Poverty from the Wealth of Nations

Excerpts from Poverty from the Wealth of Nations, M. Shahid Alam, Macmillan Press, London, 2000

M. Shahid Alam is Professor of Economics, Northeastern University, Boston, USA. He has given a wealth of material on the comparative position of key players in the world economy between 1760 and 1992. A few excerpts from Chapter 2 of the above-named publication:

“A review of the literature on historical comparisons of per capita income suggests that around 1760 disparities between now advanced and lagging countries were quite small and, once polar cases are excluded, probably non-existent.”

The first complete set of historical comparisons of per capita income between now advanced and lagging countries, based on purchasing power parity conversions, was provided by Bairoch (1981). At the aggregate level, his estimates give the palm to lagging countries, reversing by a slight margin the Kuznets-Zimmerman-Landes position on historical disparities. In 1750, the ‘developed’ countries had a per capita income of $182, compared to $188 in the Third World, both expressed in 1960 US dollars and prices. Western Europe, with a per capita income of $190, was barely ahead of the Third World, while the Third World had a slim lead of 1.14 over Eastern Europe. Only the ‘most developed’ countries, with a per capita income of $230, had a small but clear lead of 1.22 over the Third World, 1.27 over Asian market economies, and 1.10 over China; and a larger lead of 1.77 over Africa. Only Latin America had a slight lead of 1.07 over the ‘most developed’ countries. Thus, if we exclude the ‘most developed’ countries and Africa from the comparisons, the lagging countries had a modest lead over the ‘developed countries’.

These results did not find favor with Maddison (1983: 29), who presented alternative estimates which he claims are ‘much closer too the Landes-Kuznets conclusion than those of Bairoch’s. However, this assessment is not supported by his own results. Maddison (1983: 30) shows that in 1760 Britain and France had a per capita income of $233 and $1.98 at 1965 US factor cost, while India, China, Mexico and Brazil had a per capita income of $123, $118, $112 and $97. It follows that in 1760 Britain had a lead of 1.89 over India, 1.97 over China, 2.08 over Mexico, and 2.40 over Brazil. France had a small lead, at 1.61 over India, 1.68 over China, 1.77 over Mexico, and 2.04 over Brazil. If we assume that India’s per capita income declined by a third between 1760 and 1820, then UK’s lead in 1760 reduces to 1.42, while France is only modestly ahead with a margin of 1.21. It is a stretch to claim that these results are closer to Kuznets’ (1954: 145), who concluded that per capita incomes in developed countries before the Industrial Revolution were ‘several times that of most underdeveloped countries today (italics added)’. On the other hand, Bairoch’s (1981: 8) estimates yield a gap of 1.22 between his ‘most developed’ countries and the Third World. Maddison is nearer to Bairoch that he is to Kuznets!

“In his most recent historical comparisons of per capita income, Maddison (1995) abandons the production approach used in his earlier paper in favor of comparisons based on expenditure categories. These estimates give Britain a lead of 1.73 over Mexico, 1.86 over Japan, 1.96 over Brazil, 2.14 over Indonesia, 1.86 over India and Bangladesh, and 2.51 over China. France has a smaller advantage of 1.25 over Mexico, 1.35 over India and 1.82 over China. These disparities are only modestly below those in Maddison (1983); the gap of China is wider. This is at first surprising since the correction coefficients employed in the new estimates are larger than before. But this is nearly offset by use of lower growth rates in the backward projections for Britain and France. The average annual growth rates in Maddison (1983: 30) for Britain and France between 1820 and 1980 are 1.31 and 1.62 percent; these are replaced by 1.24 percent and 1.57 percent in Maddison (1995: 194-197). Had Maddison (1995) used his earlier growth rates, this would reduce Britain’s lead over India from 1.86 to 1.66, and France’s lead over India would be pared down from 1.35 to 1.25.

 “Crafts’ (1984) historical comparisons are easily extended to the lagging countries in his benchmark comparisons, yielding results similar to Bairoch’s. When combined with growth rates from Maddison (1995: 24) Craft’s benchmark comparisons yield per capita incomes in 1820 of $250 for Brazil, $260 for Mexico, $241 for Pakistan and $172 for Bangladesh, all in 1970 US dollars and prices; compare this to British per capita income of $399 in 1760 and $333 in 1700. On the assumption that per capita income in the lagging countries remained unchanged between 1760 and 1820, Britain has a lead of 1.53 over Mexico, 1.60 over Brazil, 1.66 over Pakistan and 2.30 over Bangladesh. The per capita income for Bangladesh in 1820 is implausibly low. According to Bayly (1988: 51), Bengal was ‘almost certainly the wealthiest province of Mughal India’ and proved ‘an extraordinary prize’ for the British. Assuming, as we did for India, that per capita income declined by a fourth between 1760 and 1820, this would give a 1760 per capita income of $229 in Bangladesh, reducing Britain’s lead in 1760 to 1.74. With a per capita income of $294 in 1781-90, France had a much narrower lead over these countries.

To sum up, historical comparisons of disparities in per capita income have produced two classes of estimates. All the earlier estimates, based on exchange rate conversions, record per capita incomes in now advanced countries around 1760 that were three to six times greater than in lagging countries (not including Sub-Saharan Africa). Comparisons based on purchasing power parity conversions reveal much smaller early disparities. Around 1760, the gap between the first cohort of advanced countries (Britain, USA and France) and the lagging countries (not including Sub-Saharan Africa) were nearly always less than two to one. Most likely, these gaps were smaller for several important lagging countries, such as India, Pakistan, Bangladesh and China, if we recognize, with Bairoch (1981), that they suffered a decline in per capita income between 1750 and 1900. Significantly, the income gaps between the now advanced countries around 1760 were as large, and sometimes larger.”

Source: Contemporary Economic Challenges and Islam, Khurshid Ahmed. Republished with permission.