Joel Mokyr on Clans, Corporations, and a Culture of Growth

0:04Tyler Cowen:Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. For a full transcript of every conversation, enhanced with helpful links, visit conversationswithtyler.com. Hello, everyone, and welcome back to Conversations with Tyler. Today I'm chatting with Joel Mokir. Joel is a professor at Northwestern University. He has a wonderful new book out called Two Paths to Prosperity, Culture and Institutions in Europe and China, 1000 to 2000. And he is one of the Economics Nobel laureates from this past year.

0:51Tyler Cowen:Joel, welcome. Thank you, Tyler. Start by telling us in the book, your thesis, it's about European corporations versus Chinese clans and the importance of that difference. How would you explain it? Well, the difference is basically the kind of organizations that produce what we call local public goods. So things like poor relief and education, religious service and things like that. I would think that if you look at the world, say, around 800 at the time of Charlemagne, the difference between Europe and China isn't very large. But at some point during the Middle Ages, you can see this divergence getting started.

1:35And what's happening is that in Europe, there is more and more of a decline in the extended family or the extended kinship group, or we call it clan. And instead, people get together and cooperate with other people to whom they are not related and with whom they do not share an ancestor. Whereas in China, it moves exactly in the other way, in the other direction. In China, you get more and more people getting organized by their extended family. The reasons for that are fairly complex. In Europe, it's particularly, I think, the Catholic Church that played a major role here. This was argued quite a while ago by a guy, an anthropologist called Jack Goody, but your own colleague Jonathan Schultz wrote what I think is one of the best papers on the subject, who pointed this out in great length and actually provided a fair amount of systematic evidence for this.

2:36in china there is no catholic church and the imperial bureaucracy is more and more in cahoots with local clans to whom they actually outsource a fair amount of the things that they were supposed to do and so as you move on out of this sort of period of the song dynasty into later dynasties you see this thing growing the problem in europe is that the nuclear family which became the fundamental building block of society is too small to provide local public goods. You need to cooperate with others. And so what emerges in Europe quite spontaneously is a bunch of things that provide these local public goods that you just don't see in China.

3:23So for instance, we have something called universities, we have monasteries, we have autonomous cities. And so all of those things that we call corporations, what it is, is people who are not related, but what they share is not an ancestor. You know, guilds have one kind of objective, universities have another one, and so on and so forth. And that divergence in social organization turns out to be, in our view, to be one of the key components of the divergence between Europe and China.

3:54Tyler Cowen:And do you take that change in policy from the Catholic Church as exogenous, or that is rooted in earlier features of Western society, such as the ideology of Christianity itself, or maybe earlier Roman times? What is causing what? What's the most fundamental driver here in the West? Well, there's some debate about that. They don't, of course, tell you. There are, I think, two components about this, and I would not know how to weight them. But there's two sort of things happening here. The first is that the Catholic Church really becomes quite obsessive about certain sins that they consider to be particularly egregious.

4:38And one of those sins is incest. And so, you know, every society in the world prohibits marriage between siblings. But other, you know, more remote relatives is more ambiguous. And the church becomes quite obsessive about this. And at the end, you know, there are places where they actually prohibit the marriage of fifth-degree cousins. Now, how anybody in the Middle Ages would know who is fifth-degree cousins is unclear. I don't know who my fifth-degree cousins are. Maybe you do. the other thing which is a sort of goodies argument and i think there's a great deal of truth to that is that the church wants to weaken any kind of organizations that compete with it for power and control you know in the local communities but they also have figured out that if you organize society by nuclear families then a certain proportion of people die without heirs and if they die you know interstate without heirs that in many cases the property that these people own reverted to the church and so pure naked greed by the church which was not unknown in the middle asias i think was a driver here and so goody sort of convinced me that that actually is a substantial factor.

5:58There are other arguments that have been made in this context, but I think these are the two that are most striking. The other question is, you know, why is it that the Klan in China is so convenient for the imperial bureaucracy to rely on? So both of those things happen in parallel. And I would think, maybe if I made one observation, In both cases, this is historical outcomes as the unintended and unanticipated consequence of very different actions. So there's no question that the church never foresaw the emergence of corporations in Europe, nor do I think that the Chinese imperial service ever seriously considered the possibility how this would change life in China.

6:48But that's what happens. You try to follow one objective and then something very different emerges over time. That's what history is all about.

6:58Tyler Cowen:Now, why are these cultural trends so persistent? So I recall in the 1990s reading Frank Fukuyama's book Trust, and he argued that large Chinese corporations were going to be very difficult to establish because China did not have enough trust, unlike Japan. Now, a few decades later, that seems obviously wrong. There are many quite large Chinese corporations, and the large Japanese corporations, they've maintained a foothold, but they actually haven't done that well. Things changed quickly. So why so much persistence here? Well, that's a very good question. There's some debate about how much persistence there really is.

7:34Particularly the communist regime under Mao did all they could to erase the influence of clans and replace it, of course, with communist functionaries. there's some evidence and some research recently shown that that wasn't 100 successful and so I think what you get particularly in societies such as China but in other places as well where where corporations were largely absent and where your society was organized by family is that it actually changes people's culture and people's values and so if you look at all the work that's been done by economists like Stephen Enke and anthropologists like Joe Henrik.

8:22They all show a very tight correlation between attitudes and cultural values and, you know, kinship, whether that's extended kinship or nuclear family. So I think what you could do in China and in Europe is you could maybe change your organizations, but you cannot change the state of mind. And an interesting fact is that many of the corporations that we talk about that were established during the Middle Ages eventually disappeared or became very unimportant. So, for instance, guilds eventually got abolished after the French Revolution on the continent, and they were weakened in England much earlier.

9:05Monasteries still exist in Catholic countries, in Protestant countries, and in England, they were completely abolished but the frame of mind and the and the cultural values that growing up in a nuclear family impues that kind of thing of sticks around corporations of course remain but they change their form very much the one most persistent of all those corporations interestingly enough were universities and effectively the form of universities with the fact that they are self-governing and they're sort of self-contained organizational units that write their own rules and their own bylaws that thing despite a lot of pressure on them is still surviving which I find very striking but we should think about a world that consists of lots and lots of different organizations like that in which cities for instance were self-governing and made their own rules and again you see cooperation between people who share a location but not necessarily an ancestor.

10:04So these things tend to be very persistent precisely because of institutions interacting with culture and culture feeding back into institutions. So they evolve or co-evolve, I should say, together. And that makes them, I think, much more persistent, Tyler.

10:22Tyler Cowen:Why is it so late in history that Chinese cities still have more people than, say, London or Paris if the Chinese model is economically inferior? No, it isn't. I mean, it isn't economic. We never say in the book anyway, you will not find this, that it was economically inferior. That's a way of thinking that we have long abandoned. It's different. And in many ways under the empire, the Chinese got what they wanted. and what we think what europeans think of being inferior the chinese actually i think that was their objective what they wanted above all was stability and internal peace rather than what the europeans wanted which was progress and growth and so these huge cities in china well remember you know incredibly populated place but in fact urbanization in china by saying if you look at at 1850 or 1900 is much lower than is Europe.

11:23The urbanization that you see now is really all post-imperial. And in fact, a lot of it is the consequence of the last 20 and 30 years. But also you should keep in mind that since the first opium war, Europeans have been penetrating China and many of the European values and ideas were being mixed in with the Chinese culture. and what you get is some kind of mixed product which produced many of these cities for many of these cities were what's known as treaty ports you know hong kong and shanghai and so on and so they grew in large part because the westerners that came there and settled there and actually ran their own show but i think china in the last i certainly you know since the death of mao in 1976 it's you know it's adopted many of the european ideas and many of the european cultural values and as a result what you get today in China sort of weird mixture of a persistence of things that were around during the empire into thousands of years Confucian beliefs and so on with western values and so I'll give you one example which I found particularly striking one of the great insights of western society over the years has been the idea of intellectual property rights you don't really actually see anything like that anywhere in the world you know the combination of a patent system and copyright and all these things.

12:47That's a very Western European thing. The Chinese never had anything like that. The whole concept of intellectual property, right, was alien to Chinese thinking until about 30 or 40 years ago. And now if you look at the data, Chinese patents have just, you know, skyrocketed. And clearly that idea has now penetrated Chinese society. But the idea, for instance, of having self-governing autonomous universities still hasn't quite gotten there because Chinese universities are very much run and managed by politicians, unlike, I hope, most American universities.

13:24Tyler Cowen:Why does it take so long for the wealthiest parts of Western Europe to surpass Chinese living standards? Say that's happened by 1700 or 1720. That's many centuries after this medieval divergence. If it takes so many centuries, is the medieval divergence really the relevant factor? Why is it such a slow process? Yeah, I think it is. I think it's a main factor. And, you know, I think the idea of looking at standard of living, one thing I'm very skeptical about how standard of living are actually measured. I know that this is what Pomerantz and other people have, Jack Goldstone and other people have argued that the living standards in China were comparable to the West as late as 1750.

14:10I'm not 100 % sure that that is true. But certainly, for my money, what really defines the divergence is that technologically, the gap between the two countries starts to become visible at the time of the Renaissance, you know, in terms of a whole bunch of things that you see growing in Europe, you know, and stagnant in China. Now, keep in mind, of course, that part of the European growth is due to the fact that they borrowed ideas from China. And then the Industrial Revolution consists to some extent of imports institution by Europeans trying to mimic the goods that they were importing from China.

14:50So, or not just from China, from India as well. But, you know, pottery is a good example. So, one of the things they really wanted from China with Chinaware. That's why it's called Chinaware. And it took them a while to be able to match the Chinese capability in the ceramic industry, but they do so eventually, and then they stop importing the stuff from China. The same is true, you know, for say cotton and other products that we're getting from the East. And so European living standards, I think, should be measured in part by the fact that when the Europeans start their voyages across the globe in the late 15th and early 16th century, they are able to bring in a whole bunch of new crops and new techniques from other areas, which they merrily adopt.

15:35You see Europeans very soon growing tobacco and potatoes and corn and other things like that. They are the agents of global change. And not only that they change their own diets, they change the Chinese diets because the Europeans bring from the new world things like peanuts and sweet potatoes and things like that and they changed the Chinese diets but the Chinese themselves are not Asians here they are accepting the stuff that the Europeans did to some extent and they're rejecting others but it's the Europeans who are the Asians of change here they are the entrepreneurs they are the people who bring about the changes Tyler And so my sense is that this is going to typify the difference between Europeans and the Chinese.

16:23Europeans are more aggressive. They are more outward looking. In the end, what you see by the 1830s and 1840s, you see that the gap, the technological gap is huge. In some ways, much larger than the living standards gap, even in the 19th century. You know, in terms of food, the Chinese were capable of producing enough food. The number of famines in China is probably not a lot worse than in Europe. But when you see what happens during the first opium war, how one English ship is blowing all of this mighty empire to pieces and the Chinese have to accept this terribly humiliating peace, you can see how the technological gap has grown between the two.

17:08For me, that is much more telling than the living standards. The other thing that I should like to point out is that when you look at Europe in the 16th and 17th century, you can see that the capability of expanding the set of useful knowledge, including science, is just growing very rapidly. You know, whether there is a scientific revolution or not is a debate that I want to get into. But certainly by 1700, Europe is on the verge of really changing our understanding of how creation works. And that's not just Newton and Galileo. You know, there's a whole body of work that is emerging. And there's really nothing parallel like that in China.

17:50China is a very sophisticated society in many ways. The literacy rates are high. They have a well-funded and well-organized system of education. but they don't really continue their earlier forays into science and into new technology. Somebody actually went out and looked at Joseph Needham's many volumes on Chinese technology and science, or science and civilization, as he called it. And he discovered something, which I guess we all knew, but they put numbers on it. almost nothing that needham pointed out as an innovation happens after 1400 i mean there's almost complete stagnation sitting in and some of the things that they knew how to make in earlier times like the sophisticated clocks that they built in the 11th century they disappear and so for me that's worth telling than you know how many calories of carbohydrates were consumed on average, if we could ever calculate it correctly.

18:56Tyler Cowen:Now, there's another problem in Chinese history, as you well know. So, for instance, Song China falls to Kublai Khan, even though Song China is relatively wealthy for its time. And there are other cases of so-called barbarians coming down from the north, taking over parts of what we now call China. Why is that happening? Is that also because of the clan system? No, no, no, no, no. I think China is simply located in a very different kind of geographical and demographic neighborhood. It is essentially, it remains for all practical purposes, unified since the rise of the song in 1960. I mean, there's a splitting of the southern and northern song for a little while, but it's basically a unified society which shares a language, particularly a written language, which is very important.

19:44But what happens is there's these wild people on their border that every once in a while they invade China. And that happened more than once. I mean, it happens during the Mongols, of course, in 1279. And the Mongols actually established a dynasty, the Yuan dynasty, that lasts about 80 years, if I recall correctly. But what is interesting, Tyler, is that when these people from the steppe, and some of them were Mongols, some of them were Turkmen, some of them were actually partially Chinese, But if they are not full-blooded Han Chinese and they come in and invade, very often they become Sinified.

20:25They start speaking Chinese. They start dressing like Chinese. They behave like Chinese. They adopt Confucianism. And they accept most of the Chinese institutions, such as the imperial examination, and they get absorbed into the clan system. And so there's nothing like that in Europe. Europe really, since the early Middle Ages, is not invaded effectively by any other non-European power. I mean, the Ottomans try a couple of times and they get defeated. The Mongols try once in 1240. And then if they had taken over Europe, history would have been very different. But they turned around and go back for internal reasons.

21:06And so what that really means is that the Europeans are mostly confronting one another. Whereas the Chinese, in most cases, are worried about people from the outside, which is that they have this wall and they have this military that's posted on the outer boundaries of China to keep the savages out. That's a very different kind of world. And interestingly enough, again, one of your colleagues at George Mason, Mark Koyama, has a bunch of papers that describe this in great detail and quite, I think, elegantly and ingeniously how that sort of geographical differences created the difference between the Chinese government, which remained a unified state, and Europe, which remains fragmented basically until the present day.

21:56Tyler Cowen:How does historic India fit into your schema? If I may admit it, my knowledge of India and Indian history is probably not up to par, certainly not. I'm a Europeanist who spent the last five or six years familiarizing myself with Chinese history. In our last chapter, there is a discussion of India. My sense is that India is a different version of the Chinese clan system. It's organized differently because you have this sort of combination of clans and cast in India. But basically, they too are unable to create the kind of unique system that you see in Europe in which you see these nuclear families living in a society which is organized mostly by corporations.

22:43In that sense, I would say all, if I may add to that, all the three great Asian civilizations, Middle East and Muslim civilization, Indian, Hindu and Muslim civilizations, and China, share something, and it's Europe that is the weirdos. It's Europe that are the exceptions. and that's essentially the you know the tenor of joe hendrick's book called you know the weirdest people in which he points this out that that book is i think has a big influence on us because it really shows in great detail how organizing people by nuclear family creates not only a different social organization but the culture that goes with it now i don't want to draw the analogy between India and China too far.

23:32But it's kind of striking that many of those European corporations are woefully missing in India as well until the Brits show up and in a way show them how to do it. But even there, I think it is fairly rare until, certainly until 1948 and India becomes independent. But the truth is, I did not really want to get too deeply into India because it's pretentious enough for me to spend a couple of years reading Chinese history with other people who spend their entire lives on one village or one county. I mean, it's just a huge ocean. And I can't really say that I did more than dipping my toes in it.

24:19But we wanted to take a step back and look at these two big civilizations and try to see why they differed. and i want to stress again we don't make the argument that india or china failed or what they did was you know they were doing what their their preferences and their institutions in some sense dictated but you know i find it always telling that the british established an east india company that trades with india in london but that in delhi you don't see You know, a Western European company or an England company that does to the Europeans what the Europeans did to them. So that asymmetry is already there in 1600.

25:08Tyler Cowen:Why was there no industrial revolution in the Roman Empire? Oh, God, that's a huge question. Is it coal? Is it human capital? Is it something else? Well, I think my sense would be that both Roman and Greek civilizations were in many ways creative, but the creativity did never really extend very much into the technological realm. And insofar that they did science, they were mostly uninterested in applying that science to day-to-day problems. And that insight, that the kind of knowledge that we have about nature, physics, chemistry, biology, astronomy, and so on and so forth, that that should be applied toward material improvement, that's not an immediate and obvious insight, nor is it an immediate and obvious insight that progress, as we understand it today, is feasible and or desirable.

26:15these are in all insights that arose in europe in the 16th and 17th century i have referred to these things as you surely know as in what i call the industrial enlightenment okay so there is this change of mind in european thinking after maybe 1450 or 1500 maybe because the printing press maybe because of other reasons but in which europeans essentially start to convince themselves that they are smarter than anybody that came before them that you know a lot of these great hellenistic and greek scientists were wrong about many things and that they could do better and once you have that belief and there's a francis bacon and a whole bunch of other people sort of we're all in that tradition in rome what you see is a whole bunch of clever people but they're not that interested in in technology let me give you one specific example Tyler that I have always found particularly intriguing although I don't have a good answer why it happened okay but you know if you think about human needs okay one of the constants of human needs above all is that at some age we need glasses right we start you know at age I don't know, when you start wearing glasses, but I started wearing glasses when I was in my early 40s in order to read and things like that.

27:39That's not, you know, a cultural feature. That's something that's hardwired in us. You know, the Romans were, certainly the upper class, were literate people, and they had glass, but they never invent spectacles. And there is, you know, and, you know, they don't have optics and they're not interested in optics. There's this passage in Seneca in which he sort of thinks, you know, that he looks at a glass that has water in it and says, hey, it's interesting, the stuff that's after, behind the glass, actually is magnified. But they never take the step of coming up with eyeglasses. And you wonder why, because clearly, you know, if necessity is the mother of invention, this was a necessity.

28:17They never do it. The sort of only thing that you see happening in Rome, and even that was very constrained, is they do come up with watermills. But the water mills remain, by and large, tools for grinding wheat, winding corn. They don't actually take it to the kind of extremes that Europeans did in the Middle Ages, turning into sawmill and fooling mills and, you know, kind of an industrial and sort of a little factory, which is where factories were known as mills. They never do that. And I think the reason is because the people who made things, okay, the artisans, the workmen, and the people who knew things, and studied things, which is the scientists and the mathematicians and the teachers never talked to each other.

29:02And what's more, the scientists essentially looked upon hard work and manual labor with a great deal of contempt. Both Plato and Aristotle make these points, but the Romans took it over, you know, and it was a slave society. Slave societies often look at manual labor with a great deal of condescension. So that's, you know, in the end, I think that's what stopped them. But the other thing is, I think that if you don't have a concept of progress and you don't think that you, that by studying things and investigating things and doing what we would call research in order to make the world a better place, at least from a material point of view, if you don't have that concept, there's not going to be an industrial revolution.

29:47and the Chinese don't have that concept either. You know, coming back to China, I look, you know, quite a long time for this and basically all the Chinese experts that I have read essentially said that the concept of progress is basically absent. Now that's concept that's emerging in Europe in the 15th to 16th century and by 17th century, it's quite commonplace. And once you have that, you can sort of see all those smart guys trying to solve practical and pragmatic problems. You know, so scientists, many scientists, almost all scientists, I would think, there's some exceptions, almost all of them said, look, I want to do science, not only because I'm curious and not only because I want to illustrate the glory and the wisdom of the creator.

30:34I want to do science because I want to make life better. Now, whose life is a different question, but that is what really emerges in Europe And no other civilization does that, Tyler.

30:48Tyler Cowen:The Romans are very good at infrastructure. You can go see the aqueduct in Segovia or the waterworks in Istanbul, the Roman system of roads. Isn't there some notion of progress behind those developments? Or Caesar encountering what we now call Britain, right? No. I think the idea that they had a concept of progress, you know, they were practical people. And they needed to bring water from here to there. and they did that and they needed to build roads so that their soldiers could march and occupy the world or the world as they knew it but i don't think there is a concept of progress the way we would think of it and it's sort of an interesting little book that i published in my series which you may uh uh want to look at about pliny and you know you look deep and this is you know somebody who really knows pliny and he really points this out that pliny you cannot find anywhere and plenty with sort of the time to summarize essentially everything like a little encyclopedia what was known basically there is no concept that things were getting better over time and this is a book by richard saller so he was one of the great classical scholars of our time and essentially there is no concept of progress in there there is no problem in concept of progress in any of the Roman writers.