Book review: How the World Became Rich: The Historical Origins of Economic Growth, by Mark Koyama and Jared Rubin.
This is a well-written review of why different countries have different wealth, i.e. mostly about the industrial revolution.
The authors predominantly adopt an economist’s perspective, and somewhat neglect the perspective of historians, but manage to fairly present most major viewpoints.
To organize the hypotheses, the authors classify them into five categories, which I will now discuss in order of decreasing importance, based on my own assessment (which likely differs from the authors’ ranking).
The book’s examination of culture draws heavily from The WEIRDest People in the World. I wrote enough in my review of that book that I don’t want to say much more here.
It has long been clear that some cultures are more successful than others at accumulating wealth. The authors speculate that scholars were averse to treating cultural differences as a main cause of wealth differences due to the prominence of claims that those differences implied that richer cultures were superior in a general way to poorer cultures. However, scholar over the last 25 years have embraced cultural explanations that emphasize tradeoffs and differing priorities among cultures. My oversimplified summary: the West got rich at the cost of an epidemic of loneliness.
For example, a notable difference between Islam and Christianity is apparent in their inheritance rules. Under Islam, partnerships are broken up when a partner dies. That prevents partnerships from becoming large businesses. This is a clear example of Islam choosing egalitarian policies over wealth-producing policies.
The book presents a fair amount of evidence that wealth creation is greatly aided by good institutions such as the rule of law, property rights, and democracy. This is combined with the usual point that such institutions are often opposed by people whose narrower interests conflict with the goal of making the world rich (often referred to as corruption).
As with my review of Why Nations Fail, China seems to not quite fit this book’s analysis. That suggests a moderate Western bias in evaluating the specifics of what institutional features matter.
I’m mostly inclined to classify good institutions as being a consequence of wealth-friendly cultures. However, the book partly justifies treating institutions as having an independent causal influence, by providing some discussion of how geographically diverse merchants developed high-trust agreements within a not-very-trusting society. The examples involve Maghribi traders around the 11th century, and, later, guilds generating high-trust agreements between distant merchants.
The authors present a wide variety of ideas as to how luck related to geography might have favored some regions over others: malaria, Jared Diamond’s claim about large east-west trading regions beating north-south trading regions, climate, access to rivers and coasts, and proximity to cheap coal.
Proximity to a large region of steppe may have had harmful political effects on China and eastern Europe, via the effects of nomad invasions.
It seems likely that several of these were moderately important. It’s hard to quantify that importance.
The industrial revolution started where wages were high. That seems unlikely to be an accident. Early versions of the steam engine were only competitive where labor was expensive. So it seems unlikely that the industrial revolution could have started in a region that was close to the Malthusian limit.
The Black Death seems partly able to explain high wages around 1400. But the default result would have been enough population growth to produce cheap wages well before the the 18th century, which is when high wages seemed to trigger innovations such as the steam engine.
One explanation involves the Black Death triggering the end of serfdom in western Europe, but not elsewhere. Acemoglu and Wolitzky (2011) tie this to the presence of more big cities in the west, which gave workers better options for leaving a manor than was the case in the east.
An alternate explanation is that the European Marriage Pattern restrained population growth, possibly enough to keep Europe away from the Malthusian limit for centuries. Dennison and Ogilvie (2014) (ungated version) dispute this.
I’m left confused as to whether demographics were an important cause of high wages.
There seems to be a widespread belief among laymen that the West got rich by exploiting weaker nations.
This book suggests that a large number of experts say those effects were too small to explain much of the West’s wealth.
There’s a much clearer consensus that colonization and exploitation kept some countries poor.
The slave trade caused serious, lasting harm to the cultures from which slaves were taken, presumably due to destroying trust between neighboring tribes.
The effects seem quite mixed on regions where Europeans actually settled. Railroads increased wealth through increased trade. Missionaries made some regions more literate, resulting in more democracy.
Mines that employed forced labor before 1812 left surrounding areas poorer and less healthy today. Corruption and poverty today are worse in regions where colonial boundaries were drawn by Europeans who had little familiarity with local politics.
There are many, partially conflicting, guesses as to how the world became much richer than it was a thousand years ago, and not enough evidence to conclusively reject many of those guesses.
My rough estimates of the importance of each of the book’s causal categories: 75% culture, 40% institutions, 15% geography, 5% demographics, 1% exploitation, 4% some other categories that we’re neglecting. (These add to more than 100% since institutional causes are almost entirely a consequence of cultural causes.)