An Asian World Economy? - 1

["Ulhas Joglekar" <joglekarulhas@xxxxxxxxxxx>]

Economic and Political Weekly

Review Articles

August 4, 2001

An Asian World Economy?

Tirthankar Roy

ReOrient: Global Economy in the Asian Age by Andre Gunder Frank; University
of California, Berkeley and Los Angeles, published in India by Vistaar
Publications, New Delhi, 1998; pp xxx + 416, Rs 525.

An orientalist cliché, that had such great adherents as Karl Marx and Max
Weber, held pre-colonial Asia to be immutable and primitive in
political-economic terms. A corollary was, economic modernity in Asia began
with European discovery of Asia, Vasco da Gama marked the beginning of the
new era. Modern research, on the Indian Ocean trade especially, has shown
that to be a myth. Asia was already a major player in world commerce when
Europeans discovered it. With European ascendance in maritime trade, a
world-encompassing commercial system took shape. The division of labour that
gave these exchanges their systemic character has been explored in the works
of the world systems school. The world economy surely played a role in
subsequent comparative economic growth and pattern of world inequality. But
the nature and significance of the influence remain debatable.
Positions in this debate depend somewhat on the perspective from which the
commercial system is seen. If Europe is seen as the centre of world
commerce, owing to Europe's superior political and economic strength, the
world economy would seem to be an expression of an already well-articulated
inequality. In this view, which can be called the received view in 'world
history' scholarship, capitalism originated in Europe and the world economy
reflected the external arm of capitalism.1  Europe was already a superior
political-economic power when it came to Asia, world commerce strengthened
its position. On the other hand, if the centre of world commerce is seen as
Asia, Europe's ascendance cannot be taken for granted and needs to be
explained. Capitalism cannot be seen to be a European discovery.
Andre Gunder Frank, whose work on the origins of underdevelopment has been
familiar and influential in India, argues in his new book, ReOrient, that
the centre of early modern world economy was Asia, not Europe. A number of
other world history scholars dealing with the three centuries before the
Industrial Revolution have argued for a more Asia-based approach. Frank goes
further. He makes Asia the pivot of the world economy, thereby decentring
Europe and decentring the idea of a European world system from the received
narrative. Europe was at first a minor passenger on the 'Asian economic
train'. From the 17th century onward it strengthened its presence in the
Asia-centred world economy, aided by American silver and Asia's own
endogenous decline. The late 18th century was 'still one of competing and
'shared' political economic power between the declining Asians and the
rising Europeans' (p 319). In the 19th century Europe displaced Asia and
took the driver's seat.
Based on this thesis, Frank makes a number of strong historiographic claims,
and an interesting prognosis. The book goes beyond relative dominance or
decline in world trade, and talks about 'rise' of Europe and 'fall' of Asia
in the sense of economic growth. He comments on received views on the
origins of capitalism and industrialisation in Europe, and insists that the
origins of growth or decline cannot be found in factors internal to any
society. That position leads him to reject a wide range of theories that
project Europe as exceptional in some respects, and in turn, look for a
stage or a date that signify the break from the general economic trends.
That elite club of discards includes intsitutionalist history, proponents of
a Europe-centred modern world economy such as Immanuel Wallerstein, research
into the 'origins' of capitalism, etc. Frank, thus, gives the origins of the
Industrial Revolution and increasing world inequality a global aspect. This
position enables him to repeat his well-known critique of Marx, Weber, and
the schools of though they inspired, all of whom argued in some form or
other the difference between the west and the non-west, that is argued the
exceptionality of each one. Frank's ground for making a set of bold claims
is his historical thesis arguing Asia's prior dominance in the global
economy, and that Europe's rise owed more to luck than to merit. In an
interesting twist to this story, east Asia is seen to be returning to world
economic dominance much as Europe took advantage of an Asian downturn in the
17th century. But that is not an essential part of the book or its main
theses.
The book reflects the long-standing concerns of Frank, the link between
economic growth and international economic relations. When he began to write
on this theme, the proposition that the causes of growth and its absence
should be sought in the history of interactions, was not generally popular.
Today it is a widely used methodological standpoint, and has spawned a vast
literature. Frank has been a key inspiration behind the advance. This book
combines the two large themes - historical roots and the world economy - on
a truly global scale. It draws together a large literature dealing with
interactions, presents original and critical review of world history
scholarship, and constructs a sensational grand narrative. No wonder that
since its publication, ReOrient has been one of the most widely discussed
texts in comparative history. A quick internet search produced more than
2,000 items dealing in some fashion with this book. These included numerous
eulogistic book reviews, award statements, and the transcript of a widely
read public debate between Frank and David Landes in 1998 at the Wesleyan
University.
In this book, Frank asks historians to 'reorient' the centre of world
systems analysis, and return to the 'orient' in looking for a centre. The
title of the book has a third and silent meaning. Those who were once
influenced by Frank's earlier writings on development and dependence may
find it hard to explain how one major component of the 'underdeveloped'
world, east and south-east Asia, fell off the world map of exploitation and
dependence and started on a course of extremely rapid growth from the 1970s.
The phenomenon poses a challenge for world systems analysts. The challenge
is to explain east Asia in systemic, rather than regional/policy, terms. The
book seems to argue for an account of the return of east Asia through a
global perspective, even though that perspective remains very vague here.
In order to assess the basic theses of the book, we need to answer three
questions. Was the world economy really Asia-based before the 18th century?
How did an Asia-centred world economy become Europe-centred? Can we infer
trends in local economies from trends in the world economy?

Asian Dominance
That there was a thriving Asia-based trade between 1500 and 1800, in which
Europe was at first a small player and a net importer, is now
well-established. Frank carries out no new research, but does a
review-cum-synthesis on an enormous scale, by comparing similar scholarship
on east Asia, south-east Asia and the west Asia. A general picture where
Asia was a strong player does emerge. Frank, however, goes further and makes
or implies several additional claims in the book. These are, (a) between
1400 and 1700, Asia dominated world trade, (b) Asia began to decline from
about 1700, and (c) trends in world trade enable us to generalise about the
capability of these economies as a whole.
Was Asia ever dominant? This is essentially a question of scale. To
establish this we require data on three things: the size of Europe's trade
with Asia, the size of intra-Europe trade, and the size of intra-Asian
trade. We need to show that the first two were smaller than the third to
begin with. We need quantitative data on the relative magnitudes. However,
there are no data on magnitudes of trades in this book. Nothing offered here
makes a strong case to believe that the third component was larger to begin
with. By 1800, Europe-Asia trade was probably the largest component of all
three in world trade. But Asia and Europe were the main transactors here,
and neither can be called dominant.
In support of his contention, Frank cites estimates of GDP, misleadingly in
my view. The GDP evidence shows that until the mid-18th century, per capita
incomes were roughly similar between Asia and Europe. That fact suggests
that in terms of average purchasing power, Asia was no better or no worse
than Europe. If China on some indices come out as distinctly better-off,
south Asia was worse off. In the size of their economies Asia led, because
Asia was more populous and larger in resources. Frank stresses size. To
infer world trade dominance from either total or average income is
fallacious, because (a) what we need to know is the proportion of GDP that
arises in external transactions, and (b) it leads to the absurdity that
population size and world economic dominance are necessarily correlated.
Asia may not have been dominant when the trade figures are normalised by
population.
The other index of dominance that Frank uses is population. Historical
demographic data for the third world, definitely for south Asia, is of very
dubious quality. For the pre-colonial or early colonial period, estimates
for different dates cover different areas. For periods before 1600, the
estimates are little more than worthless. Frank cites two figures for India
in 1600, 68 million and 100 million. This difference itself should alert
anyone to the great dangers of building an argument based on population. The
latter figure, which originally came from W H Moreland, has since been
revised (by Shireen Moosvi among others) to nearly 150 million. That figure,
together with the rest of Frank's population table, would show south Asians
to be practically stationary after 1600 and breeding like rabbits before
1600. If the latter picture is improbable so must be the former. How much of
the data can be retained is impossible to judge given that Frank neither
cares about the reliability of this dataset nor discusses properly how these
figures were derived.
Based on dubious statistics, he argues two points that involve bad causality
and a contradiction. First, between 1400 and 1750, Asian production must
have been growing faster than Europe because its population was growing
faster. Population growth rate by these suspicious figures fell in Asia
thereafter. By Frank's logic, Asia should grow richer as a result. But his
second point is that Asia must have entered a crisis because of previous
high population growth. So what was in an earlier period an effect of
prosperity at a later date became a cause of economic decline. There is
obviously something wrong in the logic. What is wrong is the vague way in
which the relationship between economy and demography is stated, to suit
immediate convenience of arguments. I shall return to this problem further
on.
The forgoing shows that Frank's interpretation and usage of statistics is
superficial. In fact superficiality in handling and making sense of data is
written on the whole book. Let me add three more examples. First, in various
places, Europe's marginality in world trade seems to be illustrated by the
fact that it ran a net trade deficit with Asia. By this logic, US today
should be seen as a marginal player in the global economy. Britain ran a
trade deficit with south Asia throughout the colonial period. Trade deficit
as such does not say anything about the nature or capability of the trading
economies. Balance of payments might, but the book does not get into those
details.
Second, Asians wanted mainly silver and gold in exchange for their goods.
The debate over what this preference for precious metals signifies in
political and economic terms has not been settled at all. Precious metals
did increase liquidity. But there is no strong sign that the precious metals
were primarily either a widely circulating means of exchange or a widely
held asset. If, on the other hand, gold and silver were primarily articles
of conspicuous consumption, much of this inflow would be 'sterilised', that
is, not play a major role in economic growth either via stimulating
investment or via development of the financial system. Frank needs to
dispute that thesis, and he does so characteristically with great energy but
zero facts. The fact that we are fairly sure of is that the period of silver
inflow did not see a significant change in price trends, which is perfectly
consistent with the hypothesis that silver was neither money nor asset, but
a prestige good. We know further that Indians continued to import a massive
quantity of metals in the colonial period, which went into ornament
manufacture and had no visible impact on the macroeconomic system.
Third, Frank cites comparative income figures, but does not do justice to
the debates about relative per capita incomes and consumption, which is at
best inconclusive. By taking trade deficit as a sign of Europe's
marginality, he misses asking how Europe got the purchasing power to buy
Asian goods. Harping on treasure will not help. Metals were a convenient
means of payment, it did not necessarily make poorer people able to buy more
goods. He misses an important feature of composition. Europe imported
commodities - sugar, tea, textiles, tobacco, spices, etc. These were mass
consumption goods, so that Europe's import (and trade deficit) was a sign of
rising prosperity of the general population. Asia imported metals. It is
hard to interpret whom the metals enriched, but it was almost certainly not
an item of either mass consumption or mass saving.
Asia's Fall
The book is vague about what it means by 'rise' of Europe and 'fall' of
Asia. The confusion arises from whether rise and fall are referred in
relative or absolute sense, in the sphere of trade or in that of economic
growth. Consider the following. Let A be the scale of Asian export, E that
of European export, and W or (A + E) the scale of world export. Now, there
is a purely relative sense of 'fall' of Asia, which is that as E expands
faster than A, A/W falls. But nobody is worse off by this change and it is
not clear what there is to explain in this situation except Europe's
exceptional growth. This situation does not call for the kind of yarn on
Asian decline that Frank spins in his book. There is another and more
substantial sense of a 'fall' of Asia if it can be shown that A contracted
or decelerated. There is then an absolute fall of Asia. But such a thing
almost certainly did not happen in history. Between the 18th and the 19th
century the composition of Asian exports changed from manufactures to
non-manufactures and in some cases back to manufactures again. But the
scale, as far as one can see, expanded. It expanded very rapidly in the 19th
century. So, what fall is being explained here?
The confusion is compounded by the way Frank establishes Asian decline. Did
Asia decline in terms of absolute GDP growth rates? Did Asia decline in the
absolute scale of export, and by inference, in GDP growth rate? There is no
evidence on these basic indices. What we do have is an argument that Asia
declined (presumably in an absolute sense) based on population data. The
less said about that dataset the better.
There was certainly an Asian decline in a relative sense. And let us assume
for argument's sake that there was also a decline in an absolute sense, and
examine Frank's explanation for it. How did an Asia-centred world economy
become Europe-centred? There are broadly two approaches to this question,
though most historians would hold a mix of both. First, rise of the modern
west in the past 200 years derived from specific institutional factors,
rather than from world economic relations. Second, Europe's dominance did
derive from early modern world economic relations, but the dominance had
long antecedents. Both these approaches are inconsistent with Frank's
thesis. The former approach is inconsistent because it necessarily draws
attention away from global to local factors and leads to a questioning of
the very significance of the early modern world economy for explaining later
inequality. The latter approach is inconsistent because it justifies taking
a Eurocentric view of the early-modern world economy. Clearly, a crucial
task for Frank is to supply a convincing third answer to the collapse of
Asia and the rise of Europe.
Frank's answer to this critical challenge has three parts. These are: (a) at
first there was a luck factor behind Europe's rise, (b) when the luck factor
spent itself, Europe survived in business the hard way, by industrialising,
and (c) Asia's decline, also global in origin, preceded Europe's rise.
Let us first see the Europe side of the story. There are four propositions
here.
(1) Barring a somewhat confusing discussion on relative wages, the book
basically states that labour-intensive goods were cheaper in Asia from the
beginning of Asia-Europe trade. Europe was uncompetitive on manufactures.
(2) But Europe could still enter the Asian world economy 'with the use of
American money', that is, silver plundered from the Americas.
(3) When, however, this cheap source of purchasing power dried up, Europe
was forced to find commodities for payment, and invented machinery in
response.
(4) The capital needed for industrial investment came from plunder again,
but of a different kind, one for which Marx had the technical-sounding name,
'primitive accumulation'.
On the Asian side, the story of a decline has one major proposition.
(5) Asia entered crisis from about the 17th century because the very
economic prosperity 'turned into a .. disadvantage .. as (p)roduction and
trade began to atrophy as growing population and income, and also their
economic and social polarisation, exerted pressure on resources, constrained
effective demand at the bottom, and increased the availability of cheap
labour in Asia more than elsewhere in the world' (p 318). The link here is:
from world economic success to demographic pressure to low wages to
conditions disfavouring labour-saving innovations.
We, therefore, have a story wherein Asia and Europe were similar in
capability, but different in circumstances vis-a-vis the world economy.
These circumstances created a difference in technological capability much
later. Let us now subject these propositions to a closer look. Proposition 1
is not too problematical. There is believable data that Asia, as far back as
one can measure, was relatively more labour-abundant than Europe.
Proposition 2 is also broadly acceptable. The great importance of American
treasure in world trade in the 17th and 18th century is a widely discussed
topic from long before this book was written. Frank discusses (rather
hurriedly it might seem) estimates of the magnitudes of this inflow. It was
necessary, since the book stresses the aspect of artificially low cost of
treasure, to place that part of the inflow which can be called Europe's free
gift from the conquest of America in the perspective of volumes of commodity
transaction.
Propositions 3-5, on the other hand, are shallow and basically conjectural.
Frank has very little as hard evidence or sound theory to make any of these
three propositions a compelling hypothesis. As for proposition 3, the link
between drying up of metals and inventive activity is entirely inferential.
It is an original thesis, but not convincing given how cursorily inventive
activity itself is discussed in the book. The link, like the whole story
here, places too much emphasis on supply of capital as a source of
technological change.
As for proposition 4, I have four criticisms. First, there is already an
well-argued and well-documented position that the 'periphery' was peripheral
to Europe's economic growth and industrialisation in the above sense. Frank
mentions this position, which owes to empirical work by Patrick O'Brien
especially, but does not discuss how O'Brien et al arrived at their
conclusion. So, the question of how much 'looted' capital really mattered to
industrial investment remains open. Second, if supplies of treasure fell but
loots increased, where was there a source of crisis in Europe? Why could
Europe not keep buying progressively cheaper Asian goods with money coming
in from primitive accumulation? Why did it have to take the harder way and
create and invest in machinery? The third point concerns interpretation.
Frank finds it natural, and therefore does not subject it to any
explanation, that looted money should be invested in private industry and
commerce in Europe. I find such a thing baffling, for it is an arguable case
that in Asia borrowed, taxed or looted wealth did not necessarily find
itself into the hands of merchants and manufacturers. He shows how Europeans
used inflow of wealth, as means of payment or as capital for industry.
Should one not draw a parallel with how Asians used the metals they received
in exchange for commodities? By comparison with Europe, Asia seemed to have
squandered its inflow of metals.
Implicated in the above are three aspects of, well, European exceptionality.
The first concerns the nature of the state (or the positive linkage between
extortion by means of political power and productive investment), the second
financial institutions that could channel such crudely acquired wealth into
sophisticated end-uses, and the third institutional incentives encouraging
innovation. These qualities may not have been given, nor impervious to world
economic influences, but Frank needed to consider them and ask why, if they
were important at all, they favoured Europe rather than south or east Asia.
Fourth, it is clear from PPP income comparisons that Europe was about as
well off, may be a little better off than Asia, in the early modern period.
Given that it had higher relative wages, this would suggest that relative
capital cost was lower in Europe. Frank implies that capital cost was lower
due to a fortuitous reason, and not due to economic structure. I am not
convinced. Europe was a relatively more resource abundant economy to begin
with. Why should capital cost not be lower in Europe due to structural
reason?

Sameeksha Trust    EPW Research Foundation
epw@xxxxxxxx