What is the divergence question?
From around 1820, possibly well before, the world witnessed increasing inequality between countries and regions. Modern economic growth – growth led by productivity increases – transformed Western Europe and North America, but it appeared in other regions much later. These facts lead us to one of the central questions for economic history: “Why do some countries grow rich while others stay poor”?
The question is as old as modern economic growth itself. Karl Marx and Max Weber, among others, tried to answer it. In the last twenty years, the debate around the question has revived, thanks to dialogue between economists and historians. The current short-hand for the question, “divergence”, comes from the title of a book (by Kenneth Pomeranz) that has played a part in the revival.
Economic theorists are encouraged by new theoretical approaches, and the availability of large datasets. Conventional theory of economic growth was not comfortable with cultural and political explanations of modern economic growth. New institutional economic history, associated with Douglass North and others, showed a way to bring in these variables into growth theory. In the early-2000s, historians criticized institutionalism. The current phase of the divergence debate began with these criticisms and responses to these criticisms.
Cross-country historical income datasets became available from the 1990s, thanks to Angus Maddison’s work. Maddison collected and processed the data, often from detailed building blocks (like income from agriculture, trade, industry, etc.), but reported mainly one set of results, per capita or average real income by country for centuries. The simple format of reporting drew attention to inequality between countries.
Where do I fit in in the divergence debate? From time to time, those who took part in the debate would look at historians who specialized in regions, and ask questions like, “what about India?” For a region-specialist like me, the invitation to offer one’s expertise to answer a big question like this one was too strong to resist. But that fascination wore off. Increasingly, I have come to believe that the debate has had a stunting influence on economic history as a field.
My scepticism is based on seven arguments.
1. The debate has a built-in tendency to simplify the economic history of the non-western world
Making inequality-between-countries the core problem works badly for many countries. This is so because there is only one way in which one can use a country’s history to answer why some countries grew rich while others stayed poor, that is to show either why it grew rich or why it stayed poor. There is only one way that Indian evidence can inform the debate – and that is to show why India stayed poor. But this is not the most important or interesting question about India, and it misreads Indian history (see below).
2. Divergence debate takes bad data too seriously
Maddison’s work shows growing inequality in average incomes between countries (Figure 1). The data is – to put it mildly – bad data. Look closely, you will see that the average income of India was USD533 for 1820-1870. Year after year for 50 years Indians earned exactly USD533 on average (and exactly USD550 for 320 years before that). These numbers contain no worthwhile information about Indian history. Such is the quality of the statistics on which the divergence debate has so far been based.
3. The divergence question is based on an erroneous reading of the data
In this dataset (Figure 1), every country is represented by exactly one attribute, average income. Every country’s history is represented by one number. By considering only national income, the rise in international inequality becomes the only fact there is to explain. But this is not necessarily the right reading of the data.
Suppose that poor countries contain more arid lands in their domain, and that it is harder for arid zones to experience sustainable income growth than it is for temperate zones or seaboards. Modern economic growth had owed to overseas trade, which favoured the seaboard, and to agricultural revolution, which favoured the temperate zones. In these statistics, inequality between geographical regions and that between countries are mixed up, whereas what we should really do is study inequality between geographical zones, and not between countries.
4. Too much focus on inter-country inequality obscures inter-regional inequality
How might location matter? Consider this example. In 1900, Bombay was one of the most advanced port cities , a huge railway hub, with institutions and markets as good as in any city in Europe, some of the best colleges and schools of the tropics, and the fourth largest cotton mill industry of the world. About 500 miles to the east, in the central Indian uplands, Chanda district had no industry, only 15 per cent of its land under cultivation, practically no roads and railways, and a literacy rate of two per cent. The capital of this district, which was as large in area as Belgium, was a town of 17,000 people. For me, the big puzzle is why these two regions – both governed by the same state, the same formal institutional regime, with zero barriers to transactions between them – could have such diverse economic experience. Divergence, with its focus on country averages, cannot answer this question, in fact obscures many patterns of regional inequality from view.
5. The divergence question is based on the false assumption that national income and the nation are the right units of analysis
Maddison’s dataset reports national incomes when nations did not exist. This practice encourages historians to exaggerate the role of the state in world inequality, when states were of different kinds or just did not exist. In the eighteenth century, for example, India was ruled by hundreds of small and large states. With one or two partial exceptions, we have zero statistical data to show how these states functioned.
6. The rise of the western world is too overdetermined to explain world history
Why did Britain experience modern economic growth from 1800? By last count, there were sixteen answers to the question. These included knowledge and enlightenment, credible commitments and constraints on state power, common law, energy-intensity, marriage patterns, transformation in the handicrafts and in household labour, industrious revolution, expansionist and activist state, high wages, overseas trade, intergenerational transfer of cultural traits, financial revolution, protection and import substitution, consumer revolution, agricultural revolution, and violence and exploitation. World history, if we start from the British angle, offers a much too confusing bundle of lessons for the rest of the world.
7. Divergence models do not explain current convergence
The theoretical models that predict divergence cannot predict the present-day convergence in an easy way, and therefore, they are unreliable as theories about the past. Did the growth reversal in India in the last quarter-century happen because of an improvement in institutions, or a rise of the activist state? In fact, the state withdrew by some measures since 1990, and as the World Bank’s metrics show, the quality of institutions is just as bad after the growth reversal as it was before. Should we then have a different theory for every episode of growth in the world?
What question should world economic historians be asking?
Imagine I am lecturing a classroom of management or economics students in an Indian school about economic history (which I do often). I could start by saying that economic history is a fascinating because it tells us why India fell behind the rest of the world, or why it was at the wrong end of the growth game. It will not only be a wrong way to understand Indian history (remember that the fourth largest cotton mill industry emerged in India in the nineteenth century), it will also sound outlandish. In a region where seven per cent GDP growth has become the norm, my opening line will make economic history sound like a joke.
I should say instead that economic history is fascinating because it shows the historical roots of emergence in the developing world, except that economic history is not doing that. It cannot, because a preoccupation with divergence and an overdetermined explanation of the rise of the western world makes the field unable to explain the biggest economic revolution of the present times, the phenomenon of economic emergence.
More on the emergence question later.
Professor of Economic History, London School of Economics