Book Review: Benjamin Schwartz – In Search Of Wealth And Power

In Search of Wealth and Power by Benjamin Schwartz, published in 1964. Rating: 4/5.

in-search-of-wealth-and-power-benjamin-schwartz

In Search of Wealth and Power is a very dense but richly rewarding tome by Benjamin Schwartz, a noted China scholar. He focuses on the life of the translator Yan Fu to illustrate the culture clashes that arose when traditional Chinese civilization came into contact with Western philosophies.

Yan Fu was a translator and thinker who was one of the first Chinese to engage with Western thought at a deep level. He rejected contemporary thinkers like Zhang Zhidong, who aimed to integrate Western technics onto Chinese cultural foundations – not for him was the slogan “Chinese learning for fundamental principles and Western learning for practical application.” Nor was he a Marxist, to consider society as a mere superstructure to underlying economic realities. Instead, Yan Fu emphasized that if anything there was “more materialism (in the ethical sense)” among Chinese than in the West, whose own material foundations were built on innovative legal, political, and spiritual foundations. In a nutshell, the purpose of Yan Fu’s lifework was to foster the evolutionary growth of these Western qualities, many of them quite intangible, so as to “enrich the state and strengthen the army.” Yet in so doing this through his translations and commentary he ran into many paradoxes, and grew disillusioned with Western thought in the last decade of his life – as did admittedly many Western intellectuals as well. At the end he (re)turned to a form of Taoist mysticism.

At the start it is important to note that Yan Fu was intimately acquainted with all major strands of the Chinese philosophical tradition. Confucianism had been the bedrock of the Chinese state since the Qin dynasty. It stressed the importance of filial piety, of the ruler setting a virtuous example of the people, and of keeping laws and regulations light; however, Yan Fu and numerous other members of the Chinese intelligentsia during that time were coming to see it as a regressive influence keeping China backward. For his own part Yan Fu has little patience with it, beyond keeping its few good parts – mostly those to do with family organization – and extending it to the masses, the armies and factories (much as he perceived Christianity to have laid the groundwork for English public spirit despite its purported theological errors).

The other strand that he drew on is Legalism, a far more practical doctrine that  contained the Chinese version of balance of power theory and Machievallian ideas about the state. Furthermore, Schwartz writes, “while the immediate aims of the Legalists may be narrowly fiscal, the germ of a notion of economic development is latent within this mode of thought.”

Finally, there was Taoism; although the least practical of the three, Yan Fu was extremely influenced by it. In its attribution of a deep and incomprehensible driving force he found deep parallels with the monist Western philosophers, as well as a metaphysical lattice to hold together the evolutionary process and the “ten thousand things”. It did not proscribe a frozen feudal order like old-school Confucianism, and it was the polar opposite of the crass materialism of Legalism. As such, Yan Fu considered it the ultimate anchor on which Western philosophical concepts could be moored, even going so far as to argue proto-democratic tendencies in the works of Zhuangzi.

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The Soviet Economy – Charting Failure

Many Communists, leftists, and even patriots (I’m sorry to say) have a pronounced tendency to make out the Soviet economy as not quite the resounding failure it really was – or even to paint it as a success story that was only brought down by perestroika and liberal reforms.

The above chart – based on historical GDP per capita (Geary-Khamis 1990 Int$) by Angus Maddison, compiled by liberal economist Illarionov, popularized online by Lopatnikov, and Starikov – purports to destroy two “myths”: That of (1) Prosperous Tsarism, and (2) The ineffectiveness of the Soviet economy. After all, the average Russian went from being 40% as rich as the average American in 1885, to only 23% by 1917; whereas during the Soviet period, despite the turmoil of two major wars, Russian incomes reaches a relative peak at 40% of American levels during Brezhnev’s “stagnation” period.

These is however a glaring hole in this logic, namely that (1) relatively slow growth under late Tsarism reflected a permanent state of affairs, as opposed to the heavy but temporary burden of a large rural, illiterate population; and (2) that a level of per capita GDP that is a mere 40% of what Americans enjoy was in any way a fulfillment of Russia’s potential during the 20th century. In fact, graphical comparison with other countries shows this to be almost certainly false.

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Actually China Is Probably Already Bigger

Despite the generally loathsome nature of The Economist, it does have its advantages most of which can be reduced to its Daily Charts blog which focuses on statistics as opposed to rhetoric.

According to the chart above, as of 2012 ever more people, especially in the developed world, are starting to believe that the China is the world’s leading economic power. In terms of nominal GDP, and even conventional measures of GDP (PPP), the Krauts are wrong at least for now. However, as per the chart below, China is fast overtaking the US on increasing numbers of metrics by physical volume – steel (1999), CO2 emissions (2006), exports (2007), and manufacturing output, energy consumption, and car sales (2010). Indeed, according to Arvind Subramanian, in PPP terms China already overtook the US back in 2010, and I think this is plausible given that it ties in perfectly with China overtaking the US in so many key categories in that year. Regardless, by 2015 it will become increasingly hard to deny that China has the bigger economy in PPP terms, and soon after in nominal terms too as the yuan massively appreciates against an increasingly devalued dollar.

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Italy, A Showcase For Why Human Capital Matters

One of the key criticisms of my last post on the tight connections between (educational) human capital and economic performance is that correlation need not imply causation. An alternate (and PC-compliant) explanation is that “you get the education system you could afford, and the level of human capital in the kids is mostly determined by the efficiency of the schooling system.” Is there any evidence to support this argument?

italy-wealth-education

As a country with a long history of normal capitalist development, and with no regions enjoying particularly lucrative resource windfalls, it is not a surprise to see a close exponential correlation between my Human Capital Index (see methodology here) and Italy’s GDP (PPP, in US dollars) per capita (R2=0.7302).

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Education as the Elixir of Growth III

Just in case you thought the correlation between human capital and economic development was an artifice of the post-socialist world, here is a similar graph (R2=0.4273) for all the world’s countries that have participated in the Math and Science portions of the PISA or TIMMS (8th grade) international standardized student assessments.

education-economy-global-1

The methodology is the same as described in the previous post. As you can see, the relation is every bit as strong at the global level. However, you may point to a few outliers. How to explain them?

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A Short History of Venezuela, c.1800-1950

Caracas, Venezuela.

January 2019: I have just reread an essay I wrote – a short history of Venezuela from c.1800-1950 – for an economic development class during my Berkeley days. It’s not entirely irrelevant given current events, so I am posting it for perusal.


The beginning of Venezuela’s integration into the world economy can be dated to 1522, the start of Spanish colonization. It did not produce gold or silver, so colonial control was lax; local and municipal officials enjoyed a degree of leeway unusual for the rest of Spain’s American possessions. Apart from grain grown for subsistence, the 16th century economy was dominated by ranching, with the livestock raised by Indian herders, using Spanish-introduced horses, for their Spanish landlords on the llanos grasslands. By the 17th century, the cash economy came to be dominated by cocoa, cultivated by imported African slaves. This ushered in the basic format of Venezuela’s subsequent integration with the world economy: Primary commodities exports to the North Atlantic markets filtered through the Caracas-based bureaucracy. It allowed the capital to develop as an economic and cultural center; the Universidad Central de Venezuela was founded in 1721, and – thanks in part to the lack of censorship, which provided Venezuelan luminaries access to Enlightenment European thinkers such as Voltaire and Rousseau – it would come to play an important role in the war for independence.

In general, however, the country remained underdeveloped, 90% rural, and almost entirely illiterate; indeed, as late as 1936, only 35% of school-aged children were enrolled and the literacy rate was at only 20%[1] (this is comparable to 17th century England, late 18th century France, or c.1900 Russia). This of itself greatly constricted possibilities for economic development, and deeply stratified Venezuelan society. The hacienda system of cocoa exports required slaves, and from the 16th century yjod would come to define Venezuelan society, hardening it into a caste system in which white Spanish peninsulares and criollos, their descendents, occupied the top of the economic chain, while mixed race pardos and African slaves filled out the bottom rungs. Although slavery was abolished in 1854, the basic structure has remained to this day, reflected in income inequality that has remained very high by global (if not Latin American) standards, even under the Chavez administration. This inequality had intellectual underpinnings, in the form of Laureano Vallenilla Lanz – a sociologist who worked under the Gomez administration – who in his Cesarismo Democrático (1920) wrote that the pardos had to be ruled by white caudillos in order to maintain order, for such was the “unconscious suggestion of the majority[2].” Under the Gomez regime, passports were issued for the first time, which identified carriers by the color of their skin; this system remained in place until the 1980’s. This served to reinforce socio-racial stratification in Venezuelan society.

To the extent that Venezuela saw industrialization before the developmentalist era it was almost entirely confined to the oil industry, which exploded in the 1920’s. This would be the latest, and by 1927 by far the most dominant, commodity to dominate Venezuelan exports; by 1929, it was the world’s single largest petroleum exporter. But even this sector’s development was constrained, as the dictator Juan Vicente Gómez, who ruled Venezuela at this time, forbade the construction of oil refineries on Venezuelan soil because of his distrust of trade unions and industrial labors. The proceeds of the oil boom were narrowly distributed: US oil corporations were allowed to write Venezuela’s early petroleum laws[3], and Gomez himself came to possess a $400 million fortune upon his death in 1936, making him the country’s richest oligarch[4]. Meanwhile, apart from a patrimonial bureaucracy that grew up alongside the oil industry, benefits from the oil boom were meager: Education and other social services were neglected, while the in-flood of oil revenue contributed to high inflation, with food prices running ahead of average incomes.

Venezuela shook off Spanish rule in the Venezuelan War of Independence, a brutal struggle that killed off a third to half the population. However, the subsequent state was weak and riven by constant internal infighting: From 1829 to 1899, Venezuela had no fewer than 41 Presidents and 30 insurrections. This was in large part a function of Venezuela’s social structure. White landowners controlled most of the land, many with a few hundred or thousand pardos tenants on it. Due to the profound weakness of the state, all it frequently took was for a local caudillo in the central and eastern llamas to make an inspiring speech, march to Caracas with a ragtag militia, and proclaim himself President.

Furthermore, while Venezuela was formally independent, in practice the post-Bolivar elites almost exclusively looked to Europe. Legislation was progressive – Venezuela became the first major state to abolish capital punishment, and – in theory if not in practice – free and compulsory education was prescribed in 1880-81. But the state remained a plaything for the elites rather than a motor of development. For instance, the late 19th century President Guzman Blanco divided his time between Caracas and Paris; during this period, he amassed massive loans, from which he happened to make a small personal fortune. When a coup was organized, his response was to just stay in Paris. The European powers intervened with gunboats in 1902-03 under Cipriano Castro when Venezuela, for a time, refused to honor the loans amassed under Blanco.

This caudillo system came to an end with the ascendancy of the Andean elites from 1899, of whom Gomez was the most prominent representative. A national army and telegraph system united the country, so caudillo insurrections became a thing of the past. However, the coups and political instability that plagued Venezuela would continue well beyond; indeed, Gomez himself took power in a coup against Castro in 1908, and would himself experience a crisis of authority in 1928 from student insurrectionists taking a cue from the experiences of the Mexican and Russian Revolutions, and the new thinking challenging colonialist relations with the developed world. From the time of Castro’s death in 1935, López ruled as a modernizing dictator; a partial (and unsustained) transition to democracy was made in 1945-46. It is around this time that the colonial period of Venezuelan can be said to have truly come to an end, as consequent regimes until the 1990’s would be dominated by interventionist developmentalists implementing import substitution policies.

In conclusion, Venezuela suffered from a number of features common to other Latin American countries under their conditions of integration into the pre-World War Two global economy. The most important of these, though they are interrelated, are export dependencies on primary products – from cacao to coffee to oil – which made budgets cyclical and encouraged the growth of “comprador elites” dependent on rents and culturally beholden to Europe; and the development of a caste system centered around race. This fostered an unstable form of government, i.e. the caudillismo that resulted in arbitrary authoritarian power structures at the local levels, despite the formally liberal and federal political macro-structure. These factors retarded progress, to the extent that despite its formidable resource wealth and forty years of substantial oil revenues, Venezuela in 1960 was still a very undeveloped country; its total fertility rate was at 6.62, a pre-industrial rate, and literacy was at a still modest 74% (about equivalent to India today).

[1] Sanchez, George I. (1963), The Development of Education in Venezuela, Office of Education (DHEW), Washington, DC., page v.

[2] Executive Power in Venezuela, Leo B. Lott, The American Political Science Review 50, #2 (June 1956), pp. 422–441.

[3] Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon and Schuster. 1990. pp 233-36; 432.

[4] Bart Jones. Hugo!: The Hugo Chavez Story from Mud Hut to Perpetual Revolution. Steerforth. 2007. Pp 31.

The Profound Irrelevance of Corruption, Institutions, And Ease Of Business To Economic Growth

That title sure caught you attention? Good. Now for the 1000-words-in-a-picture evidence.

gdp-human-capital-socialist-bloc-3

Human capital refers to educational attainment, as measured by the results of the PISA and TIMMS standardized tests*. As you can see, there is a very close correlation between human capital and GDP (PPP) per capita. The exceptions all confirm the rule. For now I have only done the post-socialist space, because of its sheer variety – different cultures, different rule-of-law and ease of business environments, difference resource endowments and political systems – which lets me illustrate just how irrelevant all those factors are compared to human capital. The same laws hold at the global level, and I intend to cover it in a consequent post, but that involves a lot more work so for now I’ll just settle for this.

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Book Review: Kenneth Pomeranz – The Great Divergence

Pomeranz, Kenneth – The Great Divergence: China, Europe, and the Making of the Modern World Economy (2001)
Category: economy, history, world systems; Rating: 5*/5
Summary: Brad DeLong’s reviewThe Bactra Review; Are Coal and Colonies Really Crucial?

The Power Of Contingency: Why China Didn’t Rule The World

great-divergence-pomeranzIt’s a rare book that not only vastly informs you on a particular issue, but in so doing overturns many prior conceptions you had on the general subjects. Now, Pomeranz is not a good writer. The text is slow and turgid, and readable only by dint of my interest in the subject. Many potential counter-arguments go unanswered (which is not to say that they sink the overall theory, as I will try to prove in this review). All that said, I have little choice but to give it a 5*/5, as this a truly counter-intuitive and deeply contextualizing work that overturns many of the triumphalist post hoc narratives of Western chauvinism.

This book attempts to answer the big question of world economic history: Why Europe? It does this by systematically comparing Europe with other leading world regions in the pre-industrial age such as Qing China, Tokugawa Japan, and India. The first big finding is that – contrary to the conventional wisdom – there were far more similarities than differences, at least between Britain and the most advanced Chinese region, the Yangtze Delta.

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Top 10 Sinophobe Myths

Just as with Russia, the Western media (beholden as it is to its power elite sponsors and anti-Rest ideology) peddles many tropes about China that cloud real understanding of this fascinating civilization-state. In the spirit of Sino Triumphalism, this is my attempt to set the record straight and overturn the lazy arguments used to dismiss, Brezhnev-like, China’s imminent rise to superpowerdom. My message to those Sinophobes: talk cooks no rice. For more on this topic see 1, 2, 3, 4, 56.

MYTH: The lack of IP rights curbs innovation, so the Chinese economy will remain based on producing cheap knock-offs of superior Western goods.

REALITY: China now focuses on copying products because its technologically lagging, and as such it is much easier and cost effective to reproduce already existing products than to come up with your own. Much the same can (and was!) said of Japan in the 1960’s, or Germany in the 1880’s – but look at them now!

The lack of IP rights makes this assimilation far easier – why waste money paying rent to foreign software companies when you can use their products for free so easily? You’d have to be their stooge to do this! Throughout history, many successful developers, such as Germany and Britain, flouted IP rights and funded industrial espionage to modernize their economies. They only started praising the virtues of IP rights when they got rich to protect their own new interests.

With China already taking the leading positions in sectors such as High Speed Rail and supercomputers, the time when it joins the developed world in “kicking away the ladder” can’t be far off.

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Walled Off By Complexity: Did China Stagnate Because Of Its Writing System?

One of the biggest questions in global history is why it was Western Europe that industrialized first, and ended up colonizing most of the rest of the world. As late as 1450, the possibility of such an outcome would have been ridiculed. By almost any metric, China was well in the lead through the medieval period – in technology (compass, paper, ship-building, gunpowder, movable type printing), government (bureaucrats were selected based on meritocratic exams, whereas in Europe professional civil services only began appearing in the 19th century), urbanization, etc.

In my view, most of the common explanations for the “European miracle” are largely self-congratulatory post hoc narratives that aren’t really convincing. Europe had markets, you say? For most of the medieval era, and even later, feudalism was the dominant social structure; the rising nation-states replaced it with mercantilism. Robber barons holed up in their castles charged extortionate rates on merchants passing through their fiefs. Throughout the period, most Chinese were freemen, enjoyed lower taxes, and fewer controls on land sales and industry; there were no internal trade barriers (instead, the government funded large projects such as the Grand Canal to economically unify the territory). China was far closer to the free market economy than Europe! Similar ventures only began to appear in Europe in the 18th century. In ancient regime France, there were internal controls on trade and many bureaucratic posts were up for sale to the highest bidder, a matter of considerable resentment that would contribute to the Revolution. Even the Enlightenment thinkers only dreamed of governing their countries as efficiently as they imagined the Celestial Empire did.

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