Economic Growth Is Not a Given

 

    

We are somewhat spoiled in the modern world. We are used to economic growth that just keeps on happening. The world is richer than it was fifty years ago. The per capita GDP of most individual nations is higher now than it was fifty years ago. In most years, most nations grow.

     

We know that exceptions to this exist – but we expect such exceptions to be limited. Technically, between 1961 and 2017, the United States had nine years of negative growth: 1970, 1974, 1975, 1980, 1982, 1991, 2001, 2008 and 2009. That meant 47 years of positive growth, more than enough to easily wipe out the effects of the bad years. In the same period, Canada had seven bad years and 49 good years. Britain had the same number. The world as a total had five bad years and fifty-one good years. All three nations and the world as a whole grew a little less than 2% a year during this entire period. This is robust, favorable economic growth.

    

Countries whose per capita GDP did not grow during this period shrank due to a mixture of both trivial and tragic causes. On the trivial side, you have countries like Kuwait, the United Arab Emirates and Brunei, fabulously wealthy countries. Their oil economies are doing just fine, thank you very much. They were sparsely populated in 1961. With all of their money, they have brought in large numbers of foreign workers to serve as nurses, domestic servants, construction workers and workers in the service sector. Their populations went up, causing their GDP per person to go down. The statistics superficially suggest problems. In reality, these places are thriving.

    

Then there are the places going through human and economic hell. Places with on-going civil wars. Places with massive corruption. Places that have had their economies wrecked with either partial or no significant rebuilding. The Democratic Republic of the Congo had continuous civil wars from 1960 to 1965 and again from 1996 to the present day. During the stable years, the Mobutu government was famous for stealing just about everything an army officer, police officer or government official could steal. The Central African Republic suffered from the Lord’s Resistance Army insurgency in the 1980’s, the Bush War of 2004-7 and the Civil War of 2012-2014. South Sudan suffered both from a protracted war of national independence, the rebellion in Darfur and the ethnic hostilities between the Nuer and the Dinka. Yemen has seen civil wars in 1962-1970, 1972, 1978-82, and then from 1994 to the present day.

    

On the more pacific side, there are former Communist nations which never recovered from the separation from the Soviet Union. The Ukraine, Moldova and Tajikistan all fit this description. Their manufacturing base consisted of antiquated un-competitive Soviet era factories dependent on state support. The opening up of these economies to global competition wrecked them. Corruption can be high in these settings, although it is unclear if the corruption causes low growth or the other way around.

   

As bad as these declines are, they are nothing compared to what went on in early European history. Since the Industrial Revolution, the Global North has seen relatively stable upward trends in economic growth. However, before 1800, economic collapses were common; long term retrogression could occur just as easily as economic growth. Following are some of the great wipe-outs in Renaissance and Post-Renaissance Europe.

    

Note that the losses of economic well being and overall development were pretty intense. Belgium for the entire 1600's and the first half of the 1700’s went backwards. The entire sixteenth century represented retrogression for Germany, Italy and Sweden too. Sweden lost over half of its standard of living. Poland lost nearly 40% of its standard of living between the 1570's and the 1670's. Spain lost nearly a quarter of its standard of living between 1570 and 1650. These are long periods of time to be going backwards.

    

In some cases of time, periods of loss were punctuated by brief exhilarating rushes of growth in the middle. Many of these long losses were a series of down-up-down-up-down with the downs exceeding the ups.

    

Many of these losses were also linked to war. Gregory Hooks has said that war is economic development in reverse. That is certainly true in contemporary Yemen. Poland fought constantly during its time of retrogression. While it won some wars, it lost others, and had to deal with foreign occupation.

 

However, these declines were also linked to economies that were intrinsically fragile, technological advantages that were ephemeral, consumer demand that could be obliterated by one or two bad harvests, and weak physical infrastructure and educational infrastructure. Early economies lacked the robust basis of growth that is the basis of our present-day prosperity.

    

My personal takeaway from all of this is that we should not be too sanguine about the prospects of economic growth continuing unabated forever, and capitalist growth surmounting obstacle after obstacle simply from its own institutional strengths. Many things can take down an economy, be they narrowly economic issues, social conflict issues or simply states gone mad.

    

Enjoy the capitalist economic boom while it lasts. We never know when this party may come to an end.

For More Information

The economic growth data comes from the Maddison database which is the greatest collection of historic economic data that exists on the planet. If you want to play with the numbers yourself, you can find them at
www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2018

For more contemporary figures, I use standard estimates from the World Bank.

If you want to pursue any of the histories of any of the wipe-out cases, published economic and political histories are available for all of the nations that I mention here.