Economic Development is New, Starting Around 1750

The world we’ve seen is divided, is startlingly so, between some very rich countries and some very, very poor countries. A billion people roughly live in the high income world. Another billion, roughly, that live in the poor countries, the low income world. And then another 5 billion, 5 7ths of humanity are in between, in the middle income countries. How did this vast difference unfold? How is it that we have countries like the United States, or some even richer at $50,000.00 per person, per year of income or higher? And some countries like Mali, or Malawi, or Niger at under $500.00 per person per year, less than 100th the income levels of the high income countries? We certainly didn’t start this way a couple of centuries ago. If you look back to the period just before the great take off of modern economic growth, just before what we call the industrial revolution, the world was fairly equal. Equal in poverty. Just about every part of the world was rural. Just about every part of the world had its population and its workforce engage in trying to stay alive as peasant farmers. Small herd of farmers eking out a survival. When it was a bad season, bad rains, heat wave, drought people not only suffered, they died. And that kind of extreme poverty was pervasive. It was everywhere in the world. It was in Europe, as well as in Africa. The world was in a condition of not complete but nearly complete equality but equality of poverty. The story of today’s inequality therefore is also the story of modern economic development what has been called the era of modern economic growth. That’s the period since the start of the Industrial Revolution when some parts of the world were able to experience sustained increases of gross domestic product per person. So much so that they transformed themselves from rural to urban, from peasant agriculture to modern industry and, increasingly these days, to a modern, high tech, knowledge intensive, information and communications technology intensive, service economy. How did this happen? And why did it happen in some places in the world, but obviously not in all parts of the world? In such a way that by now, we have these vast inequalities. What it means is not that, today’s poor countries got poorer over time. From two centuries ago they started poor and by and large, they remained poor. Other parts of the world started poor and by today are very rich. We need to understand the nature of that economic growth. And of course why it has varied so much across the world. And what can be done to unlock that economic growth in today’s low income and especially today’s least developed countries. All this takeoff of modern economic growth, the Industrial Revolution and all that followed, is a new event from the point of view of human history. Humanity, our species, best guess, we’re 150,000 years as Homo sapiens. We are about 10,000 years as civilized Homo sapiens, meaning living in communities dependent on sedentary agriculture rather than as nomads hunting and gathering. So the neolithic revolution which brought us agriculture is about 10,000 years ago. But for a very long time, from the advent of agriculture into the Industrial Revolution itself, progress was very, very gradual, almost imperceptible. We see that very starkly in the depiction, as best it can be estimated, of the growth of the world economy. Have a look at this graph. The line of the world output is essentially flat, nearly at zero, for thousands of years. We show it from 1 AD. Until a take off and when you look at that graph you see the takeoff turn up just begins around 1750. And then it shoots up if we are looking at the total production for the world til today. And that vertical line continues because world economy continues to grow very, very strongly today even if as we have come to expect at different rates in different parts of the world. When you think about the total output of the world, which is the sum of the gross domestic product in each country, we can think of that as having two parts. One is the output per person in the world times the number of people in the world. And so when we ask the question, why did the world economy take off around 1750? Was it due to rising output per person, or was it due to a rise in the number of people? We can say yes. What do I mean by yes? I mean both. Both factors have played a huge role, and strangely enough, nearly simultaneously. The world population went up and down by small amounts for 2,000 years, roughly half a billion people, on the planet. In bad periods like The Black Death the numbers would come down. In good periods the population would increase. But it was very stable, fluctuating around a narrow range. Starting in the middle of the 18th century just like the picture for the total world output when we’d look at the picture for the world population, it just turns steeply upward. Well, it’s obviously related to the fact that because of changes in the economy, changes of know how, more people could be supported because more food could be grown. There was more output per person as well rising productivity. Economic growth in the sense of a rise of gross product per person. We see it again nearly flat imperceptible changes for century after century. Starting around the middle of the 18th century, just as with the population and with the size of the overall world economy, that graph shoots upward. Suddenly, the world shows a sustained and significant increase decade after decade in the output per person. Of course I have to caution, these are estimates, from various kinds of evidence, of what the world looked like before 1750. But it was not a world of economic growth. It was not a world of wealth and poverty. It was a world of poverty. It was a world that could produce great monuments beautiful treasures for human history. Like Notre Dame Cathedral and so many splendid architectural triumphs around the world. The Great Wall of China or Hagia Sophia in Constantinople today’s Istanbul. But it was a world in which most people lived difficult lives, scratching out an existence, trying to grow enough food to survive season by season. One of the greatest economists of a modern history one of the leading thinkers of the 20th century, John Maynard Keynes, wrote a quite remarkable description of this long, long period of near stasis. Near stability and unchanging technology from the time of the Roman Empire until the onset of the Industrial Revolution. And I’d like to quote from one of his great essays, Economic Possibilities for our Grandchildren, written in the great depression of the last century, saying how powerful technology can be to help humankind improve its lot. Keynes wrote, and I’m quoting, from the earliest times of which we have the record, back say to 2,000 years before Christ, down to the beginning of the 18th century there was no very great change in the standard of life of the average man living in the civilized centers of the earth. Ups and downs, certainly. Visitations of plagues, famine and war, golden intervals. But no progressive violent change. This slow rate of progress or lack of progress was due to two reasons, to the remarkable absence of important technical improvements and to the failure of capital to accumulate. The absence of important technical inventions between the pre-historic age and the comparatively modern times is truly remarkable. Almost everything which really matters and which the world possessed at the commencement of the modern age was already known to man at the dawn of history. Language, fire, the same domestic animals which we have today. Wheat, barley, the vine and the olive, the plow, the wheel, the oar, the sail, leather, linens and cloth, bricks and pots, gold and silver, copper, tin and lead, and iron was added to the list before 1000 BC. Banking, statecraft, mathematics, astronomy, and religion. Keynes’s point is technology is crucial. And for a very long period technology was relatively unchanging to the point that one could have taken a farmer from Roman times, and if possible through a time machine, put them down in England at the beginning of the 17th century. And they would have felt pretty much at home. [SOUND] Same techniques, similar living standards a world that would have looked quite the same over a span of 17 centuries. But then dramatically everything changes and that is our next subject. To understand the Industrial Revolution, how it began and how it changed human history and human destiny.

 

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