We take it as a given, almost a fact of nature like the seasons or the geography of continents, that different parts of the world enjoy different levels of prosperity. But there’s little “natural” about the prosperity of a nation since it is almost entirely within human control. The differences are stark, and at one end of the scale, heartbreaking. Consider the extremely rich first. Luxembourg has an annual per capita income of over $ 110,000, Norway over $100,000, Switzerland around $ 85,000. Those are small countries and outliers with perhaps little to tell us. But the US is large and has an annual per capita income of $ 53,000. Why is it so rich?
At the other end of the scale are Burundi and Malawi with only $ 200 or so annual per capita incomes. Why are they so poor? The richest countries are around 500 times richer in per capita terms than the poorest. What accounts for this inequality in incomes of countries? That question has engaged the attention of people for hundreds of years — starting with of course the great Scottish economist Adam Smith who inquired about “The Nature and Causes of the Wealth of Nations” in his famous 1776 book. That fact of present inequality in the wealth of nations has a twin: the fact that nations move in their rankings. The fortunes of nations change with time, like that of families over generations. Nations once rich become poor, and vice versa. India and China are prime examples of large nations that failed to maintain their prosperity. Others enjoyed spectacular economic growth over relatively short periods.
In less than a couple of generations, little Singapore went from a backward poor nation to a rich nation with an annual per capita income $ 55,000 — higher than that of the US. Singapore increased its per capita GDP around 100-fold between 1961 and 2011. Compared to Singapore, India hardly moved during that same period. Why?
Aside from the question of inequality among nations is the question of inequality within nations. The population of most nations are not equally rich or poor; some segments of the population routinely do better or worse than other segments. Also, those ranking are not stable over time. There is mobility among the segments in economic ranking. What could the reason for that be?
One explanatory factor for inequality among nations is that they use differing levels of technology. Populations do not differ in their natural endowments (which include physical and mental capabilities, availability of natural resources, etc) to the same dramatic degree as they do in their material prosperity. But they do use technology to differing degrees.
Technology enters the production function multiplicatively, meaning it amplifies the production given a certain amount of other factors such as labour, human capital and other resources. A person with a bulldozer can get more stuff moved than a person can with his bare hands.
Technology, and its correlate human capital, explains to some extent the inequality among nations.
So why do some groups (nations or specific segments within nations) do better or worse than others? The straightforward answer is that poorly performing groups are slow at adopting technology. Technology is worth defining at this point. Broadly it refers to knowing how to do something. Technology is know-how. The gadgets and gizmos we commonly use are technological tools. They have technology or know-how embedded and embodied in technological tools.
Populations that adopt technologies prosper. Adopting technology means learning the know-how. If there are systematic barriers to learning, it leads to lack of progress. It’s a fast changing world, and “it takes all the running you can do, to keep in the same place” as the Red Queen told Alice in Through the Looking Glass.
Which raises the question: what precisely does it mean that the world is changing, and what is causing the world to change? The world used to not change much at all in the distant past. The world of 20 million years ago was pretty much the same a million years later. Plants and animals (including humans) went about their lives that were invariant to the passage of millions of years. Generations lived and died the same way that their ancestors did. That has changed for us humans, a change that would have been unimaginable to our ancestors just a couple of hundred years ago. Today’s generation lives in a world that is dramatically and saliently different from just a couple of generations ago.
The cause of that change is us humans. That change is in essence a consequence of an increase in know-how, an increase in technology. In other words, technology is the change, technology caused the change, and technology will change the world at an ever increasing rate. Humans are the active agents of change through their ability to learn how to do things, and we humans have to cope with that change. Those who cannot or do not want to change are doomed to suffer, if not go extinct.
Change is technologically driven meaning as we learn more of how to do things, the more the world changes due to human action. That is the key to understanding the modern world.
One immediate consequence of change is that what used to work in the past is not guaranteed to work any more, or at least not work very well. In the past, you could get by without knowing how to read, write and do arithmetic; now illiteracy and innumeracy are serious handicaps. A world that was shaped by literacy and numeracy (the foundational skills for developing science and thus increase the know how) is a world in which illiteracy and innumeracy are penalised severely.
Atanu Dey is an economist and author of Transforming India
Follow him on Twitter @atanudey