Journal of Economic Literature 2014, 52(1), 45–123 http://dx.doi.org/10.1257/jel.52.1.45 From Divergence to Convergence: Reevaluating the History Behind China’s Economic Boom† Loren Brandt, Debin Ma, and Thomas G. Rawski* China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644 –1911), the world’s largest national economy before 1800, experienced a tripling of population during the seventeenth and eighteenth centuries with no signs of diminishing per capita income. While the timing remains in dispute, a vast gap emerged between newly rich industrial nations and China’s lagging economy in the wake of the Industrial Revolution. Only with an unprecedented growth spurt beginning in the late 1970s did this great divergence separating China from the global leaders substantially diminish, allowing China to regain its former standing among the world’s largest economies. This essay develops an integrated framework for understanding that entire history, including both the divergence and the recent convergent trend. We explain how deeply embedded political and economic institutions that contributed to a long process of extensive growth before 1800 subsequently prevented China from capturing the benefits associated with the Industrial Revolution. During the twentieth century, the gradual erosion of these historic constraints and of new obstacles erected by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent development to important elements of its past, while using recent success to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their eventual removal. (JEL N15, N45, O11, O47, P21, P24, P26) * Brandt: University of Toronto. Ma: London School Rubie Watson, Jeffrey Williamson, Bin Wong, Tim Wright, of Economics and Shanghai University of Finance and Se Yan, Jan Luiten van Zanden, Madeleine Zelin and par- Economics. Rawski: University of Pittsburgh. We have ticipants in the May 2010 and September 2012 Asian received valuable advice from many colleagues, including Historical Economics Conferences, and the January 2013 Masahiko Aoki, Timothy Brook, James Cassing, Nicolas Third Annual Conference on the Chinese Economy (in Crafts, Wendy Dobson, Ronald A. Edwards, Joshua Fogel, Hong Kong). We would also like to thank Janet Currie and Phil Hoffman, Ralph Huenemann, Wolfgang Keller, Peter four anonymous referees for their very helpful suggestions. Lindert, LIU Pei, LI Bozhong, LONG Denggao, Deirdre Debin Ma acknowledges financial support from Global Price McCloskey, Joel Mokyr, Andrew Nathan, Margaret and Income Project (http://gpih.ucdavis.edu/) funded by Pearson, Dwight Perkins, Kenneth Pomeranz, Evelyn National Science Foundation. The usual disclaimer applies. Rawski, Tirthankar Roy, Roger Sahs, Carole Shiue, Richard † Go to http://dx.doi.org/10.1257/jel.52.1.45 to visit the Smethurst, Paul Smith, Tuan-hwee Sng, Werner Troesken, article page and view author disclosure statement(s). 45 46 Journal of Economic Literature, Vol. LII (March 2014) 1. Introduction1 with substantial overseas sales, between 1978 and 1990 without encountering a hina’s enormous boom, now well into its shortage of capable managers and accoun- Cfourth decade, invites inquiry into the tants? How did millions of firms conduct historical antecedents of an unprecedented business, often on a large scale, without surge of productivity and prosperity that has well-developed systems of commercial law lifted hundreds of millions from dire pov- or property rights? erty, pushed the People’s Republic to the While developments that arose from forefront of global manufacturing and trade, China’s planned economy, including the and unleashed sweeping transformations of expansion of human capital and the latent employment, education, urbanization, con- competition inherent in the relatively com- sumption, inequality, ownership, and many plete sets of manufacturing industries cre- other dimensions of economic life in the ated in most of China’s 31 provinces, surely world’s most populous nation. contributed to reform-era growth, this essay Earlier growth spurts in Japan, Taiwan, is written in the conviction that historical and Korea encouraged efforts to probe legacies rooted in the decades and centuries the domestic origins of recent dynamism.2 prior to the establishment of the People’s China’s unexpected rush toward higher Republic in 1949 continue to exert power- incomes invites similar questions. What cir- ful influence upon the evolution of China’s cumstances enabled the hesitant reforms economy. of the late 1970s,3 which restored only a Prior to the industrial revolution, China small fraction of the market arrangements led the world in economic size and in many stifled by socialist policies during the previ- dimensions of technology. Writing before ous three decades, to launch the economy the onset of China’s current boom, ear- on a steep and durable growth path? How lier generations of scholars (Levy 1953, could several hundred million Chinese vil- Feuerwerker 1958) attributed China’s sub- lagers escape from absolute poverty within sequent reversal of fortune to the preva- 10–15 years following the onset of economic lence of nepotism, corruption, and other reform during the late 1970s with, if any- elements of Chinese society that prevented thing, declining external support as former a vibrant response to European expansion collective institutions withered away? How of the sort attained during Japan’s Meiji did the number of so-called “township–vil- era (1868–1912). Subsequent events have lage” enterprises (TVEs) jump from 1.5 mil- overtaken these views; some observers now lion to nearly 20 million, including many promote the opposite approach, attribut- ing Asian prosperity to the “Confucian val- 1 Names of authors working in North America and ues” formerly seen as obstructing economic 4 Europe and publishing in English are presented Western dynamism. style (e.g. Debin Ma). Names of Chinese and Japanese authors based in Asia and writing primarily in Asian lan- guages appear in the East Asian fashion, surname first, with the surname capitalized for clarity (e.g. WU Chengming). 2 For Japan, see Smith (1959, 1988), Ohkawa and 4 See Tu (1996). The economic success of China, Rosovsky (1973), Yamamura (1997), and Hayami, Saito¯, Taiwan, Hong Kong, Singapore, and overseas Chinese and Toby (2004); for Taiwan, see Hsueh, Hsu, and Perkins communities despite continued reliance on personal ties (2001); for Korea, see Cha, Kim, and Perkins (1997). (guanxi) and other cultural practices long seen as incom- 3 Studies of China’s economy during the reform era patible with modernization undercuts this approach. include Riskin (1987), Bramall (2000), Chow (2002), Lin, Retired Singapore leader LEE Kuan Yew and others now Cai, and Li (2006), Naughton (2007), and Brandt and point to “Asian values” as bulwarks of growth, prosperity Rawski (2008). and technological progress. Brandt, Ma, and Rawski: From Divergence to Convergence 47 More recently, James Lee, LI Bozhong, deepen our insight into historical realities Kenneth Pomeranz, R. Bin Wong, and and vice versa. others identified as the “California school” Several specific questions will help to unify have reshaped perspectives on the dyna- much of what follows: mism and development of the mid-Qing (1644–1911) economy. Pomeranz, in par- 1. Why was China unable to capitalize ticular, sees little difference in economic on its early economic and technologi- structure or per capita income between the cal leadership? Why did China become most commercialized regions of China and a laggard among major global econo- Europe prior to the British industrial revo- mies by the nineteenth century, if not lution. With development in both regions before? constrained by limited land, Pomeranz attri- 2. Once the Industrial Revolution was well butes Britain’s head start in industrialization underway, a succession of countries in to cheap coal and superior access through Europe, Asia, and the Americas fol- its colonies to land-intensive goods, rather lowed England’s lead. Why was China than to any advantage linked to political, slow to take advantage of economic legal, or other institutional factors (2000). opportunities linked to the dissemina- These bold claims have kindled intense con- tion of new technology? troversy, sparked efforts to expand empirical 3. How do we explain the timing and comparisons spanning Europe and Asia, and unique scale of China’s post-1978 catapulted Chinese economic history from breakthrough? a narrow specialty to a central concern of global historical studies.5 The first of these questions is the most The present review6 seeks to illuminate difficult to answer. We are more optimis- the historical antecedents of recent Chinese tic about tackling the second and the third. dynamism, to specify the constraints that hin- We anticipate—and here we disagree with dered the realization of China’s latent poten- the California school—that institutions will tial prior to the start of the recent growth figure prominently in explaining both the spurt, and to track the gradual relaxation of long delay in the onset of rapid growth and these constraints during the course of the the mechanisms underlying China’s recent twentieth century. Our analysis of China’s growth spurt. current boom, as well as the modest advances We begin with a survey of the long-term of the late nineteenth and early twentieth evolution