« What's actually in the health care bill | Main | High-speed rail fact of the day »
How short a time horizon is needed to motivate catch-up growth?
A few centuries ago, the ratio between the per capita income of the richest country and poorest country was maybe five to one. Today it is maybe one hundred to one.
The classic example of economic catch-up is given by East Asia in the mid-twentieth century, starting with Japan. In those days it was possible to obtain near-parity with the West in about thirty to thirty-five years. In other words, as a young man you could see near-parity before you retired and you could see near-parity for your grandchildren. You could see your children making it halfway there, even before they are entering the workforce.
What if, in the future, for the remaining poor countries, the West (and East Asia) is so rich that catch-up takes seventy years? One hundred years? Will any poor country be bothered? Won't it all seem too far off to be worth the trouble? (Catch-up growth takes lots of hard work and savings and sacrifices of previous social norms.) Or do you believe in a technology-transfer Solow model where the maximum possible rate of catch-up growth keeps on growing? One hundred years from now, will it be plausible to imagine catch-up growth of twenty or thirty percent a year?
Posted by Tyler Cowen on November 8, 2009 at 08:16 AM in Economics, History | Permalink
Comments
Hasn't catching up gotten easier as time has gone by? I mean, Britain took two hundred years to get to where Korea got to in 30.
Posted by: Gabriel at Nov 8, 2009 8:24:59 AM
Tyler, this sounds suspiciously like the singularity.
Posted by: Doc Merlin at Nov 8, 2009 8:28:37 AM
Doesn't this question assume that people are entirely disinterested in absolute growth? How many people would be so upset at the thought of their children not reaching parity with the Western world that they would throw a sulk and refuse to invest in anything that would improve their children's absolute living standards? There probably are some people who are so pathologically twisted that they would do this, but whole countries' worth? Seems doubtful.
Plus, why should catch-up time be related to the relative scales of incomes? A lot of the difference between the UK now and the UK 100 years ago in terms of per capita income appears to be due to the discovery of new knowledge, eg antibiotics so you don't die of an infected scratch. Tractors on farms rather than horses. Cellphones. Central bank independence. Once you've gotten the economic and political institutions right for growth, there's no need to retrace all of the UK's steps faithfully. We have already seen cellphone networks built in countries with far lower per-capita income than the West had when cellphones were first invented.
So yeah, catch-up growth of 20-30% per year sounds extremely plausible to me, independently of what Solow may think. Let's turn this around, why does catch-up growth of 20-30% per year seem implausible to you?
Posted by: Tracy W at Nov 8, 2009 8:48:15 AM
The "catch-up" idea seems kind of unmotivated--people want to become absolutely richer, so implementing policies to achieve that would be supportable even if it didn't mean catching up.
The more important question seems to me to be whether there are some countries that are sufficiently disadvantaged that they basically can't advance anyway. Less-developed areas often have geographical issues that are not easily solved, and of course talented individuals can achieve "near-parity" by leaving.
Posted by: mwilbert at Nov 8, 2009 9:01:09 AM
GDP ratios are only one way of looking at countries, and I'm not convinced it's the best way across such vast time and wealth scales. Another way is "X is at stage of development where typical rich countries were Y years ago" thinking. For extremely poor countries life expectancy is a lot better measure of well-being than GDP.
Looking at gapminder, typical rich countries' life expectancies were 35 in 1800, 45 in 1900, and 65 in 1950.
Not a single country now is anywhere near 1800's top levels. A handful of small countries ravaged by HIV are below 1900's top levels. Almost all countries, even those considered really really poor like Bangladesh are above 1950's top levels.
So if they follow the same path of development, it's 60 years tops. Much faster rates are plausible, and happen all the time.
And it's not like there's any concerned effort to "catch up", a lot of tech just spills off silently, like antibiotics, computers, Internet, mobile phones etc., and it has extremely big impact on people's lives.
Posted by: Tomasz Wegrzanowski at Nov 8, 2009 9:12:09 AM
Tracy and mwilbert already said it, but here it is again: this is only a problem for those who want to talk about "bringing the rest of the world up to Western standards". It all sounds very caring, and it feels good to be the measuring stick.
Anyway, if true at the macro level it should be true at the micro level, but I'm not buying it. The chances that my bank balance will catch up with Bill Gates's keep slipping away, but I'm hardly bothered. Why should I when I keep getting richer
Posted by: Gary at Nov 8, 2009 9:29:11 AM
Unless Humans have significantly diverged from one another in the last 100 years, the potentiality for catch-up-growth seems to be accelerating. In my humble opinion it is not technology, but the consistency of human consciousness.
In todays world, a Hotentot's grand child can and will graduate from MIT fully confluent at the pinnacle of modernity and socialization. Interact with the elites of any and all societies of the world, and you will be interacting with the equivalent of the Western upper middle class. These are the decision making, influential groups that drive transformation within their societies. Obama's grandmother was illiterate, not to speak of the socio-economic environment of 19th century Nyanza his great grandmother grew up in.
I don't mean that as a cultural commentary but rather a statement on how quickly any group can pick up and adopt the "latest and bestest" of what works from other successful human societies. I have witnessed this phenomenon first hand in Africa, and in my experience there is allot going on in under the surface that is not readily apparent to the untrained eye.
One thing to note Tyler, is that convergence is running both ways, with transmission accelerating as quickly as absorption, that is the level of knowledge, information and other outputs from successful human societies, is growing exponentially.
By illustration, Every single one of my rural nephews and nieces in East Africa has a Facebook page, and are regular users of the Internet. How they accomplish this task I am yet to figure out, given the dearth of electricity and Internet access in rural East Africa, yet I have witnessed them have an interesting if rather naive debate on Obama's healthcare initiative.
I find it implausible that once this generation reaches political dominance in the next two decades, that they will not create and East Africa that resembles the world of the peers they interact and identify with globally.
Posted by: nyongesa at Nov 8, 2009 9:34:26 AM
it can be even more.
Let consider implications of proposals in the paper OPTIONS FOR 21ST CENTURY POWER PROSPERITY (see also about author David Criswell in wikipedia ). The availability of electricity for 0.01 $/kWe-h immediately and in any quantity will have a profound effect.
So just imagine what happens after introducing this measure and it it will be easy to imagine - the growth which might be even more pronounced.
Posted by: Sergey Kurdakov at Nov 8, 2009 9:46:41 AM
What the hell.
When did countries acquire anthropomorphic features like giving a damn. And why wouldn't the individual people in the countries try to better their own conditions.
Posted by: MikeDC at Nov 8, 2009 9:47:39 AM
This is the weirdest thing I've ever read from Tyler Cowen. Does he seriously believe that "catch-up" motivates people, rather than increasing living standards?
Posted by: dingbat at Nov 8, 2009 9:53:42 AM
At least for me, the defining changes in life style in the last 100 years in the rich countries are bigger living spaces farther from your neighbors, and personal transportation. The US exurbs are the extreme case, but the desire for these seem to be global: look at the housing and auto trends in China and India.
These require prodigious energy expenditures. Absent some remarkable developments in the energy field, it seems highly unlikely that there are sufficient resources to allow today's poorest countries to ever catch up in these areas.
Posted by: Michael Cain at Nov 8, 2009 10:22:14 AM
The real economic decision-makers in poor countries are elites. They don't share life experiences or incentives with the majority of people, and as such there's no reason to believe that individual preferences among ordinary people will affect the policy choices that affect economic growth. In many cases they are not even from the countries whose growth paths they determine. Think Bretton Woods institution officials or multinational corporation managers. The closely contemporary nature of changes in African growth strategies in particular suggests exogenous causes for the choice of socialism, liberalism, etc by governments.
The populist interpretation of this fact is that the West is exploiting Africa, but taking Tyler's post into account, this disconnect also allows benevolent forces to work where institutions would be naturally biased against growth. It may be a coincidence that the East Asian miracle countries experienced significant growth before democratising (if they did so at all) but perhaps not.
Posted by: Millian at Nov 8, 2009 11:05:02 AM
The trouble with this kind of free floating speculation is that it ignores the details of catch up growth. There is an "Anna Karenina" principle (as Jared Diamond called it) at work here: Every advanced country is the same, every primitive country is primitive in its own way. The severest obstacle to modernity is not lack of transportation infrastructure (or some other element of non-human Capital) but the culture of the nation itself. Africa won't be prosperous until its fertility drops, Islamic countries will remain backward until they free themselves of the medieval encrustations of their religion and so on.
Creative destruction in its most trenchant form is at work here. Japan lost a war, China had a revolution, Korea and Vietnam were ripped apart by war, and all these things made them ready for the profound change to modernity. Once a country, or a critical mass of the people, have decided to take right road, everything can happen very fast. It seems implausible that much more than one generation should be required.
Posted by: capitalistimperialistpig at Nov 8, 2009 11:18:10 AM
So far, fast catch up has required two conditions: accumulated and respected human capital (Japan, China, Korea, India)plus governments which will either get out of the way, (e.g. Hong Kong, India) or manage to be effectively helpful (Singapore, Japan up to the 1970s). The effect of the communications revolution is that accumulated human capital and respect for it are ceasing to be dependent on a culture's history. Everybody can tap into it.
Governments remain the problem for the countries trailing behind; and are they by any chance the critical obstacle preventing the older rich countries from growing as fast as Hong Kong or Singapore?
Posted by: David Heigham at Nov 8, 2009 11:23:57 AM
Tyler, this is another social experiment like the post where you used framing to see how civil we would be in a post, right?
Because if this is not something like that, or some sort of April Fool's joke, then you really need to get a clue. Several other posters have already mentioned it, but I'll do so as well. People want to improve their lot and their family's lot in absolute terms, and that is all it takes to motive them to succeed.
With an increasing absence of institutions that create deadweight loss, that is all that is needed for a country's per capita GDP to start to converge. International relative status is irrelevant as a "motivating" tool for national GDP convergence.
Posted by: happyjuggler0 at Nov 8, 2009 11:27:38 AM
MikeDC,
When did countries acquire anthropomorphic features...?
You did sleep through the last 5000 years of human history, right? I can't imagine any other reason for missing this very obvious feature of human societies. But to give you a hint, without giving away the whole game, remember Louis for "l'état, c'est moi".
Perhaps you missed this too, but during your nap corporations, baseball teams, cities and garden clubs also acquired some of those antropomorphic characteristics.
Posted by: capitalistimperialistpig at Nov 8, 2009 11:30:37 AM
People, I'm just presenting a standard view. Read for instance Wikipedia: "Japan's international economic relations in the first three decades after World War II were shaped largely by two factors: a relative lack of domestic raw materials and a determination to catch up with the industrial nations of the West." You don't have to agree with that, but it's silly to think I am being silly. Other Asian nations wished to catch up to Japan, or arguably China wished to catch up to Singapore, Hong Kong, etc. and saw that maybe it could.
Posted by: Tyler Cowen at Nov 8, 2009 11:37:05 AM
Some people just don't like thinking.
I don't mind it so much, but why create odd factors to think about. There may be a few paths to success but all are narrow. There are probably bottlenecks to copycatting good behavior including resentment and restrictions on trade. And, sometimes it's a good thing. Probably by doing nothing they have gained ground recently. It seems like keeping up with the Joneses is such a driver of irrationality that someone should make a cliche for it.
Posted by: Andrew at Nov 8, 2009 12:16:30 PM
just in addition to almost unlimited energy scenario , I mentioned above, considering great differential in wealth and abilities of future technologies - there could be imaginged there are persons or institutions who on there own money may do a) turning Sahara into oasis ( cheap water desalinations ) b) provide all settlements with transportation ( say robotic airships ) c) provide every child with computer with courses for all subjects one could wish for school , which will be in accessible and entertaining way ( 3D , some AI ( to replace teacher ) etc ).
this will cost for the initiator - just a portion of his wealth but could spur great changes in life for all those affected.
So with these external 'shocks' the rules of play will greatly change.
it is known - that education drives fertility rates down ( example Iran which had a severe drop in fertility in recent years ). Now - in one hundred years a 10 dollar laptop, packed with free educational software, will change all those probs with fertility in easy manageable task.
So anyone expects - that with great opportunity to learn - there will be no change?
Of cause there will be.
The problem is - for now. That those money spent on support to Africa just CANNOT buy all necessary change. But , I think, this won't last for long and soon there will be money to resolve all their problems.
Posted by: Sergey Kurdakov at Nov 8, 2009 12:39:40 PM
You write: "The classic example of economic catch-up is given by East Asia in the mid-twentieth century, starting with Japan." I think it would be more accurate to locate Japan's catch-up in the late nineteenth century.
Posted by: Asher at Nov 8, 2009 12:50:15 PM
Are countries really motivated to catch up, or are they motivated to make incremental improvements in their economies?
Posted by: chrisare at Nov 8, 2009 1:28:16 PM
I have nothing new to contribute, but I want to endorse the various commenters who have questioned whether people in Vietnam are saving and investing because they want to live like the people on MTV, and also those who applied the principle at the micro level.
People bring up the NBA a lot on this blog. The gap between the best NBA players and the man on the street continues to grow. Does that mean young kids stop trying to become star basketball players?
Posted by: Bob Murphy at Nov 8, 2009 1:40:15 PM
Chrisare, if a neighboring country is clearly better off, and if enough people from the other country visit it, yes, I think the motivation to "catch up" is present. Once enough people have seen higher quality of life with their own eyes, they will start to believe that it is possible to achieve that themselves.
Czechs have been "catching up" to Germans for the last 20 years; and the Slovenians to the Austrians. Estonians to Finnish. On the other hand, Ukrainians, Moldovans or Macedonians do not seem to have anyone to emulate anywhere close, and the rural country there is horribly stagnant.
There are obvious exceptions like Albania, where a significant percentage of the population has worked in Italy, but it gets no closer to Italy than 10 years ago.
Posted by: Marian Kechlibar at Nov 8, 2009 1:48:35 PM
Isn't Western imperialism and the East Asian reaction against it part of the explanation as to why those nations have been so committed to economic growth and military development? That is to say, the elites of East Asia think that they rightly should sit at the center of the world, as they always have in their own view. Who among the elites in Africa, Latin America, or the Muslim world, has that kind of drive or ambition?
Posted by: P at Nov 8, 2009 1:54:28 PM
P.: That would not explain growth of smaller nations. Consider also the fact that some of the most-militarized countries in the region (Burma, Laos, North Korea) have the least developed economies.
You can have quite strong military without strong economy - if you turn your people into semi-slaves, and find allies like Russia or China who will supply you with some advanced weapons either in exchange for raw materials, or to poke your "ugly plutocrat" neighbours like South Korea or Thailand with a tip of bayonet, or both.
Posted by: Marian Kechlibar at Nov 8, 2009 2:16:03 PM
