Great Divergence

Based on Wikipedia: Great Divergence

For most of human history, a merchant in Cairo or Canton lived about as well as one in London or Amsterdam. The great civilizations of the world—China, India, the Ottoman Empire, Persia, Japan—were sophisticated, wealthy, and in many ways more advanced than the kingdoms of Western Europe. A time traveler visiting Earth in the year 1700 would have found little reason to predict that within two centuries, a handful of nations clustered around the North Atlantic would dominate the entire planet.

And yet that's exactly what happened.

By 1900, Western Europe and its offshoots in North America and Australasia had pulled so far ahead of the rest of the world that the gap seemed almost unbridgeable. Britain alone controlled a quarter of the Earth's surface. The United States was becoming an industrial colossus. Meanwhile, China—which had been the world's most sophisticated economy for centuries—had fractured into chaos. India was a colonial possession. The Ottoman Empire was "the sick man of Europe." Japan was the lone exception, furiously industrializing to avoid becoming another Western colony.

How did this happen? Historians call it the Great Divergence, and explaining it has become one of the most contentious debates in all of economic history.

When Exactly Did the West Pull Ahead?

Before we can explain why the divergence happened, we need to establish when it happened. This turns out to be surprisingly controversial.

The traditional view places the turning point somewhere between 1500 and 1600. According to this interpretation, the Renaissance, the Age of Discovery, the Commercial Revolution, and the Scientific Revolution all gave Western Europe a cumulative advantage that steadily compounded over centuries. By the time Christopher Columbus reached the Americas and Vasco da Gama rounded the Cape of Good Hope, the die was already cast.

But a group of scholars known as the "California School"—led by Kenneth Pomeranz, whose 2000 book gave the phenomenon its name—challenged this timeline dramatically. They argued that as late as 1750, the most developed regions of China and India were roughly on par with the most developed regions of Europe. The Yangtze River Delta, home to sophisticated cities like Suzhou and Hangzhou, enjoyed living standards comparable to England or the Netherlands. The Bengal region of India was a manufacturing powerhouse, exporting high-quality textiles that Europeans desperately wanted but couldn't produce themselves.

If Pomeranz is right, the Great Divergence wasn't a gradual process spanning centuries. It was a sudden rupture—an explosive takeoff that occurred mainly in the nineteenth century, driven by the Industrial Revolution.

The evidence is genuinely contested. Economic historian Stephen Broadberry has crunched wage data suggesting that English workers earned three times as much as their counterparts in the Yangtze Delta as early as 1600, at least when measured in silver. But measuring wages is tricky. Silver prices fluctuated wildly between continents. The purchasing power of a given wage depended enormously on local prices for food, housing, and other necessities. And even if English workers earned more, that doesn't necessarily mean they lived better—other quality-of-life indicators like nutrition, life expectancy, and access to goods matter too.

What everyone agrees on is that something dramatic happened in the late eighteenth and nineteenth centuries. Whatever advantages Western Europe may have accumulated earlier, the Industrial Revolution turned a modest lead into an unbridgeable chasm.

The Little Divergence Before the Great One

Here's a twist that complicates the story further: even within Europe, development was wildly uneven.

By 1300, the most advanced economy in Europe was probably northern Italy—particularly the city-states of Venice, Florence, and Genoa. These merchant republics had pioneered banking, international trade, and sophisticated manufacturing. When the Black Death swept across Europe in the mid-fourteenth century, killing perhaps a third of the population, it actually set the stage for further development in some regions. Suddenly labor was scarce. Peasants could demand higher wages. Serfdom began to crumble.

But the benefits of this demographic disaster weren't distributed evenly. In the regions around the North Sea—the Netherlands, England, and parts of northern France—wages rose and stayed high. Workers ate meat. They bought consumer goods. A new kind of economy began to emerge, based on higher wages, greater productivity, and growing markets.

In southern and eastern Europe, things went differently. Landlords successfully reasserted control over their peasants. In some regions, serfdom actually intensified. By 1500, a gap had opened up within Europe itself—what historians call the "Little Divergence." Real wages in Spain, Italy, and Germany drifted down toward subsistence levels, while wages in England and the Netherlands remained high.

This matters because it suggests that whatever factors drove the Great Divergence weren't simply "European" factors. They were specific to a small cluster of nations on the northwestern fringe of the continent. The question isn't just "Why did Europe pull ahead of Asia?" It's "Why did England and the Netherlands pull ahead of everyone—including most of Europe?"

The Coal Question

One popular explanation focuses on something surprisingly mundane: the location of coal deposits.

Before the Industrial Revolution, every economy ran on organic energy. Humans and animals provided muscle power. Wood provided fuel for heating and for industrial processes like smelting metal. Water and wind could power mills, but only in specific locations. This created a fundamental ceiling on how much an economy could grow. Land was finite. Forests could be exhausted. Animals needed to be fed.

By the sixteenth century, England was facing an energy crisis. Centuries of deforestation had depleted the country's woodlands. The price of firewood soared. Londoners began burning coal instead—a dirty, smelly fuel, but one that happened to be abundant in places like Newcastle. The phrase "carrying coals to Newcastle" entered the language as a metaphor for doing something utterly pointless.

This switch to coal was originally a desperate adaptation to scarcity, not a brilliant strategic choice. But it had profound consequences. Once people were accustomed to using coal, they had an incentive to invent better ways of mining it. Deep coal mines flooded easily, so inventors developed steam-powered pumps to remove the water. These early steam engines were wildly inefficient—but they worked. And once steam power existed, other applications became imaginable.

China had plenty of coal—in fact, it had used coal for heating and metallurgy during the Song Dynasty, centuries before Europeans did. But China's coal deposits were located far from its economic centers in the Yangtze Delta. Transporting coal overland was prohibitively expensive. Meanwhile, China's forests hadn't been depleted as severely as England's. There was less pressure to switch fuels.

India faced a similar situation. The subcontinent was actually less deforested than Europe until the nineteenth century. Wood remained abundant and cheap. Why invest in expensive, technically challenging coal mining when perfectly good fuel was growing in nearby forests?

The coal explanation is elegant, but it has its critics. Coal deposits existed in many parts of the world. Belgium had them. Germany had them. So did parts of China. The presence of coal wasn't sufficient to industrialize—plenty of coal-rich regions remained poor. And England's early industrialization relied heavily on water power, not steam. The first textile factories were located along fast-moving rivers, not coal seams.

The New World Windfall

Another explanation focuses on what Europeans found when they crossed the Atlantic: an entire hemisphere, lightly populated by peoples vulnerable to Old World diseases, available for conquest and exploitation.

The ecological transfer that followed was staggering. Silver and gold flowed from American mines to European treasuries. Sugar, tobacco, coffee, and cotton—crops that grew poorly or not at all in Europe—could now be produced on American plantations, using enslaved African labor. New food crops like potatoes and maize came back in the other direction, allowing European populations to grow.

More subtly, the New World alleviated what economists call "land constraints." Every economy depends on land to produce food, fiber, fuel, and raw materials. As populations grow, they bump up against the limits of what their territory can produce. This is why Thomas Malthus predicted that population growth would always be checked by famine—there simply wasn't enough land to feed unlimited numbers of people.

The colonies changed this equation for European powers. Raw materials that would have required vast tracts of domestic land could now be imported from overseas. Cotton for English textile mills came from American plantations. Sugar for English tea came from Caribbean islands. Timber for English ships came from Baltic forests and later from North American woodlands. In effect, England had access to "ghost acres"—productive land in other parts of the world that supplemented its own limited territory.

China and India, despite their enormous sizes, couldn't escape Malthusian constraints as easily. Their populations had expanded to fill their available land. By 1800, population density in the Yangtze Delta exceeded that of the most crowded parts of Europe. There were few "ghost acres" to draw upon.

But here's where the explanation gets uncomfortable. The New World windfall wasn't just about land and resources. It was about exploitation—slavery, conquest, and the extraction of wealth from colonized peoples. The triangular trade that connected Europe, Africa, and the Americas was built on human trafficking on an industrial scale. The profits from plantation agriculture enriched European merchants and financed European industrialization.

How much did colonialism actually contribute to European development? This is fiercely debated. Some historians argue that colonial profits were marginal compared to the domestic economy—a few percentage points of gross domestic product at most. Others counter that these profits were concentrated in exactly the sectors that drove industrialization: merchant shipping, banking, manufacturing, and finance. A small injection of capital into the right places at the right time might have effects far out of proportion to its raw size.

Institutions and Political Fragmentation

Perhaps the most influential explanation for the Great Divergence focuses not on geography or resources, but on institutions—the rules, norms, and organizations that structure economic and political life.

One striking difference between Western Europe and the great Asian empires was fragmentation. China was unified. The Ottoman Empire stretched across three continents. Mughal India consolidated the subcontinent under a single administration. Europe, by contrast, was a patchwork of competing states—dozens of kingdoms, duchies, principalities, and city-states, constantly jostling for advantage.

This fragmentation, paradoxically, may have been an advantage. Competition between states created pressure to innovate. A king who taxed his merchants too heavily would see them flee to a rival jurisdiction. A state that banned useful technologies would fall behind militarily. The Dutch Republic welcomed religious refugees and became a center of printing, finance, and scientific inquiry. Huguenot craftsmen expelled from France brought their skills to England, Prussia, and the Netherlands.

Within individual European countries, power was often divided between monarchs, aristocrats, merchants, and the church. This created space for what economists call "inclusive institutions"—arrangements that distributed economic and political power broadly rather than concentrating it in a single ruler's hands.

The Glorious Revolution of 1688 is often cited as a crucial turning point. When England's Parliament overthrew King James II and invited William of Orange to take the throne, it wasn't just a change in personnel. It was a constitutional revolution. Parliament gained control over taxation and spending. The Bank of England was established to manage government debt. Property rights became more secure. Merchants and investors could now trust that their assets wouldn't be arbitrarily seized by a desperate monarch.

This institutional framework made England an attractive place to invest, invent, and take economic risks. Entrepreneurs could expect to keep their profits. Creditors could expect to be repaid. Contracts would be enforced. The rule of law applied to economic transactions.

Compare this to imperial China. The emperor held, in theory, unlimited power. There was no independent merchant class that could check his authority. The examination system that selected government officials was meritocratic and sophisticated—arguably more so than anything in Europe—but it funneled talent into government service rather than private enterprise. Successful businessmen often sought to convert their wealth into landed estates and official titles, rather than reinvesting in productive enterprises.

The institutional explanation is compelling, but it raises its own questions. Why did Europe develop fragmented, competitive politics while China remained unified? Geography plays a role—Europe's mountains, rivers, and peninsulas made political unification difficult, while China's heartland was more naturally cohesive. But culture and historical accident mattered too. The Roman Empire collapsed in the West but not the East. Charlemagne's successors divided his realm. The Chinese imperial tradition, by contrast, created a powerful ideology that portrayed unification as the natural state of affairs.

The Scientific Revolution

Another factor that may have set Europe apart was the Scientific Revolution of the sixteenth and seventeenth centuries. Copernicus, Galileo, Kepler, Newton—these figures didn't just make specific discoveries. They developed a new approach to understanding the natural world, one based on systematic observation, mathematical modeling, and experimental verification.

The connection between scientific knowledge and economic development wasn't immediately obvious. Newton's laws of motion didn't directly help anyone build a better steam engine. The early Industrial Revolution was driven mainly by practical tinkerers and craftsmen, not university-trained scientists. James Watt was an instrument maker; Richard Arkwright was a barber and wigmaker.

But over time, the gap between science and technology narrowed. The chemical industry of the nineteenth century depended heavily on theoretical chemistry. Electrical engineering drew on the physics of electromagnetism. By the twentieth century, systematic research and development had become central to economic progress.

Why did the Scientific Revolution happen in Europe rather than elsewhere? This is another contested question. Chinese civilization had produced brilliant scientists and engineers—papermaking, printing, gunpowder, the compass, all originated in China. Islamic scholars had preserved and extended Greek knowledge during Europe's Dark Ages. India had developed sophisticated mathematics.

One hypothesis focuses on Europe's intellectual culture. The competitive, fragmented nature of European society extended to its universities and learned societies. Ideas circulated rapidly through correspondence networks. Publication in vernacular languages (rather than just Latin) spread knowledge beyond clerical elites. The printing press—itself adopted from China—made books cheap and abundant. Wrong ideas could be publicly criticized and eventually discarded.

In China, intellectual life was shaped by the imperial examination system, which focused on mastery of Confucian classics rather than natural philosophy. This wasn't because Chinese culture was hostile to practical knowledge—the exams did cover practical topics, and informal technical knowledge circulated widely. But the highest prestige attached to literary and philosophical learning, not scientific inquiry.

Egypt: A Road Not Taken

The story of Muhammad Ali's Egypt illustrates how contingent the Great Divergence really was.

In 1819, Egypt under Muhammad Ali embarked on an ambitious program of state-sponsored industrialization. Factories were built for textile production and weapons manufacturing. Modern irrigation expanded cotton cultivation. Steam engines were installed in various industries. By the early 1830s, Egypt had thirty cotton mills employing around thirty thousand workers.

This was happening at almost exactly the same time that industrialization was transforming England. Egypt had certain advantages: fertile land, efficient Nile-based transportation, abundant cotton, and a ruler willing to invest heavily in modernization. Some economic historians argue that Egypt in the 1820s and 1830s had the necessary preconditions for an industrial revolution of its own.

It didn't happen. After Muhammad Ali's death in 1849, his industrialization programs faltered. Egypt was increasingly integrated into the world economy as a supplier of raw cotton to British mills—exactly the kind of dependent, extractive relationship that colonialism typically imposed. By the end of the century, Egypt was under British occupation.

What went wrong? The usual explanations focus on British pressure, unfavorable trade agreements, and the lack of protective tariffs that might have sheltered Egyptian industry from British competition. Egypt had to compete with an industrial giant that had a century's head start. Its domestic market was smaller. Its technical workforce was less developed. The odds were stacked against it.

Japan succeeded where Egypt failed, but Japan had certain advantages: geographic isolation that complicated Western intervention, a unified reform movement after the Meiji Restoration, and perhaps most importantly, no strategic resources that Western powers desperately wanted to control. Egypt sat astride the route to India. Japan was at the end of the world.

The Divergence Ends (Sort Of)

The Great Divergence reached its peak sometime before World War One. At that point, the gap between the West and the rest was probably as large as it has ever been. European empires controlled most of the planet. Western technology and military power seemed invincible.

The twentieth century complicated this picture. Two world wars devastated Europe. Colonial empires crumbled. New nations emerged and began their own processes of modernization and industrialization. Japan's rise was followed by the "Asian Tigers"—South Korea, Taiwan, Hong Kong, and Singapore. China, after decades of war and ideological turmoil, began its own extraordinary economic transformation in the 1980s.

By the late twentieth century, something new was happening. Developing countries began growing faster than developed ones. The gap that had opened up over two centuries started to close. Economists began speaking of a "Great Convergence" to match the earlier divergence.

This convergence has been uneven. Some regions, particularly East Asia, have narrowed the gap dramatically. China's per capita income was perhaps one-thirtieth of the United States' in 1980; today it's roughly one-quarter. Other regions—much of Africa and Latin America—have made less progress. The world remains deeply unequal, but the pattern of inequality is shifting.

What Does It All Mean?

The Great Divergence matters because it shaped the world we live in. The global balance of power, the structure of the world economy, patterns of wealth and poverty—all of these can be traced back to the explosive transformation that began in northwestern Europe some two to three centuries ago.

Understanding why it happened isn't just an academic exercise. If we can identify the factors that enabled some societies to escape Malthusian constraints and achieve sustained growth, we might learn something about how to promote development elsewhere. If inclusive institutions matter, then institution-building should be a priority. If education and scientific culture matter, then investments in human capital make sense. If geography and resources play a determinative role, then some regions may face structural disadvantages that need to be addressed.

But the debate also has ideological stakes. Explanations that emphasize European culture or institutions can shade into triumphalism—the idea that the West succeeded because it was somehow better, more rational, more freedom-loving. Explanations that emphasize colonialism and exploitation point toward a darker story—the West succeeded in part by extracting wealth from the rest of the world.

The honest answer is probably that multiple factors mattered, and they interacted in complex ways. Coal deposits alone don't cause industrialization, but they helped. Inclusive institutions alone don't guarantee growth, but they helped. Colonial extraction alone doesn't explain Western wealth, but it contributed. The Great Divergence wasn't the result of any single cause. It was the product of a specific historical conjuncture—a particular combination of geography, institutions, culture, and contingent events that came together in one place at one time.

Whether anything like it will happen again—whether some other civilization will experience a similar transformative breakthrough—remains to be seen. The story of the Great Divergence is, in some sense, still being written.