Abstract: Today's increasingly fierce globalization counter-tide trend, the new crown epidemic that still has no signs of ending, have also made the color of pessimism more and more intense among the crowd and in social networks. What kind of mentality should we face our future life at this time? Behind the Prosperity, by revealing the mysteries of wealth creation, can restore our confidence to some extent.
William J. Bernstein
The world is better than you think
Journalist Anthony Lewis, typical of pessimists, was about to end his illustrious and long career when asked if the world had gotten better from the time he started his journalistic career half a century ago to now, to which he replied:
I have lost faith in the ideal of progress. I mean, in the sense that people used the term in the early 20th century, that human beings are going to get smarter, more and more perfect, and so on — so how do you understand the tragedies that have taken place in Rwanda and Bosnia and many other places?
Lewis doesn't seem to realize it yet: We can already do very well. Contrary to his pessimistic impression, there were far fewer murders in the last 50 years of the 20th century than in the previous 50 years. Further, over the past two centuries, the number of people suffering from totalitarianism, genocide, hunger, war and plague has steadily declined, with most of these improvements occurring in the last half century, a period that has disappointed Mr. Lewis.
Consider that between 1950 and 1999, life expectancy in developed countries increased from 66 to 78 years, while in developing countries it increased from 44 to 64 years. In the West, longevity has become a common phenomenon and no longer a fortunate thing, which is perhaps the greatest achievement of the past 50 years. At the same time, the world's real gdp per capita, i.e., the total amount of products and services produced per capita after excluding inflation, has almost tripled. By 2000, Mexico's real GDP per capita had significantly exceeded that of the United Kingdom of Great Britain and Northern Ireland, the world's largest in 1900. If these monetary-measured material advances created by humanity over the past 50 years still do not convince you, then you should at least note that any measure of social progress that you want to measure, such as infant mortality, educational penetration, or education levels, has improved tremendously globally, with the exception of a very few backward regions.
How did the country become rich?
Around 1820, the rate of economic growth accelerated significantly, making the world's living environment more comfortable. What causes this to happen? An unprecedented explosion of technological innovation in history. If we ask a student to define what the Industrial Revolution is, he might answer: "In 1760, all kinds of new inventions sprang up in England like a tidal wave. There is some truth to this student's words. New technologies are the engine of per capita economic growth, without which productivity and consumption cannot increase. Based on this principle, the above question can be translated into "what preconditions are required for invention and innovation", and the answer is that the following four conditions are required:
First, property rights. Innovators and businessmen need to ensure that the fruits of their labor are not arbitrarily expropriated or appropriated by governments, lawbreakers, and monopolies. The guarantee that a person receives the vast majority of the remuneration to which he or she is entitled is the basis of all other rights. Note that the "vast majority" is emphasized here, as property rights are never absolute. Even in the most economically liberal countries and regions, such as Singapore and Hong Kong, China, there are taxes, expropriations and restrictions on certain freedoms of business practice. Similarly, the confiscation of property is more insidious than in feudal countries. If a government fails to control inflation or maintain proper control over the banking sector, such as Brazil in the 1980s or zimbabwe in modern times, it steals the property of its citizens, as the Edward III government did. In pre-modern Europe, governments allowed monopolistic behavior, and monopolists not only made huge profits, but also undermined the state's incentives for other sectors.
Second, scientific rationalism. Economic progress depends on the development and commercialization of ideas. The creative process needs to be supported by a knowledge framework—based on rational thinking. If desired, supplemented by empirical observations and mathematical tools that support technological progress. In the modern Western world, the scientific method that we take for granted is actually a relatively new phenomenon. In just the last 400 years, Westerners have been freed from the shackles of totalitarianism and the Aristotle model of thought. Even in this day and age, in parts of Africa, Asia, and the Middle East, realistic academic inquiry can put human lives at risk because of state institutions and religious issues.
Third, the capital market. Large-scale production of new products and services requires access to a large amount of money from others — "capital." Even if property and the capacity to innovate are assured, people still need capital to plan and be creative. Since the vast majority of entrepreneurs don't have enough money to put their new inventions into production on a large scale, it is impossible for the economy to grow without a large amount of external capital. Before the 19th century, even the best, wisest, and most ambitious people in society didn't have enough access to a lot of money to put their ideas into practice.
Fourth, fast and efficient communication and transportation. The final step in the new invention is to advertise and distribute products to buyers hundreds or even thousands of kilometers away. Even if entrepreneurs have reliable property rights, the right tools to think, and enough capital, their innovations will be in vain if they don't get their products into the hands of consumers quickly and cheaply. It wasn't until two centuries ago, when steam-powered technology developed, that maritime transport became a safe, efficient and inexpensive mode of transport, and in the 50 years since, land transport has followed suit as well as safe, efficient and cheap.
A country can prosper if and only if these four elements— property rights, scientific rationalism, capital markets, and fast and efficient communications and transportation— are all available. The Netherlands in the 16th century had all four of these elements at the same time, but for a short time, while the English-speaking countries did not achieve this until 1820. It wasn't until much later that these four elements began to spread to the rest of the world.
The absence of any one element has a negative impact on social progress and human well-being. The lack of any of the above "legs" will cause the entire platform to fall and economic development will stagnate. This has happened before, such as the blockade of the Netherlands by the British Navy in the 18th century, and the lack of capital markets in many countries in the Middle East. Most unfortunately, some parts of Africa do not currently have any one element.
Three stages of prosperity
Decades ago, when the rapid and sustained growth of wealth and productivity in the West became more apparent, economists realized that the traditional three-input factor model that tried to explain economic output through the productivity of land, labor, and capital could no longer adequately account for this good trend of economic growth. Economist Paul Romer argues that at some point, scientific and technological knowledge itself has become an important factor in economic growth. He noted that society benefits through the "externalities" of technology, i.e., that all producers are able to quickly adopt the best experiences of industry leaders, and that the marginal productivity of knowledge increases as knowledge accumulates. Luo defaulted to the fact that the level of economic growth is limited only by human imagination, and the actual productivity of the world's industrialized countries is limited to the historical level of 2%, which is unreasonable.
The first stage: hunting and gathering.
Let's take a look at how these four inputs (land, labor, capital, and knowledge) have worked historically. Broadly speaking, economists divide human history into four phases: hunting and gathering, agriculture, industrialization, and post-industrialization. Of course, this four-stage paradigm is too rough and simplified. In Brazil today, for example, there are still a large number of people working at these four different stages. Even in the most developed countries in the world, the last three stages still occupy an absolutely important position.
Since surviving on Earth, humans have survived only hunting and gathering for more than 99% of the time. This highly land-intensive activity can feed only about 1 inhabitant per square mile. In addition, nomadic hunters and gatherers can quickly deplete the edible flora and fauna of a particular area, so they must constantly migrate. Hunters and gatherers retained very little material property and abandoned fixed dwellings.
In terms of these four economic input factors, hunter-gatherers use land and labor the most, and hunter-gatherer societies do not need capital. Since these societies depend on the least productive land of the four elements, and their labour productivity has increased very little, if not increased, these societies are paralyzed from an economic point of view. Moreover, the accumulation of knowledge in hunter-gatherer societies has been almost stagnant. Since hunter-gatherer technologies develop over long time horizons (measured over time frames of several thousand), their growth rates become meaningless.
Stage 2: Agriculture.
About 12,000 years ago, humans first settled in the Fertile Crescent and began to engage in agricultural activities. Agriculture was much more productive than hunting and gathering, bringing the population density to a few hundred people per square mile. When an agrarian society comes into contact with a hunter-gatherer society, the latter is unlikely to survive for four reasons:
The first point is population density, the population density of hunter-gatherer societies is 1 person per square mile, while the population density of agricultural societies is dozens of people per square mile. In some special cases, such as Java and Honshu, the population density reached a few hundred people per square mile, making it difficult for hunter-gatherer societies to compete militarily with agrarian societies; second, a small number of fighting elites were cultivated in agrarian societies dedicated to annihilating their nomadic neighbors. There is also a section of the ruling elite that orchestrates and leads these fighting elites; third, in agricultural societies, close contact between humans and domesticated animals leads to bacterial infections with pathogenic microorganisms such as smallpox and measles. Farmers are already immune to these microbes, which are deadly to their neighbors in hunter-gatherer societies. The number of Aztecs who died of smallpox exceeded the number of Cortez troops, and about 20 million Native Americans in North America had lost their lives in the 17th century before Caucasians had substantial contact with the disease.
Fourthly, and most importantly, many agrarian societies have seen the emergence of systems of individual property rights. For hunters and gatherers, it is nearly impossible to establish independent ownership of large areas of wildlife habitat. Many, but not most, of early agriculture were collective, and we will find that at the beginning of recorded human history, peasants already had individual property rights and engaged in farming on individual lands. Such farms became more efficient than those of their publicly owned competitors, and societies that supported individual property rights soon discovered that they were not only more advanced than their hunter-gatherer neighbors, but also superior to publicly owned agrarian societies.
Douglas North, a Nobel laureate economist who called the revolution in agriculture the "first economic revolution" (the second was the industrial revolution), said that the first economic revolution was called a revolution not because it shifted the main activity of mankind from hunting and gathering to settled agriculture, and it was called a revolution because it created a transformational motive for the basic proportional relations of mankind. The motivation for this shift originated from the different property rights of the two systems. If ownership of resources is public, people have no incentive to learn advanced technology and knowledge.
The main economic obstacle to agrarian societies is based on the fact that in hunter-gatherer and gathering societies, land is the most critical input. If the population grows, such as 10%, in order to keep the amount of food consumed per capita unchanged, people need to cultivate more land. Because marginal land is of lower quality than existing farmland, it is also less productive. In order to meet the food needs of the new population, people have to cultivate more than 10% of the land. This does not mean that the growth of agricultural productivity is impossible—advanced irrigation and fertilization techniques, rotation systems, and traction tandem plows have greatly increased yields per acre. But these advances developed over many centuries, and from 1000-1500 AD, as historians say, cereal production increased fourfold, or an annual growth rate of just 0.28 percent during that period. During this period, population growth forced some low-quality marginal lands into production as well, offsetting much, if not all, of the increase in agricultural productivity that had occurred during those 500 years. Thus, the standard of living in a purely agrarian society remains relatively static.
Indeed, the transition from humanity to an agrarian society around 12,000 years ago brought about a massive increase in population. Moreover, the consequent modest improvements in agricultural technology also contributed to the further growth of the population. However, these advances did not lead to a sustained improvement in living standards, and as recently as the mid-18th century, the Great Famine claimed the lives of more than 1 million Irish people.
In the Middle Ages, the level of knowledge improved to a certain extent, but it was relatively scattered. In the 18th century, Britain's "up-to-date farmers" who continued to adopt the latest agricultural techniques had a long way to go.
Malthus vividly describes this tragic situation: a world in which the population is growing faster than the almost stagnant growth rate of agricultural output. Malthusian classic "active suppression" (famine, plague, and war) provided an indispensable solution to the imbalance between food nutrition and food demand.
The third stage: industrialization.
Around 1500, agricultural technology was appropriately improved, and with the first activity of property rights, capital markets and transportation technology, a large number of farmers were able to leave their farms and engage in manufacturing. In the north and south of Europe, manufacturing refers to the textile industry. In Italy, skilled textile workers processed silk threads and imported fabrics into ornate objects. The British transported the unprocessed wool by ship to Burgundy (roughly encompassing what is now the Netherlands, Belgium and northern France), where skilled workers spun it into fine cloth. Shipbuilding and machinery processing also gradually developed. Although China had a long history of exporting textiles and porcelain at the time, the proportion of these industries was not high enough to keep Chinese out of agricultural production like the Europeans.
Manufacturing does not require much land, and its restrictive elements are labor and capital. Although the law of diminishing returns sometimes affects labor, as it increases in size, labor is less affected than land. In general, as the number of workers hired increases, the per capita productivity of workers does not change much. In the modern era, because the increase in population density and factory density has increased the convenience of communication between producers, labor productivity has sometimes even increased as the labor force has increased, as evidenced by the Detroit auto assembly line and silicon chip factories in Silicon Valley.
Even better, manufacturing is capital-intensive. After the old factory was abandoned, the construction of the new factory required a lot of capital. Increased population density has led to more efficient capital markets, and financing has become easier as manufacturing capacity has increased. Finally, in industrialized societies, knowledge is increasingly seen as the path to wealth, "best practices" are increasingly developed and disseminated, and productivity at all factors is increased.
Sometime in the 19th century, a "virtuous circle" emerged in Europe and the United States: technological progress led to increased productivity, which, in turn, led to an increase in wealth, which in turn led to more capital to promote more technological progress. As industrialized economies continue to introduce highly productive capital and knowledge inputs, economic growth is self-sustaining and unstoppable.
(The author is an American financial theorist and neuroscience scholar, and a popular science writer of economic history; this article is excerpted from the book "Behind the Prosperity: Interpreting the Great Economic Growth of the Modern World")
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