Thursday, December 01, 2016

Human Progress: (3) Life is Richer and Less Impoverished

In considering the empirical data for human progress through the Liberal Enlightenment, we tend to look for statistical data.  But statistical data often does not convey any clear image of how people live--of how, for example, the lives of poor people differ from the lives of rich people around the world.  As is indicated in this video of a lecture by Anna Rosling Ronnlund, it is possible to use photos as data, as she has done at Dollar Street, to understand how other people live their daily lives, and how their poverty or wealth makes a difference.  Photos as data illuminate the statistical data to help us understand what it really means for human life to progress from an impoverished world to a rich world. Max Roser includes many different kinds of data in his article on "World Poverty."

Economic historians have surveyed the data for "efflorescences" in premodern history--spurts of growth in wealth and population--that include the High Middle Ages in northwestern Europe (1150-1250), Golden Age Holland (1570-1670), High Qing China (1680-1780), and classical Greece (5th and 4th centuries BCE).  But in none of these efflorescences does one see the self-sustaining and accelerating explosion in economic growth that began in Great Britain around 1850, which Deirdre McCloskey calls The Great Enrichment.  Although Northian institutionalism can explain these efflorescences of economic growth in per capita income of up to 1% per year, it cannot explain the unprecedented growth in the past two centuries, in which liberal societies have seen increases in average income from 1800 to the present of over 1,000 to 3,000 percent.  To explain that, McCloskey argues, we need to see the crucial rhetorical change that led to the great Bourgeois Revaluation that recognized the moral and intellectual virtues of the bourgeois commercial society.

Some of the best work in generating economic and demographic data for the world economy from Roman times (1 AD) to the present has been done by Angus Maddison and (since Maddison's death in 2010) his colleagues at the Maddison Project.  Maddison assembled precise estimates of GDP, population, and GDP per capita in the world economy over the past two thousand years.  Some of these estimates were drawn from national statistical offices or international agencies like the United Nations.  Some were drawn from historians studying various kinds of data (such as, for example, the proceeds of certain taxes).  Some of Maddison's estimates, particularly for ancient history, were--he admitted--"conjectures" or "guestimates."  His justification was that even highly conjectural statistics were desirable, because they would invite scholarly criticism from people offering better estimates.  In fact, the scholars at the Maddison Project have been revising his estimates based on new research.

Maddison set his estimates to 1990 "international dollars"--measured by adjusting for price changes over time and for price differences between countries.  He then charted the history of GDP per capita and the rate of growth in GDP per capita for countries around the world from 1 AD to 2003.  Roser has some of these charts in his article on "World Growth."

Here, for example, are the numbers for the average GDP per capita for 12 European countries from 1 AD to 2003: 599 (1 AD), 425 (1000), 798 (1500), 907 (1600), 1,032 (1700), 1,243 (1820), 2,087 (1870), 3,688 (1913), 5,018 (1950), 12,157 (1973), and 20,597 (2003). 

Here are the numbers for the Netherlands: 425 (1 AD), 425 (1000), 761 (1500), 1,381 (1600), 2,130 (1700), 1,838 (1820), 2,757 (1870), 4,049 (1913), 5,996 (1950), 13,082 (1973), 21,480 (2003). 

Here are the numbers for the UK: 400 (1 AD), 400 (1000), 714 (1500), 974 (1600), 1,250 (1700), 1,706 (1820), 3,190 (1870), 4,921 (1913), 6,939 (1950), 12,025 (1973), 21,310 (2003). 

Here are the numbers for the USA: 400 (1 AD), 400 (1000), 400 (1500), 400 (1600), 527 (1700), 1,257 (1820), 2,445 (1870), 5,301 (1913), 9,561 (1950), 16,689 (1973), and 29,037 (2003).

Here are the numbers for the average rate of growth in GDP per capita for 12 European countries: -0.03 per cent (1-1000 AD), 0.13 (1000-1500), 0.14 (1500-1820), 1.04 (1820-70), 1.33 (1870-1913), 0.84 (1913-1950), 3.92 (1950-1973), and 1.77 (1973-2003). 

Here are the numbers for the Netherlands: 0.00 (1-1000 AD), 0.12 (1000-1500), 0.28 (1500-1820), 0.81 (1820-1870), 0.90 (1870-1913), 1.07 (1913-50), 3.45 (1950-1973), 1.67 (1973-2003).

Here are the numbers for the UK: 0.00 (1-1000 AD), 0.12 (1000-1500), 0.27 (1500-1820), 1.26 (1820-1870), 1.01 (1870-1912), 0.93 (1913-1950), 2.42 (1950-1973), 1.93 (1973-2003).

Here are the numbers for the USA: 0.00 (1-1000 AD), 0.00 (1000-1500), 0.36 (1500-1820), 1.34 (1820-1870), 1.82 (1870-1913), 1.61 (1913-1950), 2.45 (1950-1973), 1.86 (1973-2003).

These and other numbers support Maddison's conclusions about seven phases in the development of the world economy over the past two thousand years.

First, there was a decline in Europe from ancient Rome in 1 AD to 1000 AD.  During this period, the Islamic world and China had higher economic development than Europe. 

Second, there was a gradual growth in the European economy from 1000 to 1820. which accelerated in the merchant capitalist epoch, 1500-1820.  In the 15th century, Europe surpassed China in GDP per capita for the first time.  In the 17th century, the Dutch Republic emerged as the most prosperous country in human history up to that time.  Following the lead of the Dutch, Great Britain in the 18th century became the most prosperous country.

Third, the initial phase of the modern capitalist epoch in 1820-1870 brought higher growth rates in Europe and in the "western offshoots" of Europe (USA, Canada, Australia, and New Zealand).

Fourth, the "liberal international order" based on global free trade from 1870 to 1913 brought even higher growth rates for Europe and the western offshoots.

Fifth, from 1913 to 1950, the two world wars and the global depression brought a slowing of the growth rate associated with high trade barriers and illiberal regimes (like the Soviet Union and Nazi Germany).  Notice, however, that growth continued during this period, although the rate of growth slowed.

Sixth, the "golden age" of liberal free trade in 1950-1973 brought the highest global growth rates in all of human history.

Finally, in the "neo-liberal order" of 1973-2003, the rate of global growth slowed from the golden age, but even so, the rate of economic growth during this most recent period has been the second highest in human history.

Relying on such statistics for GDP per capita as a measurement for economic growth is open to objections.  One objection is that many of these numbers are pure guesswork--particularly for the distant past.  So, for example, Maddison stipulates that the GDP per capita for Great Britain in 1000 was 400 dollars, because he assumes that most people were living at the subsistence level of living, and that 400 in 1990 international dollars supports a subsistence life.  But it's not clear that this is anything more than an arbitrary assumption.  Maddison's response to this objection was that he always specified the reasoning and sources for his estimates, and that other scholars could challenge and revise his numbers.  Indeed, those contributing to the Maddison Project have done this.  So, for example, while Maddison estimated an average income per capita of 771 dollars for western Europe in 1500, people with the Maddison Project now think that current research supports a higher estimate of 1,200 dollars or more.

Another objection is that GDP statistics underestimate economic growth because they do not measure the improvements in the goods and services available to consumers, so that what counts as wealth or poverty changes over time.  Matt Ridley writes: "Today, of Americans officially designated as 'poor,' 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone; 71 per cent a car, and 70 per cent air conditioning. Cornelius Vanderbilt (the richest man in the world in the mid 1800s) had none of these" (Rational Optimist, 17).

In his article on "Technological Progress," Max Roser makes this point by noting the exponential growth in technological progress, particularly in computational technology.  Extending Moore's law--that the number of transistors on integrated circuits doubles approximately every two years--Ray Kurzweil has shown the exponential growth of computing (calculations per second per $1,000) for 110 years, so that there is an exponentially decreasing price for a given product quality over 110 years.  Consequently, Maddison's statistics for growing GDP per capita greatly underestimate the true growth in wealth for the average person.  Today, many poor people can afford to buy computing power that was previously not available to even rich people.

Disputes over the statistical measurement of wealth have contributed to a split between Malthusian and Smithian interpretations of what happened in the merchant capitalist epoch (1500-1820).  Adam Smith in 1776, in The Wealth of Nations, saw some economic progress since 1500.  He argued that the discovery of the Americas and the southern route to Asia had created international trade across the entire globe for the first time in human history, which opened up opportunities for international exchange and specialization in the division of labor.  He thought that these opportunities had not yet been fully developed because of the mercantilist restrictions on trade.  But he foresaw the possibility that these restrictions could be dropped, bringing accelerated economic growth, if he was persuasive in his argument for liberalism--for "the liberal system of free exportation and free importation" (Wealth of Nations, Liberty Fund, 538) and "allowing every man to pursue his own interest his own way, upon the liberal plan of equality, liberty, and justice" (664).  (This is the "liberal system" that Donald Trump and his Alt-Right supporters say they want to overturn in favor of neo-mercantilism and ethnic nationalism.)

Although Smith did not try to precisely quantify economic growth, he did rank countries in descending level of economic growth: the Netherlands, England, France, the North American colonies, Spanish America, China, Bengal, and Africa. Those countries ranking at the top were those that had more nearly approached the institutions and norms of free trade and individual freedom.  Maddison's historical statistics support this Smithian account of growth performance from 1500 to 1800.

In contrast to Smith, Thomas Malthus in 1798, in An Essay on the Principle of Population, argued that the scarcity of natural resources limits economic growth for all animals, including human beings.  As the material conditions of life improve, the fertility rate increases, while the death rate decreases, which produces an increase in population.  But with increasing population, the competitive struggle for scarce resources produces a decline in material conditions of life, which eventually forces a collapse in population.  So, Malthus insisted, in the long run births must equal deaths.

Malthusian economists--like Gregory Clark in A Farewell to Alms--have argued that human beings have been so trapped in this logic of the Malthusian economy, like all other animals, that there was essentially no sustained economic growth prior to 1800.  Clark writes: "Thus the average person in the world of 1800 was no better off than the average person of 100,000 BC.  Indeed in 1800 the bulk of the world's population was poorer than their remote ancestors.  The lucky denizens of wealthy societies such as eighteenth-century England or the Netherlands manage a material lifestyle equivalent to that of the Stone Age.  But the vast swath of humanity in East and South Asia, particularly in China and Japan, eked out a living under conditions probably significantly poorer than those of cavemen" (1).  So in 1800, the economic life of the Dutch and the English was no better than that of the Stone Age cavemen!

But despite this disagreement between the Malthusians and the Smithians over economic development before 1800, they are agreed that after 1800 there was a stunning increase in wealth and decrease in poverty, beginning in northwestern Europe, that was unprecedented in human history.  They agree that the statistical data for economic growth over the last two hundred years shows that life has become richer and less impoverished.

Some of my previous posts on the Great Enrichment and the debate over how best to explain it can be found here, here, here, and here.


Anonymous said...

The stunning increase in growth after 1800 is due to tapping fossil fuels, when previously we just had human and animal power. First coal, then oil, and natural gas unleashed vast quantities of previously untapped energy. Each man, woman, and child has 147 "energy slaves" working for them. That is, the horsepower we all use each day from fossil fuels equals the manpower of 147 people. This is responsible for the greater standard of living today, not liberal values.

Larry Arnhart said...

Those fossil fuels have been available for hundreds of thousands of years. Why were they not put to effective human uses until 200 years ago in certain parts of the world? Does it have something to do with the incentives for technological innovation in capturing energy and putting it to work? Do those incentives depend on private property rights, free markets, and free trade--or what Smith called "the liberal system"?

Anonymous said...

It was just mostly that technology had progressed enough to be able to create a steam engine that could exploit the coal. Before then the coal couldn't be exploited.