Why Did China Fall Behind Europe?

China’s recent reemergence as a powerhouse in the global economy puts the classic question of why sustained economic growth first arose in Europe rather than in China into a new context.  Economic historians have long offered many answers to the question of why Europe became the birthplace of modern economic growth.  But these explanations have not considered why China declined from a position of comparable economic wealth, through several centuries of unmistakable inferiority, to its role today of large and growing importance in the global economy.  Considering economic change in China and Europe within a common analytical framework that recognizes the same economic principles at work in both makes possible an explanation of both the initial gap in economic performance in China and Europe and the more recent convergence toward similar levels of prosperity. 

In Before and Beyond Divergence: The Politics of Economic Change in China and Europe Jean-Laurent Rosenthal and I demonstrate how the early modern Chinese and European economies could be similar in ways most previous scholarship obscures.  Recognition of these similarities allows us to identify crucial and unappreciated reasons for Europe’s shift to a path of modern growth.  We argue that political differences which crystallized well before 1800 were responsible for China’s early prosperity, for its more recent rapid growth, for Europe’s long difficulties after the fall of the Roman Empire, and, finally, for its early success with industrialization. We further argue that conventional arguments are either unfounded or can be reduced to the consequences of differences in political scale:  although both China and Europe experienced long periods of unification and fragmentation, empire was the norm in China, while division prevailed more often in Europe.  For much of Europe’s history, it was poor because it was at war.  The rise of capital-intensive methods of production in Europe was the unintended consequence of persistent political strife.  In contrast, China, which was often peaceful and unified, developed large-scale markets and took advantage of the division of labor.  Although Europe’s bias towards machine-based, capital-intensive methods of production was long standing, it was only after 1750 that the cost advantage of such methods became apparent.  Before that time the recipes for growth of the Qing emperors were commonsense everywhere:  promote the expansion of agriculture, keep taxes low, and do not interfere with internal commerce.

Around the globe the unprecedented growth of economies during the nineteenth and twentieth centuries has been driven by the diffusion of innovations based on a model of technological change first developed in Europe.  Those technologies are both capital and energy intensive.  In the early twenty-first century we have generally become far more concerned about the natural world than we once were.  Technological innovation today aims not only to foster growth but also to curb environmental degradation and ecological disasters.  Nevertheless, we remain beholden to the approach to technological change that took root three hundred years ago in Europe.  We continue to expect the technology of the Industrial Revolution to solve our problems.

At the same time, and in part because of the technological change that has occurred since 1700, we confront political challenges.  Unlike the consensus over technology, there has been much less agreement in public discussions about the desired path of change in the spatial scale of polities.  Nevertheless, in the past five decades the world has been moving away from European-sized polities (populations in the tens of millions of inhabitants and territories in the hundreds of thousands of square kilometers) and toward polities and economic spaces that are Chinese in scale (with population in the hundreds of millions of citizens and territories in the millions of square kilometers).

Whether it be in the sudden relevance of Brazil, India, China, and Russia to the world economy or in the attempts at forging free trade in Latin America, East Asia, Europe, and North America, we are recognizing the importance of geographic scale for economic growth.  At the same time, separatist movements from East Timor to Slovenia demonstrate that political scale does not simply reflect economic or technological imperatives.  Moreover, the conflicts in Iraq and Afghanistan remind us that there are radical differences between internal peaceful political competition and civil and international strife.  Hence at the same time at which we debate economic globalization, we have been rediscovering the importance of international relations.  But this is not some brave new world without any precedent in the past. The interactions between economic and political structures are long-standing and well-recognized phenomena in history. Both my co-author and I argue that there is much to be learned about how our world is changing by taking a longer view that examines hundreds of years of history.

Rosenthal and I begin with a review of some conventional arguments offered for both China’s failures and Europe’s successes.  Some of these we reject because of their inability to explain known facts.  Others we accept but place within a larger framework of explanation that allies price theory and political economy. We contend that this approach provides a more satisfying discussion of the issues and formulates better answers to the big questions than do the conventional narratives. To make our case, we highlighted the striking differences in political scale in China and Europe in order to motivate our search for the economic consequences of these differences in political scale.  We then developed a sequence of frameworks to consider reasons for the economic divergence between China and Europe.  We discovered that differences in kinship relations and population dynamics are implausible sources for divergence. We also found that although the two regions were clearly not alike in their institutions for enabling economic transactions, these dissimilarities stem from political scale and are unlikely to have caused economic divergence.  We then moved into the realm of manufacturing or craft production, where we found that the urban location of much manufacturing in Europe and its more frequent rural location in China are significant, but not exactly in the ways conventionally argued and for reasons that others have not clearly explained.  The ways in which production and trade are financed were institutionally different but not in a manner we considered causally crucial to China and Europe setting out on separate paths.  When we moved to public finance, we found differences that cannot be accounted for by conventional contrasts of Chinese and European states in the early modern and modern eras.  The differences we discovered affected economic change in ways contrary to what previous scholarship has suggested, although the impact on overall likelihoods of economic growth is limited.  The variation in public finance institutions, clearly tied to the agendas for rule in an empire versus those prevalent among a set of smaller competing polities, completed our analytical revolution of explanation and interpretation:  Europe succeeded despite rather than because of political competition.  Despite dramatic changes in the past century since the collapse of its final empire in 1911, the reasons China succeeded in forming empire repeatedly over two millennia of history continue to influence its political structure and sensibilities.  Even less clear to most observers are the ways in which Europe’s history of division and political competition continues to inform its struggles to create a more meaningful European Union.  These enduring political contrasts between China and Europe continue to have economic significance today. 

Finally, the argument and evidence in Before and Beyond Divergence exemplifies an approach to comparative history that deploys a common set of principles to evaluate widely varied information.  As economic history, Rosenthal and I show that relative prices matter to how economies evolve; institutions can have a large effect on relative prices; and the spatial scale of polities can affect the choices of institutions in the long run.  This historical perspective on institutional change has surprising implications for understanding modern transformations in China and Europe and for future expectations.  It is achieved without depending on arguments about cultural or environmental differences.  There are all manner of differences between China’s and Europe’s cultural makeup and environmental contexts but assessing the significance of these kinds of differences in terms of falsifiable propositions is never less than extremely difficult and often impossible.  Only falsifiable propositions allow scholars to test the plausibility of their explanations.  Identifying causes for what makes some set of changes more likely in one context than in another according to principles applied to both equally is an approach that encourages historians to establish a high level of generality to their arguments and a more precise degree of specificity regarding comparable evidence.  Seeking to account for as much of the historical record as we can with claims that can be either empirically confirmed or denied is an historian’s goal that enables comparative history to yield insights essential to any larger social science narrative of modern world history.