A renowned Professor of Economic History at Oxford University, Robert C. Allen is perhaps the best source for discourse on the economic history of the world, a study to which he refers as the queen of all social sciences (Allen, 1). His book, Global Economic History, embarks upon a journey to answer a question that plagues several modern civilizations, “Why are some countries rich, and others poor?” Allen argues, that while institutions, culture and geography always lurk in the background (16), these changes are largely owed to technological development, in conjunction with the policies that vary across several countries.
The issue Allen attempts to tackle is that of the Great Divergence— a phenomenon that captures the disparity between incomes across countries. Before addressing how this income divergence came about, it was important to establish when (Allen, 3). While economies started earning higher incomes in the 16th century, it was after 1820 that the income gaps expanded. Countries richest in 1820 have since grown the most. To measure welfare in societies, Allen uses the “bare-bones subsistence” method, which entails estimating the least cost way of subsistence, to calculate real wages of labour in the economy (9). As a direct consequence, these laborers, surviving at the bare-bones level consumed the cheapest available grains while workers in more prosperous regions like London and Amsterdam, earned about four times as much and consumed superior varieties of food. Those surviving with the bare minimum were also shorter in height, less healthy and had shorter life expectancies. They also have less money to spare for necessities like education. In such a case, when labour is so cheap, there is no incentive to invest new technologies to increase productivity, which means wages stagnate. Thus, workers in these regions are stuck in a poverty trap. The power of such a simple concept is so great, that Allen credits high wages as a cause of the industrial revolution, and not just a consequence of it (13).
The Industrial Revolution is a consequence of the first globalization—a result of the invention of fully rigged ships. This marked the origin of the Great Divergence. Sturdier ships meant a change in trade dynamic— new places were discovered for trade, new products exported and there was a constant search for new routes. Manufacturing centers were now set up in north western Europe, with British and Dutch economies benefitting the most. This newfound connectivity eventually led to the establishment of trade companies, and the colonization of several regions. It was trade with its colonies that proved advantageous for the British, as it facilitated its transformation from an agriculturally dependent country to one involved in manufacturing. These factors culminated in the Industrial Revolution, and hence, stable economic growth.
Through the course of the book, Allen references incidents in history where technical change has been the driving factor for growth, be it the invention of steam engines, better machinery or even new techniques of production. However, as observed through data and graphs, these changes seemed to take place in only high wage countries, and these innovations benefitted only these regions, too. As shown in his paper, Technological Change and the Great Diversion, he reiterates that, “the new technology leads to higher wages, and, at the same time, is only worth inventing and using in high wage economies” (Allen, 1).
Several technologies invented reduced the proportion of labour in production, which was not a feasible alternative for countries in which labour was cheap and abundant. As established earlier, literacy levels in poorer countries was also lower, as a result of which innovations were far more likely to happen in richer countries, and only they could reap the benefits of successful inventions.
As transport costs fell and trade from Europe gained more momentum, they gained new levels of efficiency in production and export. Thus, they developed a comparative advantage— the ability to produce goods and services in a more efficient manner than other countries—which placed them in an extremely prosperous position (Allen, 56). Other countries could not achieve the same levels of cost and efficiency, and hence, lost out.
Allen dedicates a large part of his book exploring why some things worked for certain countries and not for others. In each region, exists a precarious balance of several factors that include geography, culture, education, technological levels, resources and opportunities— which interact with the dynamic changes in the economic environment in different ways. From this, we infer that we cannot apply the same economic solutions to each region in anticipation of the same results.
One such example of policy, is the standard model for economic growth adopted by the United States, under which mass education was promoted, tariffs were imposed to protect industries, transport was developed to expand markets and a national bank was established to stabilize currency and the flow credit. While it did wonders for the United States, the results were not nearly as appealing in Russia, Japan and Latin America. It led to high inequalities within the countries and political instabilities, and hence had to be abandoned (130).
A certain set of countries— namely, Taiwan, Japan, South Korea and Soviet Union (to an extent), are rapidly catching up with the higher wage, richer nations. This is because they construct all the elements of a large economy all at once— and this leads to Big Push Industrialization (Allen, 131). For instance, after liberation from the Japanese regime, South Korea followed the Japanese model of big push industrialization. There were barriers to entry for foreign firms, so Korean firms had to innovate, create and produce technology. A large part of this was also exported. They invested in heavy industries like steel and autos, which proved to be their successes.
According to Robert Allen, the poorer countries must catch up with the developed world in three areas. These are education, capital and productivity. However, the best policy for economic development still remains in dispute (147).
The scope of issues addressed in this book, is definitely more vast than in The Great Divergence, authored by Kenneth Pomeranz. It was one of the first literary publications that aimed to answer why the Industrial Revolution occurred in Great Britain and not China (Anderson). In aiming to address the great divergence globally, this publication goes one step further. However, Global Economic History does seem to pick up from the middle, addressing the great divergence as a phenomenon that has only existed in the post 1500s era. Several contemporaries, including the author of Guns, Germs and Steel— Jared Diamond— address disparities existing far before modern civilisations (Tomlinson), a topic Allen failed to broach. Since we pick up in the middle, there is very little explanation as to how we arrived at the conditions that governed the global state then.
Robert Allen does a remarkable job of explaining his process of thought to his readers. He uses fluid language and makes use of examples that deconstruct complex economic concepts that are not part of daily discourse. Both, this book and its content is easily accessible to a wide audience, irrespective of their educational background. What is particularly striking, is the balance he creates between providing empirical data, and using intuition to explain the extremely dynamic economic climate over the years.
Narrating the tale of global economic history with such paucity of space (it is meant to be brief, after all), is no easy feat, but Allen rises up to the challenge. He not only explains why he believes technology, aided by policy, has resulted in the economic structure we live in today but is also largely successful in conveying how various factors interact in such a dynamic environment. Perhaps, the narrative is so rooted in understanding a part of history, that it fails to push the boundaries of the future further. At times, the book seems to be guided by generalizations in a world where economic anomalies are the norm, leaving us with several questions unresolved. It is like an economic textbook, a comprehensive starting point for all those keen on exploring our economic past. It raises several question, and pushes those with an inquisitive mind to search for these answers. And to achieve that, it provides a concrete knowledge foundation.
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