In this episode, Shruti speaks with Mark Koyama and Jared Rubin about their new book, “How the World Became Rich: The Historical Origins of Economic Growth.” They discuss the link between technological innovation and growth, the importance of global market competition, positive and negative effects of colonialism, the methodology of economic history and much more. Koyama is an associate professor of economics at George Mason University. He is interested in how historical institutions functioned and in the relationship between culture and economic performance. Rubin is a professor of economics at Chapman University. His research focuses on historical relationships between political and religious institutions and their role in economic development.
SHRUTI RAJAGOPALAN: Welcome to Ideas of India, where we examine the academic ideas that can propel India forward. My name is Shruti Rajagopalan, and I am a senior research fellow at the Mercatus Center at George Mason University. Today my guests are Mark Koyama and Jared Rubin, authors of the new book “How the World Became Rich: The Historical Origins of Economic Growth.” Mark is associate professor of economics at George Mason University and Jared is professor of economics at Chapman University.
We talked about why the Industrial Revolution began in 18th-century Britain and failed to take off in other places; why some countries caught up in different centuries, while others never caught up; how colonialism impoverished India; the credibility revolution in transforming economic history and much more.
For a full transcript of this conversation, including helpful links of all the references mentioned, click the link in the show notes or visit mercatus.org/podcasts.
Binding Constraints on Industrialization
RAJAGOPALAN: One of the key things that I learned from the book is that the entire story is sustained economic growth. Every time you explain one of the countries that you’re looking at or one of the cases that you’re looking at, you talk about how different things start mattering. Yes, institutions matter, but so does geography, so does culture and so on. You guys are also doing this cross-country, cross-century comparison. I appreciate that there can’t be a single answer at the end of the book where you just write one sentence and say, “This is the reason. We’ve answered the question.”
What is a good way to think about this? Is it that it is the very contextual interaction between these factors that led to the growth in that particular case and point? Or is it that in those circumstances, the binding constraint was geography, or the binding constraint was culture, or the binding constraint was institutions?
MARK KOYAMA: That’s a deep question, Shruti, so a tricky one to answer. I think the quick answer is, both are plausible ways to read what we’re doing. The latter example where we go through these historical examples, we try and think which binding constraint here is plausible. For example, thinking about today, I’ve been told at least by development economists—some of whom are more skeptical about, say, institutions—they would say, even if you’re Botswana—Botswana is a relatively well-governed sub-Saharan African country, and it’s relatively high-income by sub-Saharan African standards, but it’s landlocked.
No matter how good Botswana’s institutions are, it’s always going to be more difficult for them to access, say, Chinese markets than it is for Vietnam to do so. For Botswana, maybe geography is a pretty binding constraint, but still not absolutely binding. They could still grow and do better, but they are constrained by their geography. I think it’s a perfectly respectable way to argue, to say, “Yes, in Botswana geography is a problem,” but say, “Venezuela or Argentina, it’s probably the political institutions which are the binding constraint.”
We go through, and we think that in the case of why didn’t the Dutch industrialize, the political institutions, they may have been overly oligarchic; that’s the criticism you could lay against them. But they were pretty good at restraining the power of the executive, the stakeholder, the equivalent of the king, and the Dutch Republic had almost no political power. They didn’t have the autocrats, the autocratic problem, let’s say, that China has or the Ottoman Empire had. I think it’s a perfectly respectful way to use our book and to think about these things.
Now, the first way of reading it was a bit different. That’s also a valid way to read the book because we definitely think that institutions interact with culture. That’s actually very much in line of [Joel] Mokyr’s work on the Republic of Letters. The book is called “A Culture of Growth,” but if you read that book and if you read our summary of it in “How the World Became Rich,” it’s actually institutions which underline it. There’s academic institutions like the Royal Society, there’s the framework of competitive states and there are things like the fact that there was a postal system that worked across Europe, which meant that people could communicate. There were academic journals.
Definitely, when we go through those factors, we almost always think that the interaction is where the interesting action is. It’s partly why we were dissatisfied with some earlier treatments of these questions because people would think, “Oh, it’s all institutions,” or “It’s not institutions, it’s all culture,” whereas clearly it has to be how these things come together. And that’s where a lot of the action is in terms of academic research, in particularly the intersection of culture and institutions.
RAJAGOPALAN: Which side do you lie on, Mark? Forget how I read the book. How did you write it?
KOYAMA: Both Jared and I—and Jared can go in here as well—would describe ourselves as, broadly speaking, in this long tradition of people who think of institutions as being very important—new institutional economics. But it’s not new anymore, so people don’t really use that term. But the tradition of Douglass North and more recently Avner Greif—but now, since Acemoglu and Robinson, many people think institutions matter. It’s not a niche position. It’s quite a common framework, but we definitely come out of that tradition.
Of course, we have to recognize, say, the definition that North gives of institutions in one of his classic books is so broad and encompasses things like culture. The action is refining those definitions. North talks about institutions as rules of the game. Rules of the game then encompass both the formal institutions like the laws, but also the social norms which govern how the law is implemented and interpreted.
RAJAGOPALAN: And the kitchen sink. It’s everything.
KOYAMA: Yes. Of course, we have to unpack that now, but I think that’s a useful—you begin there, then you go fine-grained. I think when you have a specific application, then you can really unpick how these two things separate out because there can be some context where the formal institutions don’t change very much, but something is still changing.
A classic example, in the Industrial Revolution, England, where the last formal change in the constitution was the Glorious Revolution, which was a century before the Industrial Revolution. People have always said, “Look, you have a Glorious Revolution, and it’s 100 years before the Industrial Revolution. So the two things can’t be connected.” Well, they can be connected, but it’s going to be a more complicated and rich and indirect set of connections than just “This one thing happened, then you got secure property rights, then you got growth.”
JARED RUBIN: Yes, I agree with everything Mark said. One way that we describe in the book as well is that you can think about there being all types of constraints that each society has. Some will be geographic, as just Mark noted, in the case of, say, Botswana. Or you could think about, there’s a small literature on access to the Atlantic being really big in early modern Europe, and that’s why you start to see a movement toward northwestern Europe and away from the Mediterranean.
That’s also where we then think of these interaction effects, whether it be institutions and culture, institutions and geography. In this case, as being able to overcome these features in the case of Botswana, I think this is going to be an interesting case for the next couple of decades. For instance, how do you overcome this? It’s clearly an impediment that other societies don’t face, but it’s also not one that can’t be overcome. This is something that all these countries face.
One thing we should say, too—Mark very rightly describes a place like northern Italy as relatively rich in the late medieval and even into the early modern period, but it’s not rich by today’s standards, by any means. It would be relatively poor by today’s standards. When we’re talking about “How the World Became Rich,” the title of the book, we’re talking about rich by modern standards, and really even middle income.
A country like, say, China, is around a little over $10,000—between, say, $10,000, $20,000 U.S. dollars per year per capita GDP. That’s not extraordinarily wealthy by modern standards, but by historical standards, it’s incredibly wealthy. That’s really what we’re trying to understand, is how the types of interactions we’ve been describing here occur and how these impediments that we’ve just been talking about can be overcome.
Even in the case of England in the 17th century, and then Britain in the 18th century, we describe how while certain parts of the country weren’t connected, it became connected over time via turnpikes and canals, and things like this. These are things that require government investment. They’re not things that just happen out of the blue.
They require a certain set of, say, institutions, in particular, that facilitate this. And then that’s the type of thing—as Mark was just describing, there’s this 100-year lag or so between, say, the major changes with the English Constitution and then the onset of industrialization. Well, that’s the type of thing that’s happening over time as incentives occur. And then you get all these preconditions meeting together in one place at one time, not just institutional by any means, that then spur on this growth that the world has not really turned back on.
Innovation and Growth
RAJAGOPALAN: One of the key things that I learned from the book is that sustained economic growth only really occurred after there was a sustained period of technological innovation or high rates of technological innovation, which weren’t one-off improvements or an accident of some sort.
We find these amazing things from ancient civilizations. Someone found a calculator—you wonder how they built the pyramids, but really over a sustained period of time. What you are trying to tell us, especially with the British Industrial Revolution case study, is what did it take for this kind of sustained technical innovation and therefore sustained economic growth.
One of the things that I latched onto as I was reading the book is any kind of technological innovation over a long period of time, it requires a lot of experimentation and a global testing laboratory. Does it finally come down to a global competition, a place where ideas can be constantly tested and challenged? And places that don’t allow for that very quickly decline, and places that do allow for that can see this sustained, long-term technological innovation and, therefore, long-term economic growth?
KOYAMA: Yes, it’s a great question, Shruti. The case study of England is unique because England is part of Europe. And I think what your question gets at is this literature of this discussion of a scientific revolution and then the subsequent flowering of intellectual ideas and discussion and debate, particularly for the work of Joel Mokyr. And his book for culture, “A Culture of Growth,” really brings this to the fore.
One small country on its own, no matter how good its institutions are, you won’t necessarily get that density of innovators or scientists. You need some connectivity. You need some critical mass of people, and we need it to be a critical mass of people sufficiently well fed and affluent that they can have spare time to be thinking about ideas, experimenting and improving. I think that is relevant.
A very small place wouldn’t have that. We know about famous examples of technological regression. The most famous is Tasmania off the coast of Australia where they lost all technology because they were isolated. Another example is the Canary Islands, where people lost the ability to make metal.
Yes, scale matters, and I think that the European story, it’s the combination of a competitive state system—not one state, but many states—but a shared European-wide culture and a discourse. It’s not sufficient probably. The Netherlands didn’t seem to be on a course to industrialize, but it seems to be probably necessary for the type of breakthrough we’re talking about.
RUBIN: Yes, I think that your question also gets at something that Mokyr had talked about 30 or some odd years ago in his classic book, “The Lever of Riches,” that you have diminishing returns to these, what he calls, macro innovations, these big innovations that happen—you mentioned old clocks or calculators, things like that. And we can improve upon those things, and that’s what he calls micro innovations. That’s the important thing, is improving on those things to make them more cost-effective, make them more useful for society, but eventually you need new innovations as well.
And it’s this combination of things that you have described, where you obviously need a sufficient number of people and a sufficient number of innovators, but there also have to be incentives for them to innovate. There have to be limits to how much they can be expropriated. There has to be, as Mark mentioned and as Mokyr mentioned, some kind of even cultural aspects that encourage this.
This is certainly one of many places where Mark and I agree that this is necessary, this type of competition that happens, but clearly not sufficient because that in and of itself doesn’t explain why and where the takeoff begins. And the type of innovation, the increased rate of innovation that occurs in Britain in the late 18th and 19th centuries, and then spreads to much of Western Europe, the U.S. and a few other parts of the world—it’s clearly an important part of the story, but it can’t be the whole thing.
Protectionism and Decline
RAJAGOPALAN: It does explain why it stops happening. When you think about, say, the decline of Florence or the decline of Venice, there’s a lot of protectionism, which eventually leads to a particular kind of rent-seeking, and rent-seeking can translate into various other downstream consequences. But it’s the protectionism part which stops these kinds of civilizations or city-states or countries from innovating. Even if it can’t explain the takeoff, can it explain the decline?
RUBIN: We view a number of things as happening to coalesce at this time in Britain, in the late 18th century and 19th century, and some of it is very Britain-specific, so it’s not it just could have happened anywhere. But each one of these things, while not sufficient in and of themselves, probably was necessary for the takeoff to happen in Britain the way it happened. The counter to this, as you describe here, is that states that didn’t have some of these features, that can be the reason why they didn’t take off.
Highly related to this competition argument is not just autocracy, where you might have a monopoly on political power, but really it’s the lack of constraint on what autocrats can do. For instance, I would view this as one reason why China didn’t take off, say, in the 11th century or so, the 10th century under the Song dynasty, where this was a very innovative period in Chinese history. Almost all innovation was flowing East to West at this point.
But at some point, this slowed down, and the rate of innovation never came close to allowing the type of takeoff that we eventually see. This would be an example of one feature—and it’s a really important feature—that wasn’t present. Had it been present, we can think of a counterfactual world where maybe some type of industrial takeoff happens in China seven, eight centuries prior to when it happened in Britain.
KOYAMA: I think Florence is a really interesting example. Renaissance Italy was very rich by pre-modern standards, pre-industrial standards. England doesn’t really overtake it clearly until sometime in the 18th century.
They were rich, and obviously, if you go to Florence, you know the spectacular architecture and art—there were geniuses around. I think the leading explanation for why it doesn’t become self-sustaining is increased rent-seeking. It does become more autocratic under the Medici, but it’s actually difficult to separate out the causal impact of that as opposed to some other things.
Mokyr argues, for example, that there weren’t sufficiently skilled mechanics, in terms of making machines, to implement the types of ideas they had. Leonardo da Vinci had these amazing ideas, but they couldn’t be implemented. Even though they were great architects and artisans and artists, they weren’t machine makers. That might have been another precondition for technological innovation.
RAJAGOPALAN: For me, I think South Korea is another example of this. It’s clearly a place until even the 1980s that doesn’t have this democratic, liberal political regime, but on the other hand, they expose themselves to global competition. All their exports are constantly being tested globally, and it’s the export competitiveness which is driving that growth story. Somehow it’s enough to even overcome the lack of good political liberal Western institutions, right?
KOYAMA: Yes, that’s part of the story. In the last part of the book where we talk about the spread of economic growth from the leaders in America and Britain to other parts of the world, including Asia—the South Korean story is, exactly as you say—the people who were skeptics of the institutional arguments that we push were saying South Korea was originally an autocracy. It had a lot of state involvement in many of its industries, and it wasn’t even obvious to development economists that it would grow so fast.
In the 1960s, growth economists were quite pessimistic about it. But the key common factor between it and other success stories in that period was export-orientatedness and openness along that dimension. And the leading South Korean firms competed in these international markets, and they improved as learning by doing. It’s a process of moving up the value chain.
If you think about their cars, initially they cut cheap copies of Japanese cars. Hyundai and Samsung were not brand names that people really respected in the 1980s and 1990s, but they learned how to make very competitive automobiles eventually. That’s right—and maybe we’ll get to it—but for a country like India, that’s part of the reason—we’re building on other people—we argue India grew more slowly. Because it was a big market, so they could protect more, and they weren’t forced to compete with other countries in export markets.
Importance of Global Competition
RAJAGOPALAN: You’re giving us the broad brushstrokes of whether institutions matter, culture matters, and so on, geography matters. And then when you start digging into the detail, you literally explain each case, each time period, each city or country at a time.
When I start looking through these, the common factor that jumped out at me was always a willingness to compete globally, or an unwillingness to compete globally. To me, it seems like that can happen irrespective of geography, religion, autocratic, democratic. That seems to be the thing that ultimately, over a very long period of time, pushes this kind of innovation. You need the world to cooperate and also discipline.
RUBIN: One thing we do emphasize is that there was a big difference between the first takeoff that happened in Britain, and then catch-up takeoff that happened in more or less any other part of the world that has since come close to catching up or has even become middle income today.
One of the things—as you rightly note here, that we do note, especially, say, with the East Asian Tigers (you mentioned South Korea; you could say similarly Hong Kong, Singapore)—is that globalization, being willing to enter into these worldwide markets, is one of the quickest ways to catch up. Because one of the key things that we emphasize, and many others have emphasized as well, is that you don’t need to reinvent the wheel once the wheel has been invented.
A large part of this book is trying to understand, taking from the literature in our own work, why it happened in the first place. But then we say, “Well, probably the more important question in many respects is why did it spread and why did it not spread to certain parts of the world?” There, I think, the competitive aspect is really important. As Mark and you have been mentioning here, to the extent that you have protectionism, you don’t get the fruits of what the cutting edge, the leading technological innovators have.
We can talk about all types of ways that countries can grow. One of them is just pure trade because you get gains from specialization. But in the end, it’s not just trade, it’s access to new technologies. South Korea is a great point here. Eventually you get a country that has its own technological base, that becomes a leader that within the lifespan of even ourselves was just starting. That’s one aspect where openness to trade can be important.
Now, in the case of Britain itself, it was arguably a little less important. Now, clearly, Britain had a global empire by the time of takeoff. That was important. We’re not denying that by any means, but Britain also had large internal markets. And this is one thing that we did distinguish between, say, Britain at the time and the Dutch Republic. The Dutch Republic was much smaller—it’s something you mentioned before—even though it was richer at the time. It had a lot of those prerequisites that we end up viewing as important. But one thing it didn’t have, among a few, that England did have was that large internal market to satisfy.
RAJAGOPALAN: Yes. At some point, it seems like the market test has to be fulfilled for us to know if a technology works or not. Not just the scientific test, but whether whatever is the new idea can actually translate into some kind of commercial purpose and so on.
The Long Arc of India’s Growth
RAJAGOPALAN: I want to ask you a few questions about India, but typically the economic history literature always comes down to colonialism. India seems to have been rich a long, long time ago. Then there seems to be a period of decline even before the East India Company came in, and then you see colonialism and now the rise in the last 30 years post liberalization. So can you just give us the longer arc of India?
KOYAMA: I’ll begin just with the late medieval, early modern period. It’s in 1526, something like that, that the Mughal Empire is established in northern India. At this point, as far as I’m aware, India is one of the leading manufacturers of textiles, I think particularly cotton textiles—to some degree, silk was more China—but India was a leading producer of cotton textiles. India had been a long-standing, developed, densely populated civilization. A lot of particularly mathematical innovations came from India and then went to the Middle East.
At this point, India is definitely a big share of the world economy. The total GDP, if it were measured, it will be high. It’s definitely a leader in textile manufacturing. But in terms of its per capita GDP, it’s not necessarily especially rich, largely because these economies are Malthusian. I think sometimes in these discussions, the discussion we’ll get to with respect to the impact of colonialism or the impact of the West on the rest of the world, they often look at a total amount of GDP.
For example, China and India were large shares of world GDP before 1800. They shrink dramatically as the West industrializes and they fall behind. Sometimes that’s portrayed as, “Look, the West rose, and it devastated the rest of the world.” But it’s totally misleading, in the sense that China and India were huge because they have huge populations. Per capita, they were not especially rich, but they were definitely highly sophisticated market economies.
India, particularly, was making probably some of the highest-quality fabrics, textiles in the world, alongside China, so these were in demand. Once Westerners could get their hands on them, they really wanted to buy them. That’s why access to India was desirable and why trade with India was desirable. In per capita terms, because it’s Malthusian, people were having a lot of kids. Women were marrying at a young age. I don’t have the statistics in front of me, but in per capita terms, India would have been poorer than northern Italy, in per capita terms.
India and England may have been comparable in 1600 in terms of per capita GDP. I might be wrong on that, but not a huge difference in any time. That’s the high point of the Mughal Empire. Then the Mughal Empire reaches its peak in the late 17th century. When it goes into decline, it starts breaking up. Different factors are cited for this. One is climatic change, adverse climatic change. Another is a standard story for why empires decline, which is rent-seeking, corrupt tax farmers, governance declines—empires have those features. By the first part of the 18th century, the Indian per capita GDP estimate suggests it’s fallen already. It’s already way down from its high point.
And the Mughal Empire is politically relatively impotent. You get invasions from Afghanistan and from Persia. By the time the East India Company is really getting their teeth into Bengal and forming a state, as opposed to just a trading company, the Indian economy is probably already in some crisis. Although Indian products are still demanded in Europe.
RAJAGOPALAN: Yes, the only thing I would add to that, Mark, is even when we say India is comparable to Britain in that time in terms of GDP per capita, I think the big difference is in India are the urban areas are doing a lot better than the rural areas—even then, they’re way richer. And there is quite a lot of inequality within India, in the sense that there are certain centers and regions which are extraordinarily innovative and rich and big trading hubs, and then there are certain areas which are just Malthusian, right?
KOYAMA: Yes, I think that’s exactly right. It’s actually a great point because Ken Pomeranz made this point when making comparisons between China and Europe. He said basically, if you compare China and Europe as a whole—China to England, say—then England always looks like it’s always much richer. But England is tiny; it’s basically the size of one province in China.
The right comparison is the most advanced regions in China versus the most advanced regions in Europe, which are maybe the Dutch or the English. Similarly, I think my comparison, the data I’m drawing on—is the most advanced, some of the most advanced regions in India, were they comparable to England in 1600? By 1700, they really weren’t, but maybe in 1600 they were. But of course, yes, there were definitely interior regions or regions which were extremely poor.
RUBIN: Just a couple of things to add. One is, again, the caveat that I mentioned before, that even when we’re talking about rich here or poor, the whole world was poor at this point by modern standards. We’re talking about, even at its richest, not much more than the $3 a day, say, in India, per capita GDP. Obviously, there were many that made more than that. There was certainly inequality all around the world.
I think the other thing that’s important is that the logic of the Malthusian model suggests that—and there’s no reason to believe that this is wrong in the case of, say, India or China in this period—that these places with large population like northern India and the valleys of China, large population was just indicative of some degree of success, some degree of innovativeness, whether it be technologically or trade or these types of things.
The logic of the Malthusian model is that this eventually gets swamped out by just population growth. That’s why we think of population growth as being indicative of some degree of overall progress for the society in a pre-modern context. It just never really translates until you get that massive wave of innovation into really sustained increases in per capita income.
The fact that northern India is so populated in this period does suggest it was clearly one of the world’s leaders on many fronts. I think if you look at various times in the last thousand years, particularly prior to, say, the mid-18th century, India would be right up there. Again, at various points, as Mark noted, by the mid-18th century, all the recent evidence suggests it was already clearly on decline. It’s not just, why did England pull ahead first, or why did northwestern Europe pull ahead first? It’s, why didn’t China? Why didn’t India? Why didn’t the Middle East? Because these were more innovative areas for a very long period.
KOYAMA: That’s exactly right, Jared. I should just correct myself: Stephen Broadberry and Bishnupriya Gupta’s most recent estimates say that in 1600, Indian per capita incomes were 60% of British per capita income. They were lower, actually, but they would fall lower still by 1700 or 1800.
Effects of Colonialism
RAJAGOPALAN: You make a very compelling case in the book that colonialism is not the reason for the Great Enrichment or the Industrial Revolution. You also say that even if it didn’t cause the enrichment of the colonial or the imperial powers, it did cause or contribute to the impoverishment of the colonized regions.
Is there a way to think about this in terms of how much did it affect the growth rate of India, which was already on the decline? How do we think about other factors other than growth rate? There is a question of liberty and oppression and being forced to grow certain types of crops and having frequent famines. What is a good way to think about how the colonial policies might have impoverished India?
KOYAMA: India is one of the toughest ones. There are some other examples where, say, the Democratic Republic of Congo—it was poor to begin with, but the Belgians were unbelievably brutal, genocidal, and it’s kind of unambiguous. And it’s still terribly poor now. It’s unambiguous that it was poor, and the colonizers did absolutely nothing to make it any richer, and they killed a huge number of people. It’s very easy to say that was very bad. Whereas, say, something like Singapore, it looks the other way. It looks like it was a barren island; the British set up these institutions. The Chinese, Malaysians and Indians migrated there, and it’s been very successful.
India is a mixed bag, perhaps unsurprisingly, given it’s a continent. It’s difficult to summarize all the research, and it’s difficult to make a statement which is true to all of India. But I think what we can say is that the British, they stopped war. They imposed pretty much peace after the mutiny, which was brutally suppressed, and they do build railroads. The railroads are unambiguously good for, say, market integration. Some research shows that they may have spread disease, but the railroads were a good thing. They had positive effects even into the independence period.
The British didn’t do nothing, but even beyond the railroads, it’s hard to see that much they did which was great—partly because they didn’t directly govern the whole of the continent; a lot of it was through indirect rule. Partly because they didn’t invest in things like public education. They allowed a lot of localized rent-seeking.
One of the main claims against them, though, which is maybe harder to assess—and Jared may have some views on this—one claim against them is because they integrated India into this free trade system, India specialized in the export of primary products. It had been manufacturing, but its manufacturing was decimated for various reasons, including competition from the Industrial Revolution in Britain.
If you want to criticize the British, one argument is to say they didn’t allow India to manufacture or industrialize. The counterargument is, even if India had been independent, it may not have been able to industrialize or do well in manufacturing. That’s one of the counterfactuals we have to assess. India grows a lot in terms of total GDP because its population grows a lot, the famines notwithstanding, but then its per capita GDP doesn’t grow very much during British rule. It’s one of those things. You can focus on the negatives or on the positives. There’s some evidence for both, I would say.
RAJAGOPALAN: But also, isn’t the fact that the British government didn’t control all of India also helps us figure out where they did better and where they did worse? That is, we have a laboratory. Again, you have these princely states; they’re all different kinds of monarchs, different attitudes toward innovation, different religions in many cases. Did the British do better or worse than the monarchs, and on which margins? At least that we should be able to tease out, right?
RUBIN: No, this laboratory has been used by a few, including actually myself with Latika Chaudhary, and Lakshmi Iyer has some work using these differences, and even there, the bag is mixed a bit. For one, it matters what type of princely state you’re talking about. Lakshmi’s paper would suggest that they were more likely to invest in public goods. The British, especially stuff like education, the British might not have had as much incentive—they often didn’t—to invest in these types of public goods. On the other hand, my paper with Latika suggests the opposite, that we see differences in literacy that do not favor the princely states. We can think about these things.
On the other hand, I’d say while this makes for a good laboratory for understanding how some institutional differences can have downstream effects, say, on public good provision, which is an enormously important thing—Mark has already mentioned probably the most important public good, at least from this period, which was railroads—this again was all relatively small potatoes relative to the big things that lead to growth.
One thing, I think if you take the more general point which you mentioned that, in many cases, the colonial enterprise where colonialism has its biggest bite was not so much in spurring growth in northwestern Europe but preventing growth elsewhere, it’s really about catch-up growth. It’s what are the types of things a country needs or is going to be the things that are most likely to lead to catch-up growth?
There’s now one of the more famous papers in probably not just economic history but all of economics through the last 25 years—you have Acemoglu, Johnson, Robinson, which talks about the colonial institutional legacy. Now, there’s been a lot of pushback on that, but generally we do see that, certainly in some cases, that there has been a bad institutional legacy in some places, including parts of India. And that’s actually what the Banerjee and Iyer article would suggest, is that in some parts of India, you get a local rent-seeking, which then even after independence persists.
That’s certainly a downside of colonialism that had very long-run, even into the modern day, effects because institutions persist. And you could say with that, the culture that builds around these institutions, that type of thing persists. And it can be very hard, especially when we’re talking about the institutional persistence because what institutional persistence creates is vested interests that are powerful. They have a huge incentive to keep the system the way it is.
These are hurdles that, again, can be overcome, but they’re hurdles. We can ascribe these directly to the colonial enterprise. That’s probably where, both in India and other parts of the world, colonialism has had one of its bigger bites, is that—and I don’t want to speak for Mark here, but I believe he would agree with this statement—that there weren’t really any parts of the world that became colonized that as of, say, 1700, we would expect to have an industrial revolution or anything remotely close to what happened in northwestern Europe within the next century.
Probably just about the only place that could have conceivably had it happen outside of Europe would’ve been China, which wasn’t really colonized or wasn’t colonized in that period. This is not to say that this prevented the big thing from happening, and again, that’s the first part of the book, is trying to understand the big thing.
RAJAGOPALAN: It’s the delay in economic growth and catch-up.
RUBIN: When we talk about how the world became rich, in a sense, who cares about Britain, right? It’s less than a percent of the world’s population. It’s getting what happened there and then eventually happened in western Europe and the U.S. to the rest of the world. That’s where the real bite happens.
India Without Colonization
KOYAMA: One final thing—Shruti, you might know more about this than we do—but what is the counterfactual for Britain not colonizing India? There’s no India. It’s not one country. Presumably, it would’ve been a multiplicity of states, having not colonized there. You can imagine some of those states doing more mercantilist policies, which maybe would’ve accelerated their own manufacturing development.
I know that in Egypt, they tried to do this. Muhammad Ali in Egypt tried to industrialize Egypt. It didn’t work in the end. But you could imagine some sub-ruler. But you almost don’t get India without the British colonization.
RAJAGOPALAN: I know this may come as a huge surprise to most people, but I’m not deeply committed to the idea of India as it looks on the map. Even that is controversial: Which map? My hunch is that there are certain regions that would’ve grown much more, especially the coastal parts of India, which already had strong trading networks, which were peaceful much longer, which were more protected from the invasions from Afghanistan and Persia, and so on. Therefore, they were already richer and would’ve likely been even richer right after the Columbian Exchange.
There would be parts of India, in the Gangetic Plains, which had the Malthusian problem, which would’ve had to play catch-up even within the subcontinent and might have been poorer. It’s not clear to me that there will be a unit of India. But for me, the curiosity is which are the parts that could have grown enough that you get something like the United States, where a Silicon Valley’s innovation can outperform New Mexico’s poverty or Oklahoma’s poverty.
RUBIN: Yes. I think to Mark’s point, the most likely counterfactual is you get a series of states in the region, some of which you could envision, at least in the 20th century, following very similar paths to the East Asian Tiger, say, South Korea or something, where you get these hubs that become integrated into world trade—even like what’s happening now in the last couple of decades, where they become innovative centers in and of themselves.
And you could probably guess which ones those would be based on trade. Maybe Mumbai or something might be a prime candidate. I think that’s the optimistic case, and my hunch would probably be the most likely case as well, even though once you get out of the colonial enterprise, it’s really hard to say what happens from there.
KOYAMA: One final point is if you care about the people in another country—I don’t know the numbers—but a lot of Indians leave India. They’ve become part of this middle class in the other British Empire economies, in Kenya and in the Caribbean. They used it for some level of upward mobility.
RAJAGOPALAN: The absolute numbers might be reasonable, but as a proportion of who’s on the subcontinent, it’s irrelevant actually. Thinking about the counterfactual, the way this could have gone terribly wrong, had it not been for the British turning India into India as we know today, is a lot of warring tribes and warring monarchs. I think here the literature on ethnic conflict and how that impacts growth suddenly really comes into sharp focus because India is also a laboratory for that.
If you look at work by Saumitra Jha or Sriya Iyer, there’s a very strong negative relationship between conflict and economic growth. Then that’s the other question. If India goes the other way, without the railroads and without post mutiny imposing a peace between warring monarchs—and sometimes this violence can go on for a few decades, if not centuries, but certainly a few decades.
KOYAMA: That’s a story about state formation in some sense. Obviously, India does have a partition. That’s the one moment where these things come out. I think it makes your point because it shows there was a lot of latent violence, which was being held in check during the British period subsequently. There’s some literature saying that war can be good for growth in Europe, but my view is the net effect is normally negative. It’s particularly the case in sub-Saharan Africa.
If you look at the last 30 years, Africa’s been, on average, the most war-torn continent in the world, and it’s generally associated with distrust and worse-performing states, as well as just the ethnic violence of self-disrupting trade. I think that’s a benefit. In some sense, that could be a benefit of colonial rule, which is hard to calculate, but it could be.
British Imperialism and Markets
RAJAGOPALAN: You’re very clear on how colonialism and imperialism was not the reason for kickstarting this period of sustained economic growth. In fact, a lot of the imperial enterprise came after the Industrial Revolution had already taken root at least in Britain. But there are two factors to imperial rule, and I’m wondering how relevant they were for Britain’s growth.
One is the diffusion of ideas. How much did British imperialism help with the diffusion of ideas? The second is enlarging their own markets. This is not just a place to “sell your goods” kind of enlarging your markets, but again, the larger the size of market, the greater the division of labor and specialization. That seems to be one path to innovation, to spur the second, third, fourth trigger for sustained technological innovation. How can one think about imperialism from that lens?
KOYAMA: There’s an argument where people will say that imperialism was important because it was a vent for markets, in some sense, that Britain benefited from having economies in India because it could impose free trade in India. Indians are passive consumers; they go buy all these exports; that accelerated industrialization in Britain.
I think that argument is basically wrong because British-manufactured goods after industrialization, like cotton textiles, were so cheap and so desirable that everyone wanted to buy them. They were being purchased in Spain, in Argentina, in loads of parts of the world which were not ex-colonies, so long as the tariffs were not prohibitively high.
I think that the benefit Britain gets from the Industrial Revolution in terms of mechanization and then lower prices means that even if it didn’t have as big a colonial empire, it still would’ve been able to export unless everywhere imposed very high tariffs, and they wouldn’t have been able to do so.
The U.S. does have a tariff. That is quite successful at encouraging housing American textiles in New England because they can keep out a lot of British imports and develop their own industrialization. But other parts of the world wouldn’t have been able to do that. I think, even had the British not had as big an empire, they still would’ve had that market size. It’s not as big a factor as one might think.
RUBIN: Yes. To build on that—you also asked about the spread of ideas. I think that this is one place where, say, in the U.S., this was really important because a fairly obvious big difference between the U.S. colonies and what would eventually become the economy in India is that you have a population in the U.S. that has very similar cultural characteristics because it’s a settler colony, and thus the barriers to the spread of ideas are much lower.
This is something when we talk about cultural diffusion, that this is a part of it; it’s not the only thing. When we think about why places like the U.S., Canada, eventually Australia, New Zealand (these are always mentioned as the other places)—they’re called the offshoots because it’s not just Europe; it’s essentially British, some of the more successful British colonies. There’s cultural elements here that do matter for the spread of ideas.
Obviously, during the 19th century, the U.S. becomes one of the world leaders, not just economically but also the beginning of the great technological revolution that begins happening in the U.S. as well. I think that we should be thinking about that as, on net, a positive effect of colonization—obviously for the settlers, not for the people that were here prior to the settling of North America.
KOYAMA: Yes. In the internet age, we really underestimate how hard and costly it was for new ideas to spread. There’s a famous paper on the French encyclopedie, which is Diderot’s encyclopedia, using that to predict subsequent economic growth in France. There’s an idea like if you wanted to know anything about this new stuff, you had to subscribe to an unbelievably expensive encyclopedia. I can’t remember the cost of it, but in terms of relative incomes, it was like buying a car.
For us, it’s so costless to access new ideas. It’s just so easy. If you’re in India or you’re in Japan or you’re outside Europe in the 18th or 19th century, and you want to learn how to make a steam engine, good luck. You have to buy it, disassemble it, and even then you probably don’t have the equipment to fix it or replicate it. You don’t have the machine tools. You can’t just buy standardized screws and so on. It’s so difficult for these ideas to spread. That cultural similarity does matter.
I think the diffusion of Anglo culture in the late 19th, 20th century was important. It took a long time for other cultures to get access to that stuff. Once they do, catch-up is definitely possible, but it does take some time. Japan is the first Asian country to do so. They are able to do it successfully, but that success has to be put in context because it takes a long time, and their per capita income—even in the early 20th century, they’ve been growing rapidly—but their per capita income is still way below America or Britain. They did most things right in terms of getting the institutions aligned, and they invested a lot of resources in transferring knowledge from the West to Japan, but it was still very difficult.
English as Lingua Franca
RAJAGOPALAN: What about English becoming the lingua franca? And this has to be in part because of imperialism, right? Because even when Newton’s writing, he’s writing in Latin. Right after that, you have a period where anything scientific of value is being written in one of the European languages, usually German or something like that.
Adam Smith is probably the first important work to be written in English and not in a scientific language during that period of time. Then, as you expand to the colonies, English becomes the language for scientific and technical innovation. Is that because of imperialism or is it because of the Industrial Revolution? Because there’s a big lag, so I’m not able to tell.
KOYAMA: I think it’s difficult to separate those two things out. To not answer the question fully, India then benefits in some sense by English becoming a unifying language, and particularly obviously post 1990 as it integrates into the global economy, it’s definitely an advantage because people can access knowledge more easily. There are economies of scale to languages. The more people speak a language, the higher the payoff for someone learning it. At what point does English become a language really worth reading? I think until Napoleon, people still thought French was the language you want to learn.
RAJAGOPALAN: But not for scientific innovation, right?
RAJAGOPALAN: All your journals and all that stuff is still being written in Latin. Or French to some extent, but not just French.
KOYAMA: Yes. You’re right, but Newton is in Latin.
KOYAMA: The 18th century was a period where French is the literary, courtly language, but English is also important. I know when you go through the individual scholars, people say, “This guy knew English. This guy didn’t.” It mattered what language. By the late 19th century, I think English is the language to learn for that stuff. It definitely postdates the Industrial Revolution, but I don’t think it’s necessarily colonization. Because the fact that Indians eventually learn English, I don’t think that matters in the 19th century. It starts to matter maybe in the 20th century.
RUBIN: Yes. I think of this more as a 20th-century thing because even the Germans, who were among the leaders of the Second Industrial Revolution, would largely write in German for quite some time. And they were clearly on the cutting edge, at least in the late 19th century. It’s probably a U.S. thing.
RAJAGOPALAN: It’s a U.S. thing, is my hunch. Yes.
RUBIN: It’s population. It’s also the 20th century being more or less the U.S. century. That’s also when the world becomes much more connected. I think those things just come together. I wouldn’t necessarily think of that as a colonial thing.
KOYAMA: I think that’s right. In the book, we briefly mention the Meiji government. I think before the Tokugawa government in Japan sent a bunch of astute people to England to learn stuff. They went to all the British universities. My dad actually did this research; that’s why I know about it.
In the 1870s, they went originally to France to learn about the military stuff, but they arrived in the middle of the Franco-Prussian War, and they realized the Germans were better at military stuff. Then they learned the military stuff from the Germans, but they went to the English for science and innovation and went to the French and Germans to learn about military technology and how to fight.
Then they actually sent another set of people to learn about government. I don’t know if they went to the United States or where they went exactly, but eventually they wanted to copy a mixed-monarchy system from the British. They went to different European countries to learn different things about them.
RAJAGOPALAN: Why doesn’t Ireland develop more economically? You both are also scholars of the economics of religion. I thought you might be able to have a different view on it and not just on the British Industrial Revolution. What’s going on with Ireland?
KOYAMA: It’s economy, it’s the other story.
KOYAMA: Briefly, in Ireland the story has to be told both in per capita income and in total GDP. It’s definitely way behind and not integrated into the European economy, particularly, until the British really start properly colonizing it, which is after 1600. There was a medieval colony, but it wasn’t really all of Ireland, and it kind of fell away. Then there’s a Reformation. The Reformation drives a split. This is the religion bit. The population remains Catholic. Catholicism becomes identified with Irish nationalism, and then the settlers, particularly from Scotland, are all Protestants. You get this divided country subject to a lot of warfare, a lot of conflict from the 17th century, and it’s very poor by 1700 relative to England.
What happens when it’s integrated into England? Well, it’s a colony. A lot of the smartest or most ambitious Irish people actually would go to England. Jonathan Swift is an Irish writer. Edmund Burke was of Irish descent. A lot of Irish people coming to Britain and making it there—and Ireland remains rural and no manufacturing. It has to have free trade with England. That might be part of it, but its population is really growing in this period.
It’s a bit like India. It’s still useful using this Malthusian logic: Whereas its agriculture developed because it’s integrated with Britain, its population grows, but not per capital income necessarily. Then there’s disaster and tragedy of the Irish famine, the potato famine, which occurs because they monocrop a particular strand of potato and then that gets subject to a disease.
Then the population collapses and many people migrate to the Americas, and then Ireland—now it’s a bit of a backwater even within the British Empire. It just stays agrarian and relatively poor until it becomes independent, and then really only until the ’80s when it opens up to global trade. It never develops manufacturing.
I think the role culture may play or may not play is that literacy remains fairly low there. There’s this link between Protestantism and literacy. When literacy starts to matter more for economic development, Ireland has lower literacy relative to any other part of the British Isles. It’s poor relative to, say, Scotland or relative to Wales, which are also less developed parts of the British Isles.
RUBIN: To Mark’s point, I agree with everything. I think this is much more of an institutional story than it is a religion story. That’s not to say—and both Mark and I have written extensively on this—that religion does not matter for economic development. Certainly, the role that religion plays in politics can matter a lot. This is also a case when Ireland is falling behind, it’s more or less a colony. There’s not much autonomous political decision that’s being made.
This gets back to our broader point that there’s no silver bullet when we start thinking about what leads to growth or what doesn’t. We have to think about each context a little differently. Now, clearly, there are cultural differences both between Ireland and say Britain, but also obviously within Ireland and particularly Northern Ireland and the rest of the country that do matter. They do matter for the way we think about growth as well. Ireland is definitely going to be a case that we can’t just lump it in with the Catholic countries more generally, particularly for that reason.
RAJAGOPALAN: I think there’s also two additional factors. One is just the diaspora. I think this is just more generally understudied in economics, the role of the diaspora. But in the Irish case, it seems crystal clear that there’s something going on there. I don’t know what the mechanism is. Is it the option of exit is the disciplining mechanism? Is it access to a larger market, or remittances or things like that? I think there’s something going on there with the diaspora for Ireland, which may not be the case for most other Catholic countries of that time.
RUBIN: Sure. You have just as big of a population in the U.S., in North America, of Irish as you do in Ireland by the late 19th century. That’s a selected set of the population as well. That clearly is something that’s not unique to the story. Some of the Scandinavian countries have massive diasporas that come to the U.S. and more or less have just as many people there is as in the home country.
I think what if you compare it to, say, Spain, for instance, or Italy—even though Italy obviously has a pretty big diaspora to the U.S. as well, but it’s also a very selected group of Italians that come. Again, we just have to think about each differently. Each is going to have its own push-and-pull factors that lead to different types of immigration that are going to matter both for the receiving but also the sending countries.
Coal and the Industrial Revolution
RAJAGOPALAN: How important is something like coal to the Industrial Revolution? I know it can’t be the only story. I know it’s not a geography story, but it seems critical in what was going on especially at that point in time. It feels like a historical accident and some kind of geographical miracle.
KOYAMA: It is important in a following sense: Before coal, people are burning wooden charcoal, and with wooden charcoal, you don’t get a lot of power energy out of it relative to a unit of charcoal. Somewhere like England, they’re deforesting. They’re cutting down all the trees in London, they’re starting to run out of charcoal.
Coal is like fossilized energy. It’s all this photosynthesis from thousands of years ago stored in a relatively dense rock. Obviously, it’s a filthy, polluting, horrible source of energy, but it’s very powerful and very potent. I definitely don’t want to say coal’s irrelevant. I think the key thing is, as economists, we like to think about why now? Coal was always there. It was always under the ground, relatively accessible in the north of England.
What are the incentives which made coal such an important source of energy in the 18th century and not earlier? And why were British really putting in a lot of resources into getting it out of the ground at that time, and other places weren’t? Coal is important. Without coal, energy’s going to be more expensive.
How do you get it? The economists would say you could have imported coal. What’s the cost of importing coal? There is a cost, but it’s not that high because once you get it onto the sea onto a ship, you can transport it. London doesn’t have any coal near it at all. Where do they get that coal? From Newcastle, and it comes down by a ship from a coast. Coal is important.
In a sense, if there’s no coal in the whole world, then a lot of these technologies, like steam engine isn’t going to be very effective or very productive. That would matter, but so long as there’s coal relatively accessible to England, then they could have access to Belgian coal at some cost. . . .
It’s an important source of energy, and it’s one of the key energies of Industrial Revolution. One thing economic historians of Industrial Revolution have pointed out is that it’s not quite essential as one might think. Water power is still very important. Coal only becomes a dominant form of energy in England, I think, after 1830. Until then, it’s neck and neck with water power.
A lot of the early textile mills are founded on rivers. You’re powering a mill with water power. That’s the first thing. It becomes more and more important as the 19th century goes on, but it still is one of the key technologies, and the steam engine obviously is built to run on coal.
It definitely matters, but then was it essential? Was it critical? That’s the type of question that economists are trained to answer, and they tend to say probably not, which is not to say it wasn’t beneficial. Mokyr makes a strong case for it not being critical. There is a recent paper by Kevin O’Rourke and a co-author which argues that places with coal did grow faster, but the two things are compatible. They could both be true.
RAJAGOPALAN: They’re compatible except when we are thinking of what’s the binding constraint. The first part of your story in the book is really not just about individual spurts of technological innovation but sustained periods of technological innovation. The question would be, is coal a binding constraint to sustain it past the first 50, 60, 70 years? If energy costs are very expensive, would it have fizzled out? That’s the way I would’ve asked the question.
RUBIN: I think, to Mark’s point, we have to think about what’s the relevant counterfactual. Now, there’s two. Now, one that you could say a world without coal means a very different world and possibly, I think arguably, no Industrial Revolution—certainly not even close to the way it ended up proceeding.
The more realistic one might be, let’s just say northern England didn’t have much coal, but it was elsewhere. Then it matters where the coal is. If the coal is in France, maybe the English don’t get coal because maybe the French put massive restrictions on the export of coal because it can be viewed as both a source of enrichment for its main rival as well as military power. Where the coal was—there’s large parts of the Ruhr valley, for instance, which were under various rulers, mainly Prussian rule by that point.
You could say, at that point, what is the cost of exporting that coal to England? Clearly, there is a cost. I think on that case, it just matters how big that cost is, and that’s where the work of O’Rourke might suggest that it could have been a binding constraint. It’s a very, very hard counterfactual to think through, though, because really what’s needed is just access to coal. My reading of this literature, which I agree with, is that it certainly helped that it was in England, but it was not necessary that England had it.
KOYAMA: When I was studying this in more detail as an undergraduate in economic history, I remember reading some quite obscure stuff about French water technologies. I think I’m right in saying the French don’t have easy access to coal. There’s coal in Belgium. I think there’s definitely coal, obviously, in the Ruhr valley. I have a feeling the French don’t have that much coal. The French, I think, were doing a lot of innovative stuff with water power.
The other part of the counterfactual is we know that all the technology we developed on the assumption that there’s coal, but we can make the steam engine and we can run it on coal, so we’re going to optimize along those grounds. We don’t know what we would’ve optimized along in the absence of coal. There’s some avenues for improving the water technology. The main problem about water power isn’t that it’s not powerful; it’s that it’s locationally constrained. You’ve got to build where the water is, and that imposes its own set of constraints.
RUBIN: You have freezing over and things like that of rivers. I think another interesting counterfactual is what happens with the Dutch, where they end up using peat, which is also a naturally occurring source, so that they build to the extent that there is industry around this. But also, it’s not nearly as powerful as coal, arguably a little more powerful than wood-produced energy. Which means that it could be one of those things that was initially a blessing but ended up being a curse because the Dutch are the economic world leaders for a good century, but eventually fall behind.
Now, they fall behind for a variety of reasons. I think rent-seeking’s probably the most important of those. But one of those is that they eventually industrialize, but it takes a long time for the Dutch to industrialize, even though they were locationally very close to Britain. They were integrated into markets and all of these other things. But you could then say, maybe lack of access to coal—or you could imagine a world where, if there’s a ton of easy access to coal to the Dutch Republic, maybe it would’ve been different. Again, this is something I don’t think anyone’s really done because it’s also—we don’t really want to go too far down counterfactuals for certain types of academic research.
RAJAGOPALAN: It also wouldn’t get published. How do you show causality on something like this? There are many reasons it’s not done.
RUBIN: Yes. On the other hand, though, it is true that when we talk about the role of coal, the only proper way to think about it is via the counterfactual. Because we know how the British Industrial Revolution proceeded as it did, and as it did, coal was important. But that’s not to say that coal was necessary or certainly not sufficient for industrialization.
Freedom and Growth
RAJAGOPALAN: Joel Mokyr you’ve already mentioned, incredibly important figure. The other view is from Deirdre McCloskey. For Deirdre, it seems that the most important part of what accounts for economic success and growth is liberty. It’s not to say that institutions don’t matter or culture doesn’t matter or science, trade, all the usual explanations, but that the secret sauce is both economic freedom and, of course, political freedom eventually. Do you differ much from that view? Because one can read your story as very compatible with that story, but it’s not exactly the same argument. Where are you when it comes to the big idea of liberty and oppression?
KOYAMA: What I would say is that it’s difficult to know exactly what the Deirdre McCloskey story is because is it the rhetorical change or is it the freedom to trade? The freedom thing matters. Freedom matters. It’s necessary but not sufficient. Economic freedom is clearly critical. It’s definitely the case that it’s necessary. If you have too much top-down state direction, that’s going to just impede the allocation of productive resources and it’s going to limit innovation. Undoubtedly, economic freedom is a necessary condition. I think both me and Jared would entirely agree with that.
Now, what does that mean concretely? Well, you need institutions to support economic freedom or to prevent states from intruding on it or prevent private individuals from intruding on it. For me, it’s an institutional story, which I believe McCloskey doesn’t want to frame it as an institutional story. Then to go back to your first question, many societies had some degree of institutional freedom.
Now, I think McCloskey is right in several things. Many countries had markets before. Also, freedom is always a continuum. You don’t have to have absolute libertarian paradise or anarchy. You just need a sufficient amount for people to make these decisions, but many societies seem to have had something like that as far as we could tell. Industrial Revolution England, on some margins, wasn’t that free. It had plenty of rent-seeking restrictions, plenty of laws limiting the mobility of labor—the Poor Law, for example, which Adam Smith complained about.
RAJAGOPALAN: The Corn Laws, which only get repealed in early to mid-19th century.
KOYAMA: Yes. They had plenty of restrictions on freedom. Then we get back to the other question which you asked, which is about the interaction. Institutions which guarantee economic freedom clearly precondition. But then there’s something else which is the culture bit, the culture of innovation, and it’s a culture which values commerce and trade. We definitely, I think, agree with McCloskey that the bourgeois values or the bourgeois cultural traits are part of this mix. We think that they’re probably not sufficient.
There’s also this innovative culture, which is both scientific invention but also the inclination to take the scientific ideas, is not just to write academic journal articles, but to implement them and take them to market. That’s characteristic of Industrial Revolution. I think Mokyr has just done more on that front than is in the McCloskey trilogy. That’s where the meat of that argument, I think, has been laid out. I think all those arguments we’ve laid out are compatible. So we’re not saying McCloskey is wrong or anything like that. We’re saying all these things are compatible.
RAJAGOPALAN: Where do you think she’s wrong, if anywhere?
RUBIN: I can go back, to agree with Mark, that I think she’s right in emphasizing certain things as being absolutely necessary. It’s very hard to imagine, for instance, a society taking off without, say, either rhetoric or cultural values, however you want to describe them, that gives some type of credence or some type of social benefits to those who innovate, to those who work hard. It’s really hard to imagine the takeoff happening without that culture. There have been plenty of instances of cultures, the Romans and the Greeks would be kind of famous ones, that do not have that at all.
Where I think where we—and again, Mark, I don’t necessarily speak for you here. I think McCloskey is very strongly against the other things mattering. That’s where I would take her trilogy as being too harsh on the other things as being essential, especially something like institutions, which I think are in many ways really hard to separate from the very things she views as essential. I certainly would not separate them. I think she’s pointing to very important things, and we mention them in the book.
I think that when we think about the amalgam of things that happened in northwestern Europe—she views it as all just a northwestern Europe thing. She includes the Dutch in this grouping, even though eventually, obviously, it becomes the Dutch and English. We would view these as very important, but we also always try to peel back the onion one layer and then peel back another layer. Where do these values come from? How do they interact with the types of institutions when you see these types of values that might have some similarities in other parts of the world?
As Mark was mentioning, northwestern Europe in the 18th century is not the only place where we’ve seen this type of thing happening. I think you could argue that the Italian city-states had a lot of these features as well, certainly some of these cultural features. Now, they were more trade based than they were innovation based. I think that’s a point McCloskey would probably make. But still, you have these similar types of ideas happening elsewhere, but you don’t have the interaction with these other features that we view as important. That’s where I would say she’s wrong, not so much in that she’s claiming anything wrong on the positive sense. It’s more her negative sense.
RAJAGOPALAN: One area where I feel there’s a very high degree of compatibility between what you are arguing and McCloskey, is when you’re talking about the decline of places where there was not really the big takeoff but where there are some areas where you see some period of economic growth, but it doesn’t sustain. Then you can very clearly see that there’s this protectionism and rent-seeking that takes over, or a lot of conflict, or it can also be persecution of minorities.
There are multiple stories, and that seems to be very much compatible with her bigger idea of if you don’t have these values, then you can’t sustain the economic growth, nor can you sustain on economic growth alone. You need that to keep it going, as opposed to giving higher status to these other values of religion or aristocracy or something like that.
KOYAMA: I think that’s right. The only criticism I would add is that the British do have bourgeois virtues in some dimensions, but all the bad stuff they also have. They also have that arising of aristocracy. They have the empire. If you’re a young person in 19th-century Britain, you could join a manufacturing firm and be an innovator, or you can go to India and be a—
RAJAGOPALAN: A district collector.
KOYAMA: Yes. All the bad things which could have led to rent-seeking, and these values of the manufacturing giant sends his kid to Eton, and then he becomes landed gentry. They have all those bad things as well, cultural values, rent-seeking, but it’s not enough to put a lid on industrialization. It does suggest the centrality of innovation and getting innovation out of the bag.
I feel it’s a bit underplayed in the bourgeois trilogy, even though actually McCloskey’s earlier work, particularly some of the essays she wrote in this volume on British economic growth in the early ’80s, really emphasize innovation as the key distinguishing feature of British industrialization compared to other episodes of economic growth.
Economic History and the Credibility Revolution
RAJAGOPALAN: One of the things that—and this may also have something to do with the distinction between McCloskey’s narrative and what I read in economic history papers—one, it’s very hard to do economic history, because you’re literally going back a few hundred years in time. You may not have the evidence, or you may not have the relevant evidence in the relevant language. You may not have a very nice simple causal inference story, and that’s the stuff that gets done.
I can see the problems, but it also feels like there’s a lot of ex post explanation of why something happened where it happened, without a more cohesive theory. What is a good way to think about how we do economic history in modern day, especially, almost all of it is empirical? All of it is looking at very narrow things that can be told conclusively. There is less of an incentive to do the meta arc, the kind of book that you guys have just written. What is a way to make sure that the subfield cohesively makes sense theoretically and empirically?
RUBIN: Well, I’d like to think that to some extent, the type of book we’ve written here—and that some of the types of work that frankly, it’s probably more of a generation of older scholars, older than us, are doing—is complementary to what they’ll call the causal revolution or the credibility revolution that has certainly not just infiltrated economics but also economic history, where economic history is this great laboratory where you get natural experiments, and then you can get causation from those, or you can find instruments in history.
I’ve written a couple of papers like this myself. Now, I think that each individual paper—I think you’re absolutely right in that, along these lines, most of them are not answering really big questions. Some of them do try to get at some aspects of this. I would, by no means, paint this as a whole brush because I think there’s actually some very, very good and important work that’s been done using these techniques that have been able to answer questions that we’ve had a difficult time answering either historically or contemporarily. But I do share your general concern that the idea of cleverness over importance—I think something that you go to, say, the economic history association meetings, and everyone kind of recognizes that when you’re having dinner. You will talk to people about it.
I think people broadly recognize that that’s becoming a problem, but one thing is when we think about these papers as a collection, we can get a little more than we would otherwise. Because one thing that this revolution more generally has done that previous works did not do was really tame what we think about as counterfactual. We can’t just tell any ex post story we want. If you think about just what theory does, theory is often driven by some type of empirical observation, and then we try to explain that observation with some theory.
Now, typically, theory is only as good as the assumptions you make, but we also often know what the result’s going to be. I think one thing we can do with what’s being done now is write books like the one Mark and I have written, maybe even more specialized, that focus on certain parts of the world or certain time periods that get at the bigger questions. But do so using the insights that are much more controlled, or however you want to describe them, either whether they be experiments or empirical studies that accumulate these insights into something that does tell us something much more important about, in our case, where economic development and economic growth come from.
It can be things like you mentioned before, the role of ethnic violence. There’s been a ton of studies on this, each one of which often is very context-specific. But we can also then scale up and say, “All right, well, how should we think about ethnic violence in terms of its economic impacts?” Even in the case Mark mentioned before, there’s this large literature, really dating to Tilly and before, that says actually warfare was good for European growth. Well, how does that cohere with what we think about 20th century sub-Saharan Africa?
I think it’s only by combining these studies that we get the general theories. I’d like to think that in the best case, over the next decade or two, that you start seeing a bit more of a combination of these things, where some works really do try to bring insights together. Now, I think one downside to this, you hinted at, is that there’s publication bias. And in terms of economists, in general, they aren’t really incentivized to write books. And it’s very hard unless you’re writing maybe a piece for the Journal of Economic Literature to publish a piece that brings together insights in a top journal. That would be where I think the biggest hurdle might be to seeing some of the bigger questions being addressed.
KOYAMA: I think a great way to do this is more regular Journal of Economic Literature articles which are soliciting top people to synthesize the literature, I think would be fantastic. Because if it was not the Journal of Economic Literature, if it’s a new journal, you couldn’t get top people to spend the time. It’s very time consuming to write a good survey article. You can’t get people to write it if it’s just a no-name journal, although—not to do a good job. It needs to have some prestige behind it.
I think we do need a little bit more synthesis because right now, you get more in terms of tenure, promotion or a chance to move jobs if you publish in a top-five journal. That’s worth way more than writing a book, unfortunately, no matter how well-received the book is, which is a little bit off.
The other thing I would say, which is a little bit not great in econ right now is, we tend to think the real research is in the articles, and the books are for lay people. If you think about Acemoglu and Robinson’s book, “Why Nations Fail,” it is a great book, but it’s an airport book, and my students love it. Loads of educated nonacademics love it, but it’s not a book you read really to gather research. You read the papers instead.
In econ, we’ve done this weird thing where we’ve separated off books from research. Books are something you do if you’re really successful and you want to popularize your work. Then there’s no intermediate place where we do synthesis. There are a few, and I like the handbook articles. In the “Handbook of Economic Growth,” I know Mokyr has an article, Oded Galor has an article, Acemoglu, Johnson and Robinson have an article. And those are very good, but if we had more of those in the profession, that would be one way to improve things.
What Counts as Evidence in Economic History
RAJAGOPALAN: I think there’s a lot more room for the kinds of the big surveys that you’ve done, both cross-country, cross-time, cross-cultural, so on. But I worry a little bit, even in your book, for which I have virtually no criticism except one, is you’re very careful to only stick to arguments for which you have really rigorous evidence. If we start thinking about what kinds of evidence is available, it’s the stuff that’s getting published, and that is necessarily very European, Anglo-American-centric.
A lot of it is because the records are in a particular language. Even India is a laboratory only after colonial records in English start becoming available. We’re “looking for the keys under the light” kind of problem. That’s certainly one, but the other is also that interacting with the obsession over identification. Those two things together are much worse than those two things individually.
What we think of rigorous evidence is very specific. If the only stories that you can tell in survey articles or the only big-arc stories you can tell in survey articles have to rely on that kind of evidence, then what can we say about the larger arc of why some places are prosperous versus others are poor?
KOYAMA: I’ll push back on that a little bit, which is to say there’s definitely a tendency to privilege that. I would say that economists really want to privilege causal evidence. And papers with identification strategies, that is true. I think economic historians are a little bit more eclectic than that, where in economic history, we’ll privilege evidence which is to some degree quantifiable.
If you think about the Allen papers or the work of Allen and Broadberry—and I’ll say this as a counterexample, which is Mokyr—but Allen and Broadberry, that type of work, they’re not obsessed with like IVs or natural experiments, but what they are obsessed about is getting numbers. It’s true that this literature only became an active literature after Ken Pomeranz really wrote his book in 2000, “The Great Divergence.” And at that time, there wasn’t a lot of comparative evidence between China and Europe, India and Europe, Japan and Europe.
Since then, people have tried to put together better evidence. We privilege that type of quantifiable evidence. You could say that’s a shortcoming, but it’s precisely that you can collect that evidence. There are documents which are still being uncovered which shed more light on past economies. Now there’s some stuff on the Asian world which is gradually coming to light.
I’m willing to live with that looking-under-the-light problem, because we’re incentivizing more people to bring more evidence to light. But, yes, that’s true. I would say that with Mokyr’s work and also to McCloskey’s, there has been a willingness there to accept. Mokyr’s stuff is not quantified at all, his republic of science stuff, and we do allow that there. But you’re right, on other areas, we really do privilege quantifiable evidence. That’s for sure. Historians could criticize us for, and it does mean we can’t speak as much about pre-conquest America.
RUBIN: Yes, two things. I think one thing that Mokyr and McCloskey, both of them—one issue with them is it’s not really replicable because they just know so much. If you read, say, “The Enlightened Economy” by Mokyr, it’s this 500-, 600-page book just packed with details that a grad student or frankly—there’s very few people that can replicate that.
That said, I think to Mark’s other point, my hope is that if we were to write this, or maybe we’ll have a second or third edition in 10, 15 years, I do think that would look a lot different. To the extent that, say, grad students or early-career professors are listening to this podcast, I think that’s one of the areas where the most low-hanging fruit is, is essentially outside of Europe and North America, and that’s still the case.
It was the case when I started my career, so I’ve done a lot of work on the Middle East, and there’s still a lot that can be said about the history of the region, and we’re still uncovering data. This is certainly true of China. There’s been an explosion, but really just skimming the surface of what we know about Chinese economic history and in a quantifiable way. And clearly that’s the case in South Asia as well. I do think that you are correct in the criticism that to some extent, what we are depending on here—because this is a book that tries to synthesize the literature—there is that bent to it.
Of course, the types of questions we’re asking are going to be more, to some degree, Eurocentric anyway, in that ultimately we’re trying to explain what did happen in that part of the world, even though I would say it is really important, and arguably even more important, to understand why it didn’t happen elsewhere. I think both Mark and I throughout our careers have largely taken comparative stances on things anyway because I think that that’s the most fruitful way to really understand why phenomena happen. It’s not just why it happened in a certain way, in a certain place, but why it didn’t happen in other places.
Again, to Mark’s point, the fact that we are already starting to see these types of data emerge—and maybe some of Broadberry’s work isn’t necessarily published in QJE, but it’s published in the top economic history journals. He gets several hundreds, if not thousands, of citations, which in the end is really—he’s had a big impact on the way we think about this. Ideally, that’s what we’re all in this game for in the first place, is to try to really influence the way people think about the world and hopefully do that through a way that you can justify.
Availability of Evidence
RAJAGOPALAN: When it comes to quantifiable evidence, this is a more general query not to do with the book. First of all, some of those papers drive me crazy because it feels like everything that happened before colonial India is weather shocks. Why? Because we have very good data on weather, and we don’t have very good data on ethnic conflict or how large armies were or anything else. There’s that part, but we can ignore the bad papers in the literature and not focus on them.
I worry that someone who’s writing on this, say, 200-300 years from now, who’s writing about modern-day India—if we think about what sort of data are being collected, I worry that the causal link story is going to be based on how many toilets were given out or mosquito nets being distributed or something that’s just bananas.
We literally know every single name and beneficiary, and we’ve kept fantastic records because that’s what we have, and sometimes I worry. This is not so much a criticism, but it’s more of a curiosity. That’s what we need to do, good economic research that’s robust and publishable today. But when we go back 300 years, we really don’t know—what were the other records? Did they maintain them? Was there a reason that this record survived versus not? Do you worry about stuff like that and what that does to your work?
KOYAMA: I’ll say what I worry about which is related to that, and it’s related to something I think McCloskey is also concerned about. If we prioritize identification in a lexicographical way, then we will end up publicizing and promoting a paper which is extremely precisely identified. The variation is as good as experimental, but the effect size is very small. And then the story of economic growth has to have a big effect. It’s like something which raises incomes by 50 cents, but we know that very precisely. That’s really not very important compared to something which raises incomes tenfold, we know with less precision.
So I think this is a debate between Lant Pritchett and then Banerjee, Duflo, and the experimentalists, where Lant Pritchett says development is what matters, growth is what matters, and growth is super complex and messy and we can’t really identify it. But you guys are focused on what we can identify, which is this experiment. That’s a valid point.
RAJAGOPALAN: Lant came on two episodes of the podcast and laid out his entire case, and I’ll link to it [Lant Pritchett episodes 1 and 2].
RUBIN: That’s great.
KOYAMA: I think that is a valid point, basically. But I think economic history is another way of understanding how these things come together, and hopefully we give a flavor of that. It’s very difficult in our book to give due justice to all these questions, given the length of the book. We really wanted to keep it around 200 pages, because I think most people don’t read 600-page books.
That really means we cut out a lot of stuff where we could have said things. The only other thing is I would say is, increasingly we’re going to be able to quantify more and more stuff going back in the past, but also in present, using empirical techniques. We’re going to extend the range of things which are going to affect the quantifiable analysis.
KOYAMA: Which I think is going to help.
RAJAGOPALAN: The average quality of the paper will certainly improve as these techniques get better. For sure.
RUBIN: One thing I’d like to add, too, is that I think one thing that we can certainly do more of, both as economists and also economic historians, is use theory. And this is something that somebody like Avner Greif has certainly been a major proponent of. What theory does—and it certainly can and it often should complement rigorous empirical work, but it does allow us to answer questions that aren’t necessarily easily identifiable. It gives us a basis for not just thinking about why things happened or why certain agents were incentivized or people were incentivized to act in a certain way. Good theory gives us testable predictions that are falsifiable.
There’s still plenty of work that does this. We cite a lot of it in this book and use it because there are many, many really important questions that you cannot answer based on rigorously tested, 100% identified types of empirical analyses. Again, this is not to say that this is just something that’s going to happen, though, or we see this blossoming of theory, because right now incentives are not hugely in favor—if we’re thinking about narrow incentives to publish in top journals—of using theory on economic history.
This is also again something where pendulums always swing one way or the other within not just economics, but all types of higher education fields. I suspect this is something that, especially for some of these big questions, we’ll see more and more of. Frankly, even the work of Acemoglu and Robinson, whether it’s explicit or implicit, they certainly are promoting theory as a way of thinking through big-picture types of questions.
RAJAGOPALAN: Thank you so much for doing this. This was such a pleasure.
RUBIN: Thank you. This was great.
KOYAMA: Thanks so much, Shruti.