The 2015 Nobel Prize in Economics and Peru’s History

By Paul Goulder ✐

Special to Peruvian Times 

Economy - Angus DeatonAt the end of the fifteenth century, the fact was that the Americas including the Caribbean were delivered into the lap of the West Europeans and not into that of the East Asians. And ever since then, the per capita output of most economies diverged from that of Western Europe, the US and a handful of other nations. This increasing inequality has been, in part, the subject of the work of this year’s winner of the Nobel Prize for Economics.

On Oct. 12, the British-American economist Angus Deaton received this year’s Nobel Prize in Economic Sciences for “three related achievements: the system for esti­mating the demand for different goods that he and John Muellbauer developed around 1980; the studies of the link between consumption and income that he conducted around 1990; and the work he has carried out in later decades on measuring living standards and poverty in developing countries with the help of household surveys.”

It is the more recent work that is particularly the focus of this article.

Economy - Angus Deaton story -DeatonThe Nobel awarded to Angus Deaton has also focused attention on his most recent book, The Great Escape.[1] The title alludes to the widely-viewed Steve McQueen movie in which the heroes are those who plot —ultimately unsuccessfully – to escape from a prisoner of war camp. Those who are ‘left behind’ are not heroes in the film nor are the left-behinds generally regarded as such in life.

By analogy, Deaton portrays countries – mainly Western Europe and the United States initially – that made it to relatively wealthy developed status in the last 250 years or so as the “escapees” (from grinding poverty, illiteracy, hunger and general destitution and underdevelopment), whereas the poorer countries of the world are the left-behinds.

A better understanding of how the rich (countries) ‘escaped’ is maybe just that bit of economics that could set the world to rights.

The widening gap between rich and poor over the very long-term (the 250 year period referred to, or longer) has come to be called the Great Divergence. Only South Korea, China (and Japan earlier) and a few other countries have in the past few decades begun to escape from the left -behinds’ and to close the prosperity-poverty gap.

Much of the academic effort in this field (of explaining the great divergence)  has been spent in attempting to understand why it was that the West (really the North-West) pulled rapidly ahead (in simple economic terms) of China, starting approximately 250 years ago — or earlier, according to other specialists.

Economy Angus Deaton - chart w-captionIt was particularly China that had become the object of these studies, following the magnum opus of Cambridge biochemist, linguist and historian Joseph Needham on the history of Chinese science. There is something of another great divergence between intellectually warring camps of writers over the issue of the great divergence (the GDAs or Great Divergence Analysts) and even a conspiracy – it would seem – to deny the Americas their fair share of the credit for the divergence.

Others might take the beginnings of the Great Divergence back to the capital-labor redistribution shock of the Black Death around 1350, or even to the twelfth century: the preconditions of a golden Gothic age according to others. Alan MacFarlane provides a better case for the earlier “scientific revolution”, see link below.[2]

So if the Great Escape analogy of Deaton is to be helpful to us, “the escapees did certain things right” and lessons can be handed down, OR there were exogenous factors, which cannot be repeated to order — such as, the sub-soil was discovered to be ideal for tunneling, a silver mine was discovered in Potosi, or in general the resources of the Americas were handed to the West with the execution-murder of Atahualpa and denied to China by the speed – slowness— of continental drift.

Play the Great Escape Game!!

Which of the following were significant factors in the Great Escape/Divergence? [Is an arrogant attitude towards the less-developed countries ever justified?]

  1. Following the work of Francis Bacon, Western science was able to benefit from the Baconian or “scientific” method. Experiment-based methodology became (gradually) the cornerstone of the Scientific Revolution.
  2. A few countries on the western seaboard of northern Europe —hitherto regarded as lying on the edge of the world — were repositioned in terms of world geography by the “sudden appearance” of the new continents of the Americas. The new fulcrum(s) of world economic activity could be said to have shifted from South and East Asia, the Islamic world and the Mediterranean towards the North Atlantic.
  3. Warfare between the many states of Europe engendered competitive innovation (the Spitfire-Messerschmitt effect), whereas China had little incentive to improve military technology, for lack of sparring partners. (A point that is subject to some debate).
  4. Religious reformation, a cult of individualism, a constitutional monarchy and a post-mercantilist political economy gave NW Europe (Britain, Holland) the means to “escape.”
  5. The emergence of a new breed of inventor-entrepreneur, particularly in textile production and steam power, and the coincidence of good coal and iron ore supplies in Britain triggered the Industrial Revolution, a main constituent of the Great Escape.

Economy - Zheng-He vs Columbus shipsPeru and Nobel-recognized research

The contention is that, historically, Peru together with New Spain, Brazil and the New World in general spurred the takeoff of the “escaping nations” by providing specie metal, economic space (for settlement of surplus population), surplus capital from a new trade in slaves, an imagined utopia, an abundance of raw materials and a proving ground for a variety of economic and social models. An extraordinary one-off event with long term consequences (for half a millennium) denied to China and the East but delivered to Euro-seaboard nations and now seen as having been a necessary condition for escape. The geology and social, political and economic reforms & innovations, initially in Britain, provided the sufficient conditions for the “making of the modern world”: a model which was soon to be exported to North America and copied by Western Europe, or, indeed, developed in parallel in those areas.

So Peru can be seen – in the language of Deaton’s book – as both a “left-behind” and potential “escapee” but also, together with the rest of the Americas, as a principal – if not exactly voluntary — protagonist providing tools and resources for European “escape.”

However, the real-life histories are more complex as we see a divergence within the Americas themselves following varying styles of colonization, north and south. The Nobel selection committee has done great service to this debate overall by recognizing the value of Angus Deaton’s research.


[1] Deaton Angus. The Great Escape: Health, Wealth, and the Origins of Inequality. Princeton 2013/ 2015 (Paperback) ISBN: 9780691165622

[2] MacFarlane Alan. Reliable Knowledge of the World: Reflections on the ‘Great Divergence’ of East and West


Paul Goulder: Academic and specialist on Latin America and Peru, Goulder’s most recent academic posts have been at ENSCP-Paris; King’s College, University of London; UNSA, Arequipa, Peru. He also dedicates not-for-profit work in ecology, development and education in UK and Peru.

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  1. Pierre Little says:

    It was monetary policy and liberal central bank fiat currency that proved to be the successful ingredient of the success of the west. Also, you need peace to be able to establish your nation on sound footing and the US in particular enjoyed relative peace up to the 1930s, enough time for monetary policy from the Central Banks to organize themselves with the help of Bretton Woods.

  2. Patricia Behler says:

    As a United States Peace Corps Volunteer in Arequipa, Peru, in the 1960s, I recognize some of the references to the concept presented here regarding the Great Divergence. Although I have usually considered that the type of people inhabiting the North America/Europe areas related to the qualities of those in the Southern American area as different in aspirations and cultural involvement, I now see that there were other factors affecting the effects of the divergence on such things as accessibility to resources and human relationships between the powerful and the helpless. It may be interesting to follow up this investigation with a study of the effect on the US culture of the future with the great influx of Latin American populations. The blend will demand watching.

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