Europe’s early rise wasn’t continental. It was driven by a handful of Commercial societies, and the other European powers copied them to maintain their geopolitical power and status.
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If we look at economic growth in world history over the last 10,000 years using estimated real per capita GDP from the Angus Maddison Project, we see a few major trends. Real per capita GDP is the most useful metric for this purpose because it captures changes in the material standard of living for the average person over long periods of time, rather than temporary surges in elite wealth or state power.
The vast majority of the world experienced virtually no sustained improvement in real per capita GDP before 1800. The primary exceptions were typically the capitals of great empires, where rulers and elites were able to expropriate wealth from surrounding regions. These cases represent concentrations of elite consumption rather than broad-based improvements in living standards for the population as a whole.
This pattern applies broadly to:
China
India
the Middle East
Sub-Saharan Africa
the Pre-Columbian Americas
Real per capita GDP in Europe was also largely flat until about 1200. Prior to that point, Europe does not appear meaningfully different from most other agrarian societies around the world in terms of long-run material living standards.
Between roughly 1200 and 1800, however, the regions with the highest and most sustained growth in real per capita GDP were Northern Italy, Flanders, the Netherlands, and England. These regions shared a common set of characteristics that distinguish them from the rest of Europe, and in this essay they will be referred to as Commercial societies.
Other European societies, most notably France, Spain, Germany, and Scandinavia, did experience some growth in real per capita GDP between roughly 1500 and 1800, but that growth was significantly slower and generally occurred with a noticeable lag relative to the four regions listed above.
Many economic historians classify trends #3 and #4 as part of the “First Great Divergence,” a period in which the trajectory of economic growth in Western Europe began to separate from that of the rest of the world long before the Industrial Revolution. This interpretation correctly identifies a divergence, but it often treats Western Europe as a unified economic entity.
But what if trend #3 was the primary cause of trend #4?
What if the technological and organizational innovations produced in just four regions (Northern Italy, Flanders, the Netherlands, and England) provided the foundation for the more modest growth observed in other European societies?
And what if France, Spain, Germany, and Scandinavia did not grow primarily because they innovated, but because they selectively copied innovations that had already proven successful in Northern Italy, Flanders, the Netherlands, and England?
That is exactly what this essay argues.
The First Great Divergence was not truly a Europe-wide phenomenon. The First Great Divergence was a divergence between Commercial societies and Agrarian societies, including those in Europe. So while most researchers focus on why Europe diverged from Asia and the rest of Europe, I focus on why it was only a handful of Commercial societies within Europe that actually diverged.
Agrarian societies that were geographically and culturally close to Commercial societies were compelled to copy technological, organizational, and military innovations in order to maintain their power and prestige in an intensely competitive geopolitical environment. This copying raised incomes and strengthened states, but it was selective:
economic, military, and prestige-enhancing innovations were adopted,
while innovations that threatened elite control were often resisted.
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Long-Run Stagnation as the Default
For almost all of human history, sustained improvements in material living standards were extraordinarily rare. Across different continents, climates, and cultures, real per capita GDP:
tended to fluctuate around a low subsistence level,
with short-term gains almost always erased by population growth, elite extraction, or political collapse.
From a long-run perspective, stagnation rather than material progress was the normal condition of human societies.
This pattern is visible across agrarian civilizations worldwide. Improvements in agricultural techniques or state organization typically increased total output, but those gains were absorbed by rising populations, intensified labor demands, or greater surplus extraction by rulers and elites.
Where wealth did concentrate, most notably in the capitals of large empires, it reflected redistribution and coercion rather than improved the material circumstances of ordinary people. The result was impressive monuments, large armies, and luxurious courts, but little sustained rise in average living standards.
Europe before 1200
Europe before roughly 1200 fits squarely within this global pattern. Despite political fragmentation, frequent warfare, and cultural diversity, European societies exhibited the same basic dynamics found elsewhere. Agricultural improvements raised output intermittently, but did not generate durable per capita gains. Urbanization remained limited, markets were shallow, and most economic activity was oriented toward subsistence rather than exchange. In terms of long-run material outcomes, Europe was not on a fundamentally different trajectory from China, India, or the Middle East.
Establishing this baseline is essential, because it clarifies what requires explanation. If stagnation was the historical norm everywhere, then Europe’s later divergence cannot be explained by slow-moving geographical advantages, ancient cultural traits, or deep civilizational differences. Any convincing account of Europe’s eventual rise in real per capita GDP must instead explain why
sustained growth emerged in only a few places, at a particular time, and then
spread unevenly to others.
Europe’s Uneven Growth Pattern after 1200
When we examine estimated real per capita GDP trajectories within Europe using data from the Angus Maddison Project, a striking pattern emerges well before the Industrial Revolution. Europe did not experience a uniform rise in living standards. Instead, economic growth was highly uneven, both geographically and temporally, with sustained gains concentrated in a small number of regions while most of the continent lagged behind.
From antiquity through roughly 1200, European real per capita GDP appears largely flat, fluctuating within a narrow range consistent with the broader agrarian world. Beginning in the late medieval period, however, this pattern changes, but only in specific places.
Between roughly 1200 and 1800, first Northern Italy, then Flanders, then the Netherlands, and last England stand out as the regions with the earliest, highest, and most sustained increases in real per capita GDP. Their growth trajectories diverge clearly not only from the rest of the world, but from the rest of Europe itself.
Here are the actual estimates real per capita GDP for each region. Keep in mind that the numbers:
Are just estimates
Are expressed in 1990 international dollars.
Correspond to modern political boundaries, so, for example, the data for Northern Italy is combined with the much poorer Southern Italy.
Per capita GDP is far higher today, so the numbers do not look very impressive at first glance. For comparison, here is Per capita GDP for the major Eurasia Agrarian socieites:
China: $450-600
Japan: 425-650
India: 450-550
Middle East: 500-600
Italy (including the much poorer Southern Italy)
1200: ~1,200
1300: ~1,400
1500: ~1,500 (Northern Italy likely peaked just before the French invasion of 1494)
1700: ~1,400
1800: ~1,400
Flanders
1300: ~1,300–1,400
1500: ~1,400 (Flanders likely peaked just before the Eighty Years’ War with the Spanish Empire)
1600: ~1,350
1700: ~1,300
Netherlands
1500: ~1,400
1600: ~1,600
1700: ~2,100 (The Dutch Republic likely peaked around 1670 just before the French invasion of 1672)
1800: ~2,000
England
1300: ~1,100
1500: ~1,200
1600: ~1,400
1700: ~1,650
1800: ~2,000
By contrast, other European societies, including France, Spain, the German lands, and Scandinavia, show more modest gains, and those gains generally occur later. In Maddison’s estimates, these regions begin to experience some improvement in real per capita GDP after 1500, but the increases are smaller in magnitude and less consistent over time. The gap between these societies and the leading regions does not close; instead, it stabilizes at a lower level of income.
Again, remember that Asian Agrarian societies clustered around $450–600 in real per capita GDP, a range that Europe’s leading Commercial societies surpassed decisively after 1200.
France
1300: ~1,100
1500: ~1,100
1600: ~1,200
1700: ~1,300
1800: ~1,350
Spain
1300: ~1,100
1500: ~1,100
1600: ~1,200
1700: ~1,200
1800: ~1,300
Germany (note that this corresponds to modern German borders, not borders at the time)
1300: ~1,100
1500: ~1,100
1600: ~1,150
1700: ~1,200
1800: ~1,300
Scandinavia
1300: ~1,000
1500: ~1,000
1600: ~1,050
1700: ~1,100
1800: ~1,250
We can see that:
Northern Italy and Flanders were already 20–40% richer than most of Europe by 1300
The Netherlands and later England pulled decisively ahead long before industrialization
France, Spain, Germany, and Scandinavia experienced real but modest gains (≈15–25% over several centuries)
Europe’s divergence was not uniform, and leadership was concentrated in a few Commercial societies
This intra-European divergence is a critical empirical fact. It suggests that whatever forces were driving growth were not evenly distributed across the continent, nor were they tied simply to “European” characteristics such as religion, climate, culture, or shared intellectual traditions. If such broad factors were decisive, we would expect more synchronized growth across European societies. Instead, we observe early and sustained divergence within a few regions of Europe itself.
Economic historians often group these trends together under the label of the “First Great Divergence,” emphasizing Western Europe’s separation from Asia and other regions of the world. While this framing captures an important global shift, it risks obscuring a more fundamental pattern.
The most consequential divergence during this period occurred not between Europe and the rest of the world, but within Europe:
a small number of high-performing regions (Northern Italy, Flanders, the Netherlands, and England) and
a much larger set of societies that grew more slowly (France, Spain, the German lands, and Scandinavia; also Eastern Europe and the Balkans was almost completely left out of the growth).
Seen in this light, Europe’s uneven growth pattern presents a sharper puzzle.
Why did sustained increases in real per capita GDP emerge first in just four regions?
And why did other European societies follow, if at all, only later and at a distance?
Answering these questions requires moving beyond continental generalizations and focusing instead on what distinguished these leading regions from their neighbors.
The Emergence of Commercial Societies
Commercial societies were not simply places with trade. Trade existed everywhere. What made these societies distinct was the central role that markets, merchants, and exchange-oriented institutions played in organizing economic life. Cities were dense and economically autonomous. Merchants were politically influential. Capital was mobile. Contracts were enforced with relative predictability. Economic activity was oriented toward production for exchange rather than subsistence or elite extraction.
One defining feature of Commercial societies was the decentralization of power. Authority was fragmented among city governments, merchant guilds, courts, and competing jurisdictions. This fragmentation limited the ability of rulers to confiscate wealth arbitrarily and forced elites to bargain with commercial interests. While such arrangements were often unstable and contentious, they created an environment in which experimentation was possible and innovation could survive political turnover.
Another key feature was the development of financial institutions that reduced transaction costs. Commercial societies pioneered systems of accounting, credit, insurance, contract law, and dispute resolution that allowed economic activity to scale beyond personal relationships. These institutions did not require scientific breakthroughs, but they dramatically increased the efficiency with which labor, capital, and information were allocated. Over time, small improvements in organization compounded into meaningful gains in productivity.
Urbanization also played a critical role. Commercial societies were highly urban relative to their neighbors, and their cities were tightly integrated into regional and international trade networks. Urban density facilitated specialization, knowledge spillovers, and the rapid diffusion of practical techniques. Innovations could be tested, copied, refined, and redeployed within a single generation. Failed experiments were costly but survivable; successful ones spread quickly.
Just as important, Commercial societies rewarded incremental improvement rather than tradition or status alone. Merchants, artisans, and entrepreneurs who found more efficient ways to produce, transport, finance, or organize activity could retain a portion of the gains. This created a continuous incentive to tinker, adapt, and improve, even in the absence of dramatic technological breakthroughs.
These characteristics did not emerge all at once, nor were they the result of deliberate design. They evolved unevenly through centuries of competition, negotiation, and institutional trial and error. But by the late medieval period, Northern Italy, Flanders, the Netherlands, and England had developed durable commercial ecosystems capable of generating sustained non-military technological and organizational innovation.
Identifying these societies as a distinct category is crucial. Their early economic success was not the result of European geography, religion, or culture writ large. It was the product of a specific social and institutional configuration that existed in only a handful of regions. Understanding how these Commercial societies functioned is the first step toward explaining why they generated most of Europe’s growth-relevant innovations, and why other European societies increasingly found it necessary to copy them.
Where Innovation Actually Occurred
If Commercial societies are treated as a distinct category, the next step is to ask a straightforward empirical question:
where did Europe’s non-military technological and organizational innovations actually originate between 1200 and 1800?
When examined systematically, the answer points overwhelmingly to a small number of regions (Northern Italy, Flanders, the Netherlands, and England) rather than to Europe as a whole.
The most important innovations of this period were not dramatic mechanical breakthroughs. They were organizational, financial, and process-oriented changes that improved how existing resources were mobilized and coordinated.
In this domain, Commercial societies were not just early adopters; they were the primary sources. Double-entry bookkeeping, bills of exchange, letters of credit, marine insurance, bankruptcy procedures, and sophisticated contract enforcement all emerged in commercialized urban environments, first in the Italian city-states and later in the Low Countries and England. These innovations reduced transaction costs, expanded the scale of economic activity, and made long-distance trade and investment routine rather than exceptional.
Manufacturing innovation followed a similar pattern. Advances in textiles, shipbuilding, metalworking, and other crafts rarely took the form of single identifiable inventions. Instead, they consisted of countless incremental improvements in workflow, quality control, specialization, and coordination.
These improvements clustered in Commercial societies because dense urban labor markets, competitive producers, and access to capital rewarded experimentation. Regions such as Flanders and later England continually refined production techniques not through centralized direction, but through competitive pressure among firms and workshops.
Infrastructure and energy use further reinforce this pattern. The extensive canal systems of the Low Countries, the industrial application of wind and water power, improvements in port facilities, warehousing, and logistics, and the early substitution of coal for wood in England all emerged in environments where private actors could coordinate large investments over long horizons. These were not state megaprojects imposed from above, but commercially motivated systems built to lower costs and expand markets.
By contrast, Europe’s large Agrarian states, such as France, Spain, and the German territories, produced comparatively few of these innovations. Courts and centralized administrations excelled at extracting surplus, maintaining armies, and projecting authority, but they were poorly suited to generating continuous economic innovation.
Incentives in Agrarian societies favored stability, tradition, and control rather than experimentation. Where new techniques did appear, they were often imported, adapted, or sponsored only after their success had been demonstrated elsewhere.
This asymmetry is critical. Innovation during this period was not evenly distributed across Europe, nor was it primarily driven by states, universities, or isolated geniuses. Innovation emerged from dense commercial ecosystems in which small improvements could be tested, copied, and scaled. Over centuries, these incremental changes compounded into large productivity gains, visible in rising real per capita GDP long before the Industrial Revolution.
The concentration of innovation in Commercial societies helps explain why economic leadership remained geographically narrow even as growth spread more broadly. It also clarifies why other European societies, facing persistent fiscal and military pressure, increasingly turned to copying rather than originating new systems themselves.
Military Competition as the Forcing Mechanism
While commercial success reshaped elite culture and aspirations, military competition was the decisive force that compelled imitation across Europe. Prestige made copying attractive, but war made it unavoidable.
From the late medieval period onward, Europe was characterized by unusually intense and persistent geopolitical rivalry. States that failed to adapt economically and organizationally did not merely fall behind; they risked military defeat, territorial loss, or absorption by more capable rivals.
Commercial societies enjoyed a critical military advantage that did not originate on the battlefield itself. Their innovations in finance, administration, logistics, and contracting allowed them to sustain warfare at a scale and duration that Agrarian states struggled to match. The ability to:
raise funds reliably,
borrow at lower cost,
provision armies efficiently, and
pay soldiers on time translated directly into military effectiveness.
War increasingly became a test of fiscal and organizational capacity rather than sheer battlefield valor.
This advantage was visible early.
The Italian city-states demonstrated that commercial wealth could finance professional armies and fortifications.
Later, the Dutch Republic showed that a relatively small population could sustain prolonged conflict against much larger powers through superior public finance, naval logistics, and contracting systems.
England followed a similar trajectory, gradually converting commercial and fiscal capacity into sustained military power.
These examples were not lost on their rivals.
For Agrarian monarchies such as France and Spain, repeated wars exposed the limits of traditional extraction-based systems. Irregular taxation, ad hoc levies, and reliance on short-term coercion proved insufficient in an era of standing armies, artillery, and global conflict. Military necessity forced rulers to adopt innovations they might otherwise have resisted:
permanent tax systems,
public debt,
centralized accounting,
standardized provisioning, and
bureaucratic administration.
Crucially, military copying often preceded civilian economic copying. States reorganized their finances to pay armies, then discovered that the same institutions could support infrastructure, manufacturing, and trade.
War thus acted as a transmission belt, pulling commercial innovations into non-Commercial societies even when elites were ambivalent or hostile to their broader implications. Innovations that enhanced military capacity acquired political legitimacy precisely because they were framed as necessities of survival.
At the same time, military competition helps explain the limits of imitation. Rulers copied what they needed to fight wars and maintain power, not what would undermine their control. They adopted fiscal tools, logistics systems, and administrative techniques, but stopped short of embracing the decentralized political arrangements that had originally made Commercial societies so innovative. Military pressure forced modernization, but it did not force liberalization.
This dynamic is central to understanding Europe’s uneven growth pattern. Sustained geopolitical rivalry ensured that successful innovations could not remain geographically isolated. States that refused to copy eventually paid a military price.
Yet because copying was driven by coercive necessity rather than ideological conversion, it remained selective and instrumental. Military competition thus explains both
why economic and organizational innovations spread across Europe and
why they spread incompletely, raising incomes and strengthening states without erasing the underlying distinction between Commercial and Agrarian societies.
In this sense, war did not create Europe’s Commercial societies, but it ensured that their innovations reshaped the continent. Military competition transformed local commercial advantages into a continental process of diffusion, making selective copying the dominant pathway through which non-Commercial European societies experienced modest but real growth in real per capita GDP before industrialization.
Commercial Societies and Elite Culture
The influence of Commercial societies extended beyond geopolitical competition into the realm of elite culture. As wealth accumulated in Northern Italy, Flanders, the Netherlands, and England, it altered how power, legitimacy, and prestige were displayed and understood across Europe. Commercial success did not merely enrich merchants; it reshaped elite aspirations more broadly, including those of kings, nobles, and high-ranking clerics.
In agrarian societies, elite status had traditionally been grounded in:
land ownership,
military prowess,
family lineage, and
proximity to political authority.
Commercial societies introduced a competing model of prestige. Wealth derived from trade, finance, and production was visible, mobile, and scalable. Cities filled with monumental buildings, well-financed public works, sophisticated material culture, and dense intellectual life. The ability to mobilize resources efficiently and repeatedly became a signal of competence and power, not just of good fortune.
This shift had important consequences. Rulers across Europe increasingly came to see the sponsorship of art, architecture, philosophy, science, and learning as essential to elite standing.
Courts sought to emulate the splendor and refinement of the great commercial cities. Lavish palaces, urban redesign, patronage of artists and scholars, and the accumulation of luxury goods became tools for signaling legitimacy and superiority, both to domestic elites and to foreign rivals. These cultural investments were not peripheral; they were deeply intertwined with economic organization, relying on the same financial, logistical, and administrative innovations that underpinned commercial success.
Commercial societies thus served as cultural reference points. Their visible prosperity demonstrated that wealth could be generated continuously rather than merely extracted. For rulers in less commercialized societies, imitation became attractive not only because it strengthened state finances, but because it enabled a more opulent and competitive elite lifestyle. Innovations that supported reliable revenue streams, credit access, and administrative efficiency were especially appealing because they translated directly into greater consumption, display, and patronage.
At the same time, this cultural influence reinforced selectivity. Elites were eager to copy innovations that enhanced their ability to:
fund armies,
build monuments,
host lavish courts, and
patronize intellectual life.
They were far less enthusiastic about adopting institutional arrangements that empowered merchants politically, constrained arbitrary authority, or redistributed influence away from traditional elites. Commercial societies had elevated new groups and norms, but those norms threatened existing hierarchies elsewhere.
As a result, Commercial societies helped redefine what success looked like across Europe, but they did not export their entire institutional package wholesale. They set new benchmarks for wealth, refinement, and power, and in doing so created powerful incentives for imitation. These incentives, rooted as much in prestige and lifestyle as in efficiency, played a central role in shaping how economic and organizational innovations spread beyond the original Commercial societies.
Pathways of Copying
If military competition explains why copying became unavoidable, the next question is how that copying actually occurred. Innovations did not diffuse through abstract learning or sudden ideological conversion. They spread through concrete pathways that transmitted practical knowledge, institutional templates, and organizational routines from Commercial societies to their Agrarian neighbors. These pathways favored incremental, selective adoption rather than wholesale transformation.
Trade
The most important channel was trade itself. Merchants from Commercial societies operated throughout Europe, bringing with them not only goods but methods.
Italian bankers managed royal finances abroad.
Dutch and English merchants handled shipping, insurance, and credit in foreign ports.
Local elites and officials learned by observing and participating in these arrangements. Commercial practices were absorbed through repeated use long before they were codified or fully understood in theory.
Skilled migration
Skilled migration played a similarly powerful role. Artisans, engineers, accountants, shipbuilders, and military specialists moved across borders in response to opportunity, religious persecution, or state recruitment.
Italian financial experts advised foreign courts.
Flemish textile workers relocated to England.
Dutch engineers were hired to build canals, drain wetlands, and modernize ports.
This movement of people mattered more than the movement of texts, because they transmitted tacit knowledge (skills).
Deliberate copying
States also copied deliberately. Rulers and ministers studied the administrative and financial systems of successful rivals and attempted to replicate them at home. This often took the form of targeted institutional borrowing: adopting new accounting methods, tax collection systems, debt instruments, or procurement practices without altering the broader political order. Foreign advisors were brought in to design reforms, supervise implementation, or train local officials. The goal was not to reproduce Commercial societies in full, but to extract the components that seemed most immediately useful.
Military copying
Military channels reinforced these processes. Mercenaries, officers, and contractors moved between armies, carrying organizational knowledge with them. Provisioning systems, logistics methods, and contracting practices spread through repeated conflict. War created urgent opportunities for learning-by-doing, as states were forced to experiment under pressure and copy solutions that had already proven effective elsewhere.
Copying urban design
Urban imitation provided another pathway. Cities competed with one another to attract trade, investment, and political favor. Successful commercial cities served as visible demonstrations of what worked. Municipal governments copied port designs, warehousing systems, market regulations, and infrastructure layouts from leading centers. Because these changes could be framed as technical improvements rather than political reforms, they were often easier to implement than deeper institutional changes.
What unites these pathways is their pragmatism. Copying rarely involved adopting an abstract model or a complete institutional package. Instead, it consisted of borrowing specific techniques, offices, or practices that addressed immediate problems. Innovations spread because they were seen to work, not because they were ideologically appealing or morally persuasive.
This mode of diffusion helps explain why copying was both effective and limited. It allowed non-Commercial societies to raise revenue, improve logistics, expand trade, and modestly increase real per capita GDP without fundamentally altering elite power structures. At the same time, it ensured that the deeper foundations of Commercial societies (decentralized authority, merchant political power, and competitive legal systems) were far less likely to be reproduced. Copying followed the path of least political resistance, even when that path constrained long-run convergence.
Why this benefitted Western Europe and not Asia
These pathways of imitation also help explain why Agrarian regimes in Western Europe benefited from modest but real economic growth, while Agrarian regimes in Asia largely did not. Western European agrarian states were:
geographically proximate to Commercial societies,
deeply entangled with them through trade, warfare, diplomacy, and migration, and
embedded in a shared cultural sphere.
Innovations were visible, legible, and repeatedly demonstrated in nearby societies facing similar constraints. European rulers could observe:
which fiscal systems funded successful armies,
which logistics systems sustained long wars, and
which administrative techniques reliably raised revenue.
Copying was therefore low-risk and incremental. Innovations could be:
imported selectively,
tested locally, and
adjusted without overturning existing political structures.
By contrast, Agrarian regimes in Asia were largely insulated from comparable Commercial exemplars operating at a higher organizational frontier. Although Asian societies possessed sophisticated technologies, markets, and bureaucracies, they lacked nearby societies that combined sustained commercial innovation with intense geopolitical competition in the same way. Asian societies were primarily driven by military competition with horse archers from steppe Herding societies.
Without proximate, culturally familiar models demonstrating clear military and fiscal advantages, imitation pressures were weaker. Innovations diffused more slowly, were filtered through centralized bureaucratic traditions, and were less likely to challenge established modes of elite extraction.
In short, Western Europe’s growth advantage did not stem from superior Agrarian regimes, but from their enforced proximity to Commercial societies whose success could not be ignored and whose innovations could not be safely excluded.
Which Innovations Did Elites Choose to Copy?
The pattern of diffusion across Europe was not random, comprehensive, or ideologically driven. Elites in Agrarian societies copied innovations selectively, guided by incentives that balanced:
military necessity,
fiscal capacity,
prestige, and
elite control.
What spread most readily were innovations that:
strengthened the state,
enhanced elite lifestyles, or
improved military effectiveness without fundamentally redistributing power.
What spread slowly, incompletely, or not at all were innovations that threatened elite authority or empowered independent commercial actors.
Revenue raising innovations
The most consistently copied innovations were fiscal and administrative.
Permanent tax systems,
Improved accounting practices,
Standardized revenue collection, and
Public debt instruments were adopted because they solved immediate problems.
They allowed rulers to fund armies, service debts, and manage increasingly complex states. These tools did not require a rethinking of sovereignty or social hierarchy. On the contrary, they often expanded the discretionary power of rulers by stabilizing revenue streams and reducing reliance on ad hoc expropriation.
Military-enhancing innovations
Military organization followed a similar logic.
Standing armies,
Standardized provisioning systems,
Military contracting, and
Centralized logistics were widely copied because failure to do so carried obvious risks.
States that could not mobilize resources efficiently were defeated by those that could. Military innovations were therefore framed as necessities rather than reforms, which lowered political resistance. Once adopted, they often pulled civilian administrative reforms behind them, further increasing state capacity without altering elite dominance.
Innovations in Infrastructure
Infrastructure and commercially useful technologies were also attractive when they generated revenue or strategic advantage. Roads, canals, ports, shipyards, and armaments industries promised returns in the form of customs duties, lower transport costs for military supply, and greater control over trade flows. These investments were capital intensive and often state directed, which made them compatible with centralized authority. Elites could capture a share of the gains while presenting such projects as symbols of enlightened rule.
Prestige-enhancing innovations
Prestige-enhancing innovations diffused rapidly for similar reasons. Courts copied:
architectural styles,
urban design,
artistic patronage,
scientific sponsorship, and
luxury consumption patterns pioneered in Commercial societies.
Typically, the pathway was Commercial societies > Paris > Other European capitals > Smaller regional capitals.
These innovations reinforced elite legitimacy and visibility. They allowed rulers to signal power, refinement, and modernity without sharing authority. Because prestige was relative and competitive, imitation became self-reinforcing: once one court adopted a new standard, others followed to avoid appearing backward.
But nothing that redistribute power or prestige
By contrast, elites were far more reluctant to copy innovations that redistributed power or constrained discretion.
Political decentralization,
Merchant representation,
Autonomous city governance,
Competitive legal jurisdictions, and
Strong protections for private capital were rarely adopted in full.
These arrangements had enabled innovation in Commercial societies, but they also empowered non-elite actors and limited arbitrary rule. From the perspective of Agrarian elites, such changes posed long-term risks that outweighed uncertain economic benefits.
This selectivity explains both the success and the limits of copying. Agrarian societies could raise real per capita GDP modestly by adopting revenue-enhancing, military, and prestige-oriented innovations. They could modernize administration, strengthen armies, and improve infrastructure without transforming their underlying social order. At the same time, their refusal to adopt the deeper institutional foundations of Commercial societies ensured that innovation leadership remained concentrated elsewhere.
The result was partial convergence without transformation. Copying allowed agrarian elites to survive, compete, and prosper relative to the past, but it did not turn them into Commercial societies. That outcome was not accidental. It reflected deliberate choices shaped by elite incentives, risk aversion, and the enduring priority of maintaining control.
We will see this recurring pattern throughout modern history:
monarchies and totalitarian regimes attempt to selectively copy innovations developed in societies at the leading edge of material progress, but
achieve only partial success because maintaining political dominance consistently takes precedence over the institutional changes required for sustained innovation.
Rethinking the First Great Divergence
The evidence assembled so far suggests that the First Great Divergence is best understood not as a unified European breakout from global stagnation, but as a more narrowly rooted process that began within Europe itself. The decisive divergence occurred first between Commercial societies and Agrarian societies, with only later and partial spillovers to other regions. Treating “Europe” as the unit of analysis obscures the fact that sustained growth originated in just a handful of places and then spread unevenly through selective imitation.
Seen through this lens, the familiar contrast between Europe and Asia before industrialization becomes less mysterious.
Europe did not diverge because all European societies adopted superior institutions or technologies.
It diverged because a small set of Commercial societies in Northern Italy, Flanders, the Netherlands, and England developed durable systems for generating continuous technological and organizational innovation. These societies then exerted outsized influence on their neighbors through trade, war, prestige, and example.
The rest of Europe benefited not because it shared the same underlying social structure, but because it was geographically and culturally close enough to copy. Persistent military competition ensured that successful innovations could not remain isolated. States that failed to adopt effective fiscal, administrative, and military systems were defeated by those that did. Over time, this forced a degree of convergence within Western Europe that had no close parallel elsewhere in the world.
This reframing also helps clarify why the First Great Divergence began centuries before the Industrial Revolution. The divergence was already visible by 1500 in real per capita GDP data, long before steam engines, factories, or fossil fuels transformed production. What mattered initially was not mechanization, but technology and organization: the ability to mobilize capital, coordinate labor, finance states, and sustain innovation over time. Industrialization later magnified these advantages, but it did not create them from scratch.
At the same time, this perspective explains why convergence within Europe remained incomplete. Agrarian societies copied what they needed to survive and compete, but they did not replicate the full institutional ecology of Commercial societies. Growth spread, but innovation leadership did not.
The First Great Divergence, therefore, was not a single event or a binary shift. It was a layered process:
first a divergence between Commercial and Agrarian societies within Europe,
then a partial and selective diffusion of gains to nearby states, and only much later a widening gap between Europe and much of the rest of the world.
Understanding the First Great Divergence in this way resolves several long-standing puzzles. It explains why:
Europe’s rise was early but uneven,
why growth preceded industrialization, and
why imitation raised incomes without producing new innovation leaders.
Most importantly, it shifts the focus from vague continental characteristics to specific social structures and incentives. Europe did not get rich because it was Europe. It got rich because a few Commercial societies pioneered a model of sustained innovation. Agrarian neighbors that were close enough geographically, and pressured enough militarily to copied parts of that model without fully embracing it.
Implications for How Progress Spread
The argument developed in this essay has implications that extend beyond medieval and early modern Europe. It suggests that material progress is not best understood as a smooth, universal process driven by geography, culture, or the slow accumulation of knowledge across entire civilizations.
Instead, progress emerges unevenly from specific society types that possess the institutional and incentive structures necessary to generate continuous innovation, and it spreads outward through selective imitation shaped by power and politics.
This framework highlights the importance of distinguishing innovation leadership from innovation diffusion.
Commercial societies were innovation leaders: they generated new technological, organizational, and institutional solutions endogenously and continuously.
Agrarian societies were primarily adopters. They could raise real per capita GDP by copying proven innovations, but they rarely became sources of sustained innovation themselves. Treating adopters and leaders as equivalent obscures the mechanisms that actually drive long-run divergence.
This analysis underscores the central role of elite incentives in shaping economic outcomes. Innovations spread not because they were abstractly efficient or socially beneficial, but because they aligned with the interests of those who held power.
Military necessity, fiscal pressure, and prestige competition encouraged elites to adopt revenue-enhancing and power-strengthening innovations.
At the same time, the same incentives led elites to resist institutional changes that diluted political control, even when those changes had been central to innovation in Commercial societies. Progress, therefore, advanced through constrained channels defined by elite priorities.This perspective helps explain why copying can generate growth without convergence. Selective imitation allowed Agrarian societies to escape absolute stagnation and achieve modest improvements in living standards, but it also locked them into a dependent position. By adopting outcomes without reproducing underlying innovation systems, these societies improved performance without altering the structural sources of leadership. This pattern of partial convergence followed by stagnation reappears repeatedly throughout modern history.
Finally, the essay reinforces the importance of competition among states and societies as a driver of diffusion. Europe’s fragmented political landscape and persistent military rivalry ensured that successful innovations could not remain isolated. Proximity mattered.
Societies that were geographically and culturally close to Commercial leaders faced constant pressure to adapt or decline. Where such pressures were absent or muted, as in much of agrarian Asia, innovation diffusion was slower and less transformative.
Taken together, these implications point toward a general theory of material progress. Sustained advances in living standards originate in a small number of societies that combine decentralization, market orientation, and institutional flexibility. Growth then spreads outward through imitation, constrained by elite incentives and political structures.
Material progress is real, powerful, and cumulative, but it is neither automatic nor evenly distributed. Material progress depends on who innovates, who copies, and which constraints those in power are willing to accept.
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See also my other articles on Commercial societies:
Why Commercial societies are the most important type of society that you have never heard of
How Commercial societies evolved:
Case studies on specific Commercial societies:
If you enjoyed this article, you should read my From Poverty to Progress book series.
Whenever I read this site, I'm impressed and my optimism about the world bolstered.
This article is a breath of fresh air. Europe’s “rise” wasn’t a continental trait so much as a handful of high-trust, decentralized, high-iteration ecosystems pulling ahead, then forcing partial imitation from their neighbors.
It’s good that you mention Northern Italy as part of the “innovators club”, as it’s often ignored in favour of Northwestern Europe in articles such as these. Perhaps it’s due to the fact that the region is currently captive to the italian state, a centralizing bureaucratic behemoth that stifles the innovation and ethnic self-determination of Lombards and Venetians.
Today, we should be wary of arguments supporting centralization for centralization’s sake, and instead ask ourselves if it is even useful or efficient. This is especially relevant in the context of the increasing obsolescence of the nation-state as a model for political organization.