Thursday, August 20, 2009

Scott Sumner poses some interesting economic constrasts and theory

between Europe and China:

You may know that I favor small governments and decentralization. I believe that this leads to a healthy competition. Let’s suppose that the reason why China fell behind Europe is that they didn’t have this sort of healthy competition that one observed between European states. Then how can this explain why today China is the fastest growing country in the world? The answer is that by 1978, China had fallen far behind not just Europe, but also its smaller neighbors in East Asia. This was too much for even the insular “Middle Kingdom” to accept, and they responded by adopting some foreign technologies and economic practices. The fast growth reflects their catching up to the rest of East Asia.

So the root cause of European supremacy was their alphabet, the ABCs. This led to language fragmentation, national cultures, nationalism, the nation state, economic competition, and growth. Does this mean China must fragment? No. (Well, I am in China right now, so what do you expect?) In my earlier post I discussed the success of Zhejiang province. This has led neighboring provinces such as Jiangsu to adopt some of its market friendly ideas. Thus competition at the provincial level can be healthy, as long as the central government sets the appropriate rules. (I’d like to see China adopt a ban on inter-provincial trade barriers, like our “Commerce Clause.”)

There is a cottage industry among economic historians in trying to explain why Britain was the first country to industrialize. I wonder if there is an advantage to being a large fertile island that lies close enough to the mainland to absorb its ideas and technology, but far enough away to be difficult to invade. The problem is that this theory is based on a single observation. Too bad we don’t have another continent with another great civilization on the mainland. A continent that also has a nearby large, fertile island that is close enough to absorb ideas from the mainland but far enough away to be difficult to invade. With the island being the first to industrialize in its neighborhood. Any suggestions?

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