Two THE SPREAD OF ECONOMIG PROSPERITY Poke move from universal pores to waning degrees of pospeiy 4 has happened exp inthe span of man history. Two hundred yeas ago the ie dat we could potently achieve the end of extreme poverty would have ben unimayinable, Just about everybo was pour, ti the exception of very stall minority of rulers and large Land founers. Life was as ificu in mich of Europe a twas in India oF Chiou. Our grestgreatgrandparents were, wih very few exceptions, ‘most key poor and ling on farm. One leading economic historian, [Angus Maddison, puts the average Income per person in Western Ex rope in 180 a around 90 percent ofthe average income of Alea t= day Life expectancy in Western Europe and pan as of 1800 was about forty year, 1 fee centuries ago, vast sides in wealth andl poverty around the ‘word di not exit Cina, Indi, Europe, an apa all ha snr in ome eels atthe ine of European discoveries ofthe ea routes to Asia, ‘Aiea, and the Americas. Marco Polo marveled atthe sumptuous wom ‘ders of Chin, not atts poverty. Corts and his conquisiadores ex presed astonishment atthe riches of Tenochtin, the capital ofthe Aves. The ealy Poroguese explorers were impresed withthe well: ‘ordered towns of West Afric. IF ye are io understand why vast gap between rich and poor exits ay we must retuen tothe very recent pero of human history whe this vide emerged. The past two centuries, sce aro 1800, const ‘ue a unique eran economic histor, a period the reat economic his ‘onan Simon Kusnets famously termed the period of modern econo froth. Before then indeed for thowsazds of yar, there had ec i "uly no sustained economic growth in the word, and only gradual i creases in the human populition. The world population had sea raul fom around 230 milion people tthe start of he First miller ‘ium in A. 1 © perhaps 270 millon by Ap. 1000, and 900 milion people by 0. 1800. Real ving standards were even slower to change Acvortingto Madalon, there was no discernible rien ving tana ‘onal scale during the st millennium, and perhaps 30 percent increase in per capita income inthe eighthundeed year pero fom ‘52.1000 10.180, In the period of modern economic growth, however, both popu Sion and pereapita income came unstuck soaring a rates never before seen or een imagined. Ashe on igure Ihe global population vse snore than sixfold in jus two centres, reaching a astounding 61 biktion peopl t dhe tact ofthe di millennia, with pleny of momen: ‘um for rapid poplin growth sl ahead. The world’s average per ‘pita income rose even fer, show in gute 2 increasing by around ‘ine Himes between 1820 and 200. In oday’s ich counties, the ecor homie growth was even more astounding. The U.S. per capita income Increased almost mented during this period. and Westen Eu ropes incresed fitenfld. Toal worldwide food production more than kepc up withthe booming world population (hough large num bets of chronically hungry people remain wail wday) Vasil imprved farm yields were achieved on the basis of technological advances. Irwe combine she increases in world population and worl outpat per per ‘on, we ind that soa economic act in dhe world (the yros word rode, oF GWP) roe sn astounding frtvnine mes during the pst 180 to one. Since all pats of the word had roughly comparable starting point in 1820 (all very poor by current standards), today’s vst inequal- fe reflect the fet that some pars f the world achieved modern ‘cenome growth while aters did not, Todays wat income inequal es illuminate two centuries of highly uneven pater of exonomic som ele fre] ose ae ta i “The gulf between today’s ich and poor countries i therefore a nee phenomenon a yawning gp that opened during the period of modern economic growh As of 1820, the biggest gap between the Fie and jpoor_—spectialy, between the world's eading economy af the dy, the United Kingdom, and the work’ poorest region, Africa vasa aloof fourto one n pereapits income (even ater adjusting fr diferencesin purchasing power. By 198, the gap bemeen the richest econon. dhe Unite States, an! the poorest regon, Aiea, had widened to rwenty ‘Thisinequaty evident in the bar chart gre 3. The height of ‘theirs ar indicate the level of pr capita income in 182, and the see ‘ond in 1998, using Maddison’ estimates. The number in parenthesesat the top ofthe secon! hare the average anna growth rate af the re Bion (bere 1820 nd 108). Three main point stand out + Allregions were poor in 1820 + Allregionsexperenced economic progress + Today’ rich regions experienced by far the gretet econcanic Progress‘Wat dot mean by highly uneven economic ont een gion between 180 a 1987 Ese sal ferences nal co snc growth nessun for decals o eis event tea wo hg irene he lee of economic wellbeing (as me SMned hereby he merage per apa income in sci The er “a grssradoal onc ofthe United Sate forearm a ‘Rinse around 7 percent per ear dig the period 92. Tom hive wa twenyfne liners nin Sard th per {apitancomes ing om around. per person in 880 oan ‘So.00 ity Gn 190 dla). The ey forthe Unite States o be ome the worl het major economy Ro peta fas {poss we Chines ween acieemen percent growth per Sarthe seaty gow aa mock mote modes 17 percent Per Cae The key nasconscny the fh the Ure Sates mained Uh ineame rv ate ors ceri conn the ecomumits of Ae have go aan serge of 027 percent por er Thsliferent ay aoracerlike mheompered sri 17 pee per jean the United State, but ve a prod of Tov yearsumal dierece anna grow eso ge lerences imine les Whom f 0 percent pean, cia theme tought $400 perp) ised by le moe than hee {Eo oughin SL: per capa mf the er 188 compared han Ans wena cene nthe Unie Sates Tay’ wen {pp mince betwen the Unite Sater and Aa: therfore rests ‘Rate gi ava 1820 which maid en nes y he {lfxence im anal rum rae of 1? pee he United Stes ters erent Ae “Teer pie for understanding today’s vas inequaiin hereto understand wy aileent gm of he ori have {pom atiferent rs dring te prod of moe ecnomie som Fee texon begat pran etree pores: Onione sho the ‘ont ppaaon acted ighsncone neh omit Tonic pont. Aver two this have tent mile mcome as Sin mbte mse rats otecnomi ah. One th fanart Tint nexeme poner ey lon tes of econo roth an {hea pra Fue mus understand why gmt rates ile one Tong pea tie sta we send the hey aso Fe se nomi rowthn od aging ion. Let me dispose of ane idea sight trom the wart Many cope sume that dhe ih have gotten ich dust poor have gotten poor In oer words they assume that Europe and the United Sats wed smitary force and poll strength during and afer thera of colonia {nm to extract wealth from the poorest regions, and thereby to grow rich, This interpretation of events would be plasibe i ion werd pr ‘ethad remained rh constant witha ring share going othe pone «tl regions and declining share going othe poorer eons However, that ie not at all what happend. Grow world product xe eat fly fol. Esery region of the word experienced some economic grow (bh fn ermsa the eneralsiz ofthe economy. and even when mesmared per 'peson), but some regions experienced much more growth than ates. "Te key Fc of mor times snot the ranger of income from one Fe fc wo another, by force or otherwise, but rather the overall inn ov income, buat diferent ave diferent exis. ‘This sotto say that the ich ae ince ofthe charge of having ‘exploited the poor They surely have, and the poor counties continie {oruffer an retin countess ways inci chronic problems of po lneal isa. However, the real sory of modern economic growth thu been the abiliy of some regions o achieve unprecedented long fem increas in total prea to Tevels never before seen tthe ord, while other regions stagnated, atleast by comparison. Technol ‘gas been the rain force behind the longterm inereaesin income inthe rich world, not exploitation ofthe poor. That new is ery good Indeed because it suggest that all of the word. including toay’s hg far regions hat a reasonable hope of reaping the benefits of echo Topical advance. Economie developments nota zero-sum game i ‘which dhe wings of some are ineiably mirrored by the lsses of th ‘ra This game sone that everbody can wn, On the Eve of Takeoff ‘Ur the mid-1700, the world was remarkably poor by any of way’ standards. Life expectancy was extemely fhe died in was ‘numbers in the now ich countries well x the poor emuntis, Many sexes of disease and epidemics, from the black death of Europe to smallpox and measles, regula washed dough society and killed as ‘numbers of people Episodes of hunger and extreme weather and ctmate tations sent soccties crashing, The rise ad al ofthe Roman Enpice, for fant twenethcentury historian Arpold Toynbee, nas muh ike the rise and decline of al oer cilia before and since Economic history hal long been one of up and downs with growth fo lowe by decline rither than sistsned economic progres. “Joh Maynard Keynes wrote about this viral stagnation of human economic progress hs 1590 essay on the Enomic Pais for Our Granite From the eat ines Som which we he ord that he ethos rue ie Cit en 1 the Benning a he ‘Gxbiemth cen thre was o really gest change the ta “ano ing ofthe aberage ma Ing he cid cers of the eh, Up and dowon cern vaio of plague, famine ant ar len interval, it no progr lent change Some Periods perp fy percent Heer than oer atthe Wut 2 Inde perent Bern the four hound yes tat ended, cals pinpointed technology as the reason for this longterm sass “The ahuence of important tchnolgk invention Between the prebiore age and compat moder nese uly mark ‘Sie Amos evrything whlch really mates, and wis the wold osc athe commencement of the modern age was ale Tho oman at he daw of sry: language ie, the rae meal which we vey, et, aly hein ad the ‘inet plow aid he whe, theo ee ml athe tinen a ‘bes an pots, gold ashe, copper, and ead iron wasadedvo teat before oe hoa cba ae: ‘a mathemati, astonom and religion. here no reco when we fn: posed thee ‘What changed was the onset ofthe Industral Revolution, sported by rive in agicatral products in norhestern Europe Food vies Tone with tematic improvements in agronomic practic, inching the management of sil mutients through improved ezop rousions. The ‘ramate breakthrough came in England around 1750, when Britain’ fuascent industry fist mobilized new forms af energy for prodaction at sales that had never before been achieved. The team engine marked the decisive tring poin of mover history. BY mobilizing a vase store primary energy fos els, the steam engine locked the mas pro- Auction of goods and services on a sale bey the widest dreams of ‘he preindusrial era, Mesern energy feed every aspect of the eco ‘nomic takeof. Food production soared a fos fue energy was used 0 produce chemical friars industrial prodactionsbyrocketed erat Inputs of tos fuel energy created equally vast powerhouses of sel, transport equipment, chemicals and pharmaceutical, exile and ap. purelsand everyother modern manulicuring vector By the erly ewe tet century, dhe service industries, inching modern information and «communications echnologies, were powered by eletication self a breakrongh a he Fos ge. ‘As coal fueled industry oto, industry fueled pla power. The Bish Empire became the global politcal manifestation of the Indus tal Revolution, Briain’ nda breakthrough, unique im the world ofthe easy nineteenth century, crested a huge miliary and franca alantge tat allowed Briain 1 expand its contol aver one sith of huranityat the peak of the empire during the Vietorian er ‘Why ss nn fir? Why noe China, which asthe worl techno= logical leader for about a thousand year, hetween A. 500 and 0. 1400? Why not other centers of power on the Eatopean continent or in ‘ia? This question s much debated among cconomic historians but fie good ansvers are evident, and they provide clues othe deeper w= xpi ofthe nesta Revoiton. Fist, Bish oie) as relatively open with more scope forindli ul indative and soca mobility dhan most oer societies ofthe world, The fixed socal ders ofthe feudal era hal weakened enormotsl oF el ehanges during the era of modem economic growth ‘One more crucial element occurs with deep suuctaralchange: the isin f aor increases 38 people become mote and miore specialized in her sills, The talents of poor eur farmer in Aid ods, ain Sealand atthe time of Adar Smith ate tly marvelous These lamers ‘ically krow hos to bilder ow hots, grow and cook food, end toanimals and make their own clothing. They are, therefore, construc ‘on workers, veterinarians and agronomiats, and appatel manufac fn. They do ital and their abies are deeply impressive Tey are aso deplyinetcient. Adan Smith pointe out that spe lization, where each of us lear jot one of thowe sil, leads to _geeral improvement of exerbody’s welkncng. The iene inp and Powerful. By specializing in just one actiey—aich a8 food ising ‘thing production, of home castrucion—each worker gins may tery over the parcuar activity. Specialization thes sense however only if the specialist an subsequently trade his oF her outa withthe ‘ouput of specials in other lines of acti It wold mth no seas to Dretuce more food than 3 hovsehold needs ules there iv market ‘ett ade that exces food for lothing, shelter and forth At the sane time, without te abil tobuy food on the market, would not Be posible o be a speciale home builder or clothing maker, since it ‘would be necessary to farm fo one's ow srvival. Ths Sith sealzed lat the sion of labor i init bythe extent ofthe market (thatbythe ability wo wade), whereas the extent ofthe marke is termined tthe degree of speciation (and hence, roduc). Modern economic growth ist emeged in England because ofthe com Avene of favorable coon. However, these conditions were not ‘unique to England and once the Industrial Revolution was under a, the same combination of modern technologies and vocal orgnization ‘ould spread to other part ofthe world, What stared in one commer of ‘Noniem Europe would eventually reach almest the ene planet. In doing s, the Fores of meesn economie gronth propelled a general increase in glbal production of unprecedented dimensions. ‘On paper the transition to modern economic growth might appear to bean unambiguous and ataighforeard bene for the world. Aer a new technologies enabled society to harness energy and ideas that ‘ated labor product (economic output per person) to levels never before imagined, This proce brought shout are Iving sta dards of unprecedented scale, Yet the ransiion was more tumultuous ‘than not, ivolvng vst socal sages and often war. Before uring ‘he historical record, tis worth considering fora moment why the som wa oil in so many places. ‘Most important, modern economic growth ws wot only question ‘of mare” (onepnt per person) but alo “change.” The tnsion 1 roviem cennomic gromh involved usbanization, changing gender ‘es, increased social mobility. changing family structure and inerease Ing speciation. These were diffi transons vobing mulple ‘opheils in social ongonizaton and in cura belies. In aditon, dhe spread of moder economic growth nas also marked by a systematic sd repeated cont {bd the work's poor counties, Since moder eeonomie growth oc ‘reed at such diferent rates in iferent paces, created an extent of inequaiyof global wealth ad power that was unique in uma try. Bra’ ndustria dominance resi of Britain's ead in nausea intion--give tx siquetitary dominance well, which 5a ear converted empire. More generally, Europe's eal industalization in tauon between che world’s tewly ich counties theninetocnhcenturyended up ie ‘ove Asi, Alia, and the Americas Finally the vas diferencesin power contrbuted ofa socil the cote of these diferences that are sl with us toy, Wh ‘comomiclly dominant, it easy for te members to ase that sich deine Fllects 4 deeper superoess—whether religions ial ge ‘ete, cultural, or insiutdonal—rather than at accident of ting or ge ‘ography, Thus the inequality of power and economics ofthe nineteenth ‘centsry in favor of Europe was accompanied by the spread of ew foram ‘of racso and “eulursn” which offered paeudasientiejsticaions for the vast inequalities that had opened. These theories in turn just fed bretal forms of exploitation of the poor tho colonial rl ais emeion ofthe properties and lands ofthe poor ty the ich, and even slsery. Sil despite thee lificaies,the hase underlying frees that peo pall the Industrial Revolution could be and were replicated ele Iwhere As they were replicated, multiple sites of industralizaion and ‘economic gmt ook hod. Like chain reaction, the more places that ‘wee indengoing this change the more they interacted it each er ‘ad there created the bases for yt more innovations, tore economic fra. and more technological actin Brian's indusalization spread toother martes in seseral ways by simulating the demand for exports from Britain's rang parters by supphing those trading pre ith Beh capital make investments in infanrucure (or example, pcs aud elo) and by spreading technologies fst pioneered in Briain, ‘This difsion of moder economie growth occurred in three main forms. The fit nd in sme ways, most direct spread ofthe Inn Revolution was fom Briain to olonis in Noss Ameria, Aus ard New Zealand. All hee roions are in temperate zones with cond tions for farming and other economic zctiies sarin many wast shoxe of rita, Iss therefore eatiely sraigh plant Bit technologie, fad crops and eve leg ints into these esetings Thete new homes af modern ecanoni growth were erally 2 England"in the cae of the North American acoso "Wes fe offoot in the phrase of Anges Madalon. deologally the pe ‘i powers and colonizers considered Nath America and Oceania be py places, despite the presence of native inhabitants in both re ‘los. By slaughtering comering, oF remoning these nave inhabitants fngavaat Eaopean empire throughfrom their lands, Englands new colonies fueled a huge expansion of populition snd subsequent economie growth of North America snd ‘A secon form of fison took place within Europe inet, broadly ina proces that ran fron Western Euope to Ester Bope and rom [Northern Europe to Souther Europe daring the nineteenth century Northwestern Europe sarted wth certain advantages over Eastem and Southern Europe, Firs nordestern Europe fon te Alani side of the continent, and therfore had beteted more than Eastern Europe from the gest explosion of ocean hase trade with the Americas and Asa. Second, northnesera Europe genealy had mare favorable nat ral resources, including coal, timber rivers (for waterpowered mil) nd rainfall Thind, northwestern Europe generally benefited from 2 nore benign dicase envionment, less vulnerable to topical and sub- tropical diseases Tike malaria. Forth, fra host of reson, some unde ‘ood andl othersauch debated, the pial and soc conditions were ‘more favorable, Serdom had ewentialydappeared in much of nor teste Enitope by the seventcenth century, whereas serfdom and other Social igiives were far more intact nt south and east Germany ad aly weve tll not natn tates Wythe start ofthe Indl Revolution, and they sere rom extromely high barrier to rade among compe ng principals. [When the Industrial Revolution bea, and especialy when bey tospreal inthe mis of and ater the Napoleonic Wars the obwtacles to ‘evelopment in Southern and Eastern Esrope began to diminish. Ser ‘dom ws abolishes fly often woken, eros Eope. Constitutional sonerance was intodiced, Raha wee established tink Furopean| Fegions, Ideas and technologies owed with ever greter speed and ‘were hacked! by ever larger atnounts of financial apt By the end of ‘ie nineteeath century, nstriaiation was mabing sel Fel dough ‘outa of Europe ‘The thie! diffwsion evolved the spread of modern economic vomth rom Europe wo Latin Ameria, Acs, al Asia The proces was ‘imultuous everwhere, involving the confrontation ofan increasingly Industrialized and rich Europe wth nonindtraized, largely rua i other part ofthe world, Some were fanient cations wis grand tradtios, lke China or Japan: some Srere sparsely popuited regions ike those i much of topical Aca, ‘But the great drama that ensued almost everywhere was the turmoil of and marily weak societies ‘infromation between these diferent wcities, economies, aid cub forex Even when trie ving standards, modem economic growth ‘brought fundamental change o socal argasization and painful clase ‘eth the more powerfal Europeans The confrontation bereeen rich and poor was very sak Hecate the gap of wel alo meant the gap of poe, al power could be used fer exploitation. Europes superior power was wed repeatedly o cnt pelactions bythe weaker societies on behalf of he richer overlards. a ‘pean imperial powers forced Aficans to grow ea eps they chose Calonil authorities imposed head waxes, compelling Africans to work inmines and on plantations often hundreds of miles rom their fam lis and homes. Europea investors and governments commandeered fauyral resources, incding mineral wealth and vast woodlands in [Xvica and Asa, Private European companies maintained private anmics {nthe colonies to ensure compliance with company “Ta” knowing 3 sell that shir national governments woul ack hem up with itary {exc in extrem, The Cascade of Teehnolgical Change Ling standards began to risen many parts of the wold, even with all this braaliy and suering in plces that had succumbed 0 colonia ‘le, and even in placer where colonial masters, ther than the lel po tations, grabbed much of the increased economic output, Often the ‘lb ct of extreme ponety wi ery gradual and hl setback by var aud famine. Occasionally it was rapid, sch as Japan's economic theo and indusrizaton inthe last quarter ofthe ninetenth centry believe that the single mow important reson why prosperity spread, and why it continues to spead,s the wansmision of teehnalo- ‘es and the ideas underying them. Even more importan: than having secitic resources inthe grou, sch as coal wasthe ability to use mod fem, siencetased ideas to organize production,‘ beat of idea it fat dey can be used ove and over again, athout ever being depleted, Economia cil ideas nonrvlin the sense that one person's we of an idea does no ins the ability of thers ose its well. Thi i why ‘ca envision a world in which everybody achieves prosperity. The ‘sence ofthe int Indi! Revoltion was 20 the coli ho to ‘we the coal. Even more generally twas about how to use anew form af ‘exergy. The lewons of coal event became the bis for many otherenergy stems aswel rom hydropower, olan gas and nuclear power to new forms of tencvable energy sich a wind and solar power con serted to electri, These lewons ar avaiable tall of humanity. not just forthe first nds ho dsconered them, “The first wave ofthe Instr Reohaton was dhe development of the seam engine and related technologies. including the organization fof langeseale factory prosdction, new machinery inthe textile and ap pel sector and new techniques produce sel Asecond wae of tec hologial breakthroughs came in the mide of the nineteenth centiry ‘withthe sala even more notably the celegraph, which fered the fist instantaneous tekcommunications around the wold, & phenome: hal reakthrough ne bio eifwe information on lange see The econ technolo wave ali incaded ocean steamers soba scale tae and two huge inastrutute projects the Suez Canal, com- pleted in 1869, which significantly shortened dhe wade tie between Europe and Asa al he Panama Canal, competed in 1914, which rx ‘matically educa the trade ime between the U.S. eastern seaboard and destinations in the wester United States, much of Lia America, and sts, Epidennice of yellow fever and malaria that ke thousands of ‘workers delayed the fie attempt to bud te canal inthe 1880s. Once ‘iets understood that mosuitoes were transiting tho killer dis aes the canal buiers made a ulHledged etfor to contl the mos (quito breeding slime the construction of the canal and thereby ‘completed the project 1914 The third wave of technological advance involved electrification of indusy and urban society the end ofthe nineteen cent indad- ing Eainon’s invention of the ineandescene lb and oder elecronie appliances. Edison, Westinghouse, and others championed large power plants chat could being leery nto homes, fice building and fac tories by wie, which was the defining new infrastructure of the ely twentieth century, The development ofthe internal combustion engine tes alo erica, as wa the pot advance ithe chemical indus. ‘rainy in Germany, with dhe new proces for aking atmospheric nitro fgen and converting it ino aramonia for fertiier (dhe HaberBosch proces) This se of fowl fuel enengy to eeateniuogen based ferii- fre wa the beeakthrovgh advance in raking food production in the ‘venieth century enabling great proportion of human; chough ill otal of to overcome chronic hunger and the sk of fuming that fad forever plagued humankind. These waves of technological advance difsed azound the work through the spread of rade and foreign invesunent wih , economic rosperiy prea to her pars of the word aswel But 9, oo, id the fbbalsstem of Eusopean political domination. This dination e- Ilected the vast inequality of power that grew oof Europe's head start fn industalization, a head tart hat we have sen is ooted in an a tageous coniuence of politics, geography and esoure hse. By the early twentieth century, Europe argely dominated the wold Eropean empires controlled eel al of Afi and large parts of ‘a, and loomed large in financing and organizing Lain Americas tide as well This was the fist age of gloiliation, a era of global ‘ide, ater of global communications oer telegraph ines, a er of ‘mas pretction al indutraiation-—in shot, what wo een to Be an era of inevitable progres. And it was globalization under Esropean domination. Ie was viewed as not only economically unstoppable, bat ls asthe natural order of things, This imagined natural order gave ‘ie to the infamous “white man's burden," the right and obligation of Euoopean and European descended whites to rule the ves of others around the world, hich they blhely did wid a conteadietry mis of vet, compasion, and brat The Great Rupture Ache beginning ofthe twentieth century globizstion was viewed a0 ‘nestle that some thought war ist wa probably pa and certain sc irational that no rightthinking leader in Europe would ever ake his country to war ln 1910, leading British pundit, Nora Angel wrote ‘The Gren, whieh righ argued hat national economies hae «ame so interdependent, so much pat of global dvsion of labor that var among the economic leader had become unimaginably desire te. War, Angell wamed, would s0 undermine the network of interna ional trade that no military venture by a European power agains nother could conceivably lead to economic benefits forthe aggressor. He surmised that war ite would ceae once the cous and henefts of var were more cearly understood. Angell wemendousiy underestimated the irtionaities and social processes that lead 1o devastating outcomes. even when they make 0 Sense. Angell was therefore Half righ: wr ad become much oo dan _rronsto se for economic ain Bit t didn't stop war from happening“The year 1914 bean dhe great rupture ofthe ewemteth century, even ‘more dramatic ruptre dn World War I would prove to he ‘Why was World War Tao dramatic and sotraumate? ended the era ‘of Europeaned globalization ls deat oll wa staggering and ited 10 several cataclysmic events that east their shadow over the rest the ce tury. The fist side effec was that ie destaiied the Rossin ezarist ‘gm, unleashing the Bolshevik revolution. A relatively backward Rus si which ad been the ast country in Europe to come out of serfdom, fell into troll under the fiscal and human burdens of war. aime Lenin and a small group of canpiratore mere able to sete power wih ‘ery litle poplar support and inscwte a revolutionary doctrine that sent Runs oa seventysivejear detour of enormous brutality and eco nomic waste. AX thei maximum extent, the communist doctrines that, Lenin and Joseph Stain insite n Rr nseared ough a thie of the world’s population, including the former Soviet Unio, China the asern Eusopean sates under Soviet domination, Cuba, Nomth Korea, and other sellstyld revolutionary tates aligned with the Soviet Union Another great consequence of World War I as the prolonged 6 nancial instabliit created in Europe after the wa. The war created ‘moras of interlocking financial and economic problems ncdng the ‘ouintsn of deb incre by combatant counties the destruction and dlismembering of the Ottoman and Hapsburg empires and their re placement by small unstable, and feuding sccenor sates ad the AP ied claims for reparation payments fromm Germany, which embittered he next generation of Germans and was one ofthe rallying pots or ine’ to poner, Jolin Maynard Keynes understood thatthe wosld ashe knew it had ben brought to an end afer Word War La his famous essay on The Feamamie Cansequences ofthe Peace, Keynes mastrflycapared all that ‘nad been oe What an extraoedinary episode in the economic progres of an thar agen which cae oa enn ng 14 The geste art ‘fhe population, itr, work ara hve at ow tnd ‘confor, yemere, eal appearances reaonabiy contented with thse Bat acape ws pom, for any man of capac hare ter tall exceeding be terage ni the midland upper les, fern eller ea lw cna ith the lea obi, con ‘eens conf and rents bo the comp of the He «and met poet monarchs fees ag The inhabitant of {London cold order b elepons. sipping i ooring nbd, he various produc OF the whole eat, in mich quant a he ht Sc is and reasonably expect thereat deery pon Nk ‘entail inthe nar restres aed ew etepie f ny quarter ofthe wood and sar, idout exertion een tor ie inthe prospective fe and adamtages ore co decile o coupe the secur foraner ith the ool th ofthe people fay substan mung in any coninent that any ‘or inormadn nigh recommend He cold secure forth he ied cheap and comforale mean fran o ay count ‘antio the neighbouring office of shank or such supp ofthe pe ‘ous met as might sem eanmenen, and eo ten proceed Shroud wo foreign quar, without knowledge of tei ego, would consider his realy aged and mach supe the Iescintererence Bs, mow important ofall heeded hist ain normal, cran an permanent, exept inthe dee: scandalous and avdable AtReyoes sessed, in a mesage for our ime, the end of this ra ie sioply unimaginable “Te projet and polis of marta and imperatian frcal and cual rales, of monopolies, resrcions, and ection San the amsement of day newpaper and appeared 0 exe ‘eat no nfuence all one diay couse of wx and plein preg ‘The economic instability that followed Word Wat Ie to the Great De prosion ofthe 1980s and then to World War I. The linkages are sue tua debate in deal, but nena in basi fact. The overhang ad debs shrunken ade within Furope,anl overstretched bets ofthe Ecropean powers meant that lation, sablzaton, and aster metethe omers of the day throughout the 182% ‘The European countries duly climbed ane byone back tothe gold standard, viewed a the timeas the guarantor of longterm financial sibility. Als, dhe eta to the told standard dil litle more than exacerbate the conditions that had [read inthe 1920s Most important, the gold standard an its “rules Dt the gue for monetary management made iil 20 impos ‘le forthe major economies oesape frm aside ita deep depression inthe early 19908. The Great Depresion, i tur, tggered a clam: tin spread of trade protetonia and the rie of Naam in Germany and mitral n Japan, By the end of World War I, the pre1914 ylobal stem had gone 10 pleces. Intemational rae was orbund National currencies were not onverible one toancther, even the basic payments mechanisms for inemational cmmerce had broken down, Merely, the age of Euro- pea imperialism yas also coming t an end, alough ic would tke ‘Secs longer and many wars fort to end decisive Sil standing on the sins of World War I he benefits ofa global marketplace—vwith & lob divin of labor, a peaceil spread of technology, and open in terion trde—ooked long Rone, bussed under the rubble of two ‘nol wars anda great depression Much work betwen the nd of World War Lin 1945 and the end of the Soret Union in 1991 went into reconsinactng a new global economic psc, The immediate struggle was physical reconstruction: t repair fr rebuild the roads, bridges, power stations, and ports that under pinned national ecomomie prodacton and international ade Yet the “plumbing” ofthe international economy ako needed to be recon structed, wih cursency arrangements and role or international rade that wou! permit the market haved flow of goods and services an the pdtv gains tha would emerge frm a renewed lobal dision of Inbor This recomsructionellr tok place in three sep. in, the counts already industrialized as of 1945—Europe, the United States Japan—reconstructeda new interationl wading stem lander US, polial leadership. Step by step, these countries restaby lished currency comverdblty in whieh Businemes and indus could 1 sl foreign exchange at market rate) in order to create & pay: é imsnts stm for international rade. The European currencies became ‘vere gain in 1958, The yen became converuble agin in 1908 At {he same te, these counties agree o rece the trade brie ‘hing high arian quotas, whic they had putin place the chaos of the Great Depresion, The tale barriers came down in several ‘ends of international trade negotiations handled under the apices fotthe Gener Agreement on Tails and Trade (GATT), ase of rues {Hat constinted the forerunner to taday’s World Trade Onginization ‘The rich world, soon called the rst world, socceeded in reconatracting, s-narkctbave trading stem. With it came a bunt of rapid econon ‘owt, powerfl ecovery afer decades of wa, blocked ade, and ania nstaiy “The restoration of rade in the fst world did no, however, mean the restoration of glabal economy The dvsions in the world econ ‘ony after 1945 went deeper than currency inconveribilty and rade ters y the en of the World War I the word had become arly “vided in political terms that mirored the economic euprures. These “sions won nt for decades and ae only nw being healed The second world waste sci world, the wold firs forged by Lenin and Stalin in the wake of World War I. The second woe re- rine cut off economically rom the fst world unt dhe al of the Bern Wallin 1989 nd the end ofthe Soviet Union in 198). Aris peak, ‘he second word ince around thir countries (depending on the ‘teria fo inclusion), and included about a third of human. The freriing characterises of the second wold were state nership of the means of production, central planning of production, onepary ‘ale by communist partis, and econonnic integration within the soca Js: world through barter trade) combined with economic separation ‘om the fist worl, The thi! word inca he rap ang aumber of postcolonit| ountre, Toy wee the tein thin werd simpy fo mea pooe. Far Tier on, the thd world hd a more sil connotation as a group of ‘uantres emerging Irom imperil domination that chose neler to be Part ofthe capitalist first world nor the soils second word. These vere the tre thirdway countries. The ideas a the core of de tied tld were: "We wil develop on our om, We will nurture industry, ‘eesnes through stat oership, sometimes by gvng mies nd Protection to private business, but we wil do ie wthout fren mur Taine We wil do ic without open international trade. We do nottou the ouside world, We want 1 say nonaigned. Te fist world ‘ounces are not our heroes they were our former colonial power. “The second world leaders are not ta he trae either We do not wan the Soviet Union to sallow us. Therefore, poially ve ate non aligned. and economically we ae selFsufficent™ “Ths, the post-World War word evo on thee tracks. The fu damental problem, however, was that dhe cond world and third world approaches di not make economic sense, and they both collapsed un er pile offorcign debt. Scond world central planning was a bad idea, ands, to, wa third world astrk n both eae for reason tht ‘Adda Smih had explained. By clang ther economic, bh the see ‘nid world and third word countries also closed themselves off fom ‘lobal economic progres andthe advance of technology. Thy crested highcow local indanres that could Hot compete intemasonaly even nen they chose 1o uy. The cloned nae of these societies, in which Adnsetie businewcs were seered from competion, fostered a great deal of corruption, The nonaligned chird world counties fst the chance to participate in the technological vance of the ft world ‘mails because dey did not est de fist world. They were undersand- ably intent om protecting theie harbwon sovereign even when that sovereignty was not reall at sk, ‘My own work a1 an economist began ata time when dhe second world and the thied world econonies were aleady economically 104 bound, and were falling ino a deepening epral of economic chaos, The carly manfexaons of that ris typically, were ring wel of foreign {deb and increasing ates of inflation. My erly workeenteyed on macro- ‘economic aabilzation—the end of high infation—and thle work brought me into contact with counties that were isolated from fist world markets and vechnology- This early work invlsed technica mon- ‘ary economics, but throught me facet face wth the more base ad fundamental choices of how counties should zelate economically t0 the broader word By the early 1990s, he overelming majority of countries af the second! world and third word were sing, “We need to be part of dhe fflobal economy once gan. We want our sovereign; we wanton self feterninacon, but we wll abandon Lenin Saint cent planning because it doesnt work, Ad we wil bandon the ia of el mposed vari because economic olaton makes no more sense fra country than iedoes for an individual" In emence, one my oes from the mid 1080s onward wa o help counties to become sonereig members af a fo international system. I repeatedly dealt with three big questions ‘Wt isthe Best way back to interational trade? How do we expe from the barmace of bad debe and inefficient industry? How do we ne- fie new rules of the game to ene that the emerging global econ ‘omy would serve the needs ofall fhe counties of the world not loriythe richeat and most powerful ‘ave touched ight and bre on wo hundved years of medern eco- nomic growth-—complte wit change, eurmoi, conflict, and ideology ‘What fis this era of modern economic growth brought the woe Higher ting standards than were imaginable oro centuries ago, a spreal of mover technology to mou parts the world anda scientific ard technological revolution that il gains tenguh, Lining standards are much higher almost al places than they were a the start ofthe proces, the major exception being the diacaeraaged pars of Alia. ‘But modern economic growth has abo bought phenomena gaps ‘owen the riches and poorest, gaps that were simply impossible when poverty gripped all ofthe work, The era of moder economic growth zs bequeathed isn economic picture ofthe world a seen in map 2 where cach country i shale according ot per eapta GDP (mee Sured in purchasing power adjusted pics) a8 of 2002. The ich world (Gove $20,000 per capita ancome) isshaded green, and incudesthe United States, Canada, Westen Fsirope, Japan, Avstrai, and New Zealand, The countries in the midaledncome range (between $4,000 and $20 00) are shaded in yellow and clude most of Eas Asia (such 2 Korea and Singapore), Central Europe, the former Soviet Union land Latin Ameria, Counties within the upper end ofthe loeincome range (hereon $200 and $4,000) ae shaded in orange, and include pars of South Americ, South Ass and Eas Asia The poorest oun {rex (below $2,000) ate shaded in red, and are concentrated in sub Sharan Africa and South Asa There of course a stking sini ‘between thi map of average GNP per penton and the map showing theproportion of households in poverty (map 1) the lwsincome counties fre, nota the countries with high proportions af moderate and ex ene poner. ‘So why does avast gulf divide one sixth of humanity today i dhe sehen countries from the one sith ofthe world barely able © sustain |e? The richest countrice were blew achieve wo centuries of modern economic growth, The pootest did not even begin their economic {romth unl decades ater, and then often under wemendous obstacles. In some eats, hey Faced! the brutal expltaion of dovninant colonial powers. They faced geographical bariers (elated wo climate, ood pro- Suction, disease, energy texourecs topography, proxi to world mat ers tht ado burdened the eaey india economies like Great Briain and the United Staten And they made dsastouschoicesin their ‘own national polices, often unl dhe past decade, All ofthis lt then ‘without de god fortine of two centuries of rapid economic gromth ‘ea groin onl sporadically during ew yeas The key point for these countess that there are prac solutions to alms allo thelr problens. Bad polices of the past can be cor ‘ected. The colonial rata finished. Even the geographical obsta ‘es canbe overcome with new technologies such as those that contol ‘malaria or allo for lange crop ll a snarginlprection areas: But a there is no single explanation for why certain pars of dhe wood re ‘ain poor, there fas no single remedy As shal sess epeatel in the pages ahead, a good plan of action starts wih a good diferent di gnosis ofthe specie factors that have shaped she economic con ‘of mation Three WHY SOME COUNTRIES FAIL TO THRIVE Ope ea ppt 63 itn, roy tion pope have reached at eas the ist rung of economic development Five sue ofthe worlds popilaion is at least one step above extreme porerey. Morever, approximately 49 bill people live in countries Were average income—measured by GDP per person —inreased be- tween 1880 ad 2000. An even Tanger amber, roughly 5.7 Dillon peopl, ive in countin where life expectancy increased. Economic de- Tehpent freak and widespread. The esten of extreme powerty i tHvtnking, both in abolate mbes and as proportion ofthe work’ pepolation, That acs why we can reaiicaly eniion a world widout cuteme poverty 5000 a 2025, Precely becase economic development ean and does work in many parts ofthe world ital due mote important to understand and soe the problems ofthe places where economic development ot ‘nesking, where people are sl off the ladder of development, oF are ‘vchon i ones rungs To understand why economic gronth succeeds orl, we fit needs conceptual Bamework tht can account for ‘anges over ime in GDP per person, Ihave already dncued some of fe factors that promote longterm development, but here J addres tem more stemtialy sacading a discussion of why the proces of ‘eamomic development breaks down in many place, expecially the proves places Perhaps it would be clearest o begin with avery specie (ie singe fan howehol