The Rise of the West and the Great Divergence

Reasons for rising inequality

1. Geography - e.g. Malaria which hindered Africa; coal deposits which helped England

2. Culture - Greater focus on numeracy and literacy in wealthier countries

3. Political and legal institutions - Countries which placed a greater focus on securing property rights and having a smaller govt were typically wealthier

Examples of how Political and Legal Institutions made countries wealthier

• Growth of the Netherlands after revolting against Spanish Rule in 1568

• Growth of England after the Glorious Revolution (1688)

• With Parliament England had a standing army funded by tax and government debt

  • Note: Inflation and debt has been significantly higher since 1688 than previously, but was also the period where the greatest economic progress was made

3 Main Explanantions for the Great Divergence

• Globalisation

• Technological Change

• Economic Policy

What was the first big technological change and how did this help fuel further changes?

• Full rigged ship in the 15th century

  • Allowed ships to carry spices and silk from Asia through the Middle East to Europe

• Led to age of discovery as Portugal sought a sea route throughout West Africa

How did the age of discovery lead to the formation of empires?

• Spanish Empire set up along most of central and South America, where the looted the Incas and Aztecs, bringing vast amounts of silver and wealth back to Spain

• East India Company set up in 1600, which was a highly capitalised private joint stock company trading with Asia and the Americas

  • Gained a monopoly on trade, allowing England to buy goods for under market rate to help Empire

How did the English Empire grow?

• Following Restoration, England sought to expand its empire at the expense of the Dutch

• Increased Expenditure on the Navy

• Navigation Act (1651) prevented the Dutch from trading with the English Empire

• England seized NY in 1651

• Established colonies from Maine down to Georgia, growing cash crops like Tobacco and Cotton

How was England able to get an advantage on the eve of the Industrial Revolution?

• England’s share of population working in agriculture dropped to 45%, compared to rest of Europe ~75%

  • Made it the most rapidly urbanising European Country

• Spain had a problem where too much silver was coming into the country, pushing up Spanish agricultural prices and making them less competitive

• England’s population had become more efficient in producing food, which helped to feed the growing labour workforce in manufacturing

What were the implication of the successful globalisation in England and the Netherlands?

• Growth of urbanisation of rural manufacturing increased wages, with living standards in London and Amsterdam being high

• Output per worker increased by ~50%

• Growing urban demand led to energy revolutions as the price of wood skyrocketed

  • Netherlands switched to peat

  • England used it’s easily accessible coal

• Increase in commerce led to increased demands for literacy and numeracy in NW Europe