Capital in the Twenty-First Century (17 page)

Note that an important part of these services, especially in health and education,
is generally financed by taxes and provided free of charge. The details of financing
vary from country to country, as does the exact share financed by taxes, which is
higher in Europe, for example, than in the United States or Japan. Still, it is quite
high in all developed countries: broadly speaking, at least half of the total cost
of health and education services is paid for by taxes, and in a number of European
countries it is more than three-quarters. This raises potential new difficulties and
uncertainties when it comes to measuring and comparing increases in the standard of
living in different countries over the long run. This is not a minor point: not only
do these two sectors account for more than 20 percent of GDP and employment in the
most advanced countries—a percentage that will no doubt increase in the future—but
health and education probably account for the most tangible and impressive improvement
in standards of living over the past two centuries. Instead of living in societies
where the life expectancy was barely forty years and nearly everyone was illiterate,
we now live in societies where it is common to reach the age of eighty and everyone
has at least minimal access to culture.

In national accounts, the value of public services available to the public for free
is always estimated on the basis of the production costs assumed by the government,
that is, ultimately, by taxpayers. These costs include the wages paid to health workers
and teachers employed by hospitals, schools, and public universities. This method
of valuing services has its flaws, but it is logically consistent and clearly more
satisfactory than simply excluding free public services from GDP calculations and
concentrating solely on commodity production. It would be economically absurd to leave
public services out entirely, because doing so would lead in a totally artificial
way to an underestimate of the GDP and national income of a country that chose a public
system of health and education rather than a private system, even if the available
services were strictly identical.

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.

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.

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 meritocratic hope,
which must create specific institutions for the purpose and not rely solely on market
forces or technological progress.

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.