3.5 US-led Globalization
What are the characteristics of the 1950-2000 period, according to Professor Sachs?
Have the global extreme poverty rates been declining or rising in the last 27 years?
In our long sweeping history of the ways of globalization we’ve arrived at the moment of U.S. leadership, at the end of World War II. Indeed in 1942, the then-editor of Time Magazine, Henry Luce declared that this would be the American century.
He intuited and he was correct that when the war ended America would become the world’s dominant economic and technological power. When the war ended, indeed the American economy was in remarkable stride, having built massively its industrial capacity to turn out planes and tanks and ships and military weaponry and new technological advances, radar and the early stages of the computer age and the beginnings of the nuclear age with the atomic bomb and with the potential for peaceful nuclear energy, as well. A remarkable moment.
Of course, what would ensue in part would be the Cold War between the U.S.-led world and the Communist world led by the Soviet Union. And while that was a very frightening confrontation that went on for decades, it was never in doubt that from an economic point of view the United States itself was by far economically, financially and technologically dominant. We’re looking here again at Angus Maddison’s data. And if we look at the share of the world economy accounted for by the United States, according to Maddison’s estimate, as of 1950, the U.S. is somewhere between 25% and 30% of world production, at a time when the population share was around 5%.
That means that in per person terms the U.S. roughly five to six times the average for the rest of the world. And indeed that is at least an accurate assessment of U.S. economic predominance. If we look at the red line which is the British Empire, it’s in a steep decline, in no small part because countries like India are simply leaving the empire. And what is happening is that the British Empire, which had been around one-quarter of world output as of 1870, by 1950 was already under 10% and would fall to less than 5% because basically it became the United Kingdom itself.
What we see is a kind of scissors curve if I might. The U.S. in its ascendancy and the U.K. or the British Empire, I should say, dissolving and a hand of the baton in this Anglo-American world from Britain which predominated, invented the modern industrial age, quite literally, presided over it for a century and a half, in effect handing the baton to the United States for U.S. leadership. And in many ways the U.S. performed very, very well, at least for a time, because the U.S. led the creation of extremely important institutions, especially the United Nations institutions.
The U.S. pressed, and I think wisely, for an opening of global trade for several rounds of reduced trade barriers, for an opening of flows of productive capital, business investment around the world. And for decolonization. So the U.S. was not interested in the continuance of the British Empire, or the French Empire. It did, of course, look forward to U.S. prerogatives. And while not empire in the formal sense of direct political control, certainly the U.S. had no reserve in exercising whatever political suasion and often brutal destabilizing, covert actions and open war to get its way.
So the U.S. did many things well in creating more of a law-bound international system around the United Nations, but also took on many of the features that Britain had carried as world leader, one could say as the predominant power, with quasi-imperial prerogatives if not direct imperial prerogatives. And the many secret wars and overt wars that the U.S. fought to overthrow governments, to destabilize regimes, to try to find locals who would play to the U.S. interest, is if not direct imperialism, certainly is what we have seen throughout history of powerful countries cynically and rather brutally exercising their prerogatives against weaker nations.
It’s very much a mixed picture. One of the most important features of the half century from 1950 to the present is the end of European direct imperial rule. The unwinding of the British Empire, the end of Portuguese, Spanish, French imperial rule in many parts of the world. Often this was peacefully undertaken by agreement, by negotiation. Sometimes only after brutal wars of liberation fought by nationals who resented, understandably, the imperial rule from outside. Overall, this was a tremendous change in a short period of time. It’s another example of how fast global change can be. And the idea of decolonization spread with a contagion that was remarkable throughout Africa, throughout Asia.
What started in a handful of countries became absolutely within a few years a global and virtually unstoppable movement, even when tragically the imperial powers fought a rear guard war to stop it or slow it down.
In my opinion, the end of the imperial age had a major effect on the start of diffusion of industrialization to more and more of the world. And there are many reasons for that. If I had to put my thumb on one point of that I would say it is that the imperial powers delayed, dreadfully, the uptake of mass education, mass literacy, mass numeracy and the job skills needed to manage a modern high-tech economy. And it was only after the end of the imperial rule and only after decolonization that many countries throughout Africa and throughout Asia began mass primary education for literacy because the industrial powers did not do it. And I think it’s a major blot on their historical record that they left populations without education. Also, I should mention, without any decent healthcare, without infrastructure till the end of the colonial period.
One of the ramifications of this is that overall global growth accelerated. In the first half of the 20th Century worldwide growth, using Maddison’s estimates, was about 2% per year. In the second half of the 20th Century, from 1950 to 2000, aggregate global growth was on the order of 4.6% per year. More than twice the rate. And in my view, it was the change of governance. Of course, also peace at a global scale. No more global wars. No great depression.
But the change of governance certainly played a major role because this allowed for the first time the diffusion of knowledge, literacy, education, job skills, and investments in infrastructure necessary for the spread of a modern industrial economy.
We turned, therefore, from an era of divergence to an era of convergence. Divergence means that the rich are getting richer faster than the poor are getting richer. So even if the poor are gaining, they’re not gaining in proportionate terms as fast as the rich. So the gap is widening. Convergence means that even if the rich are getting richer, as they continued to do after 1950, the poor are closing the gap. They’re gaining ground at a faster proportionate rate so that the relative income between rich and poor is, the gap is narrowing.
And that is what one sees in the picture before you that per capita income of the rich countries relative to the poor countries widens and then it begins to decline as we move into the age of convergence.
How would I characterize the fifty years from 1950 to the year 2000? I would say that the U.S. was predominant during this period. I would say that decolonization was a fundamental geopolitical force. I would say that convergence began. And I would say that we enjoyed the benefits of yet another wave of massive technological breakthrough, this time, the information revolution.
The information revolution is a big complicated ecosystem of technologies. It’s computation, it’s the internet, it’s mobile connectivity. It’s digitization. It’s many, many technologies. But all of it is around the machine-based ability to harness, to manipulate, to store and to transmit information. And the information revolution now is 80 to 90 years old. The great conceptual inventors were Alan Turing of the 1930s, who invented a lot of the most basic concepts of computation. And John von Neumann, another great, brilliant mind of the 20th Century who did many, many things, but one of which was to help design the architecture of the modern computer.
And from their discoveries came the computer age. And from discoveries of solid state physics and advances in knowledge of semiconductor materials came the discovery of the transistor in the late 1940s at Bell Labs. And when computers and transistors came together, came the computation revolution of the 1960s and ‘70s.
And then personal computation, with advances, one spilling to the next with personal computers, with mobile connectivity, with the invention of the internet, with the increasing, burgeoning range of digitization and advances of technology. The pace of technological advance of the information age certainly rivals the major breakthroughs of the past.
The information revolution certainly stands at that level of world changing technology. And one of the things that makes the information revolution so remarkable is not only its speed, but the pace of its diffusion. We see here in this picture the uptake of mobile telephony, the number of subscribers of mobile phones from around 20,000 at the inception of the mobile telephony age in 1980 to more than seven billion subscribers today. And now, of course, we have not only people speaking with each other on their mobiles, but we have the internet of things in which sensors and intelligent machines, smart systems are speaking to each other with numbers reaching soon into the tens of billions of connected devices.
This is a technology that doesn’t follow a particular ecological niche like a new crop. The mobile connectivity in the internet are universal applications. And they’re reaching into every ecology, every part of the world and they are thereby transforming the whole world economy. This age of convergence has made possible a dramatic decline of poverty rates. So much so that it has become a goal of the world community to end extreme poverty. Now mind you, at the start of the fifth wave of globalization, back in 1800, best estimates are 80% to 90% of the world lived in extreme poverty. But because of the mass diffusion of modern technology, the information age, the new age of sovereignty, where countries have the scope to pursue their economic development, we’re seeing a dramatic decline of poverty rates.
In 2005, I wrote a book called The End of Poverty where I said, it was within the reach of our generation, if we try, to end poverty by 2025. That’s a pretty tough timetable right now because we haven’t tried quite hard enough. But nonetheless even in our distracted manner, the estimate by the World Bank is that extreme poverty has declined from 37% of the world population in 1990 to an estimate of just 9.6% of the world population as of 2015. This has been, therefore, an era of a lot of progress.
Thank god we have not had a global conflict, although unfortunately as the powerful country, the United States itself has caused far too many conflicts as it has used its power and its military sway to destabilize and topple other countries, often to disastrous effect. Of course, not just the U.S., but many countries have engaged in useless and mindless wars, but in the final module I’m going to emphasize how we have entered another period of turbulence and uncertainty.
A period that has enormous promise because of this vast and dynamic and thrilling scientific and technological revolution that continues to unfold. But also a period that is profoundly dangerous and really requires us by direction, by conscious effort at a global scale to enter yet a new wave of globalization. With our economic prowess and heavy resource use, including of course the massive fossil fuel energy that we have deployed in building and operating the modern world economy, we’ve created an environmental threat that is unprecedented in human history.
We live in a time of such technological knowhow that everybody’s needs and opportunities can be fulfilled. And yet we are often creating societies of vast gaps between the rich and the poor and widening gaps and vast inequalities of power in our decision-making. This is of course a threat to our well-being and a threat to our social stability. So what kinds of institutions, what kinds of governance do we need for the sixth wave of globalization? Stay tuned, that’s my topic for the final module.