In previous videos, you learned two things. First, that there can be large disparities in economic wealth among different countries. And second, you learned that

In previous videos, you learned two things.

First, that there can be large disparities in economic wealth among different countries. And second, you learned that one key factor drives that disparity: growth rate. As we said, it changes everything. But just how transformative is a country's growth rate?

Take Argentina, for example.

In 1950, the Argentine standard of living was similar to that of many Western European countries. Up until 1965, Argentina's per capita income was ahead of many of its neighbors.

On the other hand, Japan in 1950 was on the other end of the spectrum. Japan had been ravaged by war and was only just beginning to find its economic footing again. At that time, Japan's standard of living was roughly the same as that of Mexico.

It was quite poor, compared to the Argentina of the same era.

But look at what's happened in the past 65 years.

Japan today is one of the world's most prosperous countries. Since 1950, it has managed to double its living standards about every eight years. Argentina, on the other hand, has stagnated. Once, Argentina had double the standard of living of Japan. But Japan now doubles them today, with a standard of living 10 times higher than the one it had in 1950.

In economic terms, Japan is what we would call a growth miracle. It's in the same class as other growth success stories, like South Korea and China which have experienced the “hockey stick” of prosperity. (India seems like it may have started on this path as well.)

These countries are proof of one thing: with the right factors, a poor country can not only grow, but it can do so quickly. It can catch up with developed countries at an astonishing rate.

What took the United States two centuries of steady growth can now be achieved by other countries in about one-fifth the time. Catch-up can happen in 40 years—about the span of a generation or two.

That's the good news.

The bad news is, while growth can skyrocket in some countries, growth isn’t guaranteed at all.

Argentina is an example of this. It grew well for a time, and then it stalled. Even worse than Argentina, are countries like Niger, and Chad, which are the very worst of growth disasters. Not only are these countries in extreme poverty, but they also have little to no growth. More than that, these countries have never experienced substantial growth in the past.

But why does that all matter?

It matters because growth isn't just about numbers. It's not just about more goods and services. When a country grows, its citizens often end up with longer, healthier, and happier lives. Conversely, the countries that are growth disasters have citizens in poverty, with shorter and less happier lives.

As bleak as this seems, it’s the plain truth: while growth miracles are possible, growth disasters are, too.

Which leaves us with another question: what causes either state?

What leads to growth, prosperity, health, and happiness? And then, what leads to the opposite situation?

We're excited to share the answer, but that's a topic for future videos.

For now, check out this video to get up to speed on growth miracles and growth disasters.

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Transcript

Are poor countries catching up to rich countries, or are they falling further behind? Said another way, is there divergence or convergence between standards of living in different countries over time?


Let's start with what economic historian Deirdre McCloskey calls "The Great Fact" about the modern world. If you graph global economic output over the past 2000 years, you'll see this -- what we’ve referred to earlier as the hockey stick of human prosperity. Now let's look at that same data, not at a global level, but by region. Since the Industrial Revolution, the growth paths taken by different regions have diverged dramatically. The U.S. and Western Europe experienced the hockey stick path of growth, while other regions have stagnated. This was described as "Divergence, Big Time" in a famous economics paper. But that's not the whole story either.

 

Let's dive into this data even further, down to the country level. Here's Argentina in 1950. It's a relatively successful economy with a standard of living similar to many Western European economies. Now here's Japan. At the time, they're quite poor, with a standard of living similar to Mexico. But let's move forward in time. Japan begins growing at an astonishing pace, doubling their living standards about every eight years. Argentina, on the other hand, experienced periods of negative growth. They managed to double their living standard just once in 65 years. By 2015, Japan -- it’s one of the most prosperous countries on Earth. Argentina, on the other hand -- it stagnated. It went from double the standard of living in Japan in 1950 to Japan being twice as prosperous as Argentina today. Japan is a growth miracle, with a standard of living over 10 times higher now than in 1950.


Other growth miracles have occurred in South Korea and China. And India today looks like it may have started down the hockey stick path of prosperity. So, the good news is that with the right factors in place, a poor country can not only grow, but it can grow quickly and catch up to developed countries. What took the United States 200 years of steady growth can be achieved in other countries by rapid growth, in about 40 years. Catch up can happen in a generation or two.


The bad news is that it's not guaranteed. Some countries, like Argentina -- they grow well for a time and then they stall. Even worse are countries such as Niger or Chad which have never experienced significant growth. They're the worst kind of growth disasters –- extreme poverty with very little growth at all. And it's important to remember that these are more than just numbers. A growth miracle means not just more goods and services, but better health and greater happiness for millions of people. See our earlier video showing how GDP per capita is a good summary measure of a country's standard of living.


On the other hand, growth disaster -- it means the opposite. People are less prosperous and they live shorter, and less happy lives. So, growth miracles and growth disasters -- they're possible. But what are the causes? What are the factors that lead to growth, prosperity, health, and better lives? That's the topic we're going to turn to next.

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