A Historical Perspective on Economic Growth and Development

Posted on Jun 18, 2024 in Geography

Dominant Growth Theory

In order to grow, economies must try to make possible the following ideas:

  • Increase capital stock of manufacturing: Capital stock refers to the equipment and other assets that help to produce a service or product.
  • Increase the educational skills and education of the workforce: People with access to education have more opportunities.
  • Increase exports: Exporting products expands the client base and creates a wider market.
  • Create strong and credible institutions, free of corruption: People will not invest in a country without a rule of law, regulations, and codes of conduct.
  • Improve business climate, including incentives for innovation: Create a climate that is appealing to investors.
  • Allow for sustainability of growth: Growth must be environmentally and socially sustainable. Unsustainable growth will have a negative impact on people and the environment, leading to long-term consequences.

Features of Rich Countries

  • Low birth rate: In developed countries, women are fully involved in the labor market. The pace of growth has slowed as fertility levels decreased with greater availability of contraception and economic development.
  • High life expectancy: This is due to better healthcare, hygiene, healthier lifestyles, improved diets, and medical care, including access to antibiotics, vaccines, and clean water.
  • High participation of women in non-agricultural activities: 50% in rich countries compared to 25% in low-income countries, indicating greater access to education.
  • Ease of doing business
  • High health expenditures: This signifies better healthcare provision, strengthening human capital, improving productivity, and contributing to economic performance.
  • High use of energy

World Population and World GDP

  • Year 1 to 1000: World population increased sixfold, while real GDP increased by a factor of 5.9.
  • 1000-1820: World population increased fourfold, while real GDP increased by a factor of 4.5.
  • 1820-2000: World population increased sixfold, while real GDP increased by a factor of 14.5.

Life Expectancy

  • In 1000, life expectancy at birth was 24 years. This increased to 26 years in 1820, 66 years in 2000, and 72.98 years in 2022.
  • Today, Monaco has the highest life expectancy at 87 years, followed by Hong Kong (86 years) and Japan (85 years). In Europe, Spain has the highest at 83.3 years.
  • Infant mortality in the first year of life was 33% in 1000, 5.4% in 2000, and 2.9% in 2018. Most progress has been due to investments in science.

World Happiness Report

  • Happiness is both social and personal. Differences in happiness are attributed to GDP per capita, healthy life expectancy, and personal factors such as social support, generosity, a sense of freedom, and low corruption.
  • The biggest source of misery is mental illness. Income differences matter more in poorer countries, but even in those countries, mental illness is a major source of misery.
  • Work is also a major factor affecting happiness. Unemployment causes a major fall in happiness, and even for those employed, the quality of work can cause major variations in happiness.
  • People in China and India are hardly happier than they were 25 years ago.
  • Much of Africa is struggling in terms of happiness.
  • Happiness has fallen in America. In 2007, the USA ranked 3rd among OECD countries, but today it is 15th. The reasons are the relative decline in social support and increased corruption. These same factors explain why the Nordic countries do so much better. Ranking: 1st – Finland, Denmark, and Iceland; last – Sierra Leone, Lebanon, and Afghanistan.

Early Man (6 Million Years BP – 15th Century CE)

Stages

  • Pliocene (6 Million BP – 2.6 Million BP): Latest discoveries in paleontology suggest that hominids originated in Africa in the late Pliocene.
  • Pleistocene (2.6 Million BP – 12,000 BP): This period, called the Paleolithic, accounts for 99% of human history. Technological evolution began with the use of stone for tools like hand axes, spears, and arrows. Modern humans emerged 20,000 years ago, according to paleontological discoveries. The discovery of fire (500,000 BP) was a major turning point, allowing for cooked food. Latest discoveries prove that Homo sapiens migrated from Africa to Europe and Asia 100,000 years ago. Neanderthals disappeared around 40,000 BP. Humans were nomadic, surviving as hunter-gatherers. By 10,000 BP, around 5 million people lived in small clans along seacoasts and rivers, seeking access to water. They also lived in caves, as evidenced by cave paintings dating back to 40,000 BP. This society was intelligent, mobile, capable of speech, and artistic.

The Birth of Economics

Economics started when humans moved beyond mere survival and began generating surplus resources. This surplus needed to be allocated to different optional uses, requiring decision-making.

Neolithic Revolution

  • Rise of agriculture in Mesopotamia: This involved the domestication of plants and the development of techniques for raising them productively. It allowed for planning ahead and estimating resource needs.
  • Domestication of animals (sheep): This led to permanent settlements and an end to nomadic life, ensuring survival without constant migration.
  • Above-subsistence standards of living: Surplus subsistence allowed for trade.
  • Leisure and creative activities: Dance, painting, and other creative pursuits emerged.
  • Permanent settlements: These settlements increased in size.

Bronze Age

  • Rise of Uruk (Mesopotamia): The first city in history, Uruk emerged around 5500 BCE with a population of 10,000 inhabitants. Other settlements also developed in the region.
  • Advances in engineering: The invention of the wheel improved transportation efficiency, and the discovery of bronze led to new tools and weapons.
  • Ancient Egypt: The Bronze Age in Egypt lasted from 5000 BCE to 2000 BCE.

Iron Age

The discovery of more metals ushered in the Iron Age (2000 BCE), leading to the decline of previous civilizations due to invasions.

Neo-Babylonian Empire

The first documented era of population and income growth occurred during the Neo-Babylonian Empire.

Greek City-States (750 BCE)

  • Ancient Greek city-states, such as Sparta and Athens, were decentralized and focused on trade, both within Greece and with other territories. This led to the rise of mercantilism.
  • They were the first to mint coins, indicating a market-oriented economy.
  • They maintained mercenary armies and made significant use of amphorae for trade.
  • Alexander the Great created a vast empire stretching from Macedonia to Egypt and from Greece to parts of India.

Roman Empire (300 BCE)

  • The Roman Empire’s economy was based on trade (cereals, wine, and olive oil) and the army.
  • They offered trade preferences to Greek cities in exchange for Roman defense.
  • In 27 BCE, Rome had a population of 1.25 million people and experienced an increase in income per capita.
  • The economy was highly monetized, with taxes levied to support the army.
  • The decline of the Roman Empire began around 300 CE due to:
    • Malthus’s Law: Population growth outstripping food supply, leading to war and population decline.
    • Excessive reliance on slave labor, which resulted in rebellions and decreased productivity.

Trade

Early Trade (800 CE Onward)

  • Italian merchants and cities like Venice and Genoa dominated trade.
  • Early models of banks and trade finance emerged to facilitate transactions.
  • The Great Silk Route, established around 800 CE, connected China, India, Persia, Arabia, and Italy. Luxury goods such as silk, jade, sandalwood, and gunpowder flowed from the East, while woolen cloth, furs, glass, almonds, horses, and cotton were transported from the West.

Commercial Revolution (10th Century Onward)

  • Italians developed the division of labor between capitalist trade partners and merchants.
  • The first banks were established in Venice and Genoa in the 12th century to finance trade, highlighting the importance of credit.
  • The first gold florins, a stable global currency, were issued in Florence in 1252.

Mechanical Revolution (1100-1750)

Manufacturing Sector Innovations

  • Cloth: Pedal loom, spinning wheel, water-powered fulling mill
  • Building
  • Metallurgical industries: Wide variety of uses
  • Mining industry
  • Tanning and leatherworking

Key Innovations

  • Vertical mill: Its main limitation was the need for a steady flow of water. Windmills emerged in Northern Europe in the 12th century.
  • Mechanical clock: Invented in Europe in the early 1300s.
  • Other inventions: Gunpowder, firearms, astrolabe, compass, eyeglass, soap, paper

Chinese Civilization

Shang Dynasty (1520-1030 BCE)

  • The Chinese economy was based on agriculture.
  • Exports included bronzeware, glazed pottery, woolen textiles, and silk.
  • Population growth was significant, reaching 100 million inhabitants by 1200 BCE.

Zhou Dynasty (1066-256 BCE)

  • Established a centrally administered agrarian economy that lasted until the 20th century.
  • The first emperor, Qin Shi Huang (260-210 BCE), unified China.

Han Dynasty and Confucian Ideals (206 BCE)

  • Emphasized virtue, ethics, family, and social harmony.
  • Maintained class distinctions (landlords, peasants, merchants, craftsmen), except for administration, which was run by mandarin civil servants.

World War I and Its Aftermath

Treaty of Versailles (June 1919)

  • Post-war agreement with Germany, imposing territorial concessions, military restrictions, and monetary reparations ($20 billion, half to the USA) that Germany struggled to meet.
  • These factors, coupled with hyperinflation (cost of living rose 15 times), led to the rise of nationalism and the Nazi party.

League of Nations (1919)

  • Predecessor to the United Nations, created to guarantee world peace and prosperity.
  • The US Senate’s failure to ratify the treaty prevented the US from joining, condemning the League of Nations to failure.

Protectionism

  • Global protectionism rose as countries sought to rebuild their economies.
  • The Smoot-Hawley Tariff Act of 1930 in the US triggered a worldwide protectionist spiral, causing foreign trade to plummet between 1929 and 1932, further reducing GDP and employment.
  • Protectionism led to lower levels of production and income. EU foreign trade in 1933 was lower than in 1900, contributing to lower GDP levels. World imports and exports fell by 30%.

World War II (1939-1945)

Global Conflict

  • The most massive and destructive war in history, involving populations from every continent and almost every country.
  • Production lines became crucial for sustaining economies.
  • Science-based technologies led to new weapons, including aircraft carriers, jet-propelled aircraft, radar, rocket bombs, and atomic bombs.

Consequences

  • Direct cost: $1 trillion in military expenditure, excluding property damage, interest on war debt, or pensions for the injured.
  • War deaths:
    • Western Europe: 14 million people (60% civilians), with many more wounded, homeless, or dead from starvation.
    • Russia: 15 million people (over 50% civilians)
    • China: 2 million military personnel and millions of civilians
    • Japan: 1.5 million military personnel and millions of civilians, including 100,000 killed by the atomic bombs in Hiroshima and Nagasaki
  • Economic devastation: In 1945, industrial and agricultural output was less than half of what it was in 1938.

Post-War Economic Boom (1945-1970)

Overview

Between 1800 and 1914, all Western countries experienced economic growth, but a gap existed between the best performers (UK, USA, France, Germany, Sweden) and the rest of Europe (Italy, Spain). Imperialism was widespread in the 19th century due to:

  1. Growing aggressive nationalism
  2. The intellectual climate of the late 19th century, which promoted the moral and cultural superiority of the Western world
  3. Population growth, leading to 60 million Europeans emigrating to the USA, Canada, and Australia in the 19th century
  4. Technological advances, facilitated by the completion of railroad networks, particularly in the US and UK, which reduced transportation costs
  5. Advances in finance, enabling the funding of railway infrastructure and military victories
  6. Changes in institutions, including the role of the state, free trade, and education

From 1945 to 1970, industrial countries experienced unprecedented economic growth. Western Europe, the USA, Canada, and Japan grew jointly on a per capita basis by an average of 4.5% per year. Spain also experienced high growth. Reasons for this growth include:

  1. American aid during the initial stages of recovery
  2. Technological modernization of outdated equipment
  3. Government support for stability, growth, and protection of the economically vulnerable, leading to increased government expenditure and taxation
  4. High levels of intergovernmental cooperation in trade and other areas
  5. High levels of human capital in Europe, with high literacy rates and specialized education institutions (kindergartens, technical schools, etc.)

This era of high growth ended with the devaluation of the US dollar in 1971.

Asian Growth

  • Japan: Experienced export-led growth exceeding 10% annually from 1940 to 1970, driven by strong human capital, a stable government, and technological advancements in electronics and robotics. Japan faced a prolonged slowdown in the 1990s.
  • Four Asian Tigers (South Korea, Taiwan, Thailand, Malaysia): Achieved exceptionally high GDP and foreign trade growth rates, particularly in the 1980s, for reasons similar to Japan’s success. Indonesia followed a similar path in the 1990s. Singapore and Hong Kong also became significant players in the international economy.
  • China: During World War II, Chinese communists cooperated with the nationalist Chiang Kai-shek in resisting Japan. After the war, in 1949, the communists defeated the nationalists, who fled to Taiwan.

Soviet Union

  • Suffered the most damage of any nation in World War II, with 20 million deaths, 25 million left homeless, and widespread devastation (30% of the country’s wealth destroyed).
  • The recovery plan prioritized heavy industry, armaments, and atomic energy.
  • Consumer goods production was a low priority, leading to shortages and low-quality goods, causing consumer frustration.
  • Soviet agriculture and the collective farm system remained in crisis despite efforts to boost productivity, forcing Russia to import grain.

Mercantilism

Definition

  • Adam Smith, the founder of modern economics, described the economic policies of his time as mercantilism.
  • Mercantilism aimed to enrich nations by maximizing exports and minimizing imports, accumulating the balance of trade in gold and silver reserves.
  • Colonies with gold and silver mines were highly prized.
  • Protectionist laws became widespread.

Population and Standards of Living (Mid-15th to Early 17th Centuries)

Little Ice Age (1300-1850)

  • A period of global cooling, with average temperatures dropping by 2°C, particularly in Europe and North America.

Population Growth and Technological Advances

  • Population increased from 70 million to 105 million, with Italy and the Netherlands being the most densely populated.
  • Technological advances in navigation and shipbuilding expanded geographical horizons, leading to a wave of globalization.
  • The principal centers of economic activity within Europe shifted, with Italy declining relative to Spain, Portugal, Flanders, and England.

The Price Revolution (16th Century)

Causes and Effects

  • Gold and silver from Spanish colonies tripled Europe’s monetary supply during the 16th century.
  • Germany, the Netherlands, and Italy received significant inflows of these metals as debt repayments from Spain.
  • Consequences included:
    • Dramatic and prolonged price increases (3-4 times higher by the end of the century)
    • Reduction in real wages in Spain, and to a lesser extent in Italy and France, creating a divergence in living standards between Northern and Southern Europe that persisted for centuries

Agricultural and Industrial Technology (16th-17th Centuries)

Innovations and Limitations

  • Most innovations involved improvements to existing techniques.
  • Power sources and building materials limited technological progress.
  • Examples of innovations:
    1. Navigational instruments
    2. Movable-type printing press
    3. Stocking frame for hosiery and knitwear
    4. Firearms, such as the arquebus (portable, trigger-equipped), invented in Spain around 1500
    5. Blast furnace, developed in Liege, Namur, Germany, Northern Italy, and Northern Spain

Trade and Trade Routes (15th-18th Centuries)

Trade Expansion and Competition

  • Trade was the most dynamic sector of the European economy.
  • The Dutch dominated trade and shipbuilding.
  • River traffic was essential for transporting non-perishable goods.
  • In 1553, the English and Dutch initiated illegal trade with Brazil and Spanish colonies in the New World, engaging in piracy and raiding Spanish ships and ports.
  • European colonization expanded:
    • 1607: England established colonies in Virginia, New England, and Maryland, and seized islands from Spain in the West Indies.
    • 1608: France established a colony in Quebec.
    • 1625: The Dutch founded New Amsterdam, later renamed New York.

Commercial Organization

  1. Trade followed the complex organization developed by Italians.
  2. Merchants in the later Middle Ages utilized double-entry bookkeeping, credit, partnership companies, and joint-stock companies.
  3. Amsterdam replaced Antwerp as the largest trading center in the first half of the 16th century.
  4. Trade was highly competitive, with crown monopolies (Portugal, Spain) controlling trade with the Western Hemisphere.

Economic Nationalism and Imperialism

 Since recovery from the Black Death crisis, the states had 2 purposes: o Build up economic power to enrich the unified nation (political and economical) o Obtain revenue to maintain their expanded military forces  Power was transferred from local to national level.