A Farewell to Alms

Gregory Clark's book is one the best I've read on why some countries are rich and others are poor. There is plenty of excellent data, though the discussions are not particularly satisfying. Very similar to Maddison, he argues that the roots of the economic growth explosion that began in Europe go deep, and were fueled not by machines, but rather a number of cultural and genetic changes which shaped labor productivity and views towards entrepreneurship

The discussion on institutions is a shaky. Clark portrays England as having a Washington Consensus level of institutional development, with property rights and the like, for much of its history. The failure of medieval institutions to foster growth is taken as evidence that institutions do not matter greatly, but are rather responsive to local conditions. This attacks a whole trend to see institutional differences (ie between East and West Germany) as the source of economic variation. Institutions, however, are more complicated than an checklist of rights to secure. Rodrik will point out the general failure of the Washington Consensus to establish the sorts of institutional arrangements that are critical to growth, and the importance of eliminating salient roadblocks to allow growth. The rule of William of Orange, for instance, was crucial to establishing Parliamentary control, and the subsequent interest rates on government bonds--a key measure of the development of society according to Clark--dropped dramatically afterwards.

Clark is most convincing when he argues that differences in labor productivity and the spread of values down classes are powerful explanations for growth. Though he links these changes to a genetic-cultural complex, it's not clear that cultural variations explain economic changes. If productivity in many economies was so bad in the past, how did it suddenly change recently in places such as East and South Asia? Broad changes in culture or genes are unlikely, while infrastructure and institutions changed drastically during that period. There is clearly something going on there though--the time since a group has first used agriculture seems to predict current wealth, which presumably reflects the extent to which thriving in modern society requires a shift in mentality. Clark is right in suggesting that there are basically two periods in history--before economic divergence, and after. There are too few people examining what caused the shift from one to the other.