Business History, the Great Divergence and the Great Convergence

Abstract

This working paper provides a business history perspective on debates about the Great Divergence, the rise of the gap in incomes between the West and the Rest, and the more recent Great Convergence, which has seen a narrowing of that gap. The literature on the timing and causes of the Great Divergence has focussed on macro analysis. This working paper identifies the potential for more engagement at the micro level of business enterprises. While recognizing that the context of institutions, education and culture play a role in explanations of wealth and poverty, the paper calls for a closer engagement with the processes how these factors translated into generating productive firms and entrepreneurs. The challenges of catching-up were sufficiently great in the Rest that initially minorities held significant advantages in capital-raising and trust levels which enabled them to flourish as entrepreneurs. Yet by the interwar years there is evidence of more general emergence of modern business enterprise in Asia, Latin America and Africa. Many governmental policies after 1945 designed to facilitate catch-up ended up crippling such emergent business enterprises without putting effective alternatives in place. The second wave of globalization from the 1980s provided more opportunities for catch up from the Rest. Firms from emerging markets had the opportunity to access the global networks which replaced large integrated firms. There were also new ways to access knowledge and capital, including through management consultancies and hiring graduates from business schools. The upshot was the rise to global prominence of firms based in the Rest, including Foxcomm, Huawei, HNA, Cemex, and TCS.