Study Notes on The Great Divergence

Chapter 2: The "Great Divergence"

Introduction

  • Pre-industrial economies were capable of slow but meaningful change, with progress accelerating after the late Middle Ages.
  • The period from 1492 to the 18th century marked a global transformation in economic structures, trade, and power relations.
  • The “discovery” of the Americas (1492) symbolizes the start of a new phase of expanding markets and global interaction.
  • Economic change created winners and losers, thereby widening gaps between societies and regions.
  • The growing advantage of Eurasian economies, particularly Europe, led to shifting global power—a process known as the “Great Divergence.”

Opening Closed Worlds

  • Before the 15th century, long-distance economic exchange was limited to a few “closed worlds”:
    • Europe–Mediterranean
    • East Asia
    • Central America
  • The Silk Road linked Europe, the Middle East, Central Asia, India, and China, enabling elite trade in high-value goods such as silk, spices, tea, and precious stones, which were profitable due to their high value-to-weight ratios.
  • While Europe was not fully isolated, the long-distance trade volumes during this period were extremely small.
  • Caravan routes also crossed the Sahara into Central Africa, but information about these regions was limited among Europeans.
  • Only a tiny share of total production could support long-distance trade before the 15th century.
    • The opening of new trade routes between the mid-15th and mid-16th centuries marked a historic economic breakthrough.
  • French historian Pierre Chaunu described this period as a crucial turning point in world history beginning in 1434, when Gil Eanes (Portugal) sailed beyond Cape Bojador (Western Morocco).
    • This voyage overcame major psychological and navigational barriers to Atlantic expansion.

Earlier Trade Efforts

  • Efforts by Italian merchant republics (Genoa and Venice) were focused on Mediterranean trade.
    • From the 13th century, Italians extended maritime trade to Flanders and England, linking Northern and Southern Europe.
    • Italian merchants monopolized the spice trade through their bases in the Levant.
    • However, they could not sail far down the West African coast, stopping at Safi (Morocco).
  • Italian attempts to reach the Indies via the Atlantic were unsuccessful because the main constraint was ship technology, not commercial ambition.

Trade Routes in the Middle Ages

  • Trade routes during the Middle Ages can be categorized into:
    • Hanseatic Routes
    • Venetian Routes
    • Genoese Routes
    • Venetian and Genoese Routes
    • Land and River Routes
  • Mediterranean galleys were unsuitable for open-ocean navigation.
  • Northern European cogs, while capable of carrying heavy cargoes, were slow and difficult to maneuver. They notably supported the success of the Hanseatic League in the Baltic and North Sea.

Innovations in Shipbuilding

  • Portugal succeeded by merging Mediterranean and Northern shipbuilding techniques.
  • The invention of the sternpost rudder significantly improved ship maneuverability.
  • Portuguese expertise in deep-sea fishing and coastal trade facilitated maritime innovations.
  • The caravel was developed in Portugal around the mid-15th century under Prince Henry the Navigator.

Portuguese Exploration

  • Portuguese exploration advanced steadily along the West African coast after 1434.
  • Reaching the Gulf of Guinea took nearly 40 years, demonstrating the gradual accumulation of navigational knowledge.
  • Bartolomeu Dias rounded the Cape of Good Hope in 1488, opening access to the Indian Ocean.
  • Portugal established trading posts along Africa, engaging in trade of gold, ivory, spices, and slaves.
  • Vasco da Gama reached Calicut (India) in 1498, linking Europe directly to Asian markets.

Spanish Exploration

  • Spain entered Atlantic exploration in 1492 by financing Christopher Columbus’s voyages.
  • Columbus’ journey integrated the Americas into the burgeoning world economy.
  • Subsequently, Portugal reached Malaysia (1510), China (1513), and Japan (1543).
    • Portuguese dominance disrupted Arab and Italian control over the Indian Ocean and spice trade routes.

Impact of Ottoman Expansion

  • The expansion of the Ottoman Empire posed a threat to traditional Mediterranean trade channels.
  • By 1550, only approximately 1:10,000 of global production was moving through global trade.
    • Despite the low trading volumes, these routes connected previously isolated economies.
  • Between 1434 and 1550, a new world economic system emerged, marking the beginning of “proto-globalisation,” initially centered on Europe.

The Great Divergence: Causes and Timing

  • The Great Divergence describes the long-term process by which Western Europe became the world’s leading economic region, illustrating Europe’s capacity to escape constraints imposed by pre-industrial agrarian economies.
  • The central economic inquiry revolves around why growth accelerated in Europe rather than in Asia despite similar starting conditions.
    • Prior to 1500, Asia and Europe exhibited comparable levels of economic development, productivity, and technology.
  • Urbanization rates serve as a proxy for examining economic development in pre-industrial societies.

Urbanization Levels

  • In the late Middle Ages, China and India matched or even exceeded Western Europe in urbanization.
  • However, from the 16th century onward, urbanization in Western Europe accelerated, indicating higher surplus and productivity.
  • By the 17th century, parts of Asia faced relative stagnation or decline.
  • Technological leadership is a key element in understanding the divergence, significantly affecting productivity and growth capacity.
  • The Needham Question raises the inquiry of why Europe surpassed Asia technologically, especially given earlier innovations by Asian societies.

Institutional Explanations

  • Institutional differentials between Western Europe and East Asia are central to the explanations for the Great Divergence.
  • European institutions generally fostered more economic and technological innovation.
  • The rise of universities in Western Europe facilitated systematic knowledge production and skills accumulation, contributing to the Renaissance and the Scientific Revolution.
  • Figures like Galileo Galilei (1564–1642) symbolize the emergence of scientific methods that later bolstered economic advancement.

The Role of the Bourgeoisie

  • Mercantile cities served as hubs for commercial innovation and institutional experimentation, nurturing a class of business owners called the bourgeoisie.
    • The bourgeoisie emerged as a middle class between the peasantry and aristocracy, promoting values of trade, profit, and enterprise.
    • Bourgeois values encouraged greater investment, risk-taking, and the adoption of new technologies.
  • Additionally, Europe’s political fragmentation allowed cities and regions to compete economically, contrasting with the centralized agrarian-based state systems of Asian empires, which limited market expansion.

Impacts of European Smart Fragmentation

  • Strong central control within Asian empires reduced incentives for innovation and expansion in trade.
  • Neo-institutional economics emphasizes the role of institutions as critical organizers in production, exchange, and governance.
  • Efficient institutions diminished transaction costs and improved market coordination, leading to advancements in private property rights which fostered investment interest.
  • Political institutions in Europe increasingly aligned with the interests of economic elites, while Asian imperial states struggled to safeguard their economies against European economic encroachment.

Geographical and Geopolitical Explanations

  • European overseas expansion resulted in the establishment of new trade routes, markets, and wealth sources.
    • Chinese naval expeditions demonstrated advanced technological capabilities but lacked consistent economic incentive to sustain such trade ventures.
  • High costs and the limited perceived returns ultimately led China to discontinue long-distance oceanic trade.
  • In contrast, European states accepted high risks and costs due to competitive pressures and profit motivations.
  • The fragmented geography of Europe prevented the emergence of unified empires, fostering interstate economic competition.

Consequences of State Policies

  • Political fragmentation in Europe heightened incentives for innovation, military spending, and commercial expansion, while Asian empires prioritized stability over growth.
  • State restrictions on technologies (e.g., prohibitive policies against firearms in Japan and navigation in China) hindered productivity advancements.
  • Geographic advantages, such as access to the Americas, provided Europe with new land, raw materials, and labor that would enhance economic disparities.
  • The resources harvested from the New World eased ecological pressures and reduced diminishing agricultural returns.

Shift to Capital-Intensive Growth Models

  • Europe transitioned toward a capital-intensive growth model, contrasting with the labor-intensive focus in Asian economies.
  • Colonial exploitation amplified European capital accumulation and trade surpluses.
  • Proximity to coal deposits lowered energy costs, particularly in England, facilitating the emergence of energy-intensive industries that propelled industrialization.
  • True divergence in living standards predominantly manifested during the 19th century.

Wallerstein's World-Systems Theory

  • Wallerstein’s world-systems theory frames divergence through core-periphery trade dynamics, positing that unequal exchange enabled European cores to sustain growth while peripheral societies remained underdeveloped.
  • The Great Divergence may embody a transient phase, now being challenged by modern economic growth in China.

The Emergence of a Global Economic System

  • European expansion led to the formation of the first global economic system, primarily dominated by Western powers.
  • Non-Eurasian societies lacked the technological and military prowess necessary for economic competition.
  • European military superiority facilitated rapid control of overseas resources and trade, highlighted by the conquests of the Aztec (1518–1521) and Inca Empires (1532–1533).

Resource Extraction and Its Effects

  • Precious metals sourced from the Americas became crucial to European capital accumulation.
  • Implemented forced labor systems maximized production while simultaneously heightening mortality rates and reducing reproductive capacity.
  • The spread of epidemic diseases resulted in catastrophic population declines, destabilizing indigenous labor supplies and reshaping colonial economies as well as social structures.

Labor Shortages and the Slave Trade

  • Labor shortages induced in the Americas led to the expansion of the transatlantic slave trade.
    • Approximately 9.5 million enslaved Africans were transported to the Americas between 1500 and 1870.
  • Plantation economies, particularly in sugar production, yielded high profits for European markets.
  • Colonial economies were structured around export-oriented production rather than local development, with Iberian empires establishing extensive territorial colonies in the Americas characterized by direct administrative oversight.

European Preferences in Other Regions

  • In Africa and Asia, European powers preferred coastal trading networks over direct territorial conquest.
  • Control over shipping lanes and ports effectively reduced transaction costs and solidified trade dominance.
  • Treaties such as Tordesillas (1494) and Zaragoza (1529) shaped colonial competition.

Later Expansion and Global Integration

  • Later European powers (Dutch, English, French) continued to expand global trade and colonization.
  • Oceania was integrated into the world economy only under conditions that offered economic advantage.
  • These patterns of colonial expansion reinforced European economic supremacy as well as global inequalities.