Ken Pomeranz did a wonderful book a few years ago called “The Great Divergence.” It was about how, contrary to conventional wisdom that saw the West (e.g. Western Europe) surging ahead of the rest of humanity beginning in the Middle Ages with improved agriculture, trade, and inventions, in actuality material living conditions in the best off parts of Europe and China remained about the same up to around 1750 A.D. China had also enjoyed improvements in agriculture, trade, and inventions. The wages of ordinary laborers in China were rather lower than in Europe; but in China such laborers were few as most Chinese remained farming peasants with higher incomes, while in Europe ordinary laborers were much more common as landownership became consolidated. The result is that Chinese in 1750 had average incomes about the same as Europeans. The “Great Divergence” occurred after that date, as industrialization dramatically raised incomes in the West, while continued population growth, little or no further technical and productivity change, and political disorders reduced incomes in China and other parts of Asia. By 1900, the West had opened a huge welfare gap over the rest of the world.
Since the 1980s, however, the story changed. There began a rapid catch up of emerging economies, first China then India and Brazil and Turkey and other developing countries. This created a huge surge in the global economy, and produced vast volumes of capital as the developing economies saved and invested. However, this also led to a “Second Great Divergence.” This is the widening gap between the very rich — in both advanced and developing economies — and ordinary workers everywhere. With billionaires being minted in the otherwise poor economies of Russia, China, and India, and multi-billionaires arriving by the dozen in Europe and the U.S., all while wages stagnated and household income even declined since 2000, the gap between the ‘top 1%’ of the world economy and everyone else has expanded.
[I am off today to Korea to see some of this change first hand; more posts on this theme will follow later this week.]