How the World Became Rich
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How the World Became Rich

The Historical Origins of Economic Growth

Mark Koyama,Jared Rubin

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eBook - ePub

How the World Became Rich

The Historical Origins of Economic Growth

Mark Koyama,Jared Rubin

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About This Book

Most humans are significantly richer than their ancestors. Humanity gained nearly all of its wealth in the last two centuries. How did this come to pass? How did the world become rich?

Mark Koyama and Jared Rubin dive into the many theories of why modern economic growth happened when and where it did. They discuss recently advanced theories rooted in geography, politics, culture, demography, and colonialism. Pieces of each of these theories help explain key events on the path to modern riches. Why did the Industrial Revolution begin in 18th-century Britain? Why did some European countries, the US, and Japan catch up in the 19th century? Why did it take until the late 20th and 21st centuries for other countries? Why have some still not caught up?

Koyama and Rubin show that the past can provide a guide for how countries can escape poverty. There are certain prerequisites that all successful economies seem to have. But there is also no panacea. A society's past and its institutions and culture play a key role in shaping how it may – or may not – develop.

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Why, When, and How Did the World Become Rich?

The world is rich. Certainly, some parts of the world are richer than others, and many millions still live in poverty. But the world is richer than it has ever been, and it continues to grow richer with each passing day.
Don’t believe us? Let’s compare income around the world today to some of the wealthiest countries in the past. Figure 1.1 maps all of the countries with greater per capita income in 2018 than the wealthiest country in the world in 1900: the United States. The average income in much of the world is now greater than the average income in the world’s richest country just over a century ago. The startling level of modern wealth comes into even clearer focus when compared to the wealthiest country in 1800: Great Britain (see Figure 1.2). Almost every nation in the world, with some exceptions, mostly in sub-Saharan Africa, has a greater average income than the world’s leading economy just two centuries ago.
Modern wealth of course extends well beyond average incomes. Even in many of the poorest parts of the world, we have luxuries that our ancestors could have only dreamed of. Forget about smartphones and flat-screen TVs – even our richest ancestors would have been jealous of our indoor plumbing, electricity, vaccinations, low child mortality, and long life expectancy.
Countries that were richer in 2018 (annual per capita income) than the US in 1900
Figure 1.1 Countries that were richer in 2018 (annual per capita income) than the US in 1900
Data source: Bolt and van Zanden (2020). Average income in the US in 1900 was $8,970 in 2011 USD.
Countries that were richer in 2018 (annual per capita income) than Great Britain in 1800
Figure 1.2 Countries that were richer in 2018 (annual per capita income) than Great Britain in 1800
Data source: Bolt and van Zanden (2020). Average income in Great Britain in 1800 was $3,731 in 2011 USD.
Think about it: would you trade your current life for the life of a wealthy English baron in, say, 1200? Sure, you would have servants, and you’d have the social and political benefits that come with being a member of the upper crust. But you would also live in a drafty, uncomfortable castle, and you would likely have multiple children die in infancy. And let’s hope you didn’t get a bad bout of diarrhea (you probably wouldn’t survive). If you didn’t die young on the battlefield, odds are you would die of some now-curable disease such as dysentery (which killed English kings John [r. 1199–1216] and Henry V [r. 1413–22]), smallpox (which killed French king Louis XV [r. 1715–74] and English queen Mary II [r. 1689–94]), or plague. Some of us might trade our current lot for that of the baron, but many of us (including the authors of this book) would not.
We are not heartless. There is still a tremendous amount of extreme poverty in the world. We appreciate that the entire world is not actually “rich” by current or historical standards. But the fact of the matter is that extreme poverty is in rapid decline. This decline began two centuries ago and it has accelerated in recent decades. The trends, summarized in Figure 1.3, are striking. Just two centuries ago, 94% of the world lived on less than $2 a day (in 2016 prices), and 84% lived on less than $1 a day. By 2015, less than 10% of the world lived on less than $1.90 a day, and that number continues to decline. To be clear, 10% of the world is still a lot of people. But as the world continues to become richer, that number will dwindle all the more.
It’s not just that there has been a reduction in absolute poverty as the world has grown wealthier. More and more of the world has moved further from the edge of subsistence in the last century. Take, for instance, the relatively arbitrary milestone of $10 per day in 2018 USD. This is not much: $3,650 per year is hardly a king’s ransom. However, in most economies it is more than enough to afford the basics of life (food, shelter, clothing, etc.). This is even more true in relatively poor countries, where modest housing and food can be had cheaply. Figure 1.4 shows when each country reached this milestone. It represents a level of security unknown throughout most of human history.
People living in extreme poverty, 1820–2015
Figure 1.3 People living in extreme poverty, 1820–2015
Data source: Roser (2021c). For the sake of this figure, extreme poverty is defined as less than $1.90 per day.
How did the world become rich? Why are some so rich and others so poor? This book provides some answers to these questions. The answers are by no means obvious, and they are the subject of much debate among economists, historians, and other academics. This is reflective of just how important the questions are. To alleviate poverty, we must understand wealth. We still do not have all the answers, but enough strides have been made that we can dedicate a book to answering the question: “What do we know about how the world became rich?”

What Is Economic Growth?

Throughout most of world history, a vast majority of the world’s population – well above 90% – was poor. Whether your ancestors are from China, India, Africa, Europe, the Middle East, or elsewhere, the odds are very high that most of them lived on little more than a few dollars a day. That is clearly no longer the case. As shown in Figure 1.3, the proportion of the world’s population living in extreme poverty has dropped precipitously in the last two centuries. Most of the readers of this book likely live in some level of comfort, and even our poorest readers would be the envy of their ancestors. After all, they can read! How did the world get to this point?
Year that per capita GDP exceeded $10 per day (2018 USD)
Figure 1.4 Year that per capita GDP exceeded $10 per day (2018 USD)
Data source: Bolt and van Zanden (2020). Italy reached $10/day sporadically in the 15th century.
On the surface, the answer to this question is simple: the last two centuries have seen more economic growth than the rest of human history combined. Economic growth refers to a sustained increase in economic prosperity as measured by the total goods and services produced in the economy (commonly referred to as gross domestic product, or GDP). We care about economic growth not because it is an end in itself, but because it is the key to alleviating the type of poverty experienced by almost everyone who lived prior to 1800, and that still plagues way too large of a share of the world’s population today.
Our focus on economic growth does not mean that we don’t value other aspects of human development. Leisure time, long life, good health, literacy, education, female empowerment, and rights and protections for the vulnerable are all central to having a happy and fair society. That said, we hope to convince you by the end of this book that all of these features are made possible by economic growth. It is no coincidence that the last 200 years have seen dramatic strides in those very aspects of human development. Even though there is clearly a long way to go to achieve the type of society that most of us want, economic growth will be a key part of the solution.
Economic growth on its own is not necessarily a panacea. It can be accompanied by environmental degradation, increased inequality, or worsening health outcomes. For instance, air quality declined and life expectancy fell during the British Industrial Revolution. Today, issues such as climate change and social polarization are among the most important challenges that policy-makers face. The point that deserves emphasis here is that economic growth makes available the resources and the new technologies needed to tackle these important challenges. Of course, humanity actually needs to employ these resources to address these challenges. But in the absence of economic growth, we may not have such an opportunity.
It is a mistake to think that we necessarily have to choose between economic growth and other values (such as preserving the environment). For example, a more unstable climate poses potentially catastrophic risks to our society. Yet, we’ve seen in recent years that measures to reduce carbon emissions can be accompanied by economic growth. The UK, for example, saw carbon emissions fall by 38% between 1990 and 2017, from 600 million tonnes to 367 million tonnes (Hausfather, 2019). Meanwhile, total GDP (adjusted for inflation) increased by over 60% in the same period.
Nor do we necessarily have to choose between economic growth and a fairer society. In fact, a lack of economic growth has serious moral downsides. Historically, it is in stagnant or declining economies that one observes the worst episodes of violence, intolerance, and political polarization. On the other hand, social mobility and greater equality of opportunity are much more likely in an economy that is growing. As Friedman (2005, p. 86) puts it, stagnant economies “do not breed support for economic mobility, or for openness of opportunity more generally.”
So, how has the world economy grown over time? Figure 1.5 gives some rough estimates of per capita GDP in the world’s most populous regions since the birth of Christ. While these numbers are admittedly speculative – and likely more volatile prior to the 18th century than the figure suggests – the pattern is clear (and uncontroversial). Prior to the 19th century, the wealthiest region in the world never reached more than $4 a day average (in 2011 USD). Throughout most of world history, $2–3 a day was the norm. Yes, there were fabulously wealthy people, and these societies produced some of the greatest art, architecture, and literature the world has known (pursuits not generally associated with people on the brink of starvation). These artists and authors are the people from the past you may be the most familiar with, since they are the ones who generally fill our history books. But this was not the lot of almost the entirety of humanity prior to the 19th century. The fact is that most people who ever lived – at least, prior to the 20th century – lived in conditions very similar to those of the very poorest in the world today. The economic growth of the last two centuries has alleviated a vast majority of this poverty, although the job is clearly not finished.
Yearly per capita income for selected regions, 1 CE–present
Figure 1.5 Yearly per capita income for selected regions, 1 CE–present
Data source: Bolt, Inklaar, de Jong, and van Zanden (2018).
To be clear, there were spurts of economic improvement here and there in the past. Goldstone (2002) calls these “growth efflorescences.” One such period of economic improvement occurred in classical Greece, where there was both populat...

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