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The biggest fact about world economic development in the last two centuries

The biggest fact about world economic development in the last two centuries is income divergence--not income convergence as once thought. The high-income countries at the beginning of the 19th century have grown faster than the low-income countries, thus increasing international economic disparities. Western Europe and north America were the high-income regions in 1800 and in 1913 and have increased their lead over most of the world where growth has been much more modest. Only a few countries (notably the southern cone of South America) that were rich at the beginning of the 20th century have fallen into the camp of the poor countries, and only a few countries that were poor in 1800 have joined the prosperous. These include Japan, its former colonies South Korea and Taiwan, and the USSR.

Income per head was not the only characteristic that placed Russia among the backward countries of the world in the 19th century. Other indicators pointing in the same direction were the predominance of agriculture in the economy, the high fertility demographic regime, and the capriciousness of law and the authoritarianism of the state.

Figure 1 uses Maddison's (1995) data to put Soviet growth into a world context. Growth rates in per capita GDP from 1928 to 1970 are plotted against 1928 income. The OECD countries had a higher average income in 1928 than the rest of the world and grew faster on average. There was income convergence within the OECD as the poorer countries caught up with the richer, and this convergence is represented by the downward sloping OECD catch-up regression line. The large number of points in the lower left of the graph represent the rest of the world falling behind. Japan stands out as the OECD country that performed best. The USSR led the non-OECD countries and, indeed, achieved a growth rate in this period that exceeded the OECD catch-up regression as well as the OECD average. Soviet performance does not look quite as good if the time frame is extended to 1989, but the USSR still did very much better than most countries that were poor early in the 20th century

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GROWTH OF THE LATE IMPERIAL ECONOMY

Was Russian development robust enough to have closed the gap with western Europe if 1917 had not intervened? The possibility cannot be excluded because one country, Japan, did just that. It grew from a Russian income level in 1913 to a west European level in 1989. Japan, however, was unique, and there is little reason to believe that Russia would have been at the top of the world league table rather than in the middle or the bottom. Japanese growth was based on institutional modernisation that exceeded anything imagined by the Tsars. Without a comparable institutional revolution, Russia would have languished. Certainly, the bases of growth from 1896 to 1913 did not persist through the interwar years. World wheat prices collapsed, and most of the wheat exporters stagnated (like Australia) or declined (like Argentina and India). Canada was an exception, but its growth was buoyed by the demand for manufactures from its much larger farms and by the possibility for its excess population to emigrate to the United States. Latin America, even India--with its slow growth, high tariffs, and inefficient industry--gives a more likely picture of Russia's future.

Not only were the bases of Imperial advance narrow, but the process of growth gave rise to such inequitable changes in income distribution that revolution was hardly a surprise. Real wages for urban workers were static in the late Imperial period despite a significant increase in output per worker (Figure 2). In western Europe at this time, real wages grew apace with total output, and this improvement lay behind the conversion of the working class from revolutionary socialism to social democracy. It was on the periphery of Europe that wages lagged behind GDP, and politics remained focused on class conflict. In Spain, the right won, but the economic fault lines were similar to those in Russia.

(с) A reassessment of the Soviet industrial revolution (1).

by Allen, Robert C.
Comparative Economic Studies • June, 2005 •