Oded Galor, The Journey of Humanity - Chapter 7, Spendour and Misery PDF

# Splendour and Misery In the past decade, scores of boats overloaded with migrants from Africa have sunk just off the coast of Libya and thousands of passengers have lost their lives. The survivors of these traumatic incidents have often expressed disappointment at having failed to reach their int...

# Splendour and Misery In the past decade, scores of boats overloaded with migrants from Africa have sunk just off the coast of Libya and thousands of passengers have lost their lives. The survivors of these traumatic incidents have often expressed disappointment at having failed to reach their intended destination, Italy, but have rarely regretted their decision to embark on the perilous voyage to Europe. In 2015 alone, more than a million people crossed the Mediterranean in similar crafts, and over the course of this ongoing humanitarian crisis many thousands more from Africa, the Middle East and Latin America have died attempting to reach European and US borders. This desperate mass exodus, in which people not only endanger their lives but leave behind their families and homeland, and pay considerable sums they can scarcely afford to human traffickers, is primarily a result of the immense inequality in living standards across world regions - manifesting as gaps in human rights, civil liberties, socio-political stability, quality of education, life expectancy and earning capacity, as well as, most urgently in recent years, the prevalence of violent conflict. This disparity in living conditions is so vast that the reality of life at one end of the spectrum is difficult to conceive for someone at the other. In 2017, in most developed nations, life expectancy exceeded eighty years, infant mortality was lower than five deaths per 1,000 live births, nearly all the population had access to electricity, a significant fraction had internet connection, and the prevalence of undernourishment was about 2.5 per cent. In the least developed nations, by contrast, life expectancy was lower than sixty-two years, infant mortality rates surpassed sixty deaths per 1,000 births, less than 47 per cent of the population had access to electricity, less than a tenth of 1 per cent had internet connection, and 19.4 per cent suffered from undernourishment (Figs 13a-13e). ## Disparate Factors At the surface of this global inequality is the fact that income per capita in developed nations is significantly higher than that in developing countries (Fig. 14) resulting in a much higher expenditure on education, health care, nutrition and housing. But why do the citizens of some countries earn significantly more than the residents of others? This earning gap partly reflects differences in 'labour productivity': each hour of work in some world regions produces goods or services of greater value than an equivalent hour of work elsewhere. Agricultural labour productivity, for instance, varies enormously across countries. In the United States agricultural productivity per worker in 2018 is nearly 147 times higher than in Ethiopia, 90 times higher than in Uganda, 77 times higher than in Kenya, 46 times higher than in India, 48 times higher than in Bolivia, 22 times higher than in China and 6 times higher than in Brazil. But again, why do American farmers reap a far bigger harvest than the farmers of sub-Saharan Africa, South East Asia and most of South America? The answer should come as no surprise: these differences are primarily a reflection of the technologies for cultivation and harvesting that are used in each country, as well as the skills, education and training of farmers. American farmers use tractors, trucks and combine harvesters, for example, while farmers in sub-Saharan Africa are more likely to rely on wooden ploughs often pulled by oxen. Moreover, American farmers are better trained and can use genetically modified seeds, advanced fertilisers and refrigerated transportation, which may not be feasible or profitable in the developing world. ## Rusty Tools Previous attempts to understand economic growth, like that of Nobel Prize-winning economist Robert Solow, focused on the importance of the accumulation of physical capital – straw baskets, rakes, tractors and other machines – to economic growth. Suppose that a couple harvests enough wheat to bake a few dozen loaves of bread a week. They use some of these loaves to feed their family and sell the remainder at the village market. Once they have saved enough, they purchase a plough, increasing their stock of physical capital, their harvests and ultimately the number of loaves of bread they can bake per week. As long as the couple does not have additional children, this accumulation of capital (the addition of a plough) will help them increase their per capita income. The impact of this physical capital accumulation, however, is constrained by the law of diminishing marginal productivity: as the amount of land and time available to them is limited, then if that first plough boosts the couple's output by five loaves of bread a week, a second plough might only contribute three more loaves, while the fifth plough may hardly boost productivity at all. The important corollary of this analysis is that only perpetual improvements in the efficiency of the plough will deliver long-term income growth for these villagers. Furthermore, the acquisition of a new plough would spur faster growth on a poor farm than it would on a more advanced farm of equal size, because this would likely be the first on the poor farm, whereas it might be the third or the fourth on the rich one. Thus, a relatively poor farm should grow more quickly than a more advanced one, and over time the income gap between the poor and the rich farms should narrow. Solow's growth model suggests therefore that economic growth cannot be sustained indefinitely in the absence of technological and scientific progress. Moreover, it predicts that, with time, income disparities between countries that differ only in their initial levels of per capita income and capital stocks should diminish. Imagine a marathon race in which the further runners get from the starting point the harder each additional step becomes. If one group of runners starts the race a few minutes earlier than a second, equally talented group of runners, the first group will keep ahead of the latecomers, but the gap between the two will be narrowing with every stride they take. ## Trade, Colonialism and Uneven Development During the nineteenth century, international trade rose significantly. It was triggered by the rapid industrialisation of north-western Europe, enabled and fuelled by colonialism and encouraged by the reduction of trade barriers and transportation costs. Of the entire world's output in 1800 only 2 per cent was traded internationally. By 1870 that share had risen five-fold to 10 per cent; by 1900 it was 17 per cent and by 1913, on the eve of World War I, it stood at 21 per cent. While a major portion of this commerce was taking place between the industrialised societies, developing economies were an important and growing market for their exports. The patterns that emerged over this period were unambiguous: north-western European countries were net exporters of manufactured goods, whereas the exports of Asian, Latin American and African economies were overwhelmingly composed of agricultural-based products as well as raw materials. While technological advances during this era could have spawned the Industrial Revolution without the contribution of the expansion of international trade, the pace of industrialisation and the rate of growth in Western European nations was intensified by this commerce, as well as by the exploitation of colonies, their natural resources, their native populations and enslaved Africans and their descendants. Likewise, the Atlantic triangular trade, which was at its height in the preceding centuries, and the growing trade with Asia and Africa had a major impact on Western European economies. Not only was the trade in goods itself highly profitable, it provided raw materials such as timber, rubber and raw cotton for the process of industrialisation, all cheaply produced through slave and forced labour. Meanwhile, the production in the European colonies of agricultural products such as wheat, rice, sugar and tea enabled European nations to enhance their specialisation in the production of industrial goods, and benefit from the expanding markets for their products in the colonies. In the UK especially, the share of national income derived from international trade grew: from 10 per cent in the 1780s to 26 per cent in the period 1837-45, and to 51 per cent in 1909-13. Exports were critical for the viability of some sectors, especially the cotton industry, in which 70 per cent of UK output was exported in the 1870s. This expansion of international trade in the early phases of industrialisation had a significant – and asymmetrical – effect on the development of industrial and non-industrial economies. In industrial economies, it encouraged and enhanced specialisation in the production of industrial goods that required a relatively highly skilled workforce. The associated rise in demand for skilled labour in these nations intensified their investment in human capital and expedited their demographic transition, further stimulating technological progress and enhancing their comparative advantage in the production of such goods. In non-industrial economies, by contrast, international trade incentivised specialisation in the production of relatively low-skilled, agricultural goods and raw materials. The absence of significant demand for educated workers in these sectors limited the incentive for investment in human capital and thus delayed their demographic transition, further increasing their relative abundance of low-skilled labour, and enhancing their comparative disadvantage in the production of 'skill-intensive' goods. Accordingly, globalisation and colonisation contributed to the divergence in the wealth of nations in the past two centuries. While in industrial nations the gains from trade were directed primarily towards investment in education and led to growth in income per capita, a greater portion of the gains from trade in non-industrial nations were channelled towards increased fertility and population growth. These forces persistently affected the distribution of population, skills and technologies worldwide, widening the technological and education gaps between industrial and non-industrial economies and so enhancing rather than diminishing the initial patterns of comparative advantage. The premise of this argument - that international trade generated opposing effects on fertility rates and education levels in developed and less developed economies - is supported by regional and cross-country analysis based on contemporary as well as historical data. This asymmetric impact of globalisation and colonisation is also strikingly evident from the rate at which industrialisation itself took place in developed and developing countries. The level of industrialisation per capita in the United Kingdom rose 50 per cent between 1750 and 1800, quadrupled between 1800 and 1860, and nearly doubled between 1860 and 1913. In the United States, it increased four-fold between 1750 and 1860, and six-fold between 1860 and 1913. A comparable pattern was experienced by Germany, France, Sweden, Switzerland, Belgium and Canada. In contrast, developing economies experienced a decline in per capita industrialisation during the nineteenth century, and it took nearly two centuries for them to revert to their initial levels, before finally taking off in the second half of the twentieth century (Fig. 16) The trading relationship between the UK and its colony India exemplifies this pattern. Between 1813 and 1850, as India experienced a rapid expansion in its volume of exports and imports, the country gradually transformed from being an exporter of manufactured products - largely textiles – into a supplier of agricultural goods and raw materials. Trade with the UK was fundamental in this process. The UK supplied over two-thirds of India's imports (primarily manufactured goods) for most of the nineteenth century and was the market for over a third of its exports. The effect this had in the UK will by now be familiar. By fostering the process of industrialisation, trade helped contribute to the significant increase in demand for skilled labour in the second phase of the Industrial Revolution. The average years of schooling of the male labour force of England, which did not change significantly until the 1830s, had tripled by the beginning of the twentieth century. School enrolment at the age of ten increased from 40 per cent in 1870 to nearly 100 per cent in 1902. In the 1870s, the overall fertility rate in the UK started to drop, and in the subsequent fifty years, it declined from about five children per woman to nearly 2.5. Over this same period, the economy transitioned into a state of sustained growth in income per capita at a rate of nearly 2 per cent per year. In contrast, India experienced a decline in its per capita level of industrialisation. The entrenchment of the agricultural sector in India, for which education was not essential, contributed to the persistence of widespread illiteracy well into the twentieth century. Attempts to enlarge primary education in the twentieth century were hampered by low attendance and high dropout rates. Despite the gradual spread of education, 72 per cent of Indians beyond the age of fifteen had no schooling in 1960. In the absence of significant human capital formation, the demographic transition in India was delayed well into the second half of the twentieth century. Thus, while the gains from trade in the UK expedited its fertility decline and led to significant growth in income per capita, in India they were channelled predominantly towards higher fertility rates. Since 1820, the size of the Indian population relative to that in the UK has doubled while income per capita in the UK relative to that in India has also doubled. And yet, domination, exploitation and asymmetric trade patterns during the colonial age enhanced pre-existing patterns of comparative advantage rather than generating them in the first place. What accounts for the uneven development that took place prior to the colonial period? What allowed some countries to become the industrialising colonisers and forced others to become the non-industrialised colonised? ## Deep-Rooted Factors Imagine that one bright morning you pull yourself out of bed, brew a cup of coffee and, while stepping outside to greet the day, discover to your surprise that the grass is greener outside your neighbours' house. Why is their lawn so lush? A technical reply might be that your neighbours' grass reflects light at wavelengths in the green range of the spectrum, while yours reflects light closer to the yellow range. This explanation, while perfectly accurate, is not particularly helpful – it gets us no closer to understanding the root of the matter. A more thorough, less pedantic response would focus on the differences in the timing, intensity and methods that you and your neighbours have used in taking care of your lawns: irrigating, mowing, fertilising and applying pesticides. Nevertheless, these reasons, important as they may be, still might not uncover the root causes for your neighbours' grass being greener. They represent proximate causes for the visible differences in the quality of the two lawns, behind which are the underlying reasons that explain why your neighbours irrigate their lawn more regularly, or why they are more successful at pest control. If you fail to understand the roles of these deep-rooted factors, your attempts to emulate your neighbours' gardening methods, persistent as they may be, might not yield the dazzling green hue that you desperately crave. Geographical factors might lie behind the visible differences between the two lawns – variations in soil quality and exposure to sunlight might frustrate your efforts to mimic your neighbours' success. Alternatively, the differences might reflect underlying cultural factors that reflect the environment in which they and you were raised and the nature of the education you received – cultural traits, such as an especially future-oriented mindset, that drive them to lavish great care and attention on their lawn, watering and mowing it at the optimal times. It might be that the two properties are under the jurisdiction of different municipal authorities. Your local council has imposed a watering ban to conserve water, while your neighbours are free to water their lawn to their heart's content. So it could be an institutional factor that prevents you from imitating your neighbours' gardening techniques and closing the gap between the two lawns. Or it could be a deeper reason, still in your respective municipalities, that leads to these institutional differences, something associated with the very make-up of your neighbours' community. More homogeneous communities are better positioned to implement regulations and collective decisions about public investment in irrigation infrastructure and the eradication of pests, while more heterogeneous communities might benefit from the cross-fertilisation of diverse innovative gardening techniques. In this sense, it could be that population diversity is the underlying cause of the gap between the two lawns. Like the differences between the two lawns, the immense disparities in the wealth of nations are rooted in a chain of causal factors: at the surface are proximate factors, such as the technological and educational differences between countries; at the core are the deeper and ultimate factors – institutions, culture, geography and population diversity - that lie at the root of it all. Although it may be challenging to disentangle the impact of proximate and ultimate factors, the distinction is critical if we are to understand how these deep-rooted factors have affected the speed at which the great cogs of human history have turned and thus governed the pace of economic development in different places.