History as a Chain of Learning
How Knowledge Transfer and Institutional Learning Shaped the Divergent Paths of Economic Development
The history of economic development can be understood fundamentally as a history of learning. Societies and nations have advanced not solely through invention but through the systematic acquisition and dissemination of knowledge, technology, legal frameworks, and business practices. While inventions such as papermaking or gunpowder are often celebrated as milestones of human ingenuity, their broader impact depended crucially on the transmission of these innovations across regions and societies. In other words, the mere act of invention is insufficient; the diffusion of knowledge determines its transformative power for humanity. (Read more about why it’s important to spread and use new technology, just as much as it is to invent one.)
Across history, numerous examples illustrate this principle. Modern cases include the rapid industrialization of South Korea and Taiwan. Both nations achieved remarkable economic growth by actively learning from more technologically advanced countries such as Japan and the United States. During Japan’s colonial period, land surveys and irrigation projects enhanced agricultural productivity and established a foundation for industrial development. Subsequently, prominent industries—ranging from textiles to semiconductors—emerged by adapting technologies initially developed in Japan and the West. Moreover, the educational mobility of talented students to North America and Britain facilitated the transfer of cutting-edge knowledge, which they later applied domestically.
Japan itself offers a paradigmatic case of a nation that systematically learned from others. In the 1960s and 1970s, engineers from technology companies like Sony visited American companies to acquire technical know-how. During the latter half of the nineteenth century, Japanese delegations were dispatched to the West to study modern economies and administrative systems. Both the government and private enterprises employed foreign experts—O-yatoi gaikokujin (御雇い外国人)—to facilitate the transfer of Western practices in engineering, construction, education, law, and military affairs. Predominantly British, but also including French, German, and American specialists, these advisors numbered approximately 8,300 between 1868 and 1900. Together with the latest equipment imported from the West, they became the foundation of the modern economy in Japan.
A similar pattern of deliberate learning can be observed in Europe and North America during the Industrial Revolution. American and continental European states actively sought British technological knowledge, sending engineers and technicians to study industrial processes and importing machines and blueprints. Despite British legislative efforts to limit the spread of industrial knowledge, the transmission of skills and equipment continued through smuggling, bribery, and employment of British experts. European governments understood that simply importing machines was insufficient for establishing modern industries; they required trained personnel. Large salaries and institutional support lured thousands of British mechanics and operators to continental Europe. By 1830, for example, France employed at least 15,000 British workers, mainly in textile and metallurgical plants, serving as skilled technical personnel1.
This chain of learning extends even further into earlier centuries. Before the Industrial Revolution, England adopted modern banking practices and navigational techniques from the Dutch, who themselves drew inspiration from Italy and the Iberian Peninsula. Across time, the diffusion of knowledge forms a continuous network: innovations rarely stop in isolation, but rather travel along chains of observation, adaptation, and implementation.
1. The Cause of Learning: Private Enterprise and Government Experience
A central insight emerges from the study of modern economic development: wealthy nations learn systematically. They adopt new technologies, institutions, and practices, which collectively underpin the formation of modern societies. Understanding the conditions that enable such learning requires examining the interplay of private enterprise and government institutions.
1.1 Private Enterprise
One primary driver of learning is the existence of a well-established pre-modern economy. Societies with dense networks of businesses, artisans, and technical specialists can adopt new technologies more effectively, as learning aligns with their existing knowledge and profit-maximizing incentives. Louis Motte-Bossut, a French industrialist of the 1840s, exemplifies this dynamic. He visited England to study factory equipment and subsequently established a large mechanical wool-spinning factory in northern France. Motte-Bossut was not a novice; he inherited a traditional textile business complete with customers, capital, and expertise, which facilitated the rapid assimilation of new industrial methods. Similarly, when the Prussian government sent technicians to Britain to study machinery, they deliberately selected candidates with prior technical knowledge, such as locksmiths, ensuring that learning would be productive and efficiently applied.
Japan’s silk industry further illustrates the integration of pre-existing knowledge with imported expertise. In 1872, early in the Meiji era, the Japanese government established one of the largest silk factories in the world under the guidance of French engineer Paul Brunat. Initially state-run and unprofitable, the factory nonetheless trained a cadre of skilled workers whose expertise spread to other regions such as Nagano, Saitama, and Niigata. These areas had long-standing silk traditions during the Edo period (1603–1868), and by combining traditional knowledge with Western industrial techniques, they created a textile industry capable of propelling Japan to the top of global silk exports.
The shipping industry provides a complementary example. During the late Edo period, Japan experienced a significant expansion of internal trade. As a result, shipping enterprises sprang up all over the country, increasing in size and operational sophistication. They, initially focused on transporting agricultural products and fish, increasingly became traders themselves, expanding operations, accumulating capital, and engaging in profit-oriented commerce. When Meiji modernization began in the mid-nineteenth century, these firms transitioned from wooden to iron ships and diversified into sectors such as insurance and banking, drawing upon their knowledge of local economies. In each instance, pre-modern enterprises were the agents through which external knowledge and technology were assimilated.
1.2 Government Competence
Government institutions also played a critical role in fostering learning and development. In both Asia and Europe, states promoted economic growth by hiring foreign experts, dispatching domestic scholars abroad, and establishing modernized factories. These capabilities were not spontaneous but built upon prior experience in managing commerce and infrastructure projects in pre-modern times.
Infrastructure development exemplifies this dynamic. Canals, irrigation systems, and transport networks enhanced productivity and trade efficiency, analogous to contemporary highways or train networks. Before the 19th century, states in both Japan and Western Europe invested heavily in such projects, sometimes financing them entirely while coordinating complex arrangements among landowners, laborers, and beneficiaries. These undertakings functioned as early forms of economic development projects, analogous to later industrialization efforts. By successfully implementing such initiatives, governments cultivated administrative capacity, technical knowledge, and project management experience, all of which proved essential for adopting and operationalizing modern technologies.
A key question is why governments in Europe and Asia were capable of promoting economic development. One major factor was competition: states had to grow their economies to survive. In Europe, where numerous countries vied for power, increasing output and expanding tax revenue were essential to fund military forces and defend against rivals.
Japan presents a parallel yet distinct case. During the Edo period (1603–1868), the shogun held ultimate authority, yet the country was divided into roughly 270 semi-autonomous domains, or han (藩), each governed by a daimyo (大名). These local rulers had significant freedom to manage economic affairs, investing in value-added agriculture, irrigation, and trade.
The fall of the Tokugawa Shogunate in 1867 was led by two economically advanced han: Choshu (長州, today Yamaguchi) and Satsuma (薩摩, today Kagoshima). Choshu benefited from its strategic position on the trade route between Osaka and northern Japan, profiting from regional commerce, while Satsuma engaged in indirect trade with China through Okinawa and introduced new crops to boost food production. These forward-thinking domains not only drove the political transition to the Meiji government but also applied their economic expertise to national modernization. Many top officials in the new government were former samurai from Choshu and Satsuma. In short, domains that excelled economically gained the power to influence national transformation and continued to use their administrative and commercial skills to build modern Japan.
2. Population Density and Water Transport as Engines of Growth
The next question is what caused the development of a pre-modern economy and what prevented it. The capacity for pre-modern economic development depended significantly on geographic and demographic factors. High population density, especially in coastal regions, facilitated economic interaction and knowledge transfer. Dense populations supported diverse business networks and abundant technical specialists, creating fertile conditions for the adoption of innovations emerging from the Industrial Revolution.
Water transport, in particular, was critical. Rivers, canals, and coastal shipping routes allowed the movement of bulky goods over long distances at lower costs than overland transport. In Europe, the Rhine and Danube rivers integrated inland communities into wider markets, while in Japan, the Tone River provided similar connectivity. By enabling more extensive trade, water transport fostered specialization, higher productivity, and the accumulation of capital, all of which contributed to the absorptive capacity of societies for new technologies. In both Europe and the Far East, populations were concentrated in coastal areas, and many rivers provided inland communities with access to water transport. (For more information about the effect of water transportation, click here)
Conversely, regions with sparse populations and limited access to navigable waters—including much of Africa, the Americas, Central Asia, and Siberia—faced structural constraints on economic development. Insufficient trade networks and costly transport impeded the accumulation of technical knowledge and industrial capability, limiting the capacity for learning and modernization.
For more details, you can read the longer version or shorter version of the essay about how economic development has taken place throughout history.
3. Large Fertile Land as a Liability: The Case of China
China presents a distinctive historical case, occupying an intermediate position between fully developed and underdeveloped economies. Its extensive coastal regions and navigable rivers supported flourishing trade networks, yet vast inland territories were sparsely populated and isolated from markets. This geographic configuration contributed to a unique trajectory: sophisticated economic development occurred, but it ultimately did not culminate in industrial modernization.
During the Song dynasty (960–1279), China achieved remarkable economic sophistication. Innovations included the world’s first government-issued paper money, widespread adoption of gunpowder, and active long-distance trade connecting the Middle East and Southeast Asia. Urbanization reached among the highest levels globally, reflecting a highly commercialized society.
However, after undergoing minimal change during the Ming dynasty, the economic emphasis shifted from commerce to agriculture during the Qing dynasty (1644–1912). The Qing dynasty implemented policies that illustrate this reorientation. First, quannong (“farming by invitation”) encouraged migration to newly cultivated lands, providing free transport, tools, and temporary tax exemptions. The policy was effective, contributing to a significant increase in population from 150 million to 400 million during that time. Second, maritime restrictions, collectively known as haijin (海禁), sought to limit private maritime trade. At their most stringent, the Great Clearance (迁界令) forcibly evacuated coastal populations within 15–25 kilometers. These policies were originally intended to combat piracy and suffocate the trade of a political and military opponent. However, they were so stringent that they diminished commercial activity and reduced urbanization (from 12% to 7%)2. By doing so, they essentially limited the ability to absorb external knowledge and technology.
It would be inaccurate to consider Qing rulers irrational. Their policies reflected rational decision-making aimed at maximizing the potential of their most abundant resource: fertile land. By prioritizing agriculture, they successfully increased both population and the tax base. Given the high marginal returns from farming, investment in maritime trade was naturally of lower priority. This approach stands in sharp contrast to countries such as the Netherlands, England, or Japan, where limited arable land made large-scale agriculture impossible and maritime trade—facilitated by easy access to waterways—served as the primary driver of economic growth and a high-priority policy choice.
Conclusion
History is fundamentally a chain of learning, in which inventions and innovations gain transformative power only through dissemination and adaptation. Modernization, particularly after the nineteenth century, exemplifies this principle: nations with pre-existing economic complexity, skilled labor, and competent governance were well-positioned to absorb and implement technological and institutional knowledge from abroad. By contrast, societies constrained by low population density, limited transport infrastructure, or policy choices prioritizing certain resources over trade developed less fully, thereby constraining their capacity to learn.
The Qing dynasty’s focus on agriculture, while rational given the abundance of fertile land, illustrates the broader pattern: economic priorities and structural conditions shape the absorptive capacity for external knowledge. In turn, this capacity has profound consequences for long-term development trajectories. Across Far East and Europe, the diffusion of ideas, technologies, and institutional practices underpinned the emergence of modern economies. The chain of learning, therefore, constitutes both the mechanism and the explanation for the uneven spread of economic development throughout history.
For more information about how European countries learned from England, check Chapter 3 of The Industrial Revolution in World History
For more information about the demographics of Chinese history, check Urbanization in China, ca. 1100–1900 and China’s Extraordinary Population Expansion and Its Determinants during the Qing Period, 1644-1911.