Growth and prosperity

Here’s Don Boudreaux, on how economics made the world great:

When we talk about economic growth of a few percent a year it can appear trivial. But these have an exponential effect on living standards, and they are a relatively recent phenomenon. Sustained economic growth didn’t really occur before the eighteenth century, and since then has only happened in a few countries. For some parts of the world at present GDP per capita is similar to what it was like in Europe before the Industrial Revolution. It wasn’t until the nineteenth century that some nations began to experience 1% sustained growth per year, and only since the middle of the twentieth century that it has been 2–3%.

Although these numbers seem small, they make a big impact. As Stephanie Flanders has pointed out, the economy grew by about 2.25% per year, on average, from 1970 to 2010. This means that living standards double every 30 years. But if this growth rate slips to 1.25%, it will take 60 years.

Here’s a quick look at global growth since 1766:

If – between the years 1870 and 1990 – the US growth rate had been just 1% less per year than it actually was, then it would have only ended up at the same level of economic development as Mexico. While around 20% of the world’s 7.5 billion people live on less than $1 a day (adjusted for PPP), anyone reading this chapter will most likely be in the top 1% richest people in the world. Indeed the scale of difference between rich and poor is astounding – the poorest people in a rich country have about three times as much purchasing power as the richest people in a poor country.

According to some estimates the richest man of all time was Mansa Musa I. He ruled the Malian empire in the fourteenth century and his personal net worth reached $440bn (in 2018 dollars). But how would his living standards compare to the average person today? For a start he died aged 51.

A similar example, as David Landes has pointed out, is that of “Nathan Mayer Rothschild, the richest man in the world of his time, [who] died in 1836 for want of an antibiotic to cure an infection”.

The richest American of all time was John D. Rockefeller. But the quality of his house, or his car, would seem deprived by today’s standards. In addition, those billionaires lived in an age where income differences were visible. These days, if you bumped into a billionaire in the street you would unlikely to be able to tell.

The increases in global income have been incredible. In Factfulness, Hans Rosling tells us that 100,000 years ago everyone was poor and most children didn’t survive long enough to become parents. 200 years ago, 85% of the world were still in extreme poverty. Today, most people live in middle-income countries, with living standards similar to Western Europe and North America in the 1950s (see p.38).

He who disdains the fall in infant mortality and the gradual disappearance of famines and plagues may cast the first stone upon the materialism of economists.

Ludwig von mises

Here’s my explanation of the causes of economic growth:

One reason why economists have done such a poor job making poor countries rich is that it is often historical accident that results in all three being in place. Indeed while it is pretty simple for poor countries to have more “stuff”, knowing what to do with it is harder than it appears. And it is not even worth trying to generate wealth without the right institutions. Attitudes towards economic development have broadly followed these stages of growth theory.

Economists used to tell the governments of poor countries that growth would come if they increased their savings rate and invested more in physical infrastructure.

Then they urged them to invest in supply side policies like schools and new technologies.

Now they emphasize the right legal system and rule of law.

But identifying the source of economic growth is far easier than being able to generate it. Even though we know why some countries are rich and some countries are poor, it is naive in the extreme to think we are able to export this successfully. Any formal institutions must “stick” with the informal culture that already exists.


One of my favourite examples of how to notice intergenerational progress and increased material prosperity is Vic Wilcox’s thoughts on toilets, from David Lodge’s ‘Nice Work’ (1988) – see here.

Higher incomes are really important, they lead to:

  • Reduced population growth – poor communities have lots of children because many will die early, and they need a contribution to family income. As they get richer, the need for more extra children declines and parents focus on quality not quantity… based on current growth projections total global population is due to stabilise at ~11 bn people. As Rosling says, “Once parents see children survive, once the children are no longer needed for child labour, and once the women are educated and have information about and access to contraceptives, across cultures and religion both the men and the women instead start dreaming of having fewer, well-educated children” (p.91)
  • Greater concern for the environment
  • More resources for humanitarian assistance (e.g. for natural disasters or global pandemics)

One of the most important contributions to the rise in global living standards was the Green Revolution.

A 2021 paper found that “if the Green Revolution had never happened GDP per capita in the developing world would be half of its current level… More realistically, if the Green Revolution had been delayed by ten years incomes in the developing world would be 17% lower today. In terms of cumulative GDP what this means is that the investments which made the Green Revolution possible were responsible for some US $83 trillion in benefits” (summary from Alex Tabarrok).

Unfortunately, we missed out on similar benefits from Golden Rice.

What about degrowth?

Not everyone supports economic growth as a policy objective. Consider the following:

1) Degrowth can work — here’s how science can help, Nature, December 12th 2022 – the authors claim that economic growth is based on production for its own sake and the necessary depletion of natural resources required to fuel it. But this is a fundamental misconception of economics, which is about increasing utility (i.e. people’s subjective judgment of what improves the quality of their life) in the most efficient way possible. As Sam Bowman said, economic growth is about “innovations that use fewer resources & less labour to produce more wellbeing – the thing the blurb says we should do”.

2) Degrowth and the Monkey’s paw, by Stian Westlake, Works in Progress, May 15th 2023 – Stian Westlake points out that “the UK has been remarkably successful in weaning itself off its growth addiction. I’m surprised that supporters of degrowth don’t celebrate these charts more.”

Jason Hickel’s ‘Less is More’ argues that we need to “shift to a post-capitalist economy that is focused on human well-being and ecological stability rather than on perpetual growth”, yet this desire to overthrow the economic system is misguided and counter productive. As Martin Wolf responds, “The transformation he desires could only be implemented by a dictatorship, and a global dictatorship at that. No such regime is (happily) in prospect. That is at best unrealistic utopianism. At worst, it is yet another in a long succession of “progressive” calls for tyranny” (2023, p. 223).