The Great Divergence

Summary

The emergence of a new economic regime

During the eighteenth and nineteenth centuries there emerged a huge gap between the economies of those countries that came to experience modern economic growth, as a rule but not necessarily caused by industrialisation and all it stands for, and those countries that did not. The economies of countries with modern economic growth took off as compared to their past and as compared to countries that did not experience such growth. A great divergence, to use the expression coined by Kenneth Pomeranz in a very influential book, emerged between ‘the West’ and ‘the Rest’, minus, at least to some extent, Japan, as is illustrated in Table 9-1 and Graph 9-1.

With industrialisation the position of Europe, and in particular Western Europe, in the world changed. The long nineteenth century (1789- 1914) clearly was ‘the Age of Europe’, as is shown in Tables 9-2/9-5 on pages 282-283. Needless to say, all the figures in those tables are just approximations. With modern industry emerged modern economic growth which was based on innovation. Even if one realises that it is hard to count inventions/innovations, to measure their impact and to compare them, it would be hard to deny that some countries at times were more inventive/innovative than others. (See Table 9-6.) Inventions and innovations are a result of human ingenuity and thus of human capital. Those in turn can be ‘improved’ by large investments. With their wealth, western industrialised countries had enough to spare increasingly to set money aside for education and research and development.

The Great Divergence brought the beginning of a new economy to those countries that began to experience modern economic growth. It cannot be emphasised enough that it usually did so with an initial stagnation or even deterioration in the quality of life for large parts of society. The first decades of industrialisation for many people brought hard and disturbing times. In Great Britain, the first industrial nation and the first modern economy, it was only in the 1850s that most indicators began consistently to point to better times for a large majority of the population. Overall, in countries that experienced the transition to modern economic growth the birth pangs of the new economy brought hard times for many.