This book is a comparative institutional analysis between the economies of China and Western Europe from 1000-2000 AD. As such, it paints in rather broad strokes. Still, some common themes resound. But first, some facts on the ground. “China’s population had grown from about 50 or 60 million in the early 700s AD to about 100 million toward the turn of the millennium. During the Northern Song period (960–1127 AD), population growth is estimated to have averaged around a rate of 0.87 percent per year…. The capital city of the Northern Song Empire, Kaifeng, had reached 1 million inhabitants…. [In contrast, the] European population in 1000 AD was about the same as in 200 AD…. Song China employed advanced agricultural techniques, including the use of new rice varieties, extensive irrigation systems, terrace farming, crop rotation, and fertilizers. Its canals and waterways supported an extensive trade network. Northern China was not only the world’s most populous trading area, it also produced large amounts of iron, much of it for military use…. The compass, gunpowder, and the printing press—that Francis Bacon famously coined as the major inventions of the millennium—all originated in China…. As early as the Southern Song dynasty (1127–1279), Chinese ships navigated to India and to East Africa…. Foreign trade was a major source of revenue, and the government issued paper money…. China had a strong and effective unitary state, while Europe was virtually stateless…. China was able to preserve its state infrastructure despite frequent and intense internal wars. The state had maintained its coercive capacity and was able to subordinate and force cooperation from Chinese elites…. During the Song Dynasty, central tax revenue is estimated to have approached one-tenth of the country’s total output, and it could support an army of about 1 million soldiers.”
How did the Great Reversal occur? First, more basic facts. “Around 1850, gross domestic product (GDP) per capita in China was about one-fifth of that in Great Britain, one-fourth of the Netherlands’, and less than half of Italy’s…. Several European nation-states had developed sophisticated and inclusive political institutions and boasted significant state capacity, with tax revenues around 10 percent of national GDP in the second half of the nineteenth century…. By contrast, Chinese state capacity had declined, with tax revenues falling below 2 percent of GDP (Zhang 2022, p. 4), and political institutions remaining autocratic.”
Mokyr et al. begin to tease out the why of this Great Reversal. “When nation-states finally began to emerge in the late Middle Ages, European rulers had to bargain with a plurality of local elites to earn their cooperation, leading to the formation of more inclusive political institutions. In China, despite frequent internal struggles, centralized and autocratic state infrastructure never disappeared…. In Europe, for example, innovators found it easier to escape censorship and the persecution of so-called heretics because sovereign states competed for intellectual and economic supremacy and were often in conflict with each other.… Scientists and innovators, when at risk of persecution, could flee to neighboring countries for refuge. In a similar vein, frequent wars forced emerging European states to invest in tax capacity (Gennaioli and Voth 2015) and in military technology (Hoffman, 2015), both of which accelerated the process of urbanization.”
One major area of difference between Western Europe and China was their system of ethics and morals. “A universalistic value system is one where altruism and moral sentiments are not very sensitive to social distance: moral beliefs are applied with similar strength in interactions with friends and strangers. By contrast, in a communitarian value system, altruism and moral sentiments are much stronger toward socially close people than toward strangers.”
Which moral system a community believes in has a large effect on their cultural and institutional development. “In China, cooperation was increasingly sustained by kin-based social networks, the clan being the prototypical organization. In Europe, a different kind of social organization gradually emerged among unrelated individuals…. We refer to these organizations as “corporations.” Examples of such corporations can be traced all the way to the Middle Ages and thereafter: fraternities, guilds, monastic and religious orders, universities and academic associations, self-governing cities, and the modern business corporation…. Chinese kin-based organizations and European corporations performed seemingly similar functions essential to the effective organization of social life: they shared risk, provided individual protection, facilitated market transactions, provided financing, organized education, provided religious services, settled disputes, and assisted the state in collecting taxes and providing military resources. Yet they differed in one key respect: with whom one cooperated. Chinese clans and lineages were associations of individuals who claimed to descend from a common patrilineal ancestor. European corporations were associations of individuals unrelated by kin, who got together for a specific purpose…. Chinese clans and lineages were multipurpose organizations: the same kin-based network provided a variety of local public goods and club goods: ancestral ceremonies and worship, risk sharing and protection, financing, dispute settlement, and so on. Many (but not all) European corporations were instead formed for a primary specific purpose…. Chinese kin-based organizations created a firm partition of society along the lines of mutually exclusive and ascriptive dynastic groups, which often competed with each other. For all intents and purposes, there were no exit options…. European society was formed by dense overlapping networks and associations, which fostered a cultural practice of cooperation and conflict resolution among unrelated individuals in a variety of domains…. Chinese clans were typically hierarchical organizations based on seniority…. European corporations, instead being associations of unrelated individuals, carefully regulated collective decisions through consensual practices.”
Mokyr et al. continue by stressing the cultural differences that influenced the interpersonal interactions within the societies of China and Western Europe. “During the Song Dynasty, neo-Confucianism became the dominant social and intellectual culture in China…. A series of doctrines governing both personal and public life, neo-Confucianism emphasized kin-based values as the basis of social order. Interpersonal relations, including cooperation, were to be governed by filial loyalty, strict gender hierarchy, and respect among relatives…. Beginning in the early Middle Ages, the Latin (Catholic) Church actively discouraged a variety of practices that had traditionally strengthened and consolidated kin networks, such as adoption, polygamy, concubinage, consanguineous marriage, and nonconsensual marriage. Violating these bans carried the threat of harsh punishment, including social sanction and religious excommunication…. These Church policies influenced the European family structure: the extended family gradually became less important and was replaced by the smaller nuclear family…. Christian culture, as elucidated by the Church, also strongly rejected the values associated with patrilineal descent groups and strengthened the commitment toward bilateral descent (i.e., from both parents), which was already part of the post-Roman Germanic tradition.”
The laws of China and Western Europe, themselves shaped by culture, in turn shaped the societies they governed in a self-reenforcing loop. “In China, where the state was stronger from the beginning, the legal system was designed top-down with two main goals: to maintain peace and stability and to govern the relations between the public administration and its subjects. Civil law played only a secondary role because commercial disputes were primarily resolved by clans through arbitration and compromise…. In Europe, by contrast, where the state was initially much weaker, the legal system had a bottom-up origin, and corporations influenced its evolution both on the demand and the supply side. The prevalence of impersonal exchange and contractual arrangements among unrelated individuals created a demand for external enforcement and well-functioning legal institutions, which provided the basis for the evolution of commercial and civil law. Legal principles first appeared in private contractual agreements within and between corporations. Over time, they evolved as best practices in communities of merchants…. First, the legal system defined and clarified the nature of corporations as separate legal entities and holders of specific rights…. Second, the emergence of legal institutions very early in European history coincided with the beginning of the formation of states. Their coevolution thus influenced how political institutions developed. The administration of justice and law enforcement was among the first functions performed by European sovereigns…. The legislative and executive sovereign authority would be limited by a preexisting body of law, and the courts would uphold the principle (if not the practice) of equality before the law. The early emergence of judicial state functions in Europe also explains the growing influence acquired by national parliaments.”
Furthermore, state capacity was wielded in different manners in China and Western Europe. “The Chinese state had a long tradition of relying on a powerful and effective central bureaucracy to fulfill its aims…. They were selected through a demanding civil service exam that required lengthy preparation and extensive training in Confucian doctrine. This meritocratic process had several advantages from the perspective of regime stability. It created a cohesive social group of talented administrators who shared a basic ethic and a very similar education, all with a large stake in preserving the regime…. [In Europe,] the Church deliberately enhanced European political fragmentation by strategically undermining the centralization of political powers between and within emerging nation-states…. Self-governing cities, too, exerted a key influence over the evolution of
European political institutions, enhancing the effects of political fragmentation. Like Chinese clans, autonomous cities in Europe—known as
“communes”—enforced tax collection and contributed to other aspects of
decentralized administration. Unlike Chinese clans, however, communes enjoyed exclusive control over their territories. This feature enhanced their bargaining power against sovereigns…. Sovereigns had to concede political rights to self-governing cities in exchange for the additional tax resources. Often, these political rights took the form of representation in national parliaments…. China too had large urban centers, but they had little autonomy and did not play an important role in decentralized state administration.”
Mokyr et al. discuss why the Industrial Revolution took place in Western Europe. They stress that although many major advances first happened in England, it was a Europe-wide phenomenon, the rest of Western Europe was never far behind. “The Industrial Revolution was driven by a host of scientific and technological innovations. European corporations were at the heart of the creation and accumulation of knowledge, following centuries-old norms and traditions. Monasteries, universities, and later scientific societies—all corporate organizations—played a crucial role in creating the conditions that made the Industrial Revolution possible…. The polycentric nature of political power and competition among fragmented states allowed innovators to escape censorship and suppression. Second, the Catholic Church, despite its ambiguous and often inconsistent relationship with useful knowledge, on balance created conditions that proved conducive to technological progress…. [Third,] the state had conceded some manner of political representation to business interests, which limited state interference with wealth accumulation and the functioning of markets…. In China, by contrast, knowledge accumulation and education were largely controlled by the state administration…. Mandarins and other government officials largely controlled the market of ideas and the course of intellectual innovation. Moreover, the Chinese bureaucracy increasingly privileged the study of traditional Confucian doctrine, bent primarily on social peace and preserving regime stability…. European corporations contributed to economic progress in two additional ways. First, they facilitated the creation of thick and well-functioning financial markets and the diffusion of long-distance trade…. The second way that the corporation facilitated European industrialization was via its model for the organization of production. In a capitalist firm, investment decisions are made by capital owners who are also the residual claimants of the returns from investment, while labor earns a fixed wage. This organization of production creates strong incentives to invest in labor-saving innovations because the returns accrue to those who control the investment decisions.”
Finally, Mokyr et al. conclude by reasserting their broader thesis for how Western Europe was able to leapfrog China during the course of the second millennium. “Current cultural traits often reflect features of a more distant social and political environment. Our analysis of the Great Reversal points to another mechanism of cultural persistence and influence: the embedding of specific cultural traits into social organizations…. The effects of culture are not only direct; they are also mediated by social organizations that are complementary with specific cultural traits. Once in place, these social organizations are hard to dismantle, and they contribute to the spread and maintain the cultural foundations on which they are built…. The fundamental challenge of state formation is how to scale up cooperation from the local to the national level…. Scaling up cooperation among strangers poses new challenges and requires different social arrangements…. In Europe, peaceful resolution of internal political conflicts and the emergence of inclusive institutions were facilitated by social practices that encouraged cooperation among strangers.”
