The Origins of Wealth and Inequality – A Conversation with Oded Galor

What trapped humanity in poverty for most of our existence? What sparked the massive metamorphosis in living standards over the past two centuries? And what led to the emergence of vast inequality across the globe? The answers to these questions have the power to transform how we view our past and how we shape our futures. Professor Oded Galor (Herbert Goldberger Professor of Economics, Brown University) is an intellectual detective who has spent his entire career investigating the deep determinants of humanity’s development process. He is the founder of “unified growth theory,” which revolutionized our understanding of the forces that have governed the journey of humanity, and the impact that adaptation, diversity, and inequality have had on human development throughout the entire course of human existence.

In this interview I speak to Professor Oded Galor about his book The Journey of Humanity; The Origins of Wealth and Inequality. We discuss why humans are the only species to have escaped the subsistence trap. We discuss the reasons for the astonishing progress of human civilisation, why wealth and inequality came to be, and how understanding our past could give us a better future.

Q: What is the mystery surrounding the growth of civilisation?

[Oded Galor]: There is a certain conventional wisdom about the way that humanity evolved over time. Accordingly, to a large extent progress was largely incremental particularly in the period after the Neolithic Revolution12000 years ago. Over this time this would be a very good description of technological progress, but the puzzling element is that much of the gain that we made in the technological realm were converted into more people, rather than into richer people up until very, very recently.

We then see this dramatic metamorphosis and this spike in living standards in the past 200 years. I describe it as the mystery of growth, namely what generated this dramatic transformation in the standard of living over the past 200 years after literally 300,000 years of stagnation? Over a 300,000-year period, we hardly see any economic growth.

If you look at the world, and we measure the standard of living in income per capita, world income per capita has increased 14-fold in the past 200 years, whereas over 300,000 years of human existence, it hardly changed.

Q: Was civilisation inevitable?

[Oded Galor]: Conditional on the emergence of the human brain, civilisation was inevitable for many reasons. We had a commendable population in Africa 300,000 years ago population and given the fact that these individuals were equipped with the power of the modern brain, the emergence of civilisation was inevitable.

It is unclear whether it would occur at one point in time or perhaps centuries later, or even millennia , or perhaps 100,000 years later. This is not predetermined.  The fact that humans were operating in Africa very long ago implies that these individuals with a human brain are innovative in the sense that they operate in their environment, and sooner or later, they advance the technological frontier.

These advancements are not of the type that we see today, naturally they move from one stone tool to another stone tool and increments occurred over tens of years, hundreds of year, and even thousands of years, but what is really occurring over this time is progress, and why progress is so important – when people have more resources, then they have more surviving children.

The population on planet Earth is expanding with technological progress. This progress is inevitable given that the appearance of the human brain is permitting the population to grow. Over this time period, there  is a reinforcing interaction between technological progress, the size of the population and adaptation of the population Resources are expanding. More people are supported. More people are contributing to potentially more innovators and contribute to the next wave of technological progress. The next wave supports more people, more adaptable people, etc. So, over the course of human existence, we see a gradual acceleration in the rate of technological progress and at a certain point, this technological progress permits the emergence of what we define today as civilisation. This is predominantly after the emergence of the Neolithic Revolution.

Q: Why did civilisation accelerate? 

[Oded Galor]: Consider for a moment residents of the city of Jerusalem in the Roman period AD01 at the time of Jesus –  and whisk these individuals in a time machine nearly 2000 years forward to Ottoman Jerusalem at the beginning of the 19th century. Despite this 2000-year jump, those individuals from the Roman period will be able to adapt nearly instantaneously to living conditions in Ottoman Jerusalem in the 19th century. And why is it so? – because past knowledge will be largely applicable. – technological progress will be merely incremental and will allow individuals to adapt. – occupations would require very similar skills and life expectancy would not change and as a result, it would not require any type of reorientation towards a life that requires a future oriented mindset.

But if you whisk these individuals an additional 200 hundred years forward to present day Jeruslaem, these individuals would be entirely shocked. Entirely devastated.  Past knowledge will be largely obsolete. New technologies would appear as witchcraft. Occupations would require incomprehensible skills, and life expectancy would instantaneously double and as the result of it would require education decisions, saving decisions, life cycle decisions. This is the dramatic transformation why do we see this?

And this is the question – so why do we see this dramatic transformation that is taking place in the world economy? So, as I said, a few thousand individuals in Africa 300,000 years ago – they reside somewhere, they hunt and gather and suddenly they have a new discovery, a new technology, a new stone tool. This allows them basically to have more resources than before. As a result of it, more of their children will survive. More children will be born. The population is expanding, and at the same time we see gradual adaptation of the human population to this technology. This implies is that the environment in which people are operating is starting to change. Initially, the changes are so small when we move from one stone tool to another stone tool, there is no need to invest in the education of the children to allow them to navigate the changes in the technological environment.

In the era of industrialisation, ultimately we see dramatic changes in the technological environment, and consequently human capital (education) becomes essential to allow children to cope with this rapidly changing technological environment when they will join the labour force.

Then because of that we see the fertility decline, that frees the gross process from the counterbalancing effects of population.

Over this 99.9% of human existence, when technology advances, population advances and counterbalances any potential increase in human prosperity. Suddenly once technological progress reaches a tipping point, families start to invest in education, they economise on the number of children, and technological progress is converted into richer people rather than into more people.

Q: Why does society seem to inevitably lead to inequality?

[Oded Galor]: The origins of inequality are a key question – and is linked to what brought about the transition from an epic of stagnation to sustained economic growth.

Let us think about the transition from liquid to gas – this is known as phase transition. When we boil water, we heat water, initially we do not see much action as a result of the gradual increase in temperature but once we reach a tipping point, we see that in fact, the water molecules are evaporating and are converting from a state of liquid into a state of gas.

Very similarly in the course of human history, we see this technological progress is accelerating initially with no impact because much of it is converted into more people. And the reason is because latent return to education that is increasing with technological progress is too small to make a difference. Once we reach a tipping point, suddenly we see this movement into the modern growth we see now.

How is it related to inequality? – think about your water kettle.  When you heat the water and you see the transition from water to gas, not all water molecules are converted from liquid to gas at once, some are doing it earlier than others- some of them are in the water state, others in the gas state, and they’re very different initially.

Ultimately, all of them will converge into gas, but initially there is a huge difference. The same happened in the world economy.  Since this transition was associated with such a fantastic increase in income per capita in the world, a 14-fold increase, those societies that took off first increased their gap from the rest of the world tremendously.

This is Western Europe and Western offshoots. Why is it that 200 years ago, some societies are taking off first and others are not? This brings us to the first realisation which is that to understand inequality today, we need to go at least 200 years back to the time in which much of the divergence in inequality occurred.

But in fact, this suggests to us that we need to go back even further, and this is because question why some societies can take off at the beginning of the 19th century and others are not related to certain deep-rooted factors that are affecting societies at the beginning of the 19th century.

In the second part of my book, I am reversing the time clock.  Rather than moving forward, I am moving backward and starting with inequality today and I am gradually peeling different layers of influence, trying to uncover the roots of inequality today.

I start with the observation that if we simply ask ourselves superficially, what explains inequality? One can say UK is more advanced than Kenya because education is higher in the UK, and the UK is more advanced than Kenya because the UK is using more sophisticated machines and so on…but the main question is why is the UK more educated and why is the UK using better machines and technologies? This brings us back into earlier periods; colonialism, trade relationships in the post-colonial period and the next layer being the fingerprints of institutions and the cultural factor. I then realise that both institutions and culture are a by-product of the process of development.

This takes me even further back into geographical factors that contributed to the divergence in cultural traits across the globe. Looking then further into the onset of the Neolithic Revolution 12,000 years ago, and asking is the agricultural revolution the secret behind a divergence as we see across the globe… And I concluded, this is not the case. And then I move all the way back to Africa, to the place where everything began, and I see the impact of the Africa migration on diversity and compared to develop.

Naturally, there is an intellectual endeavour here, which is basically to understand the journey of humanity. There is something that is beyond the intellectual apparatus, which is trying to design policies that can mitigate inequality across the globe, with the conviction that the history of each nation is vital for the design of policies that will ultimately mitigate poverty across the globe. Namely, it is impossible to have the World Bank type of policy that is saying one policy fits all – educate your population, adopt better institutions, adopt family planning, and this will be the rescue. On the contrary, resources are limited, and we need to target the elements that are creating hurdles in the development of each country. Unless we understand the geographical heritage, out of Africa migration heritage, cultural heritage, institutional heritage, and agricultural revolution heritage, we will not be able to do so.

Q: Do we need to rethink the concept of nationhood? 

[Oded Galor]: Migration is one force that can mitigate inequality. Migration allows mixing of populations that will ultimately permit individuals to adopt from their neighbours, from their friends, from their new environment, cultural traits that are most conducive for economic growth: long term orientation, gender equality, respect for pluralism, tolerance are all important elements and naturally migration develops this process.

Part of the reason that we see the persistence of inequality is the inability of people to migrate across the globe, and ultimately to be affected by different institutional characteristics, different cultural characteristics, different geographical endowments.

Q: Can understanding the journey of humanity give us the tools to tackle some of our grand challenges?

[Oded Galor]: Indeed. The understanding of the journey of humanity is instrumental and critical for resolving many of these challenges and is vital for the understanding of inequality and the mitigation of inequality. These days, there is a certain degree of gloom that is surrounding many of us.  It started with COVID 19 that we had difficulties coping with, causing people to feel that perhaps the world is changing forever. These feelings are now perpetuated with the Russia-Ukraine crisis

Now there is a certain degree of gloom that is surrounding many of us and it started with COVID 19 that we had difficulties coping with, and somehow people felt that perhaps the world is changing forever, it is now perpetuating with the Russia Ukraine crisis that is adding an additional dimension of worry that perhaps we are reverting to the Cold War, and even beyond.

The journey of humanity gives us a long-term perspective suggesting that the human species went through major catastrophes in the past,  and nevertheless prevailed and sustained its course after a certain point in time, such as the Black Death in the middle of the 14th century, which decimated nearly 40 percent of the European population. Nevertheless, after a certain point in time, we see that the human species is emerging out of this catastrophe with great resolve and great strength.

The catastrophes in the 20th century, World War One and World War Two that are decimating tens of millions of people, are devastating the human population. However, we look at the grand arc of the march of humanity, it is really unaffected by it.

In this respect, COVID 19, it’s a blip in the course of human history. Yes, it’s disturbing. And a year ago, perhaps we were more pessimistic.  Now we can look forward and realise that in fact, we were overly pessimistic.

The Russia and Ukraine crisis caught many of us by surprise, and we felt that perhaps the world is reverting into a state that is not to our liking. However, again despite the huge devastation of the Ukraine people and that huge humanitarian crisis, humanity will continue its march regardless.”

Q: How has diversity shaped humanity? 

[Oded Galor]: We typically advance progressive policies such as gender equality, tolerance and enhancing diversity because of our moral values, not because of economic efficiency.  But what the journey of humanity shows, is that these progressive policies are not only morally just, but they are also conducive to prosperity. That’s quite rare.”

Regarding diversity when humans are migrating from Africa at a certain point, there is some population pressure and people are searching for outlets and they migrate out of Africa 60,000-90,000 years ago, their early migration, but they die out. The humans that are populating the world today migrated from Africa as early as 60,000 years ago, and when they migrate, they don’t take the entire diversity that existed in the African population.

It’s a very simple statistical theory.  If you have very few individuals in Africa, and a subgroup is emerging, this subgroup is not going necessarily to be representative of all the diversity that exists in the nation.

They take some of the diversity with them. Now they move to the Middle East or to the Fertile Crescent. They settle there. They start to flourish, to reproduce up to a point in which again, the land cannot hold them, and they search for additional locations. So, some move to Europe 45,000 years ago. Others are moving all the way to America as early as 23,000 years ago. Now, in this process, since migration is sequential, the degree of diversity is declining further and further and further, and the evidence is remarkable. The further you are from Africa, the less diverse you are in all dimensions. So the most diverse populations in the world are the African populations, and the least diverse population are Native Americans in America.

The pattern is very striking. This is important to see as diversity has conflicting effects on prosperity. The reason for this is when populations are more diverse, they can benefit from cross-fertilisations of ideas. There are complementary traits. Everyone is bringing to the table something different and ultimately, we produce something very, very magical, very enriching.

On the other hand, we know from the British Society, from the American Society and many others, diversity is a source of conflict too.  People that are very different tend not to trust one another. As a result of it, this is a source of conflict.  People that are very different have a different viewpoint about the desirable public goods. Some people would like to invest in education, others would like to invest in a soccer stadium and others would like to invest in the Philharmonic. This is another source of friction. Diversity is generating conflict and the loss of resources. There are two facts.

This implies that societies that are very diverse will not necessarily function very well and societies that are very, very homogeneous, will not function very well. There will be a sweet spot of diversity in terms of productivity.

Now the interesting element empirically is that if you look at human history, in the year 1500 or so the societies that had the level of diversity at the sweet spot, surprisingly were China, Japan and Korea.  Hardly societies that we think about as optimally diverse. But why is it the case? This is a different era. Social cohesiveness in Japan, Korea and China, which is the name of the game in these societies, is much more important than innovativeness, because this is not the period in which innovation is very rapid. They have the sweet spot in the sense that they have sufficient diversity to innovate. Importantly, they have sufficient homogeneity to have social cohesion and ultimately to dominate the world.

As we move into the modern world and industrialisation is looming over the horizon, you need cultural fluidity to adopt the virtues of enlightenment, to adopt new technologies.  Basically, to be able to manoeuvre in this changing environment. This gives the upper hand to Europeans, who are culturally much more fluid than otherwise because of geographical fragmentation.

One territory that is one conquered by the Romans and then by the Normans and then by the Vikings…we have cultural fluidity. In China, it’s basically dynasties over dynasties of homogeneity and homogenised the population. And it’s wonderful up to a point, but they remain behind, and Europe is taking off earlier because of this cultural fluidity. The important thing to note, that empirically what we see is that these societies are the optimally diverse today are western European societies like England and the U.S., namely the level of diversity that is conducive for prosperity change in the process of development. And that’s where we are today.

As we move further into the future and technology will continue to move forward, and at the same time, we educate our children to be respectful to others, to be tolerant, then the cost of diversity will decline, the benefits of diversity will increase which implies that diversity will be very important for productivity.

Q:  What is our purpose?

[Oded Galor]:  This is a very deep and philosophical question. If I would have been asked this question perhaps a few decades ago when I was younger, perhaps my answer would be different. At this stage of my life, I think about the meaning of life, as basically transmitting the torch to the next generation and trying to reduce the probability that this torch will be extinguished.


Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.