Capital in the Twenty-First Century
The method used to compute national accounts has the virtue of correcting this bias. Still, it is not perfect. In particular, there is no objective measure of the quality of services rendered (although various correctives for this are under consideration). For example, if a private health insurance system costs more than a public system but does not yield truly superior quality (as a comparison of the United States with Europe suggests), then GDP will be artificially overvalued in countries that rely mainly on private insurance. Note, too, that the convention in national accounting is not to count any remuneration for public capital such as hospital buildings and equipment or schools and universities.18 The consequence of this is that a country that privatized its health and education services would see its GDP rise artificially, even if the services produced and the wages paid to employees remained exactly the same.19 It may be that this method of accounting by costs underestimates the fundamental “value” of education and health and therefore the growth achieved during periods of rapid expansion of services in these areas.20
Hence there is no doubt that economic growth led to a significant improvement in standard of living over the long run. The best available estimates suggest that global per capita income increased by a factor of more than 10 between 1700 and 2012 (from 70 euros to 760 euros per month) and by a factor of more than 20 in the wealthiest countries (from 100 to 2,500 euros per month). Given the difficulties of measuring such radical transformations, especially if we try to sum them up with a single index, we must be careful not to make a fetish of the numbers, which should rather be taken as indications of orders of magnitude and nothing more.
The End of Growth?
Now to consider the future. Will the spectacular increase in per capita output I have just described inexorably slow in the twenty-first century? Are we headed toward the end of growth for technological or ecological reasons, or perhaps both at once?
Before trying to answer this question, it is important to recall that past growth, as spectacular as it was, almost always occurred at relatively slow annual rates, generally no more than 1–1.5 percent per year. The only historical examples of noticeably more rapid growth—3–4 percent or more—occurred in countries that were experiencing accelerated catch-up with other countries. This is a process that by definition ends when catch-up is achieved and therefore can only be transitional and time limited. Clearly, moreover, such a catch-up process cannot take place globally.
At the global level, the average rate of growth of per capita output was 0.8 percent per year from 1700 to 2012, or 0.1 percent in the period 1700–1820, 0.9 percent in 1820–1913, and 1.6 percent in 1913–2012. As indicated in Table 2.1, we find the same average growth rate—0.8 percent—when we look at world population 1700–2012.
Table 2.5 shows the economic growth rates for each century and each continent separately. In Europe, per capita output grew at a rate of 1.0 percent 1820–1913 and 1.9 percent 1913–2012. In America, growth reached 1.5 percent 1820–1913 and 1.5 percent again 1913–2012.
The details are unimportant. The key point is that there is no historical example of a country at the world technological frontier whose growth in per capita output exceeded 1.5 percent over a lengthy period of time. If we look at the last few decades, we find even lower growth rates in the wealthiest countries: between 1990 and 2012, per capita output grew at a rate of 1.6 percent in Western Europe, 1.4 percent in North America, and 0.7 percent in Japan.21 It is important to bear this reality in mind as I proceed, because many people think that growth ought to be at least 3 or 4 percent per year. As noted, both history and logic show this to be illusory.
With these preliminaries out of the way, what can we say about future growth rates? Some economists, such as Robert Gordon, believe that the rate of growth of per capita output is destined to slow in the most advanced countries, starting with the United States, and may sink below 0.5 percent per year between 2050 and 2100.22 Gordon’s analysis is based on a comparison of the various waves of innovation that have succeeded one another since the invention of the steam engine and introduction of electricity, and on the finding that the most recent waves—including the revolution in information technology—have a much lower growth potential than earlier waves, because they are less disruptive to modes of production and do less to improve productivity across the economy.
Just as I refrained earlier from predicting demographic growth, I will not attempt now to predict economic growth in the twenty-first century. Rather, I will attempt to draw the consequences of various possible scenarios for the dynamics of the wealth distribution. To my mind, it is as difficult to predict the pace of future innovations as to predict future fertility. The history of the past two centuries makes it highly unlikely that per capita output in the advanced countries will grow at a rate above 1.5 percent per year, but I am unable to predict whether the actual rate will be 0.5 percent, 1 percent, or 1.5 percent. The median scenario I will present here is based on a long-term per capita output growth rate of 1.2 percent in the wealthy countries, which is relatively optimistic compared with Robert Gordon’s predictions (which I think are a little too dark). This level of growth cannot be achieved, however, unless new sources of energy are developed to replace hydrocarbons, which are rapidly being depleted.23 This is only one scenario among many.
An Annual Growth of 1 Percent Implies Major Social Change
In my view, the most important point—more important than the specific growth rate prediction (since, as I have shown, any attempt to reduce long-term growth to a single figure is largely illusory)—is that a per capita output growth rate on the order of 1 percent is in fact extremely rapid, much more rapid than many people think.
The right way to look at the problem is once again in generational terms. Over a period of thirty years, a growth rate of 1 percent per year corresponds to cumulative growth of more than 35 percent. A growth rate of 1.5 percent per year corresponds to cumulative growth of more than 50 percent. In practice, this implies major changes in lifestyle and employment. Concretely, per capita output growth in Europe, North America, and Japan over the past thirty years has ranged between 1 and 1.5 percent, and people’s lives have been subjected to major changes. In 1980 there was no Internet or cell phone network, most people did not travel by air, most of the advanced medical technologies in common use today did not yet exist, and only a minority attended college. In the areas of communication, transportation, health, and education, the changes have been profound. These changes have also had a powerful impact on the structure of employment: when output per head increases by 35 to 50 percent in thirty years, that means that a very large fraction—between a quarter and a third—of what is produced today, and therefore between a quarter and a third of occupations and jobs, did not exist thirty years ago.
What this means is that today’s societies are very different from the societies of the past, when growth was close to zero, or barely 0.1 percent per year, as in the eighteenth century. A society in which growth is 0.1–0.2 percent per year reproduces itself with little or no change from one generation to the next: the occupational structure is the same, as is the property structure. A society that grows at 1 percent per year, as the most advanced societies have done since the turn of the nineteenth century, is a society that undergoes deep and permanent change. This has important consequences for the structure of social inequalities and the dynamics of the wealth distribution. Growth can create new forms of inequality: for example, fortunes can be amassed very quickly in new sectors of economic activity. At the same time, however, growth makes inequalities of wealth inherited from the past less apparent, so that inherited wealth becomes less decisive. To be sure, the transformations entailed by a growth rate of 1 percent are far less sweeping than those required by a rate of 3–4 percent, so that the risk of disillusionment is considerable—a reflection of the hope invested in a more just social order, especially since the Enlightenment. Economic growth is quite simply incapable of satisfying this democratic and mer
itocratic hope, which must create specific institutions for the purpose and not rely solely on market forces or technological progress.
The Posterity of the Postwar Period: Entangled Transatlantic Destinies
Continental Europe and especially France have entertained considerable nostalgia for what the French call the Trente Glorieuses, the thirty years from the late 1940s to the late 1970s during which economic growth was unusually rapid. People still do not understand what evil spirit condemned them to such a low rate of growth beginning in the late 1970s. Even today, many people believe that the last thirty (soon to be thirty-five or forty) “pitiful years” will soon come to an end, like a bad dream, and things will once again be as they were before.
In fact, when viewed in historical perspective, the thirty postwar years were the exceptional period, quite simply because Europe had fallen far behind the United States over the period 1914–1945 but rapidly caught up during the Trente Glorieuses. Once this catch-up was complete, Europe and the United States both stood at the global technological frontier and began to grow at the same relatively slow pace, characteristic of economics at the frontier.
FIGURE 2.3. The growth rate of per capita output since the Industrial Revolution
The growth rate of per capita output surpassed 4 percent per year in Europe between 1950 and 1970, before returning to American levels.
Sources and series: see piketty.pse.ens.fr/capital21c.
A glance at Figure 2.3, which shows the comparative evolution of European and North American growth rates, will make this point clear. In North America, there is no nostalgia for the postwar period, quite simply because the Trente Glorieuses never existed there: per capita output grew at roughly the same rate of 1.5–2 percent per year throughout the period 1820–2012. To be sure, growth slowed a bit between 1930 and 1950 to just over 1.5 percent, then increased again to just over 2 percent between 1950 and 1970, and then slowed to less than 1.5 percent between 1990 and 2012. In Western Europe, which suffered much more from the two world wars, the variations are considerably greater: per capita output stagnated between 1913 and 1950 (with a growth rate of just over 0.5 percent) and then leapt ahead to more than 4 percent from 1950 to 1970, before falling sharply to just slightly above US levels (a little more than 2 percent) in the period 1970–1990 and to barely 1.5 percent between 1990 and 2012.
Western Europe experienced a golden age of growth between 1950 and 1970, only to see its growth rate diminish to one-half or even one-third of its peak level during the decades that followed. Note that Figure 2.3 underestimates the depth of the fall, because I included Britain in Western Europe (as it should be), even though British growth in the twentieth century adhered fairly closely to the North American pattern of quasi stability. If we looked only at continental Europe, we would find an average per capita output growth rate of 5 percent between 1950 and 1970—a level well beyond that achieved in other advanced countries over the past two centuries.
These very different collective experiences of growth in the twentieth century largely explain why public opinion in different countries varies so widely in regard to commercial and financial globalization and indeed to capitalism in general. In continental Europe and especially France, people quite naturally continue to look on the first three postwar decades—a period of strong state intervention in the economy—as a period blessed with rapid growth, and many regard the liberalization of the economy that began around 1980 as the cause of a slowdown.
In Great Britain and the United States, postwar history is interpreted quite differently. Between 1950 and 1980, the gap between the English-speaking countries and the countries that had lost the war closed rapidly. By the late 1970s, US magazine covers often denounced the decline of the United States and the success of German and Japanese industry. In Britain, GDP per capita fell below the level of Germany, France, Japan, and even Italy. It may even be the case that this sense of being rivaled (or even overtaken in the case of Britain) played an important part in the “conservative revolution.” Margaret Thatcher in Britain and Ronald Reagan in the United States promised to “roll back the welfare state” that had allegedly sapped the animal spirits of Anglo-Saxon entrepreneurs and thus to return to pure nineteenth-century capitalism, which would allow the United States and Britain to regain the upper hand. Even today, many people in both countries believe that the conservative revolution was remarkably successful, because their growth rates once again matched continental European and Japanese levels.
In fact, neither the economic liberalization that began around 1980 nor the state interventionism that began in 1945 deserves such praise or blame. France, Germany, and Japan would very likely have caught up with Britain and the United States following their collapse of 1914–1945 regardless of what policies they had adopted (I say this with only slight exaggeration). The most one can say is that state intervention did no harm. Similarly, once these countries had attained the global technological frontier, it is hardly surprising that they ceased to grow more rapidly than Britain and the United States or that growth rates in all of these wealthy countries more or less equalized, as Figure 2.3 shows (I will come back to this). Broadly speaking, the US and British policies of economic liberalization appear to have had little effect on this simple reality, since they neither increased growth nor decreased it.
The Double Bell Curve of Global Growth
To recapitulate, global growth over the past three centuries can be pictured as a bell curve with a very high peak. In regard to both population growth and per capita output growth, the pace gradually accelerated over the course of the eighteenth and nineteenth centuries, and especially the twentieth, and is now most likely returning to much lower levels for the remainder of the twenty-first century.
There are, however, fairly clear differences between the two bell curves. If we look at the curve for population growth, we see that the rise began much earlier, in the eighteenth century, and the decrease also began much earlier. Here we see the effects of the demographic transition, which has already largely been completed. The rate of global population growth peaked in the period 1950–1970 at nearly 2 percent per year and since then has decreased steadily. Although one can never be sure of anything in this realm, it is likely that this process will continue and that global demographic growth rates will decline to near zero in the second half of the twenty-first century. The shape of the bell curve is quite well defined (see Figure 2.2).
When it comes to the growth rate of per capita output, things are more complicated. It took longer for “economic” growth to take off: it remained close to zero throughout the eighteenth century, began to climb only in the nineteenth, and did not really become a shared reality until the twentieth. Global growth in per capita output exceeded 2 percent between 1950 and 1990, notably thanks to European catch-up, and again between 1990 and 2012, thanks to Asian and especially Chinese catch-up, with growth in China exceeding 9 percent per year in that period, according to official statistics (a level never before observed).24
FIGURE 2.4. The growth rate of world per capita output from Antiquity to 2100
The growth rate of per capita output surpassed 2 percent from 1950 to 2012. If the convergence process goes on, it will surpass 2.5 percent from 2012 to 2050, and then will drop below 1.5 percent.
Sources and series: see piketty.pse.ens.fr/capital21c.
What will happen after 2012? In Figure 2.4 I have indicated a “median” growth prediction. In fact, this is a rather optimistic forecast, since I have assumed that the richest countries (Western Europe, North America, and Japan) will grow at a rate of 1.2 percent from 2012 to 2100 (markedly higher than many other economists predict), while poor and emerging countries will continue the convergence process without stumbling, attaining growth of 5 percent per year from 2012 to 2030 and 4 percent from 2030 to 2050. If this were to occur as predicted, per capita output in China, Eastern Europe, South America, North Africa, and the Middle East would match that of the wealthiest countries by 2050.25
After that, the distribution of global output described in Chapter 1 would approximate the distribution of the population.26
In this optimistic median scenario, global growth of per capita output would slightly exceed 2.5 percent per year between 2012 and 2030 and again between 2030 and 2050, before falling below 1.5 percent initially and then declining to around 1.2 percent in the final third of the century. By comparison with the bell curve followed by the rate of demographic growth (Figure 2.2), this second bell curve has two special features. First, it peaks much later than the first one (almost a century later, in the middle of the twenty-first century rather than the twentieth), and second, it does not decrease to zero or near-zero growth but rather to a level just above 1 percent per year, which is much higher than the growth rate of traditional societies (see Figure 2.4).
FIGURE 2.5. The growth rate of world output from Antiquity to 2100
The growth rate of world output surpassed 4 percent from 1950 to 1990. If the convergence process goes on, it will drop below 2 percent by 2050.