The Next Convergence

The Future of Economic Growth in a Multispeed World

Michael Spence

Picador

As the global economy emerged in the post war period, the colonial system disappeared. Old colonies became new countries, some of them with very odd shapes and geographical positions. With no history of self-governance as nation states, they struggled to find their way, economically and in terms of stable governance. India created the world’s largest and most complex democracy—a modern miracle. China turned to communism, adopted the centrally planned model of economic organization, and made very little measurable economic progress for 29 years, but perhaps sowed the seeds of its future rise by educating the vast majority of its people. It dramatically changed direction in 1978 and became the largest (in population) and fastest growing country in the history of the world.

What no one saw clearly was that in the post war period, the economic party that had been running for 200 years in a small subset of the population was about to spread to much of the rest of the world.

The implications of this new convergence are profound and extensive. The costs of things will change. Goods and services that require human time and effort will become relatively more expensive, an inevitable consequence of the eventual decline of low cost underemployed labor in the global economy. Economic forces and incentives will try to make them less expensive by allocating more capital to labor and hence reducing the labor input required. But there are limits to substituting capital for labor, though these limits are moving as technology changes the art of the possible. The abundance of underemployed labor in the world economy has in a sense delayed the arrival of labor saving technology. But this will end in the current century.