Lecture 2

Why China Missed the Industrial Revolution?

Purpose:
• Try to understand the factors that contributed to China
missing the Industrial Revolution … This would account for
the fact of why China was one of the richest countries in the
world in 1500 and far ahead of Europe, but by 1900 was
one of the poorest nations in the world and had fallen far
behind Europe and some of its European dominated
colonies …

• Understand the importance of technology innovation and

the role of science in the innovation process in economic
development.
 Plan for Today:

I. China versus Europe before 1500 AD / 1900

II. Explanations of why China missed the

Industrial Revolution – Demand-side hypotheses
(NOT)

III. Population, Science and Innovation (building

block of theory)

IV.Explanations of why China missed the

Scientific Revolution – Supply-side hypotheses
(SOME HYPOTHESES NO and OTHERS
PLAUSIBLE)
A. China versus Europe before 1500 AD

China Europe
____________________________________
before 1500 AD

Environment
Booming Mkts Subsistence
Unified Empire City States and Manors
Bureaucracy Thousands of fiefdoms
Meritocracy Titles Inherited
High yielding Serfs on common fields
Irrigated Ag.
Private property
High yields Low yields

Technology Advanced NOT

gun powder moats
compass draw-bridges
paper lances
printing
iron production (150K tons) iron production (<30K tons)

cosmopolitan cites NOT

“This is the greatest palace that ever was” [Marco Polo
speaking of the Imperial Palace in Beijing]
The Glories of Kinsay (today’s Hangzhou)
A. China versus Europe, 1900

China Europe
____________________________________
1900

Dirt Poor Ruled the World

Dominated with Little Resistance
Industrial Technology
II. Explanations of why China missed the
Industrial Revolution – Demand-side
hypotheses (I Do NOT Believe These)

• inadequate capital markets [no]

• savings=30%
• banks / many informal lending institutions
• capital available even in 1930s when land-man ratio
worse

• no markets [no: fantastic markets]

• lack of entrepreneurship?
-- system of bureaucracy + meritocracy,
killed entrepreneurial spirit
 Lack of entrepreneurship?
• Let’s ask some Ming/Qing residents:

– Rich merchant (rich and involved in trading of silk)

– Factory owner (involved in silk production at home / limited

personal capital)

– Vice magistrate for a county (deputy emperor)

– Bright pupil and parents (fledgling genius)

• Offer from an agent from Macao:

“I have a new way of producing silk that could greatly cut costs, improve
quality and make you immensely profitable … wanna invest?”
Lack of Entrepreneurship?
“I don’t think so!” [who said this? … SDR]
 High-level Equilibrium Trap
• most popular demand-side hypothesis

• China was victim of its own success:

with irrigation and high fertility and peace,

land to man ratio very low (i.e., many
people/a lot of labor) … therefore, the
demand for capital intensive technological
change was not there as in Europe

(remember, industrialization took off after

the Plague had reduced Europe’s
population and wages rose and there was
an incentive to create industrial firms with
relative capital intensive technology
(Douglas North, Nobel Prize paper)
 Assumptions of High Level
Equilibrium Trap
• Is the hypothesis true?

• Depends on assumptions:

• But, many of assumption of the hypothesis

are questionable:
a. One assumption is that all technological change is capital
intensive / labor saving … no, way, often land saving [e.g.,
Japan during the 1900s] … e.g., new seed varieties saved
land, not capital … i.e., if an input is in short supply, those that
develop new technologies will figure out how to save on that
input …

b. There was no room for capital to improve incomes and

output in a labor intensive society … capital is often
complementary to labor … looms were adopted in many
economies that have lots of labor / technology that allows more
intense use of land involves capital (e.g., tractors allows for
double cropping) …

c. China experienced the same size of, if not larger, fall in

population [Ghengis Khan and rule of the Mongolians] as in
Europe … if it was large enough to trigger an Industrial
Revolution in Europe, it should have been large enough in
China .. [see figure 1 in Lin].
 China’s
population

Europe’s
population

Plague in Europe /
0 AD Ghengis Khan in China
 Summary
• so, demand side hypotheses look for reasons
why China’s people did NOT want to use (or
demand) new technologies …

• what are the main reasons?

• supply-side hypotheses look for reasons why

they were not able to develop (or supply) new
technologies
 III. Population, Science, and Innovation
…

• To understand Lin’s hypothesis, it is important to

understand how progress in the world is made
… the most important source of sustained
growth is: innovation … [more than 90% of US
growth since 1900 is from innovation …]

• More basic question to answer why China was

so far ahead in 1500 but why it missed the
Industrialization Revolution is what have been
the sources of technological change
 Model of Technological Invention
[see Lin, figure 2]

• In pre-modern times, it comes from

genius/tinkerers discovering breakthroughs …
and taking advantage of higher productivity from
new inventions, given the current stock of
scientific knowledge and resource base …

• In pre-modern times, the pace of invention was a

function of population … since China had a
larger population (twice the size of Europe), it
had more genius AND more inventions and was
the most advanced country in the world …
Innovations are making
improvements within New technology
the bounds of existing breakthroughs
technologies

In premodern times, both innovations and new technology breakthroughs

came from genius’ that discovered “things” by accident … new technology
breakthroughs are VERY VERY rare … mostly innovations within existing
technologies
Because China had a larger population  more genius’  more
innovations  richer country …
 Model of Technological Invention – 2
[see Lin, figure 2]

• With science, the knowledge stock pushes invention

distribution to the right … and the scope for making
invention rises … the Scientific Revolution in modern
times allowed for Scientists and Experimental methods
to do two things: shift science stock to the right at a
faster pace / make invention breakthroughs at a faster
pace …
• Since Europe made the breakthrough in the Scientific
Revolution first (alla Galleo / daVinci / et al.), they were
able to greatly accelerate the rate of accumulation of
Science, which greatly accelerated the rate of
technological change, which gave Europe its lead …
Innovations are making
improvements within New technology
the bounds of existing breakthroughs
technologies

In modern times, science produces both innovations and new technology

breakthroughs much faster … because they use experimental methods …
Now: whoever invests most into Science and Technology grows the fastest
… this is one reason why the US and Japan are such rich countries today
… the government’s and businesses invest a lot in to Science/Engineering/
R&D ..
Explanations of why China missed the
Scientific Revolution
Supply-side hypotheses

• SOME HYPOTHESES NO and OTHERS PLAUSIBLE

• #1. Needham (famous British social scienties): Bureaucracy that

let China flourish, provide no incentives to its members search for or
accept the new ideas and breakthroughs and gains that came from
the Science and Technology … they were happy enough with the
Imperial salary … Europe, on the other hand, did not have such a
bureaucracy … they had profit-oriented manor lords/kings and their
relatives …

do you believe this?

 Lack of entrepreneurship?
• Let’s ask some Ming/Qing residents:

– Rich merchant (rich and involved in trading of silk)

– Factory owner (involved in silk production at home / limited personal

capital)

– Vice magistrate for a county (deputy emperor)

– Bright pupil and parents (fledgling genius)

• Offer from an agent from Macao:

“I have a new way of producing silk that could greatly cut costs, improve
quality and make you immensely profitable … wanna invest?”
• So: Needham’s explanation – like the high
level equilibrium trap hypothesis – is
probably not valid …

• But there are other supply side hypothesis!

 Supply-side Hypothesis #2
• #2. China’s Confucian ideology was anti-technology
(stressed human relations) and since there was only one
state, with an all powerful Emperor who was not
motivated by making more money from science, it could
enforce the anti-technology bias, while Europe had all of
the small city-states that were competing against each
other

[NO: this is an anachronistic (out-of-date) view of China

as this huge, unified, all-powerful state … actually, China
has always been very decentralized and there are lots of
examples of how pre-modern technological
breakthroughs were adopted and propagated …]
 Supply Side Hypothesis #3
• #3. Lin’s hypothesis of Why China missed the
Industrial Revolution ..

– Agrees with Needham that it is a question of

explaining why China did not embrace Scientific
Revolution … [why was Leonardo daVinci Italian?]

– Science relies on knowledge of math and experimental

methods

– A system was needed to build human capital in the

population .. in Europe this happened in the local
universities … these were missing in China
 Lin’s hypothesis, continued
• Because of history of bureaucracy / meritocracy … the gifted in
China had fewer incentives than their European
contemporaries to acquire the human capital required for
modern scientific work … they wanted to qualify for the
bureaucracy … this meant they had to pass the civil service
exam …
• Competitive civil service exams required an ENORMOUS
effort to pass … 6 years just to memorize nearly 500,000
characters .. [that gets you into first grade] … then many times
more … [had to memorize the equivalent of 6 NY City
telephone books – verbatim … or 10 Kobe telephone books!]
… all of this material was on philosophy / history and literature
… NONE on science or math …
• Once they passed the exam, they became busy officials [i.e.,
they got a job] and had no time to devote to studying math or
science …
 Conclusion of Lin
• THEREFORE: this was the constraint:
incentive system created by the specific form of
China’s civil service exam and officialdom, fewer
gifted people in China than Europe acquired the
human capital necessary to launch China’s
scientific revolution … with no scientific
revolution, there was no industrial revolution …
and, China, a country that was the richest in the
world in 1500, turned into one of the poorest in
Eurasia by 1900 …
 Additional insights
• I think we also need “plat-tectonics”

• Why didn’t China import technology AND run the

meritocracy system?

• Shut down oceanic trade … pirates … tried to

ignore them …

• Years of isolation … left China with no modern

army to fight Europeans … they tried to hide …
and they were left behind “behind Closed Doors”