choice economist writing in The Independent Review, says that Pomeranz "does an excellent job of debunking the excessive emphasis on deregulation as the principal (or even the only) engine of economic growth" (Winter 2004, p. 446). Deirdre McCloskey blurbs: "Pomeranz uses that European invention — economics — to overturn Eurocentrism, establishing beyond cavil a New Fact in our world. Never again will Europeans imagine they stood alone in the doorway of economic growth." Another reason to take the book seriously is the fact that "The Great Divergence" is published as part of an economic history series edited by a respected economist, Joel Mokyr.

At the same time, there is much to question, beginning with the importance of the "Malthusian constraints" and "ecological bottlenecks." These terms suggest a fashionable concern that may not reflect actual history, especially since Pomeranz reports that these problems were more anticipated than experienced. And even if one agrees that colonial advantages gave Europe an important economic edge, one might point out that the earlier institutional developments made Europe (but not China) capable of establishing colonial empires.

There are other issues, too. Although the book is full of impressive statistics — about the extent of the Atlantic trade, for example — its overall message is difficult to analyze. Pomeranz throws so much information (including six appendices) at the reader that one has to be impressed, but one must also ask whether this information supports his thesis. For example, if imported sugar comprised 4% of the British diet in 1800, as he states, did the imports "save" Britain from using up between 1.3 and 1.9 million acres of British land, as he claims? And if so, what exactly does this explain? If England had been cultivating that land (and other land "saved" from cotton and coffee production), would the Industrial Revolution never have occurred? That seems to be the thrust of the argument, and while I am not enough of an expert to evaluate its validity, it is not immediately apparent that freeing land from agricultural use was a critical factor giving rise to the Industrial Revolution.

And while Pomeranz provides heaps of information about Europe, he cites far scantier scholarship about China. Perhaps because it is too new and published in mostly specialized journals, Pomeranz cites very little popular or readily accessible writing that supports his views about conditions in China before the Industrial Revolution. He mentions a Japanese author, Kaoru Sugihara, as supporting his claim that economic conditions were similar in China and Europe just before the Industrial Revolution. Yet Sugihara departs from Pomeranz by contending that the Industrial Revolution had its origins in Europe as far back as 1500.

There are other difficulties, too. Exactly what are we comparing? Sometimes Pomeranz discusses China, sometimes the Yangtze Delta, sometimes other parts of Asia. He himself points out that the Industrial Revolution began in Britain, not in Europe generally or even in Western Europe, but offers statistics for other parts of Europe, too. I get the feeling that these comparisons allow some slipperiness when comparing statistical data.

All in all, I look forward to careful scrutiny of "The Great Divergence" by economic historians who specialize in Europe and, especially, China. I anticipate great deliberation and debate. Perhaps, as Deirdre McCloskey states, past explanations have been "Eurocentric." But it will take a lot to persuade me that institutions don't matter.

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