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?