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​Economic Development
Historical Perspective
​.

Come together, right now!

6/18/2018

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The economic boom that we observed in the mid-18th century did not happen all at once. Just like it did not happen all over the world. It happened in one particular place on Earth. And that is England. Knowing this we can track back the roots of the modern economic growth and see the factors that contributed to its take off. 

Nothing in the nature exists in the vacuum. There must have been some favorable conditions that triggered the initial burst of innovation and development. One might say that it was James Watt with his steam engine that pulled the trigger. While to some extent this is true, as technology advance plays a crucial role in economy, there were also other factors such as transport, market, exchange that together enabled the modern economic growth to happen. Professor Jeffrey Sachs from University of Columbia explains that for the Industrial Revolution in the mid-18th century to come about, it was first agricultural productivity that had to rise. Previously sowed by hand, thanks to Jethro Tull and his seed drill, seeds were now sowed in straight lines. Farmers began to learn how to improve their crops and provide nutrients for the soils. It was by no means scientific but more empirical approach I would say but it worked and it worked very well. 

Simultaneously the process of urbanization started to accelerate, there was more trade, most remarkably textiles, that strengthened market economy. Rule of law came to the fore with the growing ownership and demand for property rights. With the breakthroughs initiated by Isaac Newton (gravity) already in 17th century and then continued by James Watt (steam engine), Eli Whitney (cotton production) just to name the few, people started to look at things differently. They began to change the way they were doing things and their mindsets, aspirations and motivations changed too. They now saw that more is possible. And they started to reach for it.

One last thing, that I would like to mention is the nature part in all that happened. We need to remember that none of the above would be possible without the favorable conditions of mother nature. Both the geographical location of England surrounded by fours seas that enabled international trade and its rich coal and steel deposits made it far more easier for the country to become major force on the world arena of economic development. The first steam engine by Thomas Savery (dating back to 17th century) burned coal to create motive force and was used to pump water out of the mines. But his invention would be of no use if there was no coal in England that could be later turned into the modern steel and coal industry.

Thanks to James Watt's improvements the door has opened for steam locomotives and railway transport to carry both passengers and traded goods. As we know England has excellent transport conditions with the river Thames connecting coal mines to London. This soon led to the staggering number of newly built canals and factory towns which in turn attracted local people searching for the employment. There was a drastic and dynamic shift from agriculture to industry and trade, widening rural-urban gap that I talked about in the previous post.  

This shows us that nature and humans can work together. In fact we need both to achieve great things, to develop our full potential. It is humans that can use what nature offers us using efficient tools they created in a way that is beneficial for the development of humanity. But they should use these resources wisely and with respect to what is beyond our control but yet a number one determinant not only of our prosperity and growth but of our lives.

As we can see there were many things that came together to make the Industrial Revolution possible. The effective use of natural resources, spreading market economy, technological breakthroughs... they all changed the world in a unique way. What do you think, did it also divide the world? Or maybe we had started good but something happened later that gave rise to modern inequalities? Share your thoughts!
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The Birth of Economic Development

6/12/2018

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We well know that our world is divided. That there is 1 billion people living in the high income societies and there is another 1 billion fighting with extreme poverty. Then there is 6 billion that is somewhere in-between. The reasons for these vast differences are complex but history, and especially the era of industrialization plays a crucial role in both explaining and understanding modern conflicts, inequalities and social injustice. Surely the world has not always looked like this. Predominantly agrarian, rural societies in Europe and America used to be equal even though it was the equality of poverty. So when did things become to change? The answer is fairly simple: with the birth of modern economic growth or what is commonly known as Industrial Revolution. 

Let's think about it. Before the industrial revolution people's lives revolved mainly around agriculture. Their well-being, prosperity and sometimes even lives were conditioned by their own work and favor of the season. The world was overwhelmingly rural, both in Africa and in Europe, people trying to grow enough food to survive season by season. With the industrial revolution some countries began to experience a rapid growth in their gross domestic product due to the technological breakthroughs that opened the door for international trade. So why did some countries moved forward and moved fast to become modern high-tech, knowledge and information leaders and some have been left behind, not being able to use this to their own advantage? For that we need to understand the nature of economic growth.

​An interesting part is that modern economic development and industrial revolution are both relatively new phenomena. Humanity has led sedentary agriculture lives for around 10,000 years, pretty much since the neolithic revolution which began around 8000 B.C bringing agriculture and allowing us to be classified as civilized homo sapiens. Humans abandoned their hunting and wandering lifestyles and began to settle in one place, planting fields and raising animals. We can see that from that moment on, to the Industrial Revolution the economic progress was largely linear and the world output very gradual, almost impossible to notice. Now when we look at the period from around 1750  to sometime around 1840 the difference is dramatic.  And this vertical lines continues to rise as the world economy is getting stronger and stronger.
Picture
Why did this take off turn up just around that time? There were two factors that acted almost simultaneously: increase in the number of people and an increase in the gross domestic product per capita. The world population was roughly constant - 500,000 billion for around 2,000 years. In bad periods like Black Death this number varied of course but we are talking average. The rapid increase in the world population was due to the changes in economy resulting from a series of innovations that enabled more productivity and less human input. This in turn allowed more people to be supported thanks to the increased food production and improved standard of living.

We already know that the world changed, that it moved from rural to urban and that this process has no end date. We know when in time did this shift happen. Now we need to discover what is hiding behind the Industrial Revolution and what it meant for human history and destiny shaping the world as we see it now. 

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    What does JP Morgan have to do with the Economic History of the last 2,000 years?

    Click here

    'I do sth very, very difficult....I shut up!'

    Watch the passionate and funny TED talk by Ernesto Sirolli who argues that the passion that a person has for his OWN growth is the most important thing in ensuring a truly sustainable economic development. And that there is no I. It is always WE. 
    Click here

    What a Year!

    1776 was a year of revolution..
    James Watt produced steam engine
    Adam Smith published Wealth of Nations
    American colonies declared their independence
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