More Important Than the Industrial Revolution

7 Mar 2024 | Jane Shaw, What's New

Over forty years ago, browsing in the Chicago Public Library, I came across a copy of “The Rise of the Western World” by Douglass North and Robert Thomas. Since then, I have been a fan of the Industrial Revolution—an IR groupie, you might say. I wrote my master’s thesis about it and my shelves are full of books with such titles as “How the West Grew Rich,” “Why the West Rules—For Now,” and “The Relentless Revolution.” 

Yes, the Industrial Revolution was a key juncture in human history. Citizens of Great Britain had sufficient property rights, rule of law, and freedom to try out new ideas—which led to textile mills, steam engines, factories, and ultimately prosperity. This happened roughly between 1750 and 1830.

I remember just one time when I—oh, so briefly—doubted my devotion to the Industrial Revolution. I was reading a graph showing how much the world’s per-capita GDP had grown between 1960 and the 2000s. I wondered: Why didn’t the chart go back farther? Although there has long been a debate about whether workers improved their lot during the Industrial Revolution, we all know that their descendants have thrived.

I now have the answer, thanks to the late James Gwartney, a prominent economist (and a colleague of my late husband, Richard Stroup). It is: There has been another economic revolution, in many ways a bigger one. 

Jim and his associates have called it the “transportation-communication” revolution. It began in the 1950s. As Jim told it, the Industrial Revolution benefited about 15 percent of the world’s people—“the West”—while the latest revolution has affected 70 percent of the world. 

We are all familiar with the technological marvels in communications, but those in transportation tend to be ignored.

Thanks to the invention of containers, the cost of shipping by ocean fell more than 50 percent between 1974 and 2016.

  • In air transportation, revenue per ton-kilometer for cargo went down 94 percent between 1955 and 2019. 
  • And: In 1995, just 524 million people traveled between countries; in 2017, 1.3 billion did, an increase of 148 percent.

These figures come from a paper by Joseph Connors, James Gwartney, and Hugh Montesinos. Their paper argues that these lower costs spurred increased world trade and brought countries that had only small markets into the larger world economy, leading to greater production. Only a few countries, mainly land-locked, failed to benefit much.

The potential for more trade affected countries’ tariff policies and spurred improvement of legal institutions. “Protecting” industry by high tariffs became a negative, as mutual trade depended on low tariffs, and international trade required a more consistent rule of law. 

The growing prosperity started the long-sought “virtuous cycle” in these countries: Families had fewer children but gave them more education. With fewer children, a higher proportion of the population soon consisted of workers in their most productive years.  

The authors tested their hypothesis by studying the history of per capita GDP (in great detail). Stated simply, “the per capita GDP of developing countries outside of sub-Saharan Africa rose from $1,698 in 1960 to $11,015 in 2015, a whopping increase of 549 percent,” the authors write. (Sub-Saharan African countries grew more slowly, but increased by 65 percent between 2000 and 2015.) This 549 percent growth rate is more than the high-income countries experienced between 1820 and 1950. 

And, in comparison, between 1820 and 1950 those developing countries (outside sub-Saharan Africa) had seen their GDP grow by less than half a percent a year, or 68 percent.

These facts will not surprise economists once they think about them, because they reflect basic economic principles. Some may consider them “old hat” and shrug their shoulders, calling it all “globalization.” 

But, in truth, most economists have not noticed this revolution—its consequences, perhaps, but not its causes.

During the postwar period, prominent economists struggled to help underdeveloped countries grow economically. They pondered Walter Rostow’s “take-off” theory, Alexander Gerschenkron’s “backwardness theory,” and Ragnar Nurkse’s “balanced growth theory.” They talked about “infant industries” and “export promotion.” But none of these worked.

Instead, unbeknownst to these experts (and to me), economic growth was already in play through lower transportation and communication costs. The entire world has benefited.

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the soon-to-be-published updated edition of Priceless: Curing the Healthcare Crisis, the widely acclaimed A Better Choice: Healthcare Solutions for America, and New Way to Care: Social Protections that Put Families First. The Wall Street Journal and National Journal, among other media, have called him the “Father of Health Savings Accounts.”


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