Back to normal? Our stagnant past


Comment: We've always experienced slow economic growth, it's the booms that are unusual

25th March 2015
By Carl Benedikt Frey

Over the course of the past year, much has been written about secular stagnation: the idea that advanced economies are entering a 'new normal' that is unlikely to produce the improvement in living standards that the industrial world has long taken for granted. Yet throughout history, the normal has been stagnation.

To avoid going back to the stagnant normal it is crucial to understand the causes of the exceptional era of growing living standards experienced by the many since the Industrial Revolution.

Most of our preindustrial history can indeed be viewed as an era of stagnation. While we lack reliable data to measure living standards in early societies, suggestive evidence on calorie consumption and life expectancy exists. For example, using surveys of farm labourer families between 1787 and 1796 (conducted in the context of the Poor Law debates), economist Gregory Clark has estimated that calorie consumption among the poor averaged 1,508 kilocalories per day in Georgian England. This can be compared to estimates of calorie consumption in hunter-gatherer societies, varying between 1,452 kilocalories in the Yanomami tribe of Brazil, and 3,827 in the Aché of Paraguay. Similarly, average life expectancy did not increase much, if at all, in the preindustrial world: for people aged 20, life expectancy may even have been somewhat higher in the Stone Age than it was in more advanced economies in Asia and Europe around 1800.

Most of our preindustrial history can indeed be viewed as an era of stagnation.

This is not to say that technological progress was non-existent before the event of the Industrial Revolution. Johannes Gutenberg’s 15th-century printing press did much to increase literacy and educate populations. The caravel – a small and more manoeuvrable sailing ship developed in 1451 – paved the way for the age of discoveries and was fundamental to the Portuguese and Spanish spice trade. Other early inventions were crucial to the progress of the Industrial Revolution, but did little to improve living standards at the time. The barometer, for example, invented in 1643 by a student of Galileo, showed the existence of atmospheric pressure: an insight that would help in the eventual development of the first steam engines.

Nevertheless, as transformative as many of these innovations were, they did little to improve living standards in the way that the steam engine, the washing machine and the automobile have. A widely held view is that this was the result of technological progress boosting population growth rather than per capita incomes over the long term. Thus, while agriculture was adopted because it was a superior technology, which generated higher incomes, those productivity gains led to larger populations, reducing standards of living. Ironically, Robert Malthus advanced his theory – that improved levels of subsistence had the effect of boosting populations – just as the Industrial Revolution was taking off.

What allowed economies to break out of what became known as the Malthusian trap, so paving the way for an era of sustained economic growth, is still intensely debated. Nevertheless, it is clear that the adoption and diffusion of new technologies was relatively slow prior to the Industrial Revolution but has gathered pace over time: while it took around 120 years for the spindle to be employed widely outside Europe, the internet has spread across the globe in only seven years. The slow adoption of technologies in early societies may thus explain their stagnant state. As geographer Jared Diamond has documented, some places even lost their technological capabilities: when the Dutch explorer Abel Tasman discovered Tasmania in 1642, ending the longest isolation recorded in history, the Tasmanians lacked many of the technological capabilities they had once shared with the aboriginal Australians.

While it took around 120 years for the spindle to be employed widely outside Europe, the internet has spread across the globe in only seven years

Modern technology has also benefited a larger fraction of the population. The spindle helped increase productivity in the textile industry, but it did not transform entire economies in the way the electrification has. An often-neglected fact in this context is that technological progress does not always benefit everybody equally. While average living standards in 18th-century England may not have been higher than in hunter-gatherer societies, Jane Austen's novels depicting the wealthy elite bear witness to substantial progress in technology relative to early societies. This illustrates an important point: although technological progress has been a driver of higher living standards, even before the Industrial Revolution, it has not always benefited ordinary people. In fact, most inventions in architecture, art and shipping before the Industrial Revolution tended to target the consumption habits of the wealthy elite.

As population growth is tapering off across the industrial world, and new technologies are diffusing at a faster pace than ever before, there is no reason to be concerned by the factors that held back living standards in the past. Instead, the concern is that the benefits of technological progress are not being widely shared. To be sure, even the poor have access to most of today's technologies, making them better off; but this progress has not translated into higher median incomes in advanced economies.

The exceptionalism of the Industrial Revolution resides in the creation of a prospering middle class. New manufacturing technologies, such as the assembly line, allowed companies like Ford to produce the Model T at a sufficiently low price for it to become the people's vehicle, while boosting incomes for ordinary workers. As recent advances in robotics and artificial intelligence are making a growing number of low- and medium-income jobs redundant, which in turn increases the profit share of income, advanced economies are heading towards preindustrial levels of inequality. To avoid going back to normal, the industrial world needs to adapt by making progress inclusive again.


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