Monday, September 23

Wages, prices, and living standards in China, 1738–1925: in comparison with Europe, Japan, and India

This was the formative years of modern democracy. So the economic background to these years is important, as a matter of fact, the authors actually analyse the wages, prices and living standards in various countries over this period with reference to what the great old man, Adam Smith, thought. I quote the conclusion:

Our investigation of Asian and European wages and prices shows that the situation differed somewhat from Adam Smith's impressions. Money wages were in accord with his view: in China, they were certainly lower than wages in the advanced parts of western Europe in the eighteenth century and similar to those in the lagging parts of Europe. By the twentieth century, however, wages in all parts of Europe were higher than in China. Contrary to Smith, the cost of living was similar in China and in Europe in the eighteenth century.

The upshot of the wage and price comparisons is that living standards were low in China. In the eighteenth century, advanced cities like London and Amsterdam had a higher standard of living than Suzhou, Beijing, or Canton. The standard of living in the Chinese cities we have studied was on a par with the lagging parts of Europe, the Ottoman Empire, India, and Japan. By the twentieth century, enough progress had occurred in even the backward parts of Europe that their standards of living were beginning to creep above those in China. Wages seemed to have slipped in China in the eighteenth century. Still, most of the difference between Europe and China in 1913 was due to European advance rather than Chinese decline.

In spite of the above, a major surprise is our finding that unskilled labourers in major cities of China and Japan—poor as they were—had roughly the same standard of living as their counterparts in central and southern Europe for the greater part of the eighteenth century. This calls into question the fundamental tenet of the large ‘rise of the west’ literature that sees western Europe—as a whole—surpassing the rest of the world in the early modern era. Our article suggests that it was only England and the Low Countries that pulled ahead of the rest. The rest, in this context, includes not only Asia but also much of Europe.52

In this regard, Adam Smith neglected regional variation and thereby over-generalized the comparison of Europe and China. But our findings also dispute the revisionists' claim that the advanced parts of China, such as the Yangzi Delta, were on a par with England on the eve of the industrial revolution, for we find real wages for unskilled labourers in the Yangzi Delta to have been no higher than those in Beijing or Canton. Clearly, our database on China could be greatly improved and we do not claim to have given the final answer to this question. Nevertheless, any newly discovered data would have to be very different from what is currently available in order to convince us that pre-industrial Chinese living standards were similar to those in the leading regions of Europe.53 In this regard, Adam Smith's pessimism looks closer to the truth than the revisionists' optimism. Of course, establishing the existence of an income gap between north-western Europe and China in the early modern era only takes us halfway towards the resolution of the great divergence debate. The search for a causal explanation of the great divergence still looms large as a future research agenda.

Much to think about but let me link to one existing situation. People complain about stagnating wages/incomes in so many OECD countries. See here, here, here and here for some examples. And this too over one decade or so. But China saw wage stagnation for a very long period of time. Not only that, vast swathes of Europe was also stagnant for many many moons. So it is of interest when people claim that the West rose on the back of the industrial revolution, erm, no, only the low countries and UK rose.

crucially, the lesson to be learnt from here is to focus on productivity. USA does brilliantly on productivity, we in the UK and India are crap at it. We do not educate our folks well enough, we are not innovative enough, we do not use technology enough, and we do not encourage investment enough. Bah!

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