Global Economic History: A Very Short Introduction

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Acknowledgements

• The author thanks various people who assisted in research, including research assistants and friends who reviewed earlier drafts.
• The author acknowledges funding from the Canadian Social Sciences and Humanities Research Council and the United States National Science Foundation.

List of Illustrations

• The list includes 11 illustrations, including charts and graphs, that are referenced in the book.
• The illustrations cover topics such as the great divergence, distribution of world manufacturing, subsistence ratios, and growth trajectories for various countries.

Introduction to the Book

• The book explores the history of the global economy.
• The author, Robert C. Allen, is a professor of economic history.
• The book is dedicated to the author's son, Matthew, and other members of his generation, with the hope that understanding the past will help them make the world better.

Note: The rest of the text is the table of contents, which is not necessary to summarize.### The Great Divergence

• The great divergence refers to the phenomenon where some countries became rich and others remained poor over the last 500 years.
• Between 1500 and 1800, the differences in prosperity between countries were small, but since then, the present division between rich and poor has emerged.
• The world's economic history can be divided into three periods: the mercantilist era (1500-1800), the catch-up period (1800-2000), and the period of modern economic growth.

Causes of Divergence

• The Industrial Revolution in Europe, especially in Britain, led to the great divergence.
• European countries sought to increase their trade by acquiring colonies and using tariffs and war to prevent other countries from trading with them.
• The leading European countries promoted their own manufacturing at the expense of the colonies, but economic development was not their primary objective.
• In the 19th century, Western Europe and the USA made economic development a priority and tried to achieve it with a standard set of four policies:
  • Creation of a unified national market by eliminating internal tariffs and building transportation infrastructure.
  • Erection of an external tariff to protect their industries from British competition.
  • Chartering of banks to stabilize the currency and finance industrial investment.
  • Establishment of mass education to upgrade the labor force.

Income Growth Factors

• Table 1 shows GDP per person around the world from 1820 to 2008.
• The richest countries in 1820 (e.g., Netherlands, Britain) have grown the most, with average incomes of $25,000-$30,000 today.
• Much of Asia and Latin America have average incomes of $5,000-$10,000, while sub-Saharan Africa has reached only $1,387.
• The phenomenon of divergence is highlighted in Figure 1, which shows that regions with higher incomes in 1820 had greater income growth factors.

Exceptions to Income Divergence

• East Asia is the most important exception, as it has improved its position relative to the West.
• Japan, Taiwan, and South Korea have achieved remarkable growth and closed the income gap with the West.
• The Soviet Union was another, although less complete, success.
• China may be repeating the trick today.

Industrialization and De-Industrialization

• Figure 2 shows the distribution of world manufacturing from 1750 to 2006.
• In 1750, most of the world's manufacturing took place in China (33% of the world total) and the Indian subcontinent (25%).
• By 1913, the world had been transformed, with the Chinese and Indian shares of world manufacturing dropping to 4% and 1%, respectively.
• The UK, the USA, and Europe accounted for three-quarters of the total.
• Manufacturing output per head in the UK was 38 times that in China and 58 times that in India.

Real Wages

• GDP is not an adequate measure of wellbeing, as it leaves out many factors such as health, life expectancy, and educational attainment.

• Real wages, or the standard of living that can be bought with one's earnings, are a more accurate measure of wellbeing.

• Real wages can be used to fine-tune the understanding of economic growth and development.### Real Wages and Standard of Living

• The standard of living of the average person is reflected in their real wages, which is the amount of goods and services they can buy with their earnings.

• To measure the standard of living, wages must be compared to the prices of consumer goods, and those prices must be averaged to calculate a consumer price index.

• The author's index is based on the cost of maintaining a person at 'bare-bones subsistence', which is the least-cost way of staying alive.

• The diet used to calculate this index is quasi-vegetarian, with boiled grain or unleavened bread providing most of the calories, legumes as a protein-rich complement, and butter or vegetable oil providing a little fat.

Bare-Bones Subsistence Basket

• The bare-bones subsistence basket consists of:
  • 167 kg of grain per year
  • 20 kg of beans per year
  • 5 kg of meat per year
  • 3 kg of butter per year
  • Non-food items including soap, linen/cotton, candles, lamp oil, and fuel

Global Economic History

• The real wage of labourers in London has diverged dramatically from that in Beijing, with the London real wage already four times subsistence in 1820 and growing to fifty times subsistence today.
• In poor countries, real wages are still at bare-bones subsistence, with over 1 billion people (15% of the world's population) living below the poverty line.
• The average income in sub-Saharan Africa in 1820 was only 15% more than bare-bones subsistence.

The Great Divergence

• The great divergence refers to the divergence in real wages and incomes between Europe and Asia, as well as within Europe, between the 15th and 18th centuries.
• The standard of living in Europe collapsed in the 18th century, while labourers in Amsterdam and London continued to earn four times bare-bones subsistence.
• The divergence in real wages is also reflected in differences in diet, with labourers in London eating white bread, beef, and beer, while those in southern England and Asia ate oats and polenta.

Social Wellbeing and Economic Progress

• Bare-bones subsistence has implications for social wellbeing, including stunted growth, lower life expectancy, and poor health.
• Education is also affected, as people living at subsistence levels have less access to education and are less likely to invest in their children's education.

The Rise of the West

• The rise of the West is attributed to a combination of factors, including geography, institutions, culture, and economic policy.
• The importance of political and legal institutions is debated, with some arguing that secure property rights, low taxes, and minimal government are necessary for economic success.
• The role of culture in economic development is also debated, with some arguing that widespread literacy and numeracy are necessary for economic success.

The First Globalization

• The first globalization began in the late 15th century with the voyages of Columbus, Magellan, and other explorers.
• The development of the full-rigged ship, which had three masts and a sturdier hull, enabled Europeans to navigate the globe and establish trade routes.
• The impact of the full-rigged ship was felt in Europe, with the Dutch and English shipping grain and textiles across the continent.
• The Voyages of Discovery also had a dramatic impact on trade, with the Portuguese establishing an all-water route to Asia and the English and Dutch East Indies companies breaking Portugal's maritime monopoly.