Transcript Suresh Naidu: Why some countries grew rich

00:00 I was taking a train to Coventry in northern England yesterday and I was surprised about the lack of free Wi-Fi on the train. And then I thought about how 800 years ago the people living in this exact same place were living on thin watery gruel and living to the age of 45 if they were lucky.

00:20 Understanding that transformation of a society is one of the reasons I’m an economic historian. There’s plenty of the world where people are still living really short lives and free Wi-Fi is the farthest thing from their mind. Understanding how we can help those countries move to a state where they’re also complaining about all the things we complain about is the other reason I’m an economic historian. So my name is Suresh Naidu, I’m an assistant professor of economics at Columbia University.

00:42 The birthplace of the Industrial Revolution was England. In northern England in particular, in cities like Manchester and Liverpool were places where we finally saw the first age of self-sustaining progress. So, how do we get there? And can we learn something from the experiences of countries that got there to sort of help us figure out how to do it better?

01:02 So I’m gonna start by showing you this graph of real wages in England and this starts in 1264 and goes to today and what you can see is that for most of the time people are not making very much money. So they’re quite poor and then all of a sudden something happens and then wages start increasing.

01:20 So what are the forces that we use to explain this? So when I just talk about how many people there are I’m gonna use biological scarcity, how much stuff there is per person I’m going to call that technological productivity, and then third of what institutions and policies are in place.

01:36 So, let’s start with biological scarcity. Something happens to population in 1348, where the black death happens. 30 to 50% of the British population just dies and so what this means is that when you have both fewer people and the same amount of stuff, that you should see living standards start to rise. Following the black death you then see wages increase. A subsequent recovery of population as people translate those higher wages into having more kids. And then what we would expect to see is as the scarcity starts to fall is that living standards and wages also begin to fall. One of the things you can sort of see is that population keeps increasing over here and yet real wages are also increasing. So, what’s going on?

02:28 That brings me to the second force which is technological productivity–how much stuff can we produce per person. And that’s what this blue line captures, this is a measure of output per capita and that’s kind of going to be our measure of stuff. Starting in the late 18th century we see the sustained increase in the GDP per capita, the amount of output that we have per person. This finally makes a higher standard of living possible. One of the things you also see from here is that wages don’t quite keep pace with this increase in the amount of stuff available.

03:01 To explain that we need this third component which is institutions and policies. And what we then get is at the beginning of the 19th century we see workers and political movements; the trade union movement, to the Chartism, to the British Labour Party, that sort of transformed English institutions so that you basically bring the wages up to keep track with the amount of stuff there is available per person. And that’s sort of our summary of the sort of three forces that then work together to sort of explain how England goes from relatively poor to relatively rich.

03:36 So what’s the takeaway? These three fundamental forces can be used not just to explain 800 years of economic history but they can also help understand why other countries did not undergo the same transformation. Understanding economic history is useful not just for understanding the past but also for understanding the future.