Abstract: It has recently been suggested that the economic departure of the United States after the Civil War marked a ‘Second Great Divergence’. Compared to the ‘First’, the rise of Britain during the Industrial Revolution, this Second Great Divergence is curiously little understood: because the United States remains the template for modernization narratives, its trajectory is more easily accepted as preordained than interrogated as an unlikely historical outcome. But why should development have been problematic everywhere but the United States? This Viewpoint argues that a robust explanation for the United States's rise is lacking: it can neither be found in an economic history literature focused on factor endowments nor in internalist Americanist historiography, which often reproduces overdetermined accounts of modernization inspired by Max Weber. The most promising avenue of inquiry, we argue, lies in asking how American political institutions configured what should properly be called an American developmental state. Such a perspective opens up a broad comparative research agenda that provincializes the United States from the perspective of development experiences elsewhere.
IV
THE AMERICAN DEVELOPMENTAL STATE
But let us return to our starting question: how did the US manage to break from the position it inhabited in the global division of labour during the nineteenth century? That is, how did this nation not only accelerate growth, but also effect a profound structural transformation of the economy, register not only quantitative increases, but qualitative economic change? A framework that persuasively engages with this shift has to go beyond models that associate development, alternately, with territorial consolidation (Maier), competitive markets (Lamoreaux and Wallis), or a well-regulated corporate economy (Novak, Sparrow and Sawyer). It ought to grant political institutions an even more pervasive role than conquering and administering territory, liberalizing economic life and overseeing private firms. The only framework that has extensively dealt with these types of structural shifts in global economic history emerges from the literature on ‘developmental states’. This heterodox literature has drawn its insights from the experience of East Asian ‘catch-up’ developers such as Korea, Japan, Taiwan and, most recently, China.66 Just like the US a century earlier, these nations have managed to pull off something extraordinarily difficult and rare: they radically altered their positions in the global division of labour by way of sustained industrial and technological development. Is there anything to be learnt from this literature that may apply to the US?
At first glance, the core features identified by this literature seem hopelessly at odds with conventional understandings of the US since the nineteenth century that cast it as the quintessential market society.67 East Asian nations developed in direct violation of stylized notions of Anglo-Saxon market dispensations. They were (often authoritarian) states with strong bureaucracies pursuing purposive industrial policies. They defied ‘Washington Consensus’-style liberalization and instead protected and subsidized domestic firms, built up ‘national champions’, and strategically controlled the inflow and outflow of foreign capital. Their governing ideologies arose from the predicament of the late developer.
Nevertheless, the ‘developmental state’ literature can deliver a strong tonic to how we think about development more broadly, including in the American case. That is because the generalizable kernel of this literature does not reside in its empirical descriptions, but in its analytical insights. The most instructive lesson of the literature on ‘developmental states’ is the deconstruction of received dichotomies between state policy and market development.68 Successful developmental states did not create spaces for competitive markets to operate freely, as neoclassical models, or indeed the prescriptions of Northian institutionalism, would expect them to. Instead, they harnessed, managed and manipulated markets. Rather than receding from the flows of supply and demand, developmental state institutions nested themselves in them and channelled them by tinkering with price incentives.69 They cajoled, nudged and pushed private interests in economically desired directions by tying ‘carrots’ — subsidies, protection and incentives – to the ‘discipline’ of demands such as moving investment towards industrial development and technological upgrading, which capitalists, despite their much inflated reputation as ‘risk-takers’, did only reluctantly.70 Successful development, understood as engendering not only ‘growth’ but structural economic transformation, required not institutions that ‘protect’ markets, and ‘encase’71 or ‘preserve’72 them, but rather, development arose from institutions that disciplined and channelled the generative power of markets.
The second important lesson of this literature is about the politics of development. Though developmental states were ‘strong’, they were not aloof, monolithic behemoths but rather regimes with deep support in development-oriented social coalitions.73 Within an overarching ideological and social commitment to development, there was ongoing contestation between bureaucrats and industrialists over resource trade-offs, or over strategy, direction and the speed of economic transformation. Developmental policies involved state institutions and private actors in tense and ongoing confrontations and re-alignments. Nowhere did developmental states arise fully fledged — instead, they grew out of friction-ridden processes of trial and error, of overcoming political antagonisms and creating new institutional compromises.74 From this literature emerges an image that matches neither the Hayekian caricature of an all-powerful and impervious state of planner-bureaucrats nor the Smithian metaphysics of a beehive of self-interested economic actors magically creating superior outcomes. Development, this literature suggests, arose from the politics of institutional wrangling.
Both of these key insights — the emphasis on market-managing institutions and on ongoing political contestation over their precise set-up — offer rich potential for an analysis of development in the US. In contrast to Weberian narratives, which insinuate the inexorable fashion of capitalist development and remove it from the realm of political conflict, the insights of the ‘developmental state’ literature put politics and contestation squarely at the centre. Where Northian institutionalism is interested in political contestation up to an inflection point that gives birth to the ‘highest’ form of institutions — ‘open access’ systems, and the state as parsimonious arbiter of functioning markets — the ‘developmental state’ literature insists on ongoing conflict and the immersion of institutions in creating, shaping and harnessing markets. The US in the late nineteenth century harboured nothing resembling the powerful East Asian state bureaucracies that supervised and orchestrated development. The American state, we contend, nevertheless gained the ‘institutional capacity’ to effect and sustain structural economic change. It gained, that is, the capacities of a developmental state.75
Where might we begin to discern the sources of this institutional capacity? Where did the American state gain the most traction vis-à-vis private actors? Here, we point to the state’s highly decentralized and devolved structure. Contra the territorialists’ emphasis on the federal government’s role in integrating a coherent national market, American institutions in fact engendered remarkable regulatory unevenness and variability. This was not simply a feature of ‘federalism’ as such, but the product of historically specific political arrangements. As Gary Gerstle has recently argued, federal authorities and state governments in the US did not merely differ in terms of geographical scale. The two levels of government deployed fundamentally different — almost contradictory — modes of power. Whereas the liberal Constitution strictly constrained federal authority, state governments were endowed with broad ‘police power’. They enjoyed a much more capacious mandate to proactively shape economic life, a mandate that showed no sign of eroding at the end of the nineteenth century. Collectivist and majoritarian, rather than liberal, state governments also allowed greater space for contentious politics to set priorities, with fewer layers of mediation between electoral outcomes and the formation of policy.76
The majoritarian political drive behind state activism during the critical decades of American industrialization came most forcefully (but of course not exclusively) from rural constituencies, mostly located in the country’s periphery and semi-periphery. As Elizabeth Sanders and Monica Prasad have pointed out, farmers in this period mobilized to advance an aggressive regulatory agenda. They sought broad access to credit, leverage against railroad corporations, and protection from the competitive advantages of monopolies, even at the cost of higher prices for the goods they acquired and consumed.77 They enacted not liberal non-interventionism but an intensely proactive agenda, including progressive taxation, robust anti-trust policies, bankruptcy protections, banking reform, and corporate regulation (of railroad freight rates in particular). These measures were launched in different iterations and configurations by state-level legislation before migrating — only partially and with much difficulty — to the federal level in the twentieth century. The net result was not a level playing field shaped by liberal policy but a dense patchwork of overlapping, unevenly regulated and highly politicized markets. This ‘productive incoherence’ (Hirschman) — disconnected, experimental, even erratic procedures that were forged politically over time — generated a long catalogue of incentives and constraints.78 Cumulatively, we surmise, these policies obstructed the drive towards economic specialization, channelled and disciplined the flows of capital, and nurtured a robust, diverse and technologically sophisticated manufacturing base.
The economic effects of this ‘productive incoherence’ could most readily be observed in the American Midwest. Here, as the literature on the developmental state would predict, the institutional capacity to exert public sway over market forces — by regulating railroad freight charges, combating monopolies and channelling the flow of credit — yielded impressive developmental effects. This frontier region departed from the prevailing patterns in other world peripheries, becoming not simply the site for the extraction and cultivation of primary commodities but also a heavily urbanized industrial market for those commodities. Michigan, to take one important state among many, grew as a resource-rich periphery over the second half of the nineteenth century. It absorbed huge infusions of out-of-state capital to build the necessary infrastructure for the removal of large amounts of lumber, iron and copper. Michigan was no different in this respect from Montana, Wisconsin or Nevada, but, more importantly, no different from Chile, Australia and South Africa. What set apart Michigan’s economic profile by the end of the century was the state’s broad and diverse manufacturing base, which other peripheries struggled to foster. In 1900, Detroit, Michigan, had a broad-based industrial foundation atypical for peripheral settlements, including nearly three thousand different manufacturing establishments of medium size in more than a hundred different industrial categories. On this frontier, Dutch disease was nowhere to be found. But to further magnify this point, Detroit, the largest city in the state, had only half of the wage earners within the overall manufacturing economy of Michigan. It accounted for only half of Michigan’s ‘value added’. The state had at least a dozen other lesser known cities and towns (Lansing, Muskegon, Saginaw, Grand Rapids, and so on), each with its own manufacturing base, ranging from ploughs, wagons and stoves to foundry machine shops, forks and hoes, furniture and chemical works.79
Michigan’s dispersed urban–industrial pattern was representative of the Midwest as a whole. Throughout the nineteenth century, the Midwest fostered home-grown manufacturing in a variety of sectors, beyond the processing of agricultural commodities.80 This pattern accelerated after the Civil War, despite rapid improvements in transportation that drastically lowered the costs of interregional commerce. Midwestern industries like apparel, furniture, printing and publishing, building materials and fabricated metals that sold products in local and regional markets flourished and grew, despite competition from mass producers in the East that had access to national markets and thus, all else being equal, should have enjoyed a competitive advantage. But all things were not equal — state policies tipped the scale in favour of local producers — and so these regional industries continued to grow and employ large numbers of industrial workers, by some measures the majority of workers.81
The same policies also limited the gravitational pull of the region’s largest cities. Despite their prodigious growth, the major metropolises of the Midwest operated as part of a broader territorial production complex that included a dense network of small- and medium-sized cities. Chicago’s meatpackers famously dominated the meatpacking industry but never monopolized it. Its meatpackers worked alongside St. Louis, Omaha, Kansas City, St. Joseph and Sioux City, not to mention smaller centres like Cedar Rapids, Waterloo, Ottumwa and Indianapolis. McCormick and Co., also of Chicago, became the most well-known manufacturer of agricultural machinery, but it competed in a diversified industry with producers from Racine, Springfield, Peoria, Decatur, Rockford and South Bend. Overall, about half the industrial workforce of the Midwest, in a very wide range of manufacturing sectors, was employed in smaller cities. Meanwhile, workers in the top eight industrial cities (an unusually dense urban network) — Chicago, Cincinnati, St. Louis, Cleveland, Milwaukee, Detroit, Louisville and Indianapolis — represented a steady, and perhaps even declining, percentage of the overall Midwestern industrial labour force. The expansion of this multi-layered urban–industrial geography — at odds with the trend towards the growing dominance of single large metropolises in other countries, especially elsewhere in the Americas — continued into the twentieth century.82
What was most remarkable about the economic geography of the region was not the differentiated sizes of its production units or their decentralized locations.83 The regional pattern we observe did not simply enhance, diversify or spatially disperse the familiar arc of American capitalism. Rather, it cut hard against the dominant global trends of the late nineteenth century. Instead of regional specialization, in the Midwest, industry and agriculture intermingled. Instead of an exclusive focus on resource extraction and commercial farming for national and global markets, the Midwestern economic geography ensured that a significant share of accumulation redounded regionally. Instead of corporate behemoths sponsored by metropolitan finance, the region harboured a plethora of mid-sized shops in a wide array of sectors. If the dominant sectors of the age — railroads, steel, coal, resource extraction and food processing — followed the logic of the Great Specialization, the political economy of the Midwest pursued a competing logic of regional development, complementarity and economic diversification.
Not by coincidence, from this institutional and economic landscape arose the industry that encapsulated the ‘second great divergence’ like no other — the automobile industry.84 It is rarely appreciated that automotive mass production was a sharp departure from the extractive focus of corporate-led growth during the late nineteenth century. The automobile emerged from the workshops of the Midwest’s skilled mechanics, who nurtured a particular vision of development, one that advocated growing regional independence from the circuits of Eastern capital and championed a political economy based on popular participation in both production and consumption. Indeed, automotive mass production grew, not from corporate headquarters, but from an eclectic industrial landscape of machine shops deeply embedded in the regional political economy. The product, the affordable automobile, shot across the grain of the specialization economy: neither good for large-scale extraction nor for long-haul transport, the car instead supported short farm-to-market commutes. The automobile’s success took financial elites by surprise, and they attempted to thwart the industry by cornering the patent rights over the gasoline-powered motor car. That scheme foundered upon a legal ruling that rejected a narrow conception of intellectual property rights in favour of the open-source stance towards technological innovation that animated the industry’s mechanics.85 It was not before the 1920s that corporate capitalism began to assimilate automotive mass production, in the process transforming both it and itself.86
V
CONCLUSION
This Viewpoint began with a puzzle: how come one of the most momentous shifts of global economic history, America’s second great divergence, has been flying under the radar of historical scrutiny, or at least has not garnered the scholarly attention among historians commensurate to its significance? We traced the reasons back to pervasive patterns of thinking about American development as somehow natural and self-evident, as though situated in a preter-political realm. Transnational economic histories have continued to evade the question. Americanist historiography has not shaken free of modernization templates that, whether Whiggish or not, evacuate a substantive sense of contingency and political contestation from their purview. The literature about the American state, by contrast, offers a promising point of departure. The literature on East Asian developmental states provides a salubrious distancing effect that validates this state-centred approach. It calls for greater attention to markets as thoroughly political institutions, as well as to political contestation over the institutional design of markets. America’s ‘sprawling disarray’ (Novak) of subnational political arrangements, it leads us to believe, had developmental effects that collectively propelled the economic transformation of the US in the late nineteenth and early twentieth centuries.
We might conclude by taking a step back and inserting these insights into a genealogy of American development dispensations, from Alexander Hamilton’s mercantilism via Henry Clay’s ‘American system’, to the late-nineteenth-century developmental state identified here, usurped slowly and incompletely by federal institutions in the early twentieth century. This genealogy also shines fresh light on the federal aspirations of the New Deal and the warfare state of the 1940s, which harnessed big business in unprecedented ways to national goals and more closely begins to resemble the ideal-type of the developmental state spelt out in the example of East Asia.87 From there it was but a short step to the defence-related technological upgrading engendered by the post-war military–industrial complex, and the modern, post-1980 ‘networked’ American developmental state whose pervasive mechanisms remained solidly ‘hidden’ behind the deafening noise of free-market incantations.88 Market politics and developmental institutions, in this view, have been the rule, rather than the exception, with far-reaching implications. As we approach the challenges of the twenty-first century — ‘Green New Deal’, climate change, equitable growth — a better understanding of the politics and the institutions of large-scale, qualitative, economic transformations in the context of the US is sorely needed.
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