Andrew Haldane, the Bank of England’s Chief Economist, gave a fascinating speech to the University of East Anglia last week on the subject of economic growth and whether or not the recent slowdown is a blip or a longer term trend.
The economic jury is still out on whether recent rates of growth are a temporary post-crisis dip or a longer-lasting valley in our economic fortunes. Pessimists point to high levels of debt and inequality, worsening demographics and stagnating levels of educational attainment. Optimists appeal to a new industrial revolution in digital technology. Given its importance to living standards, this debate is one of the key issues of our time.
As he says, economic growth is a relatively recent thing.
[T]he long history of growth looks rather different than the short. Secularly rising living standards have become the social and economic norm. No-one can recall a time when the growth escalator has moved anything other than upwards.
Yet viewed through a long lens telescope, ‘twas not ever thus. Chart 2 plots estimates of global GDP per capita back to 1000 BC. This suggests a very different growth story. For three millennia prior to the Industrial Revolution, growth per head averaged only 0.01% per year. Global living standards were essentially flat. Since 1750, it has taken around 50 years for living standards to double. Prior to 1750, it would have taken 6000 years.
For much of human history, life changed very little for most people. One year was pretty much like the next and one century wasn’t a lot different from the one that went before. For centuries, life and death rates barely changed and life expectancy was somewhere around 40. A peasant beamed forward from 1100 to 1300 would find very little had changed. His family might even be farming the same plot and he would have no trouble helping his descendants in the fields as the tools and techniques would be very similar to his own. What little change there was came about very slowly.
As Haldane says:
[G]lobal living standards plateaued for the majority of the past 3000 years, before rocketing over the past 300.
Discernible rises in living standards are a very recent phenomenon. If the history of growth were a 24-hour clock, 99% would have come in the last 20 seconds.
He goes on to discuss why the growth takeoff happened and the social, political and technological factors that led to it. And, of course, whether the next technology fuelled leap is around the corner or whether we are now settling back into a period of much lower growth.
I’ve talked about this quite a lot recently with various groups of people. I have noticed how difficult people find the ideas of secular stagnation and a slowdown in technological development. Even though the prospect may be frightening, most people seem to think a scenario where technology advances rapidly and robots take our jobs more plausible than one where growth and innovation cease.
This isn’t surprising when you consider our recent history. Take the period on from 1700 when growth began to take off and look at what happened since. In the western economies, much of that growth happened between the period immediately before the Second World War and the turn of the millennium.
Economic growth is a recent phenomenon but rapid growth is even more recent. The sort of growth we experienced over the past half century or so was unusual even by the standards of the last 300 years. In short, we have lived through an extraordinary period within an extraordinary period.
But we don’t think of it as extraordinary. The post-war generations came to think of these growth rates as normal. We grew up thinking that the economy would always grow at just short of 3 percent and that the next generation would always be better off than the one before it. We were convinced that the world would continue to change rapidly. So convinced were we of the increasing speed and importance of change that we even invented a thing called Change Management. These days, you can’t move for people quoting Heraclitus, saying that the only thing constant is change, whether or not he actually said it. It used to be said that people fear change as they get older. Not us, though. We’ve grown up with change and we expect more of it. These days, the middle-aged men who don’t get out much complain that youngsters just aren’t revolting any more. We have come to think of rapid growth and change as normal.
Which is why we find it so difficult to get our heads round the idea that the future might be Tech Meh! rather than Tech Yeah!
But what if we’re wrong? What if the real change we have to get used to is that the future won’t be anywhere near as different as we thought it was going to be? What if our increasingly middle-aged world slows down and technological and economic change goes back to the pace it moved at before the twentieth century? Could it be that the rapidly changing world in which we grew up was a lucky blip?
We grew up with imaginative science fiction and futuristic science on TV. Exciting predictions about what new technology might do might be a little scary but we are used to them. An economic and technological slowdown would be much more of a shock for us which is why we find it so difficult to believe. After all, the past 70 years of rapid growth may be abnormal when viewed against the rest of history but it’s all we have ever known.
Update: I think I might have accidentally deleted some of the comments on here while trying to approve them. If your comment has disappeared, I apologise. It’s a phone and fat fingers, not deliberate censorship.