Why Countries Get Rich

In A Farewell to Alms, economist Gregory Clark notes that the breathtaking increase in wealth in the modern world is due to steadily increasing wages that are tied to rising worker productivity. Astonishingly neither he nor any other economist knows why modern people work harder and produce more.

Clark does, admittedly, advance a theory for why the Industrial Revolution began in England rather than elsewhere. He argues that the English upper crust produced larger families so that their acquisitive tendencies were genetically propagated throughout the population.

Most psychologists would reject this kind of social Darwinism and there is a serious problem of generalizability. Wealth increased rapidly in Ireland during the Celtic Tiger period of the 1990's on, for example, yet there is no evidence that the Irish elite had larger families: if anything, they were smaller given that generally wealthier Protestants had smaller families compared to Catholics who were poorer.

One of the more fascinating insights from Clark's book is that although technological innovation spurred the Industrial Revolution, improved technology alone is not sufficient for growth to occur. Explanations in terms of government institutions, education, capital accumulation, etc. are similarly flawed.

The conclusion that technology alone does not stimulate economic growth is highlighted by the introduction of English machine looms into India (then a colony). Amazingly, cloth production per worker did not improve for machine looms compared to mechanical ones. Indian plants hired far more workers but the weavers spent most of their time unengaged in productive work.

So why do people in developed countries work harder so as to produce more? I summarize three possible explanations.

Three Spurs for Hard Work
1 Improved Health and Reduced Burden of Infectious Diseases

Populations with relatively poor health and low life expectancy are less interested in working hard for two good reasons. First, people who suffer from chronic illnesses, such as malaria, have less physical energy and need to rest more. Second, life expectancy is lower, so that people tend to live in the moment rather than accumulating money to be enjoyed later in life. In the language of economics, they "discount the future".

2 Collapse of Extended Families
Having a large extended families is a disincentive to working hard because relatives siphon off any wealth so created. Soviet-era Russian economist Alexander Chayanov concluded that workers in agricultural collectives only worked to satisfy their basic needs. Doing any more was avoided because the benefits got divided amongst other members of the commune. A similar logic applies to large three-generation families.

When workers migrate to cities leaving their extended families behind them, they are forced to fend for themselves but also escape free riders and can become more productive.

3 Competing for a Spouse
Accumulating wealth so as to attract a wife is one motive for hard work by men in many societies. The scarcity of females in contemporary China increases the practice, and amount, of bride price payments, so that men must work harder to save enough money to get married.

If women are sexually active before marriage, men have less motivation to get married and would be expected to work less hard.

The collapse of extended families, improved health and anticipation of longer life, together with increased competition over wives, are three viable explanations for people working harder in developing countries. Moreover, their impact increases over time.

The Magic Sauce for Continuous Growth
As countries develop, their people become progressively healthier, with steady and substantial improvement in life expectancy, and a consequent increase in their willingness to work hard.
More males than females are saved by modern medicine so that male competition increases over time as well, driving up work motivation and productivity. The average number of adults per household declines steadily over time, further boosting productivity.

Hard work raised productivity, and wages, and the increased spending power of workers kept businesses growing. Each of these three rationales for working harder can help explain why modern societies continue generating more wealth, something that never happened before in history.