Wednesday, September 12, 2007

Conclusions on Gregory Clark's 'Farewell to Alms'





Gavin Kennedy

The last four chapters of Gregory Clark’s A Farewell to Alms’ are now under debate at Marginal Revolution (here).

The four chapters are not as comprehensive a conclusion as I was looking for; perhaps reading it in sections over three weeks (so much else intrudes!) is not the best way to grasp the magnitude of his hypotheses of the ‘labour quality’ argument and ‘downward mobility’. I am not convinced of the ‘genetic’ side of these arguments mentioned in some reviews, mainly because I did not feel that Gregory said all that much about how this worked biologically in his book in such a short time period. It was more of a tentative inference than a theory, or an explanation short of a theory.

On economics, he is much stronger, but just as assertive, sometimes too assertive, dismissing what he finds wanting in economics (by which he must be referring to neoclassical economics), and using, without explanations of ‘why’ they are OK, but the rest of neoclassical economics is not, in his use, for example, of ‘Cobb-Douglas production functions and Solow’s growth theory. For it is in neoclassical economics that his targets of the ‘economists’ at the World Bank, IMF and ‘western’ consultancies find their explanations for what they believe is ‘wrong’ with developing and non-developing countries, which he objects so much to, without too much detail.

His dismissal of ‘institutions’ as having any explanatory value over the 500 years of ‘slow and gradual’ economic growth is breathtaking, especially as he does not explain exactly why they deserve such treatment, as if nothing, absolutely nothing, happened institutionally on his wide definition of what is institutional (not just actual institutions, such as systems of government, but also what appear to be the habits, cultural histories, laws and such like). If there is an extensive literature in this field that I have missed (entirely possible), I would appreciate guidance.

Surely, the slow and gradual institutional effect would take time to take its form, as represented in the ‘quality of labour effect’ and while it may not be picked up in the data as exists, it was nevertheless working away in the background. How would you measure ‘quality of labour’? How does it suddenly appear in work habits?

When the Royal Navy took in any young male who looked fit in the press gangs, they soon learned discipline and quality work habits because their absence would invite informal physical punishment by the bo’suns’ mates and, in severer cases, formal punishment in flogging. Ordered aloft for a few hours in a gale as punishment soon improved the quality of a new seaman’s labour.

It is here that Gregory is too selective. Britain was the first to ‘industrialise’ using power-driven machinery substituting for labour, raising productivity beyond what the pure division of labour that ‘augmented’ labour could achieve (though I have my doubts that the IR happened divorced from the extension and deepening of commercial society), and by elimination of all else, it must come down to the quality labour (education, dexterity, prolonged attention to the completion of tasks) which was not present to the same extent – though definitely present in the Netherlands – in the rest of Europe, and, later, under imperialism, colonialism and de-colonialism in the poorer countries.

Britain also had a far more developed interconnected markets for decades before others. Approximately half of the available workforce produced all the food for the country by mid-18th century, which meant the other half sought work in non-agricultural pursuits, productive, driving growth, and in non-productive, as soldiers, seamen, retainers, and menial servants. The former produced growth (in Smith’s growth model), the latter enlarged demand for final consumption.

Given the long historical time frames taken in originating what is called the industrial revolution in Britain, what happened from standing starts in India and China over two centuries, and in Africa, in less than 60 years, ought not to be surprising. If we had been studying Britain in say, 1450, 1550, 1650, or 1750, who would have predicted that Britain in 1850 would have become the world’s industrial power? If we had examined the data as it was known in 1810 (60 years later), who would not have concluded that whatever had been predicted was not happening. To what would they put this down to?

Adam Smith, in a rare, and for him even unique, prediction noted in Wealth Of Nations (Book IV and V) that the British colonies would with a hundred years from 1776, would be the world’s leading economic power, such that if Britain and the Colonies were joined together in a parliamentary taxation system, a seat of government based on taxation revenues would move from London to the colonies. This shift in economic power would be based on the vast expandability of American agricultural output, its growing population, migrant and domestic, ending of the British manufacturing monopoly, and on the inevitable growth in the manufacturing strength of the colonies.

As it happened, while America’s world power position came about in the 20th century, Britain’s world lead was eroded by other European powers by the end of the 19th century and, most definitely in the 20th century. If ‘quality of labour’ and ‘downward mobility’ were the explanatory variables claimed for them by Gregory, they must have been working away within the differing institutional contexts of these countries too. As also in 20th century Japan, and 21st century India and China (and the other Asian ‘tigers’). Indian major companies are buying major British companies, and do not wish to inculcate ‘Indian’ work habits under colonialism in them.

In China’s case, then the ‘richest country in the world’, Adam Smith believed that it had long ago ‘acquired that full complement of riches which is consistent with the nature of its laws and institutions; but its present complement (1770s) ‘may be much inferior to what other laws and institutions, the nature of its soil, climate and situation might admit of.’ He adds: ‘A country which neglects or despises foreign commerce, and which admits the vessels of foreign nations into one or two ports only, cannot transact the same quantity of business which it might do with different laws and institutions’. (WN I.ix.15: pp 111-2)

Singapore (and Hong Kong), a tiny island off Malaysia, went from next to little, on independence in a few decades to among the richer nations. The people before then were not imbued with a work ethic particularly different from what Gregory describes in Chapter 17 in respect of India. The ‘rich’ did not suddenly breed downwards! Their institutions and habits changed. Endemic corruption was virtually eliminated. Meritocracy drove education, etc. These had important economic effects, not the least when they stuck at it, year in and year out.

Despite Gregory’s certainties about what doesn’t cause long term growth, such as in his treatment of Douglas North amidst that endless (and useless, because they are arguing about an equation, not the real world) debate among neoclassical growth theories on ‘exogenous’ or ‘endogenous’ growth, is sad; North has more useful things to say about long-term growth than Gregory seems to credit him with.

In fact, if anything Gregory ought to step away from neoclassical economics for a while and view his hypothesis afresh. ‘A Farewell to Alms’ is too important a work to leave his data hanging on a thin layer of theory, mainly based on an artificial, abstract, and non-historical approach to the nature and causes of the wealth of nations.

In sum, Gregory Clark’s Farewell to Alms’ is a major step forward in a debate, ostensibly about Britain’s role in 19th century capitalism, but one that is actually about the role of the ‘X’ factors in non-developing, or not developing fast enough, 21st-century economies. If legislators, public servants, interested experts and concerned economists wish to influence that debate, they would do well to start with ‘A Farewell to Alms’.

However, I also think reading Adam Smith’s Wealth Of Nations and his Lectures On Jurisprudence would be a good place to gain perspective from what was about ‘the nature and causes of the wealth of nations. Added to, or as background to, Gregory Clark’s ‘Farewell to Alms’, together, they provide a solid platform for taking the debate forward, as we must.

Tyler Cowen and Marginal Revolution deserve our thanks for providing such an instructive medium to re-think our shibboleths, confirm our doubts and test both of them against our ‘certainties’. I learned a lot from every contributor, and Gregory’s book.

Visit Marginal Revolution and follow the debate.


Blogger BSF said...

I'm going to have to catch up on the AFTA discussion, but have you looked at the manuscript chapters of Meir Kohn's "The Origins of Western Economic Success", which he has up on his website at Dartmouth's Economics Department:

Brian Ferguson

5:27 pm  
Blogger Tim Worstall said...

"I am not convinced of the ‘genetic’ side of these arguments mentioned in some reviews, mainly because I did not feel that Gregory said all that much about how this worked biologically in his book in such a short time period."

In his Times piece he made clear that his conclusion was more cultural inheritance (what I call, wrongly, Lamarckian) rather than genetic or Darwinian.

5:50 pm  
Blogger Gavin Kennedy said...

Thanks Brian. I have copied it to read later today. It looks a most interesting source.

It may not be relevant but some one at Dartmouth reads Lost Legacy regularly.

8:37 am  
Blogger Gavin Kennedy said...

That may explain why I found very little on the genetic inheritance in AFTA.

Now cultural inheritance is more plausible because that works widely in the divergebces in behaviour packages across different locations.

But just as intersting is how migrants from widely differing capacities to reach local norms in theory (hard work, punctuality, task focus, creativity, and such) quickly adapt to the new local norms on their arrival. This can happen in the same generation, and certainly by the second or third.

Indian 'over manning' is not copied in Indian businesses in the UK; 'English' slovenlyness in work behaviours is soon changed in Australia or California. 'Going native' used to be a problem in the old Empire.

I am not totally 'sold' on Gregory's theses, yet.

8:46 am  

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