How Did We End Up with the Idea of a Growing Economy? ‘The Journey of Humanity’ with Oded Galor

On this episode Mark talks with Oded Galor, Professor of Economics at Brown University, and author of the new book The Journey of Humanity: The Origins of Wealth and Inequality

In this book Oded survey’s 200,000 years of human history to create a theory for why societies and economies grew so slowly for so long – and why, starting about 200 years ago, that began to change very rapidly. 

It’s a sweeping history that puts the work of many influential economists into a new light – from Adam Smith to Karl Marx to Paul Romer. But Oded’s story is about much more than economics. It’s about technology, geography, psychology, and politics. In short, it’s about the nature of humanity. 

Mark and Oded discuss all of this, as well as how – as we stumble through a global pandemic and catastrophic climate change – we can grow in ways that benefit us all.

Learn more about and purchase Oded’s book The Journey of Humanity.

Learn more about the Watson Institute’s other podcasts.


[MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International Finance and Economics at Brown University, this is The Rhodes Center Podcast. I'm Mark Blyth, the Director of the Rhodes Center. Oded Galor is a Professor of Economics here at Brown University, and he's the author of the new book, The Journey of Humanity, The Origins of Wealth and Inequality. In this book, he synthesizes 200,000 years worth of human history, to create a theory for why societies and economies grew so slowly for so long and why, starting about 200 years ago, everything started to speed up. It's a sweeping history that puts the work of many influential economists into a new light, from Adam Smith, to Karl Marx, to Paul Romer.

But Oded's story is actually about much more than the economics. It's about technology, geography, psychology, colonialism, and politics. In short, it's about the nature of humanity. On this episode, I talked with him about all of this and about how, as we stumble through a global pandemic and potentially catastrophic climate change, we can grow in a way that benefits us all. Welcome, Oded Galor, to the podcast.

ODED GALOR: I'm delighted to be here.

MARK BLYTH: So we've got a lot to talk about. A lot of people who listen to this podcast are generally interested in what we sort of say, big econ ideas. And there's probably none bigger than growth. So if you don't mind, what I'd like to do is try and put your book in context by just asking you to talk about how, for example,

Adam Smith thought about growth, if he did at all. And then what's your read of that? And then let's go forward from there. So let's start with the most famous economist of them all, my fellow Scotsman, Adam Smith. He didn't use the word growth, but he really understood the idea, right? How should we think about Smith and growth?

ODED GALOR: So let me divert for a moment, and let me set the stage for a more powerful discussion of the writing of Adam Smith and his followers. So naturally, modern human is emerging in Africa 300,000 years ago. And what we see in the course of human history is that, to a large extent, economies are in a state of stagnation in living standards over nearly 99.9% of human existence.

And then in the past two centuries, we see this incredible metamorphosis. We see this incredible spike in living standards that can be defined as the mystery of growth. Namely, what is the origin of this dramatic transformation in living standards that occurred in the past two centuries after literally 300,000 years of stagnation? The second important mystery is the mystery of inequality. Namely, what is the origin of this vast inequality in the wealth of nations? Why some countries are rich and others are poor, and why do we see this enormous divergence in living standards across the globe in the past 200 years?

Now, naturally, Adam Smith is not well positioned to tackle this mystery because, in fact, much of the divergence is occurring after his writing. So let's focus on the writing of Adam Smith. So what is intriguing about Adam Smith? There are two fundamental ideas that he is advancing. The first one is the role of the invisible hand in generating economic efficiency. And the second one is the role of the division of labor in generating, learning by doing, and ultimately some technological progress.

Now, he's not applying them directly for the understanding of the growth process. But naturally, he's aware of the fact that economic efficiency and specialization in production can generate a surplus that can ultimately lead into accumulation. And accumulation naturally is part of the growth process.

So to a large extent, we can trace the foundations of modern growth through the writing of Adam Smith in the sense that it is this efficiency and it is this specialization in production and its impact potentially on technology that is the seed of the process that will be ultimately generated.

MARK BLYTH: So I've always thought that Smith is a very optimistic version of the future, that surplus, regardless of how it's divided, is going to grow, and that's what's important. But shortly after Smith, in the long term, shall we say, along comes someone who features in the beginning of your own book, which is Malthus. And Malthus says, no, I'm sorry. That 99.9% of the time is normal. So give us your read of Malthus and his story.

ODED GALOR: Malthus is really fundamental in understanding much of the development in human history. But ironically, his writing appears precisely at the time where what one may define as the Malthusian Epoch or the Malthusian regime is dissipating. So Malthus has a very simple idea but a very powerful one. He is certainly aware of technological progress. And he is aware of the fact that technological progress will generate food surplus over time, or at least larger food production.

But at the same time, he is aware of the fact that individuals are not very different than other species. And when resources are expanding, individuals tend to multiply very rapidly. And the way that he describe it is that food production is growing arithmetically.

Population is growing exponentially. These are incompatible. And therefore, humanity is doomed to be in poverty. Regardless of the rate of technological progress, population growth will ultimately counterbalance the progress, and we will revert to the same equilibrium position.

And in this respect, I mean, his predictions are quite dismal about the fate of humanity. And fortunately enough, his predictions were inaccurate. As I said, looking backwards to 99.9% of human existence, his description of human development is quite accurate. But moving forward, it is, in fact, entirely mistaken.

MARK BLYTH: And the temptation in the juncture, where he is suddenly wrong after being right for a very long time, is to look for causes there. But you go much further back to find those causes and how they accumulate over time. We could talk about other 19th-century theorists like Ricardo and Marx.

Let's jump forward to the 20th century. Many people listening will have done college economics and will have come across growth in the textbook somewhere. And the names Robert Solow and-- if you did a bit more-- Paul Romer also come up. How do they fit into your version of growth before we finally get to it? Because that's what most people think of as modern growth theory.

ODED GALOR: Indeed. So the founder of modern growth theory is Bob Solow and his monumental papers in the mid of the 20th century. And in this paper, he tried to develop a growth model, largely known as the Solow Model, that is designed to understand the process of accumulation and the process of economic growth. And the way that he describes the world is in very simple terms.

Think about a world in which what drive the growth process is capital accumulation. We have some people around. They're growing, perhaps, at a certain rate.

But we have, at the same time, a process of capital accumulation. And the increase in the ratio of capital to labor is an important part of the growth process. And economies are gradually increasing their capital labor ratio and moving into a long run steady state.

At the same time, he realized that this will not allow him to understand why societies may continue to grow once they reach this steady state. So he invoked another term, which is basically technological progress. And you realize that technological progress will determine the growth rates of economies in the long run.

But for him, technological progress, at least the way that he modeled it, was an exogenous force. So he didn't try to understand how technology is coming about. He's simply assuming that there is a certain rate of technological progress, and this will ultimately determine the growth rate of economies in the long run.

Now, there are two fundamental features of the Solow model that are very important to understand in the context of the growth process and in the context of my book, The Journey of Humanity. One element that is very important is that the Solow model is generating very rosy predictions about the growth process. Namely, it suggests that those societies that are starting from behind, those societies that have lower capital labor ratio, lower capital accumulation will grow much faster than those that are ahead due to the fact that they are diminishing marginal productivities of capital.

So if you start behind, you grow much faster than if you're ahead. And this implies, of course, that among economies that are similar in their structural characteristics, convergence will occur across the globe. So his prediction is that initial conditions do not matter at all. Regardless of where you started, you will find yourself in the same equilibrium in the long run. And naturally, this is entirely counterfactual because, as I said, much of the inequality that we see across the globe today is originated in the past 200 years due to the differential timing of the transition across the globe.

And the second one is basically ignoring the transition to modern growth. The Solow model is predicated in being in the modern growth regime. Namely, he takes the transition from stagnation to growth is given. But as I said, first, one of the most fundamental mysteries is how, in fact, growth was originated in the first place. And second, resolving this mystery is leading us into the second mystery-- namely, why some societies are taking off earlier than others.

And as a result of it, a huge inequality is emerging in the world economy. So to a large extent, Solow, in the context of the understanding of humanity as a whole, is committing two things. It's an important vehicle for the understanding of the macroeconomy. But nevertheless, in the context of economic growth, it is entirely misleading. And in fact, it generates predictions that are entirely inconsistent with the world in which we live.

MARK BLYTH: So I really like that point that it presumes, to a certain extent, what it seeks to explain by being the modern growth regime and taken as a starting point. Again, we're going to get to what you say, human capital formation is hugely important for you and is a massive part of the story, but in a very different way from the way in which Romer thinks about human capital and knowledge. So just to segue us out into this does, Romer solve that problem? Or does he open up more problems that you're seeking to solve, in a sense?

ODED GALOR: So Romer's is devoting his energy to the resolution of a single problem in the Solow model, which is, how do we explain growth in the steady state? In the steady state in the Solow model, the growth is determined by an exogenous parameter. I mean, we assume that technology is advancing at a certain rate, and this is the growth rate of the economy.

And Romer is basically trying to understand how knowledge, how research and development can affect growth in the steady state-- namely, how policy potentially can affect economies that are already in their steady state. And he developed this elegant model that allows him to see how investment in research and development and knowledge formation can explain or can shed light on the determinants of growth in the steady state. But again, both the Solow model and the Romer model are entirely orthogonal to the main two mysteries of the growth process-- the mystery of growth and the mystery of inequality.

MARK BLYTH: So let's get right into that juncture. We're going along the steady state of stagnation. We're just about to get to the inflection point-- the bifurcation, as you like to call it. Take us back to that point, and tell us about the singular importance of human capital and why we don't appreciate this story enough.

ODED GALOR: So when we think about the process of development in its entirety, and if we think about the process that is leading us into this bifurcation point, into this tipping point in which, basically, the world is taking off, what we see in the course of human history is the operation of what I will define as the wealth of change. Namely, we see a gradual movement of certain elements that are operating, perhaps, beneath the surface or above the surface and are basically moving the economy gradually. So when we think about the Malthusian Epoch-- namely, this epoch of stagnation-- in fact, the Malthusian Epoch is characterized by very important dualism. On the one hand, we see stagnation in living standards, as measured by income per capita, life expectancy.

But on the other hand, we see this great dynamism. We see that technology is evolving. Population is growing, and humans are adapting to their environments. Now, at any point in time, technological progress is minuscule. Actually, if we think about the world 300,000 years ago, it takes thousands of years from one stone tool to replace another stone tool.

But over a 300,000-year period, we see the movement from stone tool technology to steam engine technology. Due to this technological progress, people have more resources. And this more resource allows them to support more people. More of their children survive, and more children are born. And consequently, we see larger population.

But ultimately, the advancement in technology is not changing their material wellbeing because the resources that are being created are divided over more people. But something important happened, which is, during this iteration, the size of the human population is larger than otherwise. And these larger population have larger number of potential innovators.

And consequently, the next wave of technological progress occurs even earlier. And this will support more people, more adaptable people, and more technological progress. So over this 300,000-year period, we see that this wealth of change-- technological progress, population size, and human adaptation-- are reinforcing in one another till we reach a critical point that occurs in the eve of industrialization in which the pace of technological progress progresses so rapidly.

So in order to adapt and in order to cope with this rapidly changing technological environment, people must start to invest in the education of their children. But people are poor. They have limited budgets.

To invest in the education of their children, they must economize on another item in their budget constraint. They cannot starve themselves because, then, their children will not survive. And as a result of it, they economize on the number of children.

In fact, we reach a stage in which human capital becomes so important, education becomes so important that responsible parents start to invest in the education of their children. This forces them to reduce fertility. And the reduction in fertility is monumental in the sense that it frees the growth process from the counterbalancing effect of population.

MARK BLYTH: So it's not a risk. You've got stagnation, and stagnation gives you certainty. They wouldn't call it stagnation.

They would just call it life. And certain populations, at a given moment in time, decide, no, we're going to take a chance. We're going to invest in education.

We can talk about what form that takes-- but primarily, I guess, literacy through religious texts and other such things. A higher percentage of that population is literate. That allows the transmission of ideas. And the consequence of that is that you have less kids. But if you have less kids, then you have less soldiers if you're attacked. What type of populations take the risk? Who are the early trailblazers that take us down this path?

ODED GALOR: Right. So this is not as decentralized decision as it appears to be. So when we get into the stage where industrialization is taking place and the technological landscape is changing very rapidly, it is the industrialists that, in fact, seeing the light. They realize that in order to be competitive, in order to prevent a decline in their profit rates, they need a labor force that is more educated.

They realized at the same time that people are too poor, perhaps too myopic to take the decisions upon themselves. And consequently, they lobby aggressively in the British Parliament in the course of the 19th century and basically requesting the implementation of education acts that will permit the education of the masses. People realize that this is important.

But nevertheless, they do not have the means to support it. And consequently, it is the industrialists that are lobbying for this. And consequently, we see the increase in education and, ultimately, the fertility decline in the post-Eighteen-Seventy period in England.

MARK BLYTH: So what you're doing is you're giving a kind of human capital refutation of both Ricardo and Marx because in both of those, have a story whereby profits fall to either a common rate or a diminishing rate, and the result is either stagnation-- to quote Ricardo, one of my favorite Ricardo quotes, the condition of the poor is wretched and is likely to remain so. And you're saying, oh, no, you got that one wrong, mate. If you want your profits to go back up, it's not about more and more machines in immiserating the workers. It's about educating them. Is that right?

ODED GALOR: Absolutely. So that's completely right. So particularly, if we think about Marx and we think about the thesis of Marx, and Marx is making an argument that appears plausible at the time, which is that accumulation of capital by the capitalists will cause a decline in profit rates, in the sense that the capital labor ratio will increase.

And as a result of it, the rate of return to capital will decline. And this will bring about competition across capitalist exploitation up to a point in which workers will have nothing to lose but their chain. This will bring a class struggle and, ultimately, the demise of the capitalist workers class society.

But what he failed to realize is that, in fact, the capitalists will soon enough realize that in order to sustain their profit rates, there is a different way to do it rather than exploitation. Invest in your workers. Generate human capital that will complement your physical capital and, consequently, will prevent the decline in the return to physical capital.

So yes, when capital is accumulating and the amount of labor is fixed, then there is a decline in the profit rates on the return to capital. But if you can boost labor by boosting human capital formation, in fact, you can sustain your profit rates.

MARK BLYTH: So the way that we normally think about productivity is then also wrong because we tend to think of labor as relatively fixed. And then you kind of chuck technology at it or capital in whatever shape or form it takes. And you get more output. But what you're suggesting is, hmm, again, what really makes the difference is the complement to the capital, which has to have the irreducible social element is based on knowledge.

ODED GALOR: Yes, the capital skill complementarity is essential for the growth process, is essential for maintaining the return to physical capital, and is ultimately essential even in the context of technological adoption and growth in the long run.

MARK BLYTH: We mentioned people having fewer kids. This is a macro phenomena as well as a micro phenomena because as the book progresses, the demographic transition, as you call it, becomes incredibly important to getting to where we are today. Tell us what the demographic transition is and why it's so important to what you want to argue.

ODED GALOR: So as I said, so we look at the world as a whole. Around Eighteen-Seventy, we see that Western nations are experiencing massive decline in fertility. During what is defined as the demographic transition, we see that fertility declines 30% to 50% in many Western European societies and in the United States within the scope of about 40 to 50 years.

And as I said, this is instrumental and fundamental because it is, in fact, the first time in human history that technological progress can be converted into prosperous people rather than into more people. So this is really monumental and instrumental for the understanding of the transition from stagnation to growth. And in fact, if we look at the empirical regularities, those societies that experienced the demographic transition earlier, on average, are more prosperous today.

MARK BLYTH: So let's flip to the second half of the book and talk about inequality. There's been a lot of talk about inequality, but it tends to be inequality within countries-- there's the Piketty School. There's certainly work by Milanovic and others on inequality between countries.

But again, to stick with this core thesis, you attack this at a very different angle as well. And you've implicitly just said it. The reason these countries are poor are a combination of different starting points, initial conditions, and then also the timing of the demographic transition, which is intimately related to the differential and those initial conditions. Unpack that for us.

ODED GALOR: So when we think about the roots of inequality, I think that the best strategy to understand these roots is to start at the present and then peel gradually different layers of influence and find the deep-rooted factors that affect inequality across the globe. And when we think about inequality across the globe today, it is tempting to suggest that this inequality is originated in differences in education level, in physical capital formation, and technological level across the globe. And that's completely right. These are correlates of this inequality.

But the question is, of course, why some societies fail to invest properly in education, why some societies fail to invest properly in the accumulation of physical capital, why some societies fails to adopt properly technological advancements. And the argument is that there are certain barriers to this process of accumulation in technological adoption. And these barriers have roots in the distant past.

So we can think about different layers of influence. We can start with, say, colonialism and ask how colonialism is generating some of the inequality that we see across the globe. We can move deeper into institutional factors or the fingerprints of institutions and how it affects compared to development. We can move even deeper than that and look at the cultural factor.

But ultimately, what we will realize is that many of these elements-- colonialism, institutions, and culture-- are not manna from heaven. They're not emerging out of the blue and generating divergence across societies. They're predicated on the existence of initial geographical conditions or otherwise that are basically leading into these differential institutions.

So there are some instances in human history-- for instance, perhaps, the Glorious Revolution and the emergence of constitutional monarchy in England and its effect on property rights and industrialization that can explain some divergence. Or we can think about the division of the Korea peninsula between the North and the South along the 38th parallel. But these are rare events.

Typically, what we see is that, as economies are developing, there is a demand for institutions that will permit individuals to coordinate their actions, to secure their property rights, et cetera. For instance, the transition into agriculture 12,000 years ago is associated with an enormous increase in population density. This increase in population density is generating the demand for institutions that will protect property rights that will coordinate action across individuals that will permit the implementation of public goods that are essential for the prosperity of nations.

And there are other instances of this = in which, basically, the suitability of land for large plantation is generating the emergence of a large landowning class that is lobbying for extractive institutions and ultimately even slavery. So there are many instances in which economic development is, in fact, the engine behind technological development. So this suggests that we have to step one more step back in the course of human history to understand the roots of institutional divergence.

Now, we can think about culture. And again, when we think about cultural traits, we see the implementation of growth-enhancing cultural traits in some regions of the world and growth-retarding cultural traits in others. For instance, in the context of the Italian divide, we see the emergence of social capital in the North.

We see the emergence of family ties in the South. And the Italian divide is largely explained by this divergence of cultural norms. But again, why do we see social capital emerging in the North and family ties in the South? Again, this is predicated on deeper historical roots that one needs to explore.

So to a large extent, when we think about cultural traits, we consider origins in the context of the suitability of land for agriculture that affects the ability of individuals to plan for the future. Why is it so? Because if the land is suitable for agriculture, then we are engaged in the process of planting and then, with some delay, harvesting. And it trains us. It teaches us how to delay gratification and how to be future-oriented. And this is ultimately a very valuable trait in the context of economic growth because it affects education decisions, saving decisions, lifestyle decisions, technological adoption, et cetera.

MARK BLYTH: And if you're a Viking, you don't play that game, consequently, you don't get the payoffs.

ODED GALOR: Indeed. So we can think about geographical elements in the distant past that are affecting the evolution of culture. And consequently, again, if we would like to understand the deep roots of inequality, we have to stop an additional step backward and ask ourselves how, in fact, growth-enhancing cultural traits and growth-enhancing institutions emerge in some places and not in others. And this leads us into the shadow of geography.

There are two ways of thinking about geography. The simple one is to think about the current characteristics of geography-- soil quality, the disease environment, geographical isolation-- and their impact on development. This is associated with the work of Jeff Sachs. So he suggests that if we observe some societies that are residing, say, in an area of the world in which the disease environment is very harsh, this will affect human capital formation, labor productivity, and development in the short run. So this is one element, but this is not part of the long shadow of geography.

If we think about the long shadow of geography, we have to consider how geographical characteristics-- as I mentioned before, suitability of land for agriculture, suitability of land for the use of the plow, climatic volatility, et cetera-- may affect the emergence of certain type of institutions and not others, certain types of cultural traits and not others. So this causes us to realize that factors that were determined very much in the distant past are very important for the development of societies.

And this takes us even further back in human history. When we think about geography, the first geographical element that we can consider is the onset of agriculture. So Jared Diamond famously argued that the variation in the timing of the transition to agriculture is associated with much of the variations in economic prosperity that we see across the globe. So as we know, some societies moved into agriculture nearly 12,000 years ago. Other societies, more recently.

And Jared Diamond suggested, convincingly, that, in fact, this transition generated surplus, generated a class that was not associated with food production. And this class was associated with knowledge creation in the form of science, technology, and written languages and generated a technological head start that persisted in the course of human history, was reinforced by the formation of city-states, states, empires, and then colonialism. And according to Diamond, much of the variations that we see across the globe can be traced to this element.

So the Diamond hypothesis is ingenious, undoubtedly. But nevertheless, it holds only till about the year Fifteen-Hundred. So this technological head start is very powerful.

And you can see it. In fact, if you look at prosperity across the globe in the year Fifteen-Hundred, it can be mapped, to a large extent, to variations the timing of the Neolithic Revolution. It's not the single factor, but it's an important factor.

MARK BLYTH: So what happens next?

ODED GALOR: Yes, so that's an important question. So what happens in the post-Fifteen-Hundred period is that we see a process of globalization gradually. Societies start to trade. And having comparative advantage in agriculture becomes a liability. So the technological head start that he has in mind remains in place throughout.

But nevertheless, the fact that you have comparative advantage in agriculture and you can trade with faraway countries implies that you are investing less in the urban sector, where much of the technological spillovers are generating. And this lack of technological spillover is offsetting the technological head start that Diamond had in mind. And ultimately, in the present day, in fact, the explanatory power of the time since the Neolithic is virtually zero.

MARK BLYTH: So we end up in a world whereby, if we look at Latin America, it's absolutely true that it was incorporated in the global economy as a colonial project. But because it has a comparative advantage in agriculture, it's not going to move up the ladder, in a sense. And it's not going to make the investments that would get you to that transformation, which would explain a convergence, to go back to Solow. It rather explains the divergence that we actually see across the world.

ODED GALOR: Precisely. So that's a completely accurate assessment of the situation in Latin America. And it suggests that one has to be much more careful in the context of trade liberalizations in the sense that, naturally, the virtues for them and the gains from trade and trade liberalization, to a large extent, is a virtue for many societies, certainly in the context of North-North trade.

But in the context of North-South trade, it can be detrimental because it can trap societies in the specialization in goods in which there are limited spillover, limited demand for education. And as a result of it, we don't see knowledge formation. We don't see the demographic transition as pronounced as otherwise. And therefore, we do not see the engines of growth operating as extensively.

MARK BLYTH: And it empowers exactly those types of extractive rather than inclusive institutions, which would perpetuate that type of production. One more thing on this before we get to our closing segment-- I could continue for a long time, but we must keep this to a reasonable size of episode. You say something very interesting towards the end and focus on it a bit. It's almost like a coda, but it is also a core part of the thesis. How is diversity related to prosperity?

ODED GALOR: So when I'm searching for the deepest roots of comparative development, and after discovering that the Neolithic Revolution is very important, as I said, till the Middle Ages, I move into even further back in human history in taking us back to Africa, where we are all originated from. And why is it so important? It is so important because during this exodus of anatomically modern human from Africa 60,000 to 90,000 years ago, the degree of diversity across the globe was affected in a very fundamental fashion. And why is it so?

So there was a certain level of diversity that existed in Africa. But departing populations were relatively small. The African population was relatively small. And as a result of it, the departing population was not a representative sample of the population that existed in Africa. Namely, they contained only a subset of the diversity that existed in the African population.

So this population migrated initially to the area of the Fertile Crescent. They resided there. And actually, the carrying capacity of the environment was enormous.

And they could multiply very rapidly till they basically occupied all possible geographical niches, and they ventured, again, outward some 45,000 years ago into Europe, and others into Asia, and ultimately, into the America. And since this migration was sequential, each departing population carried only a subset of the diversity that existed in the new location. And this implied, gradually, that diversity declined further, and further, and further.

Now, why is it so important? Well, when you think about diversity, and you can measure it in different ways-- culturally, phenotypically, behaviorally, linguistically-- it has two conflicting effects on economic development. On the positive side, diversity is associated with cross-fertilization of ideas, and as a result of it, greater productivity and greater innovativeness.

But on the other hand, diversity is associated with social non-cohesiveness. It is associated with mistrust, disagreement about the desirable public goods, and, consequently, conflicts. So we have these two conflicting effects.

And if, in fact, it is the case that diversity has a positive and diminishing effect on innovations, and homogeneity as a positive and diminishing effects on social cohesiveness, it implies that, at any point in time, an intermediate level of diversity will be conducive for development. And this is what we see historically. But importantly, the same time, it suggests to us, it seems we move into a more demanding world technologically. The virtues of diversity are increasing over time. And societies that are increasingly more diverse will have the upper hand in terms of economic prosperity.

MARK BLYTH: Is that because that greater diversity leads to the possibility of the greater creation of differential knowledge?

ODED GALOR: Precisely. So it generates the cultural fluidity that is basically making the society more adaptable and consequently--

MARK BLYTH: But to a point because to go to your other side, you need a certain degree of homogeneity. Otherwise, it comes unstuck.

ODED GALOR: Precisely, indeed. So there are clearly tradeoffs, and we should be aware of the tradeoffs. But what we see in the course of human history is that, over the past 500 years, there is a gradual increase in the optimal level of diversity. More diverse societies are prospering more than otherwise.

And in addition, we know that the education system that we have in place is designed in such a way so as to mitigate the cost of diversity. We teach our children to be tolerant, to be respectful for other ethnic groups. So the cost of diversity is mitigated by the education system. The benefits of diversity are enhanced by technological acceleration. And as a result of it, we can comfortably say that more diverse societies will have the upper hand.

MARK BLYTH: So in sum, internalize the externalities of diversity, and you externalize the positive externalities of diversity. So the negative goes in, and the positive goes out. I like that. It's very simple and clean.

Let's do this for closing. Something that's not so clean-- an obvious point that comes up is, this is a great story, but it seems to assume in the background a somewhat symmetrical or even normal distribution of the benefits of growth. And we've been in a world increasingly over the past 30 to 40 years where that simply hasn't been the case.

You could even argue that large parts of the United States have been going through de-growth rather than benefiting from growth, even if the GDP numbers keep going up. How would you, given your theory, think about this as a problem? And what should be done about it?

ODED GALOR: Right. So indeed, a journey of humanity is focusing on inequality across nations, between nations. And you are alluding to the fact that there is an important problem that is emerging in this process, particularly in the past four decades or so, perhaps even longer, which is the rise in inequality within societies and the fact that the growth process is, in fact, not shared universally. And perhaps some people are deprived from this process entirely.

And that's the unfortunate consequence of the growth process in general because the growth process naturally is associated with technological acceleration. And technological acceleration implies that there is greater and greater demand for education and talents. And since not all individuals are participating in the process of human capital formation, this is bound to generate inequality.

And I think that the responsibility of societies in this type of period is precisely to assure, at least, that equality of opportunities is present. But at least, we can operate on this margin and allocate resources to ensure that every child can educate herself to her full potential, the sense that resource constraint, financial constraints, and otherwise will not prevent individuals from investing properly. So then, at least, we will be sure that, in this lottery of technological acceleration, the participation is entirely random, and people that would like to participate are able to participate to their full extent.

Now, this doesn't, of course, resolve the entire problem because there is an additional moral problem, which is, if this technological progress is not complementing all members of society, what do we do with those segments of society unable to participate fully? And there, it implies that we have to consider more seriously the importance of the welfare state without distorting incentives as much as possible because, naturally, if we do get into a position where the allocation of talents across occupations is perfect, we can be generous enough and create some sort of a welfare state that will give a safety net for those that are not participating in the growth process-- and not because of their responsibility-- without distorting incentives.

MARK BLYTH: That story may have been true. But now we live in a world where there are planetary boundaries, and there are many voices-- not just on the left-- who say that we need to de-grow in order to survive. What would be your response to those de-growth arguments, that this is no longer the solution, this is the problem? How do you see us working through the decarbonization window that we have to work through?

ODED GALOR: Right. So that's a very important element that is associated with the growth process. So when we think about the technological acceleration that I alluded to in the context of the 18th century and later, this is leading into industrialization. Industrialization is leading into industrial pollution and ultimately to carbon emission and the current trend in climate change. And this is a real and huge threat for humanity.

But I'm more optimistic and more hopeful based on my understanding of the course of human history and for the following reason. So the same process that brought about carbon emission and climate change brought about three additional forces. It brought about human capital formation, educated people that are, on average, more responsible in terms of their concern to the environment.

It brought about the power of innovation-- namely, the ability of scientists to be ingenious enough to resolve catastrophic changes. And we saw it in the context of COVID-19 and the development of mRNA technologies in a very short period of time. If COVID-19 would have occurred centuries ago, it could have devastated humanities for decades and perhaps longer than that. . So this is the power of innovation.

And the third element that is very important is the decline in fertility. And remember, the people are the ones that are polluting planet Earth. And if we will see a gradual decline in the size of the human population of planet Earth, we will be in a better position to mitigate the current trend. So why these forces are so important? Because the movement into environmentally friendly technologies, the movement into regulations that are restricting carbon emission, and the decline in fertility are three forces that are mitigating the current trend of climate change.

They're not resolving it, but they're allowing us to have, perhaps, three or four decades to resolve this problem more fundamentally using technology. Namely, it buys scientists time to, perhaps, resolve this. And as I said, based on human ingenuity in the past, I'm confident that, again, given the pressure that we're facing and given the incentives that will emerge, ultimately, scientists will be ready at the critical moment with the proper solution to this problem too.

MARK BLYTH: I think, like many people, I can do with an optimistic and hopeful story. Thank you for that. It's been a pleasure talking to you about this book.

ODED GALOR: Thank you very much.


MARK BLYTH: This episode was produced by Dan Richards and Kate Dario. I'm Mark Blyth. You can listen to more conversations like this by subscribing to The Rhodes Center Podcast wherever you listen to podcasts. We'll be back soon with another episode of The Rhodes Center Podcast. Thanks.

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The Rhodes Center Podcast with Mark Blyth
A podcast from the Rhodes Center, hosted by political economist Mark Blyth.

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Mark Blyth

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