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Bridging the gap
Book extract from Michael Mandelbaum's Road To Global Prosperity

The rich countries must move forward economically by, in effect, building the road on which they must travel. Poorer countries, those outside the trilateral regions, can move faster because, trailing behind, they can use the road that the rich have already built. That is, poorer countries can incorporate the already-invented technology to achieve economic growth. Incorporation is cheaper, easier, and a more reliable source of growth than is invention. That is why poorer countries have the potential to grow faster than richer ones. Here, relative backwardness counts as an advantage. The propensity of the poor to catch up with the rich in per capita output is well known among economists, who call it “convergence.”  All other things being equal, over time the per capita outputs of different countries tend to converge.

Convergence is a tendency, not an iron law of economic history. It is not automatic: all other things are not always equal. Indeed, from the beginning of the Industrial Revolution until well into the twentieth century, the opposite trend — divergence in per capita output between the rich and the poor — dominated global economic life. The poorer countries lacked the institutions needed to capitalize on the advances of the rich, and so the gap between them widened. The worldwide embrace of free markets in the latter part of the twentieth century represents a turning point in economic history because so many large, relatively poor countries did ultimately adopt the requisite institutions. As a result, their rates of economic growth increased; convergence shifted into high gear.

In the third era of global economic integration, poorer countries have achieved higher growth rates than their trilateral counterparts, and that trend can be expected to continue, both because of the difficulties trilateral economies will face and because of the ongoing process of convergence. Non-Western countries have the potential to grow much faster than Western ones, but how fast they actually do grow will depend on the extent to which, having provided themselves with the necessary free-market institution, they proceed to adopt and carry out the policies that enable them to maximize their economic performances.  

Adding workers is an element of the extensive method of economic growth, in which higher output stems from increasing inputs —land, labor, and capital. Intensive growth, by contrast, expands output by making more efficient use of a country’s repertory of inputs. The term for greater efficiency is productivity, and productivity, economists have shown, is a key to economic advance.

  Although productivity can be measured, how greater productivity comes about remains imperfectly understood. It is well understood that new technology makes an important contribution to it; and in this respect the trilateral countries labor under a handicap. They already use the most advanced technology. They invented it. In order to increase growth they have to devise, develop, and incorporate new and improved techniques and machines. That is an uncertain process, the pace of which varies for reasons that are not known. That pace cannot easily be accelerated, and in any event is almost always gradual. There is some evidence, moreover, that the rate of productive technological innovation has slowed in recent decades, although there is no widely accepted account of why this has happened or even unanimity that it has happened at all. 

 

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