A fascinating new paper by Stephen Broadberry,The Industrial Revolution and the Great Divergence: Recent Findings from Historical National Accounting, looks at new long run data for the UK. It takes up the point that much pre-1870 data e.g. in Maddison's database was based on guesstimation and we now have improved data. Here is my reading of some of the key points.
1. Their figure 1 below shows some long run trends.
As they say, some of the key findings already were that economic growth was slower in the Industrial Revolutoin than previously thought, which means the UK must have entered the Industrial Revolution richer than previously thought, to get to the same agreed final level of GDP per head.
"Figure 1 shows the long run evolution of real GDP, population and real GDP per capita over the long period 1270-1870. GDP per capita stagnated during 1270-1348, before increasing sharply between 1348 and 1400, as population declined more sharply than GDP following the shock of the Black Death. GDP per capita then remained on a plateau between c.1400 and 1650 as population at first continued to fall and then began to recover from the late fifteenth century. A new GDP per capita growth phase started around 1650, as population stagnated and then declined slightly. Although GDP per capita growth slowed down after 1700 as population growth resumed, it remained positive and became increasingly stable, with fewer and milder years of negative GDP per capita growth. It seems, then, that the Industrial Revolution was less about growing faster and more about avoiding periods of negative growth or shrinking, than has previously been realised (Broadberry and Wallis, 2017)"
2. Table 2
"Table 2 presents the average annual growth rates for the same three series: GDP, population and GDP per capita. Notice how the growth rate of GDP per capita after 1800 was actually slightly slower than after the Black Death (1350s-1400s) and after the Civil War (1650s-1700), despite the fact that GDP growth was much faster. The reason for this was the very different paths of population in these three periods. Whereas population declined very sharply after the Black Death, and still declined slightly after the Civil War, it grew very rapidly during the first two-thirds of the nineteenth century. This points to a major difference between modern economic growth and pre-industrial growth, as highlighted by Kuznets (1966). Preindustrial growth required falling population, and this led to an increase in land per capita and capital per capita, which in turn led to higher output per capita. However, this was clearly not a route to sustained growth. For Kuznets, sustained or modern economic growth required rising output per capita together with a growing population."
3. Structural change
"Another important aspect of modern economic growth is structural change. It has long been noted that economic development is associated with a shift in the structure of the economy away from dependence on agriculture. This has traditionally been seen as a process of industrialisation, although recent research suggests that this understates the role of services. Broadberry, Campbell, Klein, Overton and van Leeuwen (2015) note that the British economy diversified away from agriculture over a longer time span than was once believed by economic historians. Agriculture was less important and services more important earlier than widely perceived, with important consequences for sectoral productivity performance. Labour productivity growth was faster in industry than in agriculture during the Industrial Revolution rather than the reverse, as early quantification of the Industrial Revolution had appeared to suggest. The quantitative dimensions of the structural shift away from agriculture in the British economy are set out in Table 3. The first point to note is that agriculture’s share of output and employment declined in importance over time, while the shares of industry and services increased, as would be expected for a developing nation. Second, however, note that even as early as 1381, agriculture accounted for less than 60 per cent of employment and less than 50 per cent of nominal GDP, so that even in the fourteenth century, industry and services accounted for a substantial share of economic activity. Third, although agriculture accounted for a smaller share of output than employment for most of the period under consideration here, thus making agriculture a low productivity sector, this had ceased to be the case by 1801, a point first noted by Crafts (1985). Fourth, although industry increased its share of nominal GDP more rapidly than services until 1700, this ceased to be the case during the Industrial Revolution period. This may at first sight seem surprising, but can be explained by a decline in the relative price of industrial goods, as technological progress increased productivity and drove down prices. By contrast, the more modest productivity improvement in services led to an increase in their relative price, so that the share of services in nominal GDP increased more rapidly than the share of industry after 1700.
A fifth striking feature of Table 3 is that much of the shift of labour from agriculture to industry occurred before 1759, which has important implications for the pattern of labour productivity growth before and during the Industrial Revolution. (my italics) If, as was once believed, the shift of labour from agriculture to industry had taken place at the same time as the Industrial Revolution, then much of the growth of industrial output could be explained by increased labour input rather than by productivity growth. This counter-intuitive result was implicit in the work of Deane and Cole (1962), and also confronted more explicitly by Crafts and Harley (1992). With much of the shift of labour from agriculture to industry occurring between 1522 and 1759, there was a period of labour-intensive industrialisation (or proto-industrialisation) without dramatic industrial productivity growth, which can be tracked in Table 4. This was then followed by an Industrial Revolution, where capital deepening and technological progress raised industrial labour productivity rapidly after 1759.
4. Comparative growth
Finally, they have fascinating conclusions on comparative growth, addressing the argument about just when Europe got ahead of Asia.
New estimates of GDP per capita during the period 1000-1870 have recently been produced in a number of European and Asian economies, making use of historical data collected at the time. These estimates show reversals of fortune within as well as between the two continents. First, they show a much clearer Little Divergence within Europe between the northwest and the rest of the continent than had been suggested by Maddison (2001), with Britain and the Netherlands overtaking Italy and Spain. Second, these estimates also show a much clearer Asian Little Divergence, with Japan overtaking China and India. And third, they show a later Great Divergence between Europe and Asia than suggested by Maddison, taking account of regional variation within the two continents. Although individual European nations or small regions were ahead of the whole of China as early as 1300, the leading Chinese region did not fall decisively behind the leading European nation until the eighteenth century. This is a lot later than suggested by earlier western economic historians such as Weber (1930), Landes (1969),or North and Thomas (1971), although not quite as late as suggested by Pomeranz (2000), who argued for parity until the early nineteenth century. However, Pomeranz (2011; 2017) has more recently accepted that his earlier claims were exaggerated and now sees the Great Divergence as dating from the eighteenth century.
Finally, some lessons for process.
"One of the most interesting developments of the recent wave of research in historical national accounting has been the construction of annual estimates of GDP per capita reaching back to the thirteenth or fourteenth century for a number of countries. Using these data, a radically new picture of the Little and Great Divergences has appeared. Northwestern Europe forged ahead of the rest of Europe and also diverged from Asia not by growing faster during periods of positive growth, but rather by reducing the frequency and rate of shrinking during periods of negative growth (Broadberry and Wallis, 2017)....
"Explaining the Industrial Revolution has more in common with solving the problem of development today than is usually acknowledged. Getting growth going in the first place, the traditional focus of analysis, is only part of the story. Just as important is ensuring that periods of positive growth are not followed by periods of negative growth, or shrinking. This has been highlighted in the case of developing economies today by Easterly, Kremer, Pritchett and Summers (1993) and Pritchett (2000). For the transition to modern economic growth in Britain during the Industrial Revolution, it means paying as much attention to the absence of negative trend growth after the gains of the post-Black Death growth episode as to the innovations that started episodes of positive growth during the eighteenth century."
". One way to think about Europe’s Little Divergence, and also the Great Divergence, is therefore not so much the beginning of growth, but rather the weakening and ending of periods of shrinking"
