Asia-Pacific Dynamism, 1550-2000

Published by EH.NET (March 2002)

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A.J.H. Latham and Heita Kawakatsu, editors, Asia-Pacific Dynamism, 1550-2000. London and New York: Routledge, 2000. xiv + 281 pp. $110 (hardback), ISBN: 0-415-22778-x.

Reviewed for EH.NET by Peter Perdue, Department of History, MIT.

This book collects thirteen essays first presented at the Twelfth Congress of the International Economic History Association in Madrid, 1998. They all discuss the sources of dynamic economic growth in East Asia. The good news is that there is no Party line: the authors provide a wide range of theoretical and analytical perspectives. The bad news is that there is no Party line: no single coherent explanation emerges from such a disparate assemblage. Still, the authors introduce new data, make some surprising discoveries, and provoke new thoughts.

The essays fall are of three types: those that mainly introduce new data, those that test models developed for the European experience against empirical evidence from Asia, and those that pretty much tell the same old story, with some nuances. Some authors recognize the vital significance of inter-Asian linkages; others still treat each country in isolation. Because of space limitations, I can only discuss the first and second types in detail, but I should mention the useful survey article by D.A. Farnie on the Asian textile industry, Debin Ma’s comparison of Chinese and Japanese silk exports, and Derek Aldcroft’s discussion of education in the four little tigers.

The most impressive new data comes from Jeffrey Williamson’s extensive compilation of real wages in Asia. As he notes, wages for unskilled laborers measured against rice prices provide much more accurate gauges of economic development than aggregate measures which disguise unequal distributions of income. His argument confirms some things we expected, introduces surprising anomalies, and generates an agenda for further research. The period after the 1870s was one of rapid and extensive global integration, driven by new technologies driving down transportation and communication costs, and by the prodigious expansion of European empires around the world. Living standards converged in Europe and the Atlantic economies, but what happened to Asia? Williamson finds that in general, measured by real wages, Asians failed to take advantage of this new global conjuncture. Japan, the best performer, just kept up with England, but failed to catch up. Its real wages were one-third of Britain’s in the 1830s, and were the same in the 1920s. Other countries fell back to fifteen percent or less of Britain. Even though most Asian countries switched to free trade regimes in the late nineteenth century, they did not converge with the global leaders, and the gap between top and bottom widened. The relative ranking of countries, with Japan and Korea at the top, and Burma, India and China at the bottom, changed little from 1917 to 1997. Williamson generally is convinced by arguments that in the eighteenth century India and China were roughly equal to Europe, but he raises the key question, “Why did Asia exploit globalization so badly between 1870 and 1914?” He does not think that imperialism played an important role, but he seems to define imperialism very narrowly, in terms only of its direct economic effects on colonized regions. Other writers in this collection find imperial pressure on all the states of Asia, including uncolonized China, to be quite significant. This is an excellent, provocative, data-rich piece, with much food for thought.

Myung Soon Cha likewise uses new data creatively to make the bold argument that Japanese rule “created the modern economy of Korea” from 1905 to 1950. By measuring the coefficient of variation of price, wage, and interest rate series, he shows substantial progress toward market integration in the colonial period. Japanese railroad, telegraph, and telephone connections brought a regionally segmented economy together by creating much more integrated agricultural and labor markets. Capital markets did not progress so far. Although Japanese capital inflows helped to bring down interest rates, state interventions by both colonial and South Korean independent governments impeded financial markets. Like Williamson’s thesis on the failure of Asian industrialization programs to close the relative wage gap, Cha’s thesis on the positive effects of colonial rule will raise the ire of nationalists, but he has persuasive empirical backing.

Testing Eurocentric models of economic development against Asian experience also produces surprising results. Jaymin Lee finds that Alexander Gerschenkron’s thesis on late industrialization fails when applied to its home base in Europe, but succeeds in regard to Korea after the 1960s. Gerschenkron stressed the importance of sudden growth spurts led by producer goods industries, with extensive support from banks and the state, but according to Lee, Gerschenkron’s thesis fails to fit Germany and Russia, which according to revisionist studies, actually grew slowly, with market forces more important than the state or large banks. Actually, Lee overstates his case: Gerschenkron was really only off in his timing, not in his main argument. Germany after 1870 and Stalinist Russia do bear out his thesis better than earlier periods. Korea certainly did have a growth spurt in the 1960s led by heavy and chemical industries, with strong state guidance, confirming Gerschenkron’s model. But this exclusive focus on rates of growth may be misplaced, if economic development depends on leading sectors in key industries and certain key technological innovations, which only show up in growth rates long after they are introduced. Korea’s only difference was that the technological backlog was so large that new large-scale industries, in a relatively small country, had an immediate effect on growth.

Hans Bass looks at the degree of diversification of exports in Taiwan and the People’s Republic of China (PRC) as an index of continuous innovation, related to Schumpeter’s concept of “creative destruction.” He finds that Taiwan successfully diversified its exports, beginning with agricultural commodities, moving to processed agricultural goods, then to electronics and machine tools, and now to high-tech products. True enough, but he makes a more dubious argument that the PRC is following Taiwan with a thirty-year time lag. The PRC did begin with oil and food exports, and has now moved to textiles, but there is little evidence that it has gone any further yet. The global environment is quite different from the Cold War period when the U.S. favored Taiwanese protectionism and access to U.S. markets. Taiwan could create without destroying much; the PRC in the World Trade Organization must create new markets and destroy many industrial jobs at the same time.

On the question of appropriate industrial size, Bass argues that Taiwan’s small family enterprises face disadvantages in global markets, because of “paternalism” and disadvantages of the “Confucian family tradition.” He may be right, but I wish he had relied for his “business sociology” on anthropologists and sociologists who have studied real Chinese firms rather than amateurs like Francis Fukuyama. Bass endorses the Goldilocks Principle that the best scope is “neither too small nor too large,” but gives no guidance as to when too much is too much. He knows that large state-owned enterprises in the PRC are “in a desperate condition,” but does not address the social costs of breaking them up.

David Clayton tests the assertions of Douglass North about property rights and institutions by examining Hong Kong from 1842 to 1960. He discovers that Hong Kong commercial organization worked quite well for a long time with two parallel sets of institutions: the British Chamber of Commerce, supporting state-enforced commercial codes, and Chinese organizations based on temples, ethnicity, native place, and family ties. Both flourished side by side, with little move toward integration or formalization, until the 1940s, and both opposed any regulation by the state. But then, “we need to bring politics into the story” (p. 160). The postwar colonial state intervened strongly to secure property rights and regulate markets, since piracy in the South China Sea fostered criminal flight, and the trade embargo on the PRC forced a redirection of trade. Then both the Chinese and British businessmen accepted a much larger state role in regulating business practice. So much for the fairy tale of the “laissez-faire” state in postwar Hong Kong. North’s thesis does not look too strong in this view: sometimes efficient economies need the state to enforce property rights, and sometimes they do not. Historical particularities matter.

Three of the most fascinating essays examine the currency systems of imperial China. Akinobu Kuroda critiques Sir John Hicks’s discussion of the origins of money. Hicks thought that money originated as a store of value by merchants in the West, but in Asia money was first created by the state as a means of payment. Hicks thought that governments always had an interest in increasing the supply of coin, so as to profit from minting. Kuroda shows that, on the contrary, Chinese empires put primary emphasis on maintaining high quality copper cash coins, so as to maintain unity across the empire. They did not overmint coins in search of seignorage profits. Local marketers, however could “regulate local liquidity without institutional support” (p. 190). The great silver influx of the sixteenth century greatly facilitated interregional trade, but it did not disturb local copper coin circulation, where currency values varied widely. The coexistence of autonomous local currency with interregional silver flows meant that China was much less integrated that it seemed. Silver was a skim coat on top of very diverse local marketing circuits. Historians have debated the degree of market integration in imperial and modern China a great deal. Kuroda once again focuses our attention on the parallel currency system as a key to this paradox.

Dennis Flynn and Arturo Giraldez have published many insightful articles on the effects of New World silver flows in Asia. Here they propose a bold contrarian thesis: that the great silver influx to China was harmful, not beneficial, to her economic development. Following the anti-bullionist arguments of Adam Smith, they claim that since China had to export huge quantities of silk textiles to obtain silver to commercialize her economy, she lost large resources that could have increased overall wealth at home. I find the argument ingenious but misconceived. The authors admit that silver imports stimulated the silk industry greatly and caused overall per capita income to increase; they insist, however that “economic development was weaker than would have been the case had China maintained a paper-money regime” (p. 206). This counter-factual statement begs many questions. Paper money had failed not once, but three times in earlier Chinese history: under the Song in thirteenth, the Yuan in the fourteenth, and the Ming in the fifteenth century. Each time, a state in fiscal crisis overissued paper money, causing inflation, debasement of the money, and commercial chaos. There’s no reason to think that late Ming or Qing rulers could have resisted the seductions of easy money any better. There are, indeed, social costs to using exports to gain foreign currency, but the alternatives are costly too: monetary instability with no precious metal backing. Since the authors do not try to measure these costs, we can’t decide if they would balance out. Can the authors show that the domestic silk industry would have grown faster in the absence of silver imports? Even in Europe, the best they can claim is that a shift from commodity-based money to paper in the nineteenth century “probably did contribute something” to European expansion (p. 210). In short, an ingenious abstraction from classical economic theory has outrun the particular conditions and empirical evidence that might make it applicable.

David J. St. Clair’s article on California argues that the Gold Rush indeed stimulated the development of manufacturing industry in California, while connecting the West Coast closely to Asian markets. California exported nearly all its silver to Asian markets, as well as much of its quicksilver [mercury], which was a key new element in improving the extraction of precious metals from ore. The Californian population boom stimulated flour and lumber mills, capital-intensive mining techniques, and new technologies of pumps, steam engines, and blacksmithing, among others. Through the nineteenth century, silver was still China’s lifeline to the world, even though she had to export much of it to buy opium. These three essays carry the story of precious metals as vital threads of the global economy from the sixteenth to the end of the nineteenth century.

The collection ends with two essays that appear to have nothing to do with each other. Actually, they form a stimulating pair of meditations on continuity and crisis in two different areas: banking and rice trade. Frank H.H. King stresses the high maintenance of tradition in the transition of the Hongkong Bank from a colonial to a multinational financial organization. The International Officers, generalists in a sea of specialists, still hold the bank together at the top with a corporate culture passed down, though adapted from, the old Hongkong Bank. A.J.H. Latham, on the other hand, points to constant turmoil in Asian rice markets in the 1990s as evidence that China itself is a “very unstable player in world markets.” He even blames the onset of the Asian financial crisis of 1997-98 on China’s devaluation of the Yuan in 1994, whose impact was aggravated by China’s need for rice imports resulting from floods on the Yangtze River in the same year. Thus he connects environmental degradation with international trade, showing how China impacts the world beyond its frontiers. Though too brief to be entirely persuasive, his comments are intriguing.

It is heartening to see increased attention to Asian economic development in historical perspective, based on new data sources and testing of models. As a whole, this volume adds much to ongoing study of Asian development, and opens paths for new questions and new answers.

Peter C. Perdue, T. T. and Wei Fong Chao Professor of Asian Civilizations at MIT, has published a book and several articles on economic and environmental change in imperial China. He is now completing a manuscript on the military, economic, and cultural implications of the Qing dynasty’s conquest of Central Eurasia in the seventeenth and eighteenth centuries.