Professors Koyama and Rubin Explain How the World Became Rich

To be honest, you really should read the entire book. But then again, it is freakishly expensive by Indian standards, and the interview we’re about to discuss serves as a very good introduction to thinking and reading more about this subject, so let’s get started.

If you play the animation in that chart (and make sure you have tick-marked the “Relative change” box), you should be struck by two questions. Well, I am, at any rate.

  1. Why the hell did it take so long?
  2. What the hell happened about two hundred years ago?

And the interview is about precisely these questions, but before we get there, a slight digression.

My way of getting students interested in the topic of macroeconomics is by showing them Gapminder, and then asking them a seemingly simple question: why does the world look the way it does?. That is, why did the countries that are rich today (on a per capita basis) get that way?

Some students say it is because those countries have a smaller number of people, and I say that by logic China ought to be poorer than us. Some say it is because those countries were never colonialized, and I say that by that logic Singapore ought to be a very poor country, and so also South Korea. This goes on for a while, but I eventually get the discussion around to two central questions/conclusions.

First, is it likely that we will ever know for certain, and if so how? Or are we doomed to just faffing around for ever?

And second, if we do find out, can we apply some of those lessons in India’s case today? That is, if at all there is a recipe for growth, does it remain applicable across time and space?

And as Robert Lucas put it (in a different but very related context), it is very hard to stop thinking about these questions once you start thinking about them!

The book in question, How The World Became Rich, with its subtitle ‘The Historical Origins of Economic Growth’ aims to answer these very questions. And as anybody who has attempted to study a subject such as this know, this is A Very Hard Thing to do. Here is the description from the Amazon page:

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.

As the excerpt says, there are many, many theories about why some countries got a headstart on the others. And while we can’t ever be sure of what the exact mixture of theories is, and whether this mixture remains the same for all countries across all periods, we can be sure that any recipe must contain at least some of these ingredients. And that’s better than knowing nothing, eh?

But which ingredients? In the next section, my notes from having read the article

  1. The Fate of Rome, by Kyle Harper, is now added to the list.
  2. Life slowly got better across the centuries from the time of the Roman Empire until the Middle Ages, but many of these changes could be explained by major demographic changes (such as, say, the Black Death and the resultant decrease in the population.)
  3. Sustained economic progress necessarily needs sustained technological progress. And sustained technological progress needs to be high enough to be able to beat the inevitable downward pressure imposed by population growth. They also add property rights as an important component, but it is, in essence, enough technological progress to be able to beat the inevitable Malthusian Trap.
    “Ultimately (and this matters for the acceleration in growth we observe from the late 19th to the 20th centuries), it also helps if families limit the number of children they have. This does not necessarily contribute to innovation, but it does mean that innovation will more quickly translate into growth.”
    Of course, the next logical question to ask is why would families limit the number of children they have, and to me, the answer is that they will only do so if they are convinced that their children have a more than reasonable chance of surviving into adulthood. Health comes first, both for individuals, but also for economic growth.
  4. This is an article I will need to read carefully, on the debate between historians and economic historians. The topic? What role did slavery have to play in the economic development of Europe.
  5. Remember the ‘ingredients in the recipe’ analogy that I used in the previous section? Institutions (such as property rights, labor unions), the demographic transition and education are three things that Professors Koyama and Rubin completely agree upon.
  6. “I think one thing the history of technology has taught us is that as long as the incentives are there for innovators to innovate, we will continue to be surprised.”
    I think this to be a key sentence, and I wonder if we think hard and often enough about whether the world is incentivizing innovators enough.
  7. Capitalism without Capital is also added to the list. Sigh.

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