How western industrialization led to political and economic advantages over the East

Source: The post how western industrialization led to political and economic advantages over the East has been created, based on the article “Spotlighting the work of the Economics Nobel winners” published in “The Hindu” on 17th October 2024

UPSC Syllabus Topic: GS Paper 3-Indian Economy Growth and Development

Context: The article discusses the Great Divergence, highlighting how Western industrialization led to political and economic advantages over the East. It emphasizes the role of institutions, especially extractive ones established during colonialism, in shaping long-term economic development, particularly in countries like India.

What is the Great Divergence?

1. The Great Divergence refers to the growing economic and political gap between the West and the East in the 17th and 18th centuries.
2. Western Europe industrialized early, gaining advantages that allowed them to project political power globally. This also helped them reap economic rewards, leading to lasting global inequalities.

What is the role of institutions in development?

1. Institutions are the rules that shape human behavior and constrain power. For example, constitutional limits on executive power prevent misuse of authority.
2. Economists Daron Acemoglu, Simon Johnson, and James Robinson (AJR) highlighted the difference between extractive and inclusive institutions. Extractive institutions benefit a small elite, while inclusive institutions promote broad participation and prosperity.

For detailed information on How different types of institutions impact a country’s prosperity read this article here

How does AJR’s research apply to India?

1. AJR’s research highlights how colonialism established extractive institutions in India that hindered long-term development.
2. Landlord-based land tenure systems under British rule led to lower agricultural investments and productivity. Abhijit Banerjee and Lakshmi Iyer (2005) found that these areas still suffer from lower growth today.
3. Direct vs. Indirect Colonial Rule: Lakshmi Iyer (2010) showed that areas under direct British rule in India had fewer schools, roads, and health centers than those under indirect rule. This disparity persisted for years.
4. AJR’s research suggests that political power shaped economic outcomes. Colonial elites benefited from extractive institutions, which hindered economic progress in many regions of India, especially in agriculture and infrastructure development.

Question for practice:

Examine how the establishment of extractive institutions during colonialism impacted long-term economic development in countries like India.