by Ricardo Hausmann, guest blogger
I read Greg Clark's book [A Farewell to Alms] and really liked it. The book is much more effective in destroying previous explanations for the transition to modern growth than it is in proposing a viable alternative. But this is something that Clark acknowledges. He explicitly states that we know very little of the causes behind the transition to high growth. 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.
3- It would be a pity if the Clark book is dismissed because of his Darwinian argument. I find very interesting the following two facts. First, in olden days incomes were stagnant. Second, in those days, as opposed to now, the rich had substantially more surviving children than the poor. This means that on average there was a rather strong downward social mobility that lasted a pretty long time. I think these are facts and are very convincing as such. I find the idea that this lead to some form of genetic or cultural (why cultural?) selection that triggered changes in something related to the industrial revolution as completely unsubstantiated in the book. Economists use the subjective rate of time preference as a parameter explaining behavior that they take as exogenous. I know of no work that has established whether this is a genetically or a culturally determined parameter or whether it would buy much in terms of triggering a transition to high growth. Clark does show that there was a decline in interest rates, but this was a global phenomenon and not obviously related to the mechanism he has in mind.