Book Review
How the World Became Rich explores the evolution of sustained economic growth, tracing its roots to the Industrial Revolution in Northwestern Europe and North America. It presents a detailed analysis of how increased wealth has historically alleviated societal issues and the persistent poverty witnessed in the vast majority of human history. The authors conduct a thorough literature review to evaluate various theories explaining economic growth, emphasizing the interplay between economic and political developments and the role of institutions and culture. Great Britain played a pivotal role during the 18th century in setting the stage for the Industrial Revolution through a combination of political, cultural, and intellectual developments that favored innovation and institutional growth. U.S. economic development was key in bringing about sustained economic growth in the Western world. The narrative expands to examine how industrialization spread globally, particularly focusing on Japan and other East Asian countries adopting Western technologies and taking part in free trade. The book argues that while markets are essential for economic growth, the broader institutional and cultural contexts significantly influence economic outcomes. It warns against the simplistic application of policies without considering historical and cultural contexts. The concluding chapters advocate for understanding the complex interplay of various factors that contribute to economic prosperity and the importance of fostering environments that encourage innovation and entrepreneurship. “How the World Became Rich” is a comprehensive study that not only analyzes historical economic trends but also offers potential insights into future economic development. It is by no means a “how-to manual” yet the policy implications are clear.
Chapter 1 of “How the World Became Rich” sets the stage by discussing the historical growth of per capita income and how increased wealth has helped alleviate many societal issues. This growth was supported by developments in economic development structures, including legal frameworks that facilitated the rise of corporations. The chapter emphasizes that the key to understanding global wealth today is recognizing the role of sustained economic growth in various countries, avoiding economic shrinkage and stagnation.
Diving into the heart of the book, in part one the authors present a comprehensive literature review, methodically classifying and evaluating the major theoretical strands that have attempted to explain sustained economic growth. Geography, institutions, culture, and demographics are all essential to understanding economies and economic growth. Colonial histories are also important but tend to impact countries in different ways.
Geography is an important factor in economic development. The authors argue that while geography is significant in explaining regional economic variations, it cannot alone account for why the Industrial Revolution began in Great Britain or why sustained modern economic growth emerged in the 19th century. The chapter suggests that geographical factors should be considered in conjunction with agglomeration effects, where economic activities concentrate in particular areas, fostering more significant growth. It challenges the notion that geography is the predominant factor in economic success, proposing a more nuanced view that considers multiple influences.
Referencing the work of Acemoglu and Robinson in Why Nations Fail, Chapter 3 focuses on the critical role of institutions in explaining the varying degrees of economic success across different societies. The authors argue that institutions, which include political, economic, legal, social, and religious structures, establish the ‘rules of the game’ for human interactions within a society. They highlight the importance of political and legal institutions in upholding the rule of law and protecting property rights, which are essential for economic stability and growth. The chapter provides a detailed discussion on how, during the 11th and 12th centuries, the rediscovery and implementation of Roman law facilitated contract writing and laid the groundwork for the civil law system. Meanwhile in England, the development of the common law supported trade and commerce. It also describes the period from the year 1000 to 1300 in Europe as a ‘commercial revolution’ characterized by a revival of long-distance trade and a period of sustained economic growth. The analysis culminates in the conclusion that while institutions are pivotal, they are part of a broader interplay of factors that drive economic development.
Next the authors examine the impact of culture on economic development. Koyama and Rubin are careful to disclaim they are making any manner of essentialist claims–painstakingly so. The authors explore how cultural characteristics influence people’s worldviews, their responses to incentives, and their interactions with others, which in turn affect economic outcomes. They discuss the role of trust, gender norms, and marriage patterns in shaping economic behavior and institutional development. The chapter highlights how religious and societal norms, enforced through politics and/or law, can significantly impact economic growth. It also emphasizes the persistence of culture, noting that the legacies of past societies continue to shape the environments of their descendants and, subsequently, their economic trajectories. The authors suggest that the cultures of Northwest Europe were particularly conducive to developing open, innovative economies. Finally, the chapter cites literature on the Reformation’s role in undermining the power of Protestant rulers to secure legitimacy through the Catholic Church, thereby empowering the role of parliaments and other secular institutions that supported economic growth.
Chapter 5 of How the World Became Rich explores the demographic trends in Europe and their economic implications. The Black Death had a monumental impact on labor. The authors discuss how the significant decrease in population led to higher wages for ordinary workers, as labor became more scarce. This shift had profound effects on economic structures, including patterns of marriage and household formation, with women marrying at older ages and families having fewer children (the European Marriage Pattern). This trend enabled greater investment in the education and training of children, which helped to ensure sustained economic growth by enhancing the human capital of the population. The chapter illustrates how these demographic shifts contributed to a longer-term economic resilience and growth during a period characterized by significant social and economic upheaval. The discussion provides a compelling view of how demographic changes can influence economic trajectories, underlining the importance of human capital in the development of prosperous societies.
Finally, closing out part 1, Koyama and Rubin addresses the role of colonization in Europe’s economic development, challenging the notion that it was a primary driver of wealth accumulation for Europe. The authors argue that while colonization provided an initial injection of wealth, its long-term economic impact was not sustainable. Furthermore, the importation of silver and gold from the New World often had detrimental effects on the institutional development of colonial powers like Spain and Portugal. As for the impact on colonized countries, typically colonization disrupted local economies and social structures, but long-term impacts tended to vary. For many former African colonies, there is literature arguing that there was a lasting negative impacts on trust norms and human capital accumulation. In other instances, Europeans provided institutions that could be harnessed by new independent governments. In the long run, this stood to benefit countries like India. However, in some cases those institutions were used for extraction and elite rent seeking. This chapter highlights the complex and often adverse legacy of colonization on economic development, illustrating that its benefits were overshadowed by broader, more destructive consequences.
In part 2, the authors synthesize the diverse elements contributing to economic prosperity across different contexts. They argue convincingly for the critical roles that institutions, markets, and cultural frameworks play in sustaining economic growth. Moreover, they caution against the simplistic transplantation of successful policies without a deep understanding of the intricate historical and cultural landscapes that shape different societies.
Why was Northwestern Europe, particularly Great Britain, the first region to experience sustained modern economic growth? There are many reasons. Europe’s geography allowed for more political fragmentation, leading to smaller states/city-states which experimented with different institutions and means of power sharing, some of which fostered competitive economic environments. This allowed Venice, the Dutch Republic, and Great Britain to become trading nations. The discovery of the New World and the subsequent resources and wealth it provided also played a critical role, though the authors note that Spain missed its opportunity to become a European superpower by squandering its colonial riches. The chapter concludes by discussing the rise of limited and representative government structures in places like the Dutch Republic and England, which created favorable conditions for economic innovation and growth.
The beginning of modern, sustained economic growth is Great Britain’s Industrial Revolution. Clearly this is a pivotal moment in economic history. The authors argue that while the Dutch Republic provided a conducive environment for economic development earlier on, it was Great Britain that ultimately capitalized on a combination of factors to industrialize. These included innovation in response to high wages, along with access to cheap capital and energy resources. Cultural and intellectual developments also played a crucial role by fostering a population with high levels of human capital and skills. The chapter discusses how British institutions, though significant, do not fully explain the success of industrialization; instead, it was the synergy between these institutions and Britain’s state capacity—which was greater than that of other European nations—that enabled it to efficiently manage wars and national debt. Furthermore, the authors explore how Britain’s internal market economy, which was predominantly oriented around market exchanges even before industrialization, facilitated the efficient allocation of resources including land, capital, and labor. They also highlight the role of the “Republic of Letters,” a network of intellectuals across Europe, which allowed British innovators to exchange ideas and advance technological developments more rapidly than their continental counterparts. Ultimately, the chapter concludes that a combination of limited and representative governance, a robust domestic economy, access to the Atlantic economies, and a base of highly skilled mechanical workers were crucial to Britain’s industrial success, setting a precedent for the rest of the world to follow.
Chapter 9 examines the spread of the industrial revolution beyond Britain to other parts of the world, marking the rise of the modern international economy. The authors label this expansion as revolutionary, highlighting that Britain was the first to achieve sustained, permanent per capita GDP growth over a long period, which solidified with what is referred to as the Second Industrial Revolution. This period, from 1870 to 1914, involved significant technological change, including advancements in medicine, chemicals, and energy, with scientific discoveries impacting all industries. The chapter discusses how these innovations spread to countries like the US, France, and Germany, fostering a global scale of industrial development. This is the First Era of Globalization, during which world trade expanded by more than 400%. International trade benefited from the period of relative peace in Europe after 1815 (which would come crashing to an end in 1914). They attribute the U.S.’s rapid economic growth to high real wages, inexpensive access to energy and capital, and cultural and economic policies that encouraged innovation and education. America also benefited from a huge internal market and solid institutions that enabled free markets and high incentive to innovate. Many countries capitalized on the industrial advancements initiated by Britain and America, paving the way for the modern global economic landscape. However, not every country became rich by industrializing. The benefits of free international markets trade allowed countries like Denmark, the Netherlands, Australia, and New Zealand became rich through trade without fully industrializing.
Industrialization eventually spread to many other countries (including former colonies) through a process termed “delayed catch-up.” This concept refers to the phenomenon where newly industrializing countries start with more advanced technologies and specialize in areas where they have competitive advantages. The authors focus on Japan as the first non-Western country to achieve sustained economic growth, beginning with the Meiji Restoration in 1868. Japan modernized its political institutions and embraced policies that adopted Western technologies and engaged in international trade, which significantly boosted its GDP. This was followed by the rise of the East Asian Tigers—South Korea, Hong Kong, Singapore, and Taiwan—which followed Japan’s example. These nations capitalized on their geographic proximity to Japan, using it as a model for developing competitive manufacturing sectors and integrating into the global economy. The authors highlight how these countries focused on developing industries where they had competitive advantages and maintained open trade policies, avoiding the pitfalls of protectionism. Additionally, the authors contrast the economic strategies of the East Asian Tigers with the experiences of Eastern Bloc countries, where authoritarian governments stifled innovation and economic growth through mismanagement and corruption. Finally, the narrative turns to China, discussing the economic reforms under Deng Xiaoping and the rapid growth that followed. China’s economic history demonstrates the risks of centralized authoritarian rule, exemplified by the “bad emperor problem.” The authors conclude by reflecting on the broad implications of these varied paths to industrialization in Asia, noting how these strategies have reshaped the global economic landscape and lifted billions out of poverty.
The conclusion of How the World Became Rich synthesizes the diverse elements that have contributed to economic prosperity across different contexts, emphasizing the interconnected roles of institutions, markets, and culture. The authors underscore that while free markets are essential for economic growth, the broader institutional and cultural contexts in which these markets operate significantly influence outcomes. They argue convincingly that historical legacies and cultural nuances must be considered to implement economic policies effectively, warning against the simplistic transplantation of models that have worked in one setting to another without adaptation. The conclusion reiterates the importance of innovation and entrepreneurship, supported by an environment that encourages the free flow of ideas buttressed by robust institutional support. The authors stress that economic growth is not merely a spontaneous outcome but the result of deliberate and conducive policy environments that recognize and harness local conditions and historical contexts. They conclude that understanding these complex dynamics is crucial for fostering environments that not only initiate but sustain economic growth. The book ends by reminding us that the journey towards economic richness is ongoing and nuanced, requiring a deep understanding of the multifaceted nature of economic development.
Despite its comprehensive analysis and depth of insight, the book could benefit from more clearly defined roadmaps for each chapter. At times, the narrative’s progression feels slightly unstructured and lacking discursive flow, as the nature of this subject often mixes theories, applications, and events. Nevertheless, How the World Became Rich is an indispensable resource for those interested in the dynamics of economic history and international development. Its detailed examination of the factors fostering economic growth makes it an essential read for anyone curious about the history of the global economic order.