III. Major Economic Transformations
The source analyzes several long-run structural transformations that characterize the process of economic development.
- The Transition from Stagnation to Growth
Unified growth theory seeks to explain the shift from a long era of Malthusian stagnation to the modern era of sustained growth.
- Malthusian Stagnation: In a pre-industrial economy with fixed land resources, any increase in productivity leads to population growth, which in turn drives per capita income back down to a subsistence level. This creates a long-run equilibrium with zero growth in living standards.
- Escape from the Trap: The transition to sustained growth occurs when technological progress becomes sufficiently rapid, often linked to the emergence of a manufacturing sector (an “AK” technology) that is not subject to the same diminishing returns as land-based agriculture. As people move from agriculture to manufacturing, the economy escapes the Malthusian trap.
- General-Purpose Technologies (GPTs)
Major technological breakthroughs—such as the steam engine, electricity, and information technology—are characterized as GPTs. Their arrival can have complex and disruptive effects on the economy.
- Productivity Slowdown: The initial arrival of a GPT can lead to a productivity slowdown. This occurs because resources are diverted from production to complementary R&D and reorganization. As stated by David (1990) and others, GPTs “require costly restructuring and adjustment to take place, and there is no reason to expect this process to proceed smoothly over time.” Only after a critical mass of secondary innovations is achieved does the GPT’s full potential manifest in accelerated productivity growth.
- Increased Wage Inequality: The diffusion of a new GPT often increases wage inequality. It raises the demand for skilled workers who can adapt to and implement the new technology, leading to a higher skill premium. It can also increase within-group inequality by creating a premium for “adaptability,” which may be distributed unevenly among workers with the same formal education.