How the West Grew Rich: The Economic Transformation of the Industrial World [Paperback]

Monographs dealing with West's rise from a backward feudal society to the most technologically advanced and wealthiest civilization this world has ever seen, seem to come a dime a dozen nowadays. Given the large amounts of books available on this topic, and the fact that it was published twenty years ago, what reasons are there for reading How the West Grew Rich? Quite a few I would argue.

The main question of the book is of course: how, or rather why, did the West (as opposed to the South or the East) achieve modern economic growth? The authors come to the correct conclusion that standard growth models can only provide the proximate causes of growth. Innovation and accumulation of capital, labour and natural resources is growth, it does not explain growth.

So what, according to R&B, are the fundamental causes of growth? The answer lies in favourable institutions and freedom from political restrictions - more specifically, secure property rights and the freedom to engage in any line of business and to acquire and sell goods at an unregulated price. This meant that the process of innovation was delegated to private firms and that individuals themselves were forced to bear full responsibility for their failures and reap the full benefits of their successes.

Why then did such favourable institutions and political and economic freedoms arise in the West? The answer according to R&B is political fragmentation and competition between different territories in Europe. Investments and the merchant class were drawn to areas were property rights were respected and where they could carry out their business without too much political interference. There was no single empire in Europe. The growth of markets - especially that of cities and long-distance trade - further spurred this development.

The arguments in How the West Grew Rich are, which should be apparent by now, very similar to those found in The Rise of the Western World by North and Thomas, although they focus a lot less on population growth. As they should, R&B refer to this book on several occasions. Despite this fact, How the West Grew Rich proves to be an interesting read: the familiar arguments are explored further and the book includes several interesting examples of how institutional innovations lowered transaction costs and facilitated further development.

There are a number of objections one could raise against R&B's account of the rise of the Western world - their account of the middle ages and alternative explanations behind West's success are far from satisfactory, to name a few. There are however a few things speaking in favour of this book. First of all, it has a clear message. It does not, like some other books on the same topic, name hundreds of different reasons for why the West grew rich. Rather, it presents a clear hypothesis that is present throughout the book and it also provides very clear policy recommendations to current developing countries wanting to emulate West's success. Secondly, and perhaps because it has such a clear message, it is fun to read!

"How the West Grew Rich" is a thorough treatise on the rise of capitilism in the nation-states of the west, from feudal society towards modern times. Rosenthal and Birdzell discuss in the appearances of the requirements for capitilism, such as acknowledgment of property rights and consistent and predictable law. Also discussed are the political, social, or economic changes that caused feudal society to crumble and a variety of free markets to gradually take root and then blossom in Europe.

This book was thorough and informative, though a bit repetitive and somewhat dry. It makes a wonderful companion to Diamond's "Guns, Germs, and Steel", filling in where the later left off.

It is entirely safe to generalize: innovation is more likely to occur in a society that is open to the formation of new enterprises than in a society that relies on its existing organizations for innovation." Feudalism thus had to be eclipsed for serious change to occur since it "was a society which dealt with the risks of life by legislating rigidity. Economic growth is inherently a byproduct of change, and the political and religious ideology of the Middle Ages guarded against the heresies of change in every way it could," argues the authors herein as they set out to explain "how the West generated the organizational and technological skills required to produce and exploit" its wealth. A "decentralization of authority," thus was crucial...and this was greatly spurred by the Protestant Reformation, the long term effect of which, economically, "was the progressive removal of religion from intimate involvement in the sphere of business activity." "In the course of the sixteenth and seventeenth centuries , the business sphere was, in a word, secularized." "Protestantism sanctioned a high degree of individual responsibility for moral conduct and reduced the authority of the clergy." Under these circumstances, it would have been too much to expect the Catholic clergy to continue to stress doctrines which could only turn prosperous parishioners toward Protestantism." The authors argue moreover that this "was not wholly a question of the theological content of either Catholicism or Protestantism. It was partly a question of the competition inherent in the existence of several rival religions, which, like the existence of competition inherent in the existence of several rival national states, enabled a rising merchant class chafing under the restraints of one authority to take refuge with another more congenial" as trade & exchange, both domestic and foreign, became ever more prevalent in the prevailing economy of the day. But how did such a merchant class even gain a foothold in the first place since feudalism was already petering out during the 15th century, ie., before the Protestant Reformation and the later rise of capitalism. As the authors remark: "the decline of feudalism is complete a century before the beginnings of capitalism."

"For if one thing is clearer than another, it is that the merchant class did not get its economic power from the feudal nobility, or by displacing or super-ceding the feudal nobility in agricultural or other economic activities. The merchant class gained economic power by expanding the trading activities in which it had always engaged." That's the key herein, trade and exchange; or rather, the ability of people to be able to engage in such. So the authors argument herein is not that democratization shall necessarily lead to an economic boom, but that the reverse is far more likely; that "economic growth was [and remains, I'd add] a force for democratization." Marx was thus, the authors assert, wrong yet again: Capitalism wasn't a natural stage progressing out of feudalism, and capitalism doesn't inherently lead to monopolistic centralization of wealth; nor can monopolistic control of the economy (under the banner of communism or socialism) drive continued economic growth. After all, "one must keep in mind that growth implies change and adaptation, and that much of the adaptation takes place through the formation of enterprises that are, at least initially, small." Hence the authors' view that "the strength of the tendency to decentralization in Western economies is chronically underestimated."

You may bemoan the influence of such mega companies as Microsoft, Exxon, & Walmart now and worry how much influence they may have in 20 years, but such is but a parlor game of sorts. (Look at the once great US Steel, or General Motors, or IBM, or any one of a dozen railroad companies, and you can see the futility of simple extrapolation.) Such high fliers now are not hurting the American economy. Such companies are stimulating it. That's the point, after all, is it not? Not to penalize success, but to focus on "the value of advancing the material welfare of human beings as measured by the means available to THE GREAT MAJORITY of individuals to choose and shape the quality of the lives they lead"(emphasis added). And as long as the Microsofts and Walmarts of our economy continue to add to the growth of such they shall be secure as entities, but there shall come a time when innovations (think Linux, Google, Apple multimedia platforms to come, home grocery delivery and internet shopping---you name it) will seek to dethrone them. To wit, the authors point out that a "seldom praised function of competition in economic growth is that it eliminates obsolete forms of economic activity." (Contrast this to "the difficulty experienced by the political sphere in getting rid of programs that are obsolete or that have simply failed.") Hence "the real point...essential to understanding why the benefits of Western growth were so widely diffused is that the West's system of economic growth offered its largest financial rewards to innovators who improved the life-style not of the wealthy few, but of the less-wealthy many. This is a point that bodes ill for 3rd world ever-developing disappointments (ie., Russia, Venezuela, slews of countries in Africa/The Middle East) who are hopelessly (or so it seems) overly centralized and concerned only with enhancing the riches of the elites in such societies. Corrupt self-interested cliques are simply instinctively hostile to bottom-up anything. Regarding most African and Middle Eastern states, some would say that the Western economic path "involves a diffusion of power and a degree of individualism which is incompatible with many modes of social life" in such parts of the world, but the authors herein suggest that such could have been once said about European peoples, too...until power diffused within such societies to an extent made possible by trade-generated economic growth. Nothing is guaranteed, of course, but as long as power remains centralized in backwater states the chance of real sustainable economic growth and seriously better lives for the average citizens of such societies will remain but a hopeful wish. (Interestingly, many European economies have begun to grow rather sluggishly since the European Union has been increasingly taking power back from individual states and localities with them.) Thanks for reading my words of review of this worthy book. Cheers