Sunday, September 1, 2013

Too lucky to be rich

Brad deLong is posting "deleted scenes" from his manuscript on the economic history of the twentieth century, such as this one on why the twentieth century wasn't a Chinese century. After describing the ways in which China was economically, technologically, and socially behind in 1870, after being ahead in 1200, he looks around for answers, and includes this one in the list of possibilities:
Perhaps the root problem was that with triple-cropping rice strains the wet-rice fields were too fertile, the governmental bureaucracy too effective, and the avenues of establishment-oriented upward mobility to the striving and aggressive too open. After making a little money the logical next step was to buy some land. Because the land was rich, because labor was plentiful and cheap, and because the empire was (most of the time) strong internally, one could live well after turning one's wealth into land. One could also easily make the important social contacts to pave the way for one's children to advance further. And one's children could do the most important thing needed for upward mobility: study the Confucian classics and do well on the examinations: first the local shengyan, then the regional juren, and then the national jinshi. Those who had successfully written their eight-legged essays and made proper allusions to and use of the Confucian classics would then join the landlord-scholar-bureaucrat aristocracy that ruled China and profited from the empire. In the process of preparing for the examinations and mastering the material needed to do well on them, they would acquire the habits of thought and values of a Confucian aristocrat landlord-scholar-bureaucrat. Entrepreneurial drive and talent was thus molded into an orthodox Confucian-aristocratic pattern and harnessed to the service of the regime and of the landlord class: good for the rents of the landlords, good for the stability of the government, but possibly very bad indeed for the long-run development of technology and organization. Carlson (1957) quotes an imperial edict of 1724 condemning mining as a potential source of disorder and treason, for "[M]iners are easy to recruit but hard to disband. If mining is left to the initiative of merchants there wil be danger of crowds assembling and harboring treachery…"
There may be something to it, but it also has a troubling element. Look at the three basic factors laid out in his first sentence: fertile land, effective bureaucracy, and open avenues of upward mobility. If you were to ask a random person--or even a random economist--were those where helpful factors or harmful, they'd likely say that each of them was helpful. So why are they harmful here?

Is it the "too" that Brad inserts in front of each one? Each of these things is good, but only in moderation? In which case, how much of these good things is too much of a good thing? Pinning that down seems like a hopeless task.

Is it the synergy among them? The rest of the paragraph suggests that, but then it would be helpful if the opening sentence were explicit about that being the problem.

And in any case, this is interestingly reminiscent of the "resource curse." That's the idea that having lots of a natural resource (e.g., oil, or diamonds) can be bad for your economy. The supposed mechanism is that a resource like that encourages counterproductive squabbling over who will get to control the benefits flowing from the resources. It also encourages a kind of indolence: because your economy can get some wealth just by some relatively easy digging, you're not forced to develop a more diversified economy with a more econoically effective population.

The resource curse obviously can't be true in general. Britain was blessed with relatively large coal deposits, and its rise to global industrial hegemony happened at a time when coal was the key industrial fuel. The U.S. was blessed with all sorts of resources. Norway seems to have profited quite nicely off of its share of the oil and gas under the North Sea. None of these countries is in the same universe as the kind of poverty that worries proponents of the resource curse.

If there is nonetheless something to the curse, one of the key factors seems to be whether your society already had well-established, functional institutions when the wealth was discovered. If you're a weak, post-colonial state, the rush for oil might ruin your society, while if you have firmly rooted traditions of decent government, new-found resource wealth may spur other productive activities to take advantage of it.

But that only deepens the puzzle of Brad's proposed explanation. They have the rich resource, but they also have effective bureaucracy.

I'm not saying the explanation is wrong. It's just that it's worth thinking about what separates it from a "just so" story.

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