Growth and development
Simon Kuznets (1901–85)
1750s French economist François Quesnay states that wealth comes from agriculture, not from industry.
1940 British-Australian economist Colin Clark argues that economic growth involves a shift from agriculture to manufacturing and to services.
1967 US economist Edward Denison highlights the important contribution of technological change and productivity growth to economic growth.
1975 US economists Hollis Chenery and Moshe Syrquin find evidence that as agriculture declines, economies grow, and then industry and services increase.
The Russian-born economist Simon Kuznets described the emergence of the modern economy as a controlled revolution—in which the factory replaces the farm. The resulting higher living standards require economic and social changes that run deeper than might at first be suggested by a simple, numerical rate of growth. Kuznets called this process “modern economic growth,” and showed how success in achieving this is what sets rich countries apart from the rest.
The key characteristic of Kuznets’ growth theory is that income per person grows rapidly, even in the face of an expanding population: there are more people and they are richer. This expansion is driven by the spread of factories and machines. With an increase in capital to sustain industrial growth, workers are redeployed out of small family enterprises into impersonal firms and factories. Yet new technologies and large-scale production methods cannot be exploited if people are illiterate, superstitious, or tied to the village. For Kuznets this growth causes profound social changes, with an increase in urbanization and a weakening of religion.
Britain was the first country to achieve modern economic growth. The Industrial Revolution of the 18th century put Britain on the path to becoming an advanced industrialized nation. Steam power and inventions reshaped production. Workers left the fields and entered the factories. Cities grew. New means of transport and communication technologies allowed British firms to penetrate the global economy. Its own economy did not transform overnight, but the changes—technological, social, and institutional—kept going. They led to unprecedented improvements in the living standards of a growing population.
The spread of true modern economic growth has been limited. Among the rich nations, including the US, Australia, and Japan, the process continues today. After a first wave of industrialization these economies have typically evolved away from heavy industry and toward the service sector, which will inevitably involve further kinds of social change.
The steam hammer, invented in 1837, was one of the machine tools that increased the pace of industrialization, allowing machines to build machines.
Simon Kuznets was born in Pinsk, in present-day Belarus, in 1901. His involvement with economics began early—he became head of a Ukrainian statistical office while still only a student. After the Russian Revolution Kuznets’ family left for Turkey, then the US; he followed them in 1922.
Kuznets enrolled at Columbia University in New York, earning a PhD in 1926. He then worked at the National Bureau of Economic Research, where he developed the modern system of national income accounting used to this day by governments worldwide. In 1947, Kuznets helped set up the International Association for Research in Income and Wealth, advising many governments. He taught widely, and in 1971 won the Nobel Prize for his analysis of Modern Economic Growth. He died in 1985, aged 84.
1941 National Income and Its Composition, 1919–1938
1942 Uses of National Income in Peace and War
1967 Population and Economic Growth