Category Archives: Analytical Narratives

The challenges of updating the contours of the world economy (1AD – today)

The First Update of the Maddison Project: Re-estimating Growth Before 1820

by Jutta Bolt (University of Groningen) and Jan Luiten van Zanden (Utrecht University)

Abstract: The Maddison Project, initiated in March 2010 by a group of close colleagues of Angus Maddison, aims to develop an effective way of cooperation between scholars to continue Maddison’s work on measuring economic performance in the world economy. This paper is a first product of the project. Its goal is to inventory recent research on historical national accounts, to briefly discuss some of the problems related to these historical statistics and to extend and where necessary revise the estimates published by Maddison in his recent overviews (2001; 2003; 2007) (also made available on his website at http://www.ggdc.net/MADDISON/oriindex.htm).

URL http://www.ggdc.net/maddison/publications/wp.htm

Review by Emanuele Felice

Angus Maddison (1926-2010) left an impressive heritage in the form of his GDP estimates. These consider almost all of the world, from Roman times until our days, and are regularly cited by both specialists and non-specialists for long-run comparisons of economic performance. The Maddison project was launched in March 2010 with the aim of expanding and improving Maddison’s work. One of the first products is the paper by Jutta Bolt and Jan Luiten van Zanden, which aims to provide an inventory while also critically review the available research on historical national accounts. It also aims “to extend and where necessary revise” Maddison’s estimates. This paper was circulated by NEP-HIS on 2014-01-26.

The paper starts by presenting, in a concise but clear way, the reasons that motivated the Maddison’s project and its main goals. It also tells that some issues are left to be the subject of future work, particularly thorny issues left out include the use of 2005 purchasing power parities rather than Maddison’s (1990) ones; and the consistency of benchmarks and time series estimates over countries and ages.

Jutta Bolt

Firstly (and fairly enough, from a ontological perspective) Bolt  and van Zanden deal with the possibility of providing greater transparency in the estimates. Instead of presenting the margins of errors of each estimate (which in turn would be based “on rather subjective estimates of the possible margins of error of the underlying data”), the authors, following an advice by Steve Broadberry, choose to declare explicitly the provenance of the estimates and the ways in which they have been produced. This leads to classifying Maddison’s estimates in four groups: a) official estimates of GDP, released by national statistical offices or by international agencies; b) historical estimates (that is, estimates produced by economic historians) which roughly follow the same method as the official ones and are based on a broad range of data and information; c) historical estimates based on indirect proxies for GDP (such as wages, the share of urban population, etc.); d) “guess estimates”.

Jan Luiten van Zanden

Then the article moves on to review and discuss new estimates: although revisions for the nineteenth and twentieth century (mostly falling under the “b” category) are also incorporated, the most important changes come from the pre-industrial era (“c” kind estimates). For Europe, we now have a considerable amount of new work, for several countries including England, Holland, Italy, Spain and Germany (but not for France). The main result is that, from 1000 to 1800 AD, growth was probably more gradual than what proposed by Maddison; that is, European GDP was significantly higher in the Renaissance (above 1000 PPP 1990 dollars in 1500, against 771 proposed by Maddison); hence, growth was slower in the following three centuries (1500-1800), while faster in the late middle ages (1000-1500). For Asia, the new (and in some cases very detailed) estimates available for some regions of India (Bengal) and China (the Yangzi Delta), for Indonesia and Java, and for Japan, confirm Maddison’s view of the great divergence, against Pomeranz revisionist approach: in the late eighteenth and early nineteenth century, a significant gap between Europe and Asia was already present (for instance GDP per capita in the whole of China was 600 PPP 1990 dollars in 1820, as in Maddison; against 1455 of Western Europe, instead of 1194 proposed by Maddison).

New estimates are also included for some parts of Africa and for the Americas, with marginal changes on the overall picture (for the whole of Latin America, per capita GDP in 1820 is set to 628 PPP 1990 dollars, instead of 691). For Africa, however, there are competing estimates for the years 1870 to 1950, by Leandro Prados de la Escosura (based on the theoretical relationship between income terms of trade per head and GDP per capita) on the one side, and Van Leeuwen, Van Leeuwen-Li and Foldvari (mostly based on real wage data, deflated with indigenous’ crops prices) on the other. The general trends of these differ substantially: the authors admit that they “are still working on ways to integrate this new research into the Maddison framework” and thus at the present no choice is made between the two, although both are included in the data appendix.

New long-run estimates are presented also for the Near East, as well as for the Roman world, in this latter case with some differences (smaller imbalances between Italy and the rest of the empire) as compared to Maddison’s picture. The authors also signal the presence of estimates for ancient Mesopotamia, produced by Foldvari and Van Leeuwen, which set the level of average GDP a bit below that of the Roman empire (600 PPP 1990 dollars per year, versus 700), but they are not included in the dataset.

Per capita GDP in Roman times, according to Maddison (1990 PPP dollars)

Per capita GDP in Roman times, according to Maddison (1990 PPP dollars)

What can we say about this impressive work? First, that it is truly impressive and daring. But then come the problems. Needless to say Maddison’s guessed estimates is one of the main issues or limitations, and this looks kind of downplayed by Bolt and van Zanden. As pointed out by Gregory Clark, in his 2009 Review of Maddison’s famous Contours of the World Economy:

“All the numbers Maddison estimates for the years before 1820 are fictions, as real as the relics peddled around Europe in the Middle Ages (…) Just as in the Middle Ages, there was a ready market for holy relics to lend prestige to the cathedrals and shrines of Europe (…), so among modern economists there is a hunger by the credulous for numbers, any numbers however dubious their provenance, to lend support to the model of the moment. Maddison supplies that market” (Clark 2009, pp. 1156-1157).

The working paper by Bolt and Van Zanden makes significant progress in substituting some fictitious numbers (d), with indirect estimates of GDP (c), but then in discussing the results it leaves unclear which numbers are reliable, which not, thus still leaving some ground for the “market for holy relics”.

Image

This is all the more problematic if we think that nominally all the estimates have been produced at 1990 international dollars. It is true that there is another part of the Maddison project specifically aiming at substituting 1990 purchasing power parities with 2005 ones. But this is not the point. The real point is that even 2005 PPPs would not change the fact that we are comparing economies of distant times under the assumption that differences in the cost of living remained unchanged over centuries, or even over millennia. This problem, not at all a minor neither a new one − e.g. Prados de la Escosura (2000) − is here practically ignored. One indeed may have the feeling that the authors (and Maddison before them) simply don’t care about the parities they use, de facto treating them as if they were at current prices. For example, they discuss the evidence emerging from real wages, saying that they confirm the gaps in per capita GDP: but the gaps in real wages are usually at the current parities of the time, historical parities, while those in GDP are at constant 1990 parities. If we assume, as reasonably should be, that differences in the cost of living changed over the centuries, following the different timing of economic growth, then the evidence from real wages (at current prices) may actually not confirm the GDP figures (at constant 1990 PPPs). Let’s take, for instance, China. It could be argued that differences in the cost of living, as compared to Europe, were before the industrial revolution, say in 1820, lower than in 1990, given that also the differences in per capita GDP were lower in 1820 than in 1990; hence, prices in 1820 China were relatively higher. The same is true for China when compared to Renaissance or Roman Italy (since prices in 1990 China were arguably significantly lower than prices in 1990 Italy, in comparison with the differences in the sixteenth century or in ancient times). This would mean that real GDP at current PPPs would be in 1820 even lower, as compared to Europe; or that 1820 China would have a per capita GDP remarkably lower than that of the Roman empire, maybe even lower than that of ancient Mesopotamia. Is this plausible?

References

Clark, G. (2009). Review essay: Angus Maddison, Contours of the world economy, 1-2030 AD: essays in macro-economic history. Journal of Economic History 69(4): 1156−1161.

Prados de la Escosura, L. (2000). International comparisons of real product, 1820–1990: an alternative data set. Explorations in Economic History 37(1):1–41.

Are Cartels Pragmatic Responses to Market Failures?

The International Mercury Cartel, 1928 – 1949

By Miguel López-Morell (mlmorell@um.es), Universidad de Murcia and Luciano Segreto (segreto@unifi.it), Università degli Studi di Firenze.

URL: http://d.repec.org/n?u=RePEc:pra:mprapa:46772&r=his

Abstract

Mercury has been one of the most persistent cases in contemporary history of international market regulations and this in spite of its having been affected by important technological changes and the regular discovery of new deposits. This paper offers an approach to the least known period, although perhaps the one in which the greatest rises in process and production occurred as a consequence of market manipulation. The period coincides with a series of agreements between the Spanish and the Italian producers and the outcome was a worldwide cartel known as “Mercurio Europeo” which came into being in 1928. The aims of this work will, therefore, be first to describe the features of the various stages of development of the international mercury market during the first half of the twentieth century, with emphasis on the characteristics and conditioning factors in each period. Secondly, the objective is to analyse the various market agreements that came about, the effectiveness of the clauses therein, the construction of distribution networks and the influence that the increase in production had on other mines and on certain technological developments.

Review by Beatriz Rodríguez-Satizábal

There are two sides to every argument and the different forms of competitive collaboration is no exception. On the one hand, the claim against cartels and other forms of collusion is the loss of efficiency and the dampening of incentives for technological progress. These are exacerbated by the potential to influence the political process (e.g. lobbying, regulatory capture, etc.) and the potential to augment economic inequality through biased distribution of profits. On the other hand, business historians have documented the importance of cartels for industrialisation in Germany as well as to achieve network externalities in banking (particularly around payment systems). Legally sanctioned competitive collaboration can provide an industry with a guaranteed profitability and a secure competitive path by being more stable, dividing up markets, and securing price and production.

The case of competitive collaboration around the extraction of mercury documented by López-Morell and Segreto, distributed by NEP-HIS on 2013-05-11, looks at the cartel known as Mercurio Europeo, to advance arguments which favour collaboration in industries were collusion allows producers to achieve economies of scale as well as foster technological change and reduce market prices in the long-term. The central question is whether a cartel was or not a pragmatic response to the imperfect allocation of the resources between the Spanish and Italian mercury producers from 1928 to 1949.

Based on the assumption that cartel agreements have been around for a while, López-Morell and Segreto present a thorough revision of the strategies during its early years. The agreement between Minas de Almaden y Arrayanes (Spain) and Monte Amiata (Italy) was signed in 1928 as a way to control the supply of mercury in a very stable market. In other words, the cartel was organized in order to deal with an unchanging demand. The result was a cartel with a complex internal organization that, in a very short time kept, managed to place the price of mercury close to monopoly levels but, at the same time, failed in achieve greater efficiency in production and/or increase sales volume.

López-Morell and Segreto explore in detail the reasons for the formation of the Spanish-Italian mercury cartel while arguing that there was a desire to stabilise production levels in order to increase profits without losing market share nor, as it was mainly in the Italian case, to invest in new technology. The cartel strategy proved to be effective because the demand for the product was inelastic and the collusion between the two producers increased the profit without harming the individual production targets.

Although, López-Morell and Segreto omit a discussion of the relative efficiency of collusion and competitive collaboration, from their empirical evidence it would seem that a carel was the best organisational option for the case of mercury. Mercurio Europeo was successful at least in part because during the 1928-1949 period mercury was a key input in the production of other metals and at the time there were only a handful of mines around the world. A cartel, therefore, became the answer to best manage scarcity.

Benito Mussolini (1883-1945)

However, the argument by López-Morell and Segreto is in need of a counter factual. Perhaps one that explores the option of a monopoly with private ownership (such as the Rothschild family) rather than a cartel agreement. In other words, could the absence of a cartel change ownership structures, market share, and international price levels? Further, there is a need to understand the role of both governments in the agreement. The 1928-1949 period coincides with fascist governments in both Spain and Italy, which characterised by radical nationalistic ideas, peculiar forms of corporatism, the role of the state (e.g. protectionism, interventionism), economic self-sufficiency and autarky, among others. Hence, the particular form of cooperation between Spanish and Italian mines could well be the result of institutional pressures (including, the war effort) rather than the behaviour of consumers.

Francisco Franco y Bahamonde (1892-1975)

In summary, the paper by López-Morell and Segreto is an interesting contribution to the study of collaboration because it focuses on the strategies taken by two national companies to organise a cartel. It builds upon surviving internal documents (e.g. analyses of Board meeting minutes) of each company to bring about a better understanding of changes in the market. Moreover, it shows that the strategic decision to whether co-operate or cheat within the cartel has a profound effect on the market outcome.

Love Thy Neighbour

The effect of Iddi Amin’s expulsion of the Asian community in Uganda on the social and economic development of the country

by Tumuhairwe Collins (Maastricht School of Management)

No abstract

URL http://econpapers.repec.org/paper/msmwpaper/2012_2f37.htm

Review by Bernardo Batiz-Lazo

The brutality of Idi Amin’s (1923?-2003) dictatorship in Uganda was legendary. I vividly recall reading about it in my youth. This early impression was most likely augmented by successful productions for film and TV, namely Irvin Kershner’s Raid on Entebbe (TV 1976), and more recently Kevin Macdonald’s The Last King of Scotland (2006).

He took office in 1971 after successfully ousting Milton Obote (President 1966-1971) in a military coupe. According to his BBC News’ obituary, up to 400,000 people are believed to have been killed under his rule. After eight years in office Amin was forced from power in 1979 by Tanzanian troops after which he fled to Libya, then Iraq, and finally Saudi Arabia, where he was allowed to settle in Jiddah provided he stayed out of politics. Although it seems the Saudi government ignored the one known attempt to return to Uganda, in early 1989, getting as far as Kinshasa, Zaire (now the Democratic Republic of the Congo), where he was identified and forced to return to Saudi Arabia.

It is widely assumed that Amin’s rule had many lasting negative consequences for Uganda including a low regard for human life and personal security, widespread corruption, and the disruption of economic production and distribution. In spite of having presided over one of the bloodiest rules in recent African history, he never faced trial for his alleged crimes.

Idi Amin Dada (President of Uganda 1971-1979)

In this paper, distributed by NEP-His on 2012-10-20, Collins describes the macroeconomic impact of the expulsion of the entire Asian population of Uganda by Amin in 1972. Blaming them for controlling the economy for their own ends, on August 4th 1972, Amin gave all the members of the Indian and Pakistani’s minorities (around 60,000 were not Ugandan citizens) 90 days to abandon the country. Collins’ analysis of this Indophobic episode recalls the expulsion of Jews from Spain in the 16th century and that of the Spanish-born from Mexico in the 19th century. This narrative assumes that specific ethnic cleansing episodes associate with a loss of social and economic capital and as a result, there is a long term weakining of institutions and productive capacity.


About 30,000 Ugandan Asians came to the UK in 1972 (BBC News)

Collins argues that Indophobic sentiment was widespread in the Ugandan society in the 1960’s and thus, pre-dating the Amin government. This is evidenced by the introduction of a system of permits and trade licencies in 1968 by the President Obote. Resentment against Asians was fuelled by the lack of successful entrepreneurial activities by Black Ugandans, to the extent that around 90% of the economy was controlled by Asians before 1972. But, says Collins, “[alt]hough anti-Asian sentiment was rife in the 1960s, the expulsion was unprecedented.” As a result, “[i]nvestments dried up, exports declined, and per capita incomes fell continuously from 1973 [see below]. Thus, there were three main effects of the Asian expulsion

1.Skilled managers were replaced by largely unskilled people, often drawn from the military and with little education;

2. The appropriation of their properties earned the country a long-lived reputation for lawlessness and property confiscation;

3. The manner in which former Asian businesses were acquired created insecurity of tenure, leading to asset stripping…”

Collins’ estimates show that annual growth of GDP peaked in 1969, before Amin came to power and three years before the expulsion (see graph below). It then remained flat until he is ousted in 1979. The 1970s was a period of high volatility for the world economy and specially for an oil-importing country such as Uganda. More so if, as it seems, “Big Daddy” was not a particularly dextrous at economic management. Interestingly, however, for the same period GDP per capita also peaks in 1969 and then consistently falls during the dictatorship. Taken together, the trends in GDP growth and per capita income may suggest that the expulsion of Asians adds to a process of wealth redistribution rather than the destruction of productive capacity within Uganda.

Uganda’s GDP per capita (index) and GDP growth over time (1967-1980)
(Source Collins, 2012)

Of course, causality is hard to ascertain based on simple descriptive series. It would be worthwhile for Collins to develop his views further by moving from descriptive to inferential statistics as well as expanding the database to test not only for the immediate effects of the Asian expulsion but also for its long-term impact.

Epilogue: This post celebrates the wealth of opportunities for business and economic history in developing countries and particularly Africa in the contemporary period. In this regard readers are pointed to the forthcoming World Bank Archives Workshop on Using History (which includes a presentation by Stephanie Decker, who has been quite successful in using the archives of the World Bank to reconstruct African history), the musing of Johan Fourie and Taylor & Francis’ Economic History of Developing Regions.

Postscript: I was pleasently surprised that this post was re-tweeted by David Birch, who thinks the UK is still benefiting from the arrival of some 30,000 Asian-Ugandans in the mid-1970s. This sentiment was shared and re-tweeted by Andrew Curry. Here is then another angle that could be explored.