• Monday, May 25, 2020
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The British did not impoverish India’s economy

  • Published at 10:44 pm February 15th, 2020
Victorian Statue
Did Her Majesty make India poorer?

Why Shashi Tharoor is wrong

Shashi Tharoor, the former minister in India and current member of their parliament, wants to tell us all the British entirely impoverished India. This is not quite wholly and entirely true. 

Tharoor is a politician with a story to sell, therefore -- as is usual in such cases – he’s being less than entirely clear with his use of figures and economics. This is not, by the way, just me as a Brit insisting that it was nothing to do with me or mine. 

By the time my ancestors had risen up out of the peasantry and proletariat, the Raj was over, the only familial link was grandfather coming to aid the conversion of Risalpur to a post-independence format. This is about economics and numbers, nothing personal.

We should note that everything here is about the sub-continent, not just that area now called India. Tharoor tells us that when Clive took over Bengal (to use a usefully indeterminate phrase) the Indian economy was 23% of the world’s, by the time Mountbatten left it was only 4%. 

Entirely true, but wholly, entirely even, misleading. The implication of the statement is that the Indian economy shrank over those centuries, something which is not in fact true. What did happen is that the global economy grew faster than the Indian one.

The American economic historian Brad Delong has made estimates of the size of that global economy over time. Of course, these are adjusted for inflation so that we may usefully compare them. 

And the economy in 1750 -- not quite Clive’s correct takeover date but close enough -- was, for everyone, everywhere, some $130 billion. Again, note, this is after adjusting for inflation. When the British left that global economy was some $3tn (it’s now perhaps some $80tn). 

At this point, we can try doing a little bit of basic mathematics -- 23% of $130bn is $30bn among friends, that was the size of the Indian economy in 1750. 4% of $3tn is $120bn. The Indian economy was larger when the British left than it was when they arrived -- that is not impoverishing a place.

We can approach the same question through another, entirely independent, set of figures, those of Angus Maddison -- GDP per capita in 1750 for India (again, the area of the Raj, again, inflation-adjusted) was some $890. In 1947, it was perhaps $830. That is poorer. 

But the population had risen from 180 million to 380 million. That is, the aggregate economy of India was well over twice the size when they left as when the British arrived, even if income per person was slightly lower. 

Yes, the two estimates are different for this isn’t an exact science. Both are telling us the same thing though -- the Indian economy grew over the time of the Raj. 

True, this isn’t exactly a grand record for making people better off. But then, roughly the same was true of China over the same time period. Of much of Africa. Of, actually, everywhere that didn’t have an industrial revolution. 

Further, this outcome was entirely independent of whether a place was colonized or not, made part of some European empire or not. Places with industrial revolutions got richer per person, places without did not, any growth arriving simply as more people at that same old level of income.

This is also what happened in Europe, in fact everywhere, before that first industrial revolution in Britain. Because this is just what happens in the absence of said industrial revolution. We’ve even a name for it, Malthusian growth.

This stemming from the Reverend Malthus who suffered from an unfortunate ability to be entirely, wholly, and absolutely right about the history of the world right up to the moment he decided to write it all down, his wisdom being distilled just as the world itself decided to prove him wrong.

All the way up to that mid-18th-century, economic growth would arrive as merely a temporary rise in the living standards of the population. That would mean more children survived to then become parents themselves.

The result of which would be a rise in population and living standards, which would decline back down to what they had been. This always being in the $600 to $900 a year range -- no lower because below that everyone dies. Above that, the population grows. That’s just what history was in economic terms, advances becoming not higher living standards but more people.

It has only been in the last 250 years, since those steam engines, water mills, and all the rest, that technological advance has kept out ahead of, pulled away from, population growth so that the average standard of living does grow. 

That is, it’s only over that time period that it has happened anywhere at all, it’s been a bit later arriving in some places -- India and Bangladesh among them as we know. Growth in GDP per capita is a new phenomenon in both places, as it also is in China, no more than a few decades old in any of them.

The underlying point here is that the Indian economy did relatively badly under the British, it most assuredly did. As did absolutely every economy over the same time period that did not have one of those industrial revolutions. 

We can even argue -- and I would, I am not an apologist for those past events -- that India should have done much better and even could have without the British. But the story that the Indian economy was smaller at the end of the Raj than at the beginning is simply wrong -- for it didn’t happen.

I should perhaps mention that a good friend of mine knew Tharoor some decades back and wasn’t greatly impressed. That’s no reason for either me or you to believe or not his story about economic impoverishment by the British. 

The value of a tale is in itself, not in who is doing the telling. The disproof of the idea rests not upon identifying a politician on the make but on the facts of history – it’s not true.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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