Stuart Simpson
posted 25 November 2007

In A Farewell to Alms Gregory Clark attempts to understand why people started getting richer. People began to get rich 250 years ago in a rather unremarkable corner of the world. This had never happened before, Clark says. For much of the world it has failed to happen since.

Clark’s interest in the past is fuelled by his concern for the modern world. In seeking to understand the causes of the Industrial Revolution in England, and its failure to go global, Clark is looking for lessons for the present. The concluding chapters in which Clark discusses the Great Divergence - the failure of development in the ‘developing’ world - are interesting, while the rest of Clark’s work is merely strange.

For a work that is that product of 20 years research covering a subject that spans the totality of human history across all societies, A Farewell to Alms is concise even at 440 pages. The work is relatively short because Clark thinks there is little to be said about pre-modern economies, or Malthusian economies as Clark labels them, a category which for Clark includes many modern economies in the developing world. All economies that have not been transformed by the forces unleashed during the Industrial Revolution, Clark argues, despite their many differences can be understood by their universal failure to overcome natural limits. This is true, but it is of no use in shedding any light on the past or the present. The industrialisation of England is a turning point in economic history, not the beginning.

The inclusion of underdeveloped, but modern economies in the category of Malthusian economies is simply ridiculous. Where economies have failed to develop, explanations cannot be found in natural limits, but in those economies’ relationships with or exclusion from the global economy. The human population of Tanzania is not regulated by the same natural law that governs the population of rabbits. One notable omission from Clark’s work is anything more than a passing remark on the strangeness of Malthus outlining his theory of economy at the very time and place in history that it became entirely obsolete. Clark tells us he believes that England in 1800 had the first economy that operated by laws other than those outlined by Malthus in that very country in 1798. Clark sees a Malthusian character to all societies except that one Malthus was actively engaged studying and explaining.

Clark’s attempts to understand the Great Divergence prove more productive and offer some useful pointers in understanding the failures and successes of the modern economy. The most upbeat defenders of globalisation today argue that we are witnessing merely a return to trend. As the 1800s progressed the growth that started in England began to make the world a smaller place. Clark draws on the rather poetic descriptions of this process from the Communist Manifesto.

Cheap goods are the artillery for battering down Chinese walls and for overcoming the obstinate hatred entertained against foreigners by semi-civilised nations: under penalty of ruin the Bourgeoisie compel by competition the universal adoption of their system of production; they force all nations to accept what is called civilisation - to become Bourgeois - and thus the middle-class shapes the world after its own image.

Of course this didn’t happen: the world was not reshaped in the image of the English bourgeoisie. Much of the world is still underdeveloped. The Chinese walls still exist – although their purpose now is to ensure cheap Chinese bras are kept out of the EU. The more important walls, though, are those that keep much of the world from developing. Clark tells us that estimated per capita industrial output declined in both India and China following the Industrial Revolution in England as these countries repositioned themselves to export raw materials to manufacturers in England. A pattern of regression that many worry may be echoed today with Africa’s relationship with China, the 21th century workshop of the World.

Clark’s research into the lack of development of the cotton industry in India is useful in assessing certain common explanations of the failure of globalisation today. Globalisation’s defenders put forward the view that if it wasn’t for the interference of political leaders and their followers along with their revolutions and wars throughout the 20th century, globalisation would have continued along its benevolent course. The current threat to development is political retrenchment behind protected borders. Those who attack globalisation point to the exploitation of the developing world by the rich world and argue that globalisation means greater exploitation of the poor by the rich. Globalisation is merely a reflection of the greed of the Western world. A look at Clark’s research from the 1800s shows flaws in both accounts.

From the mid-1800s onwards, the Indian cotton industry failed to compete with English manufacturers. Wages in India were much lower than in Manchester. All things being equal, and with low trade barriers that existed at the time and the fact that Indian mills utilised the same technology as in Manchester, Indian producers should have easily been able to undercut their English competitors. This clearly didn’t happen. Raw materials were shipped from India to Manchester, processed in English mills and sent back again to be sold in Indian markets. The failure of development in India was not the result of the retrenchment of globalisation, or of wars, trade barriers or protectionism. Globalisation failed when it was operating unobstructed.

As Clark remarks, one of the earliest insights of classical economics was that there is no such thing as low wages, only unproductive labour. This is amply demonstrated by the failure of India’s cotton mills to compete with higher wage earners in England. It appears that the only people who are concerned with individual wages are the people who earn them, not the people that pay them. As Clark demonstrates, low wage India merely employed more wage earners. Mill owners who attempted to rationalise staff numbers found they needed to increase wages. If Indian workers were to become as productive as their English counterparts, they would begin to earn a similar wage. Clark’s argument that Indian workers never reached levels of productivity seen in England because they were just not disciplined enough is rather tautological, however.

The example helps highlight a fact that is missing from the moralised discussion of globalisation today. Wages in rich countries are higher than in poor countries because work is more productive in rich countries. The first world did not get rich by exploiting the third world, but by being more productive. The global economy is not a zero sum game in which the West has taken more than its fair share. The wealth that is consumed in the developed world is created in the developed world. The developing world has been failed by globalisation in the past, and more than a hundred years on much of the world is being failed still. But this failure is not due to the inclusion of the developing world in an unfair global economic system; the problem isn’t unfair trade or the appropriation of wealth but a lack of productive activity in the world’s poor economies. Clark’s study of how competing producers employ labour and capital to create value is a far more productive starting point in addressing the failures of globalisation than discussions concerning the distorting effects or otherwise of trade barriers and subsidies.

Clark’s simple example of cotton workers is also useful in providing some perspective on the current growth of low wage economies, of which China is the leading example. Unproductive labour was once the explanation of why India failed to develop; low wages are now used to help explain development. Considering low wages / unproductive labour mean similar things, this is odd. Just as low waged unproductive labour was no guarantee of development in the mid 1800s, it is not an explanation of development today. The relationship between wages and output is as strong as it has ever been. The average wage in India is 3.1% of the American wage, Indian labour productivity is on 2.9% of American productivity, making Indian workers on average are a little more expensive than Americans. The average Indian worker will produce little more in a year than the average American factory worker produces in a week. It is amazing that India can compete at all.

Before China and other developing nations began to out-compete the developed world in the production of manufactures, the common wisdom was that they would do better growing rice rather than wasting their time building factories. This is the current advice to many developing economies in Africa today, although the crop might not be rice. Like Indian mill workers 150 years ago, workers in developing countries are considered too unproductive to make things; better to stick with what they are good at. While recognising that Indian mills were uncompetitive at the time, the reality of declining productivity levels in 19th century India and China should still be a warning to those who advocate that countries today should specialise in what they have an competitive advantage in – if that advantage lies in farming, a country might be better off building uncompetitive factories.

Clark’s stated aim in writing a short economic history of the world is to debunk the myths propounded by the IMF and the World Bank – namely that institutional reforms are needed to ensure growth in emerging economies. While Clark ultimately does not offer anything to replace the generally discredited Washington consensus, he does at least provide a warning to the economic technocrats of the world who are busily attempting to construct one. Clark’s tells us that economics is one of the few areas of human knowledge where we seen no progress in 200 years, or have at least forgotten what we may have learned along the way. No one can claim to understand development or the lack of it today. A common theme is the increasing complexity of the global economy – this may be an excuse touted by investment bankers who made a bad call on products linked to home loans. Is the world more complex, or are economists just more ignorant? Clark’s work offers a useful historical perspective on recent developments, that may aid in finding an answer that this question, if not the wider question of how countries develop.