Capital in the Twenty-First Century (18 page)

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.

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.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

By adding these two curves, we can obtain a third curve showing the rate of growth
of total global output (
Figure 2.5
). Until 1950, this had always been less than 2 percent per year, before leaping to
4 percent in the period 1950–1990, an exceptionally high level that reflected both
the highest demographic growth rate in history and the highest growth rate in output
per head. The rate of growth of global output then began to fall, dropping below 3.5
percent in the period 1990–2012, despite extremely high growth rates in emerging countries,
most notably China. According to my median scenario, this rate will continue through
2030 before dropping to 3 percent in 2030–2050 and then to roughly 1.5 percent during
the second half of the twenty-first century.

I have already conceded that these “median” forecasts are highly hypothetical. The
key point is that regardless of the exact dates and growth rates (details that are
obviously important), the two bell curves of global growth are in large part already
determined. The median forecast shown on
Figures 2.2
–
5
is optimistic in two respects: first, because it assumes that productivity growth
in the wealthy countries will continue at a rate of more than 1 percent per year (which
assumes significant technological progress, especially in the area of clean energy),
and second, perhaps more important, because it assumes that emerging economies will
continue to converge with the rich economies, without major political or military
impediments, until the process is complete, around 2050, which is very rapid. It is
easy to imagine less optimistic scenarios, in which case the bell curve of global
growth could fall faster to levels lower than those indicated on these graphs.

The foregoing overview of growth since the Industrial Revolution would be woefully
incomplete if I did not discuss the question of inflation. Some would say that inflation
is a purely monetary phenomenon with which we do not need to concern ourselves. In
fact, all the growth rates I have discussed thus far are so-called real growth rates,
which are obtained by subtracting the rate of inflation (derived from the consumer
price index) from the so-called nominal growth rate (measured in terms of consumer
prices).

In reality, inflation plays a key role in this investigation. As noted, the use of
a price index based on “averages” poses a problem, because growth always bring forth
new goods and services and leads to enormous shifts in relative prices, which are
difficult to summarize in a single index. As a result, the concepts of inflation and
growth are not always very well defined. The decomposition of nominal growth (the
only kind that can be observed with the naked eye, as it were) into a real component
and an inflation component is in part arbitrary and has been the source of numerous
controversies.

For example, if the nominal growth rate is 3 percent per year and prices increase
by 2 percent, then we say that the real growth rate is 1 percent. But if we revise
the inflation estimate downward because, for example, we believe that the real price
of smartphones and tablets has decreased much more than we thought previously (given
the considerable increase in their quality and performance, which statisticians try
to measure carefully—no mean feat), so that we now think that prices rose by only
1.5 percent, then we conclude that the real growth rate is 1.5 percent. In fact, when
differences are this small, it is difficult to be certain about the correct figure,
and each estimate captures part of the truth: growth was no doubt closer to 1.5 percent
for aficionados of smartphones and tablets and closer to 1 percent for others.