PEOPLE ALIVE TODAY are, on average, the richest that have ever lived. We enjoy a standard of living beyond the wildest dreams of kings and emperors in times past.
Even the poorest of us are richer than ever before. The World Bank estimates that in 1820, 80% of the world’s population lived on the equivalent of $1.50 a day. Today less than 10% of the world lives on that meager income.
After 6,000 years of civilization, absolute poverty has gone from the default to the exception in an astonishingly short time. But why is the modern world so wealthy?
In my recent book, The Wealth Explosion, I explore how innovation drove intensive economic growth (producing the same or higher output from less input) and transformed our world.
Innovation is more than simply a series of breakthroughs by Promethean visionaries. Such people do exist, but most innovation is the product of multiple small improvements made by many (often unknown) people.
History shows several aborted modernizations before our time. There were periods of intensive growth and innovation in the Hellenistic era after the death of Alexander the Great, Antonine Rome, the Gupta Empire in India, the Abbasid Caliphate in the later 8th century, and especially in China under the Song dynasty (960 AD to 1279 AD).
While these periods of innovation petered out or buckled under government suppression, the innovation spurt that began in 1770 in Northwest Europe spread to the rest of the world and is still flourishing today.
The difference lies in liberty. Innovation is fostered and sustained by a world that leaves people to their own devices, allows them to exchange goods and ideas without restraint, and encourages experimentation and exploration of new ideas and new ways of doing things. Freedom of thought, expression, exchange, and association are the foundation and driving force of the innovation that has so improved the lives of human beings.
Property rights and contracts are essential for this, but not enough on their own. Innovation is paradoxically one of man’s most powerful—but fragile—attributes.
If cultures and laws are hostile to innovation, or try to protect people from changing circumstances, then that innovation will wither and die. To nurture innovation, our laws must protect property, provide security, and allow people to do what they wish without directly harming others.
In the last 50 years or so, developed democracies have increasingly sought to tie down and restrain spontaneous innovation with a web of laws and regulatory constraints.
None of them seem severe by themselves, but their collective effect is to kill exploration, discovery, experimentation, and the free exchange of goods and ideas. This often recreates the kinds of barriers to innovation that held back our ancestors.
Occupational licensure, for example, recreates the kinds of guild regulations that throttled innovation throughout the world before the 19th century. Entrepreneurs across the United States are forced to get arbitrary and expensive state permission to open barbershops, pet care services, moving, and even medical transportation companies. History has shown us that the world’s largest company in 50 years likely doesn’t exist today. Innovation-killing policies like these bleed the future of untold opportunity.
If we allow the web of anti-capitalist controls to reappear, we will return to the historical norm when growth was rare and the world was brutally poor. We must not think that modern wealth is inevitable nor that it will go on forever. It can fade in our era just as it did in Rome, the Middle East, and China.
Today the world is wealthier, healthier, and more prosperous than ever centuries of hard work, new ideas, and yes, innovation made that possible. Only by staying dedicated to that innovative spirit—and the legal foundations that sustain it—will we continue to prosper.
Dr. Stephen Davies is the Head of Education at the Institute of Economic Affairs in London.
