Angus Maddison

Why have a few countries, mostly in Western Europe and North America, become so much wealthier than the rest of the world’s nations? Angus Maddison, the world’s leading student of long-term economic development and the Henry Wendt Visiting Scholar at AEI this spring, addresses that question in his new book, The World Economy: A Millennial Perspective (Organization for Economic Cooperation and Development). The question was also the central topic of his 2001 Henry Wendt Lecture at AEI on May 15.

Maddison’s study is a systematic, quantitative approach to economic growth over the past millennium. His research indicates that, during that time, per capita income for the world as a whole rose about thirteen-fold, and when coupled with a dramatic rise in population growth, drove the world’s aggregate economic production up by a factor of nearly 300. By contrast, in the previous millennium, global output increased by only approximately 8 percent, and per capita income actually fell slightly.

Maddison suggests that, if we look back at the past millennium, we can see three major periods: 1000–1500, when annual growth in per capita output was 0.05 percent; 1500–1820, when it was 0.07 percent; and 1820–2000, when it was 1.17 percent. Within the latter period, the years from 1950 to 1973 represent a golden age, when output per person grew by 2.9 percent per year. Since then, that figure has averaged about 1.3 percent.

The golden age produced its most spectacular results in Japan, where per capita output rose by more than 8 percent per year. Japan had radically shifted from an intense concentration on military goals (from 1870 to the end of World War II) to a complete demilitarization and a similarly intense focus of skills and resources on economic growth.

During the past millennium, a dramatic gap has opened up between the wealth of Western Europe, North America, Australia, New Zealand, and Japan on the one hand, and the rest of the world on the other. In 1000, per capita output in the first set of countries, which Maddison calls "the West" for the sake of simplicity, was actually about 8 percent lower than in the rest of the world. By 1820, however, output in the West was double that elsewhere in the world, and by 1998, it was nearly seven times greater. Maddison is quick to point out that all regions of the world have become much richer over the long-term—some just much faster than others.

Maddison attributes the divergence in growth between these groups of countries to a few key factors. Most fundamental, perhaps, was "the Western recognition of the human capacity to transform the forces of nature through rational investigation and experiment." The scientific method that developed in the West accelerated technological progress, and its effects were powerfully felt in the nineteenth and twentieth centuries.

The West also benefited tremendously from institutional advantages. Western societies have tended to develop stronger legal protection of property rights and other institutions that foster entrepreneurial activity. Another important advantage, in Maddison’s view, was the emergence of a competitive system of nation-states in Western Europe, which "gave an interactive character to European intellectual life and commercial intercourse that was absent in Asia."

What does Maddison’s work suggest about economic growth in the future? His analysis for the poorest economies is sobering. Although he thinks it is reasonable to hope for a reversal of recent declines in per capita income in the former Soviet Union, the Middle East, and Africa, and although he is encouraged by some improvements in policy in Eastern Europe and Latin America, he believes that many of the countries in these areas still sorely need major institutional changes. The same changes in the West and in Japan were slow historical processes, and that raises doubts about how rapidly they can be replicated elsewhere.