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This book seeks to provide an overview of the modern world economy since 1870, dealing with the material in such a way as to give due weight to chronology, regional balance, and coverage of the main topics. It forms part of a two-volume publication, with the first volume taking the story from 1700 to 1870. Volume II begins in 1870 because by then modern economic growth had emerged in Britain and already spread to much of the rest of western Europe and the British offshoots in the New World (the United States, Canada, Australia, and New Zealand), and was poised to begin in Asia, following the institutional reforms in Japan associated with the Meiji Restoration of 1868. There was thus a great potential during the period after 1870 for closing the gap in living standards that had opened up between the West and the rest of the world. Although many more countries embarked on the process of sustained modern economic growth between 1870 and 2001, the gap nevertheless continued to grow during the long twentieth century, as catching up proved elusive (Maddison 2005: 11). By 2001, the world was nearly seven times richer than it had been in 1870, but the gains were unevenly distributed, with the West growing by a factor of nearly 12, while the rest of the world grew by a factor of less than 6.
This book tells the story of the beginnings of modern economic growth, or the sustained increase of per capita incomes together with population growth, surely one of the most important developments in world history. Part I on regional developments documents how modern economic growth first emerged in eighteenth-century Britain, and follows its spread to other parts of the world. Its origins can be traced back to earlier developments in north-west Europe, which began to break free from the Malthusian cycle of alternating periods of positive and negative growth after the arrival of the Black Death in the mid-fourteenth century. Europe thus experienced a Little Divergence as the rest of the continent continued to experience periods of shrinking as well as growing. Within Asia, there was also regional variation, with China and India experiencing negative growth during the eighteenth century while Tokugawa Japan caught up with China and then forged ahead, creating an Asian Little Divergence.
After the Meiji Restoration of 1868, Japan introduced Western institutions and new technologies. As the first Asian economy to make the transformation to ‘modern economic growth’, Japan’s development process was not smooth, and it took until the 1970s to achieve the goal of catching up with Western economies. From a supply-side perspective, the main drivers of economic growth to the 1970s were capital accumulation and TFP growth. From a demand-side perspective, private and government investment played a more significant role than private consumption. After the high-speed growth era, investment and TFP growth slowed down and exports took centre stage in propelling the economy forward. Further, especially since the 1990s, some features that played a key role in Japan’s remarkable economic performance, such as lifetime employment, the dual economy, and the high saving rate, held back Japan. Also, globalization and slow/negative growth in the working-age population have posed new challenges.