Must-Read: Loren Brandt, Debin Ma, and Thomas G. Rawski (2012): From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom

Must-Read: Loren Brandt, Debin Ma, and Thomas G. Rawski (2012): From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom: “The Qing Empire (1644-1911), the world’s largest national economy prior to the 19th century, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income…

…In some regions, the standard of living may have matched levels recorded in advanced regions of Western Europe. However, with the Industrial Revolution a vast gap emerged between newly rich industrial nations and China’s lagging economy. Only with an unprecedented growth spurt beginning in the late 1970s has the gap separating China from the global leaders been substantially diminished, and China regained its former standing among the world’s largest economies.

This essay develops an integrated framework… to explain how deeply embedded political and economic institutions that had contributed to a long process of extensive growth subsequently prevented China from capturing the benefits associated with new technologies and information arising from the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles created by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent economic development to important elements of its past, while using the success of the last three decades to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their removal over the last century and a half….

What circumstances enabled the hesitant reforms of the late 1970s which restored no more than a small fraction of the market arrangements stifled by socialist policies during the previous three decades, to launch the economy on a steep and durable growth path? How could several hundred million Chinese villagers escape from “absolute poverty” within 10-15 years following the onset of economic reform during the late 1970s with, if anything, declining external support as former collective institutions withered away? How did the number of so-called “township-village” (TVE) enterprises jump from 1.5 million to nearly 20 million, including many with substantial overseas sales, between 1978 and 1990 without encountering a shortage of capable managers and accountants? How did millions of firms conduct business, often on a large scale, without well-developed systems of commercial law or property rights?…

This essay is written in the conviction thathistorical legacies rooted in the decades and centuries prior to the establishment of the People’s Republic in 1949 continue to exert powerful influence upon the evolution of China’s economy. Prior to the industrial revolution, China led the world in both economic size and in many dimensions of technology…