Societies reappraise their growth models

When economists Daron Acemoglu and James Robinson investigated the sources of economic development, they hit upon a concept they called “inclusive institutions”, which are made up of political, legal and economic systems that “allow and encourage participation by the great mass of people in economic activities that make the best use of their talents and skills”.

Ditch hierarchies

Among these institutions, they argued, were rule of law, private property rights and public services. Countries that practised slavery, serfdom or other methods of forced labour ended up underperforming.

Until about 1600, a historian might have laughed at Acemoglu and Robinson’s thesis. The Roman Empire and Song Dynasty in China, the two richest premodern societies, both practised slavery and had rigid class hierarchies. But sometime during the past 400 years, societies with stronger education systems, broader economic opportunity and more personal freedoms started to defeat their more aristocratic and hidebound counterparts on the battlefield.

Among the most iconic such contests was the American Civil War, in which the industrial North vanquished the parasitic slave society of the South. The wars of the French Revolution, the World Wars and the Cold War all saw broadly similar results.

Individual’s effort

Economically, the surprising potential of the average citizen has also played a crucial role. Economic historian Robert Allen has theorised that the Industrial Revolution began in Great Britain because of high wages there, which forced British manufacturers to substitute machines for labour.

Although there are those who dispute Allen’s theory, it’s undeniable that the productivity of the average worker grew enormously as humans learned to work with the new machines. Public education, which created a literate society and prepared the mass of people for work in the industrial age, was a crucial part of the transformation.

Evidence still suggests that societies succeed when they believe in their people’s potential. Universal literacy, which depends on public education, is crucial for economic development, as is democratic government.

China paradox

But there are stern challenges to the supremacy of people power. The most significant of these is China’s rapid growth.

China denies its people suffrage and many basic human rights. Labour protections and the legal system are weak, and mobility is restricted throughout the country. China brutalises its Uighur minority, and the belief that the Han majority is unruly and needs strict social control is widespread.

Despite all of this, China has just experienced the most spectacular 40-year run of economic growth of any nation in history while the US has seen incomes stagnate and has fallen into partisan strife.

This contrast has undoubtedly contributed to the combination of unrest and authoritarianism now sweeping the world. Still, it would be premature to use China as a reason to conclude that people power is over. Though China has gotten much richer, its gross domestic product per capita is less than a third as large as that of the US, and growth is slowing.

Despite enormous resources, its rate of scientific innovation is still minuscule for a country its size. Meanwhile, with air pollution choking cities and the government monitoring people’s every move, China isn’t the kind of place most people would want to live; many of those with the means to do so are trying to get out.

Instead of copying China’s model, the US should double down on a belief in the potential of its own people. Instead of fretting that minimum wage hikes will cause workers to be automated into obsolescence, policymakers should have faith that Americans will find new and more valuable ways to work with machines for higher wages in a modern version of the Industrial Revolution.

Stick with the math

Instead of cutting back on education based on the belief that ability is inborn, the US should expand higher education and spend more on public schools in lower-income areas. Rather than cancelling subjects like algebra, educators should trust that American kids are capable of working hard and doing the math. Government should do much more to clean up lead and other forms of pollution that harm childhood development.

Policymakers shouldn’t assume that poor people will squander cash benefits. Technology entrepreneurs and financiers should discard their infatuation with business models that use as few workers as possible and try harder to build companies that take advantage of the country’s vast pool of human labour.

The age of human potential is not over. Countries that believe in their people, and make the investments to back up that belief, will still outperform in the coming century. To abandon this successful approach would be a grave mistake.