Book Review: How the World Became Rich

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In How the World Became Rich, Mark Koyama and Jared Rubin have written what will almost certainly become a beloved economic history classic, as Power and Plenty or The British Industrial Revolution in Global Perspective became over a decade ago. I fawn over a refreshingly readable book and raise a couple of concerns about the thesis:

What do institutions do?

Were all of Britain’s purported advantages really advantageous for growth (not just neutral)?

Do explanations for the IR hold for the poor periphery?

The best tribute that I can make for How the World Became Rich, Mark Koyama and Jared Rubin’s recent addition to the economic history canon, is that I put another book on pause to read it. As a manic completionist, I never do this, but once I had peeked past the blue-girded front cover I couldn’t put it down. Now I’ve read it twice. So it goes.

The book has two parts. The first is a literature review of the five main strands of research in modern economic history—what I, following Bisin and Federico (2021), usually call the New Historical Economics. The second is also a literature review, but in the guise of a “rise of the west”-type book, and covers the medieval preconditions for European growth, Britain’s takeoff, and the spread of the Industrial Revolution to the global periphery. I will discuss each of these elements separately, focusing more on the second, which is the substance of the argument, and organize some of my thoughts from reading.

The five categories are geography, institutions, culture, demography, and colonialism. Koyama and Rubin (henceforth K&R) aren’t indifferent between them, however. We can start with geography, which encompasses everything from Diamond-esque continental axis orientations and long-run climatological patterns. K&R downplay these as causal forces, for example, stressing that while they influence some outcomes, they can be negated by interactions with other factors. They place great emphasis on the power of infrastructure to lift the “curse” of geography, citing the Donaldson/Hornbeck research agenda on railroads in India and the United States as well as Dan Bogart’s work on turnpikes and canals in Britain. K&R also take umbrage with the Wrigley-Pomeranz-Allen axis on the indispensability of coal to the Industrial Revolution, noting that A) China and Germany had abundant reserves B) the early textile mills depended on water power anyway and C) coal output responded elastically to demand. You could envision a scenario in which sufficient growth in Dutch textile industries, for example, eventually triggered mass shipments of coal from Newcastle, as was possible for London. If you object that the British attempted to stifle such exports, then K&R would probably respond—rightly—that geography only became significant because of British mercantilist institutions. Contesting coal as a limiting factor is probably mistaken on these grounds, as without it you’ll eventually exhaust your water mill sites (and aren’t mill sites geography too?), but the point is well taken that you can’t really grasp the significance of geography without understanding the institutional context.

In a way, K&R are making a meta-argument resembling Robert Brenner (1976)’s explanation for why the impact of the fourteenth-century demographic crises differed to the east and west of the River Elbe, and in England and France. In the west, where peasants were relatively well-organized, population collapse led to the defeat of reactionary forces and the collapse of serfdom; but in the east, where landlord control was greater, a “second serfdom” was instituted permitting greater exactions by seigneurs. Thus the impact of demography cannot be understood until one takes into account the pre-existing structure of institutions and class relations in a region. To me, this is exactly what K&R are saying, albeit for all factors that determine economic development. We know the partial effects of lots of things in the abstract, but unless we control for context-specific characteristics, we cannot know how natural resources or climate crises will alter outcomes. I don’t know about you, but this seems pretty reasonable to me.

This logic does apply differentially to each of the five factors. Demography (e.g. the European Marriage Pattern) is treated similarly to geography; only in combination with institutional or cultural forces can beneficient changes in birth rates stimulate growth. But institutions and culture—our authors’ fortes—show up as universal solvents. On the former count, limited government and the protection of property rights tend to be globally good, and sometimes decisive in the shift to sustained growth. K&R review most of the big institutionalist discussions in economic history, from private property, inclusive institutions, and legal origins to the Maghribi traders, European guilds, and the rise of fiscal-military states. Missing citations are astonishingly rare—in general, when I was about to complain about an omission it either appeared on the next page or somewhere later in the book. For a short work, the coverage is fantastic. One qualm that I do have with the treatment of institutions is the under-emphasis on real debates over the validity of some claims. The authors generally (more on this later) try to stress the cumulative and cooperative nature of recent EH research, but frequently this rosy image just doesn’t fit the reality. Some theories truly are contradictory. In this vein, I would have liked to see more emphasis on the now-standard critiques of the Glorious Revolution literature, as summarized in Ogilvie and Carus (2014).

As befits a Jared Rubin book, the section on culture is also particularly weighty. The discussion veers away from preconditions for growth and tries to cover several aspects of the burgeoning literature, especially religion and trust. The Protestant Reformation—and its converse, the persistence of Islam—are accorded pride of place; though K&R discount a “Protestant ethic,” they argue (following Rubin (2017)) that the Reformation forced newly-illegitimate Protestant leaders to seek popular approbation, especially through parliaments—leading to increasingly limited government. Islam, on the other hand, inhibited the growth of large businesses, centralized power among elites, and conversely disenfranchised factions who thereby gained an interest in creating political instability. Other topics include the role of the Church in uprooting kin-based family structures and the Alesina-Giuliano-Nunn (Boserup!) research on the plough’s role in fixing female gender norms.

Finally, the authors have little patience for theories—i.e. the California school—according colonialism a decisive role in promoting Western economic growth. They argue that the negative effects of European expansion abroad came after the onset of the Great Divergence. By the time British gunboats were marauding on the Yangtze, in other words, Manchester’s factories already had an unassailable cost advantage. Most of the chapter instead focuses on the subsequent impact on the colonized, from the unambiguously ghastly—Nunn on the African slave trades, Dell on the mita, Lowes and Montero on the Congo—to the probably-beneficial—railroads, Dell and Olken on the cultivation system, and missionaries.

The guiding theme of the first half of the book, to my mind, is the laudable effort to present the last two decades of economic history research as part of a cumulative scientific project—normal science progressing within the “historical economics” paradigm. We are treated to a catalog of canonical results wrung from the stones of history, findings that we can use to guide our thinking about broader questions of development. This does leave the book open to the always-troubling problem of generalizability—do results about one time and place offer meaningful insights about others? Perhaps most studies don’t, but that shouldn’t be too upsetting. If we can collect and catalog enough consistent findings, we can still describe the causal forces underlying the historical process, even if we don’t have a truly unified theory of development.

Nevertheless, a theory of development is just what K&R attempt in the book’s second half. The argument proceeds in pyramidal fashion, explaining first Europe’s Great Divergence, then Northwest Europe’s Little Divergence, and lastly Britain’s surge into industrialization. They conclude by discussing how the rest of the world—from France to South Korea—followed suit. K&R lay out a series of “preconditions” for each stage that A) fall into one of the 5 categories and B) build upon the preceding. We can take them more or less in turn. Geography, the eternal constant, comes first. Europe had two advantages over Asia: one, a landmass “fractured” by rivers and high mountains, creating several “core” regions that could be dominated by separate polities; and two, some distance from the steppe, which meant that no large state needed to arise and hold off Mongol raiders. Small, equal polities led to all the expected things—military and intellectual competition, fiscal states, constrained government, etc. One might also add: a peninsula jutting out into the Atlantic Ocean, where favorable wind patterns might blow a lucky mariner into the Americas, and a climate (following Eric Jones) less prone to disasters (facilitating capital accumulation).

Europe always had these advantages; why didn’t it take off after the splintering of the Roman Empire? There was some halting growth in the late-medieval city-states, but ultimately the rent-seeking of municipal oligarchs and the “low technological base” of the period curtailed the efflorescence. The Black Death and the sluggish demographic recovery—aided by the EMP—kept wages higher than in Asia, but that produced divergence, not growth. India fell relatively behind by absolutely going backward. Nor was the opening of the Atlantic, which marginalized the Mediterranean and inundated Iberia with tainted treasure, but was not responsible for the forward surge of the Anglo-Dutch commercial kingdoms. The key force was the emergence of limited government, specifically parliaments—“Dutch economic success was a direct result of institutional change”—which prevented regimes from meddling with entrepreneurs and innovators. Here, though, one feels that there’s something missing. Why did commercial monopolies serve the Iberian economies so poorly, but increase incomes in Britain and the Low Countries? The authors cite Henriques and Palma (2020) to the effect that only after the Civil Wars did English institutions diverge from those of Spain and Portugal; but this result is incompatible with the “Atlantic traders” argument, which cites initially bad Spanish institutions for mishandling American resources.

The situation becomes more complex when the authors have to explain Britain’s divergence from the Dutch. Why did Dutch institutions follow the medieval Italian city-states into rent-seeking and decay, but Britain establish a stable alliance between mercantile, industrial, and landed power under the aegis of a powerful parliamentary state? Indeed, if Britain was no less corrupt and no more democratic than her European rivals, what exactly were the institutional aspects of the British state that facilitated growth? Sure, estate bills and enclosure acts helped to reallocate land for agricultural improvement and transport infrastructure, but the economic returns to enclosure were not significant and European market integration was already well-advanced by the sixteenth century. We’re told that the Dutch also suffered from heavy war taxes, which is true—but Britain also boasted a fearsome and often regressive tax regime that funneled enormous sums into military spending. And if it’s military success that we’re talking about, why didn’t the Dutch invest more in fiscal capacity? In sum, I think the institutions-growth link could have been clarified—quite a bit is taken for granted, leaving us with unresolved puzzles.

Ultimately, K&R take a reasonable tack. Many countries shared one or two advantages with Britain, but in hindsight, she appeared to have all of them—reasonably good government, Atlantic commerce (but no resource curse), weak guilds, a flexible apprenticeship system, and high levels of artisanal skill. What lit the torch was the spark of Mokyr’s “Industrial Enlightenment.” All Europe benefited from the “Republic of Letters” and the Scientific Revolution, but only Britain had the communities of engineering talent to put abstract ideas into practice. This last point follows the Kelly-Mokyr-O’Grada “mechanics & millwrights” research agenda that we discussed recently. As I alluded to then, I think the international comparative evidence for this theory is lacking—the authors assert that the Dutch had a “relative paucity” of skilled workers, but I’m not completely convinced that this should have been the case. After all, the Dutch Golden Age saw the erection of sophisticated windmills across the country, powering wheat processing and lumber-sawing—surely the makers and maintainers of these machines were exactly the kinds of men needed for running textile machinery? The Republic also had plenty of canals to bind markets together, dozens of famous scientists, and proximity to French ideas. Yet it fell behind. I’m willing to entertain the possibility that small size and location next to multiple belligerent military powers was a developmental downside, but that’s a fundamentally, well, geographical problem.

I think my chief issue with these explanations is that I still think that many of them beg the question of “why Britain?” To paraphrase a famous economist, a functional institutional conjuncture and high levels of human capital aren’t just causes of growth—they are growth. Nations get the institutions they pay for. By looking with the benefit of hindsight at the many things that made Britain exceptional, we’re looking both at origins and outcomes, and it’s difficult to distinguish between the two. Worse, I think we risk assuming that because certain factors were present in the cradle of industrialism, they must have helped growth (rather than simply not suppressing it). The Glorious Revolution isn’t just significant in itself—it accrues explanatory prominence because a century later Britain was in the throes of economic development, and because we have compelling stories linking the two. They don’t have to be wrong! But we do have to be careful.

Briefly on to the spread of development. K&R favor human capital-based explanations for the Second Industrial Revolution, stressing (a la Goldin-Katz / Galor-Moav) the role of educated white-collar workers in putting new science-based technologies into place. They stress the role of institutions, this time operating through railroad investment and mass education, especially in Prussia and the United States. I won’t stop prating on about how skeptical I am about schooling-based stories of 19th-century growth—most people weren’t doing jobs that required more than rudimentary literacy and numeracy. But I’ve mostly lost hope of convincing anyone.

Two more notes before I close. First, I am surprised that K&R discuss the Soviet Union in such a negative light without contending with Bob Allen’s illuminating Farm to Factory. The book’s not perfect (I don’t even agree with that much of it), but the main points—pre-Soviet growth was limited and living standards/urbanization did rise under the Five-Year plans—are not really compatible with the more standard view (planning failed and was unsustainable) that the authors espouse. Stalinism’s unsavory aspects, according to Allen, are separable from the extent to which the planned economy—output targets plus soft budget constraints mobilizing unemployed labor—broke the USSR out of a low-equilibrium trap by establishing heavy industry, attracting peasants to the cities, and lowering female fertility. Consumption was not ignored, as the authors assert, but rather arose as a direct consequence. If this narratie is correct, I would have had K&R produce evidence to rebut it.

Second (and relatedly), I think the authors might be… too neoliberal… on twentieth-century development on the periphery. We need more Dani Rodrik citations! In slating India’s poor performance under the socialist “License Raj,” for example, K&R follow the “conventional” line that the liberalization of 1991 was the turning point, when a balance-of-payments crisis led to tariff cuts, foreign investment, and privatization. But Rodrik and Subramonian (2004) find that the crucial change came a decade earlier, with the regime’s “pro-business”—rather than “pro-market”—policy shift. The contrast is between favoring incumbents by raising profitability (in this case for political purposes) rather than encouraging new entrants.

Similarly, the authors stress that the four East Asian Tigers were successful above all as small open economies, immunized against inefficiencies by export discipline. Rodrik (1995), however, finds that—in the case of South Korea and Taiwan—export profitability was initially too low and the export sector too small to explain take-off during the 1960s. Instead, he argues that the mismatch between the countries’ high levels of human and low levels of physical capital created an opportunity for government to “engineer” elevated returns to investment through coordinated industrial policy. Export orientation was a result of greater demand for capital goods. It’s an old paper, I’ll grant, but the theory has gained empirical backing thanks to recent work by Nathan Lane (2021) and others, who find large and persistent effects of South Korea’s Heavy Chemical and Industry drive on comparative advantage and downstream production.

Joe Studwell’s How Asia Works offers an interventionist argument for growth in the region, stressing the role of agrarian redistribution, moving resources into manufacturing, and state mobilization of finances behind long-term development plans in winning (or losing) East Asian countries a place in the global market. K&R suggest that South Korea may have succeeded “in spite” of an activist state. But as my friend Oliver Kim argues, the sheer scale of government intervention makes it unlikely that industrial policy didn’t have a massive effect on the economies involved. Could the Tigers really have grown much faster without state meddling? And all this, as K&R acknowledge, occurred under institutions that were not very limited—corrupt semi-democracies and outright autocracies. Maybe, given the flaws of the British polity (and its mercantilism/militarism/land reform agendas), this actually makes a perverse kind of sense.

Yes, these aren’t economic history. But understanding why the Industrial Revolution did or did not spread to different countries is a concomitant to understanding the industrialization process at all. If we can’t figure out why some places develop and others don’t, how can we be confident that our theories capture how development itself began? I think the mystery—as well as the hitherto non-replicability—of East Asia’s rise should shift our baselines when discussing the kinds of institutions that favor and hinder growth. K&R acknowledge the incredible diversity of development experiences and outcomes. There just might be even more.

This review is much longer than I intended, so my sincere apologies for making you slog on this far. I hope I’ve not seemed disproportionately critical. There are basically two ways to write a positive book review, and neither consists of writing “this is amazing” over and over again. First, you can ignore the book and write about whatever you want, saying “this is amazing” in a sorry little paragraph at the end. Or you can try to be constructive, make your words useful, and offer suggestions for improvement. I’ve attempted to do the latter. To be clear, I think that the book is one of the best economic history works of the last decade and that it is certainly unmatched in its coverage of the new literature. I couldn’t do such a concise job of summarizing it for the layman if I spent the rest of my career trying. I’m just happy it also gave me a few things to grouse about. Because that’s half the fun of reading and writing.