February 21, 2013
Consider a nation in which the volume of goods and services is growing by 5 percent per
year. What is the likely impact of this high rate of growth on the power and influence of its
government relative to other countries experiencing slower rates of growth? What about the
effect of this 5 percent growth on the nation’s living standards? Will these also necessarily grow
by 5 percent per year, given population growth? Why or why not?
If a country’s economic size is growing faster than the rest of the world
then this country will gain influence in the international sector. China is a classic example of this
phenomenon in the last decade. This is because a greater share of the world’s goods and services
are produced in this country. If a country’s living standards are increasing at 5%, this implies
that output is increasing at a rate of 5% above population growth. If this rate of growth is
greater than that in other countries, political influence will increase as well.
Did economic output start growing faster than population from the beginning of the
human inhabitation of the earth? When did modern economic growth begin? Have all of the
world’s nations experienced the same extent of modern economic growth?
No, rapid and sustained economic growth is a modern phenomenon.
Before the Industrial Revolution began in the late 1700s in England, standards of living showed
virtually no growth over hundreds or even thousands of years. For instance, the standard of
living of the average Roman peasant was virtually the same at the start of the Roman Empire
around the year 500 B.C. as it was at the end of the Roman Empire 1000 years later. Similarly,
historians and archeologists have estimated that the standard of living enjoyed by the average
Chinese peasant was essentially the same in the year A.D. 1800 as it was in the year A.D. 100.
No, the vast differences in living standards seen today between rich and poor countries
are almost entirely the result of the fact that only some countries have experienced modern