01/07/2014 05:36 am ET Updated Mar 09, 2014

The Most Important Change in Human History

What do you think was the most important change in history? In my view, it was the arrival of self-extending economic growth. About 200 years ago - suddenly, in historical terms - growth in the West became unstoppable. Human history up to then had been one of modest or zero growth, and when modest it had never lasted. Population and living standards were flattened by nature; by hunger and disease. But between 1750 and 1820, England entered the machine age. For the first time, machines brought automatic growth. With the steam engine, factories and industry, growth spread rapidly throughout Europe and America. Within a century, growth had brought the West world domination.

Growth made humans a biological success, able to live long and safe lives and multiply numbers and living standards enormously. But it was not all sunshine and roses. Industrial growth also upended society, divided it into new classes, concentrated it in cities, created vast hierarchies, desecrated the countryside, raped the planet, drained the spirit of humanity, and led to unprecedented concentration of power. Growth also led to two new economic systems - capitalism and "statism" (control by the communist or Nazi state), which engaged in a battle to the death to establish global hegemony.

As we know, capitalism won - but only just, after enormously destructive convulsions, that could easily have made humanity an ex-biological success. Communism or Nazism could have won - that seemed very likely in 1941 (for Nazism) and 1944-5 (for communism). Capitalism proved, eventually, a much better economic system; but for more than a hundred years it appeared, to the great majority of intellectuals, and to the bottom half of the population, to be deeply unattractive. All this, too, was the legacy of automatic growth. Lenin and Stalin, and Hitler, could not have become so powerful and dangerous were it not for the desperate unpopularity of capitalism, the legacy of uncontrolled industrialization and the arrival of an industrial working class, concentrated in big cities, and viewing itself as a potent force for historical good.

How the West acquired automatic growth

In 1750, the West was not much more prosperous than the Rest. Before 1400, China had come within a hair's breadth of industrializing. Though this was aborted by regime change and the construction of a deliberately introverted and static society, between 1500 and 1820 China still accounted for about a quarter of total world output. Before 1750, per capita income in the most advanced European countries was only about 150-200% that of China. Today, for all the remarkable progress China has made, Americans have 900% of the income of Chinese people.

But with the industrial revolution, the West started to pull ahead. By 1820, very early in the industrialization process, out of 24 countries for which we can estimate income per head, Western countries took the top 15 places. Expressed in 1990 dollars, income per head in 1820 was highest in the UK ($1,756), followed by the Netherlands ($1,561), Australia ($1,528), Austria ($1,295), Belgium ($1,291), and the USA ($1,287). At the bottom came India ($531) and China ($523).

Why did automatic growth start in the West? From about 900 AD, European city-states began to flourish and became autonomous, as free craftsmen, traders, and other burghers comprised a small but growing middle layer of society, neither lord nor peasant. Over the following centuries, European inventers came on fire - amongst many other breakthroughs were the blast furnace, canal lock, chimney, coal fire, glass window, eyeglasses, marine chart, water wheel, printing press, suction pump, loom, water-driven bellows, weight-driven clock, and windmill.

There is a clear link between individual creativity and a degree of political freedom; between trade and technology on the one hand, and the increased autonomy of artisans and merchants in their city-states. The nations where speech was most free were the first to grow rich - Holland, Scotland, England, Belgium, and the United States.

Freedom and enterprise were urban animals - they grew with cities. In 1500 only five European cities had more than 100,000 people. By 1600 there were fourteen such cities. England grew fastest. In 1600 there were only 4.1 million English people, but sharp improvements in agricultural productivity, and the early stirrings of workshop industry, raised the population to 5.7 million by 1750. No country had ever before experienced such a population explosion. Then came takeoff. In 1771, Richard Arkwright, a barber, opened the world's first large spinning mill on the banks of the River Derwent, five floors high, each of 3,000 square feet, powered by waterwheel and using Arkwright's patented water frame for cotton spinning. In 1776 James Watt, a Scottish engineer, made the first commercially viable steam engine. By 1787 Britain boasted 145 cotton mills. The factory system was born.

Population in England tripled between 1750 and 1850, reaching 16.5 million. Growth became self-propelling. Economic advance was limited only by the size of markets, which kept growing as prosperity flowed. Goods kept on becoming better and cheaper. Markets kept growing. Living standards and growth increased by about 3 percent a year - a reliable standard everywhere where industrialization has happened - which means a doubling of incomes and the economy every 25 years. What England started, the rest of Europe and America quickly took up; followed, much more slowly at first, by the rest of the world.

It is fashionable to look down on growth. Undeniably there were terrible growing pains - dark Satanic mills, and all that. For sure, materialism has its downside - and as economic growth has been accompanied by the triumph of science, spiritual values have come under unprecedented pressure. The rampant ego has exploded alongside the corrosive cults of celebrity and cash. But let me put the case for materialism. It can actually lift and enhance the human spirit. Desiring a better future for one's children is a generous impulse, giving hundreds of millions a useful purpose in life. Even the self-centered ambition to get on, to create a richer life, inevitably gives a degree of constructive dynamism to society - in a market economy, you succeed by doing what other people want. Activism and forward motivation drive society toward improvement.

And think about this - enterprise is better than war. Humans, especially a small minority of highly motivated (usually insecure) people, are self-aggrandizing animals. If ambition cannot be expressed constructively in the search for a better life, it will be expressed in the desire for power, or the imposition of cruelty in the pursuit of a higher ideal. The mentality of the merchant, the manufacturer, the entrepreneur, the service provider, and the inventor is materialistic. The mentality of the hero, the general, the intellectual, and the state official, will be less materialistic - and more tempted by glory. The materialism of the merchant is more likely to lead, not just to prosperity, but also to peace. War is humankind's greatest temptation and scourge. The economically less successful areas are also the most infested by oppression, torture, civil war, war between neighboring states, and all that is worst in human nature.

Just look at the Middle East and Africa. If they were more materialistic, more middle class - in the word that Karl Marx hated but I rather like - more bourgeois, they would be more peaceful and pleasant.
The issue with growth is not whether it is desirable.

Of course it is.

The issue is what kind of growth is desirable. I will explore that in next week's blog, and argue that we are moving to a new economic system that is gradually replacing classical capitalism. The new economic system has great advantages - and it is coming whether we like it or not. But it also has two huge drawbacks, which nobody has thought enough about. They are not the drawbacks that any of our leaders are focusing on, or even acknowledging. Tune in same time, same place, for next's week second and final installment on growth.