You’ll need to print this out and read it carefully; but it’s worth the effort. In this 180-page tour de force Mr. Yi Wen of the Federal Reserve Bank of St. Louis’ Research Division and Tsinghua University deconstructs the British and American Industrial Revolutions to see what this tells us about China and it’s prospects.
In a lengthy preamble he dismisses ‘blackboard economics’ as failing to provide reliable insight to proven development models. He describes much of the explanatory work on the causes of Britain’s and America’s Industrial Revolutions as being like taking the roof off a house and, by looking inside, being able to say something meaningful about its foundations.
Universal suffrage was a consequence of the Industrial Revolution; it was not the necessary precursor. Robust legal and other institutions were the product of colonialization, imperialism, mercantilism, the slave trade and painful primitive accumulations. Much history on these events places carts before horses and besides if all it were about were democracy, a free press and etcetera how do we explain India’s and others’ serial failure?
It was not the invention of new technology that propelled the first Industrial Revolutions, the spinning jenny and the flying shuttle were invented in response to demand; they didn’t create it. Coal, steel and transportation networks were added after the first Industrial Revolutions to keep them going. The first Industrial Revolutions were essentially hand cranked (or rather water and wind driven). The steam engine just made existing technology work faster, coal ditto and the rail networks were for transporting goods already in existence. The most important aspect of the Western Industrial Revolutions, that made everything work, was markets and the ability to reach, protect and exploit them.
All of this is important to understand because China is now just finishing it’s second Industrial Revolution and, BTW has a big market it doesn’t need control of the high seas to protect.
The author believes China’s third Industrial Revolution is about to begin (he says from c.2018) and this is where financial institutions develop, the yuan becomes the world’s major trade currency and is the place from where China begins to eclipse currently the world’s greatest trading nation, the U.S.
If you can only take a small bite out of the whole start at P. 95 ‘Why China’s Rise is Unstoppable’.
[Get to the paper in full via this link The Making of an Economic Superpower. Incidentally this work will form the basis of a forthcoming book with the same title as the paper so it’ll save you plowing through that in due course; you can read it here, abridged, first.]
As I can’t do justice to the piece in a summary I’ll close here and again urge you to make the effort to grind through it yourself. Lifted from it though below are these two thought provoking quotes about underestimating how one’s world may be changing.
Sidney Smith (an Englishman) wrote in 1820 that “Americans are a brave, industrious, and acute people; but they have hitherto given no indication of genius, and have made no approach to the heroic…. Where are their Foxes, their Burkes, their Sheridans?….Whither their Arkwrights, their Watts, their Davys?…. Who drinks from American Glasses? Or eats from their plates?”
Joe Biden said in 2012 and 2014;“We are the world’s largest GDP. We have the most innovative companies and productive workers, the finest research universities in the world, an entrepreneurial instinct that is unmatched by any country in the world” China, by contrast, has not developed “one innovative project, one innovative change, one innovative product.” “I challenge you, name me one innovative project, one innovative change, one innovative product that has come out of China.”
Indeed, whither China’s Musks, Bezoss, and Spielbergs? Hold on a though Mr. Biden, they’re on their way.
Happy Sunday