Where is the growth?

Mismeasuring Long Run Growth: The Bias from Spliced National Accounts

by Leandro Prados de la Escosura (Carlos III)

Abstract: Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates.

Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.

Source: http://econpapers.repec.org/paper/cgewacage/202.htm

Distributed in NEP-HIS on 2015 – 01 – 09

Reviewed by Cristián Ducoing

Dealing with National Accounts (hereafter NA) is a hard; dealing with NA in the long run is even harder…..

Broadly speaking, a quick and ready comparison of economic performance for a period of sixty years or more, would typically source its data from the Maddison project. However and as with any other human endevour, this data is not free from error. Potential and actual errors in measuring economic growth is highly relevant economic history research, particularly if we want to improve its public policy impact. See for instance the (brief) discussion in Xavier Marquez’s blog around how the choice of measure can significantly under or overstate importance of Lee Kuan Yew as ruler of Singapore.

The paper by Leandro Prados de la Escosura, therefore, contributes to a growing debate around establishing which is the “best” GDP measure to ascertain economic performance in the long run (i.e. 60 or more years). For some time now Prados de la Escosura has been searching for new ways to measure economic development in the long run. This body of work is now made out of over 60 articles in peer reviewed journals, book chapters and academic books. In this paper, the latest addition to assessing welfare levels in the long run, Prados de la Escosura discusses the problems in using alternative benchmarks and issues of spliced NA in a country with a notorious structural change, Spain. The main hypothesis developed in this article is to ascertain differences that could appear in the long run NA according to the method used to splice NA benchmarks. So, the BIG question is retropolation or interpolation?

Leandro Prados de la Escosura. Source: www.aehe.net

Leandro Prados de la Escosura. Source: http://www.aehe.net

Retropolation: As Prados de la Escosura says, involves a method that is …, widely used by national accountants (and implicitly accepted in international comparisons). [T]he backward projection, or retropolation, approach, accepts the reference level provided by the most recent benchmark estimate…. In other words, the researcher accepts the current benchmark and splits it with the past series (using the variation rates of the past estimations). What is the issue here? Selecting the most recent benchmark results in a higher GDP estimate because, by its nature, this benchmark encompasses a greater number of economic activities. For instance, the ranking of relative income for the UK and France changes significantly when including estimates of prostitution and narcotrafic. This “weird” example shows how with a higher current level and using past variation rates, long-run estimates of GDP will be artificially improved in value. This approach thus can lead us to find historical anomalies such as a richer Spain overtaking France in the XIXth century (See Prados de la Escosura figure 3 below).

An alternative to the backward projection linkage is the interpolation procedure. This method accepts the levels computed directly for each benchmark year as the best possible estimates, on the grounds that they have been obtained with ”complete” information on quantities and prices in the earlier period. This procedure keeps the initial level unaltered, probably being lower than the level estimated by the retropolation approach.

There are two more recent methods to splice NA series derived from the methods described above: the “mixed splicing” proposed by Angel de la Fuente (2014), which uses a parameter to capture the severity of the initial error in the original benchmark. The problem with this solution is the arbitrary value assigned (parameter). Let’s see it graphically and using data for the Maddison project. As it is well known, these figures were recently updated by Jutta Bolt and Jan Luiten van Zanden while the database built thanks to the contributions of several scholars around the world and using a same currency (i.e. the international Geary-Kheamy dollar) to measure NA. Now, in figure 1 shows a plot of GDP per capita of France, UK, USA and Spain using data from the Madison project.

GDP per capita $G-K 1990. France, UK, USA and Spain. 1850 – 2012

The graph suggests that Spain was always poorer than France. But this could change if the chosen method to split NA is the retropolation approach. Probably we need a graph just with France to appreciate the differences. Please see figure 2:

GDP pc Ratio between Spain and France. Bolt&vanZanden (2014) with data from Prados de la Escosura (2003)

GDP pc Ratio between Spain and France. Bolt&vanZanden (2014) with data from Prados de la Escosura (2003)

Figure 2 now suggests an apparent convergence of Spain with France in the period 1957 to 2006. The average growth rate for Spain in this period was almost 3,5% p.a. and in the case of France average growth shrinks to 2,2% p.a. Anecdotal observation as well as documented evidence around Spainish levels of inequality and poverty make this result hard to believe. Prados de la Escosura goes on to help us ascertain this differences in measurement graphically by brining together estimates of retropolation and interpolation approaches in a single graph (see figure 3 below):

Figure 3. Spain’s Comparative Real Per Capita GDP with Alternative Linear Splicing (2011 EKS $) (logs).

Figure 3. Spain’s Comparative Real Per Capita GDP with Alternative Linear Splicing (2011 EKS $) (logs).

In summary, this paper by Prados de la Escosura is a great contribution to the debate on long run economic performance. It poises interesting challenges scholars researching long-term growth and dealing with NA and international comparisons. The benchmarks and split between different sources is always a source of problems to international comparative studies but also to long-term study of the same country. Moving beyond the technical implications discussed by Prados de la Escosura in this paper, economic history research could benefit from a debate to look for alternative measures or proxies for long-run growth, because GDP as the main source of international comparisons is becoming “dated” and ineffective to deal with new research in inequality, genuine savings Genuine Savings, energy consumption, complexity and gaps between development and developed countries to name but a few.


Bolt, J. and J. L. van Zanden (2014). The Maddison Project: collaborative research on historical national accounts. The Economic History Review, 67 (3): 627–651.

Prados de la Escosura, Leandro  (2003) El progreso económico de España (1850-2000). Madrid, Fundación BBVA, , 762 pp.


1) This paper by Prados de la Escosura has already been published in Cliometrica and with the same title

2) Prados de la Escosura’s A new historical database on economic freedom in OECD countries | VOX, CEPR’s Policy Portal.

Neoliberalism: A Cultural Social Construction

Crisis Without End: Neoliberalism in a Globalized Environment

by Richard N. Rambarran (University of Hyderabad)

Abstract: Since the 1970’s, both politically and theoretically, neoliberalism as an ideology has been on a persistent rise to the point where, in the twenty first century, it has garnered hegemonic dominance. Despite several recurring crises in countries since the ascendance of neoliberalism, we yet remain reluctant to point out the political economy philosophy as a root cause of the crises. Instead, many of the academics within Economics prefer to offer bouts of highly technical reasons for the downturn – this is especially true and almost solely applicable to those who practice within the ‘neoclassical’ conjecture of Economics. In a typical Marxian sense, one would have to look no further than the economic system to determine both economic and social outcomes of a country. What dictates that economic system however is the political philosophy of the leaders who guide the economic system – the policy makers. This paper attempts to show the neoliberal political philosophy, as the common thread for major crises within the last two decades. It also proposes a societal trinity for which change is driven through complex interactions among the political, economic and social spheres.

URL: http://EconPapers.repec.org/RePEc:pra:mprapa:67410

Circulated by nep-his on: 2015-10-25

Revised by: Stefano Tijerina

Richard Rambarran joins an emerging group of scholars that are spearheading an aggressive global criticism of modern capitalism, and particularly the impact that neoliberalism has had on its most recent methods of implementation within the international system. Thomas Picketty’s Capitalism in the Twenty-First Century has lead the way in recent times. Nevertheless Rambarran’s contribution to the discussion is welcomed because it points out that the economic political philosophy behind the social construction of neoliberal ideals is the determinant factor in preserving <status quo, even after numerous economic crises.

Richard Rambarran Research Fellow at The Social Economy Research Group (SERG)

From Rambarran’s point of view, the neoliberal principles have become an “ingrained” ideology fomented by economists, local politicians and bureaucrats, domestic and multilateral institutions, academic institutions, mass media, corporations, and the consumer.[1] He further argues that today’s mainstream professional economist has perpetuated this social construction using its mathematical and econometric technical rhetoric to distance itself not only from the public sphere but also from the critical role once played by the “Classical economists.”[2] The complacency in the professional sphere has permeated the public sphere, where the collective political and social conscience is more concerned in pursuing the possibility of “wealth and great opulence,” occasionally reacting to economic crises like the one in 2008 only to quickly return to the initial passive approach once individual financial issues are partially resolved.[3]

Rambarran centers on the 1997 East Asian crisis and the 2008 Global Financial Meltdown in order to illustrate how the economic political philosophy has come to dictate “the very mechanics of our lives” through its systemic and institutional framework. He argues that contrary to the views of many scholars that the rise of neoliberalism came with the emergence of political leaders Ronald Reagan and Margret Thatcher, the foundations of the political philosophy and its social construction emerged in the post Great Depression era.[4] The solutions to the 1997 and 2008 crises therefore represent a series of theoretical models constructed since the first modern global financial crisis in order to scientifically justify the perpetuation of neoliberalism.

'Well what a coincidence! I'm a financial regulator too!'

‘Well what a coincidence! I’m a financial regulator too!’

The ingrained idea that “human well-being and social welfare” are best advanced by the deregulation of the institutions, programs, and norms that once regulated the capitalist machine, seems to be an unquestionable thought. [5] To get to this social reality, argues Rambarran, classic liberal ideas of John Locke, Adam Smith, David Ricardo and the like had to be dismantled in order to neoliberalism to surge. According to Rambarran, neoliberalism is “not simply a minutely revised version of classic liberalism,” it is a new version of capitalism that reduces the role of the state to its minimal.[6] The business-government alliance that pushed neoliberalism forward after the 1930s slowly twisted the idea that “liberating individual and entrepreneurial freedoms and skills” through institutions, programs, and a normative systems “characterized by strong private property rights, free markets, and free trade” were actually responsible for the debacle of the market system in 1997 and 2008, and that greater privatization of services and deregulation for the business sector was the only solution moving forward.[7] These are the principles of nation state building under globalization, the basic political economic structures of nations that welcome open market and free trade, the minimal parameters for participating in the global market system; ideas that, as indicted by Rambarran, are part of the subconscious decision making dynamic between politicians, the private sector, and consumers.[8]

The current realities of this “macroscopic trinity” indicate that the business class, defined by Rambarran as the “intellectual class,” heavily influences political, economic, and social perceptions of nation building under a globalized system.[9] An intellectual class responsible for the cultural social construction of neoliberal principles that originated in the industrial world during the first half of the twentieth century and that began to spread across the developing world after the Second World War.

Macroscopic TrinityNeoliberal economists obsessed with breaking the chains of state regulatory systems and interested in returning to the deregulated conditions of the pre Great Depression era used theoretical models to debunk Keynesian economics.[10] During the 1970s and 1980s neoliberal principles became the formula for stagflation in the highly developed countries, and the remedy for the increasing external debt crisis across the developing world. The effective release of the forces of the market justified the dismantling of the social welfare state and the institutional and programmatic bodies that awarded citizens levels of accountability within the triangular dynamic of government-business-constituent relationships across the world. Nationalist development models based on Import Substitution Industrialization were dismantled and replaced by the principles of deregulation, privatization, and the strengthening of private property rights.

According to Rambarran, the implementation of the neoliberal experiment across the world produced mixed results, but the ability of the intellectual class to market success stories through its propaganda machine in order to justify the long-term preservation and expansion of neoliberal principles across the world gave birth to the Asian miracle.[11] Foreign direct investment and the “inflow of speculative money” would be the driving force behind the miracle, as capitalists in the industrial world shifted their production and manufacturing operations to newly unregulated regions of the world while at the same time taking advantage of the liberalization of capital accounts, escaping the already fragile regulatory systems in their own nation states, and setting the tone for the initial stages of accelerated “neoliberal globalization.”[12] Once the “speculative bubble…popped” foreign investors quickly pulled their money from the region, decreasing confidence in the East Asian region.[13] The neoliberal experiment had revealed the need for regulatory systems in order to impede the emergence of new unregulated speculative markets across the world under a more interdependent global market system, but the reshuffling of capital back into the industrial economies allowed the neoliberal propaganda system to quickly market the success of Free Trade zones.

Crisis 1997 Rambarran misses the opportunity to explain the historical developments that took place between the Asian crisis of 1997 and the 2008 Global Financial Crisis that pushed neoliberalism further into the collective subconscious. Discussions about the emergence of the Canada-United States Free Trade Agreement, the North American Free Trade Agreement, and the consolidation of the European Union would have allowed the author an opportunity to illustrate how neoliberal intellectuals engineered and marketed to their constituents the illusion of a globalized economy for the sake of the consumer and the domestic worker.

The author’s lack of historical evidence makes his argument less convincing. The 1997 and 2008 crises help illustrate how neoliberal forces are able to perpetuate their principles even after severe global economic, political, and social damage, but he is not able to explain how the intellectual forces within his “macroscopic trinity” were able to create the social cultural construction that turned neoliberalism into an unquestionable economic political philosophy.

For example how neoliberal economists such as Milton Friedman and Lauchlin Currie together with multilateral organizations engineered the expansion of neoliberalism to markets across the world. How marketing and public relations intellectuals such as Philip Kotler and Daniel Edelman perfected the use of mass media in order translate the principles of neoliberalism to consumers, distancing them from their role as constituents and shifting their agency toward the world of consumption. How the roles of politicians and bureaucrats was redefined by Thatcher and Reagan in order to reinvent the democratic relationship between representative and constituent, and how the educational system at all levels was reengineered in order to replicate and export neoliberal ideals across the world.

A more detailed explanation of the concepts behind his “social trinity” would have clarified the dynamics between the intellectual class, and political, economic, and social actors. Why is there a one-way communication dynamic between economic actors and society? Why is the communication between political and economic actors a one-way dynamic? And why is the intellectual class not present within the political, economic, and social realms but separate from them? I would argue that the success of the expansion of neoliberal thought is that they now represent government, economic policy, and the collective social conscience. It is why it is more prevalent then ever before to see private sector representatives running for office, managing government institutions, and redefining the nature of once sacred social institutions such as universities. It is not a phenomenon of the industrial world but a common trend across the global system.


Duménil, G. & Levy, D. “Neoliberal (Counter) Revolution.” In D. Johnston & A. Saad-Filho, Neoliberalism: A Critical Reader. London: Pluto Press, 2004, pp. 9-19.

Harvey, D. A Brief History of Neoliberalism. London, United Kingdom: Oxford University Press, 2007.

Rambarran,R. “Crisis without End: Neoliberalism in a Globalized Environment Modeling the Historic Rise of Neoliberalism and its Systematic Role in Recent Economic Downturns,” Munich Personal RePEc Archive, October 22, 2015.

Palley, T. I. “From Keynesianism to Neoliberalism: Shifting Paradigms in Economics.” In D. Johnston & A. Saad-Filho, Neoliberalism: A Critical Reader. London: Pluto Press, 2004, pp. 20-29.

Picketty, T. Capitalism in the Twenty-First Century. Cambridge MA: Harvard University Press, 2014.

[1] Rambarran, “Crisis without End”, p. 1.

[2] Ibid.

[3] Ibid.

[4] For more information see Harvey 2007, Palley 2004 and Dumeril & Levy 2004.

[5] Rambarran, 2.

[6] Ibid.

[7] Ibid., 3.

[8] Ibid.

[9] Ibid.

[10] Ibid., 4.

[11] Ibid., 10.

[12] Ibid., 11.

[13] Ibid., 13.

Society? Economics? Politics? Personality? What causes inequality?

What Drives Inequality?

by Jon D. Wisman (American)

Abstract Over the past 40 years, inequality has exploded in the U.S. and significantly increased in virtually all nations. Why? The current debate typically identifies the causes as economic, due to some combination of technological change, globalization, inadequate education, demographics, and most recently, Piketty’s claim that it is the rate of return on capital exceeding the growth rate. But to the extent true, these are proximate causes. They all take place within a political framework in which they could in principle be neutralized. Indeed, this mistake is itself political. It masks the true cause of inequality and presents it as if natural, due to the forces of progress, just as in pre-modern times it was the will of gods. By examining three broad distributional changes in modern times, this article demonstrates the dynamics by which inequality is a political phenomenon through and through. It places special emphasis on the role played by ideology – politics’ most powerful instrument – in making inequality appear as necessary.

Source: http://EconPapers.repec.org/RePEc:amu:wpaper:2015-09

Distributed by NEP-HIS on 2015-10-04

Reviewed by Mark J Crowley

This paper was circulated by NEP-HIS on 2015-05-05.  It explores a topical issue in political discourse at present, in which the debate has largely been categorised into two major camps.  First, the Conservative argument, stretching back to Margaret Thatcher in Britain (and simultaneously championed by Ronald Reagan and Charles Murray in the USA) was that inequality was good and accepted by the populace as a way of categorising and organising the nation.  Their argument, it so followed, ensured that those who were at the lower part of society would be inspired to work harder as a means to lessen their inequality.  The second argument that has now experienced resurgence in the UK following the election of the left wing veteran Jeremy Corbyn to the leadership of the opposition Labour Party is that inequality is an evil in society that punishes the poor for their poverty.  The counter argument is that the richer, which have the broadest shoulders, should bear the heaviest burden in times of hardship, and that austerity should not hit the poorest of society in the hardest way.  Thus a political solution should be sought to ensure a fairer distribution of wealth in favour of the poorest in society.  Similar arguments have been made in the US by proponents of increased state welfare.  It is in this context that the debates highlighted in this paper should be seen.

Thatcher and Reagan were the major architects of a change in economic policy away from state welfare.

Thatcher and Reagan were the major architects of a change in economic policy away from state welfare.

This meticulously researched article demonstrates that inequality as a phenomenon has long roots.  Citing that inequality has virtually been omnipresent in the world since the dawn of civilisation, Wisman couches the argument concerning inequality within the wider organisation and economic hierarchy of society.  Building on the argument of Simon Kuznets that inequality, at the beginning of economic development shows vast differences between rich and poor but subsequently stabilises, he looks at other factors beyond economics that contribute to the growing inequality in society.  The heavy focus on political literature examining the impact of politics on rising inequality is especially interesting, and takes this paper beyond the traditional Marxist arguments that have often been proposed about the failures and flaws of capitalism.  Other arguments, such as the impact of the industrial revolution, are explored in detail and are shown to be significant factors in defining inequality.  This runs as a counter-exploration to the work of Nick Crafts who has explored the extent to which the industrial revolution, especially in Britain, was ‘successful’.

Despite the arguments and debates about why inequality exists, there still appears to be no conclusive answer about its cause.

Despite the arguments and debates about why inequality exists, there still appears to be no conclusive answer about its cause.

Ideology is also a factor that is explored in detail.  The explanations for inequality have often been provided with ideological labels, with some offering proposals for eradicating inequality, while others propose that individuals, and not society, should change in order to reverse the trend.  The latter was forcefully proposed by Margaret Thatcher and Milton Friedman, whereas the former was commonly the battle-cry of post-war socialist-leaning parties (most notably the largely out-of power Labour Party of Britain in the post-war period, with the exception of 1945-51 and brief periods in the 1970s).

The religious argument about helping people who are less fortunate than yourself has now become more tenuous in favour of using religion as a form of legitimizing inequality.

The religious argument about helping people who are less fortunate than yourself has now become more tenuous in favour of using religion as a form of legitimizing inequality.

The exploration of religion as a factor is also particularly interesting here.  Wisman argues that providing state institutions with religious foundations thus legitimises their status, and hereby ensures that inequality has a stronger place in society.  This point, while contentious, has been alluded to in previous literature, but has not been explored in great depth.  The section in this paper on religion is also small, although such is its significance, I am sure the author would seek to expand on this in a later draft.


This paper is wide-ranging, and shows a large number of factors that have contributed to inequality in the western world, especially the USA.  It highlights the fact that the arguments concerning inequality are more complex than has possibly been previously assumed.  Arguing that politics and economics are intertwined, it effectively argues that a synthesis of these two disciplines are required in order to address the issue of inequality and reduce the gap between rich and poor in society.

I found this article absolutely fascinating.  I can offer very little in terms of suggestions for improvement.  However, one aspect did come to mind, and that was the impact of inequality on individual/collective advancement?  Perhaps this would take the research off into a tangent too far away from the author’s original focus, but the issue that sprung to mind for me was the impact of the inequality mentioned by the author on aspects such as educational attainment and future employment opportunities?  For example, in the UK, the major debate for decades has been the apparent disparity between the numbers of state school and privately-educated students attending the nation’s elite universities, namely Oxbridge.  Arguments have often centred on the assumption that private, fee-paying schools are perceived to be better in terms of educational quality, and thus admissions officers disproportionately favour these students when applying to university.  While official figures show that Oxbridge is made up of a higher proportion of state school student than their privately-educated counterparts, this ignores the fact that over 90% of British students are still educated in the state system.  Furthermore, so the argument goes, those with an elite education then attain the highest-paying jobs and occupy the highest positions in society, thus generating the argument that positions in the judiciary and politics are not representative of the composition of society.  These are complex arguments.  This paper alludes to many of these points concerning the origins of inequality.  Perhaps a future direction of this research would be to apply the models highlighted and apply them to certain examples in society to test their validity?


Dorey, Peter, British Conservatism: the Politics and Philosophy of Inequality (London, I. B. Tauris, 2011)

Thane, Pat (ed.) The Origins of British Social Policy (London: Croom Helm ; Totowa, N.J.: Rowman & Littlefield, 1978).

Thane, Pat, The Foundations of the Welfare State, (Harlow: Longman, 1982).

A Farewell to Arms? The Consequences of Warfare in Sub-Sahara Africa

Is Africa Different? Historical Conflict and State Development


Mark Dincecco (University of Michigan dincecco@umich.edu)

James Fenske (University of Oxford james.fenske@economics.ox.ac.uk)

Massimiliano Gaetano Onorato (IMT Institute for Advanced Studies Lucca massimiliano.onorato@imtlucca.it)

ABSTRACT: We show that the consequences of historical warfare for state development differ for Sub-Saharan Africa. We identify the locations of more than 1,500 conflicts in Africa, Asia, and Europe from 1400 to 1799. We find that historical warfare predicts common-interest states defined by high fiscal capacity and low civil conflict across much of the Old World. For Sub-Saharan Africa, historical warfare predicts special-interest states defined by high fiscal capacity and high civil conflict. Our results offer new evidence about where and when war makes states.

URL:  http://d.repec.org/n?u=RePEc:ial:wpaper:8/2015&r=all

Distributed by NEP-HIS on 2015-09-05

Review by Anna Missiaia

The consequences of war on the development of nations have been gaining increasing attention in both Economics and Economic History alike. This paper by Dincecco, Frenske and Onorato, distributed on NEP-HIS on 2015-09-05 studies the consequences of wars on state development for Sub-Saharan Africa.

The paper refers to a rather large body of research developed within the field of Political Economics. The standard account, mostly focused on the European experience, predicts that the rise of warfare will lead, after the end of a conflict, to greater fiscal capacity and less civil conflict. The mechanism was first studied for Europe in the period 1500-1800 by Tilly (1993). Rulers generally had little political consequences from defeats, at least until the early 1800s, when Napoleon started replacing monarchs who had lost wars. Before then, wars were a quite regular phenomenon. Wars led to the expansion of the sources of taxations which was easily maintained in peace time. This enabled European states to enforce internal security more effectively, lowering civil conflict. The major implication of this perspective is that countries that experienced more wars in the past, today show greater fiscal capacity and less civil conflict (Fearon and Laiting, 2014; Besley and Persson, 2015).

As noted existing research focuses on Europe, so it is interesting to see that Dincecco, Frenske and Onorato (DFO) find different results when applying the same premises to Sub-Saharan Africa.  The paper by DFO begins by presenting two opposing views. On the one hand, there is evidence that the standard account of more wars in the past lead to greater fiscal capacity and less conflict today also applies to Sub-Sahara Africa. Specifically Michalopoulos and Papaioannou (2013) document evidence suggesting that more conflicts lead to more state centralization. Meanwhile that of Bates (2014) suggests that more centralized states are the most developed in the African continent. On the other hand, the opposing view focuses on a series of characteristics of the Sub-Saharan region (such as slave trade and colonization) that are responsible for the failure by the standard account to explain the trajectory of African states.


The Battle of Rocroi, by Augusto Ferrer-Dalmau.

The paper by DFO takes a comparative approach, testing the relationship between historical warfare and state development in several continents. The empirical strategy is rather intuitive, taking four measure of fiscal capacity of states today and regressing them on the number of conflicts that affected each region. They include a set of standard controls (latitude, population density, arable land and so on) and also continental fixed effects.  The same procedure is then repeated for three measure of civil conflict today.

The first result is that fiscal capacity today does increase in all continents for countries that experienced more wars in the past. Sub-Sahara Africa makes no exception here. The second result deals with civil conflict and this is different. Here, unlike the other continents, Sub-Sahara Africa shows a positive correlation between historical warfare and civil conflict today.

DFO are well aware of the possible shortcomings of their strategy, which are shared with virtually all works trying to address outcomes today caused by institutional arrangements from the past (one above all, Acemoglu et al. 2005). Dincecco and coauthors provide a comprehensive list of robustness checks by adding further observable controls. They also acknowledge that in spite of these controls, unobservable characteristics related to both historical warfare and present state development might still bias their results. They apply a quite interesting methodology to give an idea of the potential bias: they provide a measure, used by authors like Nunn and Wantchekon (2011), that estimates how much greater the impact of unobservable variables should be, relative to the observable, to explain the variation in the data. The result is that unobservable variables would need to have a nearly 20 times stronger impact to explain the variation in the sample. This result of course does not rule out that some of these variables have a role, but it ensure us that a fair amount of the explanatory power lies in the observable variables. Another remarkable feature of the paper by DFO is that it addresses the issue of the time span between the dependent and the explanatory variables. This is in a way a structural issue of all this branch of research, but it is always reassuring to see authors taking it into account. They do so by running the model with intermediate outcomes (around the beginning of the 20th century) and showing that these two showed a similar pattern to today’s.


Somalia’s 1991 civil war

DFO also provide a tentative explanation to why states in Sub-Sahara Africa might behave differently than Europeans. DFO do so by including measures of democratization, ethnic fractionalization and social trust as controls in the regression. They add these one by one, looking at the effect of these controls on the magnitude of the coefficients of interest. The only control here that seems to have an effect on the coefficients is social trust. However, the authors interpret the result with caution because of the small sample size (here only Sub-Sahara Africa is included, lowering the number of observations to only 47).

Regarding the use of measure of social trust to explain the relationship between warfare and fiscal capacity/civil conflict today, I would also be worried about two other points: firstly, the measure of social trust is based on a survey from relatively recent times (1980s onward) while the relationship tested is between historical warfare and fiscal capacity/civil conflict today; secondly, this measure could be highly collinear with the variables considered (of course, the usual caveats on reverse causality that are typical in this line of research also apply here).

To conclude, the paper by DFO contributes to both the debate within Political Economics by quantitatively testing a well-established narrative on a region of the world that is very different from the standard one used in the past (meaning empirical studies based on Europe). By doing so, it does find that Sub-Sahara Africa experienced a different dynamic that led to a different outcome today. It also shows a very careful work on the data used and it addresses several sources of criticism. A possible next step could be to take further the analysis of the mechanism behind through which war impacts state development.


Acemoglu, D., , S. Johnson and J. Robinson (2001). “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review, 91: 1369-1401.

Bates, R. (2014). “The Imperial Peace,” in E. Akyeampong, R. Bates, N. Nunn, and J. Robinson, eds., Africa’s Development in Historical Perspective, pp. 424-46, Cambridge: Cambridge University Press.

Besley, T. and T. Persson (2015). “State Capacity, Institutions, and Development.” The Political Economist Newsletter.

Fearon, J. and D. Laitin (2014). “Does Contemporary Armed Conflict Have Deep Historical Roots?” Working paper, Stanford University.

Michalopoulos, S. and E. Papaioannou (2011). “The Long-Run Effects of the Scramble for Africa.” NBER Working Paper 17620.

Nunn, N. and L. Wantchekon (2011). “The Slave Trade and the Origins of Mistrust in Africa.” American Economic Review, 101: 3221-52.

Tilly, C. (1992). Coercion, Capital, and European States, 990-1992. Cambridge: Blackwell


A Pre-Protestant Ethic?

Breaking the piggy bank: What can historical and archaeological sources tell us about late‑medieval saving behaviour?

By Jaco Zuijderduijn and Roos van Oosten (both at Leiden University)


Using historical and archeological sources, we study saving behaviour in late-medieval Holland. Historical sources show that well before the Reformation – and the alleged emergence of a ‘Protestant ethic’ – many households from middling groups in society reported savings worth at least several months’ wages of a skilled worker. That these findings must be interpreted as an exponent of saving behaviour – as an economic strategy – is confirmed by an analysis of finds of money boxes: 14th and 15th-century cesspits used by middling-group and elite households usually contain pieces of money boxes. We argue this is particularly strong evidence of late-medieval saving strategies, as money boxes must be considered as ‘self-disciplining’ objects: breaking the piggy bank involved expenses and put a penalty on spending. We also show that the use of money boxes declined over time: they are no longer found in early-modern cesspits. We formulate two hypotheses to explain long-term shifts in saving behaviour: 1) late-medieval socioeconomic conditions were more conducive for small-time saving than those of the early-modern period, 2) in the early-modern Dutch Republic small-time saving was substituted by craft guild insurance schemes.

URL: EconPapers.repec.org/RePEc:ucg:wpaper:0065

Circulated by NEP-HIS on 2015-06-20

Review by Stuart Henderson (Queen’s University Belfast)

Thrift is a central tenet of Max Weber’s Protestant-ethic thesis. That is, characterised by a new asceticism, Protestantism, and specifically Calvinism, encouraged capital accumulation by promoting saving and limiting excessive consumption. However, a recent paper by Jaco Zuijderduijn and Roos van Oosten, and distributed by NEP-HIS on 2015-06-20, challenges this notion. It suggests that a saving ethic was already evident in Holland in the late‑medieval period – well before the Reformation years, and then actually diminished with the coming of Protestantism.

Banking in Genoa in the 14th century.

Banking in Genoa in the 14th century.

Such contradiction with the Weberian thesis is common in the literature, with recent scholarship finding no Protestant effect (Cantoni, forthcoming) or proposing an alternative causal mechanism (Becker and Woessmann, 2009). However, Zuijderduijn and van Oosten’s work adds a fresh perspective by focusing on savings and saving behaviour, and by employing a pre‑versus‑post investigation strategy. Notably, in relation to saving, the literature has generally been more sympathetic to the Weberian thesis, with Delacroix and Nielsen (2001) finding a positive Protestant saving effect, and more recent work by Renneboog and Spaenjers (2012) suggesting that Protestants have a heightened awareness of financial responsibility. Furthermore, the idea of a pre-Protestant ethic, as raised in this paper, has also been advocated in other inquiry. For example, Anderson et al. (2015) suggest that the Catholic Order of Cistercians propagated a Weberian-like cultural change in the appreciation of hard work and thrift before the coming of Protestantism – an analogy which Weber himself noted, and highlight how this had a long‑run effect in development.

Bernard of Clairvaux, (1090–1153 C.E.) belonged to the Cistercian Order of Benedictine monks.

Bernard of Clairvaux, (1090–1153 C.E.) belonged to the Cistercian Order of Benedictine monks.

In their novel approach, Zuijderduijn and van Oosten utilise both historical and archaeological sources to examine savings and saving behaviour over a period which envelopes the coming of the Reformation. This enables them to deal with two principal issues: first, the size and social distribution of savings by utilising tax records for the Dutch town of Edam and its surrounding area, and secondly, whether saving was strategic (or instead due to an inability to spend) by utilising archaeological evidence on the prevalence of money boxes in cesspits for several Dutch towns. Both sources yield complementary results.

The tax records reveal that middling groups were generally accumulating savings in excess of several months of a skilled worker’s wage well in advance of the Reformation. However, between 1514 and 1563, with the coming of Protestantism, the proportion of households holding cash actually fell, despite a rise in average sums held. Unsurprisingly, cash holding was consistently more common among the wealthier groups in society across all years. See figure 3 from the paper below.

Figure 3

While these tax records reveal the extent of saving, it is the archaeological evidence on money box prevalence which provides a means to link this cash holding with saving behaviour due to the disciplining process involved. Breaking the money box meant incurring an expense, and thus penalised spending. Complementing the historical evidence, Zuijderduijn and van Oosten find that, despite their early prevalence, money boxes decline and eventually disappear by the early‑modern period. Moreover, wealthier households, as gauged from the type of material lining the cesspit, tended to save more than poorer households. See figure 6 from the paper below. (Note: brick-lined cesspits were relatively expensive, wood-lined cesspits were less expensive, and unlined cesspits were least expensive.)

Figure 6

Though Zuijderduijn and van Oosten place considerable emphasis on religion in their work, they posit two alternative explanations for the transition in saving behaviour. First, they suggest that a shrinking share of middling groups in conjunction with prices rising quicker than wages (and even possibly a shortage of small change) may have reduced the ability of persons to engage in saving. In addition, they note the rise of craft guild insurance schemes which could have acted as a cushion against sickness or old age much in the same way that saving would have functioned in their absence. Given this, more work needs to be done on ascertaining the role of religion versus these other hypotheses, or alternatively making religion a less central theme in the paper. One potential avenue could be to attempt to identify if households were more likely Protestant or Catholic, or by utilising an alternative source where religious affiliation could be linked with financial holdings. While difficult, this would help to clarify the statement posed by Zuijderduijn and van Oosten in their introduction – “saving behaviour does not come naturally, and requires discipline. Did a Protestant ethic help converts to find such discipline?” Moreover, Zuijderduijn and van Oosten write in their conclusion that their evidence “suggests that the true champions of saving behaviour were the late-medieval adherents to the Church of Rome, and not the Protestants that gradually emerged in sixteenth‑century Holland” – a statement on which I need further convincing.

Further elaboration is also needed on historical context. In particular, the paper would benefit from further clarity on the evolution of finance in Holland during this period. For example, van Zanden et al. (2012, p. 16) suggest that cash holdings fell between 1462 and 1563, but due to investment in other financial asset alternatives. Furthermore, they comment that the capital markets were used a great deal during this period for investing savings (as well as obtaining credit) – in what would surely be a more profitable pursuit for rational Protestants as opposed to earning zero return holding cash.

Nonetheless, the interdisciplinary and natural-experiment-type approach adopted in this paper has provided inspiration for economic historians on how we can potentially use alternative methodologies to further our understanding of important questions which have previously gone unanswered. While this has been refreshing, the use of such sources demands a comprehensive understanding of historical context for accurate inference, and especially to differentiate between correlation and causation. Zuijderduijn and van Oosten have provided initial persuasive evidence pointing to a decline in saving behaviour in Holland at a time when Weber’s Protestant ethic should have been fostering thrift, but more work needs to be done to disentangle the effect of religious transition from an evolving capital market.


Anderson, Thomas B., Jeanet Bentzen, Carl-Johan Dalgaard, and Paul Sharp, “Pre‑Reformation Roots of the Protestant Ethic,” Working Paper (July 2015): http://www.econ.ku.dk/dalgaard/Work/WPs/EJpaper_and_tables_final.pdf.

Becker, Sascha O., and Ludger Woessmann, “Was Weber Wrong? A Human Capital Theory of Protestant Economic History,” Quarterly Journal of Economics, 124 (2009), 531–596.

Cantoni, Davide, “The Economic Effects of the Protestant Reformation: Testing the Weber Hypothesis in the German Lands,” Journal of the European Economic Association, forthcoming.

Delacroix, Jacques, and François Nielsen, “The Beloved Myth: Protestantism and the Rise of Industrial Capitalism in Nineteenth-Century Europe,” Social Forces, 80 (2001), 509–553.

Renneboog, Luc, and Christophe Spaenjers, “Religion, Economic Attitudes, and Household Finance,” Oxford Economic Papers, 64 (2012), 103–127.

van Zanden, Jan L., Jaco Zuijderduijn, and Tine De Moor, “Small is Beautiful: The Efficiency of Credit Markets in the Late Medieval Holland,” European Review of Economic History, 16 (2012), 3–23.

Weber, Max, The Protestant Ethic and the Spirit of Capitalism (London, UK: Allen and Unwin, 1930).

Was Stalin’s Economic Policy the Root of Nazi Germany’s Defeat?

Was Stalin Necessary for Russia’s Economic Development?

By Anton Cheremukhin (Dallas Fed), Mikhail Golosov (Princeton), Sergei Guriev (SciencesPo), Aleh Tsyvinski (Yale)

Abstract: This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin’s economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin’s policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios.

URL: http://EconPapers.repec.org/RePEc:nbr:nberwo:19425

Distributed by NEP-HIS on 2013-09-28

Review by Emanuele Felice

Until the late 1950s, the era of rapid Soviet growth and of Sputnik, the main question among Western scholars was: When would the Soviet Union catch up with and overtake the U.S.?*

As Cheremukhin et al. correctly emphasize, the subject of this paper – Soviet industrialization in the 1930s – is one of the most important in economic history, and in world history: Soviet Union was the country which played by far the biggest role in the defeat of Nazi Germany, standing almost alone against the land force of the Third Reich and its allies for most of the war and causing 87% of the total Axis’ military deaths (in sharp contrast with World War I, when the Tsarist empire was defeated by a German Reich fighting on two fronts). Emerging from World War II as a superpower, the victorious Soviet Union contributed to shape the next four decades of human history, boasting among its technological achievements the first voyage of a human being to the space. At the same time and during the Stalin regime (1922-1953), the scale of (politically caused) human suffering has had few parallels in world history. Furthermore, as early as the 1930s Stalin’s rule was one of the first totalitarian regimes capable of reaching levels of oppressiveness and manipulation over society unobserved before.

For these reasons Stalin’s Soviet Union should continue to be interrogated by systematic studies. At the core of that regime was industrialization, which aimed to be the material pillar of a new «civilization» (e.g. Kotkin, 1995). Regarding its impact over policy making in the twentieth century, Stalin’s forced industrialization was a source of inspiration for both economists and politicians throughout the world: its planned, top-down, implementation was widely considered to be a successful, though harsh, strategy by some contemporaries.

Joseph Stalin (b 1878 - 1953), Leader of the Soviet Union (1922-1953)

Joseph Stalin (b 1878 – 1953), Leader of the Soviet Union (1922-1953)

And yet, we still have relatively little macro-economic evidence about the Stalinist period. The article Cheremukhin et al. aims to partially fill this gap, by providing consistent figures, some new arguments and insightful counterfactuals. It builds upon a remarkable amount of original research. First, it provides a comprehensive and coherent reconstruction of data on output, consumption, investments, foreign trade and labour force. These figures are presented separately for the agricultural and non-agricultural sectors. Data begins in the last decades of Tsarist Russia (1885-1913) and for the the Soviet Union covers the launch of the first five-year plan until the Nazi’s invasion (1928-1940).

Secondly, Cheremukhin et al. propose and elaborate a growth model for the Russian economy in those two periods (i.e. Tsarist Russian and pre-Nazi invention Soviet Union). This is a multi-sector neoclassical model, which is modified to allow for the peculiarity of the economy under scrutiny; namely, due to the institutional frictions and policies that distorted household and firm decisions, three wedges are defined, corresponding to the intratemporal between-sector distortions in capital and labor allocations and to an intertemporal distortion, and price scissors in agricultural prices (between producers and consumers) − which may also be thought of as a fourth wedge − are also introduced for the Stalin’s period.

It may be worth adding that when connecting wedges to policies, the Cheremukhin et al. appear to be adequately aware of the historical context and of the differences between a planned economy and a free-market one: for instance, the response of the Stalinist economy to a drop in agricultural output is likely to be the opposite − because of the price scissors policy which kept producer’s agricultural prices artificially low − to the predictions of a frictionless neoclassical growth model: it will probably lead to a further reallocation of labour from agriculture to industry and services and, therefore, to an additional reduction of agricultural output; such a distortion is here acknowledged and reasonably calibrated.

 “Smoke of chimneys is the breath of Soviet Russia”, early Soviet poster promoting industrialization, 1917-1921

“Smoke of chimneys is the breath of Soviet Russia”, early Soviet poster promoting industrialization, 1917-1921

Thirdly, the paper by Cheremukhin et al. further elaborates on data and models, by providing a number of counterfactuals. Comparisons are made with the Tsarist economy by extrapolating Tsarist wedges for 1885-1913 to the 1928-1940 years. Also by comparing the performance of both economies (Tsarist and Stalinist), for the years following 1940 under the assumption that World War II never happened.

Another comparison takes place with Japan, a country similar to Russia before World War I in terms of GDP levels and growth rates. Early in the twentieth century Japan suffered similar distortions as Russia but during the interwar period Japan undertook an economic transformation which provided Cheremukhin et al. an alternative scenario to both the Tsarist and the Stalin policies (the Japanese projections are based upon previous reconstructions of the Japanese macro-economic figures, which happen to be available for the same period as for Russia, 1885-1940).

Japanese assault on the entrenched Russian forces, 1904

Japanese assault on the entrenched Russian forces, 1904

And what is probably the most intriguing counterfactual, at least in actual historical terms, is yet one more alternative scenario, constructed by assuming that Lenin’s New Economic Policy or NEP (launched in 1921 and outliving Lenin until 1927) would have continued even after 1927: such a counterfactual requires elaborating a model for the NEP economy as well, but unfortunately the lack of reliable data for the years 1921 to 1927 makes the discussion for this scenario «particularly tentative». Furthermore, it is worth mentioning that two more alternative scenarios are provided for the Stalin economy based on alternative growth rates for the years 1940 to 1960 and again under the assumption that World War II never happened; and that robustness exercises are also performed (with further details provided in the appendix).

Broadly speaking, the results are not favourable to Stalin. According to Cheremukhin et al., Stalin was not necessary for Russian industrialization − neither, it could be consequently argued, to the defeat of Nazism and to the Russia’s rise to a superpower status. Actually, by 1940 the Tsarist economy would probably have reached levels of production and a structure of the economy similar to the Stalinist one, but which far less short-term human costs. This result may not be irreconcilable to Gerschenkron’s (1962) theses about substitute factor − in Russia this was the State, already exerting such a role in late Tzarist times − and the advantages of backwardness: these latter would have permitted to backward Russia, once its industrialization had been set in motion at the end of the nineteenth century, to see its distance to the industrialized West reduced by the time of World War II more than in World War I, in any case – that is, also under the Tzarist regime. It does contrast, however, with other findings from pioneering cliometric articles on the issue, such as the one by Robert Allen published almost twenty years ago, according to which Stalin’s planned system brought about rapid industrialization and even a significant increase of the standard of living (Allen, 1998). Similarly, but from a different perspective, long-run reconstructions of Soviet labour productivity tend to emphasize as a problem the slow-down in the period following post World War II, rather than the performance the 1930s (Harrison, 1998) – both Allen and Harrison are cited in this paper, but not these specific articles.

The Dnieper Hydroelectric Station under construction, South-Eastern Ukraine (the work was begun in 1927 and inaugurated in 1932)

The Dnieper Hydroelectric Station under construction, South-Eastern Ukraine (the work was begun in 1927 and inaugurated in 1932)

Now, at the core of the results by Cheremukhin et al. is the finding that, according to their estimates, total factor productivity of the USSR in the non-agricultural sector did not grow from 1928 to 1940. Maybe it is worth discussing this point in a little more detail. Is such a finding plausible? At a first sight it seems puzzling, given the technological advance of that period especially in the heavy sectors. And yet, at a closer inspection it may turn out to be entirely logical: the growth of output was a consequence of massive inflows of inputs, both machinery (capital) and labour. But all considered these were not used in a more efficient way.

In the model by Cheremukhin et al., capital and labour are computed through a Cobb-Douglas production function, with constant elasticity coefficients for labour and capital (0.7 and 0.3 respectively in the non-agricultural sector; 0.55 and 0.14 in the agricultural one, thus assuming a land’s elasticity of 0.31). The authors make a point that the new labour force entering the non-agricultural sector was largely unskilled and, often, was not even usefully employed. Actually exceeding the real needs of that sector: this politically induced distortion could hardly have increased TFP (although, under different assumptions, it could be alternatively modeled through a decreasing elasticity of labour: but the results in terms of total output would not change). This may also explain the good performance of Soviet Union during World War II, when due to manpower shortage the exceeding labour force finally could be profitably employed. The capital stock is calculated by the authors at 1937 prices, for the years 1928-1940.

Anti-Nazi propaganda poster, 1945

Anti-Nazi propaganda poster, 1945

We do not have enough information in order to judge whether a bias can be caused by the use of constant prices based on a late-year of the series. But this possible bias should lead to an underestimation of capital growth in that period  − given that quantities are probably weighted with relative prices lower in 1937 for the heavy sectors, than in 1928 − which would then produce an overestimation in the TFP growth proposed by the authors: in actual terms, therefore, the growth of TFP may be even lower than what estimated; in more general terms – and although caution is warranted for the lack of detailed figures – their results look realistic in this respect.

The most interesting finding, however, is the one relative to the NEP counterfactual. It is the most interesting because, in genuine historical terms, the Tzarist model was no longer a viable option to Stalin, while NEP’s strategy was. But of course, data for the NEP years are much more precarious and thus this counterfactual can only be a particularly tentative one. Nonetheless, the authors build two scenarios for the NEP policy: a lower-bound one, where a growth rate of TFP in manufacturing after 1928 similar to the average Tsarist 0.5% is tested; and an upper-bound one, with a growth rate of 2% similar to the one experienced by Japan in the same interwar period. In the first scenario the results for the Soviet economy would have been slightly worse, but in the second one much better. Given that the two scenarios correspond to the boundaries of the possibility frontier, we may conclude that probably, under the NEP, the performance of the Soviet economy would have been better than both the one observed under the Stalin and that predictable under the Tzar. This may confirm the view that the 1920s were somehow the “golden age” of Soviet communism, as well as the favourable assessment of Lenin’s and later of the collective Soviet leadership in that decade (although, admittedly, Lenin intended the NEP only as a temporary policy). After all, a more inclusive leadership – as opposed to the harshness of Stalinist autocracy in the 1930s, as well as to Hitler despotic conduct of war since the winter of 1941 – was also the one which helped the Red Army to win World War II.

“The victory of socialism in the USSR is guaranteed”, 1932

“The victory of socialism in the USSR is guaranteed”, 1932


Allen,  Robert C., Capital accumulation, the soft budget constraint and Soviet industrialization, in «European Review of Economic History», 1998, 2(1), pp. 1-24.

Gerschenkron, Alexander, Economic backwardness in historical perspective, Cambridge, Mass., The Belknap Press of Harvard University Press, 1962.

Harrison, Mark, Trends in Soviet Labour Productivity, 1928−85: War, postwar recovery, and slowdown, in «European Review of Economic History», 1998, 2(2), pp. 171-200.

Kotkin, Stephen, Magnetic Mountain: Stalinism as a Civilization, University of California Press, Berkeley, Los Angeles, and London, 1995.

Source of quote:
Gur Ofer (1987) “Soviet Economic Growth: 1928-1985,” Journal of Economic Literature, Vol. 25, No. 4, pp. 1767-1833 (cited in this paper, p. 2).

Whither Labor-Intensive Industrialization?

How Did Japan Catch-up On The West? A Sectoral Analysis Of Anglo-Japanese Productivity Differences, 1885-2000

By Stephen Broadberry (London School of Economics), Kyoji Fukao (Hitotsubashi University), and Nick Zammit (University of Warwick)

Abstract: Although Japanese economic growth after the Meiji Restoration is often characterised as a gradual process of trend acceleration, comparison with the United States suggests that catching-up only really started after 1950, due to the unusually dynamic performance of the US economy before 1950. A comparison with the United Kingdom, still the world productivity leader in 1868, reveals an earlier period of Japanese catching up between the 1890s and the 1920s, with a pause between the 1920s and the 1940s. Furthermore, this earlier process of catching up was driven by the dynamic productivity performance of Japanese manufacturing, which is also obscured by a comparison with the United States. Japan overtook the UK as a major exporter of manufactured goods not simply by catching-up in labour productivity terms, but by holding the growth of real wages below the growth of labour productivity so as to enjoy a unit labour cost advantage. Accounting for levels differences in labour productivity between Japan and the United Kingdom reveals an important role for capital in the catching-up process, casting doubt on the characterisation of Japan as following a distinctive Asian path of labour intensive industrialisation.

URL: http://d.repec.org/n?u=RePEc:cge:wacage:231&r=his

Distributed by NEP-HIS on 2015-5-30

Reviewed by Joyman Lee

Broadberry, Fukao, and Zammit focus our attention on productivity comparisons between the UK and Japan, departing from existing works on U.S.-Japan comparisons.

Broadberry, Fukao, and Zammit focus our attention on productivity comparisons between the UK and Japan, departing from existing works on U.S.-Japan comparisons.


Broadberry, Fukao, and Zammit argue that previous authors such as Pilat’s reliance on a U.S.-Japan comparison to measure Japan’s productivity has greatly distorted our periodization of Japan’s economic growth (Pilat 1994). This was partly because like Japan, the U.S. grew very quickly between 1870 and 1950, and the effects of the Great Depression in the U.S. also blunted our perception of the relative stagnation of the Japanese economy between 1920 and 1950. By comparing the Japanese data with that of the UK, Broadberry, Fukao, and Zammit show that Japanese catch-up began in the late nineteenth century during the Meiji period, and stagnated in the interwar period before resuming again after the Second World War.

In contrast to Pilat, the authors find that manufacturing played an important role in Japanese growth not only after but also before the Second World War. Whereas strong U.S. improvements in manufacturing (the U.S. itself was undergoing catch-up growth vis-à-vis the UK) might have obscured our view of Japanese performance in these areas, comparison with the UK reveals that Japanese manufacturing performed strongly until 1920. In terms of methodology, Broadberry, Fukao, and Zammit emphasize their use of more than one benchmark for time series projections to provide cross checks, and they selected 1935 and 1997 as benchmarks.

One of the most intriguing aspects of the paper is the suggestion that capital played a crucial role in Japan’s experience of catch-up growth. The authors challenge the growing view among economic historians that Asia pursued a distinctive path of economic growth, based on a pre-modern “industrious revolution” (Hayami 1967) and labor intensive industrialization (Austin & Sugihara 2013) in the modern period. Broadberry, Fukao, and Zammit’s data (table 12) shows that across our period, Japan caught up with the UK not only in terms of labor productivity but also capital intensity. Crucially, “by 1979, capital per employee was higher in Japan than in the United Kingdom” (p17). The authors explain this phenomenon by observing that “capital deepening played an important role in explaining labour productivity growth in both countries, but in Japan, the contribution of capital deepening exceeded the contribution of improving efficiency in three of the five periods” (p18). Contrary to the view put forward by those in favor of labor-intensive industrialization, the authors argue, “Japan would not have caught up without increasing [capital] intensity to western levels” (p19).

The authors contend that capital played as important a role as labor in shaping Japan's productivity growth.

The authors contend that capital played as important a role as labor in shaping Japan’s productivity growth.


This paper provides a valuable quantitative contribution to our knowledge of labor productivity in two countries that are highly important in studies on global economic history. The greater intensity of Japan’s external relations with the U.S. in the period after the Second World War has led to scholars’ greater interest in comparisons with the U.S., whereas as Broadberry, Fukao, and Zammit point out, the UK remains one of the main yardsticks in terms of productivity before the Second World War. In this respect, a comparison with the European experience is valuable, and offers a good quantitative basis for illustrating the character of Japan’s industrialization efforts in the period before the Second World War. The conclusion that manufacturing played a key role in Japan’s catch-up growth vis-à-vis the UK is consistent with the historical literature that has foregrounded manufacturing, and in particular exports to Asia, as the main driver of pre-WW2 Japanese economic growth.

What is more surprising in this paper, however, is the authors’ contention that capital was the primary factor in Japan’s productivity growth. The authors note that until 1970 Japan enjoyed lower unit labor costs vis-à-vis Britain largely because real wages were artificially repressed beneath the level of labor productivity. It was in the 1970s when Japan started seeing increases in real wages, and as a result its labor cost advantage disappeared until faster real wage growth in the UK in the 1990s (p15). In other words, the authors suggest that Japan’s export success was due not so much to improvements in labor productivity as it was to artificially low labor costs. While Japanese labor productivity growth was not exceptional except between 1950 and 1973, the contribution of capital deepening in Japan (2.29% and 1.32% for 1950-73 and 1973-90, as opposed to 0.67% and 0.58% for the UK; table 13) was on the whole greater or at least as much as that of the UK.

While few commentators would dispute the importance of capital in driving economic growth, it is unclear whether the data presented here sustains the conclusion that Japan did not follow a distinctive path of labor-intensive industrialization. The authors cite Allen’s paper on technology and global economic development (Allen 2012) to support their claim that western levels of capital intensity were necessary for productivity-driven growth that is characteristic of advanced industrial economies. While that latter point is well taken, aggregate measures of “capital intensity” do not on their own reflect the types of industries where capital (and other resources) is invested, or the manner in which labor is deployed either to create growth or to generate employment for reasons of political choice or social stability. In fact, proponents of the labor-intensive industrialization argument acknowledge that post-WW2 Japan witnessed a step-change in its synthesis of the labor and capital-intensive paths of industrialization, at the same time that Japanese industries often opted for relatively labor-intensive sectors within the spectrum of capital-intensive industries, such as consumer electronics as opposed to military, aerospace, and petro-chemical sectors (e.g. Austin & Sugihara 2013, p43-46).

Labor-intensive industrialization does not itself preclude high levels of capital investment, e.g. consumer electronics, which employs a great number of individual workers.

Labor-intensive industrialization does not itself preclude high levels of capital investment, for example consumer electronics, which employs great numbers of individual workers.

The key arguments in labor-intensive industrialization are not the role of capital per se, but the constraints imposed by initial factor endowments (e.g. large populations) and the transferability of the model through national industrial policies and intra-Asian flows of ideas and institutions. Broadberry, Fukao, and Zammit do not challenge these core ideas in the model, and confine their critiques to labeling Japan’s technological policy breakthroughs as changes in “flexible production technology” (p. 19). Doing so ignores the basic fact that the balance between population and resources in Japan has little similarity to that in the West, either at the eve of the Industrial Revolution or in the present day. In other words, there is little inherent contradiction between the need for capital accumulation and the selection of industries that make better use of the capital and technology (e.g. “appropriate technology”, Atkinson & Stiglitz 1969 and Basu & Weil 1998).

Finally, it seems to me that basing a critique primarily on a comparative study of the advanced economies of the UK and Japan misses a broader point that labor-intensive industrialization is as much about exploring paths that have been overlooked or inadequately theorized because of our simplistic insistence on “convergence” in economic growth. From this angle, foregrounding the subtle but profound differences between successful models of economic development, e.g. the experience of Japan in East Asia, and dominant Western models seems to be at least as valuable as attempts to reproduce the “convergence” argument.

Additional References

Allen, R 2012. “Technology and the Great Divergence: Global Economic Development since 1820,” Explorations in Economic History, vol. 49, pp. 1-16.

Atkinson, A & Stiglitz, J 1969. “A New View of Technological Change,” Economic Journal, vol. 79, no. 315, pp. 573-78.

Austin, G. & Sugihara, K (eds.) 2013. Labour-Intensive Industrialization in Global History. Abingdon, Oxon.: Routledge.

Basu, S & Weil, D, 1998, “Appropriate Technology and Growth,” The Quarterly Journal of Economics, vol. 113, no. 4, p. 1025-54.

Hayami, A, 1967. “Keizai shakai no seiretsu to sono tokushitsu” (The formation of economic society and its characteristics”) in Atarashii Edo Jidai shizō o motomete, ed. Shakai Keizaishi Gakkai. Tokyo: Tōyō Keizai Shinpōsha.

Pilat, D 1994. The Economics of Rapid Growth: The Experience of Japan and Korea. Cheltenham, Glos.: Edward Elgar Publishing.