Monday, December 29, 2008

Farewell To Alms (II)

Gregory Clark has a reply to his critics up.  I wrote about him before here.  His big idea is that the traits required for success in a modern economy, like performing repetitive tasks after basic needs are met, are not 'natural' but rather diffuse across populations which are in a Malthusian stress environment.

Apart from some nasty academic bickering, there's a lot of interesting stuff in his reply.   Agriculturalists in New Guinea seem to fight as often as hunter-gatherers, while other settled people tend to be relatively peaceful.  The big change here is probably political, as villages take on tribal and clan identities and go to war as parts of larger agglomerations.  There's probably enough variation along this degree to see if that relation holds in general.  So rather than just Hunter Gatherer--building Pyramids, there are a few steps in between.  

There are other interesting simulations testing the degree in which genes/culture can diffuse, and some calculations suggesting that hereditary plays a big role.  Ultimately, this is never going to be entirely convincing until people actually find the genes in question, and nail down which characteristics are best at predicting economic success.  If IQ by itself can do so well, then more disaggregated measures--verbal, mathematics, however Howard Gardner you want to get--should be able to do even better.

Clark also takes up a bit what I see as the biggest hurdle to all distance-from-agriculture-based explanations: The income variance across Asia.  Agriculture has been dominant in East and South Asia for some time now, so you need to bring in political explanations to explain why Japan is so rich and North Korea so poor, and why relative income has changed over time.  Peasants from these populations sent overseas as indentured servants tend to do well--after Britain abolished slavery, populations largely from Tamil Nadu and North India were sent all over the Carribean, Indian Ocean, Africa, and Southeast Asia and are orders of magnitude better off than populations in India.  This would imply substantial "slack" available in long-standing agrarian economies for capitalist buildup.  Also see Yasheng Huang and the entrepreneurship of rural China.  

Clark addresses this issue in his book by recourse to low labor productivity across Asia suggesting that supply is slow to respond to economic incentives.  But as Deepak Lal shows, indigenous Indian responses during British occupation was fairly quick quick.  Cotton mills went up about a century before the Tigers, taking advantage of free market, free trade competition spread by the Raj.  Sure, you can say that only the banias, Marwaris, Gujarati entrepreneurs, Jains, Parsis, etc. took over as entrepreneurs, but by the Smart Fraction theory that should be enough.  

The proximate cause of lower labor productivity with respect to early Japanese competition is that the Japanese mills domiciled female laborers and made them work all day.  In India, a coalition of English philanthropists and mill owners pushed very labor-friendly regulations limiting hiring and firing, encouraging strikes, and so forth.  The English mill owners of course wanted to kill the competition, but political economic considerations kept and built up these laws after Independence.  The core of Arvind Panagariaya's great new book is that these regulations raise the cost of labor--India's greatest endowment and source of comparative advantage--pushing the manufacturing sector into skill and capital intensive production.  With the end of industrial licensing and ability to trade on the world market, these new industries are soaring, while the bulk of the garments industry--in contrast to places like Bangladesh, old Taiwan--remains small scale.  Foreign trade looks very important here, as central as it was to just about every growth explosion except America.  

So the story goes that you need enough heterogeneity in the population to allow for natural capitalists and entrepreneurs, who finance and start industries in an agrarian society.  If local farmers are their only customers, they go bust.  But if they start producing for the world, they take advantage of economies of scale and ramp up productivity.  Everyone gets richer, the Flynn effect kicks in, and more people are drawn in.  Not so great at explaining places with significant resource endowments, or places where agriculture growth has been dominant (Denmark, South Germany...), but for those places interaction and trade with the industrializing segments was crucial.  

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