A short history of economic development

Summary of Week 3 of The Age of Sustainable Development by Columbia University (Coursera). Click here for Week 2.

There used to be nearly complete equality of poverty throughout the world. But the Industrial Revolution in the 1750s, which began in England, ushered in a period modern economic growth. Societies moved from economies based on agriculture, to economies based on technologies.

Countries grew, and can grow, through two mechanisms. It is important to understand the differences between the two mechanisms, because different institutions are needed to enable them.

Endogenous growth is based on continuing innovation that increase productivity. And throughout history, there have been waves of technological breakthroughs.

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Kondratiev wave (Wikipedia)

Countries who are not at the technological forefront can catch up by taking on technologies used by advanced countries. But, whether these advances diffuse to other places are affected factors such as proximity to markets, agricultural potential, energy resources, a healthy environment, and politics.

World War I halted economic growth. And after World War II, the world could be said to be divided into three parts. In the first world (USA, Europe, Japan) recovered quickly from World War II and endogenous growth took hold. Countries who adopted communist systems (Soviet Union, People’s Republic of China) initially experienced industrialisation, but economic development subsequently slowed, and the countries eventually opened up. The so-called third world (and sometimes, fourth world), comprising former colonial powers who went through decolonisation, had a mix of economic histories and strategies. Many countries caught up or are catching up, while others remain under-developed.

 

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Inequality around the world

Summary of Week 2 of The Age of Sustainable Development by Columbia University (Coursera). Click here for Week 1.

Gross domestic product (GDP) per person provides a sense of the economic development of a country. Based on the World Bank’s classification of countries, out of 7 billion people on the planet, approximately 1 billion live in high-income countries, 5 billion live in middle-income countries, and 1 billion live in low-income countries. 48 countries are also classified as least developed by the United Nations. Low-income countries are heavily concentrated in tropical Africa and in South Asia, and tend to be land-locked or small islands, as well as face instability.

The Gini coefficient is a commonly used measure of inequality within societies. As the map below shows, getting rich doesn’t necessarily mean becoming more equal. The causes of inequality are complex, ranging from history, geography, policy, land holdings, education, discrimination, and so on.

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World Economic Forum

e.g. Urban/rural inequality: People in urban versus rural areas tend to live very different lives, in terms of levels of income, economic activity, geographic location (affected by access to trade and conditions for agriculture), quality of public services, demographics (including fertility rates), etc. It is important to understand these differences because rapid urbanisation is changing lives and increasing inequality.

Although GDP is a relevant indicator, well-being goes beyond level of income. The United Nation’s Human Development Index includes indicators on life expectancy and education, and there are countries that are ranked quite differently when health and knowledge are taken into account with income (e.g. Equatorial Guinea, South Korea).

There have also been studies assessing well-being through affective and evaluative happiness. These studies demonstrate that besides income, determinants of happiness include social capital, physical and mental health, and values (materialism versus generosity).

Convergence or divergence?

Since the 1950s, with the economic development of many former colonies, that has been  a tendency towards convergence, during which low-income countries have joined the ranks of middle-income countries, and middle-income countries the ranks of high-income countries. However, parts of the world are stuck in poverty.

We need to understand the underlying factors of convergence and divergence, so that countries will be able to get on a trajectory of convergence.

What is sustainable development?

Summary of Week 1 of The Age of Sustainable Development by Columbia University (Coursera)

This is a MOOC fronted by Jeffrey Sachs. It provides an introduction to sustainable development, describing the complex interactions between the world economy and the earth’s physical environment. It is intended to provide an overview of the key challenges and potential solutions to achieve development in the 21st century.

I could not find the course reading  -‘The Age of Sustainable Development’ by Jeffrey Sachs – in the library so I will be relying on the videos for content.

What is sustainable development?

According to Sachs, sustainable development is about understanding how economic, social, environmental, political and cultural factors fit together in this interconnected and complicated world, and how to make the world prosperous and fair while being environmentally sustainable.

Besides thinking of sustainable development as an analytical approach, we can also think of it through a normative (or ethical) approach of having a holistic vision of what a good society should be. Sachs defines a good society as wealthy with social inclusion and environmental sustainability.

Economic growth and progress: On average, there have been great gains in material well-being, including in health. The basic pattern of economic growth sees a transition from agriculture, to manufacturing, to services. But these gains have not been enjoyed by everybody.

Breakthroughs in technology and economic expansion enabled rapid population growth, which increased economic activity some more, and correspondingly, humanity’s impact on the planet.

While economic development can improve lives, it should not leave millions of people behind, nor undermine natural life support systems.

Continuing poverty: More than one billion people continue to live in extreme poverty. Poverty is a multi-dimensional concept including income, access to basic health services, and access to basic amenities. Often, countries where poverty rates are high succumb to violence, epidemics, environmental disasters, and mass migration. Even in countries with high economic progress, there can be significant pockets of poverty. Geography plays a role in shaping these differences.

Environmental threats: Human activities and use of natural resources are leading to an environmental crisis, so much so that some scientists have called this period the Anthropocene (‘age of the human’). Natural disasters are rising, and a disaster in one part of the world can disrupt the world’s economy. We must determine what we can do to stay within planetary boundaries that are safe for humanity.

Paths

Business as usual poses an enormous threat to the environment. In addition, if economic great is not perceived to be fair, there may be more unrest and instability. A global effort over the next decades will be needed to move to a path of sustainable development.