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Why Is the Global Divide Between Rich and Poor So Vast?

Is income from immigration the best hope for developing countries? Gregory Clark's book "A Farewell to Alms" explores the wealth, and the poverty, of nations.
 
 
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Introduction by Colin Greer, president of the New World Foundation in New York:

A Farewell to Alms is a convention-challenging book. Author Gregory Clark gives us a history of the world through a study of how the industrial revolution came to be. Where did come from he asks and what can we learn from its emergence and zenith in the UK by the 19th century. The following are some of the conventions and misconceptions Clark challenges.

Three misconceptions about income:

1. People don't need ever-increasing financial incentive to keep working. Those big salaries for corporate execs are not required for economic growth.

2. Higher income does not even come close to brining happiness. Global studies show virtually no correlation between high income and success in the pursuit of happiness.

3. Even though there has been low fertility in the West since World War II, prior to that and increasingly more so now, rich people have more kids than poor people. In countries that have industrialized throughout the last few hundred years, it has not been unusual for as many as sixty percent of poor people to be without children. For rich people, children are beloved extensions of their spending capacity.
Three misconceptions about economic development:

1. It's a mistake to try to make pre-industrial societies look like us quickly; the World Bank and Jeffrey Sachs, not withstanding. It's counterproductive to bring on the medical technology unless you're investing in the technological foundations of economic growth. Greater longevity without greater financial resources will lead to overpopulation which will make poor people poorer. Fact is, it took the West from the years 1200 to1800 to go from the early conditions of industrial readiness to full-fledged industrial revolution.

Shock therapy won't do it quickly. World Bank equations for progress and industrial growth are a bit like an SAT test for non-readers. Micro-lending is a better step but it needs to be rooted in and generative of resilient local economy.

2. There may be no endless future of income security for western workers no matter what level their education. The Clinton promise of an educated workface protecting American incomes from global cheap labor is a false one. Other countries on an economic growth track will eventually challenge educated American workers and, Clarke argues, technological advances may in fact lead to segments of the work force having no work to do. A challenge to our public responsibility and to democracy.

3. Public spending for museums or public housing is not a drain on economic growth. We can spend money on the public good without shooting ourselves in the foot. It's just not true that taxes are bad for the economy.

A final convention breaker:

Clark examines outcome data to show that the impact of immigrant remittances from the U.S to their home countries has a far greater beneficial effect than all the humanitarian aid dollars.

This is because the scale is so much greater and because it goes directly to people and local economies, avoiding the impediments of corrupt and incompetent governments.

Read the book.

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The following is an excerpt from Gregory Clark's " A Farewell to Alms" (Princeton University Press, 2007).

The basic outline of world economic history is surprisingly simple. Before 1800 income per person -- the food, clothing, heat, light, and housing available per head -- varied across societies and epochs. But there was no upward trend. A simple but powerful mechanism, the Malthusian Trap , ensured that short-term gains in income through technological advances were inevitably lost through population growth.

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 managed 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.

The quality of life also failed to improve on any other observable dimension. Life expectancy was no higher in 1800 than for hunter-gatherers: thirty to thirty-fie years. Stature, a measure both of the quality of diet and of children's exposure to disease, was higher in the Stone Age than in 1800. And while foragers satisfy their material wants with small amounts of work, the modest comforts of the English in 1800 were purchased only through a life of unrelenting drudgery. Nor did the variety of material consumption improve. The average forager had a diet, and a work life, much more varied than the typical English worker of 1800, even though the English table by then included such exotics as tea, pepper, and sugar.

And hunter-gatherer societies are egalitarian. Material consumption varies little across the members. In contrast, inequality was pervasive in the agrarian economies that dominated the world in 1800. The riches of a few dwarfed the pinched allocations of the masses. Jane Austen may have written about refined conversations over tea served in china cups. But for the majority of the English as late as 1813 conditions were no better than for their naked ancestors of the African savannah. The Darcys were few, the poor plentiful.

So, even according to the broadest measures of material life, average welfare, if anything, declined from the Stone Age to 1800. The poor of 1800, those who lived by their unskilled labor alone, would have been better off if transferred to a hunter-gatherer band.

The Industrial Revolution, a mere two hundred years ago, changed forever the possibilities for material consumption. Incomes per person began to undergo sustained growth in a favored group of countries. The richest modern economies are now ten to twenty times wealthier than the 1800 average. Moreover the biggest beneficiary of the Industrial Revolution has so far been the unskilled. There have been benefits aplenty for the typically wealthy owners of land or capital, and for the educated. But industrialized economies saved their best gifts for the poorest.

Prosperity, however, has not come to all societies. Material consumption in some countries, mainly in sub-Saharan Africa, is now well below the pre-industrial norm. Countries such as Malawi or Tanzania would be better off in material terms had they never had contact with the industrialized world and instead continued in their preindustrial state. Modern medicine, airplanes, gasoline, computers -- the whole technological cornucopia of the past two hundred years -- have succeeded there in producing among the lowest material living standards ever experienced. These African societies have remained trapped in the Malthusian era, where technological advances merely produce more people and living standards are driven down to subsistence. But modern medicine has reduced the material minimum required for subsistence to a level far below that of the Stone Age. Just as the Industrial Revolution reduced income inequalities within societies, it has increased them between societies, in a process recently labeled the Great Divergence . The gap in incomes between countries is of the order of 50:1. There walk the earth now both the richest people who ever lived and the poorest.

Thus world economic history poses three interconnected problems: Why did the Malthusian Trap persist for so long? Why did the initial escape from that trap in the Industrial Revolution occur on one tiny island, England, in 1800? Why was there the consequent Great Divergence? This book proposes answers to all three of these puzzles -- answers that point up the connections among them. The explanation for both the timing and the nature of the Industrial Revolution, and at least in part for the Great Divergence, lies in processes that began thousands of years ago, deep in the Malthusian era. The dead hand of the past still exerts a powerful grip on the economies of the present.

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The crucial factor was the rate of technological advance. As long as technology improved slowly, material conditions could not permanently improve, even while there was cumulatively significant gain in the technologies. The rate of technological advance in Malthusian economies can be inferred from population growth. The typical rate of technological advance before 1800 was well below 0.05 percent per year, about a thirtieth of the modern rate.

In this model the economy of humans in the years before 1800 turns out to be just the natural economy of all animal species, with the same kinds of factors determining the living conditions of animals and humans. It is called the Malthusian Trap because the vital insight underlying the model was that of Reverend Thomas Robert Malthus, who in 1798 in An Essay on the Principle of Population took the initial steps toward understanding the logic of this economy.

In the Malthusian economy before 1800 economic policy was turned on its head: vice now was virtue then, and virtue vice. Those scourges of failed modern states -- war, violence, disorder, harvest failures, collapsed public infrastructures, bad sanitation -- were the friends of mankind before 1800. They reduced populations pressures and increased material living standards. In contrast policies beloved of the World Bank and the United Nations today -- peace, stability, order, public health, transfers to the poor -- were the enemies of prosperity. They generated the population growth that impoverished societies.

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The Industrial Revolution

The stasis of the preindustrial world, which occupied most of the history of mankind, was shattered by two seemingly unprecedented events in European society in the years 1760-1900. The first was the Industrial Revolution, the appearance for the first time of rapid economic growth fueled by increasing production efficiency made possible by advances in knowledge. The second was the demographic transition, a decline in fertility which started with the upper classes and gradually encompassed all of society. The demographic transition allowed the efficiency advance of the Industrial Revolution to translate not into an endless supply of impoverished people but into the astonishing rise of income per person that we have seen since 1800. The second third of the book examines these changes.

The Industrial Revolution and the associated demographic transition constitute the great questions of economic history. Why was the technological advance so slow in all preindustrial societies? Why did the rate of advance increase so greatly after 1800? Why was one by-product of this technological advance a decline in fertility? And finally, why have all societies not been able to share in the ample fruits of the Industrial Revolution?

There are only three established approaches to these puzzles. The first locates the Industrial Revolution in events outside the economic system, such as changes in political institutions, in particular the introduction of modern democracies. The second argues that preindustrial society was caught in a stable, but stagnant, economic equilibrium. Some shock set forces in motion that moved society to a new, dynamic equilibrium. The last approach argues that the Industrial Revolution was the product of a gradual evolution of social conditions in the Malthusian era: growth was endogenous. According to the first two theories the Industrial Revolution might never have occurred, or could have been delayed thousands of years. Only the third approach suggests that there was any inevitability to it.

The classic description of the Industrial Revolution have suggested that it was an abrupt transition between economic regimes, as portrayed in figure 1.1, with a change within fifty years from preindustrial productivity growth rates to modern rates. If this is correct then only theories that emphasize an external shock or switch between equlibria could possibly explain the Industrial Revolution.

The classic description has also suggested that significant technological advances across disparate sectors of the economy contributed to growth during the Industrial Revolution, again pointing toward some economywide institutional change or equilibrium shift. This implies that we should be able to find the preconditions for an Industrial Revolution by looking at changes in institutional and economic conditions in England in the years just before 1800. And waves of economists and economic historians have thrown themselves at the problem with just such an explanation in mind -- with spectacular lack of success.

The conventional picture of the Industrial Revolution as a sudden fissure in economic life is not sustainable. There is good evidence that the productivity growth rate did not experience a clean upward break in England, but instead fluctuated irregularly over time all the way back to 1200. Arguments can be made for 1600, for 1800, or even for 1860 as the true break between the Malthusian and modern economies.

When we try to connect advances in efficiency to the underlying rate of accumulation of knowledge in England, the link turns out to depend on many accidental factors of demand, trade, and resources. In crucial ways, the classic Industrial Revolution in England in 1760-1860 was a blip, an accident, superimposed on a longer-running upward sweep in the rate of knowledge accumulation that had its origins in the Middle Ages or even earlier.

Thus, though an Industrial Revolution of some kind certainly occurred between 1200 and 1860 in Europe, though mankind crossed a clear divide, a materialist's Jordan at the gates of the Promised Land, there is still plenty of room for debate about its precise time and place, and hence debate about the conditions which led to it. And evolutionary account of gradual changes is a much more plausible explanation than has previously been appreciated.

Despite the dominant role that institutions and institutional analysis have played in economics and economic history since the time of Adam Smith, institutions play at best a minor direct role in the story of Industrial Revolution told here, and in the account of economic performance since then. By 1200 societies such as England already had all the institutional prerequisites for economic growth emphasized today by the World Bank and the International Monetary Fund. These were indeed societies more highly incentivized than modern high-income economies: medieval citizens had more to gain from work and investment than their modern counterparts. Approached from the Smithian perspective, the puzzle is not why medieval England had no growth, but why today's European countries, with their high tax rates and heavy social spending, do not suffer economic collapse. The institutions necessary for growth existed long before growth itself began.

These institutions did create the conditions for growth, but only slowly and indirectly over centuries and perhaps even millennia. Here the book argues that the Neolithic Revolution, which established a settled agrarian society with massive stocks of capital, changed the nature of the selective pressures operating on human culture and genes. Ancient Babylonia in 2000 BC superficially possessed an economy remarkably similar to that of England in 1800. But the intervening years had profoundly shaped the culture, and maybe even the genes, of the members of agrarian societies. It was these changes that created the possibility of an Industrial Revolution only in AD 1800, not in 2000 BC.

Why an Industrial Revolution in England? Why not China, India, or Japan? The answer hazarded here is that England's advantages were not coal, not colonies, not the Protestant Reformation, not the Enlightenment, but the accidents of institutional stability and demography; in particular the extraordinary stability of England back to at least 1200, the slow growth of English population between 1300 and 1760, and the extraordinary fecundity of the rich and economically successful. The embedding of bourgeois values into the culture, and perhaps even the genetics, was for these reasons the most advanced in England.

Both China and Japan were headed in the same direction as England in 1600-1800: toward a society embodying the bourgeois values of hard work, patience, honesty, rationality, curiosity, and learning. They too enjoyed long periods of institutional stability and private property rights. But they were headed there more slowly than England. David Landes is correct in observing that the Europeans had a culture more conducive to economic growth.

China and Japan did not move as rapidly along the path as England simply because the members of their upper social strata were only modestly more fecund than the mass of the population. Thus there was not the same cascade of children from the educated classes down the social scale.

***

The modern age began with the conquests by the Europeans of the fifteenth century and later. The newly discovered societies of Africa, America, and the Pacific sought in vain to stem the invasions of the Europeans. The obsidian blades of the Aztecs were no match for Spanish steel, the war clubs of the Maori of no avail against the British muskets, the mud walls of Timbuktu scant bulwark against French artillery. There followed the great age of imperialism, when Westerners imposed themselves in all corners of the globe. For a while the West conquered all. It shaped the political geography of much of the world; it transplanted Africans and Asians to different continents. Territory, technology, music, culture: as a consequence of the Industrial Revolution the West seemed to have it all.

But a visitor to the planet would see, ringing the modern West, a series of fortifications protecting it from invasion by the poor societies of South America, Africa, and South Asia. In the Mediterranean and South Atlantic naval patrols try to intercept desperate boatloads of migrants headed to the glittering cities of Europe. The U.S.-Mexico border is increasingly lined with rusting iron battlements, walls of concrete, and fences of wire. In the gaps, across the harsh Sonoran Desert, a trail of empty plastic gallon jugs demarcates the march of an invading army of desperately poor migrants from El Salvador, Guatemala, Honduras, and Mexico. Patrols in the Caribbean intercept sailing boats packed with Haitians trying to escape the violence and filth of Cité Soleil.

History shows, as we have seen repeatedly in this book, that the West has no model of economic development to offer the still-poor countries of the world. There is no simple economic medicine that will guarantee growth, and even complicated economic surgery offers no clear prospect of relief for societies afflicted with poverty. Even direct gifts of aid have proved ineffective in stimulating growth. In this context the only policy the West could pursue that will ensure gains for at least some of the poor of the Third World is to liberalize immigration from these countries. We know a good deal about the economic consequences for migrants from the historical record of countries like Britain, the United States, Canada, Australia, and New Zealand, which had large flows of immigrants in the modern era. That record shows that migrants, particularly those from very-low-income countries, have been able to achieve enormous income gains through migration. Aid to the Third World may disappear into the pockets of Western consultants and the corrupt rulers of these societies. But each extra migrant admitted to the emerald cities of the advanced world is one more person guaranteed a better material lifestyle.

A Farewell to Alms by Gregory Clark (c) 2007 by Princeton University Press Excerpted with permission of Princeton University Press.

Gregory Clark is chair of the economics department at the University of California, Davis.

 
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