What can the history of human progress teach us about modern inequality? In his new book, ‘The Journey of Humanity: The Origins of Wealth and Inequality,’ economist Oded Galor explores that question, as well as why human progress was stagnant for so much of history, if growth is still possible without ruining the planet, and what this all means for our future.
Oded Galor is a Professor of Economics at Brown University and the founding thinker behind Unified Growth Theory. He’s also the author of The Journey of Humanity: The Origins of Wealth and Inequality.
Twitter: @GalorOded
The Journey of Humanity https://www.penguinrandomhouse.com/books/679024/the-journey-of-humanity-by-oded-galor/
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David Goldstein:
One of the pleasures of hosting a podcast is that, I get to talk to the authors of some of my favorite books. And with Nick on vacation, I took the opportunity to invite Oded Galor on to the podcast. He’s a professor of economics at Brown University, and the author of the recently published, The Journey of Humanity: The Origins of Wealth and Inequality. We’ve got a link to the book in the show notes, and I hope you enjoy my conversation with Oded as much as I did.
Oded Galor:
My name is Oded Galor. I am a professor of economics at Brown University, but in fact, I’m an interdisciplinary researcher. A specialist in the fields of economic growth, macro history, cultural evolution, and discreet dynamical systems. In the past few decades, I was fortunate enough to be engaged in a fascinating research about, the roots of wealth and inequality. And this led to the publication of my recent books, The Journey of Humanity: The Origins of Wealth and Inequality.
David Goldstein:
I want to start with the title of the book, you call it, The Journey of Humanity: The Origins of Wealth and Inequality. And that is an imposing title that covers a lot of ground. Why did you feel it was so important to address all of human history, going back to our evolution, in order to get at the origins of wealth and inequality?
Oded Galor:
So over the past few decades, I was engaged in research that established unambiguously, that the significant portion of the inequality across the globe today, can be traced to forces that operated in the distant past. Forces that operated hundreds of years ago, thousands of years ago, and even tens of thousands of years ago. And as a result of it, in order to address the issue of global inequality today, in order to design perhaps policies that can mitigate this inequality. I felt compelled to trace the evolution of humanities since the emergence of homo sapiens in Africa, nearly 300,000 years ago. And to try to trace its roots of global inequality as we see today.
David Goldstein:
And to be clear, you go back… Well, we’ll define some terms. Here you go back to the paleolithic era, that’s before the agricultural revolution. And you find that patterns established when populations went through the agricultural revolution, actually influenced wealth accumulation prosperity for millennia to come.
Oded Galor:
Indeed. So in fact what I try to argue is that, forces that operated during the agricultural revolution and perhaps even earlier, are still operating in today’s world. In the sense that, agricultural revolution and the pressure that was created at a time when the human population generated a process of cultural revolution that selected certain type of trace, that were conducive for development in some parts of the world. And perhaps less conducive for development in other parts of the world. And they contributed to the inequality as we see today. But perhaps even more surprisingly, events it occurred even before the onset of the Neolithic revolution, events that are associated with the Exodus of anatomically modern human from Africa nearly 60 to 90,000 years ago, affected the distribution of diversity across the globe and consequently economic prosperity, as we see today. So part of the argument that I raise in this book, is that if we would like to understand inequality today. If we would like to understand the roots of global inequality today, namely why some countries are rich and others are poor.
And why is it the case? And that over the past 200 years, inequality was magnified tremendously in the world economy. And we have to focus on elements that occurred, as I said, in the distant past. And part of what the book does, is trying to peel different layers of influence that affect inequality today. Starting with the role of colonialism, moving into the impact of institutions. And ultimately moving even deeper into the cultural roots of inequality today, the geographical shadow on inequality today and back all the way to Africa, where we are all originated from. And the impact of the Exodus of humans from Africa on the distribution of diversity across the globe.
David Goldstein:
Let’s start with diversity. Talk about the distribution of diversity and why that’s important.
Oded Galor:
So it turns out that during the migration of modern human from Africa, 60 to 90,000 years ago, populations that departed from Africa carried with them only a subset of the diversity that existed in the original African population. And this is simply based on the fact that the original population was limited in size, and the departing populations were limited in size. And since this is something from a limited distribution, the departing population was not a representative sample of the original population that existed in Africa. And since migration was sequential, the further humans moved from Africa, the lower was the degree of diversity of these populations. So this migration process affected the distribution of diversity across the planet. Naturally humans move since then, and in the past 1500 period, we see great migration. For instance, into the Americas. And consequently one has to account for these migratory patterns. But broadly speaking, the distribution of diversity across the globe was affected during this migratory pattern.
Now, why is it so important? It is so important because diversity has conflicting effects on productivity. On the one hand, diversity is associated with cross fertilization of ideas, complementary of traits, and consequently greater innovations and productivity. But on the other hand, diversity has an adverse effect on social cohesiveness. It is associated with mistrust. It is associated with disagreement about the desirable public goods and consequently, it is a source of conflict. And since diversity has conflicting effect on effects on overall prosperity, it implies that there was historically, an intermediate level of diversity that was conducive for productivity. Only a sweet spot level of diversity that balanced between the beneficial effects on innovations and the adverse effect on social cohesiveness.
But now as the world became more and more demanding technologically, so we move into an era in which technological progress is much more rapid than before. Cultural fluidity became very important in the ability of society to cope with this rapidly changing technological environment. And consequently in the course of human history, what empirical research is showing us, is that there is a gradual interest in the Swiss spot level of diversity. Only societies that are more diverse are getting the upper hand in the context of prosperity.
If you think about the world, say around the year 1500, the level of diversity that was conducive for productivity was somewhere in Southeast Asia. Societies such as China, Japan, and Korea, at the level of diversity that balanced well between social cohesiveness and innovativeness. These societies were relatively homogeneous, were relatively cohesive. And consequently, the benefits of homogeneity in terms of cohesiveness, balanced well the potential adverse effect on innovativeness. But as we moved into the modern world and as the technological progress started to accelerate, in fact, we see the rise of Europe rather than the rise of China. Namely it is the cultural fluidity that existed in Europe, that ultimately permitted the European population to take off earlier, and to have the upper hand in terms of economic prosperity.
If we think about the world today, or if we think about the world that we will see in the coming few decades, as technological progress becomes more and more rapid, it will be the case. The societies that are more diverse will have the upper hand in the sense that, in the context of the trade off between the beneficial effects of diversity and the potential adverse effect, societies that are more diverse will be closer to the sweet spot level of diversity.
David Goldstein:
I found that really fascinating, that you actually see over time, that sweet spot rising as our economy and our society becomes more technologically advanced. And thus more complex, because you need that increased complexity to maintain that level of technological development, the level of diversity that maximizes this rises. But there’s a challenge with that, isn’t there? And we see this in the United States, which has one of the most diverse populations in the world, if not the most. We are struggling with social cohesion right now.
Oded Galor:
Indeed. So as I said, there is a trade off that is associated with diversity. And this is precisely the trade off that you underline diverse societies, than to be less cohesive socially. And it is a source of tension in different dimensions, source of conflicts, and as a result of it reduction in productivity. But at the same time, as you said, diversity is a source of innovativeness. So two elements are important in these dimension. We have to recall that as I said, technological progress becomes faster and faster. And as a result of it, cultural fluidity becomes much more important. On the other hand, we realize precisely the cost of diversity in the context of social cohesiveness, and our education system is progressively more geared towards generating these social cohesiveness. Namely, we are educating our children to be more tolerant. We are educating our children to respect the difference between ethnic groups, cultural groups, and other ones. And consequently, gradually we are mitigating the course of diversity.
This is not an instantaneous process, but it is a process that is undergoing. That suggests that over time, this sweet spot level of diversity will increase over time. And in this respect, The Journey of Humanity, the book that I read that I wrote. Is in fact, celebrating diversity. It suggests that in fact, the very good economic reasons, why diversity could be beneficial for societies in a rapidly changing technological environment.
David Goldstein:
Right. So this instinct by the far right in the United States and in Europe, to their reaction to diversity, that would have negative economic effects if they were to win out.
Oded Galor:
Indeed. So the argument is a little more complex in the sense that it… Empirical research is showing us unambiguously, that the societies that are progressively more diverse, have the upper hand in the context of productivity and prosperity. Now the issue of immigration is a little more tricky, in the sense that, if say societies in Europe are feeling reluctant to absorb large number of immigrants. I think this is based on their planning horizon. In the sense that, naturally when immigrants are arriving, it takes time for immigrants to be assimilated into the population. And consequently, the benefits may come with some delay, relative to the immediate cost on social non cohesiveness. So part of this rhetoric that we hear in the context of politics in the US and perhaps politics in Europe, is a little more complex. And it’s in some sense, outside of the direct empirical evidence that I have.
Which is, that if you look at the level of diversity that we see across the globe today, then it appears that societies that are more diverse will have the upper hand. Now, if you want to prepare yourself for the next 20 or 30 years. If politicians would have a longer horizon, they would realize that in fact, restricting diversity, restricting immigration is perhaps not the proper strategy. But given the planning horizon of politicians, which is typically the political cycle of four years or eight years. Then it is not surprising that politicians are focusing on the immediate short run effect rather than, the prosperity that perhaps can be generated decades down the road.
David Goldstein:
Right. Though of course, and maybe we’ll get to this a little later in the conversation, when we talk about fertility rates. Short term, you have to worry about stagnant or declining population. If you’re looking at the short term interests of your economy.
Oded Galor:
Indeed.
David Goldstein:
So let’s get to the heart of the book. You ground this in, what you call Unified Growth Theory. I want to get into that, and a little bit of how this diverges from the more Orthodox approach to this subject. But first, first principles throughout the book, what do you mean when you use the word growth?
Oded Galor:
Right. So I’m referring to Unified Growth Theory. And in this respect, when I’m referring to the notion of growth, I’m referring to the progression of humanities over the entire span of human existence. So I’m referring to the evolution of societies since the emergence of homo sapiens in Africa, nearly 300,000 years ago. And naturally, growth is not necessarily measured in change, in economic prosperity. So from my viewpoint, if you think about, say the 99.9% of human existence. What we observe is that, we see some growth in technology, we see some evolution of technology, but this technological evolution is not converted into economic prosperity of the average individual in society over 99.9% of human existence. We start to see economic growth in a dramatic metamorphosis in the standard of living, only in the past 200 years. So again, I will lose the word growth very broadly to imply progression in different dimensions. Some of it progression in technology, some of it progression in the standard of living.
David Goldstein:
Right. So we’re not talking about growth in the traditional economic sense of GDP.
Oded Galor:
Well, we can, but this is just one dimension. So if we think about the origins of economic growth, which is basically the origin of the growth in income per capita, then we can see it only in the context of the past 200 years. So much of the premise that is advanced in my book, The Journey of Humanities, that over most of human existence societies are in a state of stagnation in terms of economic prosperity. Although not in the state of stagnation, in terms of the progression of technology or the progression of population.
David Goldstein:
Right. So this is a major theme in the book that, technology has gradually advanced over the course of human history, but human living standards did not until very recently.
Oded Galor:
Indeed.
David Goldstein:
Right. Explain why.
Oded Galor:
Right. So when we think about the evolution of human societies, as I said, since the emergence of Homo sapiens nearly 300,000 years ago. This evolution is governed by three wheels of change. The first one is technological progress, the second one is the size of the human population, and the third one is the adaptation of the human population. Now over most of human existence, when technology advanced, research naturally expanded. But these resources, permitted individuals and family to have more surviving children, in fact to give birth to many more of them. And consequently, the surplus that was generated by technological progress was ultimately divided over a larger number of people till the level of economic prosperity or the standard of living, reverted back to the subsistence level, to the previous equilibrium position. So over most of human existence, the world is in some sort of a Malthusian apoc, in the sense that there is a Malthusian mechanism that is operating behind the scene.
When technology is advancing, population is advancing in a proportionate way, and consequently there is no change in the material wellbeing of the population. And consequently over this time period, societies that are more advanced technologically, have more people but not richer people. Very differently than what we see today, technological advancement is not generating economic prosperity in the long run. Generate more people, but equally prosperous people. And as I said, this is based on the simple notion, that when resources are expanding, many more children can survive, because they’re nourished better than before. Many more children can be born, because again, mothers are nourished more than before and they’re more productive than otherwise. And consequently, the surplus that is being generated by technological progress, is divided over larger and larger number of people. And this is something that is occurring over most of human existence. So what we see is basically an interaction, between technology and different dimensions of the population.
So think about the world 300,000 years ago, we have certain population in Africa and modest size, and naturally these people are equipped with the human brain. Namely, they are equipped with an important element that permits them to innovate. So when we think about innovations 300,000 years ago, and the pace of innovations during this time period. It is not as rapid as it is today, but nevertheless innovations are taking place. So stone tools are being generated, and one stone tool is replacing another. And the advancement of a stone tool is permitting more resources, and as more resources, permit larger population to be supported. So over the course of this period, and this is nearly 300,000 year period. The world is moving from stone tool technologies 300,000 years ago, to steam engine technologies 250 years ago. And the world is moving from its population size of about two and a half million people, in the Eve of agricultural revolution, 12,000 years ago. To about 1 billion people in the midst of industrialization, 400 fold increase.
Despite the fact that we see stagnation in living standards, we see great dynamism in the context of technology, great dynamism in the context of the size of the population, and great dynamism in the context of the adaptation of the human population. And this wheels of change are operating relentlessly in the course of human history, we start with few people that contribute to technological progress, that in turn contribute to larger population and more adaptable population, more technological progress. And this occurs over 300,000 year period. But technological progress nevertheless, is relatively small and modest over most of the course of human history. And as a result of it, families do not need to invest in the education of their children, so as to allow them to cope with this changing technological environment. But at a certain point, in the eve of industrialization, the rate of technological progress becomes very rapid.
And in order to cope with this rapidly changing technological environment, in order to cope or to navigate this stormy technological environment, parents must start to invest in the education of their children, so as to equip them with the tools that will allow them to cope with the change. But naturally, parents have very limited resources. They have to economize on elements of their budget, so as to support the education of their kids. They cannot economize on their own consumption, because they live with a level of consumption that is very close to the subsistence. And as a result of it, they must economize on the number of children. Namely, in order to support the education of their children, they bear fewer children. And consequently, fertility starts to decline, and the growth process is freed from the counterbalancing effect of population.
So as I said, over 300,000 year period, when technology advanced population increased proportionately. But then suddenly in the course of industrialization, we see this tremendous change. Namely, families start to invest in the education of their children. And as a result of it, technological progress is no longer counterbalance by population growth. And this is a demographic transition. The decline in fertility, is permitting the world to sail into the modern growth regime. And the world as a whole is experiencing a 14 fold increase in income per capita, in a period of about 200 years.
David Goldstein:
Right. And you talk about this, you talk about the demographic transition as a phase transition. Which is actually something which is very common throughout the natural world. You use the example of boiling water, you heat it up to point, and then suddenly it starts to boil. And I love this insight that essentially, technology is advancing for 300,000 years. And then we get to this point where education is important, you need to educate your children, and that’s the phase transition that kicks off the demographic transition. For our audience, if you could just define the demographic transition for us.
Oded Galor:
Right. So those two elements are important. You mentioned, face transition and the demographic transition. Let me focus for a moment initially on the face transition. So indeed, when we think about face transition in nature, say the transition from liquid to gas. We know that as we heat water, once the water reaches the critical temperature, we see this phase transition the transition from liquid to gas. In what I argue in the context of Unified Growth Theory, using very similar mathematical tools that are based on bifurcation theory. Is that, over the course of human history, we see this interaction between population and technology that ultimately brings about such a rapid rate of technological progress. That generate demand for human capital. And at a certain point, only once the tipping point is reached in terms of the rate of technological progress, parents start to invest in the education of their kids.
This happens in the 19th century in England, massive investment in education. And as I said, forces parents to economize on the size of their family. And consequently this fertility decline, is freeing the growth process from the counterbalancing effect of population. So when we refer to the demographic transition, we refer to this time period in which we see initially a decline in mortality, and then a decline in fertility. That is a byproduct of this process of very gradual and increase in investment in education, that is brought about by the acceleration in technological progress beyond a tipping point. So the demographic transition as I said, is a process that frees the growth process from the counterbalancing effect of population, and consequently permits the world to move into the sustained growth regime. And one more point that is very important… But when you think about the process of phase transition in nature, namely, when you think about the transition from water to gas. If you observe this process, you will note that not all water molecules evaporates at the same speed, some evaporates earlier than others.
The same was true in the world economy. When the takeoff is taking place, when people start to invest in education and ultimately the demographic transition is set in motion, and a huge takeoff is occurring in the context of economic prosperity, this process occurs in some regions of the world earlier than in other regions of the world. And this implies that there is enormous divergence that is taking place across the globe, namely, it is the transition from stagnation to growth that is behind much of the inequality that we see across the globe. You look at the world in the year 1800, only 200 years ago. The ratio between the richest regions of the world and the poorest region of the world, is about three to one. Inequality in the world, economy is very modest. But then in the context of the subsequent 200 years, we see this enormous divergence. The ratio between the richest regions of the world and the poorest one is about 15 to one, 20 to one, and even a hundred to one, depending on how you define regions of the world.
So it is therefore, and you ask me initially, why do I focus about on the evolution of societies throughout human history? The reason that we had to focus on it is that, much of the inequality that we see across the globe today, was originated due to this differential timing of transition across the globe. And this is not an accident either. The fact that some societies, say Western Europe and the off shores in North America took off earlier than otherwise, is associated with deeper factors, cultural elements, institutional elements, geographical elements, and elements that are associated with human diversity. That prepared some societies for this takeoff, and delayed the transition of other societies into the modern growth for regime.
David Goldstein:
So obviously this Unified Growth Theory approach, is really important for understanding our past. What does it tell us about how to manage the economy? Development economics has not had a lot of success, as you’ve pointed out in your book.
Oded Galor:
Indeed. So in fact, the point of Unified Growth Theory is that, if we would like to resolve global inequality, if you would like to mitigate the level of inequality that we see between nations today, then we need to design policies. It will be base on the individual trajectory of each economy across the globe. We need to be familiar with the historical conditions that affected the growth trajectory of each society, because this historical conditions affected the prevalence of certain growth enhancing cultural traits, in some versions of the world. It affected the prevalence of inclusive institutions in some regions of the world. It affected the level of diversity that is gross enhancing in some regions of the world. And consequently, in order to understand inequality across the globe today and in order to design policies that would mitigate inequality across the globe, we must move back into human history, understand the trajectory of each society and design policies that are based on the individual history of each country, rather than one policy for all nations.
So for a long period of time, if you think about the Washington Consensus and policies that are associated with the Washington Consensus. The perception was that in fact, less developed societies are less developed because of failure in their policy. And therefore there was a recommendation that basically suggested one policy, one set of policies for all nations at once. And part of the reason that these policies were not very effective is that, they ignored the individual trajectory of each society. And scarcity of certain elements that are important for economic development in some regions of the world, and the abundance in other regions of the world. And that’s the beauty and the virtue of Unified Growth Theory, namely, the ability to detect this important factors that are behind inequality as we see it across the globe.
David Goldstein:
So Unified Growth Theory teaches us that, there is no universal policy approach to addressing global inequality.
Oded Galor:
Indeed.
David Goldstein:
Right. I wish we had more time, because I could go on nerding out on this forever. But I think we’ll just get to our final question, we ask all of our guests, why do you do this work?
Oded Galor:
That’s a valid question. And in my particular case, I’m in Israeli, I was born and raised in Jerusalem. And naturally, my upbringing was such that, it was virtually inescapable of realizing that our life today is predicated on certain forces that operated in the distant past. So conflict today, inequality today, political relationship today are predicated on elements that occurred very much in the distant past. And this perhaps, channeled me towards the understanding first, that initial conditions are very important. For human behavior and for the behavior of societies. And then when I combined this with my own passion towards the mathematics of dynamical systems, this ultimately led me into the exploration of the evolution of societies over time. And the realization that much of the inequality that we see across the globe today, can be traced to elements that existed in the distant past. And perhaps most importantly, the realization that by understanding our history, we can participate in the design of our future.
David Goldstein:
Great. Well, thank you. Like I said, I really enjoyed your book, and I thank you for joining us on the podcast.
Oded Galor:
My pleasure. Thank you very much.
Speaker 3:
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