Almost all rich countries are rich because they exploit technological progress. They have moved the bulk of their labor force out of agriculture and into cities, where knowhow can be shared more easily. Their families have fewer children and educate them more intensively, thereby facilitating further technological progress.
Poor countries need to go through a similar change in order to become rich: reduce farm employment, become more urban, have fewer children, and keep those children that they have in school longer. If they do, the doors to prosperity will open. And isn’t that already happening?
Let us compare, for example, Brazil in 2010 with the United Kingdom in 1960. Brazil in 2010 was 84.3% urban; its fertility rate was 1.8 births per woman; its labor force had an average of 7.2 years of schooling; and its university graduates accounted for 5.2% of potential workers. These are better social indicators than the United Kingdom had in 1960. At that time, the UK was 78.4% urban; its fertility rate was 2.7; its labor force had six years of schooling on average, and its university graduates accounted for less than 2% of potential workers.
Brazil is not a unique case: Colombia, Tunisia, Turkey, and Indonesia in 2010 compare favorably to Japan, France, the Netherlands, and Italy, respectively, in 1960. Not only did these countries achieve better social indicators in these dimensions; they also could benefit from the technological innovations of the past half-century: computers, cellphones, the Internet, Teflon, and so on. This should allow higher productivity than was feasible in 1960.
So today’s emerging-market economies should be richer than today’s advanced economies were back then, right?
Wrong – and by a substantial margin. Per capita GDP at constant prices was 140% higher in Britain in 1960 than in Brazil in 2010. It was 80% higher in Japan back then than in Colombia today, 42% higher in old France than in current Tunisia, 250% higher in the old Netherlands than in current Turkey, and 470% higher in old Italy than in current Indonesia.
Why is it that today’s smaller and more educated urbanized families in emerging-market economies are so much less productive than their counterparts were a half-century ago in today’s rich countries? Why can’t today’s emerging markets replicate levels of productivity that were achieved in countries with worse social indicators and much older technologies?
The key to this puzzle is tacit knowledge. To make stuff, you need to know how to make it, and this knowledge is, to a large extent, latent – not available in books, but stored in the brains of those who need to use it.
Getting it there is really tough. Tacit knowledge is acquired mostly through learning by doing. That is how we train musicians, barbers, doctors, and scientists. Consider how long it takes an adult to learn to speak a language or a musician to master the violin.
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