Noted for April 27, 2013
Noah Smith Sends Us to the 2500 Year Old Refutation of Thomas Nagel

Global Inequality: Saturday Twentieth Century Economic History Weblogging

Screenshot 3 14 13 1 29 PM

Those economies relatively rich at the start of the twentieth century have by and large seen their material wealth and prosperity explode. Those nations and economies that were relatively poor have grown richer, but for the most part slowly. The relative gulf between rich and poor economies has grown steadily over the past century. Today it is larger than at any time in humanity’s previous experience, or at least larger than at any time since only some tribes knew how to use fire. The gulf across which the world’s rich and poor regarded each other exists in every dimension: how much people consume, whether they can read, what tools they use, and how they make their living.

This glass can be viewed either as half empty or as half full. The glass is half empty: we live today in a world that is nearly the most unequal world ever. Only the world of the 1970s and 1980s—with standards of living in China greatly depressed by the legacy of Mao, his Great Leap Forward, and his Cultural Revolution and with standards of living in India depressed to a lesser extent by the License Raj of the Nehru Dynasty—was more unequal than ours is, even today. The glass is half full: most of the world has already made the transition to sustained economic growth; most people live in economies that (while far poorer than the leading-edge post-industrial nations of the world’s economic core) have successfully climbed onto the escalator of economic growth and thus the escalator to modernity. The economic transformation of most of the world is less than a century behind the of the leading-edge economies—only an eyeblink behind, at least from the millennial perspective. However, the millennial perspective is one that human beings can adopt only when contemplating the long-dead past—not when thinking about their present or their children’s future.

On the other hand, one and a half billion people live in economies that have not made the transition to economic growth, and have not climbed onto the escalator to modernity. It is hard to argue that the median inhabitant of Africa has a higher real income than his or her counterpart of a generation ago.

From an economist’s point of view, the existence, persistence, and increasing size of large gaps in productivity levels and living standards across nations seems bizarre. We can understand why pre-industrial civilizations had different levels of technology and prosperity: they had different exploitable nature resources, and the diffusion of new ideas from civilization to civilization could be very slow. Such explanations do not apply to the world today. The source of the material prosperity seen today in leading-edge economies is no secret: it is the storehouse of technological capabilities that have been invented since the beginning of the industrial revolution. This storehouse is no one’s private property. Most of it is accessible to anyone who can read. Almost all of the rest is accessible to anyone who can obtain an M.S. in Engineering. Because of modern telecommunications, ideas today spread at the speed of light. Governments, entrepreneurs, and individuals in poor economies should be straining every muscle—should in fact have long ago strained every muscle—to do what Japan began to do in the mid-nineteenth century: acquire and apply everything in humanity's storehouse of technological capabilities.

This “divergence” in living standards and productivity levels is another key aspect of twentieth century economic history: economies are, by almost every measure, less alike today than a century ago in spite of a century’s worth of revolutions in transportation and communication. Moreover, there seems to be every reason to fear that this “divergence” in living standards and productivity levels will continue to grow in the future. A number of factors have kept economic growth slow in today’s poor countries in the past: high rates of population growth that restrict growth in the capital-output ratio, high relative prices of capital goods that constrain investment, governments that (like most governments throughout history) take the short view in an attempt to maximize chances of survival and the perquisites of office, and traditional elites (religious and cultural) that fear what they will lose from a richer country more integrated into the twenty-first century world. These factors are still operating today, and likely to operate in the future as well.

This is a potential source of great danger, because today’s world is sufficiently interdependent—politically, militarily, ecologically—that the passage to a truly human world requires that we all get there at roughly the same time.