mag. historia econoìmica-4

Economic history Gonzalo Mariscal Concepcin

Notes of

Economic history

Gonzalo Mariscal Concepcin

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Questions.

Why isn't the whole world developed?What explains the long-run growth?

Basic concepts.

GDP: the size of an economy.GDP per capita: a proxy for living standard. GDP per worker. (Or per hours worked): a proxy for productivity.

Modern economic growth: rapid, permanent and continuous increase in productivity and living standards.

Contrasts with the millennial Malthusian world of no long run growth.

In 2005, the GDP was growing very fast but the problem is that the GDP per worker was not growing. There was a problem with the productivity.

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The great divergence take place when the industrial revolution took place. Since them, over time, the differences are getting bigger, not smaller.

But if we see the wages around the world, the divergence starts before the industrial revolution. It starts in 1500, when America was discovered.

Thomas Malthus: in a typical economy, the problem is the population. There is a problem with scarcity.

Growth accounting is the aggregate income in a society increases because more people work, more capital is used, workers are better, production becomes more efficient and technology on average gets better.

One of the problems of the Spanish growth is that there was an increase of workers but not in their productivity.

Solow residual. The changes in the output are because of changes in labor, changes in the capital or other unexplained reasons that leads to economic growth: Solow residual.

Residual was very important in the 20th century.

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Economic history Gonzalo Mariscal ConcepcinWhat drives growth?

Inputs are divided in labor and capital which are mixed together producing the outputs.

There are some factors that have to be considered. There is a demographic behaviour that will make the firm profitable or not.

--- Institutions: making markets work or rent seeking? ---

What are the institutions? Why are they important? When do they change?

Examples.

a)Craft guildsb)The Mestac)Labour institutions: slavery, serfdom and wage labour

Questions

Craft guilds / were they efficient?What was the Mesta? Explain briefly why you think it was an efficient or inefficient institution?

Big theories: explaining why countries were rich, and poor, in 1500 or 1800

We start with one picture of Northern Korea and Southern Korea at night seen from the

sky. We can see that in Southerns Korea there is much light whereas in Northern Korea there is much lower light.

Until 1950, Korea was only 1 country.

Then, North Korea outlawed private property and banned markets. Freedom destroyed. Little room for private initiatives and technology.

South Korea - inclusive economic institutions (allow population to participate in political decisions).

This lead into one question: Why properity? Why poverty?

Countries differ in their economic success because of

different institutions: Economic institutions can be inclusive-provide opportunities for everybody, or extractive-benefiting an elite.

2 Koreas- per capita income has diverged 10 times since 1950.

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Economic history Gonzalo Mariscal ConcepcinWhat are institutions?

North & Thomas - Innovation, economies of scale, education, capital accumulation, etc.,

"not causes of growth; they are growth".

We have to understand what makes people creative and looking for technology while in other countries it is very different.

North - Institutions are the rules of the game in a society.

They structure incentives in human exchange, whether political, social or economic. One example of incentive: If the salary is reduced, the workers would work less efficiently because he has less incentives. The problem is that is very difficult to create incentives, to create institutions which create them.

Institutions and economic growth

1. Political institutions determine the ability of citizens to control politics & influence how

they behave.2. Political process determines what institutions people live under.3. Economic institutions shape economic incentives.

Political power and economic incentives

Organisation of society - democracy, feudalism, fascism, etc. Why has political power? In 1000 A.D. was the King and feudal lords. Another example now, is North Korea, were many people is hungry because the elite don't look for wealth.

Those with power create a political system to benefit themselves.

Laws to create economic and political institutions to favour their interests - not necessary good for economic development.

Political institutions are durable.

Egypt today

Limited economic reform started in 2004 produced some progress, but was "constrained by the distortions of crony capitalism - a narrow tax base, budget-busting subsidies, epidemic corruption (public workers that receive low quantity of money take more from the Government) and political networks for access to banking and credit" (FT 3/2/2011)

In poor countries, there is very differentiated people; the richest and the poorest. The poorest cannot pay taxes and the richest don't want to, so the Government cannot receive money.

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Conclusions

Institutions create incentive to be productive (or not).

Institutions influence the distribution of income. The idea of having primary education is the best way to spend a small amount of money giving a high quantity of opportunities to many people.

Therefore not all individuals will prefer the same set of economic institutions. If the part of someone gets bigger is because the part of another one gets smaller.

Obviously MANY institutions are BAD for growth.

Institutions in the Middle Ages

a) Craft guildsb) The Mestac) Labour institutions: slavery, serfdom and wage labor

Craft guilds (Gremios)

How did they operate?

Apprenticeship Control the number of workers Control length of hours worked Quality of products

a) Cartel? (Buyer of raw material &

seller of products)b) Enforce quality standards?

(Information asymmetries)c) Inter-temporal transfer of income? (sick, old, age)d) Protection? (expropriation by opportunistic urban elites)e) Rent-seeking?

A cartel?

Competing political interests Internal divisions between wealthy and poorer members Policy difficulties 'widespread evidence of craftsmen deliberately avoiding guild membership'

Guild and craft-specific skills

Who pays the teacher? We need an incentive. So, as long as the apprentice has no money, he has a contract with the teacher which says that he will work for him.

A primary function of craft associations - enforce contractual norms that reduce the opportunism by masters and apprentices.

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Did guilds STOP technological change?

Guilds want to stop technological change when machines can do their job because they will lose profits; they will make their job non-sense. But on the other hand, inside of the guild, people will want to improve in technology when it help them to develop their job, hiding the information to other people of the guild in order to get more profits.

Guilds did introduce technological change - but why should they advertise it? What type of technological innovation? Craft bound innovation - generally aimed to save

capital and enhance skills.

Mesta

Mesta used to move sheep from one place to another (summer-winter).

A practical solution to what?Extensive sheep grazing

Why sheep?Fine wool + exports + taxes

The members of the mesta were happy because they had to pay taxes but they had more privileges.

1273-1836

North & Thomas and the Mesta - Are they right?

1. Efficient for King to get taxes - YES2. Profitable for small numbers of sheep owners - YES3. Opposed by landowners (rents fixed) - DEPENDS when (late 18th century yes)4. Opposed by farmers (crops get destroyed by sheep) - Mesta court; DEPENDS when

(late 18th century yes)

The Mesta and induced innovation change

Changes in relative prices will encourage economic agents to change institutions +

property rights

Mesta efficient when population scarce/land abundant; not so when these endowments

change.

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Economic history Gonzalo Mariscal ConcepcinLabour institutions: slavery, serfdom and wage labour

In what economies do we find slavery, and why? What are the advantages of using slave labour, and

what are the disadvantages?

We can say that slavery is profitable so, why we can't find much slavery in history? Maybe because there are other systems more profitable. The work of a qualified worker can be better than the work of fifty slaves.

Slavery and the Roman Empire Slavery and the Deep South

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--- Europe and the Great Divergence, 1492-1815 ---

Questions

Why was the inflation in the sixteenth century a revolution? What was mercantilism? Did it benefit Holland and the United Kingdom before 1840? Was there a global economy in the seventeenth and eighteenth centuries?

The First Great Divergence

Columbus was looking for a new look to commerce with India (spices). When he did his trip he found great amounts of gold and silver.

New Trade Routes and the Price Revolution

In the 15th century, transport costs were very high. There was long distance trade and the goods were high valued.

One consequence of the discoveries: the price revolution

Monetary system became

more and more metallic (gold and silver) instead of using notes.Gold and silver shipments in 16th century

Between 1503-1600, 153 tons of gold and 7.400 tons of silver were brought; but in 1556 they realized that money worth more when it is scarce than when it is abundant.

This can be expressed through the "Quantitive theory of money" ( M*V = P*T ).

This lead to an increase in prices. In Sevilla, for example, the price of wheat bread was multiplied by 5 or 6, olive oil by 4, bacalao by 2 or 3 but the price of lead (plomo) had a small fall. This difference is because the supply; there was more lead as long as there was more people working in mines to find gold and silver.

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Economic history Gonzalo Mariscal ConcepcinThe Price Revolution

In 1556, appeared the first comment related to inflation. The price revolution was a transfer of welfare from landowners to tenants that did not expect the increase of prices in the future when they made the contracts (the rent was fixed but prices went up).

The population did not know anything about inflation. They could see how

prices changed but most of the times, in the short term, it was due to the harvest (if it had been good or bad) but they did not see the long-term.

It was called price revolution because of the contemporaries, the inflation and imperfect information but also the income redistribution.

Trade, bullion and mercantilism

Between 16th and 17th centuries, there were a lot of trade flows with Asia. Europeans imported spices and luxury goods. They were financed with an eastward flow of silver and this lead into a huge demand for silver in China and India which were sophisticated, dense and commercialized economies.

What is mercantilism?

Conserve bullion - by encouraging exports, restricting imports Zero-sum game (i.e. quantity of trade fixed) Royal factories (Reales fbricas) Tariffs / bans Rent-seeking (beer producers in the UK?)

For example if we were beer producers and we wanted to earn money, we would ask the government to put a tax on wine because it is a substitute so that people would stop buying wine and would start to buy the beer we produce because of being cheaper.

Dutch Republic: Mercantilism versus Smithian growth

Smithian growth depended on the efficient distribution of goods, people, capital and information. Germany took goods from colonies and distributed them to the European commerce (entrept). Some advantages they had were:

Good geographic location (Mar Norte)Good communication (internal/external)Cheap energy + efficient export orientated industriesCheap and efficient shipping (fluitschip)Development of Amsterdam (Ambers) - at first transaction costs for trade in Northern Europe.

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Economic history Gonzalo Mariscal Concepcin Mercantilism - Britain

Foreign markets seized, created and protected by high levels of investment in naval power.

Exports to Gross National Product was in 1700 8%, 1760, 15% and 1801, 16%

British Trade

1700-1772 The 95% of the increased volume sold on imperial markets "which underlies the significance of sea power, imperial connections, slavery and mercantilist regulations for the sale of British manufacturing overseas".

Mercantilism - Spain

Merchant fleet - unimportant in Spain Colonial market small - and agricultural products. Re-exports of European goods Distance; small population Until end of 18th century - precious metals more than market for manufacturers

Trade and economic growth: Urbanisation & Atlantic ports

The difference between the places was high because of the ports that were used to communicate, travel and transport goods.

Direct benefits before 1800

Profits from slavery and trade less than 15% of accumulated capital.

Trade between W.Europe and the rest of the world equivalent to less than 4% of GNP of

Western Europe.

Taxes "Imports provided the British state with an accessible and elastic source of taxation allocated in large part to expand and defend the empire".

Ghost acreage - a Malthusian solution.

Exports Europe Americas Rest of World

1700 85% 10% 5%1772 49% 37% 14%1818-20 47% 44% 10%

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Indirect effects of international trade: institutional development

Essential to constrain royal power if incentives are to be created for investment and economic growth (rather than rents)

Atlantic trade could enrich and strengthen merchant groups either within or outside the royal circle.

Was there a global economy in the early modern world?

Flynn & Giraldez: yes because there was institutional changes taking place in Europe

Williamson & O'Rouke:

For them trade is not enough. What we need is convergence of commodity prices; because of trading, goods start to be more and more equal). Until 1820 there was no convergence.

Jan de Vries: Luxuries (pepper, coffee) do show long-term price declines in European prices

relative to broader European prices Non-competing but encourage European imitations (cotton, porcelain) Competitive markets (national monopolies, European market)

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----The industrial Revolution----

Possible questions What was the Industrial Revolution? What caused the British Revolution? Why did Britain adopt the new technologies before other countries between 1750 and

1850?

What was the Industrial Revolution?Britain had bigger salaries, much bigger cities and democracy, what helped it to develop the industrial revolution. The industrial revolution and growth came slowly but the urban society helped.Between 1780 and 1820 there were a lot of changes in the British economy. For example, in 1780, the 45% of the population worked in agriculture whereas in 1820, the Number was much lower.We can also see that income increased a lot between 1700 and 1840 whereas the agriculture decrease more in Britain than in Europe. This is because industrial revolution came later to Europe. The industrial revolution also came with a growth in the population from 5,1% in 1681 to 14,9% in 1841 in Great Britain what lead into a growth of cities related to the whole population. People, started to leave agriculture so productivity grew and demand of agriculture also grew because of the growth of the cities we've seen before. This productivity was due to different factors: Institutions (open fields/enclosures...) Technology was improved by a lot of people in Great Britain. Cities like London which grew a lot. Market integration.

Transport and market integrationIn Great Britain there was 3200 km of navigable water in 1800. One third of which was: Natural navigable rivers. Improved rivers between 1600-1760 Canals constructed between 1760-1800

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Market integration and institutional barriers: cerealsOn the one hand, England had minimum cereal prices whereas continental Europe had maximum prices. On the other hand England had high bread prices, high salaries and relative absence of famines.We find that in England, people had a minimum price for harvest. Farmers had to put prices very low so they wouldn't benefit. In the case of continental Europe it was just the contrary, there were maximum prices in order to protect the consumers from bad harvests that farmers have found.What happens in Britain is that there was a very integrated market so if there was a bad harvest in any place there could be the option of having a good harvest in another one so they could take the harvest from one place to another one. The problem in Europe is that transport was more expensive so if there was a bad harvest in any place, it would be very difficult and expensive to move the production of another place to that place.

Rapid population growth fed by:Agricultural advances or substitutes?A. Food: new crops and ghost acreageB. Raw materials: construction, clothingC. Energy: industry, private uses. (Coal

was better because wood disappeared as long as you used it whereas coal was very abundant).

Technological changeTechnology was very well implanted in England whereas it didn't as well in Europe. This difference can be due to the incentive of profits for businessmen in England. Wy there wasn't this incentive in France? There was but it was lower.

Europe

Scientific revolution in the 17th century The enlightenment in the 18th century 'The key to the industrial revolution was technology and technology is knowledge'

Britain: R and D They were very interested in technology.

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Economic history Gonzalo Mariscal ConcepcinCoal A stock if energy rather than annual supply

(wood). 1700 England consumed 3 million tones,

equivalent to x5 of the world. 1800 England consumed 15 million tons, 5x

Europe. 1800= equivalent to almost 7 million hectares

of forestry. "Collective innovation" -domestic uses

Price of labourIt was highly increased in London because the machines could reduce the costs of production and because of this, the salaries could be higher.

Why was coal consumption so high in Britain?Cheap (to mine, high quality, and to transport)Importance of metallurgical industry. Comparative advantage in energy intensive industries.Cities - concentration of consumers.

Steam engine (GPT) - General Purpose Technology

Newcomen 1712 - coal mines and flooding (they needed so many coal that they were firstly used where the coal was)

1720s- 1840s -energy costs cut by 90% 1811 steamship Pittsburg to New Orleans. 1870s transatlantic steamers

Railways - delay in adoption outside Britain

limited. Britain 1850-70 steam engines contributed

2/5 gains in labour productivity

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USA UK Japan Italy1820 1048 1405 588 9601870 2247 2610 618 12101913 4854 4024 1114 2087


Cotton industry Technology Spinning-weaving (bottle neck) 1770 Spinning Jenny (Hargreaves) 1769 water frame (Arkwright) 1779s Mule 1820 mechanical looms

There was an important substitution, India had a high comparative advantage based on low salaries. Some mercantilist prohibitions came up in 1701 and 1721. The technological change led to exports. In 1820 there was 425.000 workers and industry accounted for 16% exports.

U.K. And the Industrial RevolutionIn 1770, in England, there were many canals which also were turnpikes (peajes). The industry in England and Wales was near canals or near the coast but its location was also related with the coal and iron.The technological change, very related to the new industry started in 1750 as we can see in the graph which describes the proportion of iron smelted with coal or coke. The first country to do this was Britain and in 1825 many other countries like France or Belgium started to do the same.-How does the economy grow? We can say that total factor productivity growth is not what drives economic growth. Labor and capital is. If we see the table of the calculation of sectoral contributions to overall productivity change, we can see that cotton industry was a very important factor but also the shipping and canals and railways.Until 1850s we don't see a remarkable increase in living standards. This is because, even salaries were higher, the cost of living had increased, so the purchasing power was very similar.If we see the graph of average height and the birth date, we notice that since 1850 people have higher height. This can be because of the increase in real wages but this not always happen. Income is not always related to what we eat.As a conclusion we can say that between 1780-1860, income per capita was between 11-28 pounds (real wage); population grew by 2,7 (1,25% annual); there was a slow growth in income per capita and a rapid structural change. Malthus theory could not be applied now. We can also find a scientific revolution, an increase in the cost of labour with low cost of energy (what was an incentive to use machines), a high demand and a lot of incentives for innovation.

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--- U.S. AND THE SECOND INDUSTRIAL REVOLUTION----What was the nature of UK technological change during the Industrial Revolution? It was easy to get coal and they had the steam engine. There was also a low cost of labor, many institutions and big cities, whereas in the USA the wages, for example, were much higher.If we see of GDP per capita of USA and UK we notice that it grows very fast in UK but even faster in USA. In the long run we can also notice that there are a lot of changes in the importance of factors of production related to growth. For example, land becomes less and less important in growth terms but total factors of production increase.Abramovitz said that in the 19th century there was a technological progress biased towards the use of physical capital whereas in the 20th century, the technological progress biased towards intangible factors (human capital and scientific advances).In 1860 most of the industry was widely dispersed, rural and in small scale because of the low population density, the relatively poor transport network, the general simplicity of antebellum production methods, the small size of firms did not mean competitive markets and many of the 19th century industries were as concentrated as, or more concentrated than in 20th century "within the relevant market boundaries".We can notice many long-run changes. In 1860, US industrial output lagged behind that of Britain, France and possibly

Germany. In 1880s, agriculture the chief source of wealth. 1890 value of manufactures x3 that of agriculture 1894 largest world producer 1913 as much as Britain, France and Germany combined. 1914 foreign investment by US companies equivalent to 7% of US GNP/PNB (offsetting

previous large capital inflows.

But we can also notice many changes in the 19th century. Population grew a lot between 1860 and 1910. Cities also grew. In 1870 there were 10 millions inhabitants whereas in 1913, 42 millions. Railways changed from being 31.000 miles in 1860 to 193.000 in 1900.

Big business and mass productionTechnology was not brought to other countries very fast because it was not profitable. This is because in other countries there were not enough productive structures in order to benefit from neither economies of scale nor economies of scope (same equipment can be used to produce a wide variety of products).There are 3 basic characteristics of US large scale production in late 19th century:

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Economic history Gonzalo Mariscal ConcepcinA. Large batch - volumeB. Continuous productionC. Standardization of piece (precision instruments rather than artisans) (One example is

weapons. US started to produce guns in pieces which were very accurate, whereas in the UK they were in a war and more than 200.000 of their guns were useless).

Some examples of the US industrial products were metals which required intensive capital and energy (energy was cheap), and chemicals which were a continuous production with economies of scale (for example standard oil). There were also a lot of cartels which "didn't benefit" the economy.We can also find another examples like the 1880s Singer Sewing Company which created a mass production to produce interchangeable parts to create sewing machines. There were two factories, each with a capacity of 500.000 machines and a combined total of 75% of world production. There were also

typewriters, Tobacco (1884 Duke was a machine that could produce 125.000 cigarettes per day), frozen meat, fruit, beer, cameras, bicycles, cars, etc.A great improvement was the creation in 1883 of machines to solder 50 tins / minute (soups, vegetables, condensed milk) what lead to a better conservation and the warranty of the producer that what the industry made is what the consumer gets because the tin hasn't been opened.

The revolution in distributionThere were different systems of sale: Vertical integration with machine tool industries. Brands and food industries Meat and vertical integration into retailing Mail-order houses (1887 Montgomery Ward, 540 pages, 24.000 products) Department stores

All this lead into one conclusion and is that many factors caused this growth and development; not only natural resources but also institutions, transports, information, capital, demand, technology and human capital.

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---THE FIRST GLOBALIZATION---Questions Why did people emigrate in the nineteenth century? What were the economic consequences of the globalization in the late nineteenth

century? What happened to land and labour prices in the US and Europe between 1870 and

1914? Why did these change?The international movement of labour in the 19th centuryPeople emigrate massively from the UK and immigrate massively to USA, probably due to the higher salaries. There was also a growth in emigration because the reduction of the time of the journey thanks to the steam machine but also because people were richer.USA started to control foreigners in order to protect local market, local culture and local interests.There was stage migration (from rural areas to urban areas). We can also notice another factors like that most people were young (76%) because it was easier to fit in the new country and get a job, they were also male and single maybe because there were not familiar problems.Why emigrate?Relative income hypothesis was a very important reason. People who emigrated had to chose where and to do this, they had in mind many factors like the language and the people of your country. But people who emigrated were not the poorest. For example, spanish in the 18th century were poorer, but they had no money enough to buy a ticket.In France, fertility was controlled so generations were controlled because they could not emigrate and they would inherit the family farm which is small but in Ireland, people could emigrate so they could have many children.In Ireland 1841-1911, population was reduced from 8.2 millions to 4.4 because of the Irish family model of emigration at 18 years old.When and for how long?Economic cycles is a very important factor but, how people notice these changes? Because of friends or family who live there and notice that there are less jobs.As long as economies are dynamic and they change, people move from one country to another one slowly, and as long as they leave, wages in the first country start to increase with respect to the other (as time passes, the difference is lower).Spaniards and Italians were different from Irish people. Irish people went to another countries to stay and have their second family. Spaniards and Italians emigrate just for 3-4 years in order to save money and then come back and buy a farm...etc. There were also some traditions depending on where people lived.

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Economic history Gonzalo Mariscal ConcepcinCapital - Gold Standard

Gold standard is a monetary system with fixed exchange rates based on gold. It cannot be manipulated by politicians and there was a fixed exchange with each currency (Ex. 1 pound = $4.86).The necessary conditions for the gold standard to work are:1.A free movement of money/gold between countries2.Convertibility - anyone can change paper money for gold in the bank3.The money supply of a country is linked to the size of gold reserves in the Central Bank

In the gold standard, if one country buys a lot of goods to another one, inflation in the second one grows and maybe, starts to buy goods to the first country so it is almost impossible to loose all the gold - Hume 1752. Central Bank intervenes to speed up the adjustments of the new money supply. When gold leaves country, reduces money supply by increasing interest rates. But this standard create also externalities: the advantage of being in the same system as your trading partners.Success of the gold standard in the 19th century: No attempts to by surplus countries to accumulate reserves (importance of London) No speculation - general believe that governments would not change the interest rate Main economic objective of governments before 1914: maintain the value of national's

currency

Global capital marketsIntegration of global capital markets as great as today.

How measured: Quantities of flows (measured as % world GDP) Convergence in interest rates Multinational companies

Why growth in international capital markets? Fall in information and transport costs Exchange rate stability (gold standard) Political stability (absence of major wars)

The capital flows between 1870 and 1914 had 4 characteristics:1. European countries exported large quantities of capital2. This did not happened in low income countries, but in resource rich countries,

especially the Americas and Australia.

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Economic history Gonzalo Mariscal Concepcin3. Instability - 1913 - foreigners own 50% of Argentina's capital stock, 20% in Australia

and 25% in USA.4. Investments in stocks and shares and not multinational.

World trade

1820-1992 growth of world trade is an annual 3-7%. Transport and communications improvements during 19th century. Tariffs and trade liberalisation explains much of growth after 1950. There are many changes in income and demand and major shifts in production costs (new lands, technology and human capital).The telegraph was very important in terms of savings. Fast information is crucial in many situations like wars, so the invention of the telegraph was very important but also cheap.Class 6

Trade became cheaper and there was a commodity price convergence between USA and UK because of it. Lower transport costs, lower communications cost lead into lower difference between prices. But the convergence will never be the same as long as they have to cover transport costs and benefits. One example is the meat and animal fat between London and Cincinnati which had very different prices in 1870 but between 1895-1913, the difference decreased a lot because of lower costs of refrigeration and transportation, but in 1913, there was still a difference in prices of 18%. The cotton industry had a similar process but in 1913, the difference between Boston prices and Manchester prices was negative because cotton started to be produced in Boston cheaper.Summing up, improvements in transport will make a convergence in prices between the countries.

Heckscher-Ohlin theoryDifferent products requires different mixture of inputs.Factor supplies are distributed differently across countries.International trade will lead to a convergence of factor prices between countries.As long as american goods are demanded, America's prices of land will increase and the prices of European land will decrease.

ConclusionsIntegration of the Atlantic economy and convergence of factor prices.

Questions:Why did people emigrate in the nineteenth century?What were the economic consequences of the globalisation?

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---THE AMERICAS: NATURAL RESOURCES, INSTITUTIONS AND GROWTH---

Questions Why were some colonies richer than others in the 17th and 18th centuries? Why did they

decline in relative terms (and sometimes absolute terms) over much of the 19th and 20th centuries?

What are 'good' and 'bad' institutions? With reference to the Americas, under what conditions do 'good' and 'bad' institutions emerge?

General

Natural resources determines the nature of

land settlement. Land settlement will determine the

institutional structure. Institutional structure will determine long-run

growth.----> So we can say that history matters.

Americas attractions: Precious metals - silver, gold Land abundant and labour scarce High value tropical crops that were grown in plantations - sugar, tobacco, coffee, cotton,

rice So which are the "best" colonies in 1600? NOT North America (13 colonies) and Canada

(small landowners producing wheat). The best colonies are the ones which have precious metals, tropical crops (Caribbean) ...etc.

In England there was not such a quantity of slaves because they were expensive and not profitable (there was not much land) whereas in USA, there was much land and having slaves was profitable.

What determines the initial institutional structure in the Americas?

1492- Spain arrives; settlement quickly follows by Spanish, Portuguese, Dutch, French

and British. Was it the exogenous differences among these people that led to different institutional

structure and growth patterns in the Americas? Culture? Legal systems? Religion? Factor endowments? (natural resources, indigenous population densities, location in

relation to waterways, and the area's topography)

Crop choice: determines income distribution Farm / firm size determined by level of commodity prices i.e. family farms with wheat (limited economies of scale; relatively low prices) i.e. sugar plantations (economies of scale; high prices)

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What labour?

European indentured servitude labour - want

their own farms - prefer wheat producing areas of NA. For example A wants to leave from England and B is in the US and want labour, then a company X pays the bill and take A to US and B pays the money to X; after 3 years, for example, if A is still alive, he will be able to have a life and a family in the US.

Slave labour on plantations

Therefore Land inequality and political power lead to an institutional structure which is

extractive, and not inclusive.

Atlantic trade. 18th century Rise of two American crops - sugar and tobacco Capital and labour imports (slaves) into the large plantations Slave trade abolished in 1808 in US but no slavery

Independence

There was a growth diversity but property distribution does not change. Endowments and institutions determine: suffrage, schooling, taxes, land and immigration, banking

Suffrage

Where greater inequality (and racial diversity) - the right to vote was less. USA - "Jack Crown Laws" -> the slaves and the poor whites are becoming marginal to all

what happens. Blacks and poor whites for one side and other whites for the other side. Only landowners could vote.

Between 1890 and 1910, ten of the eleven former Confederate states passed new constitutions or amendments that effectively disfranchised most blacks and many poor whites through a combination of poll taxes, literacy and comprehension tests, and residency and record-keeping requirements.

Schooling

Elite control the government. Therefore, there is a little interest in public schooling and literary programs. The higher the vote rate, the higher the schooling rate.

Taxes

There were both indirect and direct taxations. Direct taxations are those ones related to income and wealth whereas indirect taxations are not. The income and property taxes in South America was maximum 11% whereas in the United States was 65%.

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Economic history Gonzalo Mariscal ConcepcinLand and immigration

North America used land policies to attract labour and to settle frontiers.

Mexico, Peru and Colombia were the most important Spanish colonies with relatively abundant labour.

In USA 75% of household heads owned land whereas in South America the proportion was much lower. This means that there was an inclusive institution.

Banking

The size and structure of the financial system exerts and

independent, casual effect on the structure and growth of the real economy (245)

Cheap finance for government (low interest rates - little savings)

Little finance for new activities that compete with old activities

Cheap loans for elite

The US Deep South

Major difference between US and Latin America (LA) was the % of the population that

was socially excluded US - African Americans represented 15% populationLA - natives and blacks 60% population

1865 slavery ends and we know that there will be a huge movements of europeans who go to the US. What percentage will go to the south? 2%. In other words, europeans go to the northern US because wages are much higher but why if the difference is equal to the existing one between the southern wages and northern wages, there is not such a

quantity of people who move from the southern US to the northern US?

A lot of people crossed the Atlantic from Europe to the US; but there was two kinds of movements.

In the south there was a problem in historical perspective. Slavery ended in 1865 but slaves could not get land. The southern per capita incomes stagnant between 1860 and 1910 whereas northern workers increased their income by 2 in 1880. Southern real farm wages stagnate between 1890 and 1929. In the pre 1914, there was a massive emigration

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Economic history Gonzalo Mariscal Concepcinto US, but no more than 2% Southern labour force foreign born. But why there was no North-South migration before 1945?

We could call the south labor market: "paternalistic". There was an implicit contract whereby workers exchange dependable labor services for a variety of goods and services. Workers will have a long-term commitment and landowners will provide subsistence, credit, housing, medical and old-age assistance, and most importantly, protection from acts of violence.

Southern labour markets integrated (between states, and unskilled white wage was almost as low as black wages). But this market was a farm ladder in which anyone could go up.

In the 1960s the paternalism did not need mechanisation (reduces transaction costs using wage labour). Now, whites encourage migration to reduce their local taxes and accept civil rights (to attract skilled labour and investment to the south).

Conclusions

Endowments determine comparative advantage Comparative advantage determine distribution Distribution/inequality determine political power Political power determine institutions Institutions determine growth

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Economic history Gonzalo Mariscal Concepcin---THE FIRST WORLD WAR---

Questions

What were the economic consequences of the FWW? Why did the 1930s economic crisis affect countries such as the USA, Britain and France

so differently?

Characteristics of the period 1913-1950

Adjustments in the economy due to the war, led into economic instabilities. There was a slowdown in economic activity (more in Europe than in the US), international trade declined in real terms, and there was a high and structural unemployment.

The German war plan in 1914 lasted 6 month war. There was a military victory not achieved by economic superiority but mass movement and surprise to destroy France before Britain and Russia could mobilise.

The Allies had "long term" war advantages: Size, population and GDP (x5 population) Russia, France, UK and dependencies and colonies 1917 Russia leaves; USA enters

By 1918 70% of world's prewar population and 65% of output.

The Central Powers were Austria-Hungary, Germany and the Ottoman Empire.

Mobilisation and agriculture

Russia and Austria-Hungary were large but did a small contribution (high % of population in agriculture, and "these countries ran short of food long before they ran our of guns and shells"); government offered low prices to sell food so most people decided not to sell it. The presence of a large peasantry proved to be a great disadvantage when it came to the mobilisation of resources for war.

Food politics

Britain and USA - high farm pricesPoor countries - loss of work animals and labourNitrates

Food in countryside not citiesGovernment wanted to pay less for foodLittle for urban workers

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Economic history Gonzalo Mariscal ConcepcinThe European economies and the IWW

Government expenditure in Britain was much lower % of the GDP in 1913 than in 1916. In Germany it was 53% in 1917. These expenditures were done in very specific assets like war ships which, after the war, was not as much useful as it was before. In the case of agriculture, there was an absence of food so prices went up but when the war finished, they went down. There were also many political and social changes like the one that women experimented.

The economic consequences of the Treaty of Versailles were many. It was a really bad treat for every country. They changed the political frontiers and (the most important) made reparations (Germany pays the damages for the IWW which were very huge and finished paying them five years ago). We can also notice that all european currencies declined in value against the dollar.

Hyper-inflation

Germany suffered a 335% per month between August 1922 and November 1923, but why? The reason is that price rose through imports because of the reparations (low value of currency) and because there was a high state expenditure (no attempt to raise taxes) in gold which highly depreciated paper money.

Return to the gold standard

In 1914, the system was suspended and many countries returned to the gold standard but many countries realised that the gold standard would change the price of their currency. The US never fully left the gold standard so it returned in 1919 at old exchange rate. Britain returned in 1925 at 4,86$ (high), France returned at December 1926 at 20% of 1914 value.

The consequences of this is that, if there is a fixed exchange rate between currencies but countries grow in different directions, some problems between the economies will rise and explode. In the case of Britain, it overvalued the exchange rate so it needed to adjust it by cutting costs (1926 general strike); in France, the franc was cheap so there was an export boom. By the end of 1920s, US and France increased 60% of gold reserves.

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Economic history Gonzalo Mariscal Concepcin1930s crisis

It was long and deep; there was a great decline in industrial output and an increase in unemployment. It was caused by restrictive monetary and fiscal policies and by the gold standard mentality. Even if the unemployment rate in the US, for example, was similar to the one that we experiment today in Spain, it was not the same. Spain, now, has a higher welfare than the US had in the 1930s; this means that there are more reserves and in the US was more poverty.

Return to the gold standard

Consequences

Britain overvalued the exchange rate and need to adjust by cutting costs. One consequence was a general strike in 1926. In France, the franc went cheap and there was an export boom. By the end of 1920, the US and France had the 60% of gold reserves which turned into a problem.

In 1930s decade, there was a long and deep crisis caused by restrictive monetary and fiscal policies and a gold standard mentality. There was a high level of unemployment also. Todays crisis is not deep in the sense of a collapse in industrial production as it was in 1930s, but it is deep in another sense (unemployment and cuts in real wages).

In 1930s crisis, the US had a 26,1% unemployment, what it is very different in real terms to what we have today. In 1930s we can also find a great reduction in prices (deflation). Deflation is much worse than inflation but in another way. Most central banks wants a crisis with an annual inflation of 2%, but why? Because if there is not 2%, we can find deflation and price stability and because is easier for businesses to adapt to inflation than to deflation.

If there is an inflation and businesses do not increase wages, people might be angry and businesses is reducing the real expense by the rate of inflation but if there is a deflation and a business does not want to increase their real wage expense, they would have to reduce it, what would probably make employees angry. We can also find that if there is an annual deflation of 5% and a company wants to save money to export products, they need to have probably a 10% of increase in their savings and this would make them reduce the wage salaries by 15%; in order to do this, there is a need to fire employees. In a deflation, real wages go up but we face the problem of unemployment.

In deflation, the money in the bank would increase but banks assume that there will be always inflation. When inflation is negative, the problem is that there are companies that will want to borrow money and they will have to return a higher real value (as long as the value of the money has increased) so in the long run it discourage consumption and investment.

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Economic history Gonzalo Mariscal ConcepcinGold Standard

There some necessary conditions for the gold standard to work: A free movement of money/gold between countries. Convertibility: Anyone can change paper money for

gold in the bank A country's money supply is linked to the size of gold

reserves in the Central Bank

During 1920, the Us had a big growth. What could the Central Bank do in order to stop the bubble? They increased interest rates in order to reduce liquidity but there was a problem and it is that what the US did was completely the opposite as what it had to do as a member of the Gold Standard. The US just followed policies that was good for them but what was a disaster for the international gold standard.

What happened is that all the gold that entered in the US (A) is removed and taken out from the system (the world money supply was reduced) what lead into a world deflation. Countries like Argentina which wanted to export products (need to reduce wages), had to reduce wages even more in order to be able to export.

There was a persistent balance of payments deficit caused by adjustment by prices (changes in money supply) not by devaluation. There were also asymmetries; there were also countries with balance of payments surplus and had no obligation to increase money supply.

Before 1914, (A) was Great Britain what allowed it to invest everywhere.

Causes of the crisis in the US

Stock market? The fall led to a reduction in private wealth by 10%Smoot-Hawley 1930 was the answer of the US to the crisis. The tariff helped another countries to have their own tariffs.

USA and the 1929 crash

There was a great growth between 1925-29. In

1928 there was a decline in the money supply and between 1929 and 1933, the GDP fell 30%. Industrial production fell by half, agricultural prices by 60%...

The international crisis

By the end of decade, the US and France had 60% of the gold reserves and fail to increase money supply. There was a fall in international capital flows and the USA failed to renew foreign loans. The world trade also fell heavily between 1929 and 1933.

Britain

How do you control real wages with deflation? In 1931, the British government realised that the costs of the gold standard were so high that they had to leave it. This was

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Economic history Gonzalo Mariscal Concepcinconsidered a failure in the gold standard mentality. Since they left the gold standard, the deflation stopped (things did not get neither better nor worse) because the central bank could increase the money supply and was not restricted to the gold reserves.

France

France had an advantage of devaluation. Their devaluation did not stopped as Britain's did and their industrial production was highly reduced.

USA

Between 1931 and 1932, there was an orthodox policy with President Hoover. By the end of 1932, Roosevelt was elected and devaluation increased. Democracy was maintained and we can find a competitive economy. In Germany, there was a destruction of democracy and the creation of a planned economy improving the problems Germany had in the WWI in order to be prepared when the WWII came.

Conclusions

Between 1913 and 1938 we can find many differences in growth rates. One reason is because some countries participated in the WWII and others did not, some countries won and other lost. Another reason is whether countries left the gold standard or not. Countries which stayed on gold standard for a long time, had a very low growth whereas countries which left it, had a higher growth.

After the gold standard failed and the WWII, countries started to talk in order to avoid the problems they had in the 1930s (gold standard, tariffs...). It was interesting to fix some interest rates; something similar to the gold standard but more flexible but it collapsed in the mid-70s. Spain had an economic crisis like the rest of the world, but Spain had its own currency, so the only needed thing was to devaluate the currency but this led into some problems. Devaluating means that Spain will export more but everything that is imported, will be more expensive in the country. Successfully, Spain decided to enter in the EU what gave it more stability. The idea of a single currency sounds very attractive as long as it meant a fixed exchange rates between currencies. It worked for some time but then problems raised. There were economies which grew with different growth rates but exchange rates were fixed. Another problem is speculators, when a country starts to have problems speculators will start not to invest in that country and that country will be obliged to leave the euro standard.

The problem in Spain now, is that we could reduce the value of our currency and a lot of problems could be solved but we can't, so the solution would be to decrease prices.

Unemployment and cuts in salaries in the 1930s, when there was democracy led into leaving the gold standard. Now we have democracy and problems of the Euro standard are arising. Will democracy make the countries to leave the euro standard? Probably not because it would probably bring more unemployment.

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--- SOVIET UNION ---

The Soviet Union in 1920 was the first country to provide an alternative vision of development for 3rd World countries.

Was the economic planning a success in the Soviet Union between 1928 and 1945?

The Tsarist economy

In the late 19th century had an agricultural boom and had an industrial boom in the 1890s which was based in large-scale industry and cartels. It was benefitted from gold standard and had high import tariffs. It was an economy which was growing.

Why collapse of the Tsarist state?

We have a rapid increase in land prices (peasants excluded), political system fails to adapt to the needs of a modernising society. There was a huge crash in the 1916/1917 when food supplies fell drastically in the towns.

War communism (1918-1920)

We have two mayor problems: a theoretical problem of the people who wrote the books of the revolution where they anticipated that proletarian revolutions will succeed first in industrially advanced countries with a strong working class. The second problem came up in the summer of 1918 when a major civil war started and there was foreign intervention.

There were some consequences like the disappearance of landowning class and state agencies had to deal with millions of peasant households.

New Economic Policy (1921-1929)

By 1920, Soviet Union re-established almost all the old Russian Empire but economy was devastated. There was a large-scale industrial output of 13% of 1923 level. The grain production also fell. It was a mixed economy and a state of monopoly on foreign trade. By the mid of the 1920s, the workers had effectively lost the right to strike.

Rapid recovery 1922-1928

The agriculture and industry was recovered to pre-war levels. The lack of domestic savings supposed a capital accumulation depended overwhelmingly on the state. In the agriculture there was 25 million peasant households.

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How to allocate resources from agriculture to industry?

There was a technological gap between the GDP of US and the Soviet Union. There was also a growth in mass unemployment and an increase in peasant failure to sell sufficient grain in 1927/1928.

Soviet economic development 1928-1940

There was the end of unemployment (as Germany). There was a women increase in labor force. The literacy also grew a lot in 13 years.

But this also brought higher costs. 250000 farms collectives were created in 1930s which helped mechanisation to be more efficient. The peasants were eliminated what created some problems. Famine appeared and 10 million people died. Real incomes outside agriculture fell by nearly 50% between 1928 and 1940.

Second World War 1941-1945

It was the ultimate Soviet justification for rapid industrialising - an armed attack from an economically superior capitalist power considered inevitable. By 1942, defence was equivalent to 56% of GNP.

If Soviet Union was the typical 3rd world country then todays population would be a billion people today instead of 288 million. Why it is not?

In the WWII, 40% of all males between 20 and 49 died. Population fell from 197 to 171 million between June 1941 and end of 1945. Even more important for demographic changes: rapid decline in fertility. In 1920s women had almost 7 children; in 1980, about 2,5.

Post-war recovery 1945-1960

Things did not started very well but we find a growth in the 1950s and 1960s which were called the golden years. It increased rapidly its GDP but in Western Europe was still much higher.

1970s and 1980s defence

By 1970s and 1980s, the Soviet Union negotiated the first stages of industrialisation at a great human cost and failed to establish a planned socialist economic order. It also failed to reduce the technological gap, and failed to rearm at the same speed at this time. It was necessary to reform the system.

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Economic history Gonzalo Mariscal ConcepcinAdvantages of Soviet system

There was a high allocation of GDP to investment, especially capital goods. A central control of investment enabled advanced technology to be diffused rapidly to priority sectors.

Disadvantages of the Soviet system

Concentration of resources on the capital goods industries and high defence expenditure. When wrong decisions were made, the cost was very high. Encouraged industrial ministry to integrate backwards to control supplies. Quality and needs of consumers were neglected.

Conclusions

There were rapid transformations of a largely peasant country into an industrial superpower which created a profound influence on Western economic thinking.

In the 1920s and 1960s, institutions well suited to mobilising capital and labour (but high human cost)

Difficulties in changing policies to saving scarce resources rather than providing incentives to increase output.

1928 little capital + lots of labour1960 lots of capital + little labour

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Economic history Gonzalo Mariscal Concepcin--- THE GOLDEN AGE OF ECONOMIC GROWTH (1950-1973) ----

Questions

Convergence or divergence? Explain the experience of economic growth in the USA and

Europe between 1950 and 1973 Why did Europe's economies grow after 1950?

After the war, it is necessary to create jobs in order to employ the whole population. Germany was not punished because that was the cause of the Second World War. The European countries decided to stop fighting each other and create a single economy: The European Union. Most of the countries recovered from war in just 4-5 years which is a really fast economic growth. By 1950-1973 we find the golden age in which growth rates were the highest; Spain was the European country with the highest growth rate (the first of the world was Japan).

Between 1913-1950 we find an acceleration in population, GDP and productivity in most of the countries of the world whereas between 1950 and 1973, there was a deceleration.

What is catch up?

It is related to other advanced economies. When America's large lead eroded and the productivity levels of the other technologically advance economies converged.

Convergence assumption

Countries in the productivity race differ only in their initial levels of productivity.1. Laggard's can achieved more productive technologies2. Laggard's suffer from low levels of capital per worker3. Structural change4. Rapid growth in output allows scale in markets

US global productivity leadership 1880-1940

Industries had mass production and high throughput technologies and modes of business organizations.

Technological transfer to Europe

It was limited before 1950 because of

1. Technological congruence: resource availabilities, factor supplies, technical capabilities, market scales, and consumer demand in laggard countries may not conform well to those required by the technologies and organizational arrangements that have emerged in the leading country.

2. Path dependency: Strong forces making for persistence in the effects of past choices and path dependency.

3. Social capability: General education and technological competence. Commercial, industrial and financial institutions...

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Conclusion

Countries effective potential for rapid productivity growth by catch up can be severely restricted at certain times.

Causes of European growth 1950-1973

Social capability Technological change Human and physical capital Full employment International trade Bretton Woods Institutional change

Social Contract Wage moderation Investment and full employment Growth in the State Expansion of Welfare State

Growth creates new expectations - future problems?

1. 'Catch up" - technology > In 1970s the technological gap no longer exists and it is more

difficult to obtain new technology.2. Increases in productivity3. Annual growth in real salaries4. Education, pensions, subsidies, etc.

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Economic history Gonzalo Mariscal Concepcin--- WHY DID ECONOMIC GROWTH SLOW AFTER 1973 ---

In 1973 we find a crisis because technology of industries required energy and the main resource of energy was oil. Until 1973, energy was cheap but in 1973, OPEP decided to increase their prices like punishment for Europe to support Israel in the war. This lead into a very important crisis. Every industry needed energy and, from one day to another, prices had increased rapidly.

Questions

Why did Europe's economies slow between 1973 and 2000?

What is the role of technology in explaining the changes in European growth rates

between 1950 and 2000?

What happened to US labour productivity over the 20th century?

After 1973, we can find that most of the countries start to have a lower economic growth. Between 1950 and 1973, economic growth in the leading economies could be explained with: Catch up - technological transfer Structural change Social contract Education Bretton Woods & renewed openness in the global economy

The causes of the deceleration is perhaps because of the diminishing returns in these areas. The technological gap is not necessarily exhausted. Growth in real wages with a slow technological change produce low productivity growth, stagflation and unemployment.

-Technological gap

Until 1973, Europe's productivity growth depended on the US productivity growth and the higher productivity in Europe compared to the US was based on the reduction of the technological gap.

Between 1973-1995 we find that the technological gap was almost none what lead into a decrease of GDP per capita. GDP per hour worked also fell.

The technological gap can be explained by the General Purpose Technologies (GPT).

With GPT we are talking about electricity for example. Technological gap is a time lag between the appearance of a new technology and its acquisition by a country.

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Economic history Gonzalo Mariscal Concepcin-Structural change

Many people moved from agricultural areas between 1950-1973 in many countries. This helped to increase productivity in the countries as long as industrial products were more expensive.

-Diminishing returns to education

Education can be used to increase productivity in the future. We can find that the US tried to increase their percentage of people around 18 years old who had college enrolment.

-Social Contract

We have to adapt to changes in economies. It may be difficult to think about how to plan a future economy with knowledges of past economies. People who are used to an increase in real wages of 2%, will deny a 1% increase in real wages because of an economic crisis. When growth slowed in 1973, there was a implicit coalition powerful enough to prevent reforms in many countries; one example is Japan, and more recently, Italy.

-Other factors

We find the energy crisis, the Baumol's disease and a expansion of the public sector.

Baumol's disease

There were two main technological consequences of structural change. There was a huge productivity growth potential as long as people is moving from sectors like agricultural to industry but also a great deindustrialization when people moved from industry to services sectors. The success of productivity growth in industry, limited the success of services.

If output proportions between the stagnant and the progressive sectors happen to remain constant, an ever-growing share of the economy's labor force must be devoted to the stagnant sector. Therefore, because productivity is not growing, the service sector absorbs more labour. As the percentage of total active population in these sectors increases, the average productivity will fall.

Why expansion?

Growth in public expenditure can be seen as in terms of correcting market failure.

Consequences of growth

Growth in social transfers (pensions, welfare, unemployment, health). Ageing of the population

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Economic history Gonzalo Mariscal Concepcin Change in last 15 years - rent-seeking, agency problems, crowding out. Future - pension obligations

Nowadays, policies favour old people and invest a higher percentage in pensions rather than in order to create employment for the young people.

-Long run changes in US labour productivity

Between 1850-1913 the american industrial technology, in general was labour saving but it also designed new types of labour forces which moved away from skilled craftsmen or artisans in favour of more elasticity supplies of unskilled workers, predominantly European immigrants in the late 1890s.

There was a productivity explosion in the 1920s. There was a delay in the use of electricity in the factories. The general-purpose character of electrification with respect to the labour market was strongly labour-saving.

Commodity prices collapsed at the end of 1920s but nominal hourly

wages continued increasing during 1930s because of legal and regulatory wages (minimum wages). The US high school graduates increased rapidly between 1909 and 1929 what encouraged labour force to upgrade; a process which begun during the 1920s.

Initially, both wage increases and productivity changes were heavily concentrated in manufacturing. Technological changed was "biased" towards human capital.

Between 1950 and 1973 we find high wages (low unemployment), high productivity growth and a human capital increase.

After 1973, we find the US post slowdown. There was a decline in productivity growth in early 1970s which coincides with the end of 50 years labour force upgrading and rising real wages. We also find an annual real wage decline, widening wage differentials, a decline in average real wage and widening of inequality caused by flexible labour markets appearing, the appearance of new, low paid jobs and a weak stimulus to introduce new technologies (labor was cheap so there was no necessity of introducing new technology).

In the 1990s, there is an increase in labour productivity.

Who benefits from productivity growth?

Real wages of bottom 90% of US population have risen by 10% and productivity growth has increase much more.

After 1973, credits has increased a lot what increases personal debts. We consume today and pay tomorrow. Is it the end of the American dream?--- CHINA ---

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Economic history Gonzalo Mariscal ConcepcinGrowth recurring

In the 12 century, china was probably the leading economy. Perhaps in some years, it will be the leading economy again. China stagnated probably because political decisions and after 1492, Europe starts to become more important. By 1950, China had a 5% of the US GDP and in 1978, it is similar, but in 2008 it is very different (22%). India has suffered similar changes. From 1978 through 2005, China's growth annual average of 10%, the population is very huge and there are some policies that have been made to reduce fertility.

We can distinguish two periods: Planning period (1950-1978) Reform period (1978-present)

Planning period (1950-1978)

There are collective farms, state-owned industry and central planning. The technology was capital intensive with an advance technology and labour-intensive manufacturing.

The Great Leap Forward was a policy based on using the huge labour the country had in order to industrialise. Millions of people dead because of famine and there was a cultural revolution. Mao died in 1976.

After 1978, China moved from bureaucratic socialism towards a market economy and from a rural to an urban economy. Between 1978 and 2006, the employment rate of agricultural will decrease, and the employment of the non-agricultural sector will change too. The employment of the state decreased and the private employment will increase a lot.

Reform period (1978-present):

Agriculture

There were collectives to small farms will meant a decrease of the incentives to work and people will not work as efficiently as they would without collectives. They can work less and earn the same amount of money. It is also very difficult to control everything from above. People were encouraged to work more in their farms and less in the collectives because in this way, they could enrich in an easier way. Industry

Consumer goods were produced in the countryside, investment becomes more market driven. Raw materials were used in order to produce many kinds of products which could be exported to the rest of the world.

Why industrial success?

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Maybe the reason is the educated population, the high R&D, the large industrial sector and the cheap international prices. We can also find that the life expectancy was high (70 in 2000) and a low fertility.

When a country develops and increases it's productivity, what it is usual is to have an increase in wages. Wages didn't increased much until 1994 approximately. Since then, the wages have increased a lot but not what they are supposed to, compared to their GDP.

Why rapid growth in wages?

Privatisation helped. The private sector employed 0% in 1978, 79% in 2010. Wages can reflect an individual productivity. Education had increased. There are labour shortages (population peaks 2015) and a structural change based on lower migration.

Japan

Japan had a rapid growth in post war period. There was a huge capital investment in industry and just the enterprises with more advance technologies, will success. One example is the sector of steel which was also used to make many things like cars. It also had a growing education, what helped.

From 1981, Japan has been similar to European countries, and there are 3 major gaps closed with West: Capital per worker Education per worker Labour productivity

So economy now grows at "western" rate of technological change.

And China? Growth is beginning to slow

Future growth will depend on institutional changes: Rising wages: move up the quality scale on producer goods? Growth in innovation: rather than copying Democracy, corruption and pollution. International political stability

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Exam.

3 questions from 5 2 hours

Each question worth 20% of the final grade What we have done in class Need to answer the question, only that. Introduction+development+conclusion

When the question is concise, we have to put a concise answer (and then why is that) (it

can be 'perhaps')

Introduction. 1-3 lines should answer exactly the question. Very important.

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mag. historia econoìmica-4

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