From the perspective of the very long history of social history we know that economic prosperity and lasting economic growth is a very recent achievement of humanity. In this section we will look at this more recent time and will also be able to study the inequality between different regions – both in respect to the unequal levels of prosperity today and the unequal starting points for leaving the poverty of the pre-growth era of the past.
Economic prosperity is measured as the the value of all goods and services produced by a country in one year divided by the country’s population – this is GDP per capita. The change of this from one year to the next is economic growth. This entry shows that the current experience of economic growth is an absolute exception in the very long-run perspective of social history and it shows when - for the first and only time in the very long history of humanity - societies left the abject poverty of the long pre-growth era.
# Empirical View
# GDP per Capita growth around the World Since the Year 1 until Now
There are many reconstructions of GDP per capita over the last centuries; here I will focus on the reconstructions by the british economist Angus Maddison who was working in Groningen (Netherlands) and where after his death in 2010 younger colleagues are advancing his work in the ‘Maddison Project’.1
The following graph shows Maddison’s reconstructions for eight major world regions.
Click on ‘Expanded’ to see the share of the world GDP produced by each world region over time.Full screen view Download Data Download as image
Maddison’s data confirms what he have learned from the very long-run perspective before: Before the onset of modern economic growth every region in the world was very very poor. But there are also important insights gained from Maddison’s data: The starting points of economic growth are very different from region to region. Until the year 1000 everyone was equally poor but we learn that as early as the year 1500 Western Europe had achieved some very limited economic prosperity and until the early 19th century it could slowly increase the economic wealth. But the wealth enjoyed at the time is still incomparably low with the level that Europe enjoys now at the beginning of the 21st century – starting from 772 Int. $ in 1500 it doubled until 1820 but since then it increased more than 12-fold!3
In 1700 the ‘Western Offshoots’ of Australia, New Zealand, Canada, and the US were as poor as any region except Western Europe. But although they started later to leave poverty behind they catched up quickly with Western Europe and have surpassed it by 1900.
It is often the case that progress – because it is not happening equally fast everywhere – creates inequality between regions but if we compare the economic prosperity of every region in 2003 with any earlier time we see that every single region is richer than ever before in its history. Though some regions are more productive than others every region is doing better than ever before – hugely better.
After looking back on more than a million years of world poverty the question the question arises: Why did economic growth happen before? Why were our ancestors kept in poverty for millennia after millennia? To answer this question it is helpful to look at just a single country.
# Over the last Millennia until Now
Data on economic growth is now routinely published by statistical offices but for the past researchers had to reconstruct accounts of the economic productivity. These reconstructions are arguably very uncertain. Nevertheless it is absolutely clear that compared to the prolonged growth of economic productivity in the last centuries the productivity has always been very low before: The difference of prosperity is hugely greater than the uncertainty of the exact values.
I have included one reconstruction of GDP per capita over the very very long run – the last 1.002.000 years. The economist J. Bradford DeLong has constructed the data that I have visualized in this interactive graph.
It is not easy to show more than 1 million years on the x-axis of a single graph when all the action just happened in the very last couple of hundred years. If I would have chosen to give each year the same space on the axis the graph would simply look like this: ˩.
For this reason I reverted to give years very unequal spacing – admittedly a not so nice way of showing this data either.
Average World GDP per Capita 1 Million BCE until Now (in 1990 International Dollars) – Bradford DeLong5
What we learn from this chart is that on average the people of the past were many times poorer than we are today. For all the thousands and thousands of years before 1800 the average GDP per capita was lower than just 200 Dollars (1990 International Dollars).6 Prosperity is a very recent achievement that distinguishes the last 10 or 20 generations from all their ancestors. In 2000 the average GDP was standing at 6539$ – more than 30 times the average of the past.
# The last 2000 Years
From the data that we have discussed before we know that with respect to economic growth all the action really just happened very recently. It is true that in the pre-growth era some people were very well off – but this was a very tiny elite from tribal leaders to the pharaohs to kings and popes. Yet the average person was very much worse off in these unequal societies.
The destitution of the common man only changed with the onset of economic growth and the time when this changed happened is depicted in the following graph – this time again on a regular time axis. From this it becomes clear that economic prosperity was only achieved over the course of the last millennium and really just over the last couple of hundred years or actually the last hundred years. And to be really honest it was mostly achieved over the second half of the last hundred years.
The Last 2,000 Years of Growth in World Income (GDP per Capita) and Population – Visualizing Economics7
# Breaking out of the Non-Growth Economy
The following interactive graph shows the population size and the real wages over 600 years of the English history.
# Breaking out of the Non-Growth Economy – English Wages and Population from 1268 till 1869 – Max Roser8
The first thing that stands out about this graph is cyclical development of both population and incomes. If we pay more attention to the graph we see that the fall and the subsequent rise of the population is exactly mirrored by a rise and fall of wages. What we see here is the working of a simple mechanism that kept our ancestors in poverty for thousands of generations: In the non-growth economy economic changes are a product of demographic changes.
When there is no economic growth an increasing size of the population means that on average there is less for everybody and the standard of living decrease. On the contrary when the population size was decreasing everybody can have a little bit more. This is the mechanism that keeps all non-growth societies in poverty: From tribes living in subsistence economies to medieval Europe but I show it here for England because it is the most researched of the many non-growth economies.
Around the year 1300 the English population was getting close to 6 million – never in more than 400 years to follow was the English population as big. And while the population was at a long-term high the wages were at the lowest in the entire record. Around the year 1300 they were only around 40% of the wage of 1860. Then England was hit by two major disasters in rapid succession: In 1316-17 the Great Famine killed 11 percent of the population and only thirty years later the population was again reduced by 31% – this time by the Black Death. These calamities were humanitarian catastrophes but the cruelty of the non-growth economy is that the loss of others is the gain of yourself: Wages started to rise and the subsequent generations enjoyed increasing standards of living.
In the fifteenth century the picture has reversed: while population levels were at their lowest wage levels were at their highest. As there were less people the slice of the cake was larger for everyone.
But once again the standards of living in England were about to changed and again the driver was the size of the population. The number of people increased and as there were more and more people sitting at the table the slices again became smaller and smaller. In the early 17th century England had come full circle: again population levels were high and standards of living were low. Before we look at the last 200 years of the graph above I want to show that the vicious relationship between demographic change and standard of living is also found in other non-growth economies for which we have data. Click on the following line to see this for the generations living in Italy between 1300 and 1800.CLICK HERE to see the relation between real wages and population in Italy (1300-1800)
The source of the graph are lecture slides of Professor Robert Allen. The slides are on ‘The Great Divergence’ for the course Economic History I at the University of Oxford; taught in 2013.
Real Wage and Population in Italy (1300-1800) – Lecture Slides Robert Allen
# Breaking out of Poverty – Economic Growth
Looking back to the graph on the English population and wages between 1268 and 1869 we see that over the last part of this time wages were growing while at the same time the population size was increasing. In other words: demographic change was not a driver of economic change any longer; the inverse relationship was broken.
Looking at the same English data in a different way makes clear how fundamental this change really was. In the following interactive graph I have plotted the wages and the population size for each decade over these 600 years of English history. In red we see the relation of wages and the population size in the non-growth economy in which England – as every other poor society – was trapped. We clearly see that high wages go together with low population size and vice versa.
From around 1640 onwards things changed and the linkage between income and population slowly began to weaken. This transition lasted until 1740 and after that the old tie was properly broken. Now in decade after decade wages increased while at the same time the population size increased. And from other sources we know that demographic changes never mattered anymore for the income of the English population.9
Economic growth revolutionised the relationship between people – it transformed the society from a zero-sum-game in which the success of one person is necessarily a damage to the next into a positive-sum-economy in which everyone can get better off and the misery of absolute poverty can be left behind by everyone together.
Breaking the tie between population and standard of living is the single most important event in economic history. To answer the question why some societies are poor and others are rich comes down to the question of wether or not they were successful in breaking this tie. If not then any advance in standard of livings will be eaten away by a rising population – the society keeps trapped in poverty.
# How do societies brake out of poverty?
How this tie was broken is therefore the one most important question if one wants to understand what lifted billions of people out of poverty and keeps improving living standards around the world. There are surely many contributing factors of economic growth but the main driver is technological progress. Easing the way we produce what we need over the course of the industrial revolution is what made England leave extreme poverty behind and it is what rises more and more people around the world out of extreme poverty until today. But the industrial revolution is not just a matter of technology but also of the circumstances (democratic non-extractive institutions) and of the capabilities of the society to innovate and use exiting technology (which is an important aspect of education).
# Data Sources
I have collected all data sources on GDP, GDP per capita, incomes at a dedicated entry on GDP Data here on ‘Our World in Data’.