How the World Became Rich. Mark Koyama
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