The Established View Challenged

The established view that the gap emerged before the Industrial Revolution, perhaps thousands of years ago, was worked out in the eighteenth century in the context of trade between Europe and Asia.

of quality and partly a question of price—European goods were simply more expensive than their Asian counterparts. From the late seventeenth century onwards, the English East India Company took advantage of this differential and began to ship Indian cotton textiles to Europe. This trade was so successful that English woollen producers secured the prohibition of Indian calicoes in Britain. They continued to be re-exported, however, to other parts of Europe and to Africa and the Americas. The merchants engaged in these trades were well aware of the costs and prices of the goods they sold and observed that the cheapness of Indian cottons was a direct result of the lowness of Indian wages in comparison to those in England. This observation underlay the pessimistic view of Asian living standards.

The question was, were Asian wages even lower, on a percentage basis, than Asian prices? Adam Smith (1776/1937) thought so. ‘Rice in China is much cheaper than wheat is any-where in Europe' (1776/1937: 189). Wages were still lower. ‘The difference between the money price of labour in China and Europe, is still greater than that between the money price of subsistence; because the real recompense of labour is higher in Europe than in China, the greater part of Europe being in an improving state, while China seems to be standing still' (1776/1937: 189). As a result, ‘the poverty of the lower ranks of people in China far surpasses that of the most beggarly nations in Europe' (1776/1937: 72).

Why were real wages lower in Asia than in Europe? Adam Smith propounded the liberal view that stable and secure property rights, low taxation, limited government, and free trade were the bases of economic expansion, and expansion was the cause of high wages. ‘The proportion between the real recompense of labour in different countries', he argued, ‘is naturally regulated' by the ‘advancing, stationary, or declining condition' of their economies (1776/1937: 189—90). While he objected to certain features of British policy—the Navigation Acts, which limited free trade, were objects of sustained attack—he regarded Britain's free labour, land, and product markets as particularly conducive to development. Asian wages were low because its economy was ‘stationary'. This was due, in turn, to the lack of the broad markets, secure property, and limited government, which the English and the Dutch enjoyed.

China's economy was paradoxical because the country was both rich and stationary. The riches were due to its natural fertility and to a considerable division of labour based on internal commerce. China, like India and ancient Egypt, ‘seem all to have derived their great opulence from inland navigation' (1776/1937: 20). The process was taken furthest in China. ‘In the Eastern provinces of China...several great rivers form, by their different branches, a multitude of canals, and by communicating with one another afford an inland navigation much more extensive than that either of the Nile or the Ganges, or perhaps than both of them put together' (1776/1937: 20).

Rich as it was, however, Chinese institutions prevented the country from reaching its full potential. ‘China seems to have been long stationary, and had probably long ago acquired that full complement of riches which is consistent with the nature of its laws and institutions.

Insecure property rights also contributed to China's stationary state. ‘In a country...where, though the rich or the owners of large capital enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins’, investment—hence, employment and output—will be less than they might be (1776/1937: 95). The proper function of the state, in Smith's view, was to establish clear and secure property rights, and the Chinese Empire failed that test. Smith, thus, explained the low standard of living in China with the same theory that explained the high standard of living in Europe.

Malthus (1803/1973) is famous for his population theories, and he marshalled them to explain Asian backwardness. Like Smith, he was impressed by the paradox of a highly productive agriculture and widespread poverty. He attributed the former to the fertility of the soil and the high standard of cultivation, which reflected state encouragement.

Malthus applied the same logic to India, where he also believed the standard of living to be very low. He entertained the prospect that Hindu asceticism would depress fertility (a preventive check) but concluded, ‘from the prevailing habits and opinions of the people there is reason to believe that the tendency to early marriages was still always predominant' (1803/1973: 119). As a result ‘the lower classes of people were reduced to extreme poverty...The population would thus be pressed hard against the limits of the means of subsistence, and the food of the country would be meted out to the major part of the people in the smallest shares that could support life'. Disaster was never far away. ‘India, as might be expected, has in all ages been subject to the most dreadful famines' (1803/1973: 119).

Marx (1853/1983) was a third great classical economist, and he too, sought to explain Asian backwardness with his own brand of theory.

Marx saw ‘irrigation' as ‘the sine qua non of farming in the East' (1853/1983: 339) for two reasons. First, there were ‘the vast tracts of desert, extending from the Sahara, through Arabia, Persia, India and Tartary, to the most elevated Asia highlands'. These dry lands could be made fertile if water was supplied, so ‘artificial irrigation by canals and waterworks' became ‘the basis of Oriental agriculture'. Second, in river valleys ‘as in Egypt and India' as well as China, periodic ‘inundations were used for fertilizing the soil'. Water was periodically released on the land, and for that ‘advantage is taken of a high level for feeding irrigative canals' (1853/1983: 331). Thus, both the potentially fertile deserts and the rich river valleys required extensive and elaborate water control systems to achieve maximal fertility. In the West, the need for irrigation or water control ‘drove private enterprise to voluntary association, as in Flanders and Italy'. However, in Asia, ‘where civilization was too low and the territorial extent too vast to call into life voluntary association, the interference of the centralizing power of government' was called into play. The state in Asia took on the job of administering a vast system of public works, which required a class of civil servants, notably the mandarins in China.

The state administration of irrigation had two effects, both of which were detrimental to economic growth. First, the production of agriculture and thus the economy as a whole depended on the performance of the bureaucracy. ‘In Asian empires we are quite accustomed to see agriculture deteriorating under one government and reviving again under some other government.

Marx saw Asian society as composed of atomistic villages under the sway of a despotic state that determined their prosperity by the quality of its administration. Each village combined agriculture with textile production through hand processes. ‘Those family-communities were based on domestic industry in that peculiar combination of hand-weaving, hand-spinning and hand-tilling agriculture which gave them self-supporting power' (1853/1983: 335). These villages were the ‘solid foundation of Oriental despotism', and they also stifled the rational acquisitiveness that propelled capitalism forward: ‘they restrained the human mind within the smallest possible compass, making it the unresisting tool of superstition, enslaving it beneath traditional rules, depriving it of all grandeur and historical energies' (1853/ 1983: 335). But there was cause for hope: the ‘old Asiatic society would be destroyed by ‘English steam and English free trade'. Modern capitalism would drive India forward (1853/1983: 335, 337).

These views remain influential. In his wide-ranging review of world economic history, The Wealth and Poverty of Nations (1998), David Landes has combined the ideas of Malthus and Marx into a sweeping account of Chinese stagnation that traces it back thousands of years. Landes' story begins when the Han, the ancestors of the modern Chinese, lived in the northern forests and subsisted on millet and barley. Landes sees the Han in a Darwinian competition with the other peoples of East Asia. The competitive advantage of the Han was early and universal marriage and maximal fertility. The Han bred faster than other Asians and gradually pushed south, displacing their competitors and occupying all of China. In this expansion, more people meant more soldiers and greater military power. ‘In effect, this pattern of maximum reproduction enhanced political power, in terms both of combat fodder and of material for territorial expansion. In the last analysis, this was the story of Chinese aggrandizement over less prolific societies' (1998: 22, n. *).

As the Chinese occupied the great river valleys of central and southern China, they organized cultivation to maximize food production and population. Landes endorses Marx's hydraulic argument, as elaborated by Wittfogel (1957): ‘the management of water called for supralocal power and promoted imperial authority' (1957: 27). Chinese history was like a ‘treadmill' in which more people led to a bigger empire (in geographical terms), which led to more food, which led to more people. And then the cycle repeated (1957: 23). The capstone was the Celestial Empire's ideology that celebrated the superiority of Chinese culture, institutions, and imperial power. This rendered China peculiarly resistant to adopting western technology. By the nineteenth century, the Chinese Empire had fallen behind the West industrially and militarily. This backwardness was thousands of years in the making.

The postulate of backwardness, along with explanations for it, is the endowment that nineteenth-century social science bequeathed to modern Asian scholarship. Studies of these explanations not only called them into question but also raised the possibility that the postulate of backwardness itself was an error. Malthus' demographic explanation of Chinese backwardness has been severely attacked by Laveley and Wong (1998) and Lee and Wang (1999). Wong (1997) has questioned the use of

European models as templates for evaluating Chinese institutions, while Pomeranz (2000) has taken on Smith and Marx by arguing that Chinese property rights were as secure as those in Europe and markets as efficient. These findings led him to question the postulate of backwardness itself: ‘It seems likely that average incomes in Japan, China, and parts of southeast Asia were comparable to (or higher than) those in western Europe even in the late eighteenth century' (Pomeranz 2000: 49). Parthasarathi (1998, 2001) has undertaken some eighteenth-century wage comparisons that point to the same conclusion for India.

While the postulate of backwardness has been called into question—and many of the explanations for it greatly undermined—the issue demands much more empirical research than has yet been undertaken. How did the standard of living in Europe and Asia compare in the seventeenth and eighteenth centuries? Grand issues like this have many dimensions, and all of them need to be investigated to establish sound conclusions.

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