Research Economics

Europe's and China's Different Paths to Prosperity

, by Tanvi Goyal
IGIER Visiting Student Tanvi Goyal reports on the recent IGIER Policy Seminar with Joel Mokyr (Northwestern) and Guido Tabellini (Bocconi)

We as humans like to predict the future and ask questions about causal explanations to be found in the past. One such question is: how do nation-states prosper? In the IGIER policy seminar held on 5th May 2022, Professor Joel Mokyr (Northwestern) and Professor Guido Tabellini (IGIER Bocconi) presented insights from their forthcoming book on how 'culture' and 'institutions' explain the different trajectories of prosperity seen in Europe and China. They addressed 800 years of events (1200-2000) to understand the historical growth in Europe and the current growth in China. Professor Gerard Roland (Berkeley) and Professor Joachim Voth (Zurich) provided constructive insights on the book, in a discussion moderated by Professor Guido Alfani (IGIER Bocconi).

Why did Europe prosper after 1200? The literature in the field, Professor Tabellini answered, started from early works of Max Weber on religion. Weber credited the protestant ethic of following secular vocations, in Europe, of creating the spirit of capitalism: that of hard work and progress incentivised by profits. Another factor in 1400s that accelerated the process was the Black Death which, Professor Tabellini said, led to a reduction in the propensity to marry, enabling more individualistic pursuits. To extend the argument of individualistic pursuits Professor Tabellini cited the previous IGIER seminar by Professor Matt Jackson on homophily criteria, stating clans in China led to kin-based networks and universities in Europe led to networks involving unrelated individuals. What followed was 'the great divergence' in the dimensions of economy, urbanisation, political and legal systems, and innovation and knowledge accumulation. These factors culminated in the industrial revolution in Europe where corporations-led incentives and belief in progress enabled innovation. The clan-based structures for business in China on the other hand pursued professional motivations rather than incentives. Professor Tabellini proposed this could be underlying factor in the reversal of innovation in China after 1200.

What led to growth in present day China? Professor Mokyr presented arguments through channels of institutional and cultural persistence. In China the institutions of decentralised authoritarianism have persisted, wherein local governments are incentivised based on local economic performance. This provided the right conditions for the small backyard production industries to flourish. The culture of kin-based social networks, Professor Mokyr suggested, created strong business channels like the Bamboo network of China in South-East Asia. These are strong business-social organisations based on the place of origin.

Professor Voth remarked three key points on the book: firstly, clans may have been more malleable as intuitions than what the authors proposed. They were imagined communities that often had seven to eight hundred members. Secondly, capacity of the state is a key dimension to be considered while looking at the historical perspective of China and Europe. Lastly, it is hard to answer the general question of how can nation-states prosper because there is a role of chance, especially when we have only two observations to consider. China in the 1200s experienced an invasion by Mongols which, though incidental, was a cause of reversal indicated by the authors.

With his historical expertise, Professor Roland extended the intuition of the authors and questioned why 1200 is the starting period of the study. For this purpose, he stated that the capitalist-led incentives in Europe created useful knowledge tested by demand-supply mechanisms. In a comparison between Mandarins (in China) and corporations (in Europe), the former had a conservative ideology on innovations and the latter more curious. Secondly, he said that religion as an explanation for creation of nuclear family structure is not enough, and an extension comes from bilineal kinship, wherein male and female family ties are maintained; making it difficult to have long lineages of family connections. Lastly, he affirmed that the period pre1200s saw key innovations and advancements in China, for example, during the Song dynasty; and that the history of clans can be traced back to the Shang dynasty between 1600-1046 BC.

In their concluding remarks, the speakers dwelled on the discussion. Professor Tabellini stated that though the history of clans dates back to the Shang dynasty, it was prominent mostly in the elites; and he acknowledged the role chance plays addressing Professor Voth's scepticism. Professor Mokyr enthusiastically reflected on the theory of bilineal kinship, stating indeed there is the need to go beyond religion-based explanation to understand factors enabling industrialisation. Moreover, from constructive discussion from the speakers, discussants, and audience, we were able to dwell on the complex phenomenon of nation-state prosperity while modelling history.