Explaining the sustained economic growth that certain parts of the world have experienced since the First Industrial Revolution in the latter half of the eighteenth century has become something of its own field of study in the world of economic history. In fact, according to authors Mark Koyama (George Mason University) and Jared Rubin (Chapman University) it is “the biggest question in the social sciences.”
Over the past several decades a wealth of new books, studies, and theories have appeared purporting to explain this historically miraculous phenomenon. In “How the World Got Rich: The Historical Origins of Economic Growth” (2022), Koyama and Rubin seek to summarize all of the main lines of research and hypotheses in the field, while presenting their own case for a synthesized argument as the best explanation for how the West – and more recently the East – have been able to maintain virtually monotonic economic growth over decades and even centuries. The end result is a book so good that, if you read it slowly and carefully, it’s like taking a graduate seminar on the subject with a world class professor in the field.
Over the past two centuries, the world has grown incredibly rich by historical standards. For instance, in 1820 it is estimated that 94% of the world lived on less than $2 a day (in 2016 prices), a widely recognized benchmark for poverty. Today, that number has dropped to 10% – and it continues to drop. However, during this period the world also became much more unequal. In 1800 the richest countries in the world were perhaps four times richer than the poorest. Today they are one hundred to two hundred times richer. In short, global economic growth over the past two and a half centuries has been staggering. What made this possible for the first time in history was sustained economic growth. Indeed, what really distinguishes rich countries today from those mired in poverty is that they have not suffered from growth reversals. But how is that sustained economic growth explained? “The purpose of this book is to present and distill this debate,” the authors say.
“How the World Got Rich” is broken down into two parts. First, the authors categorize and objectively summarize the main schools of thought on the subject of economic growth in the modern world. There are just five categories: geography, institutions, culture, demography, and colonization.
The geographic explanation holds that some countries have intrinsic geographic advantages, such as Britain's moderate climate, many rivers, long coastline, and prodigious coal deposits. Or, on the opposite end of the spectrum, consider the poverty of landlocked, resource-poor countries in sub saharan Africa. The authors are rather dismissive of the geographic argument, noting that it does nothing to explain the timing of the Industrial Revolution, the onset of modern, sustained economic growth begun in the nineteenth century, or the various economic reversals experienced over time.
The authors are much more supportive of institutions as a compelling explanation of sustained economic growth. A society’s political, religious, economic, and legal institutions ultimately set “the rules of the game” and establish the beliefs and social norms that uphold those rules. In short, the better the impersonal rule of law and property rights, the better the economic freedom of a society; the better the economic freedom, the more citizens are willing to invest in the economy. Democracy is not critical, the authors say. What matters most is that the government’s power is limited. “[The rule of law] provides a check on the power of government, guarantees each individual their own private sphere of non-interference, and offers a platform of institutional stability conducive to long-run economic growth.”
Next, Koyama and Rubin address culture, an explanation they also find highly convincing, but (understandably for two junior faculty members at American liberal arts colleges) a bit difficult to navigate in an acceptably politically correct way. “Any society that frowns upon hard work [such as the ancient Romans] will be unlikely to have a robust class of innovators,” and technical innovation is essential for growth to persist in the long run. The authors are quick to point out that this line of reasoning is not Euro-centrism. Yes, Protestantism is strongly and positively correlated with modern per capita GDP, but they are not endorsing the idea of the famed Protestant work ethic introduced by Max Weber in 1905, which argued that Calvinist hardworking frugality and industrious organization was behind the economic success of Northwest Europe in the seventeenth and eighteenth centuries. The authors say that Protestantism’s positive influence on secular literacy and education were likely far more important for long term economic growth than its promotion of a diligent work ethic. Another critical point is that culture persists long after the institutional and political environment under which it emerged has changed. For instance, the parts of sub saharan Africa that were persistently subjected to slave raiders centuries ago have a much lower trust levels in their societies today.
Demography is the fourth category Koyama and Rubin explore. In 1798, Thomas Malthus famously argued that population growth will always eliminate any gains in income, keeping the vast majority of society mired in crueling poverty. Countries with more fertile land or better technology would simply experience higher population density, not higher income levels. The authors say that the Malthusian model explains most of human history up to the year 1500. Western Europe began to break free of Malthusian constraints in the late sixteenth century because of what is known as the European Marriage Pattern (EMP). Women started delaying marriage from their late teens to their mid-twenties, and once married they had fewer children. The combination of these things had a significant impact on population growth independent of economic growth. Not only did this keep wages high, smaller family sizes encouraged greater investment in education on fewer children, thus increasing human capital. This “unified growth theory” argued that the EMP led to smaller families, which led to greater human capital, which led to greater technological innovation, which led to sustained economic growth.
Finally, “How the World Became Rich” reviews colonization and exploitation. Just as the authors felt compelled to minimize the Eurocentrism of the cultural argument, they feel just as compelled here to emphasize the damage done by colonial exploitation, even though they concede that when it comes to explaining sustained economic growth “the evidence is mixed.” In short, the colonial exploitation argument maintains that cheap inputs and labor from colonies allowed for dramatic economic expansion in Western Europe, while simultaneously impoverishing and stunting the long-term growth of the colonies themselves. In 1868 in Das Kapital, Karl Marx claimed: “The colonial system ripened trade and navigation as in a hothouse.” Koyama and Rubin emphasize that colonization likely contributed to the lingering impoverishment of former colonies because it retarded institutional development, trust norms, and human capital accumulation, but note that even the richest colonial exploiters, most notably Spain, failed to achieve any kind of long term growth mainly because they lacked the truly important factors – that is, institutions and culture.
The second half of the book presents Koyama and Rubin’s perspective on the subject. They argue that there is no monocausal explanation for something as complex as the rise of the modern economy. Rather, they say, “the most convincing explanations bring together multiple arguments considering how they interact and fill in each other’s blanks.”
By 1700, northwestern Europe already possessed many of the preconditions necessary for sustained economic growth, a phenomenon known as the European Commercial Revolution. Variables included: the rise of limited, representative governments leading to state institutions that were able to provide a basic level of law and order, while European political fragmentation prevented any single centralized ruler from stifling innovation; the EMP kept birth rates low by contemporary standards; modern banking enhanced access to cheap capital (after the establishment of the Bank of England in 1694 the interest rate on British debt dropped from 14% to just 3% by 1730); a base level of urbanization had already occurred; and trade networks were well established. The authors point out that this Commercial Revolution is able to explain the rise of the first modern economy, the Netherlands, but not why the Dutch’s early success was unable to be sustained, following a similar model to medieval Venice and Florence.
Koyama and Rubin finally directly address Britain’s Industrial Revolution in chapter eight. They argue that “Britain’s industrialization set in motion a series of events that ultimately resulted in modern, sustained economic growth.” Between 1700 and 1870 the population grew by a factor of four while the overall economy grew by an order of magnitude. The rate of annual economic growth was relatively modest. The important fact was that growth was sustained over a century.
“Above all else,” they write, “the major revolutionary change during the Industrial Revolution was an increase in the rate of innovation.” By 1700, long before the onset of industrialization, Great Britain was already a fully developed market economy experiencing a Consumer Revolution. Retail shops emerged for the first time and most people began owning durable consumer goods. The Consumer Revolution was accompanied by an “Industrious Revolution” as people began working longer hours in order to afford the new array of consumer goods available to them. The authors suggest that total labor inputs expanded by over 20%. They see this industriousness as a precondition for the rise of the factory system. Meanwhile, the enclosure and enlargement of English farms led to more capital-intensive agriculture that led to higher yields capable of feeding an expanding urban population.
There are a few common explanations for why the Industrial Revolution happened in Britain that the authors find inadequate. The opening of the Atlantic trade and the British government’s mercantilist policies (those that favored exports over imports, such as tariffs, subsidies, and monopolies) “changed Britain’s economic landscape,” shifting core economic hubs to the coasts and further fueling the Commercial Revolution by introducing new luxury consumer items, particularly tea, tobacco, and sugar, which quickly became necessities. That said, the authors conclude: “The direct contribution of slavery to the British economy was small as a matter of simple accounting” and did not play a pivotal role in the rise of industrialization. Rather, slavery was a “background condition” that contributed to Britain’s economic and military dominance in the eighteenth century, not its eventual industrialization.
They also dismiss the central importance of cotton, which I found much harder to accept. For historian Eric Hobsbawm “cotton was the Industrial Revolution,” an argument reinforced by David Landes in the 1960s, and more recently supported by Sven Beckett, who suggests that cotton textiles formed the most dynamic and most influential sector of the entire industrializing economy. But Koyama and Rubin disagree. They side with Joel Mokyr who contends that the Industrial Revolution cannot be reduced to a single industry. Frankly, I just don’t see how it all could have happened without the unique quality of cotton fibers and the vast market inexpensive cotton textiles serve.
Supporting the cotton argument is Richard Allen’s influential thesis that Britain’s relatively high labor costs combined with their relatively low costs of capital and energy (namely coal) “induced innovation” in textiles that spread to other industries and drove the Industrial Revolution. The authors provide a list of captious critiques to Allen’s explanation, none of which I found particularly compelling.
So, in summary, Koyama and Rubin claim that Britain in the mid-eighteenth century possessed a host of essential preconditions that were necessary but not sufficient industrialization and sustained economic growth: limited, stable, and representative government that defended property rights; a large supply of highly skilled workers; a large domestic economy; and ready access to the growing Atlantic economy. Britain was the only country in the world to possess all of these preconditions. But something was missing. The linchpin argument of “How the World Became Rich” is that modern, sustained economic growth is the result of sustained technological innovation.
But that begs the question: where did sustained technological innovation come from? Here Koyama and Rubin fully embrace the core argument put forth by Joel Mokyr in “A Culture of Growth” (2009) – namely that an “Industrial Enlightenment” drawing on the newest scientific principles across Europe were harnessed to technical skill and developed into innovative means of industrial production.
“How the World Became Rich” says hardly anything about the Second Industrial Revolution (1870 to 1914), besides it was driven primarily by gains in education and human capital, which in turn was driven by family planning and focusing on “quality” over “quantity” when it came to children. It seems to me that Koyama and Rubin ignore many important factors here, such as the development of modern managerial science, stock market expansion, and dramatic advances in metallurgy, to name just a few.
Finally, the authors consider how China became rich, a phenomenon that they call “one of the great human triumphs of our lifetime.” The numbers behind China’s rise are truly draw-dropping. As late as 1990, two-thirds of Chinese lived on less than $2 a day. By 2016 that number had dropped to 0.5%. Between 1962 and 2019, Chinese per capita GDP grew from $71 to $10,262 – a staggering 14,342% increase! Roughly one billion people have been lifted out of dire poverty within our lifetime.
In closing, “How the World Became Rich” is a fantastic, but daunting little book. Every one of its 225 pages is so jam-packed with information it’s difficult to digest it all. In summary, the authors offer two sets of explanations to their puzzle of how the world became rich. First, political institutions need to develop alongside the economy. In their opinion, there is no economic success story that was achieved without critical political developments, such as the rule of law and state capacity. The second explanation they favor strongly, which they take almost verbatim from Mokyr, is culture, which they describe as “the heuristics employed by people to interpret the complex world around them.” Writing this comprehensive review helped me make sense of everything I had learned a bit more comprehensible. Hopefully, it’s helped you a bit too.
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Synthèse remarquable du savoir sur le développement économique
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