Category Archives: Europe

On the Long-term Determinants of Cultural Traits: Family Structures in the Past

Origins and Implications of Family Structure across Italian Provinces in Historical Perspective

By Graziella Bertocchi (Modena and Reggia Emilia University and IZA) and Monica Bozzano (Modena and Reggia Emilia University)

Abstract: In this study we review the literature on the origins and implications of family structure in historical perspective with a focus on Italian provinces. Furthermore we present newly collected data on three of the main features of family structure: female mean age at marriage, the female celibacy rate, and the fraction of illegitimate births. The data are collected at the provincial level for 1871, the year of Italy’s political unification. The analysis of the data allows us to confirm and quantify the geographic differentiation in family patterns across the country.
We also illustrate the links between family structure and a set of socio-economic outcomes, in the short, medium, and long run.

URL: http://EconPapers.repec.org/RePEc:iza:izadps:dp10327

Distributed by NEP-HIS on: 2017‒06‒25

Review by: Guido Alfani (Bocconi University, Milan)

The recent interest in the long-term determinants of cultural traits has led to a new wave of research on family systems in the past, as well as to debates that renewed old disputes about the actual possibility of identifying areas of coherent family systems and their causal effect on contemporary behaviours. Graziella Bertocchi and Monica Bozzano have been very active in this field, focusing on such a culturally fragmented and varied area as Italy. In this new working paper, they present further evidence at the provincial level from the Italian 1871 census. They show the importance of looking at the sub-national and indeed, at the sub-regional level to identify correctly the prevalent family structures and demographic behaviours. Their data show feeble evidence that the so-called EMP (European Marriage Pattern) is associated with economic development, human capital accumulation and women’s empowerment. These findings are relevant to current debates on European family systems and on their possible permanent effects on cultural traits.

ItalianFamily_earlyXXc

Italian Family, early twentieth-century. Source:  www.novecento.org.

Summary

This paper presents new data, at the provincial level, about family structures in Italy in 1871. In that year, the first national census was made after the conquest of Rome and the incorporation of the residual territories of the former Papal States, and Veneto, into the Kingdom of Italy. The authors provide information about family types, female age to marriage, proportion of brides under age 20, female final celibacy rates, and illegitimacy rates. Family types are classified as nuclear vs complex, as well as according to the four-way classification introduced by Todd (1990) which combines residential habits (neolocal vs patrilocal) and inheritance systems (partible vs impartible): absolute nuclear family, egalitarian nuclear family, stem family, and communitarian family. Additionally, the authors build upon earlier research (Bertocchi and Bozzano 2015) to apply their own classification of Italian families, which distinguishes between egalitarian families with late female age to marriage (found to be prevalent, in 1871, in the North-West of Italy), incomplete stem families (prevalent in the North-East), communitarian families (prevalent in the Centre) and egalitarian families with early age to marriage (prevalent in the South).
Beyond the technicalities of the classification, an important contribution of the article is to clearly show, by means of a set of well-drawn maps, the high variability of family types and behaviours to be found across the Italian peninsula, even in contiguous territories. The obvious consequence of this, is to make it much more difficult to neatly characterize different parts of Italy according to their family systems and prevalent demographic behaviours.
Interestingly, the authors focus on characteristics connected to the so-called European Marriage Pattern (EMP), including nuclear residential patterns, relatively late age to marriage and relatively high final celibacy rates. The prevalence of the EMP has been connected to economic success, as originally hypothesized by Hajnal (1965) and as later assumed by many economic historians and economists (for example, Greif 2006; De Moor and Van Zanden 2010). But in this paper, in the authors’ words, “Overall our results show very feeble evidence that the different characteristics of the EMP are associated with economic development, human capital accumulation, or women’s empowerment” (p. 14). However, the authors do find a significant correlation between some of their indicators and measures of contemporary gender balance. For example, gender equality in economic leadership (measured as the rate of women in managerial positions) in year 2009 is found to grow with the female mean age to marriage in 1871 and to decline with the proportion of brides under age 20 and the prevalence of nuclear families. This is in line with earlier research by Bozzano (2016).
The authors are mindful of placing correctly their discussion in the broader context of current research on the long-term impact of family systems and structures done by economic historians and economists. Consequently they provide to all researchers interested in the field a useful survey of the recent literature (although a better coverage of recent demographic and historical-demographic literature would also have been useful – see for example Reher 1998).

Comment

This paper is an interesting and important contribution to the renewed pan-European research efforts aimed at identifying the characteristics of past family systems. Although many researchers pursue this objective solely to improve our knowledge of the past, others are driven by the aim of finding long-term determinants of differences in current social and economic behaviour. Two examples of this are the “Patriarchy Index” project (Szołtysek et al. 2017) and the recently-started Institutional Family Demography project (IFAMID) led by Arnstein Aassve, which is currently focusing on the measurement of another of Hajnal’s favoured indicators, the prevalence of life-cycle servants, at the European sub-national level. Yet other scholars have analysed previously-neglected aspects of past societies which could also explain current behaviour – for example godparenthood practices, which began to diverge across Europe at the time of the Reformation and which might have led to differences in ways of doing business (Alfani and Gourdon 2012).
The sub-national scale of analysis is a particularly useful characteristic of this paper. First, it allows (at least on principle) for more precise measurement and greater explanatory power. Secondly, and maybe even more importantly, it reminds us that complexity in the geographic distribution of social systems and behaviours is the common feature of most of the European continent. Indeed, a seemingly frequent characteristic of old debates is that they are easily forgotten – and what might have seemed to be final acquisitions need to be re-discovered and re-discussed, decades later. This is the case of debates about the actual possibility of applying broad generalizations to studies of European social-economic dynamics, the most common of which, both when referring to the European continent, or to Italy alone, seems to be the “North vs South” one. Such debates already involved, in a somewhat defensive position, Peter Laslett and his school, but have been renewed due to the popularity acquired by Todd’s more recent classifications among economists and to some degree among economic historians (interestingly, Todd seems to have been much less influential on historians of the family). The debates about the role played by the EMP in determining economic success, which have recently been the object of intense discussion in the pages of the Journal of Economic History (Dennison and Ogilvie 2014; 2016; Carmichael et al. 2016), have old roots. It is still unclear where current discussion will lead us – whether we are bound to conclude that if we examine European family systems closely, they are in fact too diverse and intermixed to be of much use as indicators of persistent cultural divides, or whether we will finally reach a consensus on broad, documentable differences which do not only fit nicely with our views on European societies (even though such views might be more than a little tainted by prejudice and ideology), but do actually explain something. What is clear is that, in order to make the discussion progress in a fruitful way, we need more high-quality data – which is what this paper successfully delivers for Italy.
There are, of course, issues which might be debated further. For example, this paper (like most of its kind) does not discuss the choice of period to measure differences in past family systems. It is not enough to state that the earliest-available encompassing census is used – is 1871 also the right period to measure such differences? Were not family differences already influenced by the Industrial Revolution and the demographic transition, and were not these processes more advanced at that time in the North (and especially in the North-West) than in the South of Italy? And why did the authors not control in their regression analysis for the pre-unification Italian state to which each province belonged, given that they work on a period immediately following the birth of the Kingdom of Italy? Indeed, why should we rule out the possibility that pre-unification states also had permanent effects, perhaps due to some influence on their local family systems? Finally, how far could family systems in 1871 determine differences in cultural traits today, given the intense internal migration processes that affected Italy? Many northern regions today have a very mixed population if we consider where the current population’s ancestors lived in 1871. Should we not conclude that current cultural traits are better explained by past family systems in provinces of out-migration (mostly the southern ones) compared with those of in-migration (mostly the northern ones)? And how could we take this into account, if indeed it is possible?
But these are questions better left for further research and for future debates, which already seem to be looming on the horizon. For now, we should be grateful to the authors of this paper for providing us with new material to ponder.

Selected bibliography

Alfani, G. and Gourdon, V. (2012), “Entrepreneurs, formalization of social ties, and trustbuilding in Europe (fourteenth to twentieth centuries)”, Economic History Review 65 (3), pp. 1005–1028
Bertocchi, G. and M. Bozzano (2015),“Family Structure and the Education Gender Gap: Evidence from Italian Provinces,” CESifo Economic Studies 61, pp. 263–300.
Bozzano, M. (2016), “On the Historical Roots of Women’s Empowerment across Italian Provinces: Religion or Family Culture?”, European Journal of Political Economy, forthcoming.
Carmichael, S. G., De Pleijt, A., van Zanden, J.L. and De Moor, T. (2016), “The European Marriage Pattern and Its Measurement”, Journal of Economic History 76, pp. 196–204.
De Moor, T. and J. L. van Zanden (2010), “Girlpower: The European Marriage Pattern and Labour Markets in the North Sea Region in the Late Medieval and Early Modern Period”, Economic History Review 63, pp. 1–33.
Dennison, T. and S. Ogilvie (2014), “Does the European Marriage Pattern Explain Economic Growth?”, Journal of Economic History 74, pp. 651–693.
Dennison, T. and S. Ogilvie (2016), “Institutions, Demography, and Economic Growth”, Journal of Economic History 76, pp. 215–217.
Greif, A. (2006), “Family Structure, Institutions, and Growth: The Origins and Implications of Western Corporations”, American Economic Review 96, pp. 308–312.
Hajnal, J. (1965), “European Marriage Patterns in Perspective”, in D. V. Glass and D. E. C. Eversley (eds.), Population in History: Essays in Historical Demography, Edward Arnold, London, pp. 101–143.
Reher, D.S. (1998), “Family ties in Western Europe: Persistent Contrasts”, Population and Development Review 24, pp. 203-234
Szołtysek, M., Poniat, R., Gruber, S., Klüsener, S. (2017), “The Patriarchy Index: a new measure of gender and generational inequalities in the past”, Cross-Cultural Research 51 (3), pp. 1-35
Todd, E. (1990), L’Invention de l’Europe. Paris: Éditions du Seuil.

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Populism is Back! Why has this happened and why does it matter?

Populism and the Economics of Globalization

By Dani Rodrik (Harvard University)

Abstract: Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash. While the backlash may have been predictable, the specific form it took was less so. I distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight. The first has been predominant in Latin America, and the second in Europe. I argue that these different reactions are related to the relative salience of different types of globalization shocks.

URL: http://EconPapers.repec.org/RePEc:cpr:ceprdp:12119

Distributed by NEP-HIS on: 2017-07-09

Review by Sergio Castellanos-Gamboa (Bangor University)

Summary

Populism has been at the front of news headlines for a while now. Whether it was the controversial campaign for Brexit led by Nigel Farage from the United Kingdom Independence Party (UKIP) and Boris Johnson from the Conservative Party in Great Britain, or the equally controversial campaign and victory of Donald Trump in the recent United States elections, the rise of anti-immigrant and anti-European political parties in countries like France, Greece, and Spain, the so called “anti-imperial Castro-Chavist” movements and governments in Venezuela, Bolivia, and Ecuador, or the opposition of the Democratic Center Party (a right-wing political agrupation led by ex-president Alvaro Uribe Velez) to the peace treaty in Colombia, populism is back and very strong, and according to the author, it is here to stay for the foreseeable future.

Dani Rodrik combines the use of economic history and economic theory to analyze the recent surge of these populist movements across Europe and America (see a blog-post version of the paper on VOX here). The main argument of the paper is that “advanced stages of globalization are prone to populist backlash” and the specific form populism takes will depend on the different societal cleavages that politicians can exploit to promote anti-establishment movements. There will be a tendency for left-wing populism when “globalization shocks take the form of trade, finance, and foreign investment”. The opposite will happen when “the globalization shock becomes salient in the form of immigration and refugees”.

Dani_Rodrik_small_400x400

Rodrik first presents a rather short summary of what economic history has to say about the appearance of populism during the first globalization era. He points out to the abolition of the Corn Laws in Britain in 1846 as the origin of a series of commercial treaties that, combined with the Gold Standard and free mobility of capital and people, made the world almost as globalized as it is today. Nonetheless, the decline of agricultural prices in the 1870s and 1880s motivated an increase in agricultural tariffs in almost all of Europe, and later on, the United States instituted a series of acts to reduce immigration from several countries. Moreover, Rodrik argues that the first self-consciously populist movement appeared in the US during the 1880s, with the farmers’ alliance against the Gold Standard, bankers and financiers.

The author moves on to analyze the effects of trade on redistribution. Based on the theorem developed by Stolper and Samuelson (1941), Rodrik argues that in most international economic models where trade does not lead to specialization, “there is always at least one factor of production that is rendered worse off by the liberalization of trade. In other words, trade generically produces losers”. Moreover, he argues that the net profits of trade openness decrease relatively to the redistribution costs, as the initial barriers to trade are lower. He backs this argument with empirical evidence from the literature on NAFTA and the US trade with China, and a model that looks at the effect of the size of the initial tariff being removed on the change in low-skill wages and the increase in real income of the economy.

Rodrik also argues that although there could be a form of compensation for the affected industries, this is usually very costly and not practical. Also, one of the reasons why populist movements in Europe have not been anti-trade might be the existence of safety nets that made unnecessary ex-post mechanisms of compensation. Very important as well is the general perception of the masses on the degree of fairness of the increase in inequality perceived after reducing trade tariffs. Namely, populism is more likely to appear when the losses derived from globalization and increases in inequality are deemed to be produced by a group taking unfair advantage of the new economic atmosphere.

The author also analyzes the perils of financial globalization, whereby looking at the current literature of the effects of capital mobility on inequality, he concludes that countries prefer when capital adopts the form of a long-term flow, like direct foreign investment, rather than short-term, volatile financial flows. Rodrik comments that the literature has found that financial globalization tends to increase the negative impact of low-quality domestic institutions. There is also a high correlation presented by Reinhart and Rogoff (2009) between capital mobility and the incidence of banking crises.

The article concludes with an analysis of the possible determinants of the specific type of populism that spreads in a given country. In a different paper (Mukand and Rodrik, 2017) Rodrik presented a model that could explain to some extent the reason why populist movements in Europe have traditionally been right winged, whereas in Latin America they have been usually left winged. The main determinants in the model were the presence of an ethno-national/cultural or an income/social cleavage. Rodrik also provides empirical evidence of this phenomenon with a newly constructed dataset.

Comments

During my training as an economist I was well aware of the distributional effects that trade has on the economies involved. Nonetheless, the argument I heard was always that trade is a positive-sum game and net profits from it could be redistributed among the losers, thus alleviating any negative effects. The usual argument to explain why trade openness was sometimes not so popular was that the potential losers from trade were better represented and had more lobbying power, thus preventing tariff reductions. As Rodrik argues in this paper, sometimes, especially at advanced stages of globalization, not only are there problems redistributing the potential net profits; it looks as the net effects of opening more the economy at this stage might be actually negative.

This paper comes out at a moment when academics, politicians, the media, and the general public are trying to understand the reasons why these movements have appeared somewhat all of a sudden. Rodrik’s argument is that these events were predictable. The implications of the development of a particular form of populism on economic welfare are still not clear yet: analyzing this could be one of the lines of future research opened by this paper. Very often populism is associated with demagoguery, and it will be very important to differentiate between the two in the future. It is not the same that an anti-corrupt-establishment movement aims to change the political structure of a country, than filling the public opinion with lies and false promises as it happened with Brexit in the UK and with the peace treaty referendum in Colombia. In the former, the Leave campaign promised to the general public that the resources spent on the EU could be directly transferred to funding the National Health Service, which turned out to be a false statement. In the latter, leaks of recordings from the campaign opposing the peace treaty clearly showed how different socio-economic groups were fed different false arguments to gain their sympathy.

Finally, the paper shows the relevance of economic history for the discussion of present problems. Rodrik uses economic history to acknowledge that populism has sprung in the past at advanced stages of globalization. Following his example, economic historians should contribute to the literature by further explaining the channels through which populism has developed, to help us understand which are the consequences of different types of populism on economic development and societal welfare.

References

Mukand, Sharun, and Dani Rodrik, 2017. The Political Economy of Liberal Democracy. Harvard Kennedy School.

Reinhart, C.M. and Rogoff, K.S., 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton University Press.

Stolper, W. F. and Samuelson, P.A., 1941. “Protection and Real Wages.” Review of Economic Studies 9(1), pp. 58-73.

Knowledge in Mining does matter. But not any Knowledge.

The Mining Sectors in Chile and Norway, ca. 1870 – 1940: the Development of a Knowledge Gap

By: Kristin Ranestad (University of Oslo)

Abstract: Chile and Norway are two ‘natural resource intensive economies’, which have had different development trajectories, yet are closely similar in industrial structure and geophysical conditions. The questions of how and why Chile and Norway have developed so differently are explored through an analysis of how knowledge accumulation occurred and how it was transformed by learning into technological innovation in mining, a sector which has long traditions in Norway and has been by far the largest export sector in Chile for centuries. Similar types of ‘knowledge organisations’ with the direct aim of developing knowledge for mining were developed in both countries. Formal mining education, scientifically trained professionals, organisations for technology transfer and geological mapping and ore surveys are compared in the search for differences which may explain the underlying reasons for variations in economic growth.

URL: http://econpapers.repec.org/paper/heswpaper/0105.htm

Distributed by NEP-HIS on: 2016-11-13

Review by Miguel A. López-Morell (University of Murcia)

The effect of mining on the economic development of countries with abundant natural resources is a central issue of the history of economics. The question is straightforward: Why does mining have a positive effect on some countries while in others its contributions to the economic development are scant, not to mention the huge environmental problems that mineral extraction and processing generate? The “resource curse” myth does, unfortunately, hold true in most developing economies, but it is hard to take on board when we consider countries with very long mining traditions like Australia, the USA and Canada, to mention but three, and their high levels of income. There is, therefore, a need for studies that do not demonize the sector but rather search out deep causes and well-founded arguments to explain the conditions in which mining has a positive effect, or other, on development.

Rajos-Centinela

Mines in Antofagasta (Chile). Source: Tapia, Daniela. “Distrito Minero Centinela: La ambiciosa apuesta de Antofagasta Minerals.” Nueva Minería y Energía, November 17, 2014, link.

 

Kristin Ranestad approaches the issue from a comparative institutional perspective. The examples she uses, Chile and Norway, are in some ways congruent, in that both have a long mining tradition and they are not dependent countries with development problems; indeed, in terms of development per inhabitant, they are clear leaders in South America and Europe.

Ranestad identifies the similarities and differences in the levels of education of the mining engineers and technicians; the proportional presence of the latter in mining; the deployment of advanced information systems, such as scientific journals or attendance at congresses and exhibitions; the existence of study travels and work abroad; and the intensity of geological mapping and ore surveys.

The conclusions Ranestad draws leave little room for doubt. All the above facets that affect technological knowledge in modern mining are to be found in both countries, yet there are important differences in terms of quality and quantity, with Norway always coming out on top, except in terms of university education. Chile loses out as there is no direct relationship between the size of the mining sector and the level of development of other factors, where it trails Norway by some way.

The reasons, although not explained in depth here, lie to a large extent in the presence of large North American groups like Kennecot or Anaconda in Chile since the First World War. These controlled the huge deposits of Chuquicamata or El Teniente, where they introduced modern mining production technologies that boosted export capacity, although they always acted in isolation. At the same time, there was a large group of small and medium size Chilean mines that was working with minimum technology, almost non-existent externalities and a highly deficient exploitation of the deposits, which were frequently abandoned well before they had been fully exploited with the technology of the time. In contrast, Norway was streets ahead in all aspects and its mines were far more diversified and making far better use of their resources. They were also far more in tune with the economic environment.

The approach seems to be an interesting one since economic historians frequently, and mistakenly, argue in favor of the importance of quickly reaching historical landmarks that affect institutional and technological development, while overlooking the real significance of these for the production system. We tend to give an overwhelming importance to the age of technical schools, professional associations or scientific publications rather than to reflect more on how much influence they have had and how mature they are.

There may be some question marks hanging over Ranestad’s figures for the numbers of active engineers in each country. According to her reasoning and to the sources consulted, the argument stems from the idea that training was an endogenous affair since she draws on the mining schools’ own records to fix the figures of engineers. So we cannot, on the basis of the information provided, know what percentage of engineers had been trained abroad. In Spain, for example, which was a leading mining power at the time, there was a relatively high number of engineers who had studied abroad prior to the Second World War. Indeed, foreigners and Spaniards who had studied abroad accounted for some 250 mining engineers, according to one database constructed using the annuals of mining engineers, even though it did not include man professionals working in large companies in Spain, like Rio Tinto Co, Tharsis, la Asturiana or Peñarroya, which did not even bother to inform about such matters (see Bertilorenzi, Passaqui and Garçon 2016, pp. 143-162). The author herself, when talking about foreign engineers, notes: “However, their dominance was negative in the sense that the lack of collaboration with domestic engineers and leaders prevented knowledge transfer within the sector”. Yet she does not back this up with hard figures.

Nevertheless, her contribution is a valuable one which affords a novel approach that is perfectly applicable to other works of comparative economic history. In the case of Chile, there is no explanation of the differences to the sector following the nationalization of the copper industry between 1853 and 1971. In perspective, though, it is not comparable with the Norwegian situation in the sense of the sector’s capacity to transfer knowledge to other sectors and to the country as a whole. A prime example is Orkla, which is today a huge, widely diversified conglomerate that has little do to with mining, but which in the 1920s produced copper and pyrites more profitably than its competitors, despite its mineral being 10% poorer in quality. It would even sell technology to Rio Tinto, no less. It would also be worthwhile analyzing whether the nationalization of copper mining and the government control of oil in Norway have had similar repercussions for the inhabitants of each country. A starting point would be to ask Chilean pensioners whether they have similar benefits to their Norwegian counterparts, even though the answer does seem foregone.

References

Bertilorenzi, Marco; Passaqui, Jean-Philippe and Garçon, Anne-Françoise (dirs.) (2016) Entre technique et gestion, une histoire des « ingénieurs civils des mines » (XIXe-XXe siècles).París, Press des mines

Harvey, C. and Press, J. (1989) “Overseas Investment and the Professional Advance of British Metal Mining Engineers, 1851 – 1914”, Economic History Review 1989, 42 (1) pp. 64-86.

Mokyr, Joel (2002) The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton: Princeton University Press.

Rosenberg, Nathan (1982) Inside the Black Box: Technology and Economics. Cambridge: Cambridge University Press.

The Data We Have vs. the Data We Need: A Comment on the State of the “Divergence” Debate (Part II)

How Well Did Facts Travel to Support Protracted Debate on the History of the Great Divergence between Western Europe and Imperial China?

By: Kent Deng (London School of Economics), Patrick O’Brien (London School of Economics)

Abstract: This paper tackles the issue of how reliable the currently circulated ‘facts’ really are regarding the ‘Great Divergence’ debate. Our findings indicate strongly that ‘facts’ of premodern China are often of low quality and fragmented. Consequently, the application of these ‘facts’ can be misleading and harmful.

URL: http://econpapers.repec.org/paper/pramprapa/77276.htm

Distributed by NEP-HIS on: 2017-03-19

Review by: Kenneth Pomeranz (University of Chicago)

(continued)

Comparative Consumption

 

This brings us, finally, to consumption.  As noted at the beginning of this comment, I agree that this is the most promising area for future research that might illuminate comparative living standards.  It is hard to know where really definitive data would come from: since the Chinese state did not systematically tax any major consumer goods except salt, and very little that ordinary people used was imported, we are unlikely to find data anywhere near as reliable as what we have for liquor, sugar, tobacco, etc., in various European countries.  Nonetheless, it is not that hard to imagine data that would help us make some progress in this area.[1]  And the area where O’Brien and Deng concentrate here – calories from grain – is, of course, fundamental, and there are various ways to generate estimates.  (It should be noted, however, that in unequal societies, the grain consumption of the poor is likely to be a lagging indicator of overall economic divergence –changes in the lives of the first and second quartiles of the income distribution could produce significant differences in average incomes well before the food intake of the poor in one society began to significantly outpace that of their counterparts in another.)  Thus, I applaud the attempt to see what we can learn by focusing on estimates of poor people’s incomes in kilocalories.  I have strong doubts, however, about the conclusion that Deng and O’Brien reach about this matter.

First, it is worth noting that various estimates have been made, which suggest that at least in this area, Chinese poor people (and perhaps some others elsewhere) were no worse off than their Western European counterparts. I have discussed several of them elsewhere, and little would be served by repeating that effort here.[2] 

O’Brien and Deng disagree, and rely upon a paper they published  in Journal of World History (2015).  That paper takes estimates of the likely income from a typical-sized tenant farm in the 18th-19th century Yangzi Delta, as calculated by Philip Huang, Robert Brenner and Christopher Isett, Robert Allen, and myself, and suggests that they converge upon a range of likely incomes that falls considerably short of the incomes of English laborers at the same time. I do not think that that is the most reasonable inference to be drawn from this data.

As they note in their current publication, I wrote to O’Brien and Deng after their  paper was published, largely agreeing with their methodology but questioning their data.  They apparently do not think the difference over data is important, since quickly continue “Nevertheless, these procedure provided us with figures for levels and changes in the standard of living for peasant households in Jiangnan from circa 1600 to circa 1829.” This, I think, misses the significance of the disagreement on data, which is easily stated.  Allow me to quote from the letter I wrote at the time, adding only some boldfaced type for emphasis, and a few explanations of reference in square brackets::

    “…    The key is Row 3 [of Table 4, pages 248-253]: ‘Area cultivated: mu,’ where you suggest that Huang, Brenner and Isett and I all accept an average farm size of 7.5 mu.  Brenner and Isett, of course, simply accepted Huang’s figure: they were all working together,  Brenner reads no Chinese and Isett (B and H’s student) had never worked on the Yangzi Delta.  So that is really one assertion that the farm size was 7.5 mu.  In your notes to that row you suggest that I also accept that figure; there is no direct citation for that point, but earlier you cite my “Facts Are Stubborn Things” essay.   But here’s what I wrote there, referring back to my essay in the first round of our debate [that is, my debate with Huang] (“Beyond the East-West Binary):

‘  …while I accepted Huang’s average farm size of  7.5 mu for purposes of our initial discussion, this  prevailed (if at all) only in the Delta’s most crowded prefectures, where people mostly grew cotton or mulberries.  The larger Delta I discuss had 59,000,000 registered cultivated mu circa 1770, or 10.5 mu  per 5-member farm family. [1]   This confirms Li Bozhong’s estimate that mid-Qing Jiangnan farms averaged 10 mu…’

 

And indeed, the 7.5 mu figure seems very unlikely to be right.  Consider, just for starters, that the sources you cite for 1820 give farm sizes of either 9.0 or 10 mu (depending on what definition one uses for Jiangnan);  it is widely agreed that there was no new land cleared in Jiangnan after the mid-18th century (further intensification took the form of more double-cropping), and while population figures are not very reliable, there was almost certainly some increase.  (Cao Shuji’s figures (2000, 5:691-92)  suggest a 38% increase from 1776 to 1850, with the rate of increase faster in the earlier years,  for instance; I think that is probably too high, but you see the point.) It thus seems pretty implausible that farmed acreage per family would have been anywhere from 1/6 to ¼ less in 1750 than it would be 70 years later.

Since I think you [Deng and O’Brien] have accurately reported the other figures in your table, the consequences of this one change would be quite significant.  Using 10 mu per family for 1750 would raise the estimate of caloric income in my data from 2,438 to 3,251; using 10.5 raises it to 3,413.  Thus, instead of more or less agreeing with Brenner and Isett, my numbers come to be 30-40 % above theirs – and over 80% above Huang’s (rather than about 33%). Perhaps more importantly, if you turn to your table 6, making this change would mean that instead of having a rough consensus on Jiangnan caloric intake that had already fallen a bit below English farm laborers (if one assumes they ate wheat) or significantly behind them (if they ate oats), you would be back to two views: one based on Huang’s data, that suggested what I have just said, and one which placed the caloric intake of Jiangnan farmers even with English farm laborers if they consumed oats, and still well ahead of them if they consumed wheat.  Significant divergence on this particular measure (admittedly one that lagged others) would be pushed well into the 19th century.  (In fact, if we accept Li or Allen’s work, as summarized in your column for 1800-1849, it would still not have happened in that period.).The difference is therefore quite significant…”

 

Moreover, I would add,  the adjustment I suggested in this missive would sharply alter the picture of change over time in the Yangzi Delta, yielding a more likely picture that has different comparative implications.  Without the correction, Deng and O’Brien’s data suggest a fairly sharp decline in living standards between 1600 and 1750, with a recovery to roughly 1600 levels by 1829.[3]   This, however, seems unlikely, since it was widely agreed that 1750 was near the middle of a prosperous era, while 1829 was (as already noted) part of an era of crisis.  (Whether the 1620s were part of a good period or not is less settled.[4] )     If we instead adjust the 1750 farm size figures as I have suggested, we have a probable improvement of living standards between 1620 and 1750 (perhaps even a large improvement), followed by either stasis or decline between 1750 and the 1820s; this would be much more in line both with the testimony of contemporary voices and the views of most historians.  And if that is right, it would also fit the picture of an East/West divergence  that came late but gathered steam quickly: not only because first Britian and then other parts of Northwestern Europe surged, but because the most prosperous parts of China began to fall into crisis.

Obviously, we would like comparisons of living standards, even among the poor, to go beyond caloric intake; and attempts have been made, by a number of us, to look quantitatively at cloth, sugar, tea, and a few other goods, and more impressionistically at tobacco, various forms of entertainment, and so on.   But for the time being, those discussions are nowhere near consensus; and in the world of the late 18th century, basic calories still loomed quite large in any case.  And there, I would respect, correcting the error noted above suggests that the balance of available research still suggests comparability until quite late. (Huang’s numbers have other serious problems, which I have discussed elsewhere.[5])    Until we get beyond basic calories in discussing the poor – and get much better estimates, on the Chinese side, of the distribution of income,[6] so we know more about what comparisons of the poor do and do not tell us, our picture of comparative consumption will remain quite inadequate for settling our debates, even if it remains the most promising area for further research; and as long as our understanding of consumption remains so inadequate, I would be loath to shut the door on the other approaches that Deng and O’Brien encourage us to abandon.

Bibliography


Allen, Robert.  2000. “Economic Structure and Agricultural Productivity in Europe, 1300 – 1800,” European Review of Economic History 4:1 (April, 2000),

Allen, Robert. 2004. “Mr. Lockyer Meets the Index Number Problem: The standard of Living in Canton and London in 1704,”  July 2004, available at http://www. iisg.nl/hpw/papers/allen.pdf, accessed December 7, 2008

Allen, Robert. 2009a. The British Industrial Revolution in Global Perspective. Cambridge: Cambridge University Press.

Allen, Robert. 2009b. “Agricultural Productivity and Rural Incomes in England and the Yangzi Delta, ca. 1620-1820,” Economic History Review 62:3 (August), pp. 525-550.

Allen, Robert et.al., 2011.  Robert Allen, Jean-Pascal Bassino, Debin Ma, Christine Moll-Murata, and Jan LuitenVan Zanden, “Wages, Prices and Living Standards in China 1738-1925: In Comparison with Europe, Japan, and India,” Economic History Review 64:1 (February), pp. 8-38.

Baten, Joerg. et al.  2010.  Joerg Baten, Debin Ma, Stephen Morgan and Qing Wang, “Evolution of Living Standards and Human Capital in China in the 18th – 20th Centuries: Evidences From Real Wages, Age-Heaping, and Anthropometrics,” Explorations in Economic History 47, pp. 347-359.

Benedict, Carol. 2011.  Golden-Silk Smoke: A History of Tobacco in China 1550- 2010. Berkeley: University of California Press.

Brenner, Robert and Christopher Isett. 2002. “England’s Divergence from the Yangzi Delta: Property Relations, Microeconomics, and Patterns of Development,” Journal of Asian Studies 61:2 (May), pp. 609-662.

Broadberry, Stephen, Hanhui Guan and David Daokui Li. 2014. “China, Europe, and the Great Divergence: A Study in Historical National Accounting, 980 – 1850,” http://eh.net/eha/wp-content/uploads/2014/05/Broadberry.pdf.

 

Chang Chung-li (Zhang Zhongli). 1962. The Income of the Chinese Gentry.  Seattle: University of Washington Press.Deng, Kent G., and Patrick K. O’Brien. 2015. “Nutritional Standards of Living in England and the Yangtze Delta (Jiangnan), circa 1644 – circa 1840: Clarifying Data for Reciprocal Comparisons,” Journal of Wor;d History 26:2 (June), pp. 233-267.

Guan Hanhui and David Daokui Li.  2010. “Mingdai GDP ji jiegou shitan,” (A Study of  GDP and its Sturcture in China’s Ming dynasty),” Zhongguo jingji jikan 9:3 (April), pp. 787-829,   http://en.cnki.com.cn/Article_en/CJFDTotal-JJXU201003003.htm
Huang, Philip. 1990. The Peasant Family and Rural Development in the Lower Yangzi Region, 1350-1988.  Stanford: Stanford University Press.

Huang, Philip C.C.  2002a. “Development or Involution in Eighteenth Century Britain and China?  A Review of Kenneth Pomeranz’s The Great Divergence: China, Europe and the Making of the Modern World Economy,”  Journal of Asian Studies 61:2 (May), pp. 501-538.

Huang  Philip. C.C.  2003. “Further Thoughts on Eighteenth-Century Britain and China: Rejoinder to Pomeranz’s Response to My Critique,” Journal of Asian Studies 62:1 (February), pp. 157-167.

Lal, Deepak. 1998. Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance.  Cambridge: MIT Press, 1998.
Landes, David. 1998.  The Wealth and Poverty of Nations.  New York: Norton.

Lee, James, Cameron Campbell and Wang Feng. 2002. “Positive Check or Chinese Checks?” Journal of Asian Studies 61:2  (May), pp. 591-607.

Li Bozhong and Jan Luiten Van Zanden. 2012. “Before the Great Divergence? Comparing the Yangzi Delta and the Netherlands at the Beginning of the Nineteenth Century,” Journal of Economic History 72:4 (December), pp. 956-989.

Li Wenzhi and Jiang Taixin, 2005.  Zhongguo dizhu zhi jingji lun (Essays on the Chinese Landlord Economy). Beijing: Zhongguo shehui kexue chubanshe,

Liu, William Guanglin. 2015.  The Chinese Market Economy 1000-1500,  Albany: State University of New York Press.

 Ma,Debin. 2004. “Modern Economic Growth in the Lower Yangzi in 1911-1937: a Quantitative, Historical, and Institutional Analysis” (Discussion paper 2004-06-002, Foundation for Advanced Studies on International Development, Tokyo.

Maddison, Angus. 2001.  The World Economy: A Millenmial Perspective.  Paris: OECD.

Maddison, Angus. 2003. The World Economy: Historical Statistics. Paris: OECD.

 

Moll-Murata, Christine. 200. “Chinese Guilds from the Seventeenth to the Twentieth Centuries: An Overview,”  International Review of Social History 53, Supplement, pp. 213-247.

 

Morgan, Stephen. 2004.  “Economic Growth and the Biological Standard of Living in China 1880-1930,” Economic and Human Biology 2:2

Pomeranz, Kenneth. 2000.  The Great Divergence: China, Europe, and the Making of the Modern World Economy.  Princeton: Princeton University Press.

Pomeranz, Kenneth. 2002 “Beyond the East-West Binary: Resituating Development Paths in the Eighteenth Century World,”  Journal of Asian Studies 61:2 (May, 2002), pp. 539-590.

Pomeranz, Kenneth.  2003“Facts Are Stubborn Things: A Response to Philip Huang,”  Journal of Asian Studies  62:1 (February, 2003).: 167-181.

Pomeranz, Kenneth. 2006.  “Standards of Living in Rural and Urban China: Preliminary Estimates for the Mid-18th and Early 20th Centuries.”  Paper for Panel 77, World Economic History Congress, Helsinki.

Pomeranz, Kenneth. 2011. “Development with Chinese Characteristics?” Convergence and Divergence in Long-Run and Comparative Perspective.” European University Institute (Florence) Max Weber Programme, Working Paper 2011/06.

 

Pomeranz, Kenneth. 2013. “Skills, Guilds, and Development: Asking Epstein’s Questions to East Asian Institutions,” in Maarten Prak and Jan Luiten van Zanden, eds., Technology, Skills, and the Pre-Modern Economy in the East and West: Essays Dedicated to the Memory of S.R. Epstein  (Leiden: E.J. Brill), pp. 93-127.

 

Rawski, Evelyn.  1972.  Agrarian Change and the Peasant Economy of South China.  Cambridge: MA: Harvard University Press.

 

Xue Yong. 2006. . “Agrarian Urbanization: Social and Economic Changes in Jiangnan from the Eighth to the Nineteenth Century” Yale University Ph. D. dissertation.

Yang Guozhen, Ming Qing tudi qiyue yanjiu  (Research on land contracts in the Ming and Qing)  Beijing: Renmin chubanshe, 1988,

Zhang Peiguo. 2002.   Jindai Jiangnan xiangcun diquan de lishi renleixue yanjiu. (A Historical Anthropology of Rural Village Land Rights in Jiangnan.)  Shanghai: Renmin chubanshe.

 

 

 

 

 

 

[1] See Benedict 2011:49, lending cautious support to my conjecture that tobacco acreage stagnated or declined between the late 18th and early 20th centuries, greatly reducing per capita output (and thus allowing us to use early 20th century figures to conservatively approximate 18th century consumption).  Thomas Rawski has suggested that we could approach this issue more rigorously if we found a long run of tobacco prices to compare with those for grain: something which hasn’t happened yet, but is certainly possible.

[2] See Pomeranz 2000:36-40,Pomeranz 2002, and Pomeranz 2003.. See also Lee, Campbell and Wang 2002. More recent work on height, longevity, etc., is largely restricted to the 19th and 20th centuries, and has little to say about the Yangzi Delta in particular, but tends to suggest that the parts of China that are represented in the data were at or above the middle of a European distribution in the early 19th century.  See for instance Morgan 2004; Baten et. al. 2010..

[3] This effect is partly the result of the choice of data discussed here, but it is also partly the result of the fact that the data for 1600 and 1829 include estimates from Li Bozhong, who tends to be optimistic in his view of Delta conditions, while the section of the table for 1750 does not; at the same time, Philip Huang, the most pessimistic of the scholars in this debate, is cited in the 1750 section of the table, but not in the other two.

[4]For a recent overview that takes a relatively dour view of the late Ming (though it does accept that it represented a very significant recovery from ehat it considers a catastrophic early and mid-Ming), see Liu 2015.

[5] Pomeranz 2002, 2003.

[6] I made an extremely quick and crude attempt in Pomeranz 2003.  An earlier and partial attempt is Chang 1955.

The Data We Have vs. the Data We Need: A Comment on the State of the “Divergence” Debate (Part I)

How Well Did Facts Travel to Support Protracted Debate on the History of the Great Divergence between Western Europe and Imperial China?

By: Kent Deng (London School of Economics), Patrick O’Brien (London School of Economics)

Abstract: This paper tackles the issue of how reliable the currently circulated ‘facts’ really are regarding the ‘Great Divergence’ debate. Our findings indicate strongly that ‘facts’ of premodern China are often of low quality and fragmented. Consequently, the application of these ‘facts’ can be misleading and harmful.

URL: http://econpapers.repec.org/paper/pramprapa/77276.htm

Distributed by NEP-HIS on: 2017-03-19

Review by: Kenneth Pomeranz (University of Chicago)



Kent Deng and Patrick O’Brien have done us all a service by taking a step back from the conclusions drawn by different participants in the so-called “great divergence debate” to focus  on the types and quality of our data, and on some conceptual problems with the application of modern measurements such as GDP to economies that were radically different from ours – in part because they were incompletely monetized.  I find myself agreeing with most of their criticisms of both GDP and real wage comparisons, and have some of my own to add. Not surprisingly, then, I share their preference for research on comparative consumption – which was a big part of my approach in The Great Divergence – and agree that this is where we have the best prospects for making further progress on these issues.  But I am not as ready as they seem to be to completely discard approaches based on GDP or real wage estimates; and perhaps more importantly, I would significantly modify their assessment of where our discussion of consumption and popular living standards currently stands.

We are, quite simply, unlikely to find any data that is good enough to lay these disputes  to rest.  I agree that the chances of finding significantly better consumption data are higher than are our chances of finding everything we would need to construct truly persuasive GDP estimates, and that the problems with treating wages as representative of living standards in a society like 18th century China are quite severe,  even if we could resolve the more narrowly empirical problems with the wage data themselves (e.g. unstated but significant in-kind components, differences in the currencies in which Chinese wages and prices are often quoted, uncertainty about the length of the “day” in day wages, and so on).  But at the moment, the consumption data also have significant problems; so while this may well be where we want to concentrate future research efforts, that  does not mean that this is the only metric we should be tracking as we make our best guesses about the current state of this controversy.  (We could, of course, theoretically all agree not to comment on this controversy until we  know more, but that seems unrealistic, given how many other issues it touches upon.)   So I would be inclined to keep the wage data, and even the GDP estimates, in play in this discussion, even though I share Deng and O’Brien’s sense that the consumption data are stronger (and even though those data are more favorable to the position I took in my 2000 book).  Let me briefly review each of these areas.

 

Comparative GDP Estimates

 

I would not disagree with Deng and O’Brien’s critique of the GDP approach, or of Maddison’s figures in particular: the latter were based on far too narrow an evidentiary base for much of the world and much of history.  I think, however, it is worth noting that there have been some more recent attempts to estimate GDPs, which have the advantage both of somewhat better data and of attempting to construct GDP figures for the Yangzi Delta, rather than for China. Given the points that some of us have made repeatedly about the vastly different scales of China and any single European nation, and about the advantages of comparing the most developed region of a continent-sized China with the richest regions of Europe rather than insisting on national units, these numbers seem to be worth at least some attention.
For instance, a recent paper by Stephen Broadberry, Hanhui Guan and David Daokui Li suggests that Britain must have overtaken the Yangzi Delta in per capita GDP by the first quarter of the 18th century.[1]  This is, of course, materially different from my claim in The Great Divergence that the Yangzi Delta had not fallen significantly behind until well into the second half of the 18th century, and maybe not until 1800 (though my conclusions were based on estimates of consumption, longevity, and basic human well-being, rather than GDP).  Nor has this paper found a way around all the problems with historical GDP and comparisons between very different societies to which Deng and O’Brien have pointed.(These include the radically different market baskets of these two societies, which had relatively little trade between them, the very different degree to which the government tracked various kinds of production, and others; to which I would add, large differences in the degree to which various goods and services passed through the market.)  Still, I would not want to simply discard such work, given the difficulties that dog other approaches. Moreover, I think it is noteworthy that a debate between an early and a late 18th century divergence represents a considerably different intellectual landscape than the one we would have if we relied on Maddison’s GDP numbers,[2] or on the non-quantitative work of David Landes, Deepak Lal, and various others – or for that matter, on an earlier attempt by Guan and Li to estimate comparative GDPs, which had previously claimed that a huge gap already existed in the 15th century.[3]  An earlier paper by Debin Ma suggested that the per capita GDP of the Lower Yangzi  — which he defines slightly more broadly than I do, so that it includes some poorer areas – probably exceeded that of China in general by about 50% in 1750:[4] such an adjustment, patched onto Maddison’s data, would leave the Delta behind Britain, but by considerably less (in percentage terms) than, say, Germany lags Norway today, or the U.S. lags Luxembourg (when nobody argues that this makes either Germany or the U.S. a “backward” economy fundamentally different from the “advanced” ones, as we used to think China was relative to early modern Europe.). Similarly, a study by Li and Van Zanden, based on data for the 1820s, finds Holland well ahead of two counties in the Delta for which there are particularly good data in those years; but as  they note, the 1820s were a period of both agricultural crisis due to natural disasters and depression in the cloth trade, the second biggest sector of that region.  They suggest that if we had data for 1800, it would show a smaller gap, but still a significant one, with Holland perhaps 50 or even 70% higher in per capita GDP.[5] Admittedly, that is far from the rough parity I had originally suggested at 1800, and would now be inclined to put at somewhere around 1750 instead; there are some plausible adjustments that I think would narrow the gap further, but that is not really the point for now.  Instead I would emphasize that despite continuing disagreements and continuing data problems – the latter of which will probably never be fully solved – we have made some progress in narrowing the range of plausible answers about when and how much divergence occurred in these terms.  Even if GDP is a seriously flawed measure for purposes of this debate, I am not sure we want to throw it out entirely.

Real Wage Comparisons

The wage data is similarly vexed, and Deng and O’Brien have, I think, explained very convincingly some reasons for skepticism.  But let me add two more, extend the discussion of another, and suggest a possible implication of how we might read this imperfect data in conjunction with the even more imperfect GDP data.

The first additional cause for skepticism in Robert Allen’s own reconstruction of real wages based on prices and wages recorded by the supercargo of an East India Company ship docked in Guangzhou during the trading season of 1704.  Using the same basic approach as he and his co-authors use on the larger data set they compiled a bit later, Allen arrives at the conclusion that the real wages here were roughly equal to those in London at the same time – and Guangzhou, it is generally agreed, was not quite as wealthy as the Yangzi Delta.  (Allen 2004).  Let me make clear that I am not saying that these data give the correct picture,  and the other data a false one: there are certainly reasons why the Guangzhou data could be unrepresentative.[6] But these are at least prices and wages that we know were actually paid by individuals in private markets, and that should be relatively free of unreported in-kind benefits.  (Chinese workers would certainly not have lived on a British ship, and are unlikely to have eaten British food.) By contrast, the Chinese data in the later and better-known 5 author paper on early modern wages around the world are from administrative reports of prevailing wages, with no evidence that the reporters actually made any sort of survey, and no data at all on in-kind compensation.  I would thus not be quick to throw out the Guangzhou material just because it is a smaller database – and that it gives a figure which is so much higher than those derived from the other data seems lke a good reason to doubt the data overall.  There is also something highly suspicious about the lack of difference between the wage rates for different parts of China in the administrative data, when every qualitative source we know of agrees that there were very large regional differences in material living standards.  Again, this is not sufficient reason to discard these data when we have so few; on the contrary, they represent the best large-scale data set that we have, and the authors have used them to make interesting claims.  But I think we need to be very careful about how we use them for this particular debate.

It is crucial that most Chinese did not rely on wages for their income – as O’Brien and Deng note.  But we also know quite a bit about  the likely relationship between these wages and peasant earnings.  All our evidence suggests that tenant farmers earned a great deal more than agricultural laborers, even if the latter were able to find year-round employment. This conclusion is confirmed whether we look at estimates of money earnings, convert wages into cash and compare to farm yields net of rent and other expenses, or consider key social indicators – including the especially lowly status of wage laborers, and the fact that most tenants were able to marry and raise families, and most agricultural laborers could not.[7]  And in a society without strong guilds or unions, there is no reason to think that unskilled wages in town would be much higher than in the countryside.  (This would be particularly true in the Yangzi Delta, where towns were very densely distributed across the map, so that almost any rural resident could bid for an unskilled job in a town without going very far.[8] )  Indeed, in the admittedly limited data we have, the difference between the earnings of a farmer with an average-sized tenancy and a wage laborer are on the order of 2.5 – 3.0:1.  Under the circumstances, wages are a very poor guide to popular living standards: and comparing them to wages in England or Holland, where proletarians made up a large portion of the labor force by the 18th and especially the 19th century, represents a comparison between the bottom of the income distribution in one place and something approaching to middle in the other. [9]

But even if these wages do not tell us much about comparative living standards, they might nonetheless tell us something about trends in comparative labor productivity. Significantly, estimates of rural incomes and rural labor productivity suggest that the Yangzi Delta was still on a par with England and Holland on these measures even as late as the 1820s.[10] This would place it far above the rest of Europe – including, of course, a number of countries that began mechanized industrialization and sustained per capita growth well before China did.[11]  Delta agriculture was also still well ahead in total factor productivity in agriculture as late as 1820.[12] When taken together with the evidence already discussed which suggests a relatively late divergence, and therefore a fairly sudden widening of the gap once it manifested itself  – since nobody doubts that it was quite large by the mid-19th century – this would at least suggest that we should not probably be looking at agriculture to explain the divergence.  It also suggests, as Robert Allen has argued in his discussion of British industrialization, that it was higher wages in the growing urban sector that pulled up rural wages, necessitating labor-saving innovations in agriculture, rather than agriculture creating an enlarged urban work force by shedding workers on its own.[13]  It does not appear that urban demand exerted a comparably strong effect on rural Chinese wages, even though the barriers to rural-urban migration – whether in the form of exclusionary institutions or urban dis-amenities – were comparatively weak in Qing times;[14] instead, the most likely reason not to leave was that, as noted above, most rural people earned far more than unskilled wage laborers in either city or countryside, and nothing was pushing up urban wages fast enough to overcome this disincentive.  A significant gap in urban real wages – if confirmed by further studies that can more fully overcome the problems described by Deng and O’Brien – might then be significant not as a sign of a difference in living standards that already existed, but as a sign of urban changes in Europe that were beginning to create such differences.

(to be continued…)

Notes

[1] Broadberry, Guan and Li 2014..

[2] Maddison 2001: 42, suggesting that Western Europe overtook China ca. 1300.

[3] Guan and Li  had previously argued (2010) that China was far behind by the 15th century, if not earlier, and had fallen even further behind over the succeeding centuries. See also Landes 1998, Lal 1998.

[4] Ma 2004. Compare Maddison 2003: 262.for an interpellated UK figure.

[5] Li and Van Zanden 2012:973,

[6] It is true, for  instance, that not every Chinese worker in Guangzhou was able to offer his services to the  foreigners who docked there, perhaps reducing competition and driving up wages.  Bt quite a few could – numerous memoirs from foreigners who visited Guangzhou in this period speak about foreigners being besieged by crowds of potential porters and other service providers. Nor is it clear why any restrictions would have driven up the price of labor more than it did that of the many kinds of provisions for which Lockyer records prices paid, and which Allen uses to create the denominator of his real wage.

[7] I review some of this data in Pomeranz 2006, and Pomeranz 2011. On the strength of tenant rights, which helped make this income differential durable, see  for instance Rawski 1972 Li Wenzhi and Jiang Taixin 2005;Yang Guozhen 1988; Zhang Peiguo 2002.

[8] On the distribution of towns across space see Xue Yong 206: 319, and 302-346, 432-475 for a discussion of various estimates of urbanization in the Yangzi Delta more generally.

[9] Pomeranz 2011.

[10] Allen 2009b; Li and Van Zanden 2012.

[11] For intra-European comparisons, see Allen 2000..

[12] Li and Van Zanden 2012:975; Allen 2009b.

[13] Allen 2009a.

[14] On Chinese guilds in this period, see Moll-Murata 2009, Pomeranz 2013. Though our data is thus far inconclusive, China does not appear to have had a pronounced “urban graveyard effect” – that is clear evidence of worse health and higher mortality in cities, providing a disincentive to migration that had to be overcome by significant wage differentials, as was the case in early modern and industrializing Europe.

Contingencies of Company Law: On the Corporate Form and English Company Law, 1500-1900

The Development of English Company Law before 1900

By: John D. Turner (Queen’s University Belfast)

Abstract: This article outlines the development of English company law in the four centuries before 1900. The main focus is on the evolution of the corporate form and the five key legal characteristics of the corporation – separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership. The article outlines how these features developed in guilds, regulated companies, and the great mercantilist and moneyed companies. I then move on to examine the State’s control of incorporation and the attempts by the founders and lawyers of unincorporated business enterprises to craft the legal characteristics of the corporation. Finally, the article analyses the forces behind the liberalisation of incorporation law in the middle of the nineteenth century.

URL: http://econpapers.repec.org/paper/zbwqucehw/201701.htm

Ditributed by NEP-HIS on: 2017-02-19

Review by Jeroen Veldman (Cass Business School, City University)

 

The article provides an overview of the development of English company law in the four centuries leading up the 20th century, showing how five key legal characteristics, i.e. separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership developed.

What may be most striking about Turner’s account is the way in which it shows the contingency of the development of these distinct concepts and the configurations in which they appear. As Woodward (1985a: 12), quoted by Turner, says it is “shocking how non-laissez-faire are the roots of the corporation – a quintessentially laissez-faire institution”. Turner shows how James I needed the money from corporate charters, as they provided an attractive source of revenue for the Crown that allowed to bypass Parliament. (Turner, 2017: 5), making the grant of such corporate charters the object of an ongoing war between Crown and Parliament in the 16th and 17th Century. Subsequently, he shows how the Bubble Act in the 18th Century was not so much a means to keep companies from forming, but rather  a means “… to limit alternative investment opportunities so that capital would be diverted towards shares in the South Sea Company.” (Turner, 2017: 8).

eastindia

Arms of the East India Company (New York Public Library. Digital ID: 414409). Retrieved from http://www.victorianweb.org/history/empire/india/eastindia.html.

The contingent development of company law is also apparent in the use of corporations as an important instrument for colonial administrative organization overseas and the use of trading monopolies as a key instrument in foreign policy (Turner, 2017: 5). Furthermore, the establishment of specific Companies, such as the Bank of England in 1694 was pivotal for the lending of money to the State, and the raising and administration of the public debt (Turner, 2017: 9). The conceptual development of the modern corporation was thus connected to and contingent upon the simultaneous development of ideas about sovereignty, the state, and the representation of group rights and obligations (Kantorowicz, 1997; Maitland, 2003).

Turner then shows how the further development of the corporation in the 19th century is driven largely by the growing power of an emerging enriched middle class looking for outlets and protection for its investment. The development of the five key legal characteristics provided an architecture for the public corporation that functioned as an excellent vehicle to accommodate the wealth accruing to this new class, as it allowed to drop managerial obligations and to focus on a liquid share market instead (Ireland, 1996 and 1999; Veldman and Willmott, 2017).

Turner concludes by saying that “…the common law judiciary in the 18th and 19th centuries was extremely conservative and did not respond in a dynamic fashion to the new business environment which had arisen” (Turner, 2017: 22). His account therefore shows how, contrary what is commonly believed in the law and economics debate, common law did not develop as a highly dynamic and pragmatic practice-following type of law. What Turner convincingly shows, then, is that the development of English Company Law started to change from the 19th century, that this development led to development and acceptance of the five key legal characteristics and that the specific configuration of these elements that come together in the modern corporation. He also shows how the changes in English Company Law that allowed for these elements and their configuration were related to the institutionalization of particular political and economic interests.

In relation to the contingent development of the elements and configuration that make up the core characteristics of the modern corporation that Turner describes we may ask a number of questions of the specific model of the modern corporation that was developed during the 19th century and which still provides a template that is very much followed worldwide.

The first question is whether we can imagine a coherent alternative, in which the elements and their configuration had developed differently. Can we imagine limited liability, perpetuity, transferable joint stock with fully paid up shares and a secondary share market, the removal of ultra vires, separate legal personality, the development of delegated and professional management, rentier investment by shareholders with a shielded position largely external to the architecture of the modern corporation and, later, the development of holding companies and transnational operations as the outcome of the institutionalization of legal privileges for specific groups? And can we still imagine the institutionalization of these privileges as contingent and conditional?

The second question is whether we can rethink the presumed optimality of the current configuration of the corporation. It may be argued that the arrangements developed for the modern public corporations were developed in a specific political and economic context that provided a strong background for the development of ideas about minority shareholder protection at the time (Freeman et al., 2011; Johnson, 2010), for instance. The question is, how the specifics of that configuration relates to more recent changes in the corporate governance environment, such as the phenomenal rise of institutional and activist investors, increases in foreign ownership and high frequency trading, and the development of transnational group structures.

More specifically, we may consider that the development of the elements and configurations of the core characteristics of the modern corporation have had large effects on subsequent macro-economic developments (Chandler, 2003; Hannah, 2010), and continue to impact on the distribution of social wealth (Ireland, 2005). Turner observes that “The evolution of corporate law after 1900 … was chiefly concerned with resolving the agency problems which arose out of conflicts created by the coming together of these characteristics, i.e., shareholders vs. managers, shareholders vs. shareholders, and shareholders vs. other constituents (e.g., creditors and employees).” (Turner, 2017: 3). Considering that the present configuration that defines the modern corporation is based on the interests of an emerging class of rentier investors in the mid-19th century we may need to consider whether those agency problems have been sufficiently resolved and whether the specific configuration that developed during the 19th century still delivers an optimal configuration for all parties involved in corporate governance arrangements and outcomes (Veldman et al., 2016).

In the light of the description of the contingent nature of the development of company law and corporate governance theory, it is interesting to note that Turner chooses to describe the development of ‘the corporate form’ and its five key characteristics as an almost teleological process in which “the evolution of company law in England up to 1900 was all about the struggle to enable business enterprises to have all five of the core structural characteristics outlined above” and that this evolution was hampered by “the efforts of the legal system and the political elite to stifle the development of particular characteristics during most of this era.” (Turner, 2017: 3). Such a teleological approach to the development of company law has been criticized more broadly as naturalizing the development of existing corporate governance configurations into a necessary or optimal end point, and ignoring the development of company law as the institutionalization of particular interests (Ireland, 2005; Johnson, 2010).

Turner’s account provides all the necessary ingredients to engage with the development of the five key legal characteristics and their configurations as the result of the capacity for countervailing powers to engage in the corporate governance debate. In this light, the continuous absence of particular characteristics and configurations in the debate pre-19th century can be viewed, not as the ‘stifling’ of a necessary or optimal ‘evolution’, but rather as the result of a different configuration of interests. Such a view of the development of the elements and configuration that make up the modern corporation as a contingent and interest-inflected development makes an interesting contribution to the current debate on corporate governance, and allows to relate the debate on the historical institutionalization of these choices to current debates on the broad opportunities and risks that are associated with choices about the institutionalization of privileges, rights and obligations for specific groups in a theory of corporate governance (Veldman and Willmott, 2016).

 

References

Chandler, A. D. (2002). The Visible Hand: The Managerial Revolution in American Business. Cambridge, USA: Harvard University Press.

Freeman, M., Pearson, R., & Taylor, J. (2011). Shareholder democracies?: Corporate Governance in Britain and Ireland before 1850. Chicago: University of Chicago Press.

Hannah, L. (2010). The Rise of the Corporate Economy. Oxon, UK: Routledge.

Ireland, P. (1996). Capitalism without the Capitalist: the Joint Stock Company Share and the Emergence of the Modern Doctrine of Separate Corporate Personality. The Journal of Legal History, 17(1), 41–73.

Ireland, P. (2005). Shareholder Primacy and the Distribution of Wealth. Modern Law Review, 68(1), 49–81. http://doi.org/10.1111/j.1468-2230.2005.00528.x

Ireland, P. (1999). Company Law and the Myth of Shareholder Ownership. Modern Law Review, 62(1), 32–57. http://doi.org/10.1111/1468-2230.00190

Johnson, P. (2010). Making the Market: Victorian Origins of Corporate Capitalism. Cambridge: Cambridge University Press.

Kantorowicz, E. H. (1997). The King’s Two Bodies : A Study in Mediaeval Political Theology. Princeton ; Chichester: Princeton University Press.

Maitland, F. W. (2003). State, Trust and Corporation. (D. Runciman & M. Ryan, Eds.) Cambridge Texts in the History of Political Thought. Cambridge: Cambridge University Press.

Turner, J. D. (2017). The Development of English Company Law before 1900 (No. 2017–1). Belfast: Queen’s University Centre for Economic History. Retrieved from https://www.econstor.eu/handle/10419/149911

Veldman, J., & Willmott, H. (2016). The Cultural Grammar of Governance: The UK Code of Corporate Governance, Reflexivity, and the Limits of “Soft” Regulation. Human Relations, 69(3). http://doi.org/10.1177/0018726715593160

Veldman, J., Morrow, P., & Gregor, F. (2016). Corporate Governance for a Changing World: Final Report of a Global Roundtable Series. Brussels and London: Frank Bold and Cass Business School.

Veldman, J., & Willmott, H. (2017). The Corporation in Management. In G. Baars & A. Spicer (Eds.), Critical Corporation Handbook. Cambridge, UK: Cambridge University Press.

Woodward, S. (1985). The Struggle for Fungibility of Joint-Stock Shares as Revealed in W.R. Scott’s Constituion and Finance of English, Scottish, and Irish Joint-Stock Companies to 1720 (No. 377). UCLA Economics Working Papers. UCLA Department of Economics. Retrieved from https://ideas.repec.org/p/cla/uclawp/377.html

 

No man can serve two masters

Rogue Trading at Lloyds Bank International, 1974: Operational Risk in Volatile Markets

By Catherine Schenk (Glasgow)

Abstract Rogue trading has been a persistent feature of international financial markets over the past thirty years, but there is remarkably little historical treatment of this phenomenon. To begin to fill this gap, evidence from company and official archives is used to expose the anatomy of a rogue trading scandal at Lloyds Bank International in 1974. The rush to internationalize, the conflict between rules and norms, and the failure of internal and external checks all contributed to the largest single loss of any British bank to that time. The analysis highlights the dangers of inconsistent norms and rules even when personal financial gain is not the main motive for fraud, and shows the important links between operational and market risk. This scandal had an important role in alerting the Bank of England and U.K. Treasury to gaps in prudential supervision at the end of the Bretton Woods pegged exchange-rate system.

Business History Review, Volume 91 (1 – April 2017): 105-128.

DOI: https://doi.org/10.1017/S0007680517000381

Review by Adrian E. Tschoegl (The Wharton School of the University of Pennsylvania)

Since the 1974 rogue trading scandal at Lloyds’s Lugano branch we have seen more spectacular sums lost in rogue trading scandals. What Dr Catherine Schenk brings to our understanding of these recurrent events is the insight that only drawing on archives, both at Lloyds and at the Bank of England, can bring. In particular, the archives illuminate the decision processes at both institutions as the crisis unfolded. I have little to add to her thorough exposition of the detail so below I will limit myself to imprecise generalities.

Marc Colombo, the rogue trader at Lloyds Lugano, was a peripheral individual in a peripheral product line, in a peripheral location. As Schenk finds, this peripherality has two consequences, the rogue trader’s quest for respect, and the problem of supervision. Lloyds Lugano is not an anomaly. An examination of several other cases (e.g. Allied Irish, Barings, Daiwa, and Sumitomo Trading), finds the same thing (Tschoegl 2004).

In firms, respect and power come from being a revenue center. Being a cost center is the worst position, but being a profit center with a mandate to do very little is not much better. The rogue traders that have garnered the most attention, in large part because of the scale of their losses were not malevolent. They wanted to be valued. They were able to get away with their trading for long enough to do serious damage because of a lack of supervision, a lack that existed because of the traders’ peripherality.

In several cases, Colombo’s amongst them, the trader was head of essentially a one-person operation that was independent of the rest of the local organization. That meant that the trader’s immediate local supervisor had little or no experience with trading. Heads of branches in a commercial bank come from commercial banking, especially commercial lending. Commercial lending is a slow feedback environment (it may take a long time for a bad decision to manifest itself), and so uses a system of multiple approvals. Trading is a fast feedback environment. The two environments draw different personality types and have quite different procedures, with the trading environment giving traders a great deal of autonomy within set parameters, an issue Schenk addresses and that we will discuss shortly.

Commonly, traders will report to a remote head of trading and to the local branch manager, with the primary line being to the head of trading, and the secondary line being to the local branch manager. This matrix management developed to address the problem of the need to manage and coordinate centrally but also respond locally, but matrix management has its limitations too. As Mathew points out in the New Testament, “No man can serve two masters, for either he will hate the one, and love the other; or else he will hold to the one, and despise the other” (Matthew (6:24). Even short of this, the issue that can arise, as it did at Lloyds Luggano, is that the trader is remote from both managers, one because of distance (and often time zone), and the other because of unfamiliarity with the product line. A number of software developments have improved the situation since 1974, but as some recent scandals have shown, they are fallible. Furthermore, the issue still remains that at some point the heads of many product lines will report to someone who rose in a different product line, which brings up the spectre of “too complex to manage”.

The issue of precautionary or governance rules, and their non-enforcement, is a clear theme in Schenk’s paper. Like the problem of supervision, this too is an issue where one can only do better or worse, but not solve. All rules have their cost. The largest may be an opportunity cost. Governance rules exist to reduce variance, but that means the price of reducing bad outcomes is the lower occurrence of good outcomes. While it is true, as one of Schenk’s interviewees points out, that one does not hear of successful rogue traders being fired, that does not mean that firms do not respond negatively to success. I happened to be working for SBCI, an investment banking arm of Swiss Bank Corporation (SBC), at the time of SBC’s acquisition in 1992 of O’Connor Partners, a Chicago-based derivatives trading house. I had the opportunity to speak with O’Conner’s head of training when O’Connor stationed a team of traders at SBCI in Tokyo. He said that the firm examined too large wins as intently as they examined too large losses: in either case an unexpectedly large outcome meant that either the firm had mis-modelled the trade, or the trader had gone outside their limits. Furthermore, what they looked for in traders was the ability to walk away from a losing bet.

But even small costs can be a problem for a small operation. When I started to work for Security Pacific National Bank in 1976, my supervisor explained my employment benefits to me. I was authorized two weeks of paid leave per annum. When I asked if I could split up the time he replied that Federal Reserve regulations required that the two weeks be continuous so that someone would have to fill in for the absent employee. Even though most of the major rogue trading scandals arose and collapsed within a calendar year, the shadow of the future might well have discouraged the traders, or led them to reveal the problem earlier. Still, for a one-person operation, management might (and in some rogue trading scandals did), take the position that finding someone to fill in and bring them in on temporary duty was unnecessarily cumbersome and expensive. After all, the trader to be replaced was a dedicated, conscientious employee, witness his willingness to forego any vacation.

Lastly, there is the issue of Chesterton’s Paradox (Chesterton 1929). When a rule has been in place for some time, there may be no one who remembers why it is there. Reformers will point out that the rule or practice is inconvenient or costly, and that it has never in living memory had any visible effect. But as Chesterton puts it, “This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable.”

Finally, an issue one needs to keep in mind in deciding how much to expend on prevention is that speculative trading is a zero-sum activity. A well-diversified shareholder who owns both the employer of the rogue trader and the employers of their counterparties suffers little loss. The losses to Lloyds Lugano were gains to, inter alia, Crédit Lyonnais.

There is leakage. Some of the gainers are privately held hedge funds and the like. Traders at the counterparties receive bonuses not for skill but merely for taking the opposite side of the incompetent rogue trader’s orders. Lastly, shareholders of the rogue traders firm suffer deadweight losses of bankruptcy when the firm, such as Barings, goes bankrupt. Still, as Krawiec (2000) points out, for regulators the social benefit of preventing losses to rogue traders may not exceed the cost. To the degree that costs matter to managers, but not shareholders, managers should bear the costs via reduced salaries.

References

Chesterton, G. K. (1929) ‘’The Thing: Why I Am A Catholic’’, Ch. IV: “The Drift From Domesticity”.

Krawiec, K.D. (2000): “Accounting for Greed: Unraveling the Rogue Trader Mystery”, Oregon Law Review 79 (2):301-339.

Tschoegl, A.E. (2004) “The Key to Risk Management: Management”. In Michael Frenkel, Ulrich Hommel and Markus Rudolf, eds. Risk Management: Challenge and Opportunity (Springer-Verlag), 2nd Edition;