"Why are we so rich and they so poor?" economist David Landes once asked. The question has been debated in both economics and the social sciences for decades, and demands a better understanding of long-term processes of economic development. Growth is usually thought of as a relatively stable process, and interruptions as a consequence of inconsequential structural hiccups. But development processes are subject to upheavals, asynchronies, and asymmetries that every now and then give rise to severe crises. And only in the past 200 years have we been able to observe a relatively continuous increase in wealth – and then only in certain parts of the world.
The goal of the Herrenhausen Conference on "Long-Term Processes of Socio-Economic Development: Stagnation, Growth, Divergence and Crises" was to delve deeper into the ongoing inquiry into the character, dynamics, and determinants of long-term socio-economic processes in national economies.
In her opening keynote, economist DEIRDRE NANSEN McCLOSKEY (University of Illinois at Chicago) attacked the concept that economic development is a zero-sum game. While many attribute rising prosperity to an accumulation of capital, McCloskey said the accumulation of ideas has been far more influential. The remarkable rise in prosperity over the past two centuries is the result of a widespread societal willingness to accept a basic bargain: Let innovators innovate, and they’ll make everyone richer. From a historical point of view, the fact that the Industrial Revolution took place in Europe is no accident. Societies had flourished before, from Song China to the Roman Empire. But they always failed to progress further. Finally, a series of historical events, like the Protestant Reformation and French and American revolutions, created a climate of liberty and a new emphasis on individual dignity in Europe. That, in turn, created an unprecedented acceptance for innovation and innovators. Over time, this led to an improved standard of real equality, shrinking the real gaps in living conditions: A poor person in 1800, for example, was much less well off compared with the King of England than the average person today is compared to a billionaire.
Economic historian JOEL MOKYR (Northwestern University) argued that the most important single contributor to the epoch of modern growth was the development in the 17th and 18th centuries of a market for ideas – the so-called "Republic of Letters". It was made up of scientists, theologians, astronomers, mathematicians, alchemists all across Europe, linked by a newly reliable postal service and catalyzed by the printing press. The network’s far-flung impersonality was one of its strengths. While its members were relatively homogenous, literate and religious but open-minded, their weak ties to each other made proving their claims using replicable results paramount. To adopt an economic metaphor, the Republic of Letters was a market for ideas, based on reputation as currency. Innovators tried to persuade "buyers" to accept ideas. If successful, they "made a sale" and gained in reputation when their idea was accepted. Because of Europe’s fractured political landscape, intellectual capital could move freely: Rulers were unable to control the production of knowledge, because innovators could always move to places where patronage was more forthcoming or their ideas were welcomed.
In a less sunny view of the prospects for continued growth, sociologist JOHANNES BERGER (University of Mannheim) made the case that humanity may have trapped itself on a hedonic treadmill of consumption. While Mokyr and McCloskey both ended their presentations on optimistic notes, confident that the technological progress seen over the last two centuries would continue apace or even increase, Berger suggested innovation had already begun battering its head against a wall of diminishing returns. If the "big ideas" have already been invented, the exponential economic growth humanity has enjoyed for the last 200 years may soon flatten out. Once less developed nations successfully adopt and implement the transition to modernity, they’ll catch up to the developed world – and their growth will slow, too.
To test the hypothesis that less copyright protection led to an increase in innovation, economist PETRA MOSER (Stern School of Business, NYU) turned to the World War II Book Replication Program. As part of wartime laws implemented to seize enemy-owned property, the US government re-assigned German-owned copyrights to American publishers, who then published books (often essential reference works in fields like chemistry and mathematics) at a steep discount – sometimes as much as 20 percent of the original, copyrighted price. By comparing the seized German books to Swiss books sold under copyright in the same period, Moser showed that cheaper (and hence more accessible) intellectual property was cited more widely. The German books had an increase in citations five times as high as their Swiss controls. Moreover, improved access to books increased innovation, as measured by patents.
Historian WERNER PLUMPE (University of Frankfurt) made a plea for government to stay out of economics. Using historical data, he argued that political action can diminish economic output, but not increase or stabilize it. Rather than politicians stabilizing economies, stable economies lead to periods of political stability. As an example, he showed that economic crises in the US after 1913, when the Central Reserve Bank was established in reaction to a series of financial panics, were as severe as those before. Part of the problem is the reactive nature of political interventions in the economy: "Politics is always dealing with the last crisis," Plumpe said. "But the crisis behind us is a historic crisis, and the one we’re dealing with now is the present one."