Ideas not Institutions, part 1

Prof. Clark gave an interview the other day at the Intrepid Liberal Journal blog. Here’s Clark discussing what national and international governments should (and shouldn’t) do to help those places stuck in Malthusian Traps today:

ILJ: Fair enough. Professor Clark you’ve been very generous with your time. A final question if I may sir. Assuming all your conclusions about the importance of culture in facilitating the industrial revolution are correct, what lessons can we draw from history as we try to influence economic growth in the underdeveloped world in the 21st century?

Clark: Well, the lesson is unfortunately a little pessimistic. But I think one thing that is important is that for fifty years institutions like the World Bank have been applying the same kind of medicine. And it’s like pre-industrial doctors, you try bloodletting, and when it doesn’t work, you conclude let’s do more bloodletting.

ILJ: (Laughs)

Clark: And there is this emphasis now, it seems, a very strong emphasis, on achieving good government in a bunch of African societies which really have a hard time maintaining Western style governments. But yet when you look you see someone like China growing very rapidly with a very corrupt government, terrible social institutions, and the rule of law really evaded on a massive scale (laughs).

ILJ: (Laughs)

Clark: And so when you see this you think maybe to focus all your energies on institutions is not the way to go. What the very clear problem, say, within these African societies, is that even inside production enterprises it’s very hard to get people to cooperate in production in a way that makes workers have high value. And the shocking thing that’s occurred recently is that in Zambia and Malawi, where Chinese entrepreneurs have moved into these very poor African countries, wages are much lower now then they are in most of China. But they’ve actually been importing Chinese workers in factories in sub-Saharan Africa.

ILJ: That’s ironic.

Clark: And encountering a lot of local opposition. The puzzle then is it seems just very hard to get people to cooperate effectively in production in these societies. I think that says this is an area where we really must examine what is going on here. One interesting idea is that the nature of modern technology is very demanding in terms of how careful workers have to be, how exactly they have to follow rules. So one thing to think of is there any way to develop other technologies more forgiving of the cultural histories of these societies? Another thing to look at is if we expose workers more to the kind of Western high income economic life and send them back would that actually help in changing workers attitudes and changing the economic life of those societies? But I don’t have any simple recipe for economic growth, and anyone who does is someone you should avoid.

ILJ: (Laughs)

Clark: I do think that we’re looking in the wrong place, and have been systematically. And it’s the ideology of economics that pushes us there but it’s very clear that it is the wrong place. So it’s at least worth considering, given the true constraints, what can we do? How can we operate? What are the processes we can set in place? And if we are going to solve the problem of poverty in sub-Saharan Africa, the solution is going to come in a very different form then the followers of Adam Smith are going to accept.

Less productive at what?

Back before the good ‘ol days, even before there was an Old West, everyone was stuck in what’s called a Malthusian trap. The idea is that because technological innovations happened so rarely, people’s reproductive proclivities made sure that any technological advances would just translate into more people. If you invent a new plow that made land twice as productive, you’d produce more food and thus you could feed more people. People would go about making more of themselves in short order and in the end, you’d end up with just as much food per person as before the invention. The average person gets no richer.

The first part of Clark’s book is basically a long discussion of what are the implications of Malthusian trap. One of them, that many find perverse, is the idea that bad things like repeated droughts and persistent diseases are actually good things. Because they increase the death *rate*, they improve the average amount of food per living person.

Bryan Caplan thinks Prof. Clark is misinterpreting bad things. Instead of changing the relationship between the death rate and income per person, droughts and harvest failures reduce the productivity of workers. ((Go to Caplan’s post for pretty pictures, if such is your bag.))

[T]he effect of harvest failures in the Malthusian model is to reduce income, which causes starvation, which reduces population, until you eventually get the old level of per-capita income with a new, lower population.

Ok. Fine. There’s two objections to Caplan’s interpretation of harvest failures. First, what does he mean by bad harvests “kill people by making a given number of people less productive”? Less productive at what? The economy was almost completely agrarian in these societies, so a bad harvest makes people less productive at making food. If you’re eating close to subsistence, less food means starving to death. This sounds like a change in the death schedule to me.

Second, and more substantive, Clark isn’t talking about supply shocks. He’s talking about persistent petulances and plagues. Introduce a new disease, and yes you get a one time decline in productivity which temporarily reduces incomes, but the long run effect is to increase the death *rate*.

For example, introduce malaria into a population and it makes everyone much less productive. This is bad in the short run as less food can be produced. Slowly, as people die from the disease, the total population decreases and the amount of food per person goes back to its original level. However, because malaria is still around, the rate at which people die goes up. By Clark’s reasoning, this has the effect of increasing the food per person. In the long run, then, the effect is an unmitigated good. Malaria increases the food per person.

Sick isn’t it.

UPDATE: Yeah, I passed my exam! Clark (on Caplan’s site): “What Caplan has done in redrawing the figure his way is to assume that extra disease has no effect on the death rate at a given material living standard. But this is just to assume away the possibility that the death schedule could change. Now that is a pretty strong assumption, and one demonstrably untrue.” That’s what I said! Except, well, he said it much better.

“The best and most accurate review”

The Social Darwinism pseudo-thesis of Farewell to Alms has generated the most heat, but the book’s discussion of the causes and timing of the Industrial Revolution generates the most light. To that point, NotSneaky nominates this as “the best and most accurate review” of Clark’s book:

I learned several very important insights from this book. I will list a few:
1- The typical dating of the transition out of the Malthusian equilibrium is probably off by a century or two. This is so because the high productivity growth sectors had a very low weight in output (because productivity increases in the largest sector – agriculture – were low). Weighting growth by the sectoral weights of a later date reveals a break in productivity trends somewhere back in the 17th century. To me this is interesting because I think that what was key was the emergence of activities much less intensive in land and so more scalable. But at low levels of income people spend most of their income in food, thus trapping the economy in an agricultural-centered process, where the Malthusian mechanism of population growth causing declines in income more chance to work. This opens up other explanations for the Industrial Revolution that remain to be explored.

2- It is hard to argue that the lack of diffusion of the industrial revolution in the XIX century was any of the usual suspects in today’s most wanted list: poor institutions, lousy finance, lack of human capital. Within the British empire (e.g. in India) property rights were secure, financial markets were pretty open and efficient and there was quite massive transfers of managerial know-how through out-migration of British managers and skilled workers. The slow spread of the industrial revolution in the XIX century is an important puzzle to which the current development debate – which gets most of its intuitions from the post 1960 datasets needs to propose a convincing explanation. Contrary to Dani’s opinion, I do find Clark’s evidence of the textile industry in the XIXth century interesting, even if today cars in South Africa or textiles in China are produced with world-class productivity. It points, in my mind, to some other missing factor that is not a usual suspect.

Sorry gnxp, the genetic (or more likely cultural) drift suggested in the book is not its most important contribution. It is suggestive and it will be interesting to see how people pick up this thread ((I’ve been reading Richerson and Boyd for theories on cultural transmission.)), but Clark’s lasting contribution is his annoying habit of knocking down theories. Defenders of human capital or institutional explanations of the Industrial Revolution, and growth in general, will have no choice but to address Clark’s data and reasoning.

Alms Watch 2007

  • The author speaks: Greg Clark on public radio. He does a great job summarizing the main ideas in his book.
  • Farewell to Alms: evidence for IQ as the most important economic driver? Arnold Kling makes the connection, but I’m not so sure.
  • Clark has an editorial, “England’s success may be in our genes“, in the London Times. I just spoke to the Professor and he assures me that he did not pick the headline and he quickly reminded me of his Irish ancestry :-)
  • I’m told there’s a glowing review in the Financial Times, but I wouldn’t know because its behind a pay wall. From the blurb: “Gregory Clark’s A Farewell to Alms: A Brief Economic History of the World is fully as absorbing, as memorable and as well written as Mr Diamond’s remarkable bestseller. It deserves to be as widely read.”

BTW, I think I know why you might see harsh critiques like Warsh’s… Check out this book review by Prof. Clark:

Because the function of a book review is to direct busy readers towards good books and away from bad ones, a good book review and a kind book review are often incompatible. This is one of those unfortunate occasions. Even though Richard Day notes promisingly in the preface that “I felt my mission to have been that of providing a better characterization of economic change” (p. x), no economic historian is going to benefit from delving into this book.
The first problem of the book is that it is a book only in the sense that its pages have consecutive numbering. The volume is composed of 12 essays, based mainly on previously published papers and essays written between 1967 and 1998. These essays cohere about as well as the collection of objects you find in the typical California yard sale. Here you can read, in no particular order, essays on both technological changes and sharecroppers in the Mississippi Delta, 1940 to 1957, and on global human development since the origin of the earth. Had Cambridge University Press mixed up the order of the chapters on the way to the printer, only the author would have noticed. Had one of the chapters been deleted by mistake, no purchaser would have been angrily demanding their money back at the bookstore.
The second problem of the book is that even if the reader decided to try applying Day’s methods of economic dynamics in economic history, after reading the book they would not have any idea how to do that. It is not a cookbook for the methods of economic dynamics. The examples are laid out at too abstract a level. There is page after page of diagrams, all with time on the horizontal axis, where curves swoop, dive, arc, and ascend like dolphins at play. But where exactly these curves came from is not laid bare. The analogy would be trying to teach people to cook haut cuisine by showing them a list of ingredients and pictures of the final dishes. A model of “Economic Development and Migration” (chapter 8 ) may highlight the “complexity and interdependence of the building blocks of the economic system and the complex multimode, multiphase structure of development that evolves” (p. 156). But how that complexity is modeled will remain a mystery to the average reader. Even if the mission stated in the preface succeeded and you got the religion, no reader could figure out how to worship the new dynamic god in future academic work.
But average readers, I think, will not be persuaded by the material presented here to abandon their static friends and family and go off in search of dynamism. They will not get “teched up” in Recursive Programming and the other tools of the Economic Dynamist that the new god demands, because Day never actually demonstrates the value added from such techniques. He may be able to predict labor inputs in the Mississippi delta in 1940–1957 using a dynamic model of production (chapter 4), but has he done so any better than alternative static models? That question is not addressed. He models the green revolution in the Punjab in dynamic terms (chapter 5), but again with no reference to any alternative ways of modeling these changes. As with calibration methods in macroeconomics, or computable general equilibrium models in economic history, showing that your model can roughly reproduce the paths observed in the data is not proving that you have produced the final, best description of reality. Theories can only be judged relative to other, competing theories, and this book never considers such alternatives.
Thus sadly while economic dynamics and economic history have many of the same interests and issues, this book largely fails to speak to historians.


(h/t fellow-econ-grad-student-that-would-rather-remain-nameless)

Alms Watch 2007

So, maybe I should just rename by blog to “Greg Clark: Please be my adviser.” I mean seriously, what am I doing here, he already gave me a pass on my prelim exam.

It’s too bad everyone (and Clark, I think) is assuming Clark’s finding show genetic changes. Culture seems to me to be much more likely. Why haven’t we heard from the Anthropologists? Grant McCracken? Anybody, anybody? Shouldn’t they be telling us all their theories for how culture gets transmitted?