Where did growth come from?

… or more precisely, where did the idea of growth come from? That’s one of the questions I’ve been fascinated with for a long time. And reading Joel Mokyr’s recent A Culture of Growth, I feel like getting closer to an answer.

Before and after the Industrial Revolution

With the benefit of historical hindsight, and at a high level of abstraction, Mokyr identifies two fundamentally different types of economic growth: Smithian growth is named after Adam Smith, the great 18th century philosopher and economist. This type of growth is caused by the expansion of trade and commerce, the improved cooperation between individuals as well as groups, and the better allocation of resources.  The other type, Schumpeterian growth (after Joseph Schumpeter, who developed the concept of creative destruction in the early 20th century) is driven by technological progress.

This distinction is essential to understand the difference in economic activities before and after the Industrial Revolution. Before, economic growth was close to negligible (at least by today’s expectations of 2-3% increase in GDP per year), as it relied almost entirely on Smithian growth. Technological improvements did occur sporadically, but their contribution to growth remained marginal. That changed in the course of the Industrial Revolution, when Schumpeterian growth took the economy to entirely new levels of growth. Today, while Smithian growth still occurs, we tend to use the terms ‘economic growth’ and ‘technological progress’ almost synonymously: our economic growth is predominantly Schumpeterian.

Mokyr emphasizes the different characters of these two types of growth. Smithian growth is based on changes in the interactions amongst humans, e.g., trust between different actors or the respect for contracts and property rights. Schumpeterian growth, however, is driven be changes in the interactions between humans and nature, e.g., the understanding of natural phenomena (like electromagnetism) and their use to achieve a human objective (like an electrical engine to drive a machine). Today’s idea of economic growth and technological progress is deeply rooted in a fundamental shift in the human attitude towards nature. But when and why did that shift occur? That’s Mokyr’s question.

The origins of the idea

The modern idea of economic growth and technological progress gradually evolved and took root in the two centuries preceding the Industrial Revolution. Mokyr focuses on the period between Columbus crossing the Atlantic in 1492 and Newton publishing the Principia Mathematica in 1687, an era of discoveries and inventions. And it was in Europe, where the authorities of the past were tried and tested on many fronts.

Europe was fragmented into hundreds of rivaling small states. In this age of mercantilism, the states increasingly pursued policies of economic competition to achieve their political aims. At the same time, the Reformation caused the rise of Protestantism as a powerful challenger to the Catholic church’s dominant religious authority. In this brewing climate of challenge and contest, it was only logical that classical knowledge, including Greek natural philosophy, was not accepted as sacrosanct and immutable anymore.

In the small circles of the educated and interested elite, the idea evolved that nature itself would be accessible to human understanding; not easily as instant revelation; but through structured, methodical, rigorous observation and analysis. And even more importantly, this understanding would yield useful knowledge that could be applied to achieve a human purpose. From today’s perspective, this concept is clearly in line with Brian Arthur’s definition of technology as ‘the orchestration of phenomena for a human purpose’.

What is difficult for us to realize from a 21st century venture point is, however, that back in those days it was actually dangerous to express and pursue heterodox ideas, be they religious, political or scientific. Just remember Jan Hus and Giordano Bruno (who burned at the stake for their heretic beliefs), Martin Luther (who escaped that fate only by a narrow margin), or Copernicus, Kepler and Galileo (who each got into trouble with the Catholic church over their ideas on astronomy). Yet, the intellectual climate changed very slowly through the 16th and 17th century. As the religious control over knowledge slowly faded, the desire to know and understand was not heretical anymore. And given the political competition and fragmentation, an effective prosecution of heterodox thinkers often stopped fifty miles down the road at the next border. At the same time, and despite the political differences, European states and peoples shared many common roots, ethnically, culturally, and historically. And those conditions were the foundation for Europe to become the cradle of modern economic growth:

The key to Europe’s success was its fortunate condition
that combined political fragmentation with cultural unity.

The diminishing personal risk encouraged a growing number of individuals to engage in the quest for useful knowledge. This quest started out as an occupation of the educated, the literate elite, who exchanged and discussed their ideas. Benefiting from new developments like the postal system or the printing press, this exchange soon spanned the continent and connected thousands of individuals. Though of different nationalities, religions, and occupations, they shared a strong interest in natural philosophy, and they were willing and able to invest their time in debating new ideas about how nature works and how the understanding of these workings could serve a human purpose.

In these conditions, the Republic of Letters emerged: today, we’d call that an international network of correspondents who exchanged their ideas. This network soon became an institution, even though informal, that embodied the scientific method: it served the publication of results, the consultation of peers, the debate of the research agenda and appropriate methodology, and the settlement of disputes. As it comprised laymen as well as the superstars of the time, including Newton, the Republic of Letters worked as a public forum that actually lived the idea of open science at a time when the number of professional scientists was still quite limited. The Republic provided a market place for new ideas, in which the value of an idea did not depend on the social status of the originator, but on the idea’s inherent merit and on the scientific reputation of the author. And these ideas were purpose-driven, the knowledge circulated in the Republic of Letters was meant to be used, not necessarily for immediate economic return, but for the benefit of society.

The effect – in a nutshell

So what changed really? The human relation with nature! Before, nature of course had always been around (in the true sense of the word), but it had been taken for granted. And any more intellectual ideas about nature were constrained by myth, dogma, and the limits of ancient philosophy. As a result, nature could neither be understood nor changed. And the concept of time was clearly cyclical: days, seasons, and generations. That cyclical perception of time had guided humanity for millennia, and it implied that the future wasn’t so different from the past: life was an endless repetition of cycles, predefined and immutable, stable and largely predictable over generations.

The idea of useful knowledge changed the human relation with nature in two fundamental ways. First, nature now was considered intelligible; the human mind could understand the inner workings. Second, this understanding was meant to be applied to a purpose, so that humanity could alter its circumstance and improve its fate. On that new intellectual foundation, we slowly embraced an increasingly linear concept of time: life was lived as a stream of more or less unique events. As the temporal repetition disappeared, every day was different, every year, and every generation. A person’s life was clearly different from that of his grandparents, and that of his grandchildren as well.

Over several centuries, the human attitude towards nature slowly evolved from ‘I am subject‘ to ‘I’m in control‘. Our use of words is quite revealing: with the new thinking, you could ‘make up your mind‘ and ‘take your fate into your own hands‘. This attitude is the root cause of all Schumpeterian growth since the Industrial Revolution; it is the wellspring of technological progress and economic growth.

The advent of an innovation supply chain

Today we have many words to describe a mindset that seeks and embraces new opportunities: innovative, inventive, industrious, or enterprising. These words had little use or meaning before the mindset slowly gained shape in the 16th century. But it soon became instrumental in the Industrial Revolution, when the quest for useful knowledge and its application transformed the economy. As Joel Mokyr points out, this transformation needed far more skills than just good ideas:

Beyond the great inventors, the Industrial Revolution required a large cadre of mechanics, highly skilled artisans, entrepreneurs, financiers, merchants, and organizers of different kinds.

With this broader skill base in mind, the concept of useful knowledge offers a new perspective on the ‘production of innovation’. Just think about three groups of actors: those who search for useful knowledge, those who spread it, those who use it. Of course the is no perfect distinction, as most individuals would play more than one role. But these three roles align to form a supply chain that can deliver solutions to society’s problems far more reliably than the simple hope for genius and serendipity ever could. Over time, the generation, dissemination, and application of useful knowledge evolved into genuine professions for scientists and researchers, for teachers and educators, for engineers and practitioners of all colours. And this innovation supply chain has become the professional backbone for the economic growth of the modern era. Let’s handle it with care.

Comments

  1. Swami says:

    Very good summary of Mokyr’s latest work. I have my personal summary of the book, but will continue to link to this for a more wholistic account. You have captured it perfectly. Also of possible interest to you or readers is his two hour presentation on the book to a university audience. Should be googlable.

    One side comment… I never really get the distinction between Smithian and Schumpterian growth. It is more like they are emphasizing different parts of the same elephant without clarifying that only the whole elephant makes sense. Larger networks beget specialization, specialization begets productivity arms races, productivity arms races beget capital investment and technological innovation, tech and capital beget larger and better integrated markets, better integrated markets beget a reduction in rent seeking and incumbency privileges, which begets creative destruction which begets….

    • Thanks for your feedback. Great advice to look for videos as well. I found one with Mokyr introducing the book at Stanford already in 2015: https://www.youtube.com/watch?v=wNbe7uwbiKE – I didn’t yet go through in detail, but at first glance it seems to stick closely to the book itself, so this video could be great alternative for the interested but time-constrained.

      Regarding the different types of growth, I agree that sometimes things get blurred. As you say: one thing leads to another … But I would not want to attempt a black-and-white dissection of every single event into either this or that type of growth. Rather, I see these different types as broad and helpful categories to understand the main forces that are at work. Then the interaction between those forces that certainly occurs is a secondary effect.

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