Throughout most of modern human existence, economic growth has been all but absent in the world. But about 200 years ago, some parts of the world began to emerge from economic stagnation into a period of sustained economic growth, profoundly altering the level and distribution of wealth, education, and health around the world and marking one of the most significant transformations in human history. The question ever since has been, Why?
Oded Galor, the Herbert H. Goldberger Professor of Economics, explores that question in his new book, Unified Growth Theory (Princeton University Press, 2011), which results from 20 years of developing and advancing this single theory. Reviewers say the book is “breathtakingly ambitious,” “full of original and daring ideas,” “Big Science at its best,” and “will have a long lasting effect on economics.”
Galor spoke with Deborah Baum about unified growth theory and how it explains what some scholars call the most profound and difficult questions of human history.
As the father of unified growth theory, what does it mean to have a single theory that accounts for the entire growth process since the dawn of civilization?
This is partly a quest for unification of knowledge and theoretical completeness, if you wish. But beyond that, it is an attempt to understand the role of historical and pre-historical forces in differential patterns of development and the great disparity in the standard of living across the world as we see it today.
Broadly speaking, the theory examines how individuals, societies, and economies have evolved virtually since the emergence of modern humans and how this evolution contributed to the vast inequality across the globe. To do so in a unified way means that you don’t rely on a different models for different stages in the process of development. Instead, the same model and behavioral rules characterize individuals throughout human history — but individuals take different action in different stages of development, due to the fact that economic incentives are changing in the course of human history.
The [non-unified] theories we have at the moment were built to characterize economic growth in the past decades and they are inconsistent with economic development in the course of most of human history. Consequently, they are unable to shed light on one of the most important phenomena in the course of economic growth, which is the emergence of a huge and persistence gap in income per capita across the globe in the last two centuries.
You say that up until about 250 years ago, the world economy was stagnant because any technological progress was ultimately being counterbalanced by a population expansion. What happened 200 years ago that made some economies stop that cycle and take off to sustained growth?
The theory shows how the interaction between technological progress and population ultimately raised the importance of education in coping with the rapidly changing technological environment, brought about significant reduction in fertility rates, and enabled some economies to devote greater resources toward a steady increase in per capita income, paving the way for sustained economic growth.
How does the theory help explain the worldwide disparities in living standards and population we see today?
One of the main insights of the theory is that initial conditions that were determined in the distant past have a persistent effect on contemporary economic outcomes. It suggests that if we really want to understand the great disparity of income per capita today, we must examine the source of variations across societies thousands of years ago. The attempt of the theory is to argue, look, if you really want to understand why Kenya is 100 times poorer than the United States, you cannot disregard the past ... and you have to carefully examine the factors that affected the ancestor of the current populations of Kenya and the United States hundreds and thousands years ago and how they contributed to the gap in income per capita today.
What types of conditions and factors help explain the disparities?
There are several mechanisms that contribute to the persistent effect of historical conditions. For instance, the level of genetic diversity that was determined thousands of year ago contributed significantly to the disparity in income per capita across countries. How? There is a trade-off associated with diversity in the context of economic development. If we are more diverse, we are less likely to cooperate, which is detrimental to economic development. On the other hand, more diverse traits are more likely to contain the ones that are more complementary to the technological environment and as a result, diversity is beneficial for economic development. The hypothesis therefore is that there is an optimal level of diversity for different stages of development. Society doesn’t want to be overly homogenous or overly diverse — it wants to be optimally diverse.
When people migrated from East Africa 100,000 years ago, tribes that resided farther away from Africa had lower genetic diversity. This is a well-established theory in evolutionary biology. In light of the effect of diversity on contemporary outcomes, the distance of the ancestors of each society today from east Africa has had a persistent effect on economic development. While the intermediate level of genetic diversity prevalent among Asian and European populations has been conducive to development, the high degree of diversity among African populations and the low degree among Native American populations have acted as detrimental forces in the development of these regions.
What’s next for unified growth theory?
The most promising and challenging future research in the field of economic growth in the next decades will be the examination of the role of historical and pre-historical factors in the prevailing disparity across the globe, and the analysis of the interaction between human evolution and the process of economic development. The exploration of these vast and largely uncharted territories may revolutionize the understanding of the process of development and the persistent effect that deep-rooted factors have had on the composition of human capital and economic outcomes across the globe, fostering the design of policies that could promote economic growth and poverty alleviation.