There are no doubts, particularly for the vast majority of scholars and economic historians, that the last three centuries (including the current twenty-first century) have been one the most transformative and significant eras for humanity as a continuous improvement in its welfare and living standards. During this time span, it is simple to identify two periods starring by a selective group of countries that served as the driving forces behind the curtains of this revolutionary economic and social phenomenon: the XIX century’s Industrial Revolution led by Western Europe and other offshoots countries with its evolving branches ex post, and the rapid industrialization process experienced by Japan, China and others eastern Asian countries during the second half of XX century. Having said this, our main purpose in this essay is to find a suitable response, based on historical evidence and critical theoretical knowledge, on how there has been two modern economic growth processes so contrasting each other in terms of geographical space, time frame, policy strategies and final outcomes between Western Europe (including North America and others) and East Asian economies.
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Initially, it is always good to specify the most fundamental concept of “modern economic growth” originally conceived as the new economic epoch of long-term growth that combines improvements in a variety of economic measures such as per capita product and population, productivity, structural transformation, technological changes as well as other relevant components such as industrialization, urbanization and secularization; further on, the use of this concept will contribute as a theoretical yardstick to understand the economic history and the core aspects that draw a distinction between the industrialization process that begun in the second half of the eighteenth century and the latter developmental-model implemented by Asian economies.
As Mockyr argued across the years, the starting point of Western’s industrialization process was set in the succeeding years of the Enlightment, where the accumulated knowledge, the belief in social progress and technological breakthroughs turned novelties and inventions at the time into powerful tools that planted the seeds for the upcoming Industrial Revolution in the late 1770s. As the economic transformation took off in United Kingdom (becoming in a few decades one of the major textiles exporters worldwide due to inventions such as steam machines and others power-operated machines), other countries like Germany, Netherlands, France and the southern Europe countries progressively begun to import these new technologies from abroad, making possible faster rates of economic growth and converging in the long term with United Kingdom, as Gerschenkron (1962) had exemplified; on the opposite side of the world, China and India failed to preserve similar levels of manufacturing production as Europe, with the result of declining shares of world Gross Domestic Product (GDP) from 1820 onwards, according to Crafts and Venables (2001).
Jointly, the United States continuously introduced textile manufacturing machines at the end of the concerned century with special focus on the more industrialized northern states of the young nation rather than the agrarian states in the south; as in Europe, a range of cultural settings (like the mixture of Puritan values with features of the French and Scottish Enlightenment), as Mockyr pointed out, were pivotal elements that paved the way for the quick adoptions of technologies in the United States and the first steps to be at the forefront of world’s technological frontier hereinafter. However, in both regions the social side effects of the industrialization process was characterized by large amounts of pollution and industrial waste, overcrowded cities due to migration from rural areas to industrialized clusters, child exploitation, political conflicts and the infamous overview of thousands of low-wage workers laboring in factories with deplorable working conditions. By contrast, accounting for the industrialization process in Asia requires an integrated approach beyond the cultural beliefs and human capital; In this sense, Beeson (2003) explained that the post-war Asian economies heavily relied their developmental model in a combination of effective public policies, high rates of fixed private inversion, opening domestic markets to attract foreign direct investment and export-oriented industrialization.
At the outset, the first country in the region to industrialize was Japan which, despite starting in the decade of 1870, the country’s large-scale industrialization process based on high value-added goods and service as we know it today begun after the second World War. Other countries such as China, Korea and Taiwan didn’t catch up with Japan until the last two decades of the twentieth century, a convergence-like occurrence known as the “flying-geese pattern” that suggest a long-term industrialization catch-up between Japan, as the “leading goose”, and the following countries in the region; this model implies an initial stage of shift from labor-intensive industries to highly productive and capital-intensive industries by importing cutting-edge technologies and, at a latter phase, becoming the leading exporter in a certain industry; in the same way, the Krugman-Venables theorem by Krugman and Venables (1990) provides a complementary standpoint: when frontrunner’s wages rises (Japan), firms pack their bags and move into other low-wage countries in the region, once this happen the new firm’s spillover effects on the recipient country cause higher growth rates and makes an opportunity to take off from the “poor club” to the “rich club”.
Notwithstanding the critics from some scholars and the dissenting outcomes observed in some latecomer countries like Cambodia and Vietnam, these models at some extent must be consider in order to explain the successful path followed by Japan, China and the so-called “Asian Tigers” developing institutions and friendly policies towards physical and human capital investments from a benchmark country to another less-developed.Having already finished by explain the historical background, both industrialization processes can easily be put into context as a way to explain the main similarities and differences between western’s nineteenth century industrialization and the experience happened in Asian countries during the past century’s last decades. A first distinctive characteristic has to do with the role of the government policies and reforms in support of the industrialization process: the Industrial Revolution during the eighteenth century was basically driven by the new technologies and inventions emerged within the market forces in the United Kingdom, as well as in the United States and other European countries where a few major businessmen took it upon themselves to introduce the newly-invented manufacturing machines into domestic markets; unlike their western counterpart, the government (especially in China and Korea) and a few private clusters became the pioneers in promoting industrialization and economies of scale through developing low-cost manufacturing for export. Similarly, Mockyr (1994, 2002) suggested that Western economic experience with Industrial Revolution was led by the previous knowledge accumulation and the innovations occurred during the Englightment, a precedent not settled down in Asian countries where, by contrast, the experience of Japan, China and other economies was influenced by trade wars followed by declining transportation and communication costs in the twentieth century.
On the other hands, some features must be referred as parallels among Asia and Western industrialization: in relative terms, East Asia and Western countries (Europe and North America) gained ground comparing to the slump of Middle East and African countries, as well as the stagnated growth undergone in Latin America, creating a large income divergence between the different regions of the world. Moreover, several key elements had been fertile breeding ground to spur industrial growth that can be easily identifiable in both Western and East Asian countries: labour market surplus, adequate transportation and communications infrastructure, steady governments that ensure law enforcement, access to international markets, presence of financial institutions and large-sized agricultural and manufacturing sectors capable of fulfill the essential needs for highly productive and technological firms in the service sectors such as raw materials and low-cost labour; with these, the conditions were nearly met for scientific and technological innovations to occur even regardless the epoch, geographical features and country-specific issues under discussion.
Lastly, mainstream economic theories that try to explain industrialization in context are based on two core approaches that either focus on explaining economic development linked to accumulation of factor endowments, trade and technological differences that ensures a spatial equilibrium in the long run (neoclassical economics) or as a matter of spatial expansion and division of labor between rich and capital-intensive countries (core) and the labor-intensive poor nations (periphery). In any case, considering all the perspective at the moment of analyzing the economic history of both Western’s Industrial Revolution and the East Asia’s economic upturn can help us to understand future prospects and the major dynamics behind, more precisely the tale underlying the industrialization experience across centuries on how entire nations and regions have discovered and learned the way to transformed everything around its environment into valuable resources to fulfil their primary needs (in the form of knowledge, manpower or wealth) like never before seen and beyond imagining more than a hundred and fifty years ago.
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