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Modified 2001-05-03
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Berkeley Faculty Lunch Talk: Main Themes of Twentieth Century Economic History

J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/


Population Explosion:

For the past few years I have been trying to think about the main themes of twentieth century economic history. So what I want to do today is give an overview of the principal themes of the past century’s history as an economist sees it.

The first and most obvious feature is the population explosion. Back before 1500 human population growth was glacial by our standards: it took roughly ten millennia for human populations to rise from the perhaps four million of just before the discovery of agriculture to the perhaps 400 million of 1500--an average rate of growth of 0.046% per year, or 4.6% per century. That’s not something you can see in a single human lifetime.

By contrast, between 1500 and 1800 the human population grew at an annual rate of a quarter of a percent per year, from 1800 to 1900 the human population grew at a rate of 0.6% per year, and from 1900 to 2000 the human population grew at a rate of 1.3% per year. The current population growth regime, with a doubling time of fifty years, is very visible within a single human lifetime.

There is good reason to believe that we have only one more doubling of the human population to go. Death rates dropped and birth rates rose for both biological and sociological reasons as human civilizations left near-subsistence standards of living behind between 1500 and 1800. But as economic growth progressed further birth rates crashed, first in western Europe--Italy is now down to 0.7 daughters per potential mother--and today we see this demographic transition well under way even in countries like India. Estimates of the likely human population in 2050 have dropped over the past two decades from 15-20 billion to 10-12 billion. Economists, demographers, and sociologists will continue to debate whether this transition is driven more by sheer additional wealth, by better health outcomes, by teaching girls to read, by urbanization, or whatever. But at the moment at least we can say with some confidence that the twentieth century saw the fastest relative growth in the human population since the first generation of homo sapiens, and the fastest relative growth we are likely to ever see on this planet.


The Explosion of Material Wealth

This past century of the population explosion was not a century of increasing downward pressure on living standards as natural resource scarcity made itself felt. This past century was not a "Malthusian" century. Predictions like those of Paul Ehrlich back just after the middle of the century that its last quarter would see South Asian population growth stop as mass famine returned Malthus’s "positive check" to the world proved wrong.

Back before the nineteenth century growth in average human standards of living was--once again--glacial: it was hard to see on the scale of any single human lifespan. And, save for the elite, it may not have existed at all. Certainly Thomas Jefferson in 1800 Anno Domini lived better than Marcus Tullius Cicero in 700 Ab Urbe Condita--Cicero would have envied Jefferson the soundness of his house's construction, his sources of nighttime illumination, his silk and other fabrics, and most of all his printed books--but did Jefferson’s slaves live better than Cicero’s slaves? For most of them the answer is not clear: if they did live better, the margin was small.

The nineteenth century–the century of the industrial revolution proper and its diffusion to the north Atlantic–saw maybe a little more than a tripling of worldwide average material standards of living. But it is the twentieth century that is truly remarkable: economists’ best guesses are that, if you have to pick a single number, that average worldwide material standards of living today are more than nine times what they were a century ago.

In 1895 a one-speed bicycle cost $65 if ordered from Montgomery Ward in 1895. At then-prevailing wages, it took perhaps 260 hours' worth of the average American worker's production in 1895 to amount to the money to buy a one-speed bicycle. Today an average American worker can buy a one-speed bicycle of higher quality for a little less than one day's worth of value added. In terms of labor power bicycles have become 36 times cheaper over the near-century from 1895 to 1990. On the bicycle standard--measuring wealth by counting up how many bicycles it can buy--the average American worker today is some 36 times richer than his or her counterpart was back in 1895.

Other commodities would tell a different story. A ten pound bag of russet potatoes was, this morning at Martinez family produce, on sale for $1.29--13 cents per pound of potatoes, or less than two minutes’ work at minimum wage. A pound of potatoes was one-third the value of an average Irishman’s daily consumption in the early 1840s, before the potato famine. On the potato standard, minimum-wage workers in America today have 90 times the per capita wealth of my Irish ancestors of a century and a half ago.

A cushioned office chair has become only 12 1/2 times cheaper, in terms of the time the average worker requires to produce enough to pay for it. A Steinway piano, by contrast, is only twice as cheap in terms of the labor time of the average worker. And a silver teaspoon is actually more expensive in terms of labor time–but is the right comparison one of silver now with silver then, or of a spoon that won’t corrode rapidly now to a spoon that wouldn’t corrode rapidly then? It makes a big difference which you think is the right comparison.

And then there are the capabilities we have that had no effective analogue a century ago. This morning I walked the puppy to the vet while listening to Puccini’s opera Turandot. A century ago... well, Turandot was written in 1924 so I coudn’t have been listening to it. But consider the impossibility of listening to Don Giovanni while walking your puppy to the vet a century ago. If you wanted to see The Importance of Being Earnest in your living room a century ago, you had better have a very big living room and be a very close friend of Oscar Wilde and an entire theater company.

  

Multiplication of Productivity 1895-2000
Time Needed for an Average Worker to Earn the Purchase Price of Various Commodities

Commodity Time-to-Earn, 1895 (Hours) Time-to-Earn, 2000 (Hours) Productivity Multiple
Horatio Alger (6 vols.) 21 0.6 35.0
One-speed bicycle 260 7.2 36.1
Cushioned office chair 24 2.0 12.0
100-piece dinner set 44 3.6 12.2
Hair brush 16 2.0 8.0
Cane rocking chair 8 1.6 5.0
Solid gold locket 28 6.0 4.7
Encyclopedia Britannica 140 33.8 4.1
Steinway piano 2400 1107.6 2.2
Sterling silver teaspoon 26 34.0 0.8

Source: 1895 Montgomery Ward Catalogue

Moreover, note that this large upward jump of productivity and wealth has not been exclusively confined to the industrial core of the world economy. In 1987, 97 percent of households in Greece, not usually considered one of the world's industrial leaders, owned a television set. In Mexico in that same year there was one automobile for every sixteen people, one television for every eight, one telephone for every ten.

So how do we count up that portion of our standard of living that is made up of capabilities that could not be matched at any price a century ago? What is the value of the central heating, electric lights, fluoridated toothpaste, electric toaster ovens, clothes-washing machines, dishwashers, synthetic fiber-blend clothes, radios, intercontinental telephones, xerox machines, notebook computers, automobiles, and steel-framed skyscrapers that I have used so far today--and it is only a little after noon? We make our estimates. But perhaps it would be wiser to admit that all of these estimates are imperfect, subject to challenge, inaccurate, and nothing more than a quantification of what really cannot be quantified--in the same way that, as John Maynard Keynes liked to say, we could agree that Queen Elizabeth I was a better queen but not a happier woman than Queen Victoria while also agreeing that the question was one completely unsuitable for any form of numerical measurement.


What It Means

So what I like to do is to drop back into the last decade of the nineteenth century to one of the best-selling--and worst-written--books of that decade, Edward Bellamy’s Looking Backward. The narrator of the book is thrown forward in time from 1895 to the Utopia of 2000, where he examines Utopia and reflects on the civilization of his own time that he has left. One of Bellamy’s set pieces in the book is his description of the technological marvels of the start of the twenty-first century. The set piece begins with his hostess in 2000 asking him: "Would you like to hear some music?"

Bellamy’s protagonist expects his hostess to play the piano. Instead, Bellamy’s protagonist is stupefied to find his host "merely touched one or two screws," and immediately the room was "filled with music; filled, not flooded, for, by some means, the volume of melody had been perfectly graduated to the size of the apartment. 'Grand!' I cried. 'Bach must be at the keys of that organ; but where is the organ?'"

He learns that his hostess has called the orchestra on the telephone: that the prime technological marvel of Bellamy's utopia you can dial up a live orchestra, and then put it on the speakerphone. You even have a choice of orchestras. There are four playing at any moment.

Bellamy's protagonist then says that: "if we [in the nineteenth century] could have devised an arrangement for providing everybody with music in their homes, perfect in quality, unlimited in quantity, suited to every mood, and beginning and ceasing at will, we should have considered the limit of human felicity already attained..."

Yet we today do not think of our recorded-entertainment industry as an especially remarkable or even an exceptionally notable part of our economy. We do not genuflect daily in front of our CD collections–or most of us don’t, anyway. We do not reflect that they have brought us to the limit of human felicity.

For the most part, we just take them very much for granted. As far as material prosperity is concerned, we are well enough off to be blissfully unaware of portions of our life that would have struck previous centuries as trans-Utopian.


The Worldwide Distribution of Wealth

Now there is one big caveat. All of the inventions of the twentieth century–and the nineteenth, and the eighteenth–are worth nothing to you if you cannot afford to use them. Somewhere in Bangladesh right now there is a middle-aged man who could do my job of being one of Berkeley’s stable of economic history professors better than I could. A wide range of circumstances--starting with protein deprivation in utero, continuing with the absence of primary school and the wreckage from Yahya Khan's decision at the end of the 1960s that the best way to keep East Pakistan from breaking away was to kill everyone in the province who could read, and concluding with restrictions on international trade (the multifiber agreement) that robs him of the opportunity to work in textile sweatshops offering three times their current rural subsistence standard of living--have kept him far from here.

They have given me, instead, what would in a world of equality of opportunity have been his office with its view of the Golden Gate. Because of where he was born, he has benefited little if at all from the enormous wave of technological development and economic growth that has produced the wearable CD player and the CD with Placido Domingo singing the part of Il Principe Ignoto in Turandot that I was listening to this morning.

For if the tremendous amplification of average material productivity in the past century around the globe is extraordinary, its stunningly unequal distribution is even more extraordinary. Nearly 70% of the world's population live in countries where the average level of GNP per capita is less than $4,000 a year. Less than 15% of the world's population live in countries where the average level of GNP per capita is greater than $16,000 per year.

Those nations and economies that were 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 too, but for the most part much more slowly. And the relative gulf between rich and poor economies has grown steadily. Today this relative gulf is larger than at any time in humanity's previous experience. It is not that people in the relatively poor countries are poorer than their predecessors of a century ago, but that they are little richer--and that the wealth of people living in the relatively rich countries has exploded.

That the pattern of economic growth over the twentieth century is one of striking divergence is surprising to economists, for economists expecedt convergence. It is not the case that some form of "unequal exchange" is sucking economic surplus out of the poor countries into the relatively rich countries. Those among the relatively poor who have done the very best are those that have concentrated on boosting their exports and increasing their degree of economic integration. It is not (outside of Africa) that imperialism has significantly hobbled economic development (inside Africa, however, the three centuries of the large-scale slave trade in west Africa and the seven centuries of the large-scale slave trade in east Africa did extraordinary damage to societies and civilizations.)

In the nineteenth century both liberal economists like John Stuart Mill and radical economists like Karl Marx expected convergence. Mill spoke about how increasing world trade, growing literacy, and kind and generous British rule would bring prosperity to countries like India. Marx spoke about how British manufacturers seeking profits would build a network of railroads across India, and "the consequences will be incalculable" pulling India out of what Marx called "oriental despotism." World trade, migration, and flows of capital should all work to take resources and consumption goods from where they are cheap to where they are dear. As they travel with increasing speed and increasing volume as transportation and communication costs fall, these commodity and factor-of-production flows should erode the differences in productivity and living standards between continents and between national economies. Moreover, most of the edge in standards of living and productivity levels held by the industrial core is no one’s private property, but instead the common intellectual and scientific heritage of humankind. Here every poor economy has an excellent opportunity to catch up with the rich by adopting and adapting from this open storehouse of modern machine technology.

Yet economists’ expectations have, throughout the past century, been severely disappointed.

We can view this particular glass either as half empty or as half full. Half empty: we live today in the most unequal, in terms of the divergence in the life prospects of children born into different economies, world ever. 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 economic transformation of the leading-edge economies—only an eyeblink behind, at least from a millennial perspective.

On the other hand, one and a half billion people live in economies that have not made the transition to intensive economic growth, and have not climbed onto the escalator to modernity. It is very hard to argue that the median inhabitant of Africa is any better off in material terms than his or her counterpart of a generation ago. And we cannot take a millennial perspective: the fact that students three thousand years from now may be somewhat fuzzy about whether widespread global poverty came to an end in the eighteenth, the twentieth, or the twenty-second century does not mean that we can be indifferent about the gulf between economies that are rich and economies that are poor.

But there are several stunning examples of catching-up: countries that have fulfilled economists’ visions of convergence, and that have rapidly closed the gaps between their initial relative poverty and the world’s best-practice levels of material productivity. Consider Japan, South Korea, Italy, Hong Kong and Singapore, and Taiwan. The examples of successful catching-up suggest that things could have been otherwise: that economists’ hopes for convergence could have been fulfilled in the past century, and could be fulfilled in the next.


Sources of Divergence

What has determined which countries have wound up near the top (and which have wound up near the bottom) of today’s world relative income distribution? It turns out that more than half of the variance in the world’s relative distribution of GDP per capita by nation can be accounted for with one single factor: the relative long-run capital intensity of that country’s economy. And if you add a second factor—what GDP per capita was half a century ago, back at the end of World War II—with these two factors alone you can account for fully five-sixths of the divergence in today’s distribution of output per capita across nations. If you invest--both in physical capital and in your people through education--and if you were well-positioned half a century ago to take advantage of modern industrial technologies, then you are likely to be relatively rich.

But what are the deeper sources? What keeps economies from building-up high capital-output ratios? What keeps economies from being able to take advantage of modern industrial technologies? We do not really know.


The Neoliberal Bet

At the moment we have collectively bet the future of economic development on "neoliberalism." Part of neoliberalism is the belief (which I see as justified) that by and large the state and the public sector in developing countries have been obstacles to and not sources of development--instrumentalities of corruption and rent extraction rather than growth. Therefore part of the neoliberal bet it that shrinking the state in relatively poor countries will reduce the difficulties of development. The rest of neoliberalism is the belief (which I also share) that we do not understand very much about the successful diffusion of technology, but it is a good bet that close economic contract between nations is one of the principal channels of technology diffusion. Hence increasing economic contact through trade and investment will increase the chances of successful technology transfer.

At the moment this neoliberal strategy does appear to me to be the best available strategy. But there is no hiding that it is a roll of the dice. The human stakes at risk are enormous. The potential gains from cutting even a decade off the time it takes the poorer economies of the world are immense. And our knowledge of what to do and how to do it is meager.

Source: Gollup and Sachs (1996)


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Brad, Two comments.
World population is almost certain to peak around 2050 at 8-9 billion and
then to begin a long-term decline. The movement to below replacement level
fertility is perhaps the most powerful and pervasive trend in existence.
Even in Bangla Desh fertility has plummeted, which no one has a theory to
explain. Some time next century world population will be lower than now and
no end is in sight for the end of the decline. Of course this is not a
problem unless you like people.
Any country can become wealthy. How wealthy it is depends on when it
starts and how fast it grows. How fast it grows depends basically on how
willing and able the mass of people are to learn and change, if the govt
performs minimal functions and gets out of the way. There is no country
where there the govt protects property and contracts, provides peace, and
doesn't interfere too much, that doesn't have sustained growth. [Please let
me know if you have a proposed exception.] The tests of "too much
interference" are capital flight and informal economy. Culture probably
also makes a difference. See Sowell.
It is also relevent that our wealth is making it much easier for other
countries to become wealthy than it was for us to do so. We are in many
ways the engine, as an example of freedom as well as an example of
productivity, and a market and a teacher and a supplier of technology and
practise.
Best Max

Contributed by Max Singer <msinger@intr.net> on October 31, 2000


Professor DeLong,

If we agree that the citizens of Equatorial Guinea would be better off with
a better government perhaps we should look at some of the ways to encourage
this. The analogy that came to my mind is the way prostitution was
"controlled" in most western countries until the 1970s: the prostitutes were
regularly arrested, fined, and released while the punters were ignored by
the law.

Perhaps we in the West make it too easy for governments in the LDCs to be
bad. Our banks and stock exchanges (and in Australia, our casinos) welcome
deposits and investments from corrupt third world politicians without asking
how an honest politician can acquire multiple billions of dollars.
Companies like Shell may not have actually murdered anybody, but they did
find it commercially undesirable to protest when the Nigerian dictatorship
murdered people on Shell's behalf. Shell also adopted a conspicuously
different attitude to environmental pollution in Nigeria as against Europe,
no doubt on the Friedman/neoliberal principle that once companies obey the
local laws they have discharged their social responsibilities. (The revolt
of European and some US and Canadian consumers, and their inability to
attract top graduates, has caused Shell to initiate radical internal changes
aimed at preventing future embarrassments, but this does not seem to be very
neoliberally correct.)

BTW, New Zealand, after 15 years of neoliberal reform, is much poorer
relatively than when it started. It was 23rd out of 24th in the OECD when
the reform process started, and that is exactly where it is now. It is
worth a look. In 1991 NZ deregulated its labour market and productivity
growth simply ceased, another issue for neoliberals to ponder.

Contributed by John M. Legge <jlegge@bigpond.net.au> on October 30, 2000.


Dear Professor DeLong,

Do you see no inconsistency between the "stunning" examples of countries
catching up with the West and your neoliberal call for less government in
developing countries? The only "small government" country in your list is
Hong Kong, and there are special circumstances there.

In all your other examples, as with the USA and Germany in the late
nineteenth century, economic development was sponsored by a powerful
government with active trade and tariff polices.

regards,

John M. Legge

Good point. Look: there is no doubt in my mind that a successful developmental state is far superior to a small state. But what has driven people to the neoliberal point of view is the sense that out on the periphery the overwhelming majority of states have been anti-developmental states: kleptocracies of one form or another.

And we don't know how to fix them. We don't know how to turn Equatorial Guinea's government into a developmental state like Japan...

Contributed by Brad DeLong <delong@econ.berkeley.edu> on October 29, 2000.


Good points... But it was as much the *lack* of imperialism--the successful revolts by the oligarchs against Spain, and their maintenance of latifundia-based power into the late twentieth century--that has been (in my view, at least) the source of much of Latin America's relative retardation.

Imperialism brings new technology and new social structures; it destroys old ones. It is not at all clear to me what the net balance is save in Africa, where the impact of the slave trade was overwhelmingly negative...

Contributed by Brad DeLong (delong@econ.berkeley.edu) on October 29, 2000.


Dear Dr. DeLong:

As usual, I have enjoyed your latest post to the listserv and there is
much with which I agree. The main dispute I would have, though, is when you
seem to attribute a negative role to "imperialism" only in Africa, or at
least that is how it seemed to me. The question of imperialism is a complex
one, as people can obviously see that there were certain colonies, such as
what become the United States that prospered, while other parts of the
Americas for instance, did quite poorly, not only in terms of economic
growth, but in terms of development, defined more in terms of the increase of
substantive capacities and hence freedom, as Amartya Sen and others have done.
There are keys, though, to unlocking these questions. Paul Bairoch, for
instance, has demonstrated that the West was far from its superior GMP per
capita relative to what become the Third World in 1800, as Fernand Braudel
notes on pp. 534-535 of his Perspective of the World. In this book, he deals
with the advanced state of Indian capitalism, notably its textile and
shipbuilding industry and the ways in which these industries were destroyed
by the British, through a combination of force, protectionism and the use of
machinery. A not dissimilar story can be seen in other Western countries.
The story of Japan-led East Asia, in different, in not insignificant part
exactly due to the anomalous nature of Japanese colonialism, which, though
undeniably brutal, actually located industry in the colonies as part of its
war preparation. In addition, US land reforms, in the face of Communist
revolution in China and US international military Keynesianism along with
open markets for East Asian goods, provided for development opportunities not
available for Latin America for instance. In Latin America, in constrast to
East Asia, the legacy of colonialism, forced labor and the maintenance of
oligarchic class and political structures - ones maintained, in the postwar
period, under the guise of fighting communism, by the US - helped ensure
growth without development.
If one looks at the history of those countries which have developed, one
sees that the use of force and protectionism played important roles - the
Navigation Acts in England, protectionism for US textiles, etc. After a
time, once competitive, these industries were able to compete on the world
market with less restrictions. This type of advanced industrial policy, was
not available to those countries subject to Western power and this is to a
significant degree responsible for the growing inequalities seen in the world
today.
I realize that this short survey will probably not convince anyone, but I
think that the work done in comparative historical sociology, historical
political economy, world-systems analysis and history generally will bear out
these claims.

yours, most sincerely,

Contributed by Thomas Reifer (TomReifer@aol.com) on October 29, 2000.


Mr. Delong,

Thank you so much for sharing your expertise and your
insights with your subscribers! This is the first time I
have ever read such an understandable and comprehensive
discussion about the disturbing and depressing inequities in
our 21st Century world. I feel I have just learned so much
about so many things that have been troubling me, and your
analyses and comparisons with past conditions, and possible
explanations for current ones, answered my questions as they
were still forming in my mind. I did not expect that anyone
could make me feel optimistic about the future of our
world's populations, but somehow, you did, without denying
reality.

I read a lot, but my college was limited, so at age 71 I am
delighted that the 10 minutes I spent reading your article
could illuminate so many issues for me. I wish I had been
exposed to these ideas years ago, but "better late than
never"! I'm looking forward to reading more of your wisdom!
I always thought of Economics as being a very specialized
field, but you seem to make it all-inclusive and relevant to everything.

Sincerely,

Contributed by Suzanne Benning (Suesdollroom@earthlink.net) on October 28, 2000.