‘Rain, crops and commerce shaped the economic systems of nations — these also enabled the US to win against China now’

Stephen H. Haber is professor of economics and Senior Fellow at the Hoover Institution, Stanford University. Speaking to Srijana Mitra Das, he outlines a global economy based on local ecologies:

What is the core of your research?
My colleagues and I study why there are wealthy regions on Earth alongside poorer ones — economists have been asking this question for a long time. Our answer is that prosperity today is an outcome of the rate at which societies were able to absorb technologies over the last 200 years. This was a consequence of how they were organised c. 1800 before the big boom in modern technologies began. The form of organisation was a response to the core problem all societies faced then — how to insure themselves against starvation? We found that societies’ natural endowments conditioned how they were organised by 1800, which impacted how they absorbed technologies and also explains wealth and poverty today

Why do you link rainfall and crops to the emergence of four different economies?
Human beings need calories regularly. What crops will grow and how much, what amount is needed and can be stored, how far this could be moved, all varied geographically before airplanes, trucks, refrigeration, railroads and steamships arrived. These factors shaped four different ways of societies insuring themselves against starvation, encompassing pastoral, self-sufficient, riskpooling and transactional strategies.


Places where you could grow, store and move large quantities of food easily gave rise to societies based on trade — quintessential examples are England and the mid-Atlantic regions of the United States. A commercial society emerged where farmers and merchants traded with each other — this entire structure organised around commerce. Now, imagine another place with similar endowments but which gets impacted by weather events every few years, like a failed monsoon. This inhibits the growth of trade — instead, what emerges is the creation of hoarding. To stave off further risks, these societies compel people to pool hordes, making a central resource. But during the process of compelling people to contribute to a central store, that entity itself becomes society’s decision-maker. This happened in the North China Plain around 1800.

There are also places where nothing that is grown can be easily stored — you can’t trade your way out of shocks there. Central Africa is an example. People then produced for their own self-sufficiency and there were no strong reasons to invest in institutions that facilitated trade or a centralised storage network. The last kind of economy is where you can’t actually grow food. These are pastoral economies, where you herd large herbivores, but this meant a loss of metabolism, fewer people and a mobile society, like Mongolia in 1800.


At this point of economic history, where would India fit in your spectrum?
India would be a risk-pooling ecology. Historically, north India could grow a lot of storable foods, particularly cereals, which could be moved easily along the Ganges and other rivers. Given its cold, dry winters, food could be stored for long periods. But the monsoon occasionally failed — thus, society needed to store in anticipation. So, India’s large empires in the north taxed farmers to create centralised stores. A surplus emerged, some of which got set aside for elite consumption. Why do you link the growth of such commerce based on crops to democracy?
A society based on trade, where people are insuring against risks thus, has a strong incentive to invest in human capital which helps trading — this includes literacy, numeracy and contractwriting. It has a second incentive to invest in institutions which facilitate trade, like commercial and property registers, police to enforce agreements and courts to adjudicate disputes. Its third incentive is to control these very sources of official power — because people here invested in literacy, numeracy and the sophistication of negotiating and writing contracts, they could write rules to constrain government itself. It’s no accident that England and the US evolved based on a rule of law, literate and numerate societies and governments with limited authority and discretion.

What does your research indicate about the contemporary contest unfolding between the US and China now?
The US-China competition is really between two different systems of social organisation. One is based on markets, the other, on top-down direction and centralised decision-making. Historically, the US was better at absorbing new technologies. Railroads came about in Britain around the 1820s — they spread in the US by the 1830s while this happened in China only by the 1890s. Of course, given the state of technology itself, which system would be better at its development could change later on. But if I were betting on who’d win in the technology and military-economic race between China and the US today, I’d put my money on the US — this is because centralised decision-making is very inefficient. With the market, you have the wisdom of many — in a centralised system, you have to believe that a small group of people in charge will get it right every time and they can accurately predict the future as well. I’ve never met such people myself.

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