Convergent incomes and divergent growth – that is the economic story of our times. We are witnessing the reversal of the 19th and early 20th century era of divergent incomes. In that epoch, the peoples of western Europe and their most successful former colonies achieved a huge economic advantage over the rest of humanity. Now it is being reversed more quickly than it emerged. This is inevitable and desirable. But it also creates huge global challenges.
In an influential book, Kenneth Pomeranz of the University of California, Irvine, wrote of the “great divergence” between China and the west.* He located that divergence in the late 18th and 19th centuries. This is controversial: the late Angus Maddison, doyen of statistical researchers, argued that by 1820 UK output per head was already three times and US output per head twice Chinese levels (see chart). Yet of the subsequent far greater divergence there is no doubt whatsoever. By the middle of the 20th century, real incomes per head (measured at purchasing power parity) in China and India had fallen to 5 and 7 per cent of US levels, respectively. Moreover, little had changed by 1980.
