Before and Beyond Divergence: The Politics of Economic Change in China and Europe (review)

Two highly distinguished scholars address a classic question in economic history: When and why did the great divergence in economic performance between China and Europe occur?¹ Unlike cultural, social, and environmental explanations, the book stresses the importance of politics and geopolitics in early modern Europe’s economic success and China’s medieval achievements and recent rise. Based on collaboration of expertise in the histories of both China and Europe, it offers a balanced comparative framework by looking at both similarities and differences in the political economy of China and Europe in the early modern period.²

The book selects and distinguishes among several contrasts often invoked in comparative exercises and argues that they could well be trivial reasons for explaining the divergence. Chapter 1 discusses the difference between Chinese and European polities and challenges the virtues of intra-European competition and conflict for economic growth. The authors point out that political competition is not equivalent to economic competition, and political fragmentation in Europe had to bear enormous costs to production and trade from taxes and warfare. Chapter 2 questions conventional views that nuclear households in Europe were more market friendly, while extended households in China displaced markets. Thus family systems and demography do not explain why China became relatively poor. Chapter 3 argues that both formal and informal institutions were widespread in both China and Europe and that informal institutions, such as kinship, were an efficient mechanism for economic growth while Europeans also relied extensively on networks and reputation especially for long-distance trade. Choices between formal and informal institutions depended on the nature of the transactions, whether they were local or long distance, and were not based upon cultural preferences. Furthermore, formal institutions were not always more efficient.

Chapter 4 then turns to the role of geopolitics in shaping the different economic structures of China and Europe. Benefits from warfare (for example, European technologies) were, they argue, “indirect, contingent, and secured at tremendous cost” (pp. 102, 126). Chapter 5 argues the failure of markets for credit did not adversely affect the growth of the Chinese economy because merchant networks, which overlapped with kinship systems, functioned well as internal capital markets. Chapter 6 compares variations in tax rates and the provision of public goods between Europe and China and argues that China, as a lightly taxed country, could provide higher levels of public goods than European countries could provide. Over several centuries, the centralized Chinese empire provided more functional space for Smithian growth than fragmented European nation-states. Chapter 7 concludes by emphasizing the importance of political economy for economic divergence. “Early modern Chinese political economy was more explicitly intended to foster economic growth than European political economies” (p. 209). Economic divergence occurred over the nineteenth century because China had lost its earlier advantage in political economy as the outcome of wars with European and Japanese imperial powers and internal rebellions (the Taiping Rebellion of 1850–1864, etc.).

This book adopts a very heuristic form of comparative study. Instead of asking so many “why not” questions, it concentrates upon questions about histories that establish what was similar between China and Europe and then examines what was relevantly different. Their central point is that institutions need not to be the same as long as they produce comparable economic results and solve common problems.

Nevertheless, and for all its merits, there are several issues that the book has not pursued in the depth they warrant. For example, what were the overall costs and benefits of a large centralized empire such as China compared to a fragmented Europe with smaller nation-states? The authors rely heavily upon neoclassical economic assumptions of increasing returns to scale. However, the integration of political units is not equivalent to the integration of economic units (or firms), and returns to scale for early modern firms and farms are...