May 7: The twentieth-century experience: half empty or half full?
- Richard Easterlin (1981), "Why Isn't the Whole World Developed?" Journal of Economic History 41:1 (March), pp. 1-19 http://links.jstor.org/sici?sici=0022-0507%28198103%2941%3A1%3C1%3AWITWWD%3E2.0.CO%3B2-Y
- Angus Maddison (1983), "A Comparison of Levels of GDP Per Capita in Developed and Developing Countries, 1700-1980," Journal of Economic History 43:1 (March), pp. 27-41 http://links.jstor.org/sici?sici=0022-0507%28198303%2943%3A1%3C27%3AACOLOG%3E2.0.CO%3B2-3
- Lant Pritchett, "Divergence, Big Time," Journal of Economic Perspectives (Summer 1997), pp. 3-17, http://uclibs.org/PID/1011
- Dani Rodrik, "Getting Interventions Right: How South Korea and Taiwan Grew Rich," Economic Policy 20, (1995) pp. 55-107, http://papers.nber.org/papers/w4964.pdf
Let's start today with Karl Marx: "The Future Results of British Rule in India," New York Daily Tribune, August 8, 1853:
The political unity... imposed by the British sword, will now be strengthened and perpetuated by the electric telegraph. The native army, organized and trained by the British drill-sergeant, was the sine qua non of Indian self-emancipation, and of India ceasing to be the prey of the first foreign intruder. The free press, introduced for the first time into Asiatic society, and managed principally by the common offspring of Hindoos and Europeans, is a new and powerful agent of reconstruction.... From the Indian natives, reluctantly and sparingly educated at Calcutta, under English superintendence, a fresh class is springing up, endowed with the requirements for government and imbued with European science. Steam has brought India into regular and rapid communication with Europe, has connected its chief ports with those of the whole south-eastern ocean.... The day is not far distant when, by a combination of railways and steam-vessels, the distance between England and India, measured by time, will be shortened to eight days, and when that once fabulous country will thus be actually annexed to the Western world.
The ruling classes of Great Britain have had, till now, but an accidental, transitory and exceptional interest in the progress of India. The aristocracy wanted to conquer it, the moneyocracy to plunder it, and the millocracy to undersell it. But now the ... millocracy have discovered that the transformation of India into a reproductive country has become of vital importance to them, and that, to that end, it is necessary, above all, to gift her with means of irrigation and of internal communication. They intend now drawing a net of railroads over India. And they will do it....
I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminished expenses the cotton and other raw materials for their manufactures. But when you have once introduced machinery into the locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over an immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railway-system will therefore become, in India, truly the forerunner of modern industry. This is the more certain as the Hindoos are allowed by British authorities themselves to possess particular aptitude. for accommodating themselves to entirely new labor, and acquiring the requisite knowledge of machinery. Ample proof of this fact is afforded by the capacities and expertness of the native engineers in the Calcutta mint, where they have been for years employed in working the steam machinery, by the natives attached to the several steam engines in the Burdwan coal districts, and by other instances. Mr. Campbell himself, greatly influenced as he is by the prejudices of the East India Company, is obliged to avow
“that the great mass of the Indian people possesses a great industrial energy, is well fitted to accumulate capital, and remarkable for a mathematical clearness of head and talent for figures and exact sciences.” “Their intellects,” he says, “are excellent.”
Modern industry, resulting from the railway system, will dissolve the hereditary divisions of labor, upon which rest the Indian castes, those decisive impediments to Indian progress and Indian power.
All the English bourgeoisie may be forced to do will neither emancipate nor materially mend the social condition of the mass of the people, depending not only on the development of the productive powers, but on their appropriation by the people. But what they will not fail to do is to lay down the material premises for both. Has the bourgeoisie ever done more? Has it ever effected a progress without dragging individuals and people through blood and dirt, through misery and degradation?...
The devastating effects of English industry, when contemplated with regard to India, a country as vast as Europe, and containing 150 millions of acres, are palpable and confounding. But we must not forget... [t]he bourgeois period of history has to create the material basis of the new world — on the one hand universal intercourse founded upon the mutual dependency of mankind, and the means of that intercourse; on the other hand the development of the productive powers of man and the transformation of material production into a scientific domination of natural agencies. Bourgeois industry and commerce create these material conditions of a new world in the same way as geological revolutions have created the surface of the earth. When a great social revolution shall have mastered the results of the bourgeois epoch, the market of the world and the modern powers of production, and subjected them to the common control of the most advanced peoples, then only will human progress cease to resemble that hideous, pagan idol, who would not drink the nectar but from the skulls of the slain.
Pedro Castro _ Memo 05/07/2008
It seems reasonable to say that world has shrunk enormously in distance along every conceivable measurement, however, many countries did not reach a high enough development level to take advantage of this fact. The effects from reduced distances can be compared to the effects of higher worldwide productivity, an specific country will only be benefited if its internal conditions allow it to do so.
As explained by Easterlin the ability of a backward country to adopt advanced technologies depend on “whether their populations have acquired traits and motivations associated with formal schooling”. Besides directly spreading the knowledge, universal formal schooling is related to more market oriented societies and institutions. The fact that universal formal schooling takes place is a signal that the values and institutions of a society are relatively fair to its members and aim to provide them with relatively equal opportunities. Once universal schooling is adopted it may generate positive consequences, among them is the increase in the rate of adoption of new technologies (the point is that universal schooling is a necessary but not sufficient condition for faster economic growth). Therefore, countries which did not manage to implant universal schooling cannot take advantage of the high productive levels available elsewhere.
The fact that the world has shrunken in distance is related to the discussion about education. The fact that distances are reduced in contemporary world is not enough to overcome the great disincentives posed to the adoption of new technologies in many countries. The return to their adoption would be extremely high, but only if it was done together with the creation of sound institutions and the proper training of the labor force, otherwise the return to the adoption of such technologies would be quite low.
It is possible to relate these points with Rodrik’s paper. Korea and Taiwan had a well trained labor force in the sixties but did not have high rates of growth. Only after the government intervene in a way that favored the usage of this education endowment in a profitable way that growth took place. The availability of advanced technologies, the reduced distances around the world and the relatively high level of education were not enough for development, it was necessary that they were combined by institutions that favored economic growth (the government in Korea and Taiwan). Moreover, as emphasized by Rodrik these institutions turned out to be quite context specific because the same kind of policies did not work in other countries.
Finally, all this degree of complementariness among required characteristics and actions necessary for development strongly suggests that there is some degree of increasing returns to scale in economic growth at least for some levels of development.
Posted by: Pedro Castro | May 07, 2008 at 12:57 PM