Modern economic growth took off in the middle of the 18th century.

And like the ripples on a pond after a huge stone has fallen into the water,

the ripples of economic growth spread

to other parts of the world through the 19th century.

The closer to the epicenter of the Industrial Revolution,

the closer to England,

the faster were countries to receive that ripple,

to take off on their own and escape from extreme poverty.

The more the countries were proximate to ports,

the more that they could trade internationally,

the better their climate,

the more productive their agriculture.

All of these were conducive to a faster take off into modern economic growth.

And of course, politics played an enormously important role.

Independence and sovereignty was

essential for modern economic growth in the 19th century.

Those countries that were unfortunate to succumb to

imperial rule did not have the basis for economic takeoff because the imperial powers,

so typically the European imperial powers,

weren't very much interested in educating the population,

building the kind of infrastructure needed for their own industrial take off.

Instead, they were interested in seeing their colonies as places for

primary commodities to build the home industry.

And the result is that by the beginning of the 20th century one could say the following.

First, it was a miraculous age because waves of technological change had led

to unprecedented breakthroughs in the ability of humankind to produce,

to meet material needs, to extend life,

to solve long standing problems of public health,

to make breakthroughs in transport,

in quality of life in so many ways through electrification,

modern transportation, mass industrial production.

It was already an age of huge variation between the rich and powerful on the one side,

and the poor and vulnerable on the other side.

Modern economic growth had come to Europe.

It had come to the Lands of New Settlement,

the United States and Canada,

Australia and New Zealand.

It had spread to other places mainly in

the temperate zones of the world like Argentina, Uruguay, Chile.

If it had not spread to Africa,

it had not spread to much of Asia which was

under the pressures of European imperial rule.

Nonetheless, it was a most remarkable age.

And as you know,

I'm such a fan of John Maynard Keynes because of

the power of his economic and political vision in the 20th century.

But one of the things that he wrote about this age is worth us recalling.

At the end of World War I he looked back to the period just before

World War I and described this unique global circumstance.

He said and I'm quoting from his famous work "The economic consequences of the peace".

"What an extraordinary episode in the economic progress of man that

age was which came to an end in August 1914 with World War I".

He writes "The inhabitant of London could order by

telephone sipping his morning tea in bed,

the various products of the whole Earth in such quantity as he may see fit.

And reasonably expect their early delivery upon his doorstep.

He could at the same moment and by the same

means adventure his wealth in the natural resources and

new enterprises of any quarter of the world and share

without exertion or even trouble in their perspective fruits and advantages".

But most important of all rights Keynes.

He regarded this state of affairs as "normal, certain, and permanent.

Except in the direction of further improvement and

any deviation from it is aberant, scandalous, and avoidable".

Of course, Keynes was speaking as an Englishman

and quite brilliant and privileged Englishman.

He was the one sitting in bed sipping his tea

and ordering commodities from all parts of the world.

Those under colonial rule could not do so.

But he was also expressing the uniqueness of an age where

modern economic growth had broken out and had taken hold in many parts of the world,

and it created a global economy.

But of course, that the economy came crashing apart tragically,

unexpectedly with the onslaught of World War I.

Such a destructive war that historians kill today 100 years later

trying to figure out what could have caused

that because there were no deep motives for that war.

That war was massively destructive.

It unleashed chaos, deaths from violence of course,

epidemic diseases such as the flu epidemic at the end of World War I.

It unleashed the Bolshevik revolution that gave birth to Soviet era communism.

It unleashed a tremendous economic forces that led to huge instability in the 1920s.

And that played a key role,

the complex role in the onset of the Great Depression in 1929.

And of course, that depression gave rise to horrific political forces and

none other than the rise of Adolf Hitler in January 1933 and the rise of fascism,

and thereby the birth of

the second devastating World War which broke out in Europe in 1939.

And in Asia led by Japan the industrial power of Asia

around the same time to create a truly world war.

By 1945 technology had continued to advance.

But many of the technological leaders were in ruins though they would quickly rebuild.

One technological leader, the world's technological leader was not in ruins because other

than one attack on Pearl Harbor it was not

directly touched in its own territory by the war.

That of course was the United States which far and

away by the end of World War II was the world's leading economy.

The most powerful, the technology leader,

and the one that would have the greatest influence on the world economy.

Basically until now but in very powerful ways throughout the second half.

Of the 20th century in technology,

in forging markets, and in geopolitics.

What's important for us in understanding how

the ripples of modern economic growth diffuse after

World War II is to understand that by the end of

World War II the world was divided in three parts.

And those three parts gave rise to

a kind of division of the world economy that would persist for some decades,

and then finally themselves give way to a unified global economy.

The first part was the U.S. led part.

It was the U.S. It was Europe.

It was vanquished Japan which became an ally of the United States after World War II.

This part is sometimes called the First World

that was the richest part especially after rebuilding.

It was mainly a market economic system.

It traded amongst each other and it was

the leading engine of technological change through to the end of the 20th century.

The second world so-called was the world of Soviet communism.

This was the Soviet Union itself which had

15 republics which after 1991 became 15 independent countries.

It was the world conquered by the Soviet Union in Central and Eastern Europe.

Czechoslovakia at the time, Hungary, Bulgaria, Romania,

and other countries of the region where the Red Army

sat and created Soviet style government and economies.

It included the People's Republic of China after 1949 which adopted a communist system.

The one that soon enough would be very different from the Soviet style communism.

The third division of the world.

Was the former colonial powers because one of

the mega results of World War II was that the Imperial European countries,

themselves in ruins, were certainly in no shape to run

empires and the former colonies had had enough of it.

They not only had the ideology,

the sense, the awareness that independence was theirs to grab.

But they saw how destructive

their imperial masters had been and the legitimacy of empire was over,

and the ability of the imperial powers to continue to maintain Empire was gone as

well though many of them didn't noticed it because they continued to try to

fight rear guard wars to defend imperial possessions.

And so, the period of decolonization which began around

1947 with India and then with Indonesia and followed on throughout Africa,

Asia and other places,

that stretched out over a course of decades.

But it created a kind of third world.

Third world as a term we sometimes use to mean poor and middle income countries.

But it meant something more literal.

Back when the phrase was invented it meant not the first world but the United States,

not the second world but the Communist era.

But the post-colonial world sometimes also a group called "The

non aligned countries" they said "We don't want U.S. domination.

We don't want Soviet domination.

We want to be on our own".

And a little bit less formally a fourth world was sometimes also brought into the mix.

That's the group of countries basically

that we call "The least developed countries" today.

The countries in absolute abject poverty.

While these were quite sharp divisions and

the world economy evolved under these geopolitical divides for several decades.

The first world recovered from the damage of

World War II remarkably quickly by the 1950s.

And endogenous technology driven economic growth took hold,

and the process of

modern economic growth and rising living standards took hold in the first world very.

Very powerfully. In the second world,

the communist world, there was

industrialization and it seemed pretty dynamic for a while.

But already by the 1960s it was coming into crisis,

and by the 1970s economic development under

a nonmarket communist system was basically screeching to a halt.

Countries began to reform.

China was the first great reformer in the communist group in

1978 when Deng Xiaoping came to power and said "We need a market economy.

We need to open China to trade".

And that unleashed China's own

catching up growth with remarkable success to the point where

China became by far the fastest growing major economy in the world in history.

Now, other parts of the communist world took longer

to break free because the Soviet Union wasn't having it for a very long time.

And it was only when Mihail Gorbachov came to power in the middle of

the 1980s and began his own market reforms.

And then came the revolutions of Eastern Europe in

1989 and then the end of the Soviet Union itself at the end of 1991.

Did the second world basically stop being

its own self-contained economic unit and become part of the world economy.

The third world and the fourth world included dozens and dozens of countries,

and each had their own economic history and their own strategies.

A very few of the countries early on said "We like that first world model.

We're pretty much interested in integrating with the first world economies".

And they figured out something that most of

the rest of the developing countries did not figure out till later.

And that was that diffusion,

the arriving of those ripples could lift them into

a very special kind of industrialization.

Mainly where new industries in their own countries,

many foreign owned, would become part of global production systems.

So that a company in Korea or in Taiwan would begin to produce the electronics goods,

or the shirts and pants on the racks of retailers in the United States and Europe.

According to the technology designs and

the intellectual property of the so-called first world companies.

The early developers of that new strategy for catching up were called "The Asian Tigers".

Korea, Taiwan, China, Hong Kong, Singapore.

The four of them already by the 1960s and then by

the 1970s were growing extremely rapidly by integrating

their new young industrial base with the high tech industries of the first world.

And as that happened other developing countries watched and said "Wait a minute.

That's pretty interesting.

Maybe we shouldn't stay quite so nonaligned.

Politically yes, but economically maybe we should

open our own doors to trade and to foreign investment,

and try to attract those new multinational companies that could use our country,

and our labor force,

and our natural resources as a base for their global production systems".

This is how globalization came into being.

Globalization came into being as

this diffusion process created a new kind of catching up after World War 2.

Especially starting in countries that

open their trade and open their borders to foreign investment,

so that new global industry centered around

multinational companies could use those countries as bases for global production systems.

And that process backed by big breakthroughs in technology

better transport intermodal transport so-called from ships

to the to the backs of trucks in a very smooth process.

Containerization of trade through the standard 20-foot-containers.

And of course the advent of modern computer assisted design and manufacturing.

And the enormous breakthroughs made possible by the Internet and by mobile telephony

revolutionized the ability of companies to engage in global production systems.

And thereby create globally integrated companies often

with hundreds of thousands of employees operating in more than 100 countries.

And the world's multinational companies thereby became

the main agents for the continuing transmission of those ripples around the world.

And the continuing diffusion of modern economic growth.

Japan was a leader in its own region in this,

and they developed a wonderful visual metaphor for this called "The flying geese model".

Have a look at these geese information.

You have a goose flying in front and then in back are others following the lead.

And this is how economic development in Asia

started as well with the industrialization first of Japan,

and then flying in formation just behind came Korea and Taiwan,

Hong Kong, and Singapore.

Behind them Indonesia, Malaysia, Thailand.

Behind them China, Vietnam.

Behind them Cambodia, Laos.

But as the leading country moves from textiles to electronics,

then from electronics to automobiles,

then from automobiles to advanced information technology.

The country just behind it moves from agriculture to apparel and textiles,

from apparel and textiles to electronics,

from electronics onto its own technology innovation of information technology.

And one goose after another,

to use Japan's metaphor,

follows along the way.

This map that you're looking at now shows where the textile firms located.

And every red dot is essentially a node of multinational production

where often low wage labor is hired to

produce in a global production network of textiles and apparel.

You'll see that virtually every dot in Asia is on the coast just like Adam Smith said

in 1776. before he could know anything about such global production chains.

You're looking at a map here of China attracting foreign direct investment.

Again, China's great breakthrough after 1978.

When Deng Xiaoping opened China to the world was to attract foreign investment

that made China an export base for world manufacturing production.

And you can see also that the wave goes from

the darker provinces where foreign direct investment is the

highest into the interior moving from

coast to the interior just as Adam Smith had told us.

And the result is by the end of

the 20th century and into the early years of the 21st century what

had started as the preserve of England and then had

spread across the English Channel and the North Sea into Western Europe.

That had spread to the lands of new settlement first.

That had then spread to other temperate zones,

that it spread to Central and Eastern Europe.

That had been taken up by Japan in late 19th century industrialization.

That in the 20th century after

World War II could now spread to the former colonized parts of the world as

they gain their independence was a process of

global economic development that had reached almost all the world.

There are still places where this is not true till today.

Often the most landlocked interior places with difficult climate,

with lack of natural resources and so forth,

that have all of the burdens and few of the benefits to take hold.

But for most of the world the breakthrough by now has taken place.

Of course, those who made the breakthrough early on are today's rich world.

They're the high income countries.

Those that have come late to this by virtue of their history,

their politics, their resource base their geography,

are today's middle income or low income countries.

Those still waiting to take off are today's least developed countries.

We're going to turn our attention carefully and in detail to how

those least developed countries can make the breakthrough now in the 21st century.

Economic Development Since World War II

可持续发展的时代

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