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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
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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CONTENTS
Cover
Dedication
Title Page
Copyright
Preface
1 Why, When, and How Did the World Become Rich?
What Is Economic Growth?
Measuring the Past
What Will You Learn from This Book?
What This Book Does Not Do
Part I Theories of How the World Became Rich
2 Did Some Societies Win the Geography Lottery?
Geography and Modern Development
Mountains, Coasts, and Climate
Geography and Transport Infrastructure
Geography and Industrialization
Chapter Summary
3 Is It All Just Institutions?
What Are Institutions?
Property Rights
The Legal System
Political Institutions
More Equal Rights for All
Institutions and the Commercial Revolution
Between the State and the Market: Guilds
Parliaments and Limited Government
War and State Finances
Chapter Summary
4 Did Culture Make Some Rich and Others Poor?
What Is Culture and Why Does It Matter?
Can Culture Explain the European Take-off?
Does Religion Affect Economic Growth?
The Protestant Work Ethic and the “Spirit” of Capitalism
If Not a Work Ethic, Why Did Protestant Countries Grow Faster?
The Reformation and Religion as a Source of Political Legitimacy
Is Islam the Cause of Middle Eastern Economic Stagnation?
The Long-Term Persistence of Culture
The North–South Italy Divide
The Persistence of Trust Norms
Gender Norms
Chapter Summary
5 Fewer Babies?
Malthusian Pressures
The Black Death
Household Formation and the European Marriage Pattern
Did the EMP Spur Economic Growth?
Reasons for Skepticism
Demographic Change and the Transition to Modern Economic Growth
Chapter Summary
6 Was It Just a Matter of Colonization and Exploitation?
How Did the Colonizers Benefit?
The Slave Trades
The Resource Grab
Some Silver Linings of Colonialism?
Public Goods and Education
Missionaries
Chapter Summary
Part II Why Some Parts of the World Became Rich First, Why Other Parts Followed, and Why Some Are Not There Yet
7 Why Did Northwestern Europe Become Rich First?
How Geography Shaped Institutional Development
Why Was There No Medieval European Take-off?
Divergence within Europe Just before the Take-off
Parliaments and the Rise of Limited, Representative Government
Chapter Summary
8 Britain’s Industrial Revolution
A Consumer Revolution
Capitalist Agriculture
Do Political Institutions Explain Britain’s Industrialization?
Mercantilism and Empire
Does the Transatlantic Slave Trade Explain Britain’s Industrialization?
Was It Cotton?
Was It Market Size?
How About State Capacity?
Maybe It Was Skilled Mechanical Workers?
An Innovative Economy
High Wages and Induced Innovation
An Enlightened Economy
Chapter Summary
9 The Rise of the Modern Economy
The Fruits of Industrialization
The Second Industrial Revolution
The Demographic Transition
The Uneven Diffusion of Modern Economic Growth
How the US Became Rich
The Soviet Detour
Chapter Summary
10 Industrialization and the World It Created
Delayed Catch-up: The Shadow of Colonization (and Other Factors)
How Japan Became Rich
How the East Asian Tigers Became Rich
How China Is Becoming Rich
Chapter Summary
11 The World Is Rich
References
Index
End User License Agreement
List of Tables
Chapter 4
Table 4.1
Most populous cities in Western Eurasia, 800 CE
Chapter 5
Table 5.1
Black Death mortality by country
Chapter 6
Table 6.1
English crop yields, 18th century
Chapter 7
Table 7.1
British borrowing and interest rates, 1693–1739
Chapter 8
Table 8.1
Most populous English cities excluding London (with populations of at least 10,0…
Chapter 9
Table 9.1
Major inventions of the Second Industrial Revolution
Guide
Cover
Table of Contents
Dedication
Title Page
Copyright
Preface
Begin Reading
References
Index
End User License Agreement
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Dedication
Mark: For Desiree.
Jared: To my father, Thom, and the memory of my mother, Linda.
How the World Became Rich
The Historical Origins of Economic Growth
Mark Koyama
Jared Rubin
polity
Copyright © Mark Koyama and Jared Rubin 2022
The right of Mark Koyama and Jared Rubin to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First published in 2022 by Polity Press
Polity Press65 Bridge StreetCambridge CB2 1UR, UK
Polity Press101 Station LandingSuite 300Medford, MA 02155, USA
All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.
ISBN-13: 978-1-5095-4024-2
A catalogue record for this book is available from the British Library.
Library of Congress Control Number: 2021944393
The publisher has used its best endeavours to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.
Every effort has been made to trace all copyright holders, but if any have been overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.
For further information on Polity, visit our website:politybooks.com
Preface
The world is rich, although it may not always seem like it. Poverty is still all too prevalent. Approximately one billion people around the world barely have enough to survive. The fate of millions of people living in poverty and violence in places like Venezuela, Syria, Burundi, or the Democratic Republic of Congo is deplorable. Even in the developed world, poverty is far, far too common.
Yet, by historical standards, the world is very rich. Most people are much better off than their ancestors were. In fact, most people living right now are better off than almost every person who ever lived prior to two centuries ago (save a very small fraction of elites who lived in luxury … or what was considered luxury at the time). As the world has become richer in the 20th and 21st centuries, more and more people have been lifted out of poverty. And there is good reason to hope that, within our lifetimes, a significant fraction of the remaining poverty around the world will be eliminated.
How did the world become rich? This is the question this book attempts to answer. It is by no means easy to do so. In fact, there is almost certainly no one correct answer! Yet, it remains perhaps the biggest question in the social sciences. A proper understanding of why certain parts of the world have become rich – and others have not (yet) – can help us tackle some of the biggest problems facing us in the present. As you read this book, it will soon become clear that there is no panacea to lift a country into riches. However, there are many factors that historically tend to be present alongside sustained economic growth. It is our goal to both highlight these factors and provide insight into when they do and do not contribute to growth.
Throughout this book, we draw on an immense and fast-growing scholarship in global economic history. The first half of our book is mostly meant to be an overview of what we consider to be the leading theories for how the world became rich. Our debts to this scholarship are evident throughout. Naturally, as this book is addressed to a broad audience, we have not been able to cite every piece of specialist research. We apologize in advance for any omissions. We do, however, direct the reader towards the relevant literature wherever possible.
Many people helped us along the way. We cannot possibly thank everyone without this Preface taking up half the book. Sascha Becker, Desiree Desierto, Anton Howes, Nathan Nunn, Tuan-Hwee Sng, Felipe Valencia Caicedo, and John Wallis read parts (or all!) of the book. Their insightful comments helped us significantly improve the manuscript. Our editor at Polity, George Owers, gave excellent guidance at each step of the process. Dan Bogart, Dave Donaldson, Erik Hornung, Noel Johnson, and Jonathan Schulz shared their data files so that we could produce some of the figures in this book. Mark thanks his many coauthors, from whom he has learned a tremendous amount over the years. Jared will always be indebted to Avner Greif, Timur Kuran, Larry Iannaccone, and Ran Abramitzky – the best mentors, coauthors, and friends he could hope for.
Much of this book was written while we were quarantined on opposite coasts of the US due to COVID-19. We would like to thank the people who helped us get through that time – without them, this book would not be possible. For Mark, these include his wife and frequent collaborator Desiree, his parents Ninette and Noboru, and his brother Jonathan. For Jared, these include his family – Thom, Debbie, and Tyler Rubin and Samantha and Ryan Sully – and friends Rob Ainsley, Ted Chang, Doug Haney, Matt Menefee, Travis Menefee, Scott Shumate, and JJ Singh. Most of all, Jared is indebted to his amazing wife Tina and their two beautiful children, Nadia and Sasha.
1Why, 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.
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.
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.
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?
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.
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 population growth and an increase in living standards as measured by the size and quality of homes (Morris, 2005). Other episodes were due to political pacification, such as the “Pax Islamica” over large parts of the Middle East, North Africa, and the Iberian Peninsula in the centuries following the spread of Islam. The “Islamic Peace” permitted higher levels of trade and the spread of agricultural techniques and crops (Watson, 1983). The “Pax Mongolica,” which allowed parts of Asia to thrive in the wake of the Mongol devastations, had similar effects.
Another cause of temporary economic improvement was widespread death through disease. While plagues were undoubtedly awful for the people who lived through them – in the 14th century, the Black Death killed between a third and a half of Europe’s population and probably a similar amount in the Middle East – they did mean that there were fewer mouths to feed. Per capita income tended to rise for at least a few generations in the wake of these events. The most important cause of economic improvement, however, was technological change. New varieties of disease-resistant grains, new agricultural techniques that improved soil quality or irrigation, and improvements to the plow are all examples of new technologies that allowed more people to be fed with less labor. Yet, prior to the 18th century, all spurts of economic improvement were temporary.
What matters in the long run is whether growth is sustained. Sustained economic growth refers to the continuous positive growth rates that have been experienced by countries like the US and the UK since the middle of the 19th century. What is unique about developed countries today is not that they have experienced a rapid acceleration of economic growth (Hausmann, Pritchett, and Rodrik, 2005). Many countries that are poor today have experienced temporary growth accelerations in the past as well. What distinguishes rich countries is that they have not experienced growth reversals. For instance, US GDP has grown fairly constantly since 1870 (Figure 1.6). Even the Great Depression – the one shock that does register in Figure 1.6 – only had a temporary impact on economic growth. The point is that prior to the first few decades of the 19th century, the continuous economic growth experienced by the UK, the US, and other developed economies in the past two centuries was all but unheard of. What was more common was periods of growth offset by periods of contraction, like that experienced by Venezuela between 2011 and 2021. Broadberry and Wallis (2017) call this “shrinkage”. From this perspective, the main difference between rich and poor countries is not that rich countries grow fast during their periods of growth. Rich countries are those that have experienced fewer periods in which the economy has gotten smaller.
Figure 1.6 US GDP per capita, 1720–2018 (2018 USD)
Data source: Bolt and van Zanden (2020).
Sustained economic growth has been accompanied by a dramatic reorganization of society and production. This is what we refer to as economic development. By this we mean a fundamental and transformative restructuring of the economy associated with urbanization and the growth of non-agricultural sectors of the economy such as manufacturing and the service sector. This process of development was also associated with the emergence of new ways of organizing economic activity: factories, corporations, and stock markets. In contrast, before 1800, the majority of the population lived in the countryside and worked on the land. Sure, there was some variation in urbanization and the prominence of manufacturing or service sectors. In Italy between 0 and 200 CE, urbanization may have been as high as 30% (Wilson, 2011). Iron production soared in Song China. Commerce and long-distance trade were important parts of the economy of late medieval Venice, Bruges, and Antwerp. Nonetheless, the structure of all of these societies was vastly simpler than that of almost any modern economy.
In the developed world, the structure of the economy is different. Importantly, agriculture has shrunk both as a proportion of the total economy and, even more dramatically, as a source of employment. Today, only 1.3% of the labor force works on the farm in the US. In the UK, the number is smaller still (just 1%). Alongside this structural shift, there has been a transformation in organizational complexity. This is most notably seen in the rise of long-lived organizations independent of the state such as corporations. These are all hallmarks of a developed economy.
Measuring the Past
You might wonder: how do we know how poor people were in the past? No country had an office of national statistics collecting information and compiling GDP estimates until the mid-20th century. Instead, social scientists and historians have had to reconstruct the past. The first exercise of this kind was the pioneering work of Angus Maddison. He spent decades creating high-quality estimates of per capita GDP back to 1820 (Maddison, 1983, 1991, 2001). Maddison also produced a set of highly influential estimates for earlier periods, including estimates of per capita income at the regional level for the Roman Empire (Maddison, 2007). But these estimates were of much more questionable veracity. More recent work, including the Maddison project (Bolt and van Zanden, 2020) and the work of numerous scholars such as van Zanden and van Leeuwen (2012), Fouquet and Broadberry (2015), Broadberry, Guan, and Li (2018), and Palma and Reis (2019), has produced updated estimates of per capita GDP that are on a much firmer footing.
But GDP estimates are far from the only source of information we have on past economies. Since the 19th century, economic historians have been collecting information on wages and prices in order to produce estimates of how much an unskilled worker would have been able to purchase in the past. Owing to the work of Robert Allen, Jean-Pascal Bassino, Greg Clark, Charles Feinstein, Peter Lindert, Debin Ma, Jeffrey Williamson, and others, there now exist comprehensive estimates of the purchasing power of workers for a host of European and Asian cities. Allen’s method is based on the construction of a consumption basket for a representative worker. These baskets are constructed by consulting numerous diaries and the budgets of poor houses and orphanages. A benefit of constructing consumption baskets is that it allows us to compare living standards across time and space, while remaining cognizant that people’s preferences were different in different regions at different times. Whereas rice would have made up a large portion of the East Asian diet, grains or bread would take its place in Western Europe.
There are other measures we can use to assess living standards in the past. One common measure is height. Economic historians such as Jorg Baten, Robert Floud, Robert Fogel, and Richard Steckel have put together estimates of heights for many countries across many centuries (for an overview, see Steckel, 2009). Height is determined by several factors, including genetic endowments. Height is also influenced by in vitro conditions and the nutrition available to the mother during pregnancy and as a child. We observe a strong positive relationship between gains in height and per capita GDP in the past 200 years. People in the past were short. The mean height of an 18 year old in the English army between 1763 and 1767 was 160.76 cm (around 5’3”) (Floud, Fogel, Harris, and Hong, 2011, p. 27). The increase in average height partly reflects the improvements in nutritional standards achieved since the onset of modern economic growth.
A final measure of the standard of living is life expectancy. Modern economic growth is associated with large increases in life expectancy (Pritchett and Summers, 1996; Fogel, 2004; Acemoglu and Johnson, 2007). This matters for two reasons. First, increased life expectancy represents a significant component of the additional welfare brought about by economic growth (Becker, Philipson, and Soares, 2005). Second, increased life expectancy is a possible cause of economic development itself. An increase in life expectancy increases the value of investment in human capital (Cervellati and Sunde, 2005), the term economists use to encompass education and other investments in an individual’s productive capacity.
The answer to the question “How did the world become rich?” must explain where, when, and how human societies were able to achieve sustained economic growth. The where and the when we know the answer to: northwestern Europe and North America, in the early to mid-19th century. All of the metrics we discussed above agree on this point. It is the third question – how did the escape from stagnation happen – that is so vexing.
Understanding the origins of wealth is one of the most important pursuits of the social sciences, and for this reason it has been the center of much debate. The purpose of this book is to present and distill this debate. Ultimately, any credible hypothesis must be able to account for a number of facts. First, modern, sustained economic growth is the result of sustained technological innovation. Britain in the late 18th century experienced such a spate of innovations during the period known as the Industrial Revolution. Initially, economic growth was slow to follow. But unlike earlier episodes of economic growth, it did not peter out. By the mid-19th century, the rate of both innovation and economic growth accelerated as industrialization and structural economic change spread to other parts of the world. Why did this process first take hold in Britain? Why in the 18th century? Why not in some other part of the world? Second, Europe was an economic, technological, and cultural backwater around 1000 CE. What changed in that continent that allowed it to pull ahead of China, India, and the Middle East, all of which at one point had societies well ahead of even the most advanced societies in Western Europe?
What Will You Learn from This Book?
The goal of this book is to bring together the many social scientific theories on the origins of modern, sustained economic growth. This is a big issue with important implications, and unsurprisingly it has been the focus of many great minds. Almost all of these theories focus on one aspect of the origins of growth, such as geography, culture, institutions, colonialism, or demography. By construction, these arguments tend to ignore each other. We hardly fault the authors of the arguments for this. Building and substantiating a theory can take hundreds of pages. Delving into other, far-removed causes of long-run growth can make for a tough read. Most researchers understand this, and they understand the limits of their explanations. Many a successful career has been made by exploring just one aspect of the origins of modern wealth.
Yet, the emphasis on specific theories of “how the world became rich” has left two gaps in our knowledge. This book hopes to fill these. First, no existing work summarizes all of the advances that have been made by social scientists in the last few decades in a dispassionate, objective fashion. While we do have opinions on what we view as the most convincing hypotheses regarding the origins of sustained economic growth – we have both written on this topic in our own academic work – the goal of this book is not to privilege our preferred theories at the expense of others. The first half of this book simply presents, as objectively as possible, the major hypotheses and debates on the origins of sustained economic growth. If it were not for our book, a reader who wants to get an idea of the current state of the literature would have to read countless books and articles, each putting forth their own hypotheses. This is still a useful exercise, as there is much nuance that we will have to skip over. But presumably most of our readers have lives outside of reading academic tracts. If you want to get an idea of where the debates stand, we’ve done the time-consuming part for you.
The first half of the book classifies and surveys the major strands of literature related to the origins of sustained economic growth: geography, politics, institutions, markets and states, culture, human capital, demography, and colonization. Many explanations fall into multiple categories. Likewise, some are well suited for one time and place but not for others. For instance, coal deposits likely played a role in Britain’s rise but not Japan’s, religion may have played a role in the Middle East’s economic growth but not in China’s, and so on. In some cases, factors that hamper economic growth under some conditions favor it in others. Take, for instance, the ruggedness of the African terrain. In general, ruggedness is bad for prosperity. Rugged terrain is difficult to traverse (thus hampering trade) and difficult to farm. However, in Africa, Nunn and Puga (2012) find that ruggedness had a positive effect on income. This was because it mitigated the impact of the slave trade: rugged terrain was more difficult for raiders to traverse and easier for those pursued to hide within. Long-run economic growth, on which the slave trade had such a large negative effect (a fact we will cover in Chapter 6), was thus indirectly promoted (see Figure 1.7).
Most theories on the origins of economic growth are concerned with pushing one side of the debate. As a result, less attention has been given to how the various theories are connected. A phenomenon as important and widespread as the origin of modern economic growth is almost certainly not monocausal. For example, many theories attempt to account for the role that institutions played in economic growth. Institutions are those legal, political, and religious features of a society that determine the “rules of the game” which dictate the costs and benefits of taking certain actions. Some institutions are viewed as being good for economic growth, such as those that protect property rights, encourage investment in public goods, and apply laws equally to all people. Yet, where “good institutions” come from is a difficult question to answer. Sometimes, they come from geographic conditions. For instance, where geographic conditions were not suitable for exploitation, colonial powers tended to invest in institutional development that, perhaps for unintended reasons, had positive effects on long-run growth (Acemoglu, Johnson, and Robinson, 2001, 2002). In fact, Acemoglu, Johnson, and Robinson (2002) argue that this resulted in a “reversal of fortunes”: those places that were flush with natural endowments at the end of the medieval period were also the places that were most easily exploited. As a result, those places tended to get worse (colonial) institutions, and are largely poorer today. The reversal is seen in Figure 1.8, which plots urbanization rates (an indicator of economic potential) against modern per capita GDP. Past urbanization rates are negatively correlated with modern income, while modern urbanization rates are positively correlated with income. Geography alone cannot explain this pattern, although geography may have worked through institutions to create the reversal of fortunes.
In other cases, institutions may operate through their impact on culture to affect economic growth. For instance, in a study of the long-term developments of trust, Nunn and Wantchekon (2011) find that places in Africa that were more prone to slave raids in the past are less trusting in the present day. It is understandable why people in the past who were subject to slave raids would be mistrusting of others, even neighbors, who may have wanted to enslave them. The fact that a culture of mistrust persists to the present suggests that culture is “sticky,” and thus helps determine long-run economic fortunes.
Throughout the book, we draw on the most up-to-date social scientific research and data in the context of recent debates among economic historians, development economists, political scientists, and historical sociologists. One important development in the past twenty years is that discussions of the origins of economic growth have gone global. It is no longer sufficient to narrow one’s attention to Great Britain or Western Europe. For instance, one of the biggest debates in the literature is on the origins of the “Great Divergence” between Western Europe and China. The term “Great Divergence” was made famous by Pomeranz (2000), who argued that the divergence between China and the West happened relatively late (after 1750) and was a result of the existence of coal reserves in England and the opening up of the New World, which relieved population pressures and provided new and abundant raw materials. This view has been subject to much debate, with new data suggesting the divergence may have occurred prior to industrialization (Allen, Bassino, Ma, Moll-Murata, and van Zanden, 2011; Brandt, Ma, and Rawski, 2014; Broadberry, Guan, and Li, 2018).
Figure 1.7 Ruggedness and income in African and non-African countries
Data sources: Nunn and Puga (2012) for ruggedness, Bolt and van Zanden (2020) for GDP per capita.
Figure 1.8 The reversal of fortunes within formerly colonized nations, 1500–1995
Data sources: Acemoglu, Johnson, and Robinson (2002) for urbanization, Bolt and van Zanden (2020) for GDP per capita.
In the final chapters, we assess the relative strengths and weaknesses of the major arguments and lay out the ones we find the most convincing. Our focus shifts to Britain, the home of the Industrial Revolution, and ultimately the first country to achieve modern, sustained economic growth. We ask, “What were the preconditions that made sustained economic growth possible in northwestern Europe?” We then address the flip-side of this question: “Why did sustained economic growth not first happen elsewhere?” Next we delve into the Industrial Revolution itself, as well as its connection to sustained economic growth. We explore what we find to be the most convincing explanations of its causes, linking these back to the broader sources of sustained, long-run economic growth.
The first set of explanations that we prefer – both for the onset of industrialization and for modern economic growth – emphasize the link between economic and political development. Such explanations touch on topics like institutional change, the growth of state capacity, and the rule of law. In our reading of the literature and of history, we find it difficult to tell a compelling story of long-run economic growth while ignoring the role that political institutions played in encouraging or (more often than not) dampening economic growth.
The second set of explanations that we find convincing are those that highlight the role of culture. To be clear, we do not mean the type of Eurocentric explanations popular in the early 20th century that made claims regarding the supremacy of some aspect of European culture. We mean culture in the way cultural anthropologists use the term: those heuristics employed by people to interpret the complex world around them (Cavalli-Sforza and Feldman, 1981; Boyd and Richerson, 1985; Henrich, 2015). Recent scholarship demonstrates that culture is amenable to serious social scientific study. Several insights can be gleaned from this line of research. First, cultural values can be extremely persistent (Guiso, Sapienza, and Zingales, 2006; Nunn, 2012). Second, cultural values interact with institutional development (Greif, 1994, 2006; Alesina and Giuliano, 2015; Bisin and Verdier, 2017).
In the penultimate chapter, we consider the “Great Convergence” between the many parts of the rest of the world and the West. One of the great stories of the last half-century is the billions of people pulled out of abject poverty. China has been a huge source of this economic progress, but so have many parts of South Asia, Southeast Asia, and Latin America. As we write this book, another half a billion or so people in India seem on the brink of escaping absolute poverty. In fact, the last twenty years have been characterized by faster economic growth in poor countries than in rich countries (Patel, Sandefur, and Subramanian, 2021). The time horizon might be a little longer for sub-Saharan Africa and the poorest countries in Latin America and Central Asia, but there is reason to be optimistic that we will experience a further dramatic eradication of poverty in those regions in our lifetime. All of this would be impossible without economic growth.
Just because we find some explanations for how the world became rich more compelling than others does not mean that the other theories have little merit. In fact, we believe there are important insights in all of the theories outlined in this book. In the end, we need to remember that an issue as wide-ranging as “how the world became rich” almost certainly has many causes. Intelligent people can and will disagree on what weight to put on each of these causes. What matters most is understanding the conditions under which certain causes are important and the conditions under which they are not. It is our hope that this book will provide a better understanding of these conditions.
What This Book Does Not Do
For all we are attempting to accomplish with this book, we want to be clear about a few things we will not do. First, our goal is to present all of the major arguments on “how the world got rich” in a fair-minded fashion. This means that, when initially presenting the theories, we will do our best to not let our own biases creep in. We certainly have views on the various issues presented in the book, and we do think that some views are more convincing than others. The later chapters of the book lay out the reasons we believe some of the proposed causes in the literature have greater explanatory power than others. However, we aim to give each of the main explanations a fair shake and present them, to the best of our ability, the way that the authors of the theories would want them presented.
This book is thematic and conceptual. We elucidate the major themes running through the academic literature and contextualize them in a digestible manner. As such, we won’t present a comprehensive economic history of specific countries. Such histories can be extremely valuable. In some cases, they shed light on important aspects of the origins of economic growth. We pay particular attention to developments in Great Britain in the 18th and 19th centuries. But this is simply due to the fact that we are seeking to understand the origins of modern, sustained growth, and Great Britain was the locus of the first modern economy. We also pay attention to places that failed to be the center of the first modern economy – despite a head start relative to Western Europe – such as China and the Middle East. We do not provide a deep dive into the specifics of the economic histories of these regions. Instead, we selectively choose various aspects of their histories to help substantiate theories espoused in the literature.
Finally, we do not spend much time discussing the drawbacks to economic growth such as pollution, climate change, and the capacity to create deadly weapons. We are by no means denying the importance of these topics, but these issues are simply outside the scope of this book. We have written a book on the origins of modern economic growth. While we believe economic growth in general to be a good thing, the focus here is on what caused economic growth, not its consequences.
Part ITheories of How the World Became Rich
2Did Some Societies Win the Geography Lottery?
Does geography determine the fate of nations? Is the key to unlocking riches preordained by factors like climate, natural resources, soil quality, and access to the ocean? Geographic explanations have long been a favorite of thinkers looking for reasons why their society pulled ahead. According to the Muslim Andalusian thinker Abū al-Qāsim Sā’id (1068): “The exceeding distance [of Northern Europeans] from the sun thickens the air making their dispositions cold, their natures rude, their skin color white and their hair straight. Thus … dullness and ignorance overpower them” (quoted in Chaney, 2008, p. 2). On the other hand, in Book XIV of The Spirit of the Laws, the French philosopher Montesquieu made a similar argument but drew an opposite conclusion:
People are … more vigorous in cold climates…. The inhabitants of warm countries are, like old men, timorous; the people in cold countries are, like young men, brave. If we reflect on the late wars … we shall find that the northern people, transplanted into southern regions, did not perform such exploits as their countrymen who, fighting in their own climate, possessed their full vigor and courage. (Montesquieu, 1748/1989, p. 317)
Modern scholars have also argued that geography and climate play a crucial role in explaining patterns of economic development. Perhaps the most well-known insights are those of Diamond (1997), who argues that factors like the relative length of continental axis, the disease environment, proximity to the equator, and access to coasts and rivers had a tremendous influence on long-run economic prosperity. We discuss Diamond’s influential hypothesis in depth in this chapter.
But is geography fate? Are locations with “good” characteristics destined to be more developed? Davis and Weinstein’s (2002) seminal study of Japanese urban development in the aftermath of World War II provides evidence for the importance of geographic fundamentals. The authors examined what happened to the distribution of urban centers after the destruction of Hiroshima and Nagasaki by the atomic bomb. They show that after experiencing complete destruction, both Hiroshima and Nagasaki returned to the same relative positions in Japan’s distribution of cities within twenty years. This suggests that a major shock to the distribution of population was insufficient to overcome the intrinsic geographic advantages of these two locations. Whether such findings are generalizable is something we will discuss throughout the book.
What about the Industrial Revolution? Britain’s position as a large island off the coast of Europe, endowed with a moderate climate, numerous rivers, and a long coastline, helped shape the formation of its political institutions. Abundant coal resources played an important role in its early industrialization. It is worth asking: could this be why Britain industrialized first?
Geography and Modern Development
Geography matters for economic development today, especially in the poorest parts of the world. For instance, many countries in sub-Saharan Africa are landlocked, and most others have only a small amount of coast (see Figure 2.1). Without coastlines, they are unable to directly ship goods to other countries. They also have to rely on expensive and hard-to-maintain road and rail networks which can easily be blocked or cut off by their neighbors.
Figure 2.1 Coastlines of African countries
Coast length data from: CIA (2019).
Figure 2.2 Africa’s “malaria belt”
Data source: Hay, Guerra, Gething, Patil, Tatem, Noor, et al. (2009).
Another important geographic factor is disease burden. Countries in the “malaria belt” in sub-Saharan Africa continue to be underdeveloped (see Figure 2.2). Malaria has probably killed more human beings over the course of human history than any other disease. But the burden of malaria is also economic. All else being equal, countries where a high proportion of the population are infected with malaria had growth rates that were around 1.3% lower than other countries (Sachs and Malaney, 2002). They also have higher infant mortality and lower investment in physical and human capital.
Other diseases are also endemic in sub-Saharan Africa. One particularly potent disease is sleeping sickness, which the tsetse fly transmits via parasites. The effects of the tsetse fly are not limited to humans. The same parasite causes nagnana, which is deadly to livestock. Livestock played a crucial role in agricultural development in other parts of the world. People in regions affected by the tsetse fly were historically much less likely to domesticate livestock. Alsan (2015) documents how in these parts of sub-Saharan Africa, intensive agriculture was less likely to develop, the plow was less likely to be employed, and large domesticated animals were rarer. These patterns of economic underdevelopment also had political consequences, as they made it less likely for centralized states to develop.
These examples point to the attractions and limitations of arguments based on geography. On the one hand, geography-based arguments are simple and geography has the advantage of being largely exogenous. This means that it is not affected by other variables of interest. As such, we don’t have to worry about geography being the result of other factors that are also important for economic growth, such as culture or institutions. Hence, geographic explanations can potentially provide a straightforward explanation of economic growth and poverty.
The big problem with geographic explanations, however, is that geography is largely unchanging. Geography is not completely static, of course. For instance, fisheries can be over-fished, and this encourages societies to adapt accordingly (Ostrom, 1990; Dalgaard, Knudsen, and Selaya, 2020). And natural resources are generally not just there for the taking – finding them requires exploration and the capacity to extract (David and Wright, 1997). But geography is much less malleable than other societal features such as demography, institutions, or culture. This can be a problem for explanations linking geography to long-run economic growth, because many of the differences in incomes that we observe across the world today have changed dramatically over time. In 1750, the richest country in the world (per capita) was probably the Dutch Republic. Yet, it was only at most four times richer than the poorest countries in the world. Today the richest countries in the world are between one hundred and two hundred times richer in terms of measured GDP per capita. More perplexing still, geography has a difficult time explaining economic reversals. As it is mostly fixed, it cannot easily explain why the Middle East was much more developed in 1000 than Western Europe yet by 1800 Western Europe was far ahead of the Middle East.
Guns, Germs, and Steel
In his Pulitzer Prize-winning book Guns, Germs, and Steel, Diamond (1997) asked why it was that Europeans were able to conquer the New World so easily. How was it that they had not only superior weapons and technology but also more deadly germs than the native inhabitants of the Americas? His answer was geography. To explain why Eurasian societies were more technologically advanced, he drew on the work of Crosby (1986), who argued that the relative height and length of the Eurasian, African, and American continents had a deep impact on long-run development. Vertically aligned continents contain numerous microclimates, which limit the spread of crops, domesticated animals, and people. After all, crops suitable for rain forests are unlikely to grow in the savannah or mountains. So, the domesticated plants and animals of Mesoamerica did not spread to Peru or the Amazon basin. Perhaps more importantly, technology and knowledge spread more easily horizontally than vertically, since climatic characteristics vary less. The “verticality” of the Americas and Africa south of the Sahara (see Figure 2.3) may have therefore imposed huge hurdles to long-run economic growth.
Figure 2.3 Verticality and horizontality of the continents
Reproduced using map in Diamond (1997). Gall-Peters map projection.
This, according to Diamond, was why the Near East was the birthplace of human civilization. It was in the Near East that wheat, barley, and the pea were first cultivated. The rich fertile plains between the Tigris and Euphrates rivers were surrounded on several sides by so-called “hilly flanks.” Goats and sheep were first domesticated 11,000 years ago in the hills of northern Syria and northern Mesopotamia. Pigs and cattle followed soon afterwards and spread throughout the Fertile Crescent. In total, thirty-three of the world’s fifty-six heaviest wild grasses originated in either Europe, the Near East, or North Africa. The majority of these crops were first domesticated in the Fertile Crescent. Moderate climatic differences between Europe and the Middle East ensured that agricultural techniques could spread between the two.
