At the start of the 2nd millennium CE, civilisations of Asia were arguably well ahead of European societies in both wealth and knowledge. By the 12th century, China employed water-driven machinery to make textiles and coke-based smelting to produce iron, technologies that would not appear in Europe for more than five hundred years. Yet, during the process of the Industrial Revolution, the technological leaders of the pre-industrial era were leapfrogged by European economies that accelerated into the modern age of sustained economic growth.
What can explain the delayed emergence of sustained growth in China and other leading agricultural societies? Theories attempting to explain the origins of the remarkable transformation of the world income distribution have often focused on sociocultural factors, geographical conditions, or sociopolitical institutions, emphasising a hierarchy of attributes in terms of their conduciveness to innovation and their ability in fostering industrialisation.
The premise of the cultural hypotheses is that societal norms, customs, and ethics can be ranked in terms of their ability to nurture technological innovation and capitalist development. In contrast, geographical explanations attribute Europe’s earlier escape from the Malthusian trap to its favorable natural-resource base, abundant rainfall, temperate climate, lower disease-burden, and proximity to the New World. Finally, institutional perspectives provide a variety of explanations, ranging from geography to colonialism, for the arrival (or absence) of social arrangements protecting private property and promoting innovation.
Existing explanations, however, do not simultaneously account for technological gaps across civilisations in the Malthusian epoch and reversals in their economic performance, associated with the differential timing of their take offs into the industrial era. In a recent CEPR discussion paper, we offer a theory that encompasses both regimes, arguing that the interplay between the forces of cultural assimilation and cultural diffusion, determined in part by geographic factors, played a significant role in giving rise to differential patterns of economic development across the globe, contributing to the Great Divergence and reversals in economic performance.
In contrast to the cultural and institutional hypotheses, which posit a hierarchy of cultural and institutional attributes in terms of their conduciveness to innovation and their ability in fostering industrialisation, our theory suggests that the desirable degree of the relative prevalence of cultural assimilation versus cultural diffusion varies according to the stage of development. Enhanced cultural assimilation is optimal within a given stage of development, but is detrimental for the transition between technological regimes. Thus, while cultural traits themselves do not necessarily have a differential effect on the process of development, it is the variation in the relative strengths of the forces of cultural assimilation and cultural diffusion, determining the diversity of these traits, which is instrumental for comparative economic development.
Productivity is enhanced by diversity-driven accumulation of general human capital but reduced by inefficiencies in the intergenerational transmission of society-specific human capital that is associated with diminished assimilation. Thus, societies that were geographically less vulnerable to cultural diffusion benefited from enhanced assimilation, lower cultural diversity and greater accumulation of society-specific human capital, flourishing in the technological paradigm that characterised the agricultural stage of development. This greater cultural rigidity, however, diminished the ability of these societies to adapt to a new technological paradigm, delaying their industrialisation and take-off to a state of sustained economic growth.
Culture and the wealth of nations
Our thesis is based on three fundamental elements. First, cultural assimilation (i.e., the homogenisation of cultural traits within a society), enhances the intergenerational transmission of society-specific human capital, an observation consistent with empirical evidence on the development-promoting effects of greater social cohesion. Cultural homogeneity augments total factory productivity in the use of presently available technologies.
Second, cultural diffusion (i.e., the spread of cultural traits from one society to another) generates flexibility that expands an economy’s production-possibility frontier and enhances its ability to adapt new technologies, a view consistent with evidence on the creativity-promoting effects of workforce diversity. Thus, unlike existing sociocultural hypotheses describing a hierarchy of cultural attributes conducive to innovation and industrialisation, our research highlights cultural heterogeneity, not particular norms, as playing a critical, and ambiguous, role. While productivity is fostered by diversity-driven accumulation of general human capital, it is diminished by inefficiencies in the intergenerational transmission of society-specific human capital, associated with greater heterogenietiy.
Third, the accumulation of general human capital pushes a society towards industrial rather than agricultural production, as there is a smaller degree of complementarity between the advancement of the knowledge frontier and the stock of agriculture-specific productivity. This growth of latent manufacturing productivity ultimately leads to the adoption of industry in later stages of development, paving the way for a take-off from the Malthusian epoch. Thus, advancements in knowledge and invention promote socioeconomic transition to a new technological regime that is potentially more advanced in terms of per capita income.
Historically, geographical isolation has promoted cultural homogeneity and stability, permitting a relatively unimpeded accumulation of society-specific human capital and conferring Malthusian returns in terms of population density during the agricultural stage of development. For example, China remained culturally homogeneous for some four thousands years, enjoying remarkable stability, largely due to its geographic isolation from other ancient civilisations. Its cultural homogeneity promoted the intergenerational transmission of society-specific human capital via the world’s oldest civil service examination system and the Confucian traditions of filial piety and reverence for highly codified social hierarchies.
Major cultural intrusions were usually successfully assimilated before they gained widespread influence in China. For example, Buddhism arrived from India during the Han dynasty (206 BCE – 220 CE), and by the time it gained prominence as a state religion during the Tang dynasty (618 CE – 907 CE), it had been infused with existing Chinese philosophies and disseminated in a distinctly sinicized form known as Ch’an (Zen) Buddhism. When nomadic invaders established the Manchu dynasty (1644 CE – 1912 CE), they ruled almost entirely in the well-established Confucian tradition.1
Historical evidence from the most prosperous periods – the Han, Tang, and Song dynasties – suggests that China’s intense accumulation of society-specific human capital resulted in higher Malthusian returns. The civil service examination system was established by the Han dynasty and refined during the Tang and Song periods.2 Further, technologies like paper-making and printing that significantly enhanced the dissemination and perpetuation of Confucian philosophies were invented and improved upon in these eras.3 As depicted in Figure 1, the Han, Tang and Song dynasties were associated with periods of progressive growth in the population density of China.
While the homogenising force of assimilation ultimately ensured the successful sinicization of external influences throughout China’s history, the evidence on population recession during episodes of foreign cultural influx accords well with our proposed hypothesis in terms of the disruptive effects of heterogeneity on Malthusian returns. For example, the collapse of the powerful Han dynasty ushered in nearly four centuries of cultural instability and fragmentation marred by civil wars, nomadic invasions, social disunity, and a twenty percent decline in China’s population.
History strongly suggests a rich link between cultural diversity and creative florescence. Many societies have enjoyed a surge in creativity after exposure to foreign ideas and people. For example, the Golden Age of Hellenistic civilisation in Greece likely resulted from the diffusion of diverse ideas from the civilisations of Egypt, Persia and Mesopotamia culminating in a new creative synthesis. And at the height of Islam under the Abbasid Caliphate (750 CE – 1258 CE), Baghdad was one of the largest and most cosmopolitan cities in the world. It was also the center of international scholarly achievement during the High Middle Ages.4 Building on the scientific traditions of the Greek and Hindu civilisations, eminent figures from diverse religious and ethnic backgrounds made several significant contributions in the fields of mathematics, astronomy, medicine and chemistry.5
The European Renaissance of the 12th century, which paved the path to the 17th century Scientific Revolution, resulted from the diffusion of scientific thought and philosophies brought about by cross-cultural contact with the Islamic world. Islamic civilisation’s subsequent descent into intellectual stagnation is attributed to its increasing cultural homogeneity resulting from a deliberate resistance to the influx of new ideas from the non-Islamic world.6
In the 16th and 17th centuries, England and Holland made substantial economic gains due to the arrival of Protestant minorities who brought new economic attitudes and diverse technical knowledge.7 The host societies experienced accelerations in economic and industrial growth upon the arrival of the migrants, whose movement was associated with notable improvement in several industries, including textiles, glass-making and printing. The history of Jews in Islamic Spain in the 10th and 11th centuries suggests similar gains from cultural diversity.
Sociometric evidence also documents the innovation-promoting effects of cultural diffusion. Simonton (1997) applies generational time-series analysis to detect whether cultural cross-fertilisation and the influx of alien ideas had a positive influence on national achievement in Japan over the period spanning CE 580-1940. There were some significant cross-lagged correlations between creative achievement and cultural openness to the non-Japanese world.8
Thus, the historical evidence is consistent with our proposed theory that geographically governed intensities of cultural assimilation and diffusion are a significant determinant of comparative economic performance during the Malthusian epoch and in the transition from agriculture to industry. Geographically vulnerable economies bear the adverse effects of cultural diffusion during the Malthusian era, but enter the industrial age sooner than more isolated civilisations.
In particular, a society with a lower degree of geographical vulnerability and therefore greater cultural assimilation flourishes in the Malthusian regime due to a greater efficiency in the intergenerational transmission of society-specific human capital, benefiting from a more advanced agricultural technology and sustaining a higher population density. However, the associated lack of cultural diffusion delays the advancement of knowledge in this economy, hindering its ability to shift to an industrial technology and, thereby, escape Malthusian stagnation to enter a state of sustained economic growth.
Our theory is distinctive in its abstraction from cultural traits themselves and the direct effects of natural resource endowments. It is the variation in the relative strengths of the forces of cultural assimilation and cultural diffusion, governed partly by geography, which is crucial to the process and timing of economic development. These forces may help explain significant variations in comparative development through history, such as China’s economic position in the 12th century, its delayed industrialisation – as well as its renewed acceleration in the 21st century.
1 Ho, P. (1967): “The Significance of the Ch’ing Period in Chinese History,” Journal of Asian Studies, 26(2), 189—195.
2 Fairbank, J. K. (1992): China: A New History. Bellknap Press of Harvard University Press, Cambridge, MA.
3 Needham, J., and T. Tsuen-Hsuin (1985): Science and Civilisation in China, Vol. V:1. Cambridge University Press, New York, NY.
4 Nasr, S. H. (1968): Science and Civilization in Islam. Harvard University Press, Cambridge, MA.
5 Sarton, G. (1927): Introduction to the History of Science, Vol. I: From Homer to Omar Khayyam. Williams & Wilkins Co., Baltimore, MD.
6 Simonton, D. K. (1997): “Foreign Influence and National Achievement: The Impact of Open Milieus on Japanese Civilization,” Journal of Personality and Social Psychology, 72(1), 86—94.
7 Scoville, W. C. (1951): “Spread of Techniques: Minority Migrations and the Diffusion of Technology,” Journal of Economic History, 11(4), 347—360.
8 Simonton (1997): “Foreign Influence and National Achievement: The Impact of Open Milieus on Japanese Civilization,” Journal of Personality and Social Psychology, 72(1), 86—94.