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Catch-up Logic: Sam Bowman on Britain as a Developing Economy

Since the 1970s, economic growth in the world’s most advanced economies – and indeed science itself – appears to have slowed down. These “frontier” economies are the canary in the coalmine, because they have, in theory, maxed out how much they can grow by using existing inputs (like labour, land and capital) better. For them, unlike developing countries, all that’s left is to improve the inputs they’ve got via innovation. And that rate of improvement seems to have slowed down.

A slowdown in “frontier growth” and technological progress matters a lot for the United States. But it matters less to Poland or Bangladesh – countries that are still trying to get to the frontier. While technological advances do still benefit them, most of their growth comes from using their existing inputs, like land and labour, in more efficient ways that are not technologically novel, or adding more capital that, again, is not technologically novel – some agrarian developing economies can grow simply by adding more tractors; no developed economy can. 

For these developing countries, the challenge is to catch up with the world’s advanced economies, and they can still have rapid improvements in their living standards without the need for global technological progress at all.

My claim is that the UK is now a lot more like Poland than it is like the United States in terms of the kinds of growth it needs to do – driven by improved use of existing technology and inputs, and accumulation of capital, rather than driven primarily by technological advancement. With the exception of a few sectors like AI, we are so far behind the frontier in terms of economic development that worrying about technological progress doesn’t make much sense, and at worst is a serious distraction. 

Here are some statistics that might put it into perspective how far behind the frontier the UK is.

  • By GDP per capita, adjusted for purchasing power, the US ($76,399) is 39% richer than the UK ($54,603). GDP growth since 2010 has been 47% faster – nine percentage points – in the United States (28% growth) than the UK (19% growth), despite being from a much higher level.
  • By productivity, or how much we produce per hour worked, the US was 38% more productive than the UK (UK $54.3/hour, USA $73.7/hour) in 2019. France / Germany were much closer to the US than to the UK at $69/hour.
  • Between 2010 and 2019, productivity growth was twice as fast in the US (8% growth) as the UK (4% growth).
  • Americans could stop working each year on September 22nd and they’d still be richer than Britons working for the whole year.
  • Or, as Mike Bird pointed out, a car wash manager at an Alabama Buc-ees, a chain of gas stations and grocery stores, earns more ($125k/year) than THREE median UK salaries.
  • The average starting salary for a newly-qualified nurse in the US is over £42,000, compared to only £27,000 in most of England, and the gap only widens as their careers progress.
  • UK real disposable incomes are not forecast to return to 2021 levels until 2027.

And many input costs are higher in Britain than America.

UK GDP per capita is about to be overtaken by South Korea and Slovenia. If the UK continues with the same rate of growth it has enjoyed over the last decade, then Poland will be richer than Britain in about 12 years’ time.

As exciting as AI and other frontier technologies are, pinning the country’s hopes on them misunderstands how far behind the US we are across the board.

The US isn’t rich just because it has a big tech sector: every single US state is richer per person than the UK, even places like Mississippi and West Virginia without big tech or advanced manufacturing sectors.

The UK is thinking like a frontier economy when it should be thinking like a developing country. We’re well off by global standards, but poor by the standards of the frontier.

Sam Bowman – Britain is a developing country

See also:

Not long ago; or, Little by little (8): Singapore market, early 1970s
Not long ago; or, Little by little (1): Raymond Briggs on 1940s Britain
Not long ago; or, Little by little (2): Li Kunwa on indoor plumbing in 80s China
Not long ago; or, Little by little (5): Tyler Cowen on progress in living standards since 1900
Karl Marx on the power of capitalism and globalisation
Joseph Schumpeter on qualitative gains from capitalist growth
Generations: Tyler Cowen on faith in the future
Brad DeLong on technological growth and economic change 1870-2010

I'd love to hear your thoughts and recommended resources...