Alms Watch 2007

The heavies are weighing in on Farewell to Alms. Not unexpectedly, they like the data but hate the underling thesis.

First, Prof. Clark goes head to head with Prof. Robinson (of MIT Harvard… like there’s a difference…) on the causes of the industrial revolution. Robinson is a big time believer in institutions (his latest paper is called “Property Rights and the Political Organization of Agriculture”) and thinks Clark’s cultural explanations are wrong but doesn’t provide much in the way of reasons for this conclusion. As Clark says:

Jim’s statement is a spirited summary of economists’ beliefs, but not an appeal to any compelling facts. It is a statement of faith, a Nicene Creed. It shows the yearning, the longing, of economists for eventual salvation through institutions. The facts, however, are that the Industrial Revolution was the result of cultural changes in England, not better incentives. By 1800 in successful economies people had embraced “thrift, prudence, negotiation, and hard work.” In most failed economies it is the failure of people to embrace these bourgeois values that explains economic failure.

In the original economic creed — the economics of Adam Smith — government just need to allow free and secure exchange, and growth results. Jim accepts that episodes like the British Raj in India show that libertarian prescription fails. So, he invokes the idea that governments must provide more: education to the masses, infrastructure for growth. But only democratic governments will have incentives to provide such goods the citizenry demand.

Yet, in the first nation to achieve modern economic growth, England, the government did none of this. There was no government support for education in England until 1870. Compulsory education to age 10 came only in 1880. The English educated themselves. The canals and the railways were all private enterprises, without even government subsidy.

Limited government produced growth in England but not in Malawi, because English society was very different from that of modern Malawi. Does limited government explain why Malawi is importing high cost Chinese workers even for unskilled labor?

Second, Solow (THE Solow) reviews the book, likes the data and hates the cultural explanation for growth:

In the end, Clark puts the finger on the workers—not their skills or native ability but their attitudes and aptitudes, their willingness to show up on time, work hard with little supervision, exercise local ingenuity, and so on.

In this context, too, he dismisses the prevailing view that dysfunctional or corrupt economic, social, and political institutions explain the divergence in efficiency. He reasons: if a factory in a poor country produces less than an essentially identical factory in a rich country, how can that be attributed to institutional failure? Here, too, he may be a little hasty. Cronyism at the top, failure to enforce laws, promotion by favoritism, inequitable taxation, capricious hiring and firing—all those practices could easily breed disaffection or even sabotage, and thus inefficient production. Maybe.

Clark’s pessimism about closing the gap between the successful and less successful economies may derive from the belief that nothing much can change unless and until the mercantile and industrial virtues seep down into a large part of the population, as he thinks they did in preindustrial England. That could be a long wait. If that is his basic belief, it would seem to be roundly contradicted by the extraordinary sustained growth of China…

A lot of critics of Farewell to Alms suggest China as a counter-example. I think China’s recent success is definitely a case where institutional changes freed the population to reach their potential. The question though, is why did China have such a huge potential in the first place? Does every country have this potential and are the low-income ones just being held back by institutional barriers?

4 Responses to “Alms Watch 2007”

  • Gabriel M. says:

    I don’t know… Clark got a buzz going. Maybe this means that he’ll have more grad students, which will move-down, to lower ranked schools, because he trains more than he can keep in-house and maybe, in a few decades, everyone will be Clarkian. :-)

  • pushmedia1 says:

    Yes, maybe the spread of the Clarkian gene will finally break economics out of its Malthusian trap and it will begin to experience high, sustained growth in productivity.

    And we thought it was bad in Malawi. They have nothing on economics.

  • Tim Worstall says:

    My (entirely unoriginal, I hasten to add) thoughts are currently running along the idea of time preferences. That is, I think the thing that actually changed in England. After a few centuries of relative peace, inheritance actually being possible without it either being stolen by nobles or ravaged by invading armies, the general culture moved to one whereby it was evident that working hard, saving, looking to the long term, made sense. In short, investment made sense.

    The mechanism, is as Clark says, that those who already had this attitude outbred those who did not. But it required that long period of such outbreeding for the attitude to spread.

    Not a fully fleshed out thought, just a bit of pondering.

  • pushmedia1 says:

    Ultimately, we need Clark’s will data for other countries. We need to compare how fertility related to wealth in various countries. If in 1688, France shows similar relationship between fertility and wealth (i.e. the rich have 40% more kids) then differing levels of stability in the countries won’t explain why England took off first.

    Also, how many years of stability does a society need to have to have the “good” traits spread throughout the society? To answer this question, we should have a better sense of what “stability” means, its important that we’re precise about what is being transmitted from generation to generation and we should know how its being transmitted. If its a gene that’s being transmitted, then that can only be inherited and population genetics give us lower bounds on the number of generations it takes for a gene to spread… My back of the envelope calculations has it about 40 generations for a single gene to spread throughout a population of 6 million via asexual reproduction or perfect assortative mating.

    If we take “stability” to mean “secure property rights”, its not the case that England was stable in this sense for the 40 generations between 800 and 1800.

    Of course, instead of genes, we could be talking about the spread of ideas (i.e. cultural transmission). In this case, we don’t have a well-developed theory (like population genetics) to fall back on but we might suspect that cultural transmission takes much less longer than genetic transmission. If this is the case, we would need fewer years of stability.