Modern Economic Growth 3a


Published on

Published in: Technology, Economy & Finance
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Modern Economic Growth 3a

  1. 1. Modern Economic Growth
  2. 2. History of Mankind <ul><li>Considerable progress during last two and half thousand years in terms of: </li></ul><ul><li>art and architecture, </li></ul><ul><li>philosophy, </li></ul><ul><li>war and warfare, conquests, </li></ul><ul><li>language and literature </li></ul><ul><li>agriculture </li></ul>
  3. 3. Economic history <ul><li>Stagnation and growth: </li></ul><ul><li>There was virtually no discernable rise in the standards of living for entire mankind for thousands of years preceding the 18 th century. Consider the following statistics; </li></ul><ul><li>i) No change in per capita income in the first millennium, and </li></ul><ul><li>ii) Perhaps a 50% rise for next 800 years, </li></ul><ul><li>iii) 1820 per capita income of Western Europe: 90% of average income today in Africa </li></ul><ul><li>iv) India and China accounted for half the global GDP in the seventeenth century. </li></ul><ul><li>v) India was then the clothier of the world </li></ul>
  4. 4. Low population growth and economic stagnation <ul><li>Very low life expectancy. </li></ul><ul><li>Western Europe and Japan 40 years in 1800. </li></ul><ul><li>World population : </li></ul><ul><li>230 million in A.D. 1 </li></ul><ul><li>270 million by 1000 AD </li></ul><ul><li>900 million by 1800 AD </li></ul><ul><li>to over 6.5 billion today. </li></ul>
  5. 5. Some observers comments <ul><li>“ From the earliest times of which we have record – back, say, to two thousand years before Christ – down to the beginning of the eighteenth, there was no very great change in the standards of living of the average man living in the civilized centres of the earth.” John Maynard Keynes </li></ul><ul><li>“ A few centuries ago, vast divides in wealth and poverty around the world did not exist. China, India, Europe, and Japan all had similar income levels at the time of the European discoveries of the sea routes to Asia, Africa, and the Americas. Marco Polo marveled at the sumptuous wonders of China, not at its poverty. The early Portuguese explorers were impressed with the well ordered towns of West Africa.” Jeffery Sachs (2005), </li></ul>
  6. 6. Why long economic stagnation? <ul><li>Lack of inventive and innovative faculties: </li></ul><ul><li>Innovation simply can be defined as increasing the yield of resource </li></ul><ul><li>Remarkable absence of technical and managerial improvements, and </li></ul><ul><li>The failure of capital to accumulate (economics) and be productively invested </li></ul>
  7. 7. The power of innovation <ul><li>&quot; The eighteenth and early nineteenth centuries were rich in entrepreneurs, quick to devise new combinations of productive factors, eager to find new markets, receptive to new ideas. 'The age is running mad after innovation', said Dr. Johnson; 'all the business of the world is to be done in a new way; men are to be hanged in a new way; Tyburn itself is not safe from the fury of innovation.’ The sentiments and attitudes of mind of the period were propitious.…. The story of a period the opening decade of which alone saw the innovations associated with the names of Brindley, Roebuck, Wedgwood, Hargreaves, Arkwright, and Watt can hardly be told in terms of an evolutionary process.” (Ashton, 1972). </li></ul>
  8. 8. The power of innovation…. <ul><li>Innovation and entrepreneurship are thus needed in society as much as in the economy, in public-service institutions as much as in businesses. It is precisely because innovation and entrepreneurship are not “root and branch’ but “one step at a time,” a product here, a policy there, a public service yonder; because they are not planned but focused on this opportunity and that need; because they are tentative and will disappear if they do not produce the expected and needed results; because, in other words, they are pragmatic rather than dogmatic and modest rather than grandiose- that they promise to keep any society, economy, industry, public service, or business flexible and self-renewing. They achieve what Jefferson hoped to achieve through revolution in every generation, and they do so without bloodshed, civil war, or concentration camps, without economic catastrophe, but with purpose, with direction, and under control.” P. 254 </li></ul>
  9. 9. Inventions and innovations <ul><li>Unprecedented technical inventions in England in the second half of the eighteenth century </li></ul><ul><li>Since technical inventions become universal, each country need not repeat them. </li></ul><ul><li>Innovations are critical to economic progress: initially technical to shape modern technology and now organizational like schools, hospitals, containers…. </li></ul>
  10. 10. The industrial revolution (1760-1820) <ul><li>Opened unlimited possibilities of self sustained fast growth </li></ul><ul><li>Between 1820 and 2000 a 9-fold increase in global per capita income. </li></ul><ul><li>In USA it rose 25-fold and Western Europe 15-fold. </li></ul><ul><li>The Gross World Product GWP rose 49-fold. </li></ul>
  11. 11. Division of the global economy <ul><li>All regions were poor in 1820. </li></ul><ul><li>In 1820 gap between the per head income of the richest economy (UK) and the poorest region Africa was 4:1 at PPP rate. </li></ul><ul><li>By 1998 this ratio between USA and Africa was 20:1. </li></ul><ul><li>Today’s vast inequalities reflect consequences of two centuries of modern economic growth in some countries. </li></ul>
  12. 12. Some economies <ul><li>1.United States </li></ul><ul><li>GDP 13.98trn, Inflation 3.3% </li></ul><ul><li>Population 302 million </li></ul><ul><li>GDP per head $46280 </li></ul><ul><li>2. Canada </li></ul><ul><li>GDP $1.36 trn., Inflation 2.3% </li></ul><ul><li>Population 32.9m </li></ul><ul><li>GDP per head $41,470 </li></ul><ul><li>3. Australia </li></ul><ul><li>GDP $ 746 bn, inflation 2.9 </li></ul><ul><li>Population 20.8m, GDP per head $35900 </li></ul><ul><li>GDP growth 3.1% </li></ul>
  13. 13. Some economies <ul><li>4. United kingdom </li></ul><ul><li>GDP $2.57 trn, Inflation 2.1% , Population 60.5m, GDP per head 442430, </li></ul><ul><li>Growth rate 2.3% </li></ul><ul><li>5. Japan </li></ul><ul><li>GDP $5.29trn, inflation 1.3%population 127.4m, GDP per head $41480, GDP growth 2.1% </li></ul>
  14. 14. Some economies….. <ul><li>India </li></ul><ul><li>GDP $928 bn, PPP $4.7trn </li></ul><ul><li>inflation .9%, population 1.13 bn </li></ul><ul><li>GDP per head $830, PPP $4,190, GDP growth 6-7% </li></ul>
  15. 15. Global distribution of GDP 2.2 9.2 8.7 6.3 4.8 3.2 USSR 20.9 21.8 28.4 13.8 1.8 0.0 USA 23.8 27.9 29.7 40.3 26.6 23.3 Europe 8.4 7.7 3.4 2.5 3.0 4.5 Japan 4.6 3.4 3.8 11.0 15.7 22.6 India 10.9 5.0 5.2 13.2 32.4 23.1 China 1995 1978 1952 1890 1820 1700 Country
  16. 16. What caused the industrial revolution <ul><li>Unprecedented technological advancement and innovations beginning in 1760. The intensity of innovations associated with 1760-1820 period has never repeated itself thus far, and </li></ul><ul><li>Ability and willingness to save and invest in productive activities. </li></ul><ul><li>Appropriate policy and system responses to make the revolution to complete itself. Some of these responses were: </li></ul><ul><li>i) Laissez faire replacing mercantilism , </li></ul><ul><li>ii) Free internal and international trade/ globalization’ </li></ul>
  17. 17. The future ahead <ul><li>The divisions created by modern economic growth are being erased by the following developments: </li></ul><ul><li>Flattening of the world by technology, </li></ul><ul><li>Aspirations of the newly independent countries to attain developed status, </li></ul><ul><li>Varied initiatives by these countries to transform their economies, </li></ul><ul><li>Growing global cooperation in ending poverty and deprivation, </li></ul><ul><li>Rising shares of emerging nations in global income. </li></ul>
  18. 18. Sustainability of modern economic growth <ul><li>Doubts from the beginning </li></ul><ul><li>Serious doubts when whole mankind is transforming into developed status </li></ul><ul><li>Can modern growth be made sustainable for seven billion people? </li></ul><ul><li>Yes: Human capital can meet the challenge </li></ul>