Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance (Ohlin Lectures)
Deepak Lal
MIT Press, 1998
I felt I had to read this book twice to fully appreciate its message, yet it is not difficult to read, indeed to do so is easy and a pleasure. It must have been equally a pleasure to attend the lectures on which it is based. But a large accumulation of facts, each one of which can be seen to be relevant to the thrust of the book, are difficult for the reader (or anyway, by me) to hold ready to slot into a logical structure to be reproduced in a satisfying synthesis in the memory when the book is finished.
As for the “unintended consequences” of the title, these are the results of social structures, political motives and individual actions which often have quite different aims: “We have known since Adam Smith that an unplanned but coherent and seemingly planned social system can emerge from the independent actions of many individuals and in which the final outcomes can be very different from those intended. All this, I hope, is uncontroversial,” writes the author (p. 7). Well, I hope so too – but “we” needed Hayek and the collapse of Communism to convince a lot of other people.
Lal seeks to find an answer to the question why the explosive development that characterised the Industrial Revolution took place in Western Europe, though he merely mentions Great Britain as its origin, without further analysis (p. 20). Why not in the other great areas of civilization – India, China or Islam? He proceeds to examine the civilizations that arose after the development of agriculture from about 10,000 BC; pastoralism as a parallel development is mentioned but left undiscussed, presumably because it is basically predatory on and if successful, assimilated into neighbouring agricultural civilizations.
Such civilizations typically reach an optimum through what Lal labels Smithian growth, where greater efficiency is generated by division of labour and by trade, capitalism being the result (according to the precepts of Adam Smith). They are, however, limited by having only human and animal power and organic, rather than mineral sources of fuel. The breakthrough to Industrial Civilization, technologically based with mechanical power and virtually unlimited energy from mineral resources, Lal calls Promethean growth and this was evolved only in Western Europe. The question is: why? Lal surveys other civilizations, both in time and geographically, to clarify this. The answer seems to be that societies evolve to where the governing class, indeed, in a sense the whole non-producing class, including the military, the priesthood, servants and hangers-on, has achieved a state from which it cannot envisage a change for the better. Lal calls this the “high equilibrium trap” (p. 34). The ideology supporting such a society (in fact, any society) he terms its Cosmological Belief, something rather broader than its religion, though that is often its basis. This, in the case of India, is the caste system; in China, Confucianism, embodied in the mandarinate, with its contempt for trade and technology, while in Islam, the rational, secular, intellectual process has lost out against religious dogmatism. Though this summary is an over-simplification, it can be seen that in each of these societies, merchants and financiers held low status and their property (like everyone else’s) had low security from the “predatory state” (another of Lal’s useful concepts) which renders any capital accumulation difficult if not impossible.
There are some points that come to mind. The success of any Smithian growth may be masked as population growth, so that a larger number of people have the same (albeit low) standard of living. This was the case with both India and China. Although Lal treats India as a “cosmologically” Hindu, caste-ridden society in its failure to achieve Promethean growth, Islam, which conquered much of it, added its responsibility for stultification. He also dismisses “the nationalist hagiography that there were any prospects for indigenous Promethean growth emerging in medieval India … blocked by British colonialism” (p. 35). China seems to have suffered from being too united, too self-sufficient (and so with scant interest in the outside world) and too successfully centralised. Thus when coastal traffic was obviated by the building of the Grand Canal, the navy was simply abolished, though it had explored and dominated the seas as far as Africa in the fourteenth century. Unlike Europe, whenever China did fragment, it either descended into anarchy until reunited, or the successor states kept the old ethos. Technologically, it could have achieved “take-off”; it had, for example, discovered coke-smelting in the eleventh century, and it produced more, and cheaper iron then than Europe managed to do until the end of the eighteenth century. This situation, “one of the great historical problems” is known as the “Needham problem”, forced upon, and named after, the biochemist turned historian, whose massive, multivolume work costs more in price and time than the general reader would be willing to spend on it (p. 42). It can only have been the mindset of the Chinese governing class, a high-prestige, meritocratic, self-recruiting bureaucracy, that prevented the population it ruled, with its inventiveness, political security and size, from exploding into Promethean growth. In a later chapter (Ch. 8) Lal explains the Smithian growth of an even more isolated Japan and how its decentralised social structure prepared it for imitative Promethean growth when it encountered the West.
When he comes to consider Europe, Lal prefers to identify this ultimately successful civilization with Christendom, and Western Christendom at that, as distinct from the Eastern Orthodox branch. His search for the origins of its success goes further back than “that moment of self-generating expansion … in the late eleventh century” (p. 81), to an imposition of papal dominance which, in safeguarding church property, altered the structure of the family from the extended type to the nuclear. “The temporary or permanent delay in marriage … allowed the West uniquely to have some economic surplus available for investment growth, however small, which was not eaten up by population growth” (p. 87). One of the many myths that Marx and Engels helped put into circulation (p. 86) was that the Industrial Revolution brought the nuclear family into existence; in fact, it seems more likely that the reverse was the case. The evolution of the nuclear family led to Individualism, a social concept Lal considers sufficiently important to merit a whole chapter (Ch. 6), though it might be seen to be a portmanteau for all philosophical changes brought about by the Renaissance and Reformation. In a fairly long discussion (pp. 89-94) Lal also involves the Western guilt” culture as another (and related) factor in our progress to Promethean growth, for “without the fear of purgatory and the hope of the Last Judgment, the Western legal tradition could not have come into existence” (p. 94).
While such sociological factors are valuable insights, the practical, commercial reasons for the safeguarding of property rights are not emphasised, and such discussion as there is on the emergence of states solidly based on their financial and mercantile classes is relegated to a very technically-worded Appendix. Florence and Venice do not appear in the Index, or any of their rivals, and while the Spanish and the Portuguese never developed commercial empires, since their bureaucracies successfully suppressed their mercantile classes, the Dutch and the English certainly did. It may be that Lal considers these empires to be merely products of Smithian growth, with their own high equilibrium traps and the “predatory state” apparatuses for diverting profits away from further useful investment; if so, he has failed to describe and explain the Promethean growth that followed. I cannot help feeling that this is a serious omission, for it implies that Lal believes that the Western European civilization he has designated as successful moved smoothly, uninterruptedly and uniformly from Smithian to Promethean growth. This was definitely not the case, and the origin of the Industrial Revolution in Great Britain, precursor of Promethean growth worldwide, requires some explanation which is not given here. This is surely important even though, as Lal points out, the growth mechanism can be adapted to other societies with different Cosmological Beliefs (p. 175). And, it must be said, without undergoing the painful journey of discovery.
Leaving this aside, or taking it for granted, Lal examines the prospects for proper, capitalist advance in the economies of India and China, following the demonstrated failure of Fabian socialism in the one and Communism in the other. For this Lal borrows a catchphrase from The Economist: “commitment [by the people at the top], competence [enough educated people] and consensus [the general population willing to try or put up with change]” (p. 131). “Competence” is the only component undoubtedly present in both. Lal notes that: “It might appear that a dictatorship committed to reform would find it easier to do so that a democracy” a situation that favours China. For the political and intellectual elite of India there is a sort of nostalgic “Nehruvianism”, less likely to be paralleled by nostalgic Mao-ism in China. Again, the general population in China may be open to change, while in India the horde of small bureaucrats, linked to caste and status, will be more recalcitrant in accepting redundancy. The remaining East Asian economies are dealt with only in passing.
It must be said that there are considerable, presumably deliberate, omissions. Islam does not come in for a second look after its original historical analysis, beyond Lal’s pointing out that where progress has occurred – Malaysia, Egypt and Turkey – the state has been separated from religion, and everywhere there are signs of an Islamic backlash. Africa, with four references in the index to mere mentions, is not discussed at all. Latin America has produced many examples of efforts repeatedly aborted for reasons crying out to be explained or even discovered. It may be that in a book and lecture series dealing with reasons for economic progress and success, a digression into stagnation and failure would merely distract the reader from its basically constructive, even optimistic message.
Perhaps too optimistic? No misgivings are expressed about the results of Promethean growth, and by these I do not mean the jeremiads of those Lal dismisses as Ecofundamentalists. Yet success brings its problems, just as does failure. Some are hinted at, such as the claim for “rights” (p. 157) and the weakening of the concept of individualism. The modern “predatory state” can be just as predatory in the guise of the welfare state, abetted by a democratic process which tends to hoodwink the voter into believing he can get someone else to pay the expenses for his health, education and old age. It may even be that the abolition of the extended family so long ago may be exacting a penalty at last in enforcing the perception on parents that the rearing of children brings no direct benefits, resulting in the withering away of the very society, the welfare state, to which they look instead for support. An “Unintended Consequence” indeed! Remember: the Greeks had a word for it – Irony.
Ah, what a shame Lal doesn’t get into the question of England’s particular role in the breakout to Promethean growth. At the risk of being tedious on this point, I would again urge people interested in this question to read Alan Macfarlane’s The Riddle of the Modern World, particularly his last section on Ernst Gellner and the “conditions of the exit”, that being Gellner’s term for the breakout from Smithian to Promethean growth. On the question of the nuclear family as the stimulus to (rather than the consequence of) the Industrial Revolution, read Macfarlane’s Origins of English Individualism, and his Marriage and Family in England. The latter suggest that the pre-existance of the nuclear family in England predated the Church-driven changes that Lal credits, and in fact may have been survivals of earlier Germanic practices, as was English common law. The idea that an industrial revolution could have emerged from the Smithian-optimal military-buraucractic states of the Continent is almost as unlikely as the conceit of a Promethean takeoff in pre-conquest India that Lal rightly dismisses.
Ah, what a shame Lal doesn’t get into the question of England’s particular role in the breakout to Promethean growth. At the risk of being tedious on this point, I would again urge people interested in this question to read Alan Macfarlane’s The Riddle of the Modern World, particularly his last section on Ernst Gellner and the “conditions of the exit”, that being Gellner’s term for the breakout from Smithian to Promethean growth. On the question of the nuclear family as the stimulus to (rather than the consequence of) the Industrial Revolution, read Macfarlane’s Origins of English Individualism, and his Marriage and Family in England. The latter suggest that the pre-existance of the nuclear family in England predated the Church-driven changes that Lal credits, and in fact may have been survivals of earlier Germanic practices, as was English common law. The idea that an industrial revolution could have emerged from the Smithian-optimal military-bureaucractic states of the Continent is almost as unlikely as the conceit of a Promethean takeoff in pre-conquest India that Lal rightly dismisses.
Thanks for the review. Interesting; this sounds worth reading.
Be interesting to compare with Davis Landes “The Wealth and Poverty of Nations”, which I recently finished and was very impressed by. Looked at the social and historcal roots of economic success, so it sounds like they cover similar ground. Of particular relevance to current affairs, Landes consideration of problems of Arab Islamic societies in adapting to modernity, and the role of women.
As a previous book by Landes was “The Unbound Prometheus : technological change and industrial development in Western Europe from 1750 to the present”, the use of the phrase ‘Promethean growth’ by Lal makes me wonder if there are some shared ideas.
Certainly India and China were and are great civilisations, and both were highly inventive, although in different ways. The Chinese were practical. The Indians more metaphysical – they invented the concept of zero, for example, among many other things. But Islam as a great civilisation? One wonders how this myth got started.
Islam started around 1200 or something and from then until now, they haven’t invented a single physical thing or a single concept, the ignorant witterings of thought fascist Trevor Phillips notwithstanding.
Verity,
You need to check your history. Islam began circa A.D. 650 and for the next 400 years or so was easily the most intellectually dynamic (and militarily aggressive) culture in the world. Much of the knowledge that laid the foundation for the Renaissance were either transmitted or created by Islamic sources. For example, the words algebra and chemistry are both derived from Arabic due to Islam’s dominance in both fields in the Medieval period.
The Islamic worlds long slide began with the rise of the Ottoman Empire consolidated the core Islamic lands into one monolithic political entity and begin to institute a reign of internal suppression and conformity. For example, the Ottoman’s outlawed all printing presses.
I think the example of the Islamic world dovetails rather nicely with Lal’s premise that centralized political authority strangles economic innovation.
OK, so I was off some years about the onset of Islam, but I still don’t buy that they had a great civilisation. Algebra was developed by the ancient Greeks around 3,500 years ago. Does the name Pythagoras ring a bell? Mathematics came out of India and passed through the Middle East on its way to Europe, where it was employed to build great cathedrals and bridges.
Given that all they had to work with was sand and camel pee, what great chemical experiments did they perform?
I’d have to agree that Islamic cultures were not intellectually moribund. Setting aside Arabic numeral (in fact Indian) and the recent plethora of exagerrations of Medieval Muslim achievement, there was a notable lineage of intellectual achievement from the Umayyad and Abbassid periods.
An outstanding example is Alhazen (al-Haytham) ; there are others.
The achievement of the Arabs in technology, rather than science, were perhaps less impressive. What is most notable, though, is the regression of the bulk of the Islamic world to technological and social stagnation under the Ottomans and their contemporaries.
It may well be that this was the consequence of the growing prohibition of theological and philosophical innovation.
I would disagree with Shannon Love on the question of a monolithic polity, though. The Islamic world contained a number of political entities alongside the Ottoman: Morocco, Persia, Moghul India, Central Asia. Even the nominal Ottoman rule over Egypt North Africa was often more theoretical than real.
I suspect (Landes, who I referred to in an earlier post is interesting here; also John Hall’s “Powers and Liberties”) that the main constraint was a common pattern: absolute rulers, over and above a society where legal rights against the ruler were virtually nil.
Societies also had a second elite, a self-perpetuating group of clerics who appear to have combined many of the functions of lawyers, relgious authorities, civil magistrates and civil courts.
The ruler kept the main instruments of violence in his hands, and a bureaucracy mainly cocerned with taxation. The mullahs, whose estates and privileges were guaranteed by shah or sultan, handled the everyday management of society.
As part of the arrangement, the mullahs upheld the duty of submission to the ruler, while the ruler imposed theologiacal orthodoxy.
Neither side had any use for technological innovation, or the mercantile classes, who were generally just seen as ripe for extortion if they became too prosperous, while a dirt-poor and illiterate peasantry was ideal.
Also, no Western style aristocracy with heritable estates and a good deal of legal and political security, who had an interest in increasing the rents and production of their lands, and thus producing trade goods.
The pattern established during the post-Medieval period appears to have deeply affected Arab-Islamic societies (along with pre-existing patterns of clan obligation etc) and to have led to a major problem in adapting to modernity, and in some cases producing a pathological response to a perception of “unnatural” Western success.
I have long thought that human organizations of many different kinds tend towards adopting the various characteristics of a feudal structure as they mature. The group identity, personal loyalties, stratified structure, and resistance to change appear again and again in so many different cultures and contexts.
My guess is that Mazlow’s hierarchy is satisfied by several of these aspects, especially safety and security for the mass of people, and those at the top can act out their “selves” within certain boundaries set by each context. This applies to private organizations as well as societal structures. The well known theory of span of control fits with both the King and his privy council, and the chairwoman and her board of directors.
One of the reasons individualism has been so hated by collectivists of all kinds is that a predominately individualistic society upsets much of this stability and balance. One cannot safely make judgements about people based purely on their parental line, or social status. The son of your butler can be the next governor, or a college professor, or the scientist who discovers a new process that makes your family business obsolete.
It isn’t difficult to understand the hostility of established elites and organizations to this type of never ending turmoil. And it isn’t difficult to see that they understood the source of the danger much better, and more quickly, than the bewildered mass of society, who could only vaguely understand that the mill they used to depend on was now closed, or the ferry service that provided their village with its income had been replaced by a railroad bridge. It is easier to condemn the railroad “robber barons” than to figure out who has been holding everyone’s progress back.
Hatred of the individual who changes things and makes life more complicated goes back into the dimness of time. Repression of anyone who tries to break out of the traces is the rule in most cultures, even our own, which supposedly exalts the individual to a previously unheard of degree.
It is the recognition of the individual as an actor with certain rights and freedoms that is the key. That recognition can only be protected by a carefully designed, constitutionally limited system of laws, courts, and other social structures which clearly identify the individual as the source of all productive value.
It is the struggle over that last issue that has consumed humanity over tha last few centuries, and cost the lives of countless millions. Ideas have very real consequences. The 20th Century was a lab experiment in the consequences of collectivism. We cannot allow the results of that experience to be glossed over.
I am surprised that in all this discussion there is almost no mention of property rights. I find it hard to believe that secure, individual property rights were not essential to the explosion of innovation in the West. The power of the state to arbitrarily seize property is certainly a deterrent to real innovation. Why create something amazing if the very fact that it is amazing will tempt the state to seize it?
I am also surprised by the persistent notion that democracy may be a deterrent to economic progress (as in the comparison of India and China). Lipset and Barro seem to have taken their toll, despite overwhelming historical evidence to the contrary. Ancient Greece, pre-imperial Rome, and England all developed democracy along side innovative and expanding economies. Moreover, all the most oppressive economic disasters in history have occurred in totalitarian societies, such as the USSR and Maoist China.
In fact, there may be reason to believe that the development of property rights has been linked to the development of democracy, in that both involve a dispersal of power from the state to its citizens.
I would be happy to bet that per capita income in India will exceed that of China within 30 years. China’s central government still “manages” the Chinese economy and deludes itself with the idea that this management is key to their recent success. The people of India have learned the hard way that their government can not “manage” their economy.
Perhaps the greatest single political act promoting free markets in the history of the world was Great Britain’s repeal of its corn laws. That was accomplished by democratic process through intellectual debate. Thus, there is no reason to abandon political freedom in order to secure economic freedom.
Verity,
The greeks did not invent algebra, they invented geometry. The innovation of algebra is the concept of the unknown variable. If the Indians invented zero, the Arabs invented “x”.
The Islamic world excelled, however briefly, in several major fields such as metallurgy. Perhaps you have heard of Damascus steel?
It might help to remind you that the era of Islamic dominance occurred from A.D. 750-1100 which in Europe was called the Dark Ages. Civilization huddled around the lands and buildings of the former Roman Empire. Northern Europe, where the Empire never reached was a land of barbarism without cities, stonewalls roads or writing. Anybody from the civilized lands of Islam, India or China would have laughed out loud at the idea that those savage northern Europeans would one day effectively conquer the world.
Lal’s et al point is I believe that intellectual and technological excellence are alone not sufficient to ensure the Promethean breakthrough. It also requires certain political and cultural attributes that Europe had but other lacked.
Shannon Love – “the era of Islamic dominance occurred from A.D. 750-1100 which in Europe was called the Dark Ages.Civilisation was huddled around the lands and buildings of the former Roman Empire” … and “Northern Europe, where the empire never reached was a land without cities, stone walls (sic, you spelled it stonewalls) or writing.
Where to begin? The Romans conquered Britain around AD 1. They had central heating, vineyards and the posher natives adopted togas as the de rigueur pret a porter.
You think Britain didn’t have cities in 750? Is that what you’re saying? Can you say Colchester, the capital before Londonium elbowed its way in, greedy eyes set on one day having a Millennium Dome and the exciting possibility of Ken Livingstone as mayor? “Huddled around buildings of the former Roman Empire” – 700 hundred years after the Romans went home? What are you talking about?
“Islamic dominance”? Where would that be, precisely? Of what?
Rick: good point, property rights are crucial. I think I did touch on it, but didn’t emphasise it enough. Islamic states (and China, IIRC, to a considerable if lesser degree) tended to have little or no effective legal defence for property (or person), if the ruler decided he wanted what you’d got.
In essence, the ruler was an grandiose bandit chief, a social super-predator, whose mercenary and/or servile soldiers was the foundation of authority, and whose capacity to mulct the populace went unrestrained so long as he did not interfere too much with the status of mullahs and tribe/clan heads.
European rulers may have frequently wanted the same power, but tended to be constrained by law, custom, and the readiness of nobles, church, burghers, even peasants, to resist with law and/or collective resort to arms if the king pushed his luck. And a realm where the king had alienated key sectors of the people was potential prey for a neighbouring monarch or internal usurper.
I think it ties in with Shannon Love’s point re “political and cultural attributes”. The legal/political inheritance of Europe, from Roman, Germanic tribes, and Juaeo-Christian traditions, all variously upheld (to some extent) individual property and legal rights, and at least some element of the consent of the free populace to their ruler.
Even with the atrophy of elective element of kingship, it was a common formula of oaths of accession for the ruler to swear to uphold traditional laws and respect “liberties”.
I would quibble with Shannon Love on one point ( I’d say I hate to quibble, but I’d be lying 🙂
The period 750 to 1100 saw steady advance in northern Europe. Granted, at the start most of the lands north and east of the Rhine and the Balkans were “barbarous”, but by the end it was virtually all organised into (relatively, for the times) well-organised states, with a literate clerical class and river and sea based mercantile system ready for the economic and urban expansions of following centuries.
Also, the Byzantine Empire continued to be a centre of Christian civilization, bridging Europe and Asia Minor, arguably at least somewhat akin to the rest of “Europe”, and certainly not one that China, Islam or india could have sensibly seen as inferior.
Re: Damascus steel, I may be wrong, but I’m pretty sure I read it’s very likely the technique originated in India.
Verity:
I’ve got to support Shannon Love to some extent here.
Between the fall of the Roman Empire in the west and the 12th century the “cities” of northern Europe were settlements of few thousand people. Compared to Ch’ang-an (c.2 million in 722), Constantinople (c. 1/4 million in 800), or the Islamic cities of Baghdad (c. 2 million in 814) and Cordoba (c. 1/2 million in 900), the largest cities in Europe were Venice (between 25 to 50,000 in 1200) and Rome (IIRC about half the size of Venice).
As for “Islamic dominance”? Where would that be, precisely”.
Well, in 771 the Umayyad Emirate ruled most of Spain.
The Abbasid Caliphate ran from the Atlantic coast of Morocco through North Africa, north to the Taurus Mts in eastern Anatolia, then to the Caucasus and east to the Indus and Central Asia.
If the rather anachronistic concept of “Europe” is set aside, Islam had conquered much of what had been considered the territorries of Roman Christendom: Latinate North Africa, and the Greco-Roman prefecture of Oriens (Egypt and Greater Syria). This included three of the five Christian Patriarchates: Alexandria, Jerusalem and Antioch ( the other two being Rome and Constaninople) and the almost as important city of Carthage.
The Zoroastrian Persian Sassanid Empire had been overthrown, and even a Tang Chinese army soundly defeated at the Battle of the Talas in 751.
Pretty impressive, I’d say.
The thing is, that this base, and the fairly impressive civilization it supported, never managed to develop the social and cultural basis for prolonged political, economic and technical evolution.
A combination of social factors mentioned in other posts and the Mongol and Turkic invasions terminated the relatively creative phase of Islamic cultures by the mid 13th century.
Though even after, the Ottoman Empire was able to finish off the Byzantines and was arguably the greatest single military power in Europe on land, if no longer at sea, until 1683.
Verity
Take a look at Rose Wilder Lane’s The Discovery of Freedom in which that great libertarian author chronicles the many achievements of Islam between 750 and 1100 A.D. It is quite an eye-opener.
It is important not to view Islam merely through the narrow prism of recent history.
I think that there is much to be gleaned in our current struggles in the West with Islamic radicals right now in paying much more attention to which Islamic peoples did what.
The Arabs get quite bent out of shape by the fact that most of the grand actors in the Golden Era of Islam, after the Prophet himself, were not Arabs, but rather Turks, Kurds, Persians, etc. The Saud and Wahab tribes were know-nothing, dirt eating barbarians from the empty quarter, who had no effective power outside their tribal lands until around 200 years ago.
They’ve been mad and resentful at their technological, cultural and economic betters all around them for a LOT longer than the US and Israel have been a gleam in Gods eye. They have been resenting foreign invaders Muslim, Christian and otherwise for a long time.
Why do you think they invented such an extreme form of Islam that defines most other Muslims as heretics and hence equally in the category of ‘other’?
David Mercer – You raise a good point. I know that Iranians and Turks look down on Arabs and register strong objections if one unthinkingly lumps them in with them. (I don’t think I know any Kurds.) Interesting, though, that the Turks are modern and secular and set their faces towards progress and the Iranians have hauled themselves back into rule by mullah.