The benefits of rapid economic growth

By Gwynne Dyer

How do we know that the countries that are now growing so fast won't end up the same way the European countries did? As soon as Europe started industrializing, they fell into a hundred years of war.

-- Severn Day, Ottawa, February 1997

LONDON (JP): Severn Day is not a diplomat, or even an historian. He is a high-school student, which makes him part of that very small (and transient) fraction of the population that ever thinks seriously about how history works. I met him last week, and he immediately asked the question of the century. Can anybody modernize without going through the horrors that Europe went through?

On the surface, it looks good. The number of people living in democratic countries has more than doubled around the world in the past 15 years. More than half the people in the developing world live in countries where the economy is growing at least twice as fast as the industrialized countries. The scale and frequency of wars are down everywhere except in Central Africa.

What bothered Day was the precedents. Most of the larger developed countries have waded through the deeper reaches of hell on their way to the industrial promised land. Civil and international wars, rabid nationalism, racism, and even fascism, massacres, pogroms, and purges: it was modernizing, industrializing Europe that gave us concepts like "total war" and "genocide".

History is bound to repeat itself. The strategists who want to push NATO's boundaries east to the Russian border are of that persuasion. So are the people in Southeast Asia who are working (much more discreetly) to develop a collective regional strategy against Chinese "expansionism".

Historical analogies influence our actions even when we are not consciously aware of them. In this case, I don't think they are relevant, but it took Day's question to make me articulate why the past may not be a good guide to the future. All you have to do is juxtapose a newly industrializing country and an older one.

South Korea, with a population of 45 million people, began to grow very fast following the Korean War in 1953.

At the time, South Korea's per capita income was about the same as in East Pakistan (now Bangladesh): the lowest in mainland Asia. Now its per capita income is in the same range as Spain or the Czech Republic. And in that process spanning four decades, there was only one major outbreak of killing at Kwangju in 1988. The transition to democracy, when it finally came, was almost entirely non-violent. This is in remarkable contrast to France.

France, with a population of 55 million people, began to modernize in the years leading up to the French Revolution of 1789.

In the two centuries between then and now, casualties from street-fighting in Paris have been in the tens of thousands at least five times. There have been coups and conspiracies, outbreaks of both "red" and "white" terror, and endless wars. There have been five different republics, plus two "empires" and a "Directorate". French history is horrendous.

So what accounts for the difference? I suspect that it was the relative speed at which the economies grew.

In France (and in almost all of industrializing Europe), economic growth has averaged two percent or less in the 19th and 20th centuries. After 200 years the magic of compound interest has now made France and its neighbors extremely rich. But their climb out of poverty, which makes today's Bangladesh look like paradise, was a long, bitter process in which entire generations were sacrificed.

It was a slow business because they had to invent the entire industrialized world as they went along, not just the machines, but the institutions, processes and values that would make it all work. Nobody had traveled this road before, so it took some time.

Why did slow growth mean wars, coups, genocides, revolutions, and all the other horrors that have disfigured the past two centuries of European history? This was largely because an economic growth rate under 2 percent a year meant there was never enough to go around.

Economic change always brings social and political change in its wake. In slow-growing Europe in the 19th and early 20th centuries, people in the higher economic scale never felt secure enough economically to share the wealth voluntarily. They saw modernization as a zero-sum game in which every advance for the poor was a loss for them.

So they fought democratization and its usual companion, income redistribution, tooth and nail. When democracy happened anyway, they manipulated local politics to foment nationalist passions that would focus attention beyond the borders and distract ordinary people from their domestic agendas. The result was the ghastly mess of modern European history.

But it all comes down to the fact that Europe's upper classes could not afford to compromise or share. At two percent growth per annum, the pie simply wasn't big enough, so they dug their heels in and fought to protect their privileges. At 7 or 8 or 10 percent growth, there is room for deals.

It is important to examine the rapidly modernizing parts of Asia and Latin America, and even some places in the Middle East and Africa. There are situations where the rich are getting richer, but the poor are getting richer too. In these circumstances, the elite can afford to yield political power without losing everything.

The key difference between early modern Europe and developing countries in the late 20th-century is that this is not the first time. Now the template for industrial growth is available to everybody, so the growth rates are far higher.

Growth rates are so high, in fact, that everybody can afford to compromise -- which means that newly industrialized countries need not recapitulate the horrible history of their predecessors.