I interviewed Dr. Jared Rubin this week to explore the historical drivers of economic growth and we discussed the apparent disparity between the current global prosperity and the widespread pessimism in the United States, as evidenced by surveys. As an expert in economic history, Rubin provided valuable perspectives on these complex issues.
Rubin, (his bio) a professor and co-director of the Institute for the Study of Religion, Economics and Society at Chapman University, co-authored the book "How the World Became Rich: The Historical Origins of Economic Growth" with Mark Koyama which studied theories of other economic historians to uncover the crucial elements that have propelled global economic advancement throughout history.
I recommend his book: HERE
Conclusion from the interview: “Best time to be born is now, but…”
The interview reveals Rubin's perspective that the drivers of economic growth over the last few centuries have developed institutional and cultural inertia, causing prosperity to be resilient and highly likely to continue, especially in the remaining parts of world’s population that live in poverty. However, his work showed that there are 3 key threats to be aware of from history:
i) Erosion of constraints on executive power: Today’s political polarization is a concern.
ii) Extreme warfare: Growing geopolitical instability draws nuclear powers closer to war which raises risks of nuclear war.
iii) Major environmental change: Climate change can lead to accelerated changes and reactions.
The emotional impact of these potential threats to continuous economic progress may outweigh their actual probability and could be the reason for the disparity in reactions.
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“How the World Became Rich: The Historical Origins of Economic Growth”
Rubin highlights five main factors contributing to economic growth: geography, demographics, colonization, institutions, and culture. He emphasizes that these factors often interact, stating, "It's not just institutions, it's not just culture. It's the combination between them and how they work together." What distinguished global economic growth starting in Britain in the mid 18th century from history was the persistence of that growth as it spread throughout the world over the next 2 ½ centuries to today. The much larger impact from this sustained growth has been the dramatic decline in poverty and subsistence living.
The Decline of Poverty Is Far More Important than the Concentration of Wealth
Rubin emphasizes that today's world is significantly richer than in the past, with a substantial portion of the global population living above subsistence levels; the most significant effect of this continuous expansion has been the drastic decrease in poverty and survival-based lifestyles. This improvement has far-reaching implications, as lifting people out of poverty fosters human ingenuity and problem-solving capacity. And key to this is the “missing Einsteins”; how many people have or have had the capability to contribute to mankind’s well-being but were prevented from developing their natural talents.
The Case Study of England: Rise of Institutions and Innovation
England from year 1000 to 1750 serves as a crucial example in understanding economic development. Rubin notes, "I don't think you can write a book called 'How the World Became Rich' and not spend a decent amount of time on England, because that is where the modern economy started." During this period, England experienced significant institutional changes, including the strengthening of Parliament and the imposition of constraints on royal power. This political evolution, culminating in events like the Civil War and the Glorious Revolution of the 17th century, created a more stable and predictable environment for economic activity.
Simultaneously, England benefited from its geographic position as Atlantic trade opened up, shifting the locus of European economic activity from the Mediterranean to the Atlantic coast. The country also developed a culture of innovation and progress, particularly following the Enlightenment, which encouraged scientific and technological advancements. This high rate of innovation, coupled with expanding internal markets, allowed England to break free from the Malthusian trap that had constrained economic growth for centuries. As a result, even as population increased rapidly in the late 18th and early 19th centuries, living standards continued to improve, marking the beginning of sustained economic growth that would spread globally.
The Printing Press Reveals the Role of Authoritarian Rule
The printing press played a pivotal role in economic divergence between Western Europe and the Islamic world and offered excellent evidence for study. In Western Europe, the spread of printing facilitated the Protestant Reformation, which Rubin describes as "not just a religious movement, but... a social and even political movement as well." This shift in religious and political dynamics strengthened the power of secular authorities and economic elites in Protestant regions.
In contrast, the Ottoman Empire and other Islamic territories were much slower to adopt printing technology. Rubin explains that religious authorities in these regions had strong incentives to prevent the spread of printing, as it threatened their monopoly over intellectual transmission and religious interpretation. This resistance to printing technology had long-lasting consequences, contributing to divergent paths of economic and social development between Western Europe and the Islamic world. The differing approaches to the printing press thus serve as a compelling case study in how cultural and institutional factors can significantly influence technological adoption and, consequently, economic growth.
Colonialism Shifted Winners and Losers Over Time; Inconclusive Impact- England vs Spain
Colonialism's impact on global economic development is complex and controversial. Rubin acknowledges that while some former colonies became prosperous, others struggled to develop. He notes that the effects of colonialism have largely faded for the colonizers, stating, "Spain had the biggest colonial empire for quite some time, yet its own internal institutions” were deficient and its power faded. Similarly, while Britain and the Netherlands gained wealth from their colonial enterprises, the remnants of these empires play a relatively small role in their current prosperity.
However, the legacy of colonialism continues to shape institutions and cultures in former colonies. Rubin cites the work of economist Nathan Nunn, who found that regions of Sub-Saharan Africa most affected by the slave trade not only were poorer in 1950 but experienced further economic divergence in the latter half of the 20th century. This persistent effect is attributed to the erosion of trust within these societies, as the slave trade often pitted African tribes against each other. Rubin explains, "It's not just a mistrust of, say, Europeans. It's a mistrust of your neighbors as well, people outside of your kin group, outside of your ethnic group." This cultural impact of colonialism, characterized by low trust and weak institutions, continues to impair economic development in many former colonies today, highlighting the long-lasting and complex effects of this historical process.
The Effects of War
We also discussed the historical effects of war on economic growth. The 20th century saw warfare reach unprecedented levels of destruction, with a significant negative impact on global production and a shift in power to the US. However, for centuries in Europe, war actually contributed to economic growth. Charles Tilly's theory, as highlighted by Rubin, suggests that warfare played a key role in driving state development and improving bureaucracies and tax collection systems, ultimately leading to economic growth.
In today's society, warfare can be characterized by three main factors: i) advancements in technology have significantly reduced the potential for mass loss of life in battles between countries, as seen in World War 1 and 2, ii) the looming threat of nuclear war has deterred major superpowers from engaging in direct conflict since 1945, and iii) economies have become more resilient to the effects of war, as evidenced by the minimal impact on the US stock market despite events like Russia's invasion of Ukraine and ongoing conflicts involving Israel.
China
China's economic growth since 1980 represents one of the most significant developments in modern economic history. Dr. Rubin describes it as "the greatest achievement of my lifetime," noting that China has pulled about a billion people out of poverty. However, China faces 5 daunting factors that may limit China's future growth.
I. Regimes without constraints on executive power historically struggle to maintain persistent economic growth.
II. The extremely high growth rates of 6-10% annually are unsustainable in the long term. Rubin explains, "Six to 10% growth is impossible to maintain in the long run... By the time between the time you're 10 and 36, 10% yearly growth means you're living in a fundamentally different world."
III. China's high debt levels raise risks of economic instability or worse during a slowdown.
IV. China faces a looming demographic crisis due to its aging population, partly a result of the one-child policy.
V. The limited global acceptance of China's currency, the yuan, restricts its ability to manage economic crises. Rubin suggests that China's future economic and political integration with the rest of the world will be crucial for global economic prospects. He notes, "To the extent that it helps facilitate a change in governance, or a change in maybe more restrained governance... then we might be able to... have China be a state that really integrates not just economically, but politically with the rest of the world."
Conclusion:
Our conversation offered valuable insights on the historical origins of economic growth, providing a unique perspective on the current state of the global economy. While confident about the stability of forces that have culminated in unprecedented levels of wealth and opportunity in our modern era, Rubin warns of possible threats of political polarization, environmental crises, and international tensions. His research highlights the beneficial impact of lifting populations out of poverty and into modest incomes towards overall global prosperity and believes this trend will continue even if developed economies slow. Ultimately, his work emphasizes the complex interplay between geography, demographics, institutions, and culture in shaping economic outcomes, offering valuable lessons for policymakers and citizens alike as we strive to sustain and expand worldwide prosperity amidst emerging obstacles.
Really interesting topic with great historical context. Understanding how colonialism crafted modern economic systems is key to understanding the current state of the world. Great work!