About 1,000 years ago, when Europe was supposedly traversing through its dark ages, the Muslim empire was the envy of the world. Its wealth and material standards were such that Cordoba alone was pronounced as the ‘ornament of the world’ by Hrotsvitha, a mediaeval German writer and nun. By 1500, it was China and India whose riches and wealth became the stuff of fables. By the 17th century, the tide had started turning in favour of northern European nations. By the mid-19th century, this turnaround was complete. What accounts for this transformation?

Shahid Mehmood

Rubin’s book concentrates its analysis on the divergence between the West and the Muslim world (especially the Middle East), and what factors gave rise to disparity in development outcomes. He debunks the idea of ‘backwardness’ of the Islamic faith, which supposedly held back the Muslim world. If that were the case, he argues, there never would have been a wealthy Muslim Spain. In general, he traces the great divergence between the West and the Middle East in the way that religion and government interacted over time.

The separation of religion from statecraft set the stage for European ascent.

Before the divergence began, the Christian West and the Muslim East used to derive their authority and legitimacy from religion. The real source of power lay with religious figureheads like the pope, followed by the rulers and their cohorts. Whatever economic activity there was, it was shaped in a way to benefit these entrenched groups. But then Europe gradually broke away from religion as its source of legitimacy. As the tight bond between religion and state loosened, economic and financial concerns became top priorities.

As nation states like Britain and the Netherlands adopted the parliamentary system of governance, the hold of the entrenched classes started to relax since parliamentary legitimacy required participation of the common man. This participation meant they could now stake a claim in the state’s riches, and also realise it through good policies.

What accentuated this break between religion and the state in Europe? One of the most iconic inventions of history, the printing press! In 1440, Gutenberg invented the printing press, revolutionising the spread of knowledge and ideas. Once restricted to only the church, knowledge now began to spread to all parts of Europe as books and pamphlets became easily available to the public. This, over time, gave rise to a movement (reformation and enlightenment) that gradually withered the grip of papacy and kings.

This marvellous invention, however, did not make it to the Muslim world till 1727 as leading religious figures saw it as a threat to their monopoly. They convinced successive sultans not to let this ‘un-Islamic’ invention enter their blessed lands. This 300-year gap, Rubin argues, is one of the most important factors (though not the only one) in explaining the divergence in wealth between the West and the East. At a time when Europe moved towards economic empowerment, technological change and inclusion, the Muslim world’s energies were focused on preserving orthodoxy and exclusion of people from the fruits of knowledge and empowerment.

Mokyr’s book, in contrast, focuses on reformation and enlightenment that drove Europe ahead of others. Why did these not occur in China or the Muslim world and only in Europe? His narration revolves around the political fragmentation in Europe that beset it in the wake of the rise of nation states. Political fragmentation gave rise to fierce competition, not just in commerce and trade but also in ideas which spread as innovations like the printing press made their presence felt.

Nation states, as they raced to embrace science and technology, also competed for leading scholars and thinkers. This spawned a culture of openness, not just in science but also in ideas. No longer did it remain possible to repress ideas and criticism since critics could now always find refuge in another state open to ideas and criticism. This cycle of openness became unstoppable with time, and complemented advances in technology and knowledge. This, argues Mokyr, explains to a large degree why European nation states were able to leave others behind.

To summarise, for Rubin, the answer lies in legitimacy derived from religion changing to legitimacy derived through people. This was made possible by inventions like the printing press, which tilted the balance in favour of trade, commerce and the people. For Mokyr, the answer is to be found in a cultural change brought on by the rise of nation states, their intense competition in various spheres of life and political fragmentation within Europe. Importantly, a common strand in both these books is to be found in the separation of religion from statecraft which set the stage for European ascent.

The above is but a tiny fraction of the wealth of knowledge available on this particular topic, and in no way does justice to such an important question. Interested readers can access hundreds of books and other material to contemplate this issue, such as the outstanding Guns, Germs and Steel by Jared Diamond, or How the West Grew Rich by Nathan Rosenberg. What can be concluded is that there is no single factor that can explain the rise of the West. It’s the coming together of a host of factors that propelled economic growth. What we also know is that almost 500 years since this divergence in Europe’s favour is supposed to have begun, the pendulum is now again swinging towards the East (China and India, for example). Their rise is another interesting story, perhaps worthy of a future column.

The writer is an economist.
shahid.mohmand@gmail.com
Twitter:@ShahidMohmand79

This story was originally published by Dawn, Pakistan

The subject of income inequality, once pushed to the margins of economics by more attractive offerings such as economic growth, has experienced a spectacular turnaround.

Shahid Mehmood

A new paper by three renowned economists confirms this trend in the US. Thomas Piketty, Gabriel Zucman and Emanuel Saez calculated the share of income going to different groups. Not surprisingly, they found that since the 1970s, income inequalities has exacerbated with no signs of reversing. While the income of the middle and poor class has tended to stagnate, that of the rich has climbed precipitously. At present, the bottom half of the US population is earning only 12 per cent of the total income generated in the US economy, down from 20pc in the 1970s.

How can a government tackle inequality?

But there is something different about this paper that makes people notice. It’s an issue that forms one of the central questions of economic policymaking: redistribution of resources. In their research, the three economists factored in the government transfers over time under various redistribution schemes. Did it help stem the tide in favour of the rich? The answer, as per this research, is no.

This assumes critical importance when one considers that the US redistributes a staggering $5 trillion under its various resource redistribution initiatives. But years of trillions of dollars of efforts to redistribute income to people in the lower-earning brackets have barely made a difference, and the bottom 50pc of the working-age population’s income has barely budged since at least the 1970s.

To rephrase, the $5tr being spent by the government constitutes a waste since it’s not having the intended effect. A book by Walter Scheidel will ignite this debate further. Scheidel is a professor of history at Stanford, who’s upcoming book (The Great Leveller) takes a historical look at the problem of inequality. From ancient Greece to the modern 21st-century welfare states, governments have tried their best to create equal societies through resource redistribution. His worrying thesis, though, is that efforts at lasting and substantial reductions in income inequality through redistribution are bound to fail.

Scouring through the historical record, Scheidel found that economic development has always led to deepening of entrenched income inequalities. The policies to reverse that trend did not make much difference. Notice that Scheidel’s findings are somewhat similar to that of Piketty, who in his book found the same pattern of entrenched income inequalities in favour of the rich. These, and other such findings, also tend to discredit the long-held belief of ‘trickle-down’ economics, which proposed rising inequalities in earlier stages of growth but an equalling of incomes in the later stages.

So, what are we to think about redistribution policies? As far as Scheidel is concerned, if policymakers are looking for drastic resetting of wealth and income concentrations, then the only way is extreme events like war, violence and plagues. He cites various instances to prove his point.

For example, the demise of the Roman Empire in the fifth century and the Plague of Justinian led to drastic changes in wealth and income. Italian city states such as Florence and Genoa, in the Middle Ages, exhibited extreme wealth inequalities in favour of a select few families. But the onset of the destructive bubonic plague (the ‘black death’) that ravaged Europe drastically reset wealth concentration, leading to more equal societies. The French Revolution represents another such episode.

Piketty also pointed out the First and the Second World Wars as occasions when wealth distribution and income inequalities were substantially reset. But surely, any sane person would dread to take this route. Which leaves us with the possibility of only marginal improvements through redistribution, something that is hardly worth the effort relative to massive expenditure of state resources.

So, what can a government do? One probable answer comes from Lawrence Katz, an economist at Harvard. He emphasises the importance of early intervention in terms of events that lead to skewed wealth distribution. For example, earnings through financial innovation are one area where early intervention could have made a difference. Thus, one can argue that it is imperative that the government create a level playing field for all rather than redistribute on its own.

The writer is an economist and consultant.
Published in Dawn, February 8th, 2017

This story was originally published by Dawn, Pakistan