Lesson from Old India: When an Economy Just Doesn’t Get Better

But I do know a little about this subject and my understanding is:

(a) the essential claim is right that living standards in India declined in the 19th century.

(b) I believe this was largely caused by British interference and mismanagement. One egregious and well known example of this is the salt tax which made it more or less illegal for Indians to mine salt in India. This eventually was the catalyst for Gandhi's salt march.

Another example is the British East India company raising land taxes from 10% to 60% during the great bengal famine of the 1770s. The famine caused the death of about 30% of the population of Bengal.

(c) Art, culture and handicrafts were a big part of the Indian economy in the pre-British era. These were primarily supported by the kings and queens of the era. The British had no interest or use for Indian arts and culture and they got rid of most of this. And most of these people fell into subsistence farming with the obvious repercussions on the rest of the economy.

In general, most colonized countries had this terrible scenario where the rulers could set economic policies that had no repercussion on them personally. So they focused primarily on extracting as much wealth as possible with no regard whatsoever for the consequences of these policies because there were no consequences to bad governance by the colonizers. And it was precisely these policies which led to most colonized economies falling into mostly subsistence farming and the inevitable economic decline. I think the figures for India are something like 40% of the population doing agriculture before the arrival of the British ending up in about 70% of the economy being just agriculture a hundred or so years later.

I think talk about the lack of industrialization is a big smokescreen. Lots of developed countries industrialized really late - Russia, Japan, Korea, even Germany to some extent. The difference between these countries and India is not late industrialization but colonization. Because colonization systematically drained the country of both material wealth (i.e., capital) and technology (subsistence farming doesn't leave you with much time for educational accomplishments).

Everyone knows that Tyler plays fast and loose with the facts, but this statement really plumbs new, uncharted depths. Healthcare research seems to mean the pharmaceutical industry, and that field has been in trouble for 15 years. The major players have been on an outsourcing spree for the last decade, research is being gutted, and despite all that the development pipelines are not doing well. Energy is by its nature an extractive industry, which have this habit of creating some very rich people and many very poor people.

Finally higher education: higher education in the US is in trouble. Research is being done only at top-20 places. Even there the money is getting tighter, at any conference you'll go to you'll hear that so-and-so is shutting down their lab for lack of funds. The rest of the universities are repositioning themselves as vocational colleges, where students are paying for workforce training. It used to be that companies would train their staff, but nowadays a college diploma is the equivalent of a GED; you cannot afford not to have one. And then there is this proliferation of useless Masters degrees. Higher ed in its current form is a growth industry, but the country would be better off if it weren't.

> Who are some of the possible losers in this radical transformation in the global economy?

To be honest, we already know who the losers were. Median wages in the US didn't budge for 30 years, as manufacturing went downhill. Now that China is more or less industrialised, and Chinese wages are pushing up, US manufacturing is coming back.

The 2007+ recession wasn't about China taking the jobs. It was a credit crunch which wasn't really connected to anything China did, and should go away once the bad debt is all cleared.

You could argue that India's deindustrialisation created a path-dependent problem. It couldn't grow, because it had locked into a bunch of institutions that were anti-industry. But I suspect the British also helped forge those dodgy institutions. India was saddled with institutions which were designed for a richer country (risk adverse), then modified to be extractive (sending wealth back to Britain), and without the need for industry (both because India didn't have the industry, and Britain didn't want them to have it). It was a triple whammy, and it was kept in place for quite some time. Add in the inevitable costs of a revolution (and subsequent sectarian violence), and it's not too surprising that India has had a rough time.

The EU can probably survive a few decades of deindustrialisation with less issues, though the EU is a mixed blessing.

>But in India, internal regulations and underdevelopment, combined with British colonial depredations, prevented Indian resources from being redeployed productively.

It is difficult to understate how much history, and human suffering, is hidden behind the words "British colonial depredations".

> It was once an unthinkable question, but we’ve arrived at the scary point where it needs to be asked: What if American median income over the next 15 years keeps stagnating — or maybe even falls?

Hasn't it already? http://research.stlouisfed.org/fred2/series/MEHOINUSA672N And what's so outlandish about assuming it will keep doing what it's doing now?

> Our Social Security system, whose receipts are based on wage taxation, could then prove to be a bigger fiscal problem than Medicare.

Oh, and having a political axe to grind doesn't help the article either.

The amount of salt a normal person needed for a year cost well over one months pay.

http://en.wikipedia.org/wiki/Inland_Customs_Line

Buy time Gandhi had done his salt march the salt tax was nearly insignificant.

1) Knowing better/attempting to overrule the free market (minimum wages, minimum labour conditions, centralised permits to sell goods such as drugs, medical services, legal services)

2) Giving "something for nothing" (subsidised/free education, subsidised/free healthcare, subsidised/free pensions/saving schemes.

Currently anyone who dares to question these aspects of Western economies is immediately eviscerated by the crowd. The culture of entitlement is very strong. Soon enough, however, with the last of the props that sustained these sick economies thus far failing (militarism, centralised currency control, controls on global mobility, global cultural allure), getting rid of them will be hailed as bold new thinking.

It does seem incredible that the author doesn't give more weight to the economic impact of exploitive colonisation by the British in India.

I think Macro economics is to complex to figure out by extremely intelligent people who are trying, let alone be summed up in a short essay.

The problem is both micro and macro. The individual actors in a human economy, humans that is, are fantastically more complex in their behavior than, say air molecules that could be modeled as part of a complex emergent, chaotic phenomena like weather.

So you have 7 billion human actors, all existing within the complex ecosphere of the earth.

The human economies are simply an aspect of mass social phenomena, with continuous, ongoing feedback looks in cultural, biological, and geographical domains.

Feeble attempts to illuminate the issues of the world's economies strike me as little fairy tales, and I'm amazed it gets published like this for a credulous public.

A similar situation may be happening today. Due to automation, there is not enough jobs for everybody, which may decrease the cost of labor, slowing down pressure on technological development.

1. Almost all colonial powers in the west fought across the world primarily for territory, gold, resources, spices ...etc. This pursuit of selfish economic interests at the expense of rest of the world, environment is still we see in the world. Amount of loot/destruction from East to support Britain is just gigantic even during world wars.

2. Wealth, GDP might be there in the past Eastern world but that was by product/side effect of something else. No one really pushed for efficieny/productivity just like we see now in the west. It was individual interest to earn but not enforced one as if whole world is in a race and we will fall behind if we do not compete ...etc. You won't see such insecurity/paranoid in the past Eastern world. Selfish economic pursuit was never a primary/sole criterion for past India at state level. Yes, there were rules/laws for finances (e.g: Artha Sastra ...etc) but that is part of bigger picture just enough to maintain state but not main one. Kings of India before Mughals/British fought too among themselves but not for resources/money/territory. Dominating world/make a dent on the universe/earth ...etc was never part of eastern thinking even when East was financially strong. Concepts like Yoga/Kama Sutra ...etc emerged which are not at all connected to Finance/economy.

So do not look at just financial parts to understand whole. You will miss many subtle/nuanced/implicit points and your understanding may not be correct/complete.

Note: Please do not downvote if you disagree. There may be several implicit facts which you may not aware because of cultural difference.