Why Isn't the Whole World Developed?"

Tyler Cowen reviewed a book worth pre-ordering;

In “A Farewell to Alms: A Brief Economic History of the World” (forthcoming, Princeton University Press,... Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.

Professor Clark’s pessimistic view is that most forms of policy advice or financial aid do not solve the problem of economic development. Unless the quality of labor rises, those would-be remedies are addressing symptoms, not causes.

Professor Clark’s analysis counters Jared M. Diamond, who in his “Guns, Germs and Steel” (W. W. Norton & Company, 1999) located the ultimate sources of European advantage in geography, like safety from tropical diseases, and a greater number of available animals that could be domesticated.

A simple example from Professor Clark shows the importance of labor in economic development. As early as the 19th century, textile factories in the West and in India had essentially the same machinery, and it was not hard to transport the final product. Yet the difference in cultures could be seen on the factory floor. Although Indian labor costs were many times lower, Indian labor was far less efficient at many basic tasks.

For instance, when it came to “doffing” (periodically removing spindles of yarn from machines), American workers were often six or more times as productive as their Indian counterparts, according to measures from the early to mid-20th century. Importing Western managers did not in general narrow these gaps. As a result, India failed to attract comparable capital investment.

Professor Clark’s argument implies that the current outsourcing trend is a small blip in a larger historical pattern of diverging productivity and living standards across nations. Wealthy countries face the most serious competitive challenges from other wealthy regions, or from nations on the cusp of development, and not from places with the lowest wages. Shortages of quality labor, for instance, are already holding back India in international competition.

An independent estimate by two economics professors at the University of Wisconsin, Madison, Rodolfo E. Manuelli and Ananth Seshadri, (“Human Capital and the Wealth of Nations,” (http://www.ssc.wisc.edu/~manuelli/research/humcapwealthnation5_05.pdf) suggests that if variations in the quality of labor across nations are taken into account, other productivity factors need differ by only 27 percent to explain differences in per capita income.

Professor Clark argues that as late as the 18th century, most Europeans had not exceeded the standard of living in hunter-gatherer societies. Until recent times, the early advantages of Europe did not allow it to escape what economists call the Malthusian trap, in which rising populations periodically offset temporary gains in living standards.

The turning point came when England, and some other parts of Europe, managed a small but persistently positive rate of growth, starting around the 17th century. Pro-business values spread through English society. The Industrial Revolution was not so much a revolution as a continual building of small improvements, and indeed its history shows the difficulty of achieving regular growth. The explosion of technology came only in the late 19th century, well after many incremental gains.

Via Economic History of the World blog

Related;
WORLD ECONOMIC HISTORY- Course taught by Gregory Clark

Prices of 22 domestic farm products, 1500-1914 wheat, barley, oats, rye, peas, beans, potatoes, hops, straw, hay, beef, mutton, pork, bacon, tallow, milk, cheese, butter, wool, eggs, faggots (firewood), timber