This approach, if applied appropriately, does not limit itself to the collection and cataloguing of historical facts in the hope that some pattern will naturally emerge. Rather, it involves searching for persistent historical patterns, constructing theories to explain them, and applying these theories to contemporary problems, while taking into account changes in technological, institutional and political circumstances.
This approach, which is concrete and inductive, contrasts strongly with the currently dominant Neoclassical approach based on abstract and deductive methods. This sort of methodology was in fact the staple of the German Historical School, which was the dominant school of economics in many continental European countries before the Second World War, and can be found in works written in English by authors such as Polanyi and Shonfield.[13] The School included among its leading members the likes of Wilhelm Roscher, Bruno Hildebrand, Karl Knies, Adolph Wagner (of Wagner’s Law fame)[14], Gustav Schmoller, Werner Sombart and (contentiously) Max Weber. Weber, these days mistakenly known only as a sociologist, was in fact a professor of economics in the Universities of Freiburg and Heidelberg.[15]
It is today rarely acknowledged that the German Historical School’s influence before the Second World War went well beyond Continental Europe. Yet the school strongly impressed one of the founding fathers of Neoclassical economics, Alfred Marshall, who remarked that its work has ‘done more than almost anything else to broaden our ideas, to increase our knowledge of ourselves, and to help us to understand the central plan, as it were, of the Divine government of the world’.[16]
In the late nineteenth and early twentieth centuries, many leading American economists were directly and indirectly influenced by this School.[17] Although he eventually drifted away from its influence, the patron saint of American Neoclassical economics John Bates Clark, in whose name the most prestigious award for young American economists is given today, went to Germany in 1873 and studied under Roscher and Knies.[18] Richard Ely, one of the leading American economists of the time, also studied under Knies. Ely subsequently influenced the American Institutionalist School through his disciple, John Commons.[19] Ely was one of the founding fathers of the American Economic Association(AEA); to this day, the biggest public lecture at the Association’s annual meeting is given in Ely’s name, although few of the present AEA members would know who he was.
After the Second World War, when the development of post-colonial countries became a major issue, the historical approach was deployed very successfully by many founding fathers of ‘development economics’.[20] The likes of Arthur Lewis, Walt Rostow and Simon Kuznets formulated their theories of the ‘stages’ of economic development on the basis of their extensive knowledge of the history of industrialization in developed countries.[21] Also influential was the ‘late development’ thesis of the Russian-born American economic historian, Alexander Gerschenkron, who, drawing on European experiences of industrialization, argued that the continuously increasing scale of technology would make it necessary for countries embarking on industrialization to deploy more powerful institutional vehicles in order to mobilise industrial financing. Gerschenkron’s work provides an important backdrop to Hirschman’s pioneering work in development economics. Kindleberger’s classic textbook on development economics makes extensive reference to historical experiences of the developed countries, once again with numerous references to Gerschenkron.[22]
In the 1960s, the heyday of development economics, there were even some collections of essays intended explicitly to derive lessons for currently developing countries from the historical experiences of developed countries.[23] As late as 1969, Gustav Ranis, a leading neoclassical development economist (although of an older, gentler vintage), wrote an article entitled ‘Economic Development in Historical Perspective’ for the key mainstream journal American Economic Review.[24]
Unfortunately, during the last couple of decades, even development economics and economic history – two sub-fields of economics for which the historical approach is most relevant – have been dominated by mainstream neoclassical economics, which categorically rejects this’ sort of inductive reasoning. The unfortunate result of this has been that the contemporary discussion on economic development policy-making has been peculiarly ahistorical.
The development literature is certainly full of theoretically-based propositions (e.g., free trade benefits all countries) and may also draw extensively on contemporary experiences (e.g., the literature on the East Asian ‘developmental state’). However, we rarely now see discussions that are based on the historical experiences of the now-developed countries (hereafter NDCs). To be sure, there are some scattered historical references, but these are often based on highly-stylized characterizations of historical experiences, and moreover tend to refer only to Britain and the USA. The supposed free-trade, free-market histories of these countries are held up as examples for developing countries. Yet these discussions of the British and US experiences are extremely selective and thus misleading, as will become clearer later in this book.
The upshot is that, unfortunately, with a few notable exceptions, there have been few serious studies over the last few decades which deploy the historical approach in the study of economic development.[25] This is why one of the aims of this book is to reaffirm the usefulness of the historical approach by applying it to the critique of the current popular discourses on ‘good policies’ and ‘good governance’. Saying this, however, may give the reader the mistaken impression that the book’s main aim is to prove the validity of an approach, using a policy issue as the raw material. That is not the main aim of this book. It is rather to discuss a contemporary problem with the help of history. I would further argue that, given current debates on ‘good’ policies and institutions, this approach is particularly relevant at the moment.
The book will naturally focus on the nineteenth and the early twentieth centuries, roughly between the end of the Napoleonic Wars (1815) and the beginning of the First World War (1914), the period when most of the now-developed countries were going through their Industrial Revolutions. However, in some cases, we will extend our time-frame. Britain, for example, deserves attention from the fourteenth century onwards, given its pioneer status in many areas of economic policy and of institutional development. Eighteenth-century Prussia is another special case that deserves attention, given its bureaucratic reforms and development of new methods of state-led industrial promotion. Other exceptions that merit discussion here are the post-Second World War experiences of countries like Japan and France, who were able to generate impressive economic growth on the basis of radical institutional transformation following the war.
An effort has been made to cover as many countries as possible. Although this attempt to bring in a wide range of evidence reinforces our main findings, it also necessarily invites criticism from specialists in the economic histories of these countries. This is to be expected and is very welcome. For not only do we hope to encourage development economists to reconsider the historical basis of their theories, we would also like to see economic historians take greater cognizance of the theoretical implications of their work. If this book succeeds in generating debate over the generalities and particulars discussed in the pages that follow, then it will have achieved its main aim.
13
Polanyi 1957 (1944); Shonfield (1965). It is also found in certain strands in Marxism – for example, in Marx’s theory of history rather than in his labour theory of value.
14
Wagner’s Law states that there is a natural tendency for the relative size of the government to grow with the development of human society.
16
Marshall,
17
Balabkins 1988, chapter 6; Hodgson 2001; Dorfman 1955. Balabkins cites a survey conducted in 1906 that shows that half of the Americans who studied social sciences in Europe studied in Germany (1988, p. 95).
19
Balabkins 1988, p. 95; Cochran and Miller 1942, p. 260; Conkin 1980, p. 311; Garraty and Carnes 2000, p. 562.
21
For deployment of these theories, see Lewis 1955; Rostow 1960; Kuznets 1965, idem. 1973.
25
Such as Senghaas 1985; Bairoch 1993; Weiss and Hobson 1995; Amsden 2001. However, the first three of these studies are not as comprehensive as this book. Bairoch, while covering a wider range of countries, mainly focuses on trade policy. Senghaas looks at an even wider range of countries, but his discussion of them, except for the Scandinavian nations, is rather brief. Weiss and Hobson cover a wider range of policies – industrial, trade and fiscal- but cover a relatively limited range of countries – Britain, France, Prussia, Japan, Russia, and the USA. The study by Amsden has many spot-on references to the historical experiences of the developed countries, but its main focus is actually on the historical experience of the developing countries.