Jean-Laurent Rosenthal is a scholar of European business economics, while R. Bin Wong is an historian of China. Together they have produced a sophisticated critique of a venerable historiographic tradition that explains European industrialization by invoking the superiority of Western social, economic, and political institutions. Building on Kenneth Pomeranz’ The Great Divergence, the parting of ways to which they refer in their title is the separation between Western Europe, Britain in particular, where the foundations were laid for the industrial revolution, and the rest of the world, whose agrarian-centered order promised no more than modest Smithian growth. Like Pomeranz, Rosenthal and Wong use China to interrogate Europe. But they adopt a substantially different analysis and chronology.

Rosenthal and Wong consider four institutions that, singly or in combination, are often cited to explain Europe's unique economic trajectory: family structures, trade regulation, systems of credit, and representative government. In each case, they argue, binary oppositions between Europe and China are greatly overdrawn. The West European family system based on “prudent” nuclear households, for example, is said to have prevented Malthusian pressures more readily than Chinese extended households. But in truth, China had both extended and nuclear households, and between 1400 and 1900 China kept population growth lower than that of Europe. Likewise, although it is true that to regulate commerce Europe relied on formal institutions, chiefly written contracts and courts, more heavily than China, this distinction reflected less institutional or cultural biases than differences in the structure of trade itself. In both regions long-distance trade was more easily regulated by informal social sanctions; but in China, given an absence of national barriers to exchange, the ratio of long-distance to local trade was far greater than in Europe. With a similar iconoclastic logic, Rosenthal and Wong deny that Chinese interest rates were markedly higher; and they reject as empirically untenable the hoary view that representative government spurred growth by depressing tax rates.

Not only were Chinese institutions at least as supportive of growth as their European counterparts, but China's political economy benefited from two critical advantages unavailable to Europe: first, as just noted, the extraordinary size of empire (in effect a vast free trade zone) fostered higher levels of long-distance trade; second, a relatively pacific external environment—that is, modest military demands—meant that Chinese governments were able both to keep tax rates below European levels and to devote a higher portion of revenue to economically productive public investments, such as water control projects and the Grand Canal. The resultant prosperity exceeded anything in European history in both spatial and chronological extent. Ironically, only in the nineteenth century did Europe begin to adopt the Chinese formula of modest military expenditures and high public investment.

If China's economy was so growth-friendly, why, then, did Europe first industrialize? Rosenthal and Wong reject Pomeranz’ decisive emphasis on Britain's eighteenth-century access to cheap coal and New World resources, for in their analysis, by the fifteenth or sixteenth century Europe already was headed toward a uniquely capital-intensive economic order. Likewise, they regard Enlightenment receptivity to new ideas, which Joel Mokyr has emphasized, as merely acceleratory; and they believe that Europe's exceptionally high-labor, low-capital costs in the eighteenth century, to which Robert Allen has drawn attention, again were symptomatic of more long-standing features conducive to industrialization. In their view, the rise of capital-intensive machine production was the unintended consequence of one primary condition: Europe's peculiar political anarchy. Given Europe's endemic fragmentation and incessant warfare, manufacturing sought the safety of city walls to a far higher degree than in China, where dispersed rural proto-industry remained the norm. In premodern cities, with their appalling death rates, the ratio of capital to labor was always far higher than in the countryside. In European manufacture, therefore, labor quickly became the most expensive factor whose costs had to be minimized in the search for profitability – which created a strong incentive to devise labor-saving, capital-intensive machinery. In other words, Allen did identify a critical cost dynamic peculiar to Europe, but the origins of that dynamic lay in the late medieval period, not the 1700s. Moreover, Rosenthal and Wong argue, the urban focus of production favored financial innovations that further lowered the cost of European capital, while the relentless innovation of European military technology often had civilian applications. They are careful to note that endemic fragmentation and warfare per se were insufficient to spark industrial invention, as the histories of Africa and Southeast Asia suggest; rather it was these conditions in combination with a favorable institutional environment.

This is an exceptionally original and insightful thesis that has the potential virtue of explaining not only why industrialization began in Western Europe, but also why China could be ahead of Europe technologically in 1300 and could enjoy unrivalled periods of domestic prosperity thereafter, yet still fall progressively behind in manufacturing. One wishes that Rosenthal and Wong had documented their central claims about European war and manufacturing in greater detail—this thesis occupies only a single short, if exciting chapter—while eliminating much of the theoretical, mathematically oriented discussion of pricing, markets, and taxation that burdens other chapters. In particular, we need more evidence that mechanical innovation in Europe regularly exceeded that in China between c. 1400 and 1600. Beyond this, their introductory explanation of why post-600 China remained more politically unified than Europe is unsatisfactory, because it fails to consider the unifying advantages China derived from central riverine arteries, smooth coastline, logographic rather than alphabetic scripts, the socially prescriptive ethos of Confucianism, and non-feudal law. Finally, Rosenthal and Wong claim far too much credit when they write that all previous scholars of China “have found only economic stagnation” (p. 225). Surely, that has not been true of China research for at least twenty years. And yet these flaws should not detract from a provocative, possibly seminal contribution to what is emerging as the most intriguing debate in premodern world historiography.