In 1820, the average income of a person in Europe and the average income of a person on the African continent were about the same. As of 1800, the life expectancy in Western Europe and Japan was the same, about 40 years. Just two centuries ago, the huge gap between the rich and the poor that we see today did not exist.
If we used the 1800s as a base and moved forward in time, why did some countries get richer and others remain poor? Renowned economist, Columbia University’s Jeffrey Sachs, answers the question in his book, The End Of Poverty: Economic Possibilities For Our Time.
In his book, Sachs explains how just a few hundred years ago, most of the world was equal. China, India, Europe, and Japan all had similar income levels at the time of European discoveries of the sea routes to Asia, Africa, and the Americas. Marco Polo, of course, marveled at the sumptuous wonders of China, not at its poverty.
Cortes and his conquistadors expressed astonishment at the riches of Tenochtitlan, the capital of the Aztecs. The early Portuguese explorers in Africa were impressed with the well-ordered towns of West Africa.
But then something changed. And it altered the economic condition of the world in such a way that China, Mexico and West Africa are not equally wealthy anymore.
The 800-year period between 1000 and 1800 saw the world’s per capital income increase just 50%. But between 1800 and 2000, a period of just 200 years, world per capital income grew 800%. According to Sachs, this is a new phenomenon. Never before in the history of the world has income grown so fast, and never before have we seen such a yawning gap between the rich and the poor.
In 1820, the largest per capita income gap was between the U.K. and Africa - a ratio of four to one. By 1998, that gap had widened to a ratio of 20 to one. But there is a reason for this highly uneven economic growth.
The key for the United States to become the world’s richest major economy was not spectacularly fast growth, such as China’s recent achievement of 8% growth per year, but rather steady growth at a much more modest 1.7% per year. The key was consistency - the fact that the United States maintained that income growth rate for almost two centuries, explains Sachs.
Africa, on the other hand, grew 0.7% a year during the same time period. Even though the U.S.’s 1.7% a year isn’t much greater that Africa’s 0.7% a year, Sachs explains why it caused a huge income gap: “Today’s twentyfold gap in income between the United States and Africa results from a threefold gap as of 1820, which magnified seven times by the difference in annual growth rates of 1.7% in the U.S. versus 0.7% in Africa.”
What then, caused slower growth in some parts of the world? Could it be the effects of colonialism? Sachs disposes of the idea rather convincingly, "Many people assume that the rich have gotten rich because the poor have gotten poor. In other words, they assume that Europe and the United States used military force and political strength during and after the era of colonialism to extract wealth from the poorest regions, and thereby to grow rich."
Not true, says Sachs. "The key fact of modern times is not the transfer of income from one region to another, by force or otherwise, but rather the overall increase in world income, but at a different rate in different regions."
That means even the poorest regions of the world have a fair chance at economic growth, because "economic development is not a zero-sum game in which the winnings of some are inevitably mirrored by the losses of others. This game is one that everybody can win."
Take Britain, for example. Its economic success didn’t come because it colonized much of Asia and Africa. Rather, there were several factors at play that caused Britain’s development:
1. While rigid social hierarchies, serfdom and feudalism were thriving in Russia, India and other parts of the world in 1500, fixed social orders had almost completely disappeared in Britain. According to Sachs, "British society was relatively open, with more scope for initiative and social mobility than most other societies of the world."
2. An open society fostered free speech and open debate in England. "Britain had strengthening institutions of political liberty. They were also increasingly powerful protectors of private property rights, which in turn underpinned individual initiative."
3. As a result, Britain became a leader in science and technology. Great minds like Isaac Newton were encouraged. And scientific discovery and knowledge later became the basis of the Industrial Revolution in England.
4. Britain also had some natural advantages that helped its growth. It was an island country. That meant it could trade with the rest of the world easily. Transporting goods by sea was cheap. Besides, England also had fertile soil and plentiful rain, which caused a great boom in agricultural productivity.
5. Being an island also helped politically. Sachs explains, "Britain remained sovereign and faced lesser risk of invasion than its neighbors. Being an island helped considerably, much the same way that Japan’s insular geography allowed it to escape invasion despite numerous attempts from the Asian mainland. Indeed, with a one-century lag, Japan was to play a role similar to Britain’s as the leader of Asia’s takeoff to modern economic growth on the other side of the Eurasian landmass."
6. Lastly, Britain was blessed with a natural resource that would change its history forever. Like oil today, coal was a coveted commodity 200 years ago. The discovery of coal and the invention of the steam engine, British society was no longer limited by energy needs. And the use of coal would ensure Britain’s place in the developed world.
So it wasn’t colonialism or use of force that helped Britain’s economic development, but rather a combination of free society, geography, trade, innovation and coal. Other parts of the world that remained poor "were not as fortunate to have this confluence of favorable factors."
But will one country’s fortunes affect another’s? As Sachs puts it, "The world is not a zero-sum struggle in which one county’s gain is another’s loss, but is rather a positive-sum opportunity in which improving technologies and skills can raise living standards around the world."
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Sala Kannan earned her economics degree from prestigious Cambridge University in England and is an expert on global economic trends, as well as versed in developing nations and their economies.
© Copyright; Foundation for Economic Growth and various authors. Individual authors retain their own copyright.
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