The eight great inventions that shaped the world economy

An award-winning financial journalist argues that we have failed to grasp how profoundly our civilisation has advanced over the past 10,000 years and how complex and interconnected the global economic system has become. By Greg Dixon.

As mad experiments go, it didn’t seem that unhinged. In 2008, a British design student with the wonderfully alliterative name of Thomas Thwaites decided he would try to build a toaster from scratch.

When he took one apart to see how it might be done, he discovered something unexpected: this most simple of kitchen devices was not simple at all. It had an astonishing 400 components made from 100 different materials.

The intrepid Thwaites, who would go on to experiment with living as a goat in the Swiss mountains, was not deterred. After nine months and enormous effort, he succeeded in creating his rudimentary toaster. It never browned a single slice of bread. Five seconds after being switched on, Thwaites’ attempt at a toaster melted down.

What can we learn from this? Well, this failed experiment is a simple, “salutary example” of the distance the human race has travelled, says Philip Coggan, a journalist for the Economist, and the author of a new book, More: The 10,000-year rise of the world economy.

Where once mankind survived with simple tools many people could make, now even the most mundane of household objects are beyond one person’s wit to assemble.

That is not simply because we don’t know how, says Coggan. So many of the everyday things we now use and own – be it toasters, toothpaste or TVs – have been made with materials sourced from around the world, which have, in some way or another, been handled by thousands of people long before the finished item arrives at our home.

Quite simply, if we wanted to distil the complexity and achievement of the modern world economy down to a single object, it might as well be the humble toaster. Yet so few us now give such quotidian marvels a second thought.

“Working for the Economist, you often come across this slight frustration that people don’t really realise how far we’ve come,” Coggan says from his home in West London.

“My motivation for writing More was I realised there was not really anything out there explaining economic history. There are millions of books that go through world history from the political point of view – the ‘maps and chaps’ thing – or try to make a particular case that it’s just the one thing that determined world history, whether it’s wheat or cod. I thought I would like to write one that put economic history in context.”

Another motivation was that too many of us see economics as a thing of accounts and narrow statistical measures, when in fact it is about improving living standards, improving the choices of people – particularly women in the past century – and improving life expectancy around the globe, he says.

“There has been an enormous shift in all that from 1820 [the beginning of what Coggan calls ‘the first era of globalisation’, from 1820 to 1914]. People forget about all that and don’t really appreciate it. I wanted to try to illustrate that economic growth has delivered massive improvements to ordinary people.”

Hockey stick GDP

With 10 millennia of economic history to digest and compress into fewer than 500 pages, you might think More qualifies as a mad experiment, too. Indeed, Coggan says if he’d known what an “insanely difficult” task it would be when he embarked on the book back in 2016, he would never have started.

He is, perhaps, being overly modest. Coggan is an award-winning explainer of finance and economics. His first book, The Money Machine, written shortly after joining the Financial Times newspaper in 1986, is such a good basic guide to understanding the modern financial system that it’s still in print after 35 years.

Over that time, he has won a clutch of business journalism awards and his 2011 book on money and debt, Paper Promises, scooped the Spear’s business book of the year award and was long-listed for the Financial Times and Goldman Sachs business book of the year award.

Still, trying to get his head around 10,000 years of economic history, particularly when he wanted to try to be as global as possible, was much like being handed a very large ice cream. “You have to nibble it a bit at a time.”

Inevitably, More begins with early humans hunting and gathering in Africa and beyond. But Coggan has eschewed a strictly chronological history from there. Although he certainly charts, by era, the key economic changes from ancient times to the 21st century, he has, in alternating chapters, identified eight crucial areas of development (see sidebar), from agriculture to technology, which are responsible for the great leaps forward in the global economy.

Perhaps the most striking part of More’s story is that, despite the rising and falling of mighty empires around the globe and the economic power of pre-16th-century China, India and the Middle East, there was little significant global economic growth for most of history. The first 9500 years of the 10 millennia take up barely a third of Coggan’s book. It is the past 500 years where all the action happens.

This is graphically illustrated in a chart he includes near the beginning of More. It shows that world gross domestic product (GDP) for the past two millennia looks very much like an ice hockey stick. From the first century through to the end of the 18th century, world economic growth is like the handle, a long, flat line lying near zero. Then suddenly, the hockey stick’s blade appears, almost at a right angle, as if a magic wand has been waved. Economic growth springs to exuberant life with global GDP lifting off steeply from under US$1 trillion before 1820 to more than US$100 trillion by the year 2000.

Mystery solved

There was no wizardry at work, but two great, world-shattering changes after the end of the 15th century were major contributors. The first, thanks to rapid improvements in navigation and shipbuilding techniques, was Europe emerging as the dominant power in the world – not only in politics, but in trade, with its merchant shipping fleet growing 17-fold between 1470 and 1820.

Although the arrival of European traders, settlers and – in Coggan’s description – “expropriators” in the Americas, Asia and Africa resulted in exploitation, the slave trade and catastrophic effects on indigenous peoples, it also had the major and lasting benefit of linking up the globe.

In economic terms, the European trade and political expansion after 1500 was “extremely significant”, Coggan says. “The connections formed between the Americas, Europe and Asia meant that world trade grew 20-fold between 1500 and 1820, three times faster than GDP, laying the foundation for today’s global trading system.”

The second great change was a revolution. Actually, it wasn’t. Although generations of school kids have been taught about an “industrial revolution”, a term coined by British historian Arnold Toynbee in the 1880s, the industrialisation of Britain and Europe was more evolution than revolution.

Coggan says the conventional narrative is that, from about 1760, a series of innovative British gadgets, including the spinning jenny and the steam engine, resulted in what one historian dubbed “the great enrichment”.

Britain did industrialise first, leading eventually to a surge in economic growth. But the reasons it happened there and not, say, in China (the world’s most significant economy prior to 1700) have been widely debated.

Coggan says historians have arrived at explanations ranging from Britain’s exploitation of its colonies and the slave trade to it having better institutions – such as a constitutional monarchy and courts that enforced property rights – to cultural reasons, such as predominantly Protestant Britain favouring the “bourgeois” activities of hard work and trade. British access to coal has been given as another explanation, with its exploitation and conversion to steam transforming the productivity of individuals and industries.
Coggan has another answer. He favours a solution similar to that of Agatha Christie’s famous mystery The Murder on the Orient Express: they all did it.

“You also needed a revolution in the head,” he says. “That came in the Renaissance, when Europeans realised that there were new things to discover and new things to exploit.”
There was something else at work, too: the first stirrings of consumerism. The availability of new products such as tea, pottery and even cheap, portable timepieces in the 18th century resulted in an “industrious revolution”, which saw people wanting to work longer hours to earn the money to buy such things.

“Adam Smith did say the point is to consume, not to produce,” Coggan says. “I think some of us get very sniffy about consumerism. But people like having things – why shouldn’t they? – and the industrious revolution was about workers acquiring things.

“Imagine if you’d spent your lifetime cooking with just one pot. To then have four or five must have been fantastic. Or to have a watch and know the time if you needed to meet someone. All these sorts of things were incredibly useful. Then you’ve got clothes. The availability of cotton clothes made it possible to have several outfits, which meant you could wash them between wears. That must have been such a great thing.”

The dark side

Economic history isn’t all new cooking pots and steam-powered looms, of course. It’s a story of petty abuses of power and heedless greed, too. In an example of the former, Coggan reports that during the Middle Ages, Europe’s toffs passed “sumptuary laws” restricting the types of clothing and jewellery that could be worn by other social classes: the poor weren’t allowed to appear anything but poor.

Greed seems to have appeared at all times and all places and has afflicted the good as well as the bad. In the first half of the 19th century, for example, Britain went through periods of “railway mania” with investors pouring huge amounts of capital into new lines, so much so that at one point in the 1830s, investment in railways equalled 8% of Britain’s GDP. The result, Coggan reports, was too many competing lines and, after 1845, a two-thirds drop in railways shares. Charles Darwin and the Brontë sisters were among those who did their dough.

Another, perhaps surprising, influence on the rise and rise of the world economy has been the law of unintended consequences. Governments throughout history have set economic and financial policies that have worked in ways far different from what they hoped. The response to the Great Depression of the 1930s is a fine example. Governments around the globe thought they would protect their own country’s industries by putting up trade barriers, only for world trade to fall dramatically. As a result, the depression deepened at home and abroad.

Also of significance in economic history is the world-shaking power of a lucky cock-up.
“A lot of important developments weren’t planned,” Coggan says. “The most obvious example is Columbus. He thought he’d reached Asia, when in fact he’d reached America.

“The law of unintended consequences is one of the great themes of history. It also means that we should be wary of people who think they can plan out the future of the next 30 or 40 years. But there is an argument, too, that capitalism is almost like evolution: it works its own miracle in its own way and you can’t predict how the process will play itself out.”

Genuine gains

So how far have we come? Far indeed. In the past 200 years, global life expectancy has risen from about 30 years to an average of 70. The global rate of per capita income has surged, too. Although it grew by just 50 per cent between 1000 and 1820, between 1820 and 2000 it rose 24-fold. Meanwhile, world poverty rates have plummeted in the past 100 years, with the number of people living in “extreme poverty” falling by half, or a billion people, between 1993 and 2011.

These advances would not have been made without global economic growth, Coggan argues. However, some economists and writers “slag off” the means of measuring that growth. “I wish there were something better than GDP,” he says. “There is a whole debate about whether it is measuring living standards. For example, the fact that you and I can talk by WhatsApp for virtually no cost – something that 40 years ago would probably have cost £50 – is an advantage that isn’t really measured. Nor is the fact that when I go for a drive, because we have satnav, I don’t end up having an argument with my wife because we got lost. All those sorts of things don’t show up in GDP, but they are genuine gains in our standard of living.

“But I think if you had a situation in which GDP genuinely wasn’t measuring improvements in living standards, we would see that somewhere else. So you would see life expectancy decline or infant mortality go up – all these sorts of things. So I think GDP growth has been accompanied by improvements in living standards.”

The rise and rise of the world economy has improved how we live, how long we live and the choices we have. But at the centre of economic history is not just GDP growth, but our ever-growing interdependence, through trade, but also ideas.

“Economic history is all about connections,” Coggan says. “If you go all the way back to hunter-gatherers, they would, by and large, gather all the food they needed for the group. Then you get farming, and trade becomes more important because a farmer produces one sort of crop and they need a wider diet, so they need to exchange with others, which starts bringing connections through trade.

“When you get to the first cities, those connections increase exponentially.”

And now, thanks to global trade, transport and communication systems, people are more interconnected than ever before. This can have adverse consequences, of course – the Covid-19 pandemic has shown us that. But global connections have allowed scientists to produce vaccines for the virus in record time.

“If you view the long history,” Coggan says, “it is about making more and more connections so that you and I can get through life using things that we have no idea how to make ourselves.”

Think of it this way, he says: if it takes a village to raise a child, it now takes a highly interconnected global economy to deliver the things we all need, including your humble toaster.

Great leaps forward

Philip Coggan names eight things that have resulted in significant advances in the 10,000-year rise of the world economy.

1. Agriculture
The rise of agriculture allowed cities – and specialisation – to develop, as farmers exchanged the extra food they produced for other goods, starting the engine that has driven the global economy ever since: trade.

2. Energy
For much of human history, water, wind and animals provided energy. But more efficient energy sources allow for greater economic growth. Coal, now much condemned for its pollution, was the first breakthrough. It helped increase output and allowed industries such as the railways and iron forging to flourish.

3. Manufacturing
The move in the 18th century to factory-based manufacturing created economies of scale, bringing down prices and making items such as cotton clothes cheaper and more available by the middle of the 19th century.

4. Immigration
The movement of people resulted in an exchange of culture and ideas. For the global economy, there is also huge benefit to migration: workers from a poor country can be far more productive when they move to a rich one.

5. Transport
From the sailing boat to the jet, changes in transport have been incredibly important in world economic development. Most significant is the standardised shipping container, without which it would be impossible to run modern global supply chains.

6. Central banks
One of the most influential elements of the modern global economy, central banks do many things at once – not always successfully – including stabilising currencies, fighting inflation and safe-guarding the financial system.

7. The state
As economies have become more sophisticated, governments have expanded their role. For example, in 1880, British government public spending accounted for 10% of GDP. Just 100 years later, it was spending about 50% of GDP on the likes of health, education and welfare.

8. Technology & innovation
From the plough to the internet, new technologies have turbo-charged the world economy. But simple innovations have resulted in huge improvements, too: the medieval move from a two-field crop-rotation system to a three-field approach lifted output by 50 per cent.

State's evidence

What the left and right have really been arguing about over the past 100 years.
US President Ronald Reagan used to say that the nine scariest words in the English language were, “I’m from the government, and I’m here to help.” Yet without the development of the modern state, which protects private property rights and peacefully settles disputes, global economic growth would never have taken off, says Philip Coggan.
Modern governments ensure contracts can be enforced and that wages are paid for work done. They fund public roads that allow businesses to deliver goods, as well as state education of workers and hospitals to heal the sick and injured.

“Yet you get this silly argument,” Coggan says, “that the private sector creates wealth and the public sector wastes it. But without the public sector and the investment it makes in education, health, roads and infrastructure, the private sector would never be able to make the money it does.”

What the left and right have really been arguing about over the past 100 years is where the line between public and private should be, “and the line has just wiggled about a bit, sometimes more towards public spending, sometimes it has drifted back”.

The pandemic has seen the line move heavily in favour of public spending, as governments around the world have sought to cushion its economic effects through furlough schemes and increased and extended unemployment benefits.

“This is probably going to be another part of government responsibility for the long term, too,” Coggan says. “But I think the role of governments is going to be at least as large from now, if not larger, because of three things, really.

“One is the way the economic cycle works and globalisation works: it creates losers as well as winners. The winners aren’t grateful, and the losers demand to be compensated, so governments will intervene to do that.

“Second, the way nationalism has emerged – and the pandemic will play a big part in this – countries have suddenly decided maybe they don’t want to be dependent for everything on overseas suppliers. So governments will intervene more often for strategic as well as electoral reasons.

“The third thing is we have ageing populations in much of the world – China as much as everywhere else – and ageing populations mean that you’re going to have a lot of old people who will need to be looked after. That is going to require a large amount of state spending.”

The 10,000 year rise of the world economy, by Philip Coggan (Allen & Unwin, $27.99)

Source: Read Full Article