Thursday, August 7, 2008

The World Economy: A Millennial Perspective. By Angus Maddison. Paris: OECD Development Centre Studies, 2001. Pp. 381. Rs. 1295.00 (INR), paper.

Reviewed by: S. Chinngaihlian

To meet the resurgence of interest in long-term economic growth, and consequently, the need for long-term data on the countries of the world 'The World Economy: A Millennial Perspective' provides data on GDP and population growth for the past millennium, enables quantification of long-term changes, and is therefore of exceptional interest and for research it is a must.

World Economy is a continuation of Maddison's 1995 book, Monitoring the World Economy, which covers the period 1820-1992 (which itself was a continuation of his 1991 book Dynamic Forces in Capitalist Development). What is new in World Economy is that the data are provided from the year 1000 (although not for all countries). The author attempts to quantify the economic performance of nations over the very long term, identifying the various factors which explain the success of the rich countries, and exploring the obstacles that hindered progress in less developed regions. He places the main onus of economic performance over the past millennium on (a) conquest and settlement, (b) international trade and capital movements, and (c) technological and institutional innovation. The book is organized into three chapters and six appendices.

In the first chapter, the author presents contours of world development by analyzing the trends in population and GDP per capita growth from 1 AD to the present, but focuses mainly on the last millennium. Comparing the two millennia, he shows that in the last millennium, the world's population increased 22-fold, world GDP nearly 300-fold and considerable improvement in per capita income as also in life expectancy, while during the first millennium there has not been much improvement in these parameters.

In 1000 average life expectation at the world level was probably about 24 years, by 1820 rose to about 26 years and by 1998 grown dramatically to 64 years. Improvement in per capita income and life expectancy has been more pronounced in Western Europe, North America and Japan. In 1999 the gap of life expectation between the lead country, Japan with 81 years and Africa with 52 years was distressingly wide as compared to 61 and 38 in 1950, 44 and 24 in 1900, respectively, but much smaller compared to their 15:1 spread in per capita income level in 1999.

Quantifying economic history the author provides comparable estimates for literally all countries of the world for very long periods, going back to 0 AD for all major regions, to 1000 for most major countries, and to 1950 for literally all countries of the world except the former Soviet Union and eastern Europe, which are covered from 1973 to 1998. These estimates are based on an extensive and meticulous use of primary and secondary sources, well documented in the volume. Estimates of GDP per capita provide fascinating insights into the rise and fall of nations as world leaders in GDP per capita. Till 1000 India and other Asian nations had highest per capita income in the world. Later, during the first two thirds of the 16th century (and before) Italy was the richest country in the world, well above that of its closest rival, Britain. Around 1564, the Netherlands overtook Italy and remained the world leader until around 1836, a very long stretch, replaced by the United Kingdom during the last two thirds of the 19th century. Around 1904, the United States replaced the United Kingdom as leader, a situation that still continues today.

Maddison's estimates of per capita GDP which throw some light on India's relative economic performance make an interesting reading. As tracked by Maddison's during the years 0 to 1000, India was pretty much the pre-eminent economic power in the world, with China trailing close by. India had the world's largest economy with a 32.9 per cent share of world GDP in the 1st century and 28.9 per cent in the 11th century. In 1700, when most of India was ruled by the Mughals, it had a 24.4 per cent share of world GDP as against Europe's share 23.3 per cent, fell drastically to 3.8 per cent by 1952.

In the second chapter, Maddison attempts to explain changes in the character of economic leadership that have occurred over the past millennium. He presents four case histories: the Venetian Republic, Portugal, the Netherlands, and Britain, and shows how misleading it is to treat the Western experience as homogeneous. This chapter describes at length the geographic discoveries and trade that took place in the middle of the millennium; it also focuses on the impact of British expansion on America, Africa, and Asia.

Venetian Republic was the richest and most successful West European economy from the 11th to the 16th century. Portugal was never as rich as Venice, but developed ship design and navigational techniques which made it possible to open up new routes to commercial contact with Africa and Asia. Portugal pioneered European expansion into the Atlantic, discovered Brazil in 1500 and began three centuries of colonial development in the Americas.
The Netherlands was the European leader in terms of per capita income between 1600 and 1820, with a high degree of international openness and specialization, and a very large trading Empire in Asia. The United Kingdom followed the Dutch model of international specialization and commercial development, built a much larger colonial empire, and was a pioneer in industrial and transport technology.

The fall of Europe from the 1st to 10th centuries was mainly on account of the collapse of large scale cohesive political unit which was never resurrected, disappearance of urban civilization where feudal elite extracted an income in kind from servile peasantry and virtual disappearance of trading links between Western Europe, North Africa and Asia. However, between 1000-1500 Western Europe's population grew faster than any other part of the world, recovering and forging ahead in manufacturing and commercial activity. With increased food security, there were big advances in banking, marine insurance, quality of intellectual life and spread, and at the end of 15th century, the introduction of printing.

With the divergence of growth paths, international inequality, as represented by the ratio of per capita GDP of the richest region to the poorest, experienced more or less steady increase. From a situation of virtual world income equality in 1000 (1.1:1), the inequality ratio by 1998 had reached 19:1. Only in the 1950-73 period when the per capita GDP growth in Asia excluding Japan (the region with the lowest per capita GDP) outpaced per capita growth in the western offshoots (the region with the highest GDP per capita) did the inequality ratio fall.

The third chapter examines the world economy in the second half of the 20th century, a period for which data are easier to find, but still not as easy for some non-Western countries, analyzing the economic performance of the advanced capitalist countries, resurgent Asia, the problem economies of East Asia, West Asia, Latin America, the former USSR and Eastern Europe, Africa. During the Second half of the 20th century the world economy performed better than any time in the past. World GDP increased six fold with an annual average growth of 3.9 per cent compared with 1.6 per cent during 1820-1950 and 0.3 per cent during 1500-1820. Volume of commodity trade rose faster than GDP. The ratio of export-GDP rose from 5.5 per cent in 1950 to 17.2 in 1998. Flow of foreign investment to the poorer parts of the world (Africa, Asia excluding Japan and Latin America) rose significantly resulting in the rise in stock of foreign capital from 4 per cent to 22 per cent of their GDP. Resurgence in international migration wherein, Western European countries absorbed more than 20 million immigrants and the Western Offshoots 34 millions.

Maddison's path-breaking quantification of the economic developments in the underdeveloped countries however makes a depressing reading. He shows that with the exception of what he calls resurgent Asia (China, South Korea, Taiwan, Singapore, Hong Kong, Thailand, Malaysia and eight other somewhat less successful Asian countries), all regions of the underdeveloped world have experienced a much worse economic growth performance in the last quarter of the 20th century than in the third quarter (Chart 4). Growth in GDP per capita fell from an average annual rate of 4.1 per cent in the 1950-73 period to 0.6 per cent in 1973-98 in other Asia, from 2.5 per cent to 1.0 per cent in Latin America, from 2.1 per cent to 0 in Africa, and from 3.5 per cent to -1.1 per cent in Eastern Europe and the former USSR. Only in resurgent Asia did growth pick up, from 2.6 per cent to 4.2 per cent. The importance of resurgent Asia is that it demonstrates that catch-up to the developed world is feasible for underdeveloped countries if the right conditions are present.

The region with the worst economic performance in the second half of the 20th century has been Africa. Ten out of 57 African countries were worse off in terms of per capita GDP in 1998 than in 1950. The average African today is no better off that the average Western European nearly 200 years ago. One factor behind this situation has been the corruption of African elites, where 40 per cent of African private wealth now consists of assets held abroad and the huge external debt since 1980.

The extensive appendices provide invaluable information on world population, GDP, and GDP per capita for all parts of the world for very long time periods with over 200 tables. Appendix A presents data on 1820-1998. Maddison explains the way the data are converted into PPP values, permitting a comparison between countries and over time. He also explains the differences in the population and GDP data between World Economy and his 1995 book. Appendix B is the main new offering of World Economy. It presents the data from 1500-1800 as well as aggregate data from the year 1, shows the alternative estimates of world population, comparing his results with other research. The other four appendices (C, D, E & F) present the GDP estimates for 1950-1998, the data for the Eastern European countries during the transition, data on employment, labor productivity, and exports for 1870-1998.

Maddison tremendous works and insights into the drivers of economic growth through his comprehensive quantitative analysis of the history of the millennium hold great relevance for contemporary policy makers. In World Economy Maddison has presented data from secondary sources as well as from his own calculations. The accuracy of his data might occasionally be questionable, since some of these are merely based on guesswork and proxy procedures, though these assumptions and procedure have been described transparently so that the dissenting reader can augment or reject parts of the evidence or introduce alternative hypotheses.

Analysis of GDP trends across regions and countries make significant and interesting revealation that India was the pre-eminent economic power in the world till as late as 17th century. India, in terms of share of world GDP was the highest till the 1st millennium with a share of 28.9 per cent, second only to China during 1500-1600. Even during the Mughal period in 1700, Indian share amounted to 24.4 per cent to world GDP which was higher than the richest European nation. Thereafter it started falling to 16 per cent further to its lowest 3.1 per cent in 1973 (Table B-20, p-263). So ideally India should be termed as re-emerging rather than a developing economy. While the author narrated the sharp decline in some Asian and rest of the African economies in the second half of the 20th century, reasons for this need to be explored further. An interesting hypothesis could be whether the colonial regime led to devastation of this magnitude?

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