Thursday, 21 May 2015

National income and its distribution in preindustrial Poland in a global perspective.

This blog post was written by Mikolaj
Malinowski, doctoral candidate at
Utrecht University
Why are some people and countries rich whereas other remain poor? What affects the relationship between average per capita income and income inequality? These questions have always been at heart of economics and economic history. According to Kuznets, due to differences in productivity, income inequality in the agricultural sector should be relatively low whereas inequality in the urban sector/industry should be higher. Therefore, at the initial stages of economic growth, progressing urbanisation - the motor of growth - should result in an increase in income inequality in a country. Van Zanden demonstrated empirically that the urban sector has been richer and more unequal already in preindustrial Western Europe. But what about Eastern Europe? Was there indeed a Little Divergence within preindustrial Europe - was per capita income levels in preindustrial Eastern Europe lower than in the western part of the Continent? And, if so, was income inequality in the region lower than in the West?

In their new EHES working paper, Mikołaj Malinowski and Jan Luiten van Zanden of Utrecht University investigate if Kuznets’s reasoning can be also applied to explain economic history of preindustrial Eastern Europe and Poland in particular. Early modern Poland makes an interesting case due to its reliance on the demesne economy based on serfdom. The authors develop the idea that extractive institutions could have resulted in high levels of income inequality despite low productivity/mean income. Malinowski and Van Zanden ask if income inequality in the Polish agricultural sector in the 16th century was indeed lower than in the urban sector, or was it higher due to coercive agricultural class structures. In order to answer this question, the authors construct a social table of the Voivodeship of Cracow – the historical centre of the country – around 1578 and measure Gini income inequality in various sectors of the Polish economy. The authors place their findings in an international context within the framework of the inequality possibility frontier developed by Milanovic and collaborators.

Malinowski and Van Zanden demonstrate that, despite serfdom, income in poor and primarily agricultural Poland was distributed more equally than in more developed/urbanised Holland. Their findings suggest that, due to high inequality in the agricultural sector under serfdom, in the case of preindustrial Poland, urbanisation (movement of labour to a sector with less institutional coercion) could have mitigated rather than increased the inequality of the distribution of incomes. Their findings indicate that a demesne economy based on serfdom might have been very ‘successful’ at extracting surplus from the peasants in general as well as creating inequality between the tenant farmers and the agricultural workers. The level of income inequality in the countryside was at the maximum level determined by the inequality possibility frontier.

In more detail, income inequality in the countryside was primarily attributed to the elite. When the elite is excluded from the estimates of inequality in the agricultural sector, the Gini coefficient decreases drastically from 57 to 30 – a level of income inequality (though not mean income) similar to that observed by Van Zanden for villages in Holland around the same time. Malinowski and Van Zanden also demonstrate - using data on both income and wealth distribution - that the city of Cracow, despite having much higher mean income, was characterised by lower inequality than the agricultural sector. Moreover, income inequality in the whole Voivodeship was smaller than income inequality in the countryside.

Scatter-plotted accounts of income and inequality in preindustrial societies.

Positioning Poland in the debate on early modern income inequality is one objective of the paper. The other is to position Poland within the Little Divergence debate. Malinowski and Van Zanden reconstruct GDP per capita in Poland between 1410 and 1910. They anchor their estimates to their own benchmark estimate for 1578 and to the benchmark proposed by Maddison for 1870. The authors use data on real wages and urbanisation to project the series backwards and forwards in time. The authors propose more reliable benchmarks for 1500, 1578, 1662, and 1776 as well as a more tentative continuous series. The results indicate a moderate growth in the economy in the 16th century, a strong contraction in the 17th century, and a stagnation in the 18th century.

Estimates of GDP per capita in 1990$PPP, 1410-1910.

Malinowski’s and Van Zanden’s inquiry into the long-term growth curve of the Polish economy confirms the conventional knowledge that Poland/Eastern Europe was a European periphery. Their figures reinforce the notion suggested by all of the previous studies of Polish per capita GDP that the county already lagged behind Western Europe in economic development at the end of the Middle Ages. The disproportion between the country and the front-runners located in the North Sea region as well as the other Western European countries widened through the period. The growth in the gap was not only a result of growth of the Western – particularly north-western – European economies, but also by the contraction of the Polish economy. After the 17th century crisis Polish real income went down to a level below that of India or Japan.


GDP per caput around the globe 1500-1870 in 1990$PPP.
This blog post was written by Mikołaj Malinowski, Doctoral candidate at Utrecht University.
The working paper can be downloaded here:
http://www.ehes.org/EHES_76.pdf


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