Growth: the central questions

Daron Acemoglu's new textbook on economic growth concludes at Chapter 24 with a discussion of 'what we have learned', some answers to what he dubs 'the central questions', and a quick overview of 'some of the many remaining questions' faced by researchers. On page 1068 (sic) he writes:

The central questions are these:
(1) Why did the world economy not experience sustained growth before 1800?
(2) Why did economic takeoff start in 1800 and inWestern Europe?
(3) Why did some societies manage to benefit from the new technologies and organizational forms that emerged starting in 1800, while others steadfastly refused or failed to do so?

I will now offer a narrative that provides some tentative answers to these three questions.

And so he does. It's the best summary of the economic growth literature I have read - but alas, too long to include in this blog. To tempt readers, here is a small sample, from pages 1077f:

Why did some societies manage to benefit from the new technologies while others failed?

The economic takeoff started in Western Europe, but quickly spread to certain other parts of the world. The chief importer of economic institutions and economic growth was the United States. The United States already had participatory political institutions, founded by settler colonists, who had just defeated the British crown to gain their independence and set up a smallholder society. This was a society built by the people who would live in it, and they were particularly keen on creating checks and balances to prevent a strong political or economic elite. This environment turned out to be a perfect conduit for modern economic growth.

The lack of a strong political and economic elite meant that a broad cross-section of society could take part in economic activity, import technologies from Western Europe and then build their own technologies to quickly become the major industrial power in the world (Galenson, 1996, Engerman and Sokoloff, 1997, Keyssar, 2000, Acemoglu, Johnson and Robinson, 2002). In the context of this example, the importance of technology adoption from the world technology frontier is in line with the emphasis in Chapter 18, while the growth-promoting effects of a lack of elite creating entry barriers is consistent with the approach in Section 23.3 in Chapter 23.

Similar processes took place in other West European offshoots, for example, in Canada. Yet in other parts of the world, adoption of new technologies and the process of economic growth came as part of a movement towards defensive modernization. Japan started its economic and political modernization with the Meiji restoration (or perhaps even before) and a central element of this modernization effort was the importation of new technologies.

But these attitudes to new technologies were by no means universal. New technologies were not adopted, they were in fact resisted, in many parts of the world. This included most of Eastern Europe, for example Russia and Austria-Hungary, where the existing landbased elites saw the technologies as a threat both to their economic interests, because they would lead to the end of the feudal relations that still continued in this part of Europe, and to their political interests, which relied on limiting the power of new merchants and slowing down the process of peasants migrating to cities to become the new working class (see Freudenberger, 1967, and Mosse, 1992, for evidence and Chapter 22 for a theoretical perspective).

Similarly, the previously-prosperous plantation economies in the Caribbean had no interest in introducing new technologies and allowing free entry by entrepreneurs. These societies continued to rely on their agricultural staples; industrialization, competition in free labor markets and workers investing in their human capital were seen as potential threats to the economic and political powers of the elite. The newly independent nations in Latin America were also dominated by a political elite, which continued the tradition of the colonial elites and showed little interest in industrialization. Much of South East Asia, the Indian subcontinent, and almost all of sub-Saharan Africa were still West European colonies, and were run under authoritarian and repressive regimes (often as producers of raw materials for the rapidly industrializingWest European nations or as sources of tribute income). Free labor markets, factor mobility, entrepreneurial spirit, creative destruction and new technologies did not feature in the colonial political trajectories of these countries (Chapter 4).

Thus the 19th century, the age of industrialization, was only to see the industrialization of a few select places. Modern economic growth did not start in much of the world until early 20th century. By the 20th century, however, more and more nations that started importing some of the technologies that had been developed and used in Western Europe. The process of technology transfer pulling all of the countries integrated in the global economy towards greater income levels, as emphasized and studied in Chapter 19, thus started by the 20th century, but still not for all nations. Many more had to wait for their independence from their colonial masters, and even then, the end of colonialism led to a period of instability and infighting among would-be elites. Once some degree of political stability was achieved and economic institutions that encourage growth were put in place, growth started....

You can find the whole book here.

Comments

[Farrar Richardson]

Hmmmm, there are a few debatable points in that thumbnail history. e.g. It seems to me that economic growth did not really take off in the USA until an economic elite had been created after the Civil War.

Granted, however that the conditions and institutions were probably in place pre-war.

Also, the post war period was one of high and rising tariffs. Did this help or hinder?

[MT57]

I am puzzled by the assertion (which, from this excerpt, seems important to all that follows) that there was NOT a strong economic or political elite in the United States circa 1800. I suppose one ought to know what the author means by "strong" but there were certainly propertied elites throughout all the colonies and the south appears to have been highly stratified along property lines (e.g., some had slaves as property and slaves had no property). If the argument is one or both of (1) there was not one single elite dominating every aspect of the nation's life, or (2) the new country's limitations on government afforded more opportunities to participate in growth than other systems that existed at the time, by restricting the appropriation by force of those opportunities, those propositions are more supportable than the "no strong elite" proposition. But I think the real answer is (3) the physical gift of a wide-open, undeveloped and abundant continent enabled economic growth (in a way that cannot be repeated today anywhere); moreover, that abundance also rapidly rewarded and thus reinforced ideologies that justified exploitation of those resources.

[Steve Sailer]

There are also examples of Third World countries other than Japan where the ruling elites very much wanted to industrialize, such as Mahomet Ali's introduction of cotton mills into early 19th Century Egypt and the pro-Enlightenment dictator of Paraguay who pushed education hard.