Today the world is much more equal in income terms than in earlier decades while inequality grows within nations. Meanwhile, the question of the survival of the standard of western affluence is being increasingly raised at a time when in the United States, the biggest economy of advanced nations, the inflation-adjusted (real) income for the typical American household in 2012 was below the level in 1989.
Reverend Thomas Robert Malthus (1766-1834), who was also an economist, earned posterity for his 1798 prediction that population would continually increase faster than the food supply, causing chronic food shortages. He was blind to contemporary developments in Britain that would radically change societies that had been static and predicable for thousands of years. Thomas Hobbes (1588-1679) had written in 1651 of "the life of man, solitary, poor, nasty, brutish, and short."
There were about 1bn people in the world in Thomas Malthus' times and according to the late eminent economic historian, Angus Maddison (1926-2010), until 1800 about three fifths of the world’s commerce and production took place in and around China and India. So did much of the world’s scientific and technological progress, including the Chinese invention of paper, explosives, and printing, and medieval India’s launch of modern mathematics. In the early 1830s, when President Andrew Jackson sent the first US envoy across the Pacific to Siam (Thailand), Asia still accounted for over half of global GDP (gross domestic product).
China's Qing dynasty was overthrown after 267 years in power by a republican
revolution in 1911. It was a colonial power with the Manchus from northeast
China ruling the majority Han people. Technological advances stalled and in
1793, the emperor rejected the request of a British delegation led by George
Macartney (1737-1806), an Irishman, to open diplomatic relations with the British.
Emperor Qianlong in a letter to King George III said: “we possess all things. I set no value on objects strange or ingenious, and I have no use for your country’s manufactures.”
In the prescient 1919 book 'The Economic Consequences of the Peace,' on the vengeful Treaty of Versailles, John Maynard Keynes (1882-1946), the renowned British economist, describes free trade as it existed in 1914, when a businessman in London could travel the world freely, invest wherever he wanted, and "could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep." Not only that, Keynes' Londoner "regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement."
The genesis of modern globalisation began in the 1950s with moves to reduce tariffs and Ireland was an early beneficiary of it.
In 2008, we reported on the final report of the Commission on Growth and Development, which examined examples in recent decades of what were termed growth miracles.
Dr. Michael Spence (b. 1943), a winner of the 2001 Nobel Prize in the Economic Sciences and chairman of the commission, said that sustained high growth in developing economies is a recent, post-World War II phenomenon. Using GDP figures, "high" is above 7% and "sustained" is over 25 years or more, he said that these cut-offs are arbitrary, but a similar picture emerges with variants. Growth at these rates produces very substantial changes in incomes and wealth: Income doubles every decade at 7%.
There are 13 such cases of sustained high growth, and nine are in Asia. These
are Botswana, Brazil, China, Hong Kong (China), Indonesia, Japan, Korea,
Malaysia, Malta, Oman, Singapore, Taiwan (China), and Thailand.
Each and every one of these miracles had an export sector as a driver of growth
and an increasing share of trade in GDP.
There are no exceptions.
Every growth miracle involves leveraging the demand and resources of the global economy.
Finfacts: Commission on Growth & Development Report: 13 countries had sustained high growth - defined as 7% per year or more for 25 years or longer; Highlights four sets of countries where growth has stalled
Last month we wrote that the workforce in the global trading economy doubled to 3bn in the period 1980-2000.
Era of low price commodities over
Growth in the developed world for most of the 20th century was boosted by either low or falling real (inflation adjusted) commodity prices.
McKinsey Global Institute says that with
the notable exception of the 1970s, oil and gas prices (in real terms) were flat
or fell throughout the 20th century. Yet energy prices have soared by an average
of 260% since 2000 as a result of a combination of strong demand (notably from
China) and rising supply costs. For instance, the average real expense of
bringing a new oil well online doubled between 2000 and 2010 -- an increase of
more than 7% a year.
Download Full Report [pdf]
When the money runs out?
Stephen King, group chief economist of HSBC, a banking giant, has written a book, 'When the Money Runs Out: The End of Western Affluence,' that was published in the early summer. It raises relevant issues and of course, a bank economist has to avoid some sensitive ones.
The author acknowledges that in a paper currency system, the money in a narrow sense may never run out but he argues that the ability of the developed world to generate significant economic growth, and thus wealth, has declined. He highlights that in the first four decades of his own life real British incomes per head almost tripled; in his fifth decade, they rose just 4%.
In an op-ed piece in The New York Times on Monday (the reader comments are also interesting), he wrote:
King makes a plea for "economic honesty, to recognise that promises made during good times can no longer be easily kept."
He proposes reforms such as raising pension ages, increasing immigration in ageing societies and a social pact where an older population does not cannibalise benefits at the expense of the young.
The economist also recognises that rising inequality is part of a process that feeds mistrust within nations.
Stephen King writes in his book:
Finfacts: Company cash hoards rise to $8tn; Taxes, squeezed labour and 'trapped' cash
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