THE JOURNEY OF HUMANITY THE ORIGIN OF WEALTH AND INEQUALITY.pdf
- 1. by Oded Galor The Journey of Humanity: The Origins of Wealth and Inequality 1 Group 8
- 2. 2 Oded Galor ● Israeli-American economist ● Professor of Economics at Brown University, USA ● Founder of United Growth Theory ● Area of interest: Economic Growth and Development, Cultural Economics, Economic Demography ● Elected Foreign Member of Academia Europaea ● Elected Fellow of the Econometric Society ● Research Fellow of CEPR, GLO, and IZA ● Research Associate of the NBER and CESifo ● Editor in Chief of the Journal of Economic Growth, Journal of Population Economics, Macroeconomic Dynamics Published simultaneously in 30 languages
- 3. “Why has the world suddenly become so wealthy, and why is there vast inequality between nations?” 3 Two daunting questions
- 4. 01 4 The mystery of growth The root of global inequality 02 Concluding remarks 04 TABLE OF CONTENTS Conflicting effects of diversity 03
- 5. THE MYSTERY OF GROWTH 01What are the roots of the dramatic transformation in living standards in the past centuries, after hundreds of thousands of years of stagnation? 5
- 6. The Journey of Humanity 300,000 year agos in Africa - Homo Sapiens Over most of human existence, human life was ”Nasty, Brutish & Short” (Hobbes, 1651) Remarkably similar to that of other species: ● Humans were preoccupied by survival & reproduction ● Living standards were near subsistence ● Minor differences in living conditions across time & space 6
- 8. Living Standards Few Centuries Ago 8 Metamorphosis ● 1/4 of new born died before reaching their first birthday ● Numerous women perished during childbirth ● Life expectancy rarely exceeded 40 ● ‘Economic Crisis’ ; ‘Belt-tightening’ Mass starvation & Extinction Over the past two centuries, there has been dramatic transformation in living standard within & across societies ● World’s income per capita has increased 14-fold ● Life expectancy has more than doubled ● Great divergence in income per capita across countries
- 9. Manifestations of this Striking Metamorphosis 9 Roman Jerusalem (1st century) Ottoman Jerusalem (19th century) today Instantaneous adaptation Shocking experience Past knowledge largely applicable largely obsolete Technological improvement merely incremental appear as a witchcraft Occupations require similar skills require incomprehensible skills Life expectancy remain largely unchanged double & require future-oriented mindset
- 10. 1, The Malthusian Epoch 10 Stagnation Dynamism Dualism Stagnation in living standards: ● Income per capita: fluctuated near the subsistence level ● Life expectancy: fluctuated in the range of 25-40 years Dynamism (Slow at any point in time, but sizable over 300,000-year period): ● Technological progress ● Population growth ● Adaptation Malthusian dynamism: Ultimately triggered the transition from stagnation to growth
- 11. 11 Technological advances Technologically advanced & land-rich economies Malthusian Dynamism – Impact of Technological Progress on Population Increased income per capita in the short-run Population grew Income per capita inevitably reverted back to its long-run level Higher population density Similar levels of income per-capita in the long-run
- 12. 12 Malthusian Dynamism – Impact of Technological Progress on Population The Malthusian pressure affected ● The size of the population ● The composition of the population Traits that were complementary to the growth process ● Generated higher income ⇒ Higher reproductive success ⇒ Became more prevalent in the population Adaptation ● Raised the prevalence of complementary traits to the growth process ● Reinforced the process of development & the ultimate take-of
- 13. 13 Malthusian Dynamism – Origins of Technological Progress Supply of innovations Demand for innovations Diffusion of knowledge Division of labor Extent of trade
- 14. Metamorphosis - Income per Capita: 1–2020 Great Divergence: 1800–2018
- 15. Land Productivity and Population Density in 1500 Technology and Population Density in 1500 Land Productivity and Income per Capita in 1500 Technology and Income per Capita in 1500
- 16. 2, The Wheels of Change 16 During the Malthusian epoch: ● Population size & composition ⇒ Technological progress ● Technological progress ⇒ Population size & composition Technological progress accelerated & ultimately reached a critical threshold ● Human capital became essential to cope with the changing environment Human capital formation triggered a reduction in fertility ● The Malthusian equilibrium vanished ● Growth was freed from the counterbalancing effect of population Tech progress & human capital formation & decline in population growth ⇒ Sustained economic growth
- 17. Evolution of Living Standards across the Globe 17 Technological progress Accelerated gradually over time >< But had a negligible impact on living standards over most of history The recent rise in living standards Reflects a phase transition Abrupt transformation, once a tipping point was reached In contrast to conventional wisdom Living standards had not increased gradually in the course of history
- 18. 3, The Modern Growth Regime 18 The March of Humanity has been thus far unstoppable Shattering & dreadful events (World Wars I & II, The Great Depression, The Spanish Flu & Covid-19) ● Devastated humanity in the short-run ● But had a limited impact on the grand arc of human development: Living standards swiftly recovered from these catastrophes The humanitarian crisis in Ukraine is devastating >< But history suggests that it very unlikely to derail humanity from its path
- 19. Resolution of these Mysteries Requires the identification of: ● Forces that permitted the transition from stagnation to growth ● The origins of the differential timing of the transition across the globe ● The role of historical pre-historical factors in this process Provides important insights about: ● Design of strategies to mitigate inequality across the globe 19
- 20. 20 THE ROOT OF GLOBAL INEQUALITY 02
- 21. 21 Roots of Inequality ● Cross-country differences in: ○ Human capital accumulation ○ Physical capital accumulation ○ Technological Levels ● Some societies fail to: Efficiently invest in physical and human capital & Adopt advance technologies Proximate Causes of Uneven Development Historical and Pre-Historical Barriers for Development ● Deeper Roots: Institutional & Cultural characteristics ● Ultimate Roots: Geographical & Societal characteristics
- 22. 22 Roots of Inequality: The Fingerprints of Institutions Emergence of differential institutions Yet institutions are rarely ’manna from heaven’ Growth-enhancing inclusive institution Growth-retarding extractive institution The Black Death’s impact on the decline of Feudalism in UK The Glorious Revolution & Constitutional Monarchy Institutions have mostly evolved gradually The Neolithic Revolution → population density → institutions Soil suitability for large plantation → extraction & slavery Disease environment → delayed adoption of centralized institutions Division of Korea
- 23. 23 Emergence of differential cultural traits across regions: Cultural traits are not manna from heaven Growth-enhancing traits - social capital (Putnam, 1993) Growth-retarding traits – family ties (Banfield, 1958) Judaism: Mandatory literacy in the 1st century CE Protestantism: Emphasis on thrift & entrepreneurship (Weber, 1905) Culture largely evolved and adapted to the environment Return to HC → Predisposition to child quality High Crop Yield → Future-oriented mindset Climatic volatility → Loss aversion Roots of Inequality: The Cultural Factors Plow suitability → Gender bias
- 24. 24 ● Emergence of non-food-producing class: ○ Knowledge creation ○ Technological head start Variations in the timing of the NR are the origins of global inequality: ● Evidence: ○ Past: Significant impact ○ Present-day: No impact ● Indirect (long shadow) impact on the evolution of cultural & institutional characteristics ● Direct impact on labor productivity; Human capital formation Trade & Technological progress The Shadow of Geography The Legacy of the Agricultural Revolution (10,000 BCE) Geographical characteristics Hunter-gatherer tribes Agricultural communities Roots of Inequality (cont’d) Roots of Inequality (cont)
- 25. 25 The migration of Homo sapiens out of Africa 60,000-90,000 BP ● Affected the distribution of population diversity across regions: comparative development (Ashraf and Galor, AER 2013) During the exodus of modern humans from Africa ● Departing populations: Carried a subset of diversity of their parental colonies ● Migration was sequential: Lower diversity among ancesteral populations at greater migratory distances from East Africa Figure 1. An Illustration of the Serial Founder Effect Figure 1. Migratory Distance from Africa and Population Diversity The ’Out of Africa’ Hypothesis of Comparative Development
- 26. 26 CONFLICTING EFFECTS OF DIVERSITY 03
- 27. 27 ● Cross-fertilization ● Complementaries Beneficial effects on creativity and innovations Adverse effects on social cohesiveness ● Mistrust ● Disagreement about the desirable public goods CONFLICTS Population diversity has a mixed benefits and drawbacks. Diversity has a positive and diminishing effect on… ● Innovations ● The positive and diminishing effects of Homogeneity on social cohesiveness A hump-shaped relationship between diversity & development Conflicting Effects of Diversity & Growth Enhancing Diversity
- 28. 28 Diversity and Comparative Development
- 29. 29 Diversity - 1265 Ethnic Groups
- 30. 30 Diversity and Population Density 10,000 BCE - 1500 CE
- 31. 31 Determinants of the Pace of the Wheels of Change
- 32. History-Dependent Growth Enhancing Education Policies Diversity ● Social cohesiveness & tolerance – in diverse societies ● Challenging the status-quo & Pluralism – in homogeneous societies ● Future-oriented mindset: If native crops were not conducive for agricultural investment ● Persistence in attitudes towards gender and loss aversion 32 ● Progressive policies in the relationship with gender equality, tolerance & diversity Fostering growth-enhancing cultural traits Progressive policies hold the key for universal prosperity The Journey of Humanity ● ”History is not a fate” ● ”Considering our history will permit us to design of our future” Growth-enhancing policies: ● Country-specific ● History-specific ● Geography-specific ● One policy does not fit all nations
- 33. 33 Will Climate Change Derail Humanity from its Relentless March? Technological acceleration fertility rates ● Mitigating the pace of climate change ● Providing time for advancements of revolutionary technologies ● May turn this climate crisis into a fading memory Industrialization Climate change Human capital formation Power of innovation
- 34. CONCLUDING REMARK 04What we learn about history 34