The human progress economists miss; The steady accumulation of knowledge is important but sudden advances matter most

March 4, 2014 4:30 pm

The startling human progress that economists fail to see

By John Kay

The steady accumulation of knowledge is important but sudden advances matter most

The ancient Greek runner Phidippides conveyed with his dying breath the news that the Persians had been defeated at Marathon. We do not know how long it took him to complete the course to Athens or even whether his epic journey actually occurred. We do know that the winner of the first modern marathon, at the Olympic Games of 1896, completed the course in just under three hours.

But modern humans have become better at performing even simple physical tasks such as running. You would have been a medallist in that first modern Olympiad with a time of 12.6 seconds in the 100 metres. But you would now have to achieve less than 9.8 seconds to be a contender. The longer the distance the greater the improvement. Within the next few years, it is likely that someone will complete a marathon in less than two hours. This represents an average speed gain of 0.4 per cent a year over the past century. The largest contributor to improvement is improved technique – systematic training, scientifically planned diet and careful pacing. The steady accumulation of human knowledge makes us more productive at more or less everything.

Wider markets also drive productivity improvement. The successful competitors in the early Olympics were mostly drawn from western Europe and the US, and from a limited social class even in these countries. Today’s runners are selected from a much wider pool of potential candidates.

In athletics as in business, globalisation has facilitated more specialisation, and enabled the identification of particular locations of competitive advantage. Many of today’s fastest long-distance runners come from east Africa, and most of the best sprinters are people of west African descent brought up in Jamaica or the US.

The evolution of sporting performance is a metaphor for the sources of economic progress – one that reveals several misunderstandings about its nature. One is the idea that economic growth puts increasing strain on resources by demanding more stuff. The principal source of economic growth is our capacity to learn to do things better. Even if we wanted to stop that process, we could not.

Today we would not employ Phidippides to take a message from Marathon to Athens, even if he could break the world record of two hours, three minutes and 23 seconds. A copper wire could transmit the news in about 0.14 milliseconds. Twitter could have saved Phidippides’ life. The most important source of economic advance comes not from doing the same things better, but from achieving the same objective in a completely different way.

Two decades ago, the Yale economist Bill Nordhaus described how humans have always sought to illuminate darkness but have done so in very different ways. People once drew cave paintings by the light of a wood fire. Jane Austen wrote novels by candlelight and William Gladstone walked streets lit by gas. Thomas Edison switched on incandescent electric bulbs. Today we use low-energy fittings that emit almost no heat.

When we measure price and output we look not at the price and output of light but the price and output of items we use to create light. These are very different things. While the prices of wood, candle wax, gas and electricity have tended to increase, the price of light has fallen. Our statistics not only fail to reflect the trend, they mistake the direction.

Prof Nordhaus went on to suggest that measures of real wages, real incomes and, of course, prices might therefore be in error by a large margin. Yet despite a brief flicker of interest when some politicians hoped that this kind of analysis might be used to curb increases in state pensions, the methodology behind official economic statistics has barely changed.

If we had asked the Athenian general at Marathon what advances would help him, he would have asked for sturdier shields and faster runners.

Henry Ford observed that his customers would have asked for a faster horse. Militiades did not imagine that what he really needed was a fibreoptic cable.

The true heroes of our time are the philosophers who see that messages can be made to travel at the speed of light, and the entrepreneurs who see that the best way to do things better is usually to do them differently.