Gresham College Lectures

Why Did Europe’s Economies Diverge from Asia?

November 17, 2022 Gresham College
Gresham College Lectures
Why Did Europe’s Economies Diverge from Asia?
Show Notes Transcript

The levels of income in parts of China and India were similar to those in Europe in the middle ages, until the Mediterranean pulled ahead – followed by northern Europe, initially Holland and then Britain. This ‘great divergence’ was one of the fundamental shifts in history – and is only now being reversed.  

Did the divergence arise from imperialism and a 'drain' of wealth from Asia, or did it arise from internal features of Asian and European Society?


A lecture by Martin Daunton

The transcript and downloadable versions of the lecture are available from the Gresham College website: https://www.gresham.ac.uk/watch-now/diverge-asia

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- Over the last few decades, there has been a transformation of world historical significance. China's rise to be the world's second largest economy has both pulled millions out of poverty and led to threats of trade war and geopolitical disruption. Well, as you see from these figures, China still has some way to go before it closes the gap in per capita incomes with the United States, and India has still further to go, but the gap is narrowing. Data from the World Inequality Database shows that American GDP per adult was 13.5 times that of China in 1960. By 2020, the discrepancy had dropped, the United States was now only 3.1 times the per capita GDP of China. So at the moment, we're experiencing a period of convergence, and convergence, of course, follows from an earlier period of so-called great divergence. What we are now seeing is a return to an earlier pattern, when Asian economies were as successful as Europe, with equivalent levels of per capita income. And this is the historical question I wish to explore today, to take the title of a recent book by Prasannan Parthasarathi, why did Europe grow rich and Asia did not? In order to try and explore that question, let's go back in time and across the globe in space to two places which were both economically successful and prosperous, supplying highly valued commodities to European markets. In doing this, in going back in time and across the globe, we need to rewrite the history of globalization, not as a process centered on Europe, but one which gives equal weight to China and India. And when we do that, we can then put the British Industrial Revolution in a global context. And the first place I want to go to is Jingdezhen, in China, the city of blue and white porcelain. This city was the premier site of ceramics production in the world from the 11th century at least to the early 18th century. The image here of the Percival David vases in the British Museum, and here you see the mechanized production in that city. The production of this porcelain reached global markets in Japan, Korea, the Middle East, and Europe. Although Chinese state policy veered from encouragement to prohibition of Chinese merchants, on the whole, they continued, despite the policy of the state, to trade globally. And from the 16th century, Europeans entered the market, at first the Portuguese, and then, from the start of the 17th century, the Dutch and the English East India companies. So how did this city of blue and white porcelain achieve its global position? Well, for start, it was not alone in China, it was facing competition with other centers within China, but also in the rest of Asia, particularly in Korea. There was knowledge of consumer preferences because of the trade in these commodities and the competition. The city was embedded in global networks, for example, the cobalt which was used for the blue porcelain here came largely from Persia. There's also an important role of the imperial court. It was largely controlled by the emperor, and supplied material, ceramics, not just for the emperor and the family, but for a wider group of courtiers. For example, a recent book argues that there were 100,000 eunuchs, each with a servant and perhaps an adopted son, and in 1433, Jingdezhen was required to send 443,500 pieces of porcelain to the eunuchs. The court, then, is a very important element in the trade, and this leads to tension between the administrators, appointed by the imperial court, and the workers in the kilns, who wanted to go and work for private kilns, so there's a tussle going on here over the control of scarce resources, reserves of the fine local clay which is used, and the attempt to bind skilled workers to the imperial kilns, and not to the private kilns. So the scale of the court market could also be a weakness in terms of constraining the market mechanism. But that said, the products from the kilns were exported in huge quantities to Europe, and that led to cheaper imitation. I think a very important part of European industrialization is what one historian has called populuxe, the popularization, using cheaper materials, of imported Asian luxuries, for example as here in Delft, which is a charger made in the style of an earlier Chinese period, made in Delft, in the 17th century. So that sort of emulation was a very important feature of European industrialization, until, by the later 18th century, European production was able to compete, so Wedgwood, Meissen, Sevres. When Lord Macartney went to China as an ambassador in 1793, from Britain, he took British porcelain with him, and was then confident of its superiority, so we're seeing a shift in the balance of trade and reputation between the two areas. I now want to take you to India, and Indian textiles. Until 1800, India was the world's major center for the production of cotton textiles, and as with porcelain, it was not just for the local market. Indian cotton cloth was traded across the Indian Ocean world, and was found from the 11th century in Egypt and Iran. Production for the export market was concentrated in three areas. The first was in Gujarat, on the west coast, which was largely supplying the Indian Ocean trading world, and that was mainly painted cloth and muslin, and here we see a painting by George Romney of Lady Lemon wearing a muslin dress, in about 1785. The second major area was the east coast, Coromandel, which was supplying Southeast Asia, and that was known for printed textiles, and here we have an example from the Metropolitan Museum in New York, cotton cloth of the 18th century. And this is actually copying a European silk design, so it's a two-way trade of influence, who was copying whom. But it's also in this area on the east coast, producing, in the 18th century, blue cloth, dyed with indigo, and that was largely sold in West Africa, so it joins in to what is normally known as the triangular trade of goods from Bristol and London, Liverpool, to the west coast, and then slaves over to the Caribbean, and sugar back, we also have to factor India into that, so Indian cloth going to West Africa. And the third major area, which is growing increasingly important from the early 17th century was Bengal, and that was more of a frontier region which was expanding, becoming settled, with growing towns and rice cultivation, and that is producing fine muslins and cotton-silk mix, not printed or painted so much as finely woven and finished, and some of it was also embroidered. So we have these three major export areas, different parts of the world, different types of cloth, and then there are also other centers which are more inland, providing local markets, in Delhi and the Punjab. So this is a major cotton textile industry before cotton was really produced in Europe. The trade reached a very large scale by the 15th century, and production boomed from the mid 16th century with demand in the Ottoman Empire, and in Iran, in the Atlantic World, covering the whole area from West Africa to Europe and the Americas, so I'm inserting this into a history of globalization. From the middle of the 17th century, European demand grew particularly, and the English and Dutch East India companies were taking about 20% of the output of South India in the first quarter of the 18th century. And in particular, there was an expansion from Bengal in the export of plain white cloth, or calicos, for finishing and printing in Europe. So both this region of China that I'm talking about and India were centers of global trade networks, and what we should see is a global economy that was not centered on Europe, but what the historian Ken Pomeranz calls, and I quote, "A polycentric world, with no dominant center. "Only after 19th century industrialization," he says, "was well advanced "does it make sense "to see a single hegemonic European core," so polycentric before Europe becomes hegemonic. This huge demand in Europe for the porcelain goods from China, the textiles from India was not mirrored by a large amount of trade going the other way, it was paid for in bullion. India took about 20% of global silver production from 1600 to 1800, which contributed to economic expansion in India, because a lot of it was monetized rather than being used for jewelry, and some of it also flowed into China. And here we have an example of that, which is a Spanish American silver coin, the one I found here was 1803, and I don't know if you can make out the details, but it has what are called chop marks, so it has impressions here from merchants in China who have tested, assayed the silver to make sure it is worth what it claims to be worth. So this flow of silver from South America into Asia is creating liquidity in the Indian economy and contributing to a commercial boom. But, looking at it from Europe, this success of Asian goods in European markets led to two concerns. The first was the loss of bullion. In the 17th and 18th centuries, the outflow of silver, which largely was bullion, from Europe was seen as a threat to prosperity and to state power. It was believed that a state was powerful the more bullion it had, the more treasure it had, and there was a sense of a zero-sum game. It's not that trade between everybody will lead to everybody being more prosperous, if one person trades, the other person loses, it's like the mercantilist system, trade is about warfare, a view of which, of course, has been noticed more recently with some American presidents. So loss of bullion and mercantilist state power is one major concern, secondly, there was a major concern about employment. The import of Indian textiles was considered to be undermining, threatening European woolen, silk, and linen industries. And you may remember I showed you a cotton cloth in the style of a European silk cloth, so nearby here, in Spitalfields, the silk weavers there might feel that they're going to be losing their markets and leading to unemployment, but even more so the woolen industry and the linen industry. And there was a big concern that the loss of these markets would lead to unemployment, and that would lead to disorder, at a time when there's no standing army in this country, and it would also lead to a high cost of the Poor Law to relieve people who are unemployed. Now, whether or not it was the case that there was a genuine threat to the woolen industry is by the way, it's what people believed would happen that was important. Some historians say that these are different segments of the market, and they're for different uses, and so on, but the claim of the woolen industry, the linen industry, the silk industry is that they're being threatened by these imports coming from India. So this is up to the early 18th century. Then, clearly, at some point, the West pulls ahead, the trade balance starts to shift, there's a great divergence, so it is said. The question is, when did it happen, and if it happened, why did it happen? And these are very much open questions that are at the frontier of historical research and of controversy, and I want to set out to you some of the debates which are going on around this, so the next section of my lecture is to ask when did the divergence happen. This debate starts around about 2000 in a book by Ken Pomeranz, who I was just citing, and the book is called "The Great Divergence." He argued that the divergence started around 1800, that until 1800, per capita income levels in the most prosperous areas of Asia, the Yangtze Delta and parts of India that I've been talking about, were on a par with Europe. To quote the key view of his book, "Europe did not in fact become much better off "than East Asia "until industrialization was well underway," so around 1800. He argues that Europe was not free of Malthusian pressures any more than other large economies before about 1800, that Europe could, like Asia, have gone down a different economic route, labor-intensive production, using cheap, abundant labor, to save scarce resources. Instead, he argues, Europe went down a different route, labor-saving and resource-intensive. Obviously, there are parts of Europe which didn't follow that route, one might think about the Irish potato famine of the 1840s, but in rough terms, in bold terms, that is what he is arguing. That claim in his book of 2000 led some historians, then, to do something which I think is absolutely impossible, one might argue absurd given the nature of data, they tried to measure gross domestic product per capita between different parts of the world over the very longterm, going back to about the 12th century. Now, we don't have any secure data on the size of the population, you need to know what the population is before you know what the per capita GDP is, and what data do you have on what the gross domestic product might be, so it's a really, really difficult, and one might say foolhardy enterprise, so the figures come with very serious health warnings. Nevertheless, despite that, I have to tell you what they are because these figures are shaping the debate. One of the key arguments here, Stephen Broadberry, who is professor of economic history at the University of Oxford, I'm from the University of Cambridge, so let's not become too much of a rival, but he is arguing from this that, in fact, the divergence happened much earlier. If you look at Italy, Italy here pulled way ahead of China, the red line, by 1300, that's where he claims he has the figures. So he's saying, great divergence in per capita GDP happens around about 1300. And then, Holland, the Netherlands, pulls ahead in the 15th century, until it stabilizes, so he said that's the great divergence happening there, and then you have what he calls the little divergence, when England pulls ahead, the yellow line, and soars ahead. So you have the great divergence, Southern Europe against China, around 1300, and then Northwest Europe pulls ahead later, so that's his argument. I've already said the data are suspect, and so is the comparison. You might think that comparing the most prosperous small parts of Europe, Italy, Holland, with the whole of China is just crazy, so the data's dodgy, but so is the scale on which the argument is being put forward. Steve Broadberry admits that himself, so what he then tries to do is break it down into regions, and here we have the dotted line, which is the leading Chinese area, the Yangtze, and the leading European areas. And according to that data, if you're looking at regions, the divergence is in the first quarter of the 18th century. And notice what happens according to this data, China has a positive drop in its per capita GDP at a point when Europe, the economic frontier, which is Holland and England, pulls ahead. So according to that data, the divergence is in the first quarter of the 18th century. Looking back on his earlier work, Ken Pomeranz agrees with that proposition, so he's now gone back from 1800 to the first quarter of the 18th century as the divergence. So if we believe any of this data, what conclusions can we draw from it? I would draw three conclusions. The first conclusion is abandon the attempt to produce data on the scale of nations or continents, and instead adopt a different approach, probe into different regions in Europe and Asia to be more fine-grained and realistic, and try and see how they actually worked, how did they function, understand the local economies, how did the textiles industries operate, how did they secure their credit, how did they secure their capital, what was the nature of the relationship with the workforce, above all, how did industry relate to the agrarian economy. And we have a massive amount of detailed work on that on European industrialization, what we need to do is to extend that to other parts of the world, and I'll start to do that later on in the lecture. So, I think, my better proposition, learn to walk before you run, start from the local and build up from that. The second conclusion I've already mentioned, which is Ken Pomeranz accepts the earlier date of divergence, so let's provisionally agree, with all deference to the extreme uncertainty of the data, that the crucial turning point is in the first quarter of the 18th century. And we can also agree, and this is beyond doubt, that Indian and Chinese goods were, as I've been suggesting, highly competitive and in high demand in Europe from the 16th to the 18th century, but that from the late 18th century, European goods, largely British, took over in third markets, so started to compete in West Africa, for example, or in parts of Asia. So if we accept that, I now need to turn to ask why did it happen, so why did the divergence happen? Again, this is still very much an open question, still highly controversial, and I hope I can lead you through it to try and adopt some semblance of what might be a convincing argument. The first argument is ecological constraints. Before the late 18th and early 19th centuries, economies hit a limit of their resources, what Robert Malthus talked about. The Malthusian ceiling of disease and famine, or population control by late marriage, for example, before the population falls back. So you have the Black Death, this is the figures for England, Black Death, and then the population doesn't get back to that level until the late part of the 17th century, and it then breaks through that ceiling from the late 18th century in England. Not all countries do, I mentioned Ireland, where the population of Ireland has still not got back to what it was before the potato famine, but England, and other parts of Northwest Europe, break through that ceiling. And Pomeranz argues that the crucial reason for the divergence is that Northwest Europe broke through an ecological constraint that the Yangtze Delta did not, his comparison is only with China. He argues that there are two factors at work in this breach of the ecological constraint. The first, this is perhaps fairly timely given COP27 at the moment, fossil fuels, the use of coal, the replacement of a flow of energy from wind, water, animal, and humans by a stock of coal, from flow to stock, from organic to inorganic energy. And coal, in England, was easily transported from the Tyne to London, which became the world's largest city, with a million people by 1800, only rivaled by Edo, modern day Tokyo, which also had a population of about a million. This use of coal acted as a stimulus to economic growth, and the growth of London acted as a stimulus to economic growth, 'cause if you have a large city, other areas have to specialize in growing grain, or barley for beer, and animals, and so on, to feed it, so specialization of agricultural areas to provide food to London, the constraint on whose growth had been removed by the ability to have coal. By using fossil fuels, you're also releasing land which would otherwise be needed to provide wood and to feed animals, and the concept which historians use is ghost acres, how many acres would you have needed to replace the coal. And Tony Wrigley, who sadly recently died, who was a colleague of mine in Cambridge, argued that England had an acreage of 35 million acres, in 1815, you would need an extra 15 million acres to replace the coal. So the shortage of wood in England leads to substitution by coal, that leads to the steam engine, improved smelting of iron, leads to the railway, leads to steam ships, it all follows, according to this argument of Tony Wrigley, from our Geordie coal miners. But more recently, and this is going to be the subject of my second lecture, so I'm not going to say much about it now, his argument is, you also have an input of ghost acres, of additional calories coming from the New World. Pomeranz argues that the New World provided even more ghost acres. He calculates that to replace import of raw cotton, sugar, and timber from the New World, you would have needed another 25 to 30 million acres to replace that. So the argument here is that the resource constraint was avoided in Europe, above all in Britain, where coal and the Americas allowed resource and energy-intensive development, and Asia didn't do this, it turned to a labor-intensive, resource-saving system. And we could add to that, also, that the commodities coming from the New World, this is sugar cutting, but also, of course, coffee, tobacco, these are addictive, and you also need cash to buy them, and this leads to another idea of what is called the Industrious Revolution. If you're going to keep up your consumption of these addictive commodities, then you need to have cash, which means you have to work in a marketized, commercialized economy. When you have that population growth I talked about, your wages are going to be squeezed, but you're addicted to these substances, so you work harder. Therefore, according to this view, you have an industrious revolution, people work longer hours in order to keep up their consumption of these commodities imported from outside. The argument then of Pomeranz is this doesn't happen in China, that the relationship between the prosperous areas of the Yangtze Delta and its hinterland, which is an interior China, which supplied the materials and the food, was different from the relationship between Northwest Europe and the New World. And the argument that he puts forward is that these areas in the interior of China had free labor, unlike the plantation economies of the New World, their population grew more than in the New World, or in the Caribbean, they developed their own industry, which then reduced the surplus that they could export to the most advanced regions of China on the Yangtze Delta. As a result, he says, it was harder for the leading and most economically advanced regions to keep growing. Well, that's the ecological argument, which can be pushed a stage further if we follow Prasannan Parthasarathi, who I mentioned earlier on, who makes three points, referring to different parts of Asia. And this involves close study of different parts of Asia, looking at the local economies, which is what I said is needed more than national statistics. So he says, first of all, China did have coal, so it's not enough to say that there was a serious resource constraint, there must be other factors at work there, and he says the ecological constraint there was flooding and soil erosion from deforestation and cultivation of the hills. The Chinese state tried to resolve those issues, but was unable to prevent continued movement onto the hills and the cutting down of trees and deforestation, so settlement on the hillsides of the Yangtze region continued into the 19th century, with disastrous ecological consequences, and he says coal was not enough to resolve that. But if we go to Japan, he says, you have similar ecological constraints of deforestation, but there, the Tokugawa Shogunate did deal with it. Here we have a Hokusai print from the early 19th century, and what you can see here is reforestation on the hills. And from an edict of 1684, the shogun managed the forests and reforested, controlled what was there and reforested, and that was then followed by other lords. They did not break through into the inorganic economy that I was talking about in England, but they stabilized the economy, and this leads to a little Asian divergence, Japan moves ahead of China. And then, he says, India, ah, India did not have an ecological constraint, he says, because it had lots of forests, forests were still abundant, so it didn't need to turn to coal, and all that followed. So that would suggest, if we use these comparisons, it's not just a resource constraint per se, it's the response to it, as in Japan, stabilize, it's the nature of the ecological constraint, as in China. What he suggests is the most important factor is a second explanation, which is competitive challenge and state action. In his argument, the key is the state. It's often argued by people of a certain political persuasion that industrialization in Britain occurred despite the state, it got in the way, it was inefficient, it was an ancien regime. This argument says, no, it wasn't, it was how the state responded to the competitive challenge from Asia. I've already been hinting at that in what I've said so far. Britain has a large and prosperous textile industry, above all, wool, which was a major exporter to Europe from the Late Middle Ages. There was a major linen industry in Scotland and Ireland, because developing the linen industry there was a good way of stopping people becoming Jacobites and trying to overthrow the Hanoverian Crown, or to stop Irish Catholics trying to overturn the order in Ireland, so the development of a textile industry, linen, was about stability in the Celtic fringe. And we've also seen there was a problem about, as it was seen at the time, the outflow of bullion.

So this is what Parthasarathi says:

India didn't have a resource constraint, but what happened there, he says, was it did not face a competitive challenge. England had a competitive challenge from India, India did not have a competitive challenge. And he argues that the challenge from Asian imports then led to state action by a powerful English state. In fact, you almost begin to think that England in the 18th century was a bit like post-war Japan or Korea, with a powerful state creating what is called import-substituting industrialization, you try to replace imports by domestic production. And indeed, looking at a recent book by Giorgio Riello, who is a historian of global cotton,

he says this:

import substitution is a key model explaining why and how, in the course of the 18th century, the global center of manufacturing of cotton textiles moved from India to Europe, it's the state. British industrialization, according to this view, is state led. But there's a problem with this, it almost implies that people at the time knew that the cotton industry was going to be the key to the Industrial Revolution, they didn't, it just became apparent later on. The state action was not intended to create a new industry, it was intended to maintain the existing woolen and linen industries, prevent unemployment, to sustain political and social stability, as I've already said, to save on bullion exports, and also to raise revenue from import duties in order to pay for the army and the navy. The action by the state did not arise from lobbying by cotton industries, it came about because of lobbying by the industries which wanted to protect their existing interests. Nevertheless, unintentionally and unintended, action which was taken for other reasons did help develop the cotton industry. How did that happen? Well, in 1701, an act was passed in England for the more effective employing the poor by encouraging the manufactures of the kingdom. It said that no imported printed or dyed calicos were to be worn in England and Wales. So if you couldn't wear imported printed and dyed calicos, the obvious thing is to import non-printed and dyed calicos, white cloth, and then to print and dye them in London. So the East India Company, which was a major importer, wanted to maintain an open market, they were defeated, instead, you could still import, but the local textile industry didn't entirely get their way because you could still bring in white cloth.

In Holland, a different thing happens:

there, the Dutch East India Company brought all imports of cotton cloth from India, which then meant they destroyed the printing and dyeing industry in Amsterdam as well, so you've got a different power balance going on here. The British state also then introduced an import duty on white calicos, which was at the level of 50% duty, so again, this is going to be encouraging a local industry. And in 1721, the woolen industry, complaining about imported cotton, actually got an act to prohibit the purchase of printed calicos made from imported Indian white cloth. You could actually denounce your neighbor if you saw something which they were wearing which was a cotton cloth, you could shop them and get a payment from the state, it was illegal to wear calico cloth. The result of this is it actually develops another industry, fustians, which is a mixture of linen and cotton, because that act said you could wear a linen and cotton mixture, fustian. What this does is actually boost the development of the Lancashire fustian industry, which then forms the basis of the cotton industry, and by 1774, they're getting their way, and you are then allowed to wear all-cotton cloth without being shopped by your neighbor if they see it on the washing line. So what you see happening here is that unintended action to protect the woolen industry, and the linen industry, but not getting their entire way, is leading to the development of a native, local industry, and by the third quarter of the 18th century, this is taking over third markets, particularly in West Africa, and then later on in the Americas, and exports of cotton in 1800 were about 60% of the entire production. So the argument here is it's being driven by competition with India in global markets. So so far, the argument is saying two things: resource constraints, which can be escaped from in Britain, which had coal and the resources of the New World, more than the Yangtze, and then secondly, the argument is India did not have a resource constraint, but it did not have the competitive challenge and didn't have the state action to develop a local industry. Well, I think there can be an exaggeration of the role of the state, it wasn't like Korea or Japan, but there's a third argument which comes in, and this has almost become an ideological argument. So you have the view of the world historians that I've been talking about, is that the state did it, and there's the view of Stephen Broadberry, an economic historian, no, no, no, no, it's the market, and the argument of Stephen Broadberry is, let's not exaggerate how powerful the British state was in the 18th century, it might have some impact, but rather, he said, it's wages. He said that wages in Lancashire were higher than in India by the early 18th century, productivity in England was higher than it was in India, but nevertheless, the wages in India become so low that it's impossible to compete. And he argues that wages in India were about 1/6 of the level they were in Lancashire, so a huge discrepancy, and he looks at that by converting wages into the silver equivalent, how much silver would you have from that, so that's one measure. The other argument of other historians is, no, that's the wrong way of looking at it, it's how much food could you buy with your wage, and according to that measure, the difference, this is the world historians, is not so wide at all. So okay, it depends upon whose data you believe whose argument you believe. So the Broadberry argument is that it's all about wages, so the argument here is, wages in Britain are high, and that then leads to innovation. So it was a high-wage economy, leads to innovation, to higher productivity, which can then compensate for the low wages of India, and that then, by about 1770, it's possible to take over the third markets, by the 1830s, it's possible to take over the internal market within India. The problem here is you've got two completely different sets of data on what the wage differentials are, so the honest answer is we don't really know with any certainty. The best conclusion, I would argue, is that the discrepancy of wages were not as high as Broadberry suggests. They would be way below subsistence level if he was right, and I don't think that that is true. What is argued by another historian, also from Oxford, Robert Allen, is that, probably, in the middle of the 18th century, the wage rate in the most prosperous parts of China and India were about the same as the wage rates in Southern European cities, that does seem, from data on the local level, that seems to be about right, but that Northwest Europe had already pulled ahead. So again, we need look in a more fine-grained way at this. What I would like to argue is that there are two other arguments which are better, we nee to move even further, and I'm now, in the last moments of the lecture, I am going to suggest what I think is a better way of looking at it. The first of my better arguments is social structure and economic development. And if you look at this data here, you see that there are very big contrasts between what is happening in England and in Europe. 18th century England was unusual in having a very rapid release of labor from the land, sorry, that line is skipped a bit. So in Britain, at a per capita income of $550, where are we? Something's gone wrong with the way that data is laid out there. The basic point is that England released labor from the countryside at a much earlier period than did France, and most urbanization in Europe, in the 18th century, was in England. You see that the urbanization goes up from 6% to 24% in England where it doesn't really go up at all in Europe, and most of the gain in European urban population was in England, 70% of all population growth in cities was in England in the later years of the 18th century. So taking the data on agriculture, in Britain, 1840, 28.6% of male workers were in agriculture, that figure should be over there, and there were 47.3% in industry, whereas in France, 50.6% were in agriculture, only 28.7% in industry, apologies that the lines somehow got muddled there. The other point here, then, is you've got high urbanization going on in England, release of population from the land, but also, you have a big difference in size of farms. The average farm size in England in 1700 was about 75 acres, in the Yangtze Delta, it was 1.9 acres. By 1800, the average farm size in England had gone up about threefold, and the labor cost of a large animal farm was about 1/3 that of a small farm. So English farms were bigger to start with, and they get even bigger, and that improves labor productivity, which then allows the release of labor from the land into the towns. In England, in 1801, 24% of the population was in towns, in the Yangtze, 1840, only 11%. So there's a big difference here in urbanization, release of labor from the land into the towns. Why? And this is where we need to drill down into social structure, let's look at it very, very quickly. In England, Black Death, which I mentioned earlier on, leads to an end of serfdom, it leads to an end of forced labor, but the feudal lords increasingly gained ownership of the land. So they lose forced labor, but they get more secure ownership of the land, and instead of peasants, they have tenant farmers. Both tenant farmers and landlords have an incentive in maximizing their cash income, using the best availability of their resources. Tenants pay cash rent, they want to maximize the cash rent, landlords want to maximize the cash rent. The landlords invest in improved productivity, in farm buildings, in drainage, and so on, the tenants invest in livestock and machinery. Labor is released to the land when its marginal productivity started to climb. There's incentive to use resources to maximize returns. That does not apply to the Yangtze, different structure. In the Yangtze, the peasants attained effective security of tenure, the lords had legal ownership of the land. The peasants with secure tenure subdivide their holdings, labor-intensive, a bit like in Ireland. With pressure on resources, they turn to industry in a struggle to maintain subsistence, but they don't have the income to generate new investment in machinery. In England, most of the industrial work in the countryside is by people who specialize in industrial production rather than always being by employment from agriculture. in the Yangtze, the lords had rents which were high and fixed, they had no interest in improving production or investment, instead, they spent their income on conspicuous consumption and preparing children for examination for official positions, which were the main way of securing wealth and status. So you've got a different nature of elites in the two areas, and a different nature of the people who actually work the farms, bigger in England, smaller in Yangtze, tenant farmers, peasant farmers. So I think we need to drill down into these divergences, and there are also divergences within Europe, which I haven't go time to go into, with the restoration of serfdom in Central and Eastern Europe, for example. So what I'm arguing here is that we need to look at the internal dynamics of the political and social structure to help explain the diverging patterns of economic development. And then, finally, I think the state is important, but in a different way, it's through maritime trade and what I call the fiscal-military state. We've noticed so far that the New World helps escape from the constraints on resources, they produce new commodities, but how do you get hold of the New World in the first place? We've also noticed that the Dutch and East India companies arrive in both China and India to engage in trade, before, in the 19th century, they become more territorial. Both of these patterns rely upon maritime power, and that is one of the major differences between Europe and Asia. Asia is territorial power, what J.C. Sharman calls lords of the land, Northwest Europe is maritime power.

And this is what Pomeranz says:

"It was only in overseas colonization and armed trade "that England's institutions helped, "gave it a crucial advantage." There's nothing similar to the fiscal-military state in Asia to what we have in Holland, and then in England. European countries engage in long-distance trade, supported by powerful navies and the creation of export-oriented colonies, unlike their counterparts in Asia. Now, there are differences within Europe, it doesn't always work out that way in Portugal and Spain, but I would say that there were two factors at work here, one is an efficient fiscal state, there is no major tax revolt in England after the civil war and no default on debts, whereas France was almost always in default on its debts in the 18th century. You have a stable and powerful fiscal regime, I've written a whole book about this so I won't go into it in any detail now. You have the excise officer, a bureaucratic, efficient man, collecting on beer, in this case, or wine, and so on. And that leads to an efficient and effective financial sector, the government is issuing bonds, that leads then to the growth around here in London, to the stock exchange, the Bank of England, and that can then help generate a financial sector, which helps industrialization. And then the second point is, the stable revenue from the taxes can lead to large scale investment in naval dockyards and ships, as, in this picture of 1757, at Deptford. So, as Sharman argued, China, the Mughal Empire, the Ottoman Empire were land based, with large armies, Holland and England were maritime, and that was crucial in securing the resources of the New World, so the difference between lords of the land and masters of the sea. So, my conclusion is that this debate of the great divergence is one of the major historical issues at the moment. It's at an early stage, we need to move beyond the general statements based upon dubious statistics to probe into more specific issues.

The main lines of argument are clear:

it's about resources, and how they were made available, it's about competitive responses and adaptability, it's about state action, and I would say it's more about this fiscal-military state, it's about the level of wages and productivity. Above all, it's about the organization of agriculture and industry, and the incentives that gave to the efficient allocation of resources and innovation. But these debates are also matters for us today, because there's a sense of resentment of rising powers, which wish to regain their lost position, like China, with the current convergence, and especially a sense that European actions led to the decline of their economies, and that links to another point, which is climate. Europe embarked on energy-intensive uses, we're now experiencing the consequences in climate change, and the issue which is at COP27 is, should Europe now compensate those who are developing, how should the costs of net zero be allocated? So I think the history is not dead and buried, it's very much present and with us at the moment. Thank you. (audience applauds) - I'm going to take two from online if we can get them, before going to the room, if that's all right. There's one here about British colonialism in India, pointing out that India had 25% of the world GDP before British colonialism, and it obviously saw relative decline, and should we attribute that to the British coming along, and leaking the wealth, and carrying it? - That's a very good question, which I'm going to answer in my third lecture of the series. (audience laughs) Of course, this is very a big topic, I was pointing out that, by about 1830, it's possible for British textiles from Lancashire to penetrate the Indian market, and of course, was it Karl Marx, who famously said that the plains of India are bleached white by the bones of the starving hand-loom weavers? So there's the argument which then goes into Naoroji, and the drain theory, which is that there's a drain of wealth away from India, there's the argument that investment in things like irrigation and Indian railways is export-orientated to take goods out of India, not inside, and that can lead to famine. So there's a huge debate over this, and I'm going to spend a whole 50 minutes talking about it in my third lecture, so watch this space, I think is the answer to that. It's a very major argument, I've just finished a book at the moment which is about post-Second World War reconstruction of the world economy, and that was very much the argument of Nehru and others at Bretton Woods, which is, you've now got to provide the development for us, you've got to redress this balance, so I think that's very much the issue I want to address. I'm not going to give away my answer to the question at this point. - I've got another one here online about freedom of ideas, this is talking about Joel Mokyr's arguments about heterodox ideas, could they thrive in the West, and is that why? - Joel Mokyr has written several books, the most famous one of which is called "The Enlightened Economy," and his argument is it's something particular about the Western mindset. Of course, that can be accused of being cultural imperialism. Many of the arguments that are being put forward in these books I'm talking about are saying, China, of course, was incredibly advanced and sophisticated in its technology, Joseph Needham's big project at Cambridge on Chinese science, India similarly, so the argument that would be put forward by Broadberry and others, no, it's about the market that's pushing it. And Robert Allen, who is in debate with Mokyr, is saying, it's the wages. He says that from the end of the Black Death, wages in England, above all, Northwest Europe, were higher, and that is what really drives innovation, and most of the innovation was not caused by smart people in Cambridge, or wherever, as if, it's working men in the factories adapting. So he has an analysis of, where did the ideas come from, and it's that incentive, which would fit in with what I was arguing there about the nature of urbanization, and looking at craft networks. As I got the bus down here today through Clerkenwell, there, you have all the people making the instruments for these ships, and what a lot of historians look at are the craft networks where they meet and exchange ideas in pubs, and clubs, and literary societies. So I'm not, on the whole, a big supporter of the Joel Mokyr argument. - [Questioner] Thank you. How is it possible to talk about a great divergence when the health of workers in British industrial cities was so notoriously poor? - Well, yes. Okay, so we get back then into the whole issue about that graph I was showing us earlier, this one, and I think I would agree with you, it was a damned close-run thing. If you look at the data of a demographic historian, Simon Szreter, he would argue that around about here, in places like Manchester, the mortality rate was equivalent to what it would be in a third world city in the early years of the 20th century. So yes, you're right, it's a very difficult issue. I suppose the question there is, whose health is being destroyed? And there's a trade-off, which is absolutely dreadful, it's infant mortality. Older people come, they get the high wage, but the infant mortality rate is absolutely horrendous at that point, so yeah, I think that one would then need to work out, this is more fine-grained stuff, look at some demographic data to try and see how that compared with Calcutta, or Mumbai, or whatever. But I think it would be fair to say that you do not have a famine in the mainland, you have it in Ireland, and you don't have the demographic downturn that you have here. So it's a close-run thing, and it's only from about 1840 that the standard of living starts to go up a lot more. Another point to be made, then I'll stop, which really supports some of the gloomy view of it, is who was working in these factories? One of the innovations is to replace expensive men by cheap women and children. Jane Humphries, who is another professor of economic history at Oxford, disagrees with Bob Allen, a professor of economic history at Oxford, Bob says high wages, she says, nonsense, cheap women and children being exploited in the factories, so it's another very contentious issue there. I think my line would be, yes, a lot of it was about bringing women and children into factories, but I think that, probably, despite the horrors that were going on, for adult men, they were not so badly off, and not, demographically, so badly off, so it's a distribution issue. - Thank you so much, Professor Daunton. I'm really sorry, we are passed time, so I think we're going to have to close there, but please do take any questions to Professor Daunton afterwards, and in the meantime, please come back for "Slavery and the British Economy" on Tuesday, the 7th of February, next year, which is the next one in this three part series. Thank you so much. - Thank you. (audience applauds)