How The World Became Rich

Gus is joined by Mark Koyama, Associate Professor of Economics at George Mason University. Together they examine many of the topics addressed in Mark's recently released book, How the World Became Rich: The Historical Origins of Economic Growth, including the role of legal institutions in economic growth, how culture and diversity impact economic growth, and much more.

Follow Mark Koyama on Twitter @MarkKoyama
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Links
How the World Became Rich: The Historical Origins of Economic Growth
Nebraska Governance and Technology Center

Transcript

Disclaimer: This transcript is auto-generated and has not been thoroughly reviewed for completeness or accuracy.

[00:00:11] Gus Herwitz: Welcome to Tech Refactored, a podcast in which we explore the ever changing relationship between technology, society, and the law. I'm your host, Gus Herwitz, the Menard Director of the Nebraska Governance and Technology Center. Today I'm talking with Mark Koyama. Mark is an associate professor of economics at George Mason University and he is an economic historian. 

[00:00:34] Mark Koyama: So I'm an economic historian and I'm interested in, in a broader sense, in the origins of modern economic growth, but also modern liberal democratic political institutions as well.

[00:00:44] Gus Herwitz: We're going to be talking with Mark about his recent book, How the World Became Rich, How the World Became Rich. It's really a survey of the latest economics research on the origins of economic growth and the beginning of the industrial revolution. Like the book, our discussion covers a [00:01:00] wide range of topics and time.

We look at the history of economic development and economic growth, and talk about why we saw a great deal of economic. Coming out of Western Europe when we did and why it is and is not a uniquely Western phenomenon. We talk about the role of economic growth in other areas of the world, Asia, India and China in particular, and the role of legal institutions and legal rules in promoting the development of economic growth, the role of culture and diversity. So we really talk about quite a range of materials, and I'm thrilled to share this discussion with Mark Koyama about how the world became rich.

[00:01:52] Gus Herwitz: the title of the book, How the World. Became rich presupposes that the world became rich. So, uh, are we rich? I think a lot of people look around the [00:02:00] world today and think, yeah, things are kind of terrible. You look around there, there's a lot of not positive sentiment in the world today. So is the world in fact rich?

[00:02:08] Mark Koyama: So by historical, historical statements, we certainly are very much, definitely rich. So if you think about the average person in, um, in most of human history, so excluding the elites, you're thinking about people living on maybe two to $3 a day, so living close to subsistence poverty. Even in a more developed, uh, slightly more kind of like high points of the preindustrial world; You think about Florence in renaissance, or, um, you know, ancient Rome or classical Greece, you're thinking about economies. Where per capita incomes were in the army, you know, at the very most, in Florence, maybe 2000. Two and a half thousand dollars per capita gdp. If you make about a country like the United States, it's like 60 or 70 thousand dollars uh, GDP per capita in today's money.

So, um, that scale is very important and I think non-economists often lose track [00:03:00] of it. If you think about the technologies we have access to, think about antibiotics or, or, uh, medical technologies or vaccines, these are things for even the richest people in the past would not have been able to afford. So in that sense, even people who are, um, not affluent, Uh, particularly rich have goods, may have cell phones.

They have all kinds of technologies not available to even richest people in the past. Um, so they, in that sense, we're also historically rich. We're also rich in a, in a, in a final sense, which is that. Even in countries which are not as rich as the United States, people are doing a lot better economically than they were 40 or 50 years ago.

So 40 or 50 years ago, the majority of people in the world were actually still poor. So the majority of people were living, um, in countries where per capita, GDPs were one to $2,000 or less per per year. People in India and China were living close to subsistence poverty. Now those are middle income countries, so the picture today isn't one of a rich world surrounded by endemic [00:04:00] poverty. It's one of, uh, worlds has seen, has seen rapid growth, and most people live in a middle in countries or, and we experience, they're not free from one to poverty, but they're historically doing a lot better than, than even in a recent past.

And so that's another important dimension. This richness so 

[00:04:18] Gus Herwitz: we can divide, This is very simple way of thinking about this, but we could divide, uh, individuals up into rich, middle class and poor, or the top 10 percentile, bottom 10 percentile, and the middle. And if we look historically, we talk today about the richest people in society and the all the billionaires.

And this is where the populist rhetoric and most of the popular talk is. The ultra rich are trillionaires nowadays. And oh my God, this is whatever. You're more focused on the middle Trish and the Latum 10 percentile and the really, in many ways, dwindling size of that bomb. 10 percentile's always gonna be the same size, but the increasing wealth of that bottom 10 percentile.

Yeah. So 

[00:04:59] Mark Koyama: pe [00:05:00] even people who are poor by America standards, uh, historically, In the upper middle class globally, if you put 'em in a global income distribution, and they're, they're rich relative to people historically, and that fact is an important one. We shouldn't lose, lose sight of now growth. We're framing our book and this question around growth as opposed to inequality because we think what matters for, for ordinary people is very consumption and then relative to maybe their neighbors over their benchmarks in some sense, if.

In rural India and incomes have doubled or tripled in the past 20 years. It's that, that's a good thing. Independence of whether or not Enon Musks income has increased a hundred fold in, in the same time. 

[00:05:37] Gus Herwitz: Yeah. And you and I, we just went out to a, a lunch, uh, went to a local Chinese food place, had a perfectly tasty, very filling calorie rich lunch that would've been a high luxury for someone living in the upper-class Society of Florence, uh, as you say, back in the Renaissance era. Yeah. 

[00:05:57] Mark Koyama: Having fresh meat would've been a luxury [00:06:00] outside the time you're slaughtering your meat. So I think, I think it would be, um, around harvest time at the end of the summer going into winter, that's when you would actually be able.

Beef, but you'd be, you'd be killing a lot of your cattle. Um, and then you'd be salting a lot of the meat and preserving it for the winter. So during the winter, basically almost all people would just be eating salted and preserved meat. We wouldn't have fresh meat. So fresh meat being available all, all year round.

It's really, I think, a product of refrigeration. It's really, you know, the idea of ordinary Americans being able to eat steak of hamburgers, um, is really in mid to late 19th century. It's like that's an ordinary thing.

[00:06:35] Gus Herwitz: So let's turn to your book How the World Became Rich. Didn't Adam Smith already write this book?

So, uh, Adam Smith, The Wealth of Nations, many people are familiar with it, and those who are familiar with the book, think of it as the Bible of Capitalism. That's about the Wealth of Nations. But really the, the full title, the book is an inquiry into the origin of the Wealth of Nations. And he was looking at the world around him in the 17 hundreds saying, [00:07:00] "Where did all the poor people go?"

Why are we all suddenly so rich? So how does your work relate to that of Adam Smith and didn't he already ask this question?

[00:07:11] Mark Koyama:  So, Adam Smith definitely asked this question, um, and I think Adam Smith's this natural starting point. We, we do sight him quite extensively and he's a starting point for all of- thinking about all these questions of growth and, uh, the origins of modern economic growth. What I would say though is that when Smith was writing for Rich's country in the world at the time, so he always talks about the Dutch Republic as being richer than Britain, and he compares England as being richer than Scotland.

And when he talks about like, you know, other parts of the world as being like very poor, France is a lot poorer in England and he documents us talking about the types of grain people able eat and so on. But he was living in a world before. What we call modern economic growth. So the Dutch we're richer than English, who richer than the SCOs, but the differences were actually quite small.

And so now the differences, potential differences have become much larger because of the technological innovations we've seen since Industrial Revolution. And Smith is writing [00:08:00] on the cusp of industrial Revolution. So, you know, in some sense maybe he anticipates aspects of it, but he also misses aspects of it.

So, um, there's definitely a lot we can say. Builds on, but goes beyond, uh, what Smith was saying in the law nation. A vote, you know, if you go read one book, in some sense, I would read Smith. 

[00:08:17] Gus Herwitz: So you mentioned, uh, Smith was writing before the Industrial Revolution, Technological change was playing less of a role.

Smith, his answer famously is that the Division of Labor is, uh, the, the origin of the Wealth of Nations specialization and those, uh, sort of concepts. What is your and Jared's answer to the. 

[00:08:39] Mark Koyama: Yeah, so we we're very much not providing a mono causal story here. So it's part of what our contribution is it, but we, we wanna gather together a lot of different explanations of people who have provided So Smith.

Yeah. But for Smith, it's the divisional labor. The divisional labor is governed by the extent of the market. And so anything which reduces the cost of trade or makes trade more possible, expands size [00:09:00] market encourages people to specialize. And so we actually begin the. Begin talking about geography, we begin relating that to Smith's insight.

So we think about, we divide up the potential causes of industrialization and modern growth into, you know, these, these broad categories. One being geography, geographical features which encourage, train, encourage sexualization. And then we also think about, um, institutions. Cause that's also, again, very Smithy end topic.

I mean, institutions. Our, our worldview are the incentive structures for people face. So there are rules of a game which encourage people to say, invest or to trade or to steal or to plunder. And so that's again, something which is very much in Smith, but we, we document a much, um, more recent and growing literature on importance of institutions for economic growth.

Uh, we need to talk about cultural factors, so, uh, kind of. Heres, people rely on when they're making decisions and how that can shape growth, and how that can be influenced by institutions or influenced by history. [00:10:00] So having surveyed these broad causes, we had to talk about demography, we had to talk about colonialism.

Uh, having surveyed these broad causes, we jump into the story of, uh, kind of origins of, of industrial revolution. And there us our, our emphasis, and, and this is again, building on work of many other economic historian scholars, is really innovation. So the decisive features of the Industrial Evolution episode are sustained innovation, so not one invention, but sustained improvements in, uh, the save technology for cotton spinning contact styles.

So, And get in improvement on improvement. On improvement. So when we, we look at various explanations people have given for that uptick in, in inventiveness in innovative activity, uh, we, we document both kind of a view associated with Robert Allen, which is based on induced in, in innovation. So the idea of innovation as a response to.

Prices and to, to factor prices. And we also document John Care's view, which is much more based on, um, cultural values and like a culture melia [00:11:00] you're in, which encourages you to kind of put push for boat out and try new thingss and to experiment and to, to exchange your ideas and to sharing your, your, your new ideas.

[00:11:09] Gus Herwitz: So there are lots of examples that lots of countries point to of one off innovations. Um, France, uh, there are a number of agricultural products and dairy products that they point to, uh, and textile products that they just have. A couple of strong innovations. North Korea 30 years ago. They love talking about their, I forget the name of, uh, uh, the basically synthetic fabric, nylon type product.

Um, that was innovative. But these were one off innovations that the driving thing that, uh, you're identifying or, uh, thinking about is some set of meta. Institutions, norms, values that cause the culture, not just have some one off innovation, but to have this persistent pathway towards continuing. Yeah, this is, this 

[00:11:54] Mark Koyama: is very much, uh, yeah.

As I said, it's John ER's idea of a culture of growth, a culture of [00:12:00] improving on, on these technologies. And so you need scientists, but scientists on their own might not be able to bring a good to market. So when you. Commercially minded entrepreneurs who could bring the good to market, but they have to understand the science at least well enough to implement these ideas.

So you have these famous industrial evolution figures who, you know, just shy, wedgewood, or others who combine these, these characteristics. So that's so, like Leonard DaVinci is extremely inventive. He has all these great ideas. He can't implement them, he can't bring them to market. Whereas the Inventors V Industrial Revolution can, 

[00:12:32] Gus Herwitz: and you use this idea.

Institutions, which I, I think you're, you're an economist. I'm a lawyer. Uh, we just throw off this word, institution seamlessly. We tend to define this idea of an institution, though very differently, I think, than the casual listener to this podcast or just the, the ordinary American or ordinary person would think of an institution.

Institutions. This is a Douglas Northian style definition. They're they're systems of roles. Yeah. They're the. [00:13:00] Rules that as a society govern how we conduct ourselves. So you need to have the scientist, you need to have the entrepreneur. You also need to have the legislators, the regulatory environment, uh, that design rules that, uh, facilitate or don't stifle both the development, the science, and the commercialization of the product.

[00:13:19] Mark Koyama: Yeah, that's exactly right. So that's the use of the word institution. It's not the ordinary language word, the Federal Reserve ESM Institution. It's like, actually economists would call it an organiz. It's institutions as rules of a game are are critical here. And so we guys think about these government institutions, governance institutions.

So what was it about governance systems in Western Europe in the early modern period before the industrial revolution, which may even more supportive or less bad for economic development. And in some sense they, they were bad. We'd think that in England, in the 17th century was very, um, mechanicals. As Smith said, there was a lot of rent seeking, a lot of what we would perceive to be corruption, but the rules were sufficiently stable and they sufficiently insulated [00:14:00] entrepreneurs and people involved in the coile industry.

Or coal mining or on valuing steel industry. And we didn't really have to worry about what the government was doing in London. So they, they were taxed. Taxes were high actually, and England was often a war, but they were able to get on with what they were doing. And Industrial Revolution is really remarkable cuz it, it does occur largely, you know, independently of the government.

Some people have tried to connect the fiscal military state with industrial revolution developments that there are some examples, like the Navy is the closes. Area of synergy, but in general, like it's remarkably independence of the state. I'm going to ask 

[00:14:35] Gus Herwitz: a cluster of related questions, and I'll just give this to you as a single question.

We can think about the industrial revolution, when and why it happened, and we can ask why did it happen when it happened? Why did it happen in Great Britain, uh, Scotland, that the, the Western world as and when it happened, why didn't it happen in Germany or [00:15:00] China at the time? And looking to today, why isn't it happening?

In China or India or Africa, or is it, and we're just not seeing it yet?

[00:15:11] Mark Koyama: Think- your last question first. I mean, clearly, um, there has been, there has been very rapid growth in, in both China and India. The question is, is whether that growth is, is just what economists would call catch up growth. So, uh, the idea being that once for countries far away from the technological frontier, it's relatively simple to accelerate towards a frontier through catch up grow fruit cup imitation.

I think definitely in areas of software, AI and social media and so on, China actually is at the frontier for sure. Does that mean it will stay at the frontier? Economists of kind of my stripe beliefs tend to be somewhat skeptical that a highly autocratic, top down society can sustain innovation in the long run.

But it has, I think that in some areas it has reached for Frontier. [00:16:00] So, but put that to an aside. Yeah. The, the two questions or the. Kind of cluster of questions. You asked why in 18th century and then why Europe and then within Europe, why kind of England and Britain specifically? So that's like, yeah, that's be Biling puzzle.

If you think about, um, year 1000, then Europe would've been one of the least likely places to have an industrial revolution. So year 1000. China is probably the richest part of the world. Some China is pretty urbanized, has has a lot of, um, it, it is pretty innovative things like clocks, compasses, gunpowder.

It's, they inventing a lot of new technologies. If you were gonna say after China, you would point to Middle East you'd say Baghdad or the AB empires being likely can, it's Egypt. You would not say Northern Europe. So, so, Happens between say 1018 and 1800, a reversal happens. Basically, Europe doesn't just catch up with other parts of the world.

It eventually overtakes from and those other parts of the world fall behind. And so looking within the European story, I think you can [00:17:00] explain why Europe was at an economic and political naia. In the first EM after afford of where Empire. There a decline in economic sophistication. The division of labor contracted trade decline or barbarian MAs.

It's a problem of violence. Loom very large. And then you could think about what, what was happening in Malaysias. This a period where those prob the problem of violence in Barbarian Asians was brought under control. You saw Rise of an urban economy and were Mediterranean and you saw kind of foundations for commercial development.

The rise of states which were larger. Oh. Mean the internal violence was, was reduced. So you can think about why Europe caught up and can look at economic shocks, like I think with Black Death played an important role in Europe's economic trajectory in terms of pushing it towards being a high wage, less what's called a low pressure map, using that called Librium.

So it was, it, it's shifted it towards, uh, a more urban, high wage, cheap capital type of economy. But then what about the rest of the world? Why didn't. Also [00:18:00] accelerate. So for China, the high point I think is really was sung. Then later dinner seemed to be less innovative and um, I think there are political reasons for that.

I think autocratic rule was bad for innovation in Minging China, the most famous case, which everyone knows. It's for voyages, which were sent out in the 15th century to explore the immunation that they were then suppressed and trying to close itself to international trade. And the Middle East. It's a similar story.

You could tell a story about growing forces of conservatism and, uh, religious groups becoming more organized and repressing philosophy. There's work by Eric Cheney documenting a decline in scientific publications in the Middle East after around 1100. But you closer point to external invasions, Mongol.

Their, their political institutions are quite, So rulers in the Middle East often assassinated pretty violent. So the institutions and the culture I think play a crucial role in explaining risk diversions. And the way I see with divergence, it's not [00:19:00] something which appears suddenly in 1800. It's a long running thing where you see decline and stagnation and in a Middle Eastern China, and you see a gradual rise of Europe from the Middle Ages on.

[00:19:11] Gus Herwitz: So I, I wonder what is the role of government in promoting technological development and growth? Uh, I'm thinking a couple of examples that have various track records of success and or failure. For instance, the growth and development of the National Science Foundation, which originally is envisioned by van of our Bush, um, was really intended.

Cooperate quite dramatically partner, uh, with industry, but uh, in its implementation, uh, became much more focused on, uh, basic sciences in support of university growth and development instead of industrial growth and development. And there's, uh, a lot of discussion today about government research and development around vaccine preparedness, unsurprisingly and, uh, nuclear fusion and, uh, kind of moonshot projects that are [00:20:00] difficult for private.

Perhaps to invest in. Do these questions, do these, uh, issues fit into the story or where do they, 

[00:20:08] Mark Koyama: uh, if it's a great question, it's something you'll know more about than I do. So, from an economist's perspective, basic science is a function like you from an neoclassical economist perspective. You have, the justification for government is, is where you have market failures.

And so in basic science, the idea is that they have just huge externalities, positive externalities from, um, discoveries and, you know, like knowing calculus. So you don't. Create a pattern for the knowledge of calculus. It, it's costs us to reproduce. We can all learn it or almost everyone can learn it and benefit from it.

So there's definitely a theoretical case for government subsidizing or supporting basic science. How that works out in practice is, which is, I mean, gu you'll, you'll know more about than I I do. So then in practice there's, there's gonna be concerns about like who's capturing that money. How is it being used and what are, you know, how is it being directed and is it being best used?

The, the economic cases, you know, [00:21:00] private companies can do r and d and can be rewarded with, um, some degree of intellectual property rights protection temp, or we get temporary monopolies and then their profits encourage people to enter to try and replicate those technologies. So normally you would say that the private sector.

Do fine for most innovations, but basic science. Certainly the government should be providing money for now in the Industrial Revolution and in 19th century in the origin story. Well, you certainly don't see a huge amount of support for basic science in England and 17th and 18th century, but that's not to say that there couldn't have been more.

There was some as well, so a famous example, the prizes, the longest, huge prize was a famous example though. I think recent research shows, it's a more complicated story than we sometimes think, but there was some support. So Charles Vi second founded Royal Society for the Sciences. And so that Royal Society would was a place which had government patronage to support scientists and support scientific journals.

So, um, because British [00:22:00] Society became interested in these questions, British State did give some support, but it was trivial by modern standards like trivial amounts. Now, Change really begins in the 19th century in places like America and Germany. When you're getting kind of industrial labs emerging, you're getting a lot variety of, of new sciences like chemistry, which have huge economic payoffs, and there you get a lot more private sector money going into innovation.

So I don't have a strong. Prior, I'm not like ideologically so libertarian when I would rule out government support for basic science. I think the devil is often in the details, so it depends on how it's being channeled. You don't want it to be captured by certain interest groups. You want set of institutions which ensure that the money for basic science really is for basic science, and you don't also don't want intellectual capture.

You don't want monopolies or certain firms getting these rents and using them to establish barriers to. So 

[00:22:57] Gus Herwitz: this might be another question that [00:23:00] you haven't given specific thought to. I'll phrase it in a way, and then give you an example, a way that you, you might have given more thought to how is America today doing on technological growth and innovation and in in particular, one thing that.

I think a lot about, uh, nowadays is the information age innovations that we've been seeing. Developments in really high efficiency logistics management systems and uh, just in time supply chains and things like that, which are truly remarkable. Feats of technology, but I wonder, are they technological innovations or are these technologies that are allowing us to squeeze every ounce of efficiency outta existing 

[00:23:44] Mark Koyama: technologies?

So, um, the way I would answer that is to say there has been, um, the debate amongst, um, economic sos economists about like the pace of technological change. So sometimes when economists write models, we kind of almost assume like the solo model, we almost assume that there's some underlying rate [00:24:00] of like total factor productivity growth.

And that's almost. Uh, from man from Heaven. It's almost just like outside of our models and we kind of assume it's gonna be stable, but actually, historically what we see is there are periods where you see a cluster of important innovations and you have other periods where there aren't that many important innovations or they're being consolidated.

Said Robert Gordon wrote this book where he traced the innovations, which kind of made the modern world. And so if he said, If you think. Apart from the internet, most of the things we have today, which we rely on, things like cars, dishwashers, airplane travel, air conditioning, they were all invented before 1950, but none of these things, including electricity or even more basic things, none of these things were invented before 1870.

So his argument was that 1870 to 1950 was this uniquely technologically fertile period, and that was responsible for a huge transformation in the living standards of ordinary people. But we shouldn't expect a comparable transformation subsequently. And indeed there hasn't been one subsequently, but other people have criticized this view while accepting that the [00:25:00] pace of technological innovations could be uneven.

It does seem like there have been a lot of important innovations in the last 13 years in terms of. Computing and I would say in some areas with rates of technological change is remarkably fast. So one of, uh, examples is artificial intelligence particularly applied to creative tasks. So apparently, if you can see this all over the internet and now their AI programs which will draw picture, paint pictures for you, their AI programs, which will write essays for you.

Uh, based on some inputs. And so the rate of improvement in AI is apparently it's faster than Moore's Law. It's improving unbelievably quickly as we speak. So, I, I'm not a techno pessimist, but I think we can't necessarily predict the exact economic payoff of these particular innovations. 

[00:25:41] Gus Herwitz: Going back to the story of economic growth in Britain and the industrial age, part of the story that is often told is that this is colonial ex- expectation.

Natural and human resources that is, this is about slavery and unbalanced [00:26:00] trade with other countries. How do you see that in your 

[00:26:03] Mark Koyama: work? Yeah, so there's been a longstanding debate in economic history. It's, uh, uh, goes back to Eric Wis Re who was writing in 1 19 40. It's about the particular role slavery and, um, play in economic growth in, in Britain and Industrial Revolution.

First thing I would just set aside like the broad points, but before we go into the specifics, that's of the broadest point, is that the, the largest extent of a British empire is really in the late 19th century and. You'd, I'd argue that the British Empire, in some sense is a product of Industrial Revolution.

The, the British Empire, as we think of it today, British Empire where it like spans a quarter of a globe. All parts of Africa are painted red on a map. That's a product of the British empire more than as a cause. Similarly, other empires, particularly with Spanish and Portuguese, which are contemporaneous, sort of British, they're similarly mechanistic.

They're similarly focused on the controlling trade routes. They certainly enrich. Spanish elites. We [00:27:00] certainly result in horrible outcomes for traffic slaves. They, we, we certainly, you know, involve extraction of, of, of natural resources from New America so that we have all these things and we definitely enrich individual Spanish Elite.

So we definitely, and we transform Europe's political economy, but they don't result in a Spanish or Portuguese industrial revolution. And indeed, those economies stagnate during most of this period. 

[00:27:22] Gus Herwitz: Just to spell out the comparison you're making, you're saying. If slavery and resource X appropriation were at least enough, then there are other cultures, other countries that we would expect to have seen grow in the same way as Brin did and they didn't.

Yeah. So at least we can say this, Uh, wasn't the causal fat, the soul 

[00:27:44] Mark Koyama: causal fat? So the more sophisticated story, like setting aside those were those caveats. Mine more sophisticated story will then point to Brin in the 18th century and it. Draw a particular link between the Caribbean slave economy. So the, so the British economy in the 18th [00:28:00] century, the, the largest, most the richest economies of the, the Caribbean ones.

They, they, we produce for most revenue for a British crown, and they're the ones most based around slavery. So this is a little bit before the, the plantation slavery in American south is also part of the story. But before, Like the cotton gin is invented, That's not as important. So that is an important part of Britain's economy that sugar, basically sugar, less degree cotton tobacco were getting from a Caribbean.

And so that, that contributes to a British economy. The economic historian's question is, is this the decisive contribution? And in general, uh, most. Okay. were saying it isn't, and they think Industrial Revolution happens even without this, but there has been some recent papers arguing that there is a link between the sugar economy and, and industrial revolution.

It's always that- the key question there has always been, can you show a link between what's happening in the Midlands, in Manchester, in Newcastle, where entrepreneurs really [00:29:00] financing these things from our own savings are building. The first factories, they're putting steam power or water power to work, powering kind of, you know, water frames or sending Jennys these entrepreneurs who have nothing to do with the slave economy responsible for this James Water or aright.

And then. Do you, how do you connect that with what's happening in, in the slave economy? And people have tried to, so I don't wanna say it's impossible that there's a connection, but I think most economic historians don't see it as the central part of the story. And, and similarly but British eventually we stop the slave trade in 1807 and we, we emancipate the slaves in 1833.

And Industrial Revolution continues at pace. Um, similarly, you. The people argue that the British Industrial Revolut Revolution is dependent on US cotton, but during the US Civil War, they're able to shift towards Egyptian and Indian cotton, suggesting that, yeah, they, they did import a lot of US cotton, which was produced by slaves, but that wasn't the reason they industrialized.

[00:29:57] Gus Herwitz: And a, as someone who has read a little too much, [00:30:00] Adam Smith, Uh, I would be remiss if I didn't just say that the story in Scotland is what Smith would have predicted and what, uh, his view of capitalism in many ways was about. And he was strongly anti-slavery and, uh, proponent of giving people the opportunity to invest their capital and be innovative.

And as you transition to a capitalist in uh, environment, you have the ability for private individuals. Develop new technologies and invest in steam engines and water wheels and start figuring out new things to do, and that drives specialization, the division of labor, and is one of the contributors to that economic growth that gave us the industrial revolution.

[00:30:39] Mark Koyama: Yeah, certainly. But there's a question about whether you focus on the internal developments within these economies or the external ones. Thing to remember here is this is a world of very high tra transport costs. So external trade wasn't that big a part of the economy. And so it does matter eventually once Britain starts industrializing.

But it can sell context styles to other [00:31:00] parts of the world. But in the 18th century, trade is a small part of the economy. So, um, there's a classic paper by Patrick o Brian when he says the contribution of a periphery was peripheral. And I, I don't see a strong. To move away from that perspective myself.

[00:31:14] Gus Herwitz: A very clever turn of phrase there. My next question I, I think I can just ask with a single word and a rising inflection, Africa? 

[00:31:23] Mark Koyama: Going, you mean today? 

[00:31:25] Gus Herwitz: Today, What, what's the growth trajectory in Africa?

[00:31:28] Mark Koyama: I'm certainly not an expert on, on Subharan Africa at all, but, um, it seems to me, um, it's been growing fairly steadily since the 1990s.

Countries like Rwanda, Botswana. The, the issue, I think, well, there, there are two- there's several issues. One is that, um, variety of China meant that for African countries, they didn't have, basically, China was so, had such a comparative advantage in cheap context style goods and, and cheap electronics and other kind of forms of manufacturing throughout the nineties and 90 thousands.

But if you were another [00:32:00] developing country and you wanted to, to, to go down that route of kind of like labor intensive, low wage manufacturing, China without. and so that that closed off a lot of avenues. Now, China, Chinese economy has grown so much that Chinese wages are no longer that low at all, and so that means a country at Bangladesh is currently growing very rapidly, producing t-shirts and contact styles at relatively low wages.

But African countries have always struggled. To get onto that ladder because of partly their transport infrastructure's not as good. There a lot. Some, a lot of that African countries are landlocked. They don't have as easy access to markets as East Asian countries do. But we have grown rapidly. And so the question of sustaining that growth, I think comes down to institutions.

So I don't believe, apart from Botswana and maybe Mait and some of the islands, I don't think any African country. Out of a middle is clearly beyond being middle income. And so there's something called a middle income country trap where sometimes countries get stuck. They can, they can [00:33:00] grow out of extreme poverty to being a middle income country, but there they, they can kind of get stuck.

Uh, Mexico's an example. So Mexico has grown relatively well, but it's, it hasn't grown as rapidly as like optimist thought post nafta. 

[00:33:14] Gus Herwitz: So, uh, during your introduction. You mentioned, uh, your work on a persecution of religious minorities; Separate topic from your book, but I'm just really interested to know, can you tell us a bit about that work?

[00:33:24] Mark Koyama: Yeah, yeah. So this is where Noel Johnson, and it's a long, longstanding, uh, piece of work. So there we ask why was religious freedom a fairly modern phenomenon? So we distinguish religious freedom from just pure toleration. So toleration is, you know, I hate you and I despise your views, but for now, I'll, I'll let you exist, because of like, it's too costly to, to, to get rid of you or, or something like this. Whereas religious freedom is really genuine respect for viewpoint diversity. Or different people can exist in a society with different, um, philosophical, religious views and that's fine. So [00:34:00] that's a modern view. So Adam Smith, again, is actually one of the first people who kind of thinks you can do this.

Like, no. Even Locke or earlier, couple liberal thinkers don't really think that it's, it's, it's beneficial or desirable to have a diverse set of opinions in a society. And so we argue it's an institutional transformation. So in particular, we argue that many pre-modern societies organized around what we call identity rules.

So these are rules where, How you're treated depends on your religious, ethnic, or social identity. So like, it's like a car system or nobles have different laws applied to them versus merchants or peasants. Uh, Jews are, Christians get different laws. Muslims get different laws. The Jews and Christians. And so that's, those types of societies like just dominate.

But that, that's, that's how society is organized. This is, you'll be familiar of, uh, there's a 19th century British lawyer, uh, Henry Marney who's, uh, who, who makes this distinction between status to contract. Um, so it's that basically distinction. And so modern, modern countries are based [00:35:00] around general rules, uh, where you know, this presumption of equal treat.

Everyone faces the same rules, and that allows people to kind of, uh, gives them maximum freedom. But if you're a society based on identity rules, religious freedom is not compatible with that. Basically, some toleration might be, but not full religious freedom. So to get full religious freedom, you need to transition towards general rules.

But general rules are. In some sense, they're expensive and they're difficult to, to establish. And so that, that's why it's a, it's like a self reinforcing equilibrium to stay with identity rules. So we argue that, um, it's about transformation which occurs, you know, alongside these economic transformations I've been talking about today that made it possible for societies to become, to have religious freedom and also religious freedom is like, The foundation of like, freedom of conscience.

And so I, I 

[00:35:47] Gus Herwitz: wonder, um, that this brings to mind another smithian understanding or I, I guess a Scottish enlightenment understanding, uh, that was important to Smith and his theory of development. [00:36:00] The stadium theory. Yeah. The idea that over time, uh, society evolved from a hunter gather society to a shepherding society, to an agricultural society, to a commercial society.

And he was writing when we. Era of commerce. So first I, I'm curious because I, I don't honestly know, am I right that the current understanding of the stage theory is, it was kind of a parochial sort of way of thinking? I think 

[00:36:24] Mark Koyama: for thing is, is it gets taken up by marks. And so, you know, Marks Springs is a trend.

You know, there's Fism slavery, me and Fu Pual. The capitalism and socialism, and so at least in the Marxist version of it, the problem is that he's claiming it's a deterministic scientific theory, but it's nothing of a sort. In some sense it's merely descriptive. Yeah, it's me descriptive and it's, it's and and it's almost like prophetic, cuz- so there's, and the key other issues are how'd you get from one stage to another. And so the idea of stages has gone out of fashion. The last economic historian, he kind of uses that [00:37:00] terminology is Walt Roo who wrote the Anti Communist Manifesto in 1960. And he talks about these stages of growth.

And I think one reason why people are critical of it is that you can. It seems like you can sometimes skip steps, right? So very poor society could, could go, you know, for to like relatively quickly from like maybe come to gatherer. It's almost to like give over some of the steps towards being before growing and then maybe that would be the cost of doing that.

But yeah, that aspect of Smith's theory, I don't think it's that we think it's wrong, but it's a descriptive story. 

[00:37:32] Gus Herwitz: Well, it, uh, uh, cues up what will be my last question. So as, as a historian, you look backwards and try and learn lessons from uh, the past and understand the past, but I'm going to ask you to look forwards and ask.

Have we reached peak wealth, peak growth? Will we know, how will we know what are the things that we should be looking for for the end of this, this stage of, uh, growth?  

[00:37:57] Mark Koyama: So in general, eco economics or economists don't think [00:38:00] that's something you go re just like, we don't think you'll reach peak oil. We don't think you'll reach peak growth of a- economy can grow effectively forever. Partly because it's not material, right? So certain point, like, you know, yeah, we're being stated with stuff to some degree, but we can always buy experiences and artistic or creative products. So we don't see, we use trade offs that non-economists see between say, environmental protection and economic growth.

We think as you become richer, you ge- have- more technologies to protect for an environment better and you're gonna have more desire, right? You appreciate a pretty landscape, perhaps more than you would if you were, you know, in a subsistence farm and, and you're just looking to get your next meal. So yeah, it's only have not reached peak growth potentially.

That said, we also know from history there have been plenty of periods of stagnation, so it's definitely possible to stagnate and to. So Roman Empire did four, and the period after Roman Empire was an economically more basic and simple world. Old fashioned historians used to call it a dark age, and modern historians think that's not [00:39:00] correct, but it's basically economically, it's true.

It's not the total dark age, but it was definitely less prosperous. So it's definitely possible you can destroy the. You can shut down, uh, types of innovation. You can, I mean, rent seeking and other interest groups could really slow things down. I mean, I think you see a lot of these things in a lot of European economies where growth has been below trend and there's been this divergence opening up between the US and many European countries in the last 10, 20 years.

So, um, yeah, so growth can slow down and, and. Automatic that if it slows down, it's probably due to policy and other mistakes, not because of we've run out of things to invent.

[00:39:45] Gus Herwitz: My thanks to Mark Koyama for this really fascinating discussion. It covers so much material, the history of economic growth is a fascinating and massive topic, and he, along with his co-author, uh, Jared Rubin, have done [00:40:00] such a great job in this book of summarizing really generations of scholarship into a single book that I personally learned a great deal from.

And I really encourage listeners t o take a look at it, you will learn a great deal and you'll have a lot more questions, uh, coming out of the book. And I think that's really the sign of, uh, rate contributions, something that both helps you understand the world better, but gives you more questions about it moving forward.

[00:40:31] Mark Koyama: Tech Refactored is part of the Menard Governance and Technology Programming Series hosted by the Nebraska Governance and Technology Center. The NGTC is a partnership led by the College of Law in collaboration with the Colleges of Engineering business in journalism and mass communications at the University of Nebraska.

Lincoln Tech Refactored is hosted and executive produced by Gus Herwitz, James Fleege is our producer. Additional production assistance is provided by the NGTC staff. You can find supplemental information for this episode at the links [00:41:00] provided in the show notes to stay up to date on the latest happenings within the Nebraska Governance and Technology Center.

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