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 at vsnl.com