What Made Britain Rich
So why did it come out ahead of the rest of Europe? On the one hand, this question is fairly easy to answer. By the early 18th century, England was leading the way in cotton, fuel, and the industries that drove progress (iron, textiles, and energy).
In addition, England had efficient agriculture and transportation. New technology in agriculture freed up labor for industrial production and also created an increased demand for food for the growing urban population. The British began to intensively develop road infrastructure and improve the navy. Many factors converged in Britain to ensure its success. But most of these factors were self-created by Britain. And it’s not just about material values, but also the culture and institutions that have developed here over the centuries.
The ideal society for development at that time was one which: 1) knew how to create and manage new forms of production, how to adapt
2) could transmit knowledge and know-how to young people, either through formal education or through training directly in the factory; 3) ensured that candidates for jobs were selected on merit, and evaluated on their contribution to the production of goods and services; 4) provided opportunities for private initiative, for individual or collective enterprises, encouraged competition and initiative; 5) allowed people to enjoy the results of their labor and the work of their enterprises. Such a society should ensure gender equality (doubling of creative and other potential), not allow discrimination on religious, ethnic, gender, etc. grounds. Preference was given to scientifically sound planning rather than prejudice.
Such a society must also have political and social institutions that promote meaningful goals.
Such institutions should protect property rights and encourage savings and investment, protect the personal liberties and rights of all citizens from encroachment by dictators and private individuals, include a system of contract enforcement and an effective judiciary. At the same time, the government must be stable (not necessarily democratic) and govern society according to known rules. If the state is democratic, the winning majority should not violate the rights of the losing minority in elections, and the minority should not contest the election results and seek to gain power in a coup. The government should be receptive to citizens’ grievances, responding to them with adequate mechanisms, honest, not allowing economic actors to profit outside the market exchange process, modest and non-greedy, not trying to raise taxes, not granting privileges, and not claiming so-called social surpluses. An ideal society should be honest, but honesty should be ensured not by law but primarily by informal institutions. There is no need for laws to ensure honesty. Informal institutions must work.
A country in which the aristocracy received wide civil rights in 1251 with the adoption of the Magna Carta was certainly better prepared to absorb innovation than India or even France. For example, in 1685 Protestants were expelled from France. Jews were not allowed to engage in trade or other activities. In Germany, many crafts could only be practiced by people of the respective origins. In the seventeenth and eighteenth centuries, India had the best cotton industry in the world. Indian cotton goods were unrivaled in quality and price. India
had enormous export potential. But manual labor was not replaced by machine labor. Who could benefit from the use of machines in the cotton industry? First, the workers, whose labor would have been greatly facilitated; second, the middlemen who financed cotton production and then marketed the finished product; and finally, European merchants, who would have more goods and serve larger commodity flows in both the Asian and European regions.
But India’s institutions blocked the creativity of workers and middlemen. Labor was unusually cheap. Under these conditions there was no point in introducing machine production. Indians did not know how to use tools, did not make technological changes, and did not want to use iron and steel. The entrepreneurial spirit was not inherent in the broad masses of India.
Britain had many advantages over other countries and regions. The British nation began to form relatively early. Although the British still call themselves subjects of the Crown, they have been citizens for the longest time in history. Nothing furthered Britain more than individualism, a culture of personal achievement, and private property. Britons, more than any other, have learned the words of Edmund Burke: “The law against property is the law against industry.
To recall the words of A. Smith: “The natural effort of every man to improve his welfare, to secure his liberty and security, is a principle so strong that it alone suffices not only to advance society toward wealth and prosperity, but also to overcome the hundreds of high obstacles which men have erected by their folly in the form of laws. The nature of these obstacles is such that they either violate freedom or reduce security. In Britain industry is perfectly safe, and though it is far from being perfectly free, it is just as free or even freer than in other countries.
1 In the eighteenth century many diplomats and politicians regarded England as a country of great potential. Here is what a French diplomat wrote of her before signing the treaty at Utrecht in 1713: “However desolate the island may be today, if it falls into the hands of the English, in a few years we shall see on it a large number of inhabitants, ports under construction, and the greatest gateway for goods from Europe and Asia, which the English will then sell to Peru or to Mexico. The 60 million in gold and silver mined in these countries will be their attention and reward.
1. Adam Smith. Studies on the Nature and Causes of the Wealth of Nations.
Eksmo Publishers. Moscow 2007
Edited and published by ¦ PRESSI ( HERSON )
equipped with ships, would spare no effort to lock in the enormous revenues flowing from America. For France, the loss of these markets would mean great losses. “
The French throughout the Middle Ages viewed the English as their main rival. Even today the average Frenchman considers the Englishman his chief rival and rival. This is how Voltaire explained the success of the English: “England became a powerful country because from the time of Elizabeth all sides of public life, all political parties agreed to support commerce. The same Parliament which had decided to decapitate the King was busy distributing positions in foreign trade missions, as if nothing had happened. The blood of Charles I was still gushing from his body when a parliament almost entirely composed of fanatics passed the Navigation Act of 1650. This is how the Prince of Java described the European islanders in 1780: “The British are like a tempestuous, rushing stream of water. They are persistent, energetic, irresistible in their courage. If they really want something, they use violence to get it. The Dutch are very capable, intelligent, patient and calm. If possible, they try to achieve their goal through persuasion rather than force of arms. Perhaps Java will be conquered by the British.”
When European countries saw the advantage of the British, they regularly sent spies to the islands to explain the phenomenon of dynamic economic growth. To catch up with the islanders, other European governments used subsidies, monopoly privileges, tax breaks, bribes, and labor, but administrative levers failed to achieve such a breakthrough. At the end of the eighteenth century, France was hindered by the revolution.
Order in this country was established only in 1815, after the victory over Napoleon at Waterloo. The process of “catching up” of these countries was slow. The world leadership of the English was no longer in doubt.
In addition to England, other European regions – the Netherlands, France, the lands along the Rhine, and the Protestant cantons of Switzerland – were ready for the mass use of machines. East of the Elbe, the readiness of countries to switch to machine production was much less. Austria, Poland, Russia, and the lands of the Ottoman Empire were far from technical progress. In contrast to British or American culture and tradition, these countries were characterized by a number of peculiarities. First of all, in the Middle Ages the peasants here had the status of serfs. They were tied to the land and had no right to move about the country. By 1500 in England, France, and the Netherlands, there were virtually no serfs.
France and the Netherlands had practically no serfdom. Its existence severely limited the mobility of the labor force. Production was organized in a rigid framework of guilds, which quickly transformed into collective monopolies.
Freedom of trade was severely restricted in these countries. Customs duties, tolls, payments for the use of roads and ports, payments for entering a city (inscribed on the city gates: “Bulls and Jews – 4 pfennig”) – trade barriers followed one after another, because the lands were ruled by different political clans.
The Slavic states seemed to represent a completely different world. Here serfdom manifested itself in the worst forms. The huge concentration of wealth in the hands of the nobility deprived industrialists of productive capital. Russia tried to catch up with the West, but in the late-early twentieth century it had no luck with socialism. The situation was even worse in the Balkans, which were under the yoke of the Ottoman Empire. These regions have still not recovered from the legacy of collectivism and etatism. Their politicians are still trying to invent their own unique national way, ignoring the lessons of the world’s economic history.
By the time the first country in Europe chased after England (1815), two whole generations had grown up there, living with industrial development and economic growth. Many historians argue that those who begin to catch up have the advantage of knowing what mistakes their predecessors made. But, on the other hand, the lost time and opportunities are serious costs.
The overall balance of gains and costs is such that it is advantageous to start reforms as soon as possible. The countries of Europe, in pursuit of England, had to develop much faster than England had pulled ahead. For this they needed money and resources, which could be obtained from four sources: 1) private investment; 2) financial intermediaries and private credit; 3) government aid; and 4) international capital flows. The aristocrats of Europe were not inclined to invest in industry. They lived off the income from the land, but some of the nobility were beginning to see the promise of investing in new technologies. The need to finance and diversify risks led to the invention of a new form of financial intermediary: the stock investment bank. Financial institutions, including long-term loans, began to emerge throughout Europe. Banks in Germany, Holland and Switzerland were renowned for their impeccable reputation. As a rule, the economic policy of France and Germany was more protectionist, but the degree of state intervention was several orders of magnitude lower than today. Note,
that the traditionally pro-market states – Victorian Britain and the United States after World War II – had many trade barriers that protected them from development imports. They instructed others: Don’t do as I did. Do as I can afford to do now.
In France, the state helped the emergence of new industries: it gave non-repayable loans, tax breaks, etc. Politicians had a lot of influence in granting free or very cheap loans, so businessmen always clustered around them. But by 1780 the money in the budget for generous aid had run out. England was defending itself against French goods, and France was keeping English cotton products out. The French Revolution further strengthened the role of the state. After Napoleon’s complete defeat in 1815, France briefly had a period of free trade, which quickly ended under the pressure of French manufacturers.
Russia, lagging behind Europe, also followed the path of developing state-sponsored huge enterprises, mainly in metallurgy and extractive industries. The concept of catch-up development was put into practice. Russia grew at a rate of 5 – 6% a year in 1885 – 1900 and in 1900 – 1912. From 1890 to 1904, the length of the railroads doubled, and from 1880 to 1900, iron and steel production increased tenfold. Russia moved from seventh to fifth place in the list of the largest industrial nations. This was a great achievement for Russia. Later, the communists rewrote history, belittling the potential of capitalism in this country and its achievements before 1917. But the Russian autocracy failed to build stable institutions to match the economy of capitalism. Defeats in the Crimean War, in the Japanese War of 1904-1905, and in World War I finally undermined confidence in the government and made it easily vulnerable to extremists of all kinds.
In 1951, Alexander Gerschenkron, in his book Economic Backwardness in Historical Perspective, described the process of catch-up industrialization. In his view, in order to overcome backwardness, it was necessary to catch up quickly with the knowledge gap and learn to separate the backward sectors of the economy from the advanced ones. He did not question why anyone should want to close the gap, but believed that it was in itself a stimulus to development. In his view, it was to the country’s advantage not to rush through reforms, but his analysis was seriously flawed because he did not try to estimate the costs of poverty in the period before industrialization began. He believed that rapid development could be based
the use of the most modern technology, but then what to do with large quantities of cheap labor? By and large, Ger-Schenkronn’s model is an attempt to justify Russia and countries like it. At the same time, he did not describe the specific mechanisms by which these countries with acute shortages of capital and skilled labor can overcome the lag, and did not say what price ordinary people must pay for this.
The World’s Strongest Economies
Economic cycles and changes affect individual countries in different ways, but the leaders tend to hold their own in any environment. The world’s strongest economies have not changed dramatically since 1980. Only three new nations have appeared in the top twenty.
Moreover, the key players retain the majority of the world’s wealth. The top ten economies account for 68% of the world’s nominal GDP, and the top twenty account for 81%. The remaining 172 countries produce less than 1/5 of the global economic products.
To compile this ranking, we analyzed IMF (International Monetary Fund) statistics and talked about each country’s economy separately.
- Nominal GDP: $20.93 trillion
- GDP based on PPP: $20.93 trillion
The U.S. has maintained its status as the world’s leading economy since 1871. In 2019, in nominal terms, its volume was $21.44 trillion. But in 2020, it dropped to $20.93 trillion. In 2021, it is expected to grow to $22.68 trillion.
This country is often called an economic superpower, because it makes up almost ¼ of the world economy, is distinguished by the development of infrastructure, technology, abundance of natural resources. And this despite the fact that 80% of the country’s gross domestic product comes from the service sector.
When estimated based on purchasing power parity, the U.S. is second to the People’s Republic of China and $3.2 trillion behind. The Navy projects that the gap will widen, and by 2024 the U.S. will have $25.79 trillion and the PRC will have $39.81 trillion.
- Nominal GDP: $14.72 trillion
- GDP based on PPP: $24.14 trillion
The strongest economies in the world are not without the Celestial Empire. Over the past few decades, China has achieved exponential growth, breaking through the barriers of centralized closed trade. It is now a manufacturing and export center, sometimes called the “factory of the world.
In 1980, China was in the top 20 with $305.35 billion in GDP. The United States had $2.86 trillion at the time. Thanks to reforms begun in 1978, China actually grew 10 percent of GDP each year. That pace has slowed recently, though it remains very high.
The World Bank, referring to China’s jump in economic growth in 2017, refers to the cyclical recovery of global trade. In 2018, the organization projected growth of 6.6 percent, and it was right. In 2019, growth was 6.1%. It will gradually decline to 5.6 percent by 2023, experts estimate.
Because of its large population, China is not among the leaders in GDP per capita -$17,192 (72nd place in the world).
- Nominal GDP: $5.05 trillion
- GDP at PPP: $5.31 trillion
The 2008 financial crisis rocked the Land of the Rising Sun, as it was accompanied by weak domestic demand and a huge national debt. In addition, a massive earthquake hit the economy and social sphere after it came out of the doldrums. But by 2019, Japan’s economy had surpassed the $5 trillion mark in nominal GDP. The forecast for 2022 is $5.65 trillion.
Japan’s economy got a boost from the 2020 Olympics, which always attracts investment to the host country. The tight monetary policy of the Bank of Japan also contributes to the strengthening.
In 2020, GDP per capita was $42,248, the twenty-seventh highest in the world.
- Nominal GDP: $3.80 trillion
- GDP based on PPP: $4.49 trillion
Germany has not only the largest but also the strongest economy in Europe. It is fourth in the world when measured by nominal GDP. GDP at PPP is $4.49 trillion, and per capita GDP is $54,076 (16th place). In 1980, Germany’s economic output was $850 billion, enough for third place in the rankings.
Germany was heavily dependent on capital goods exports, and this amplified the impact of the 2008 crisis. The economy grew 2.2% and 2.5% in 2016 and 2017. In 2018 and 2019, it grew 1.5% and 0.5%. But in 2020, it was down 4.9%. The forecast by the end of 2021 is for growth of 3.6%.
Germany’s continued economic strength is aided by the launch of Industry 4.0 . It is a strategic initiative to create a leading market and provider of advanced manufacturing solutions for the world.
- Nominal GDP: $2.71 trillion
- GDP at PPP: $8.90 trillion
India is the nation with the fastest growing economy in the world, though it has been slowing down in recent years. In 2019, it snatched fifth place from Great Britain in the ranking. The country’s GDP per capita is far from the top spot, at $6,461.
In 1980, the Indian economy was only $189 billion (13th place). The economy grew 6.8% in 2018 and 6.1% in 2019. In 2020, it was down 8%. By the end of 2021, the Navy forecasts growth of 12.5%.
Postcolonial India was initially a purely agrarian state, but it has greatly expanded production and services in recent decades. Today services account for 60 percent of the economy and supply 28 percent of the labor force.
Industry is the second most important segment and is actively promoted through government initiatives. The agricultural sector accounts for about 17%, but it is still a lot compared to Western countries.
India’s economic advantages right now are its low dependence on exports, its high demographics, and its growing middle class. This is why India is rightfully among the strongest economies in the world.
6. United Kingdom
- Nominal GDP: $2.71 trillion
- GDP at PPP: $2.96 trillion
The United Kingdom ranks sixth in nominal GDP and tenth in PPP-based GDP. There is $44,117 per capita, which puts the country in 25th “step” in the world. Nominal GDP reached $2.83 trillion in 2019, but dropped to $2.71 trillion in 2020. $3.49 trillion is expected by 2023.
From 1992 to 2008, the British economy saw upward trends in every quarter. However, since April 2008 there has been a decline in output for five quarters. The economy contracted by 6% during that time, and it took five years to return to pre-recession levels.
Three-quarters of GDP in the United Kingdom’s economy comes from the service sector. The second most important segment is agriculture. Although it employs only 2 percent of workers, 60 percent of Britain’s food needs are produced domestically.
- Nominal GDP: $2.60 trillion
- GDP based on PPP: $3.00 trillion
France is the most visited country in the world with the third largest economy in Europe. It provides a high standard of living with a GDP per capita of $46,062.
Economic growth has slowed in recent years, and under pressure from rising unemployment, the government has had to come up with a reset plan. From 2014-2016, the World Bank recorded an unemployment rate of 10%. By mid-2021, that figure had fallen to 8%.
In addition to tourism, which is an important part of the economic system, France is one of the leading agricultural producers. It accounts for about a third of the EU’s agricultural land.
The country ranks sixth in the world in terms of agricultural production and is second only to the U.S. in its exports. The manufacturing industry is dominated by the chemical industry, automotive and armaments. All this helps France be among the strongest economies in the world.
- Nominal GDP: $1.88 trillion
- GDP based on PPP: $2.46 trillion
Despite the status of an important member of the European Union, Italy has problems: unemployment is still around 10% (among young people – 31.7%), the country evident political and economic chaos. In addition, there is a national debt of 155.6% of GDP.
But there is a resource for recovery, given the stable exports and business investment. In 2016 and 2017 there was 1.1% and 1.7% growth, and in 2018 there was 0.9% growth. GDP was unchanged in 2019. In 2020, the crisis hit the country and the figure dropped 8.9%.
- Nominal GDP: $1.64 trillion
- GDP on a PPP basis: $1.85 trillion
Canada displaced Russia from tenth place in the rankings in 2015, and five years later was able to move up to ninth place. In 2020, nominal GDP reached $1.64 trillion and is expected to rise to $2.14 trillion by 2023.
Despite the importance of the service segment, 68% of exports are industrial products. Canada pays a lot of attention to industry as a key driver of future economic growth.
In 2017, the kingdom recorded growth of 3%, in 2018, 1.9%, and in 2019, 1.5%. In 2020, a decline of 5.4%. The forecast for 2021 is growth of 5%.
10. South Korea.
- Nominal GDP: $1.63 trillion
- GDP based on PPP: $2.31 trillion
South Korea is known for conglomerates like Hyundai and Samsung, but it’s not just because of their efforts that the Republic has penetrated the world’s strongest economies and made it into the top 10. In recent decades, the country has made incredible progress, joining the ranks of global leaders in high technology.
In the 1960s, South Korea was one of the poorest countries in GDP per capita, but now ranks 24th in the world ($44,621). Industrialization and international trade had already brought it into the “trillion dollar club” in 2004. South Korea’s economy grew by 2% in 2019. In 2020 the value of GDP fell by 1%.
Now it is one of the world’s leading exporters. The country also has a terrific environment for investing from abroad and doing business.
- Nominal GDP: $1.47 trillion
- GDP based on PPP: $4.09 trillion
Russia is also among the strongest economies in the world. Our country is the largest, but only eleventh in nominal GDP. When considering GDP on a PPP basis, it is sixth.
The 1990s were a difficult period for the country’s economy, which inherited a devastated industry and agriculture.
In the noughties there was a 7% growth, but it was due to the commodity boom. Dependence on energy had a bad effect on Russia in the crisis times of 2008-2009 and 2014.
2016 ended with economic growth of 0.2%. The country achieved 1.6% growth in 2017, 2.3% in 2018, and 1.1% in 2019. In 2020, Russia’s nominal GDP fell 3.1%. The Navy assumes Russia’s GDP will be $1.78 trillion by 2022.
- Nominal GDP: $1.43 trillion
- GDP based on PPP: $3.15 trillion
Brazil is the largest country in South America by area and population. Domestic political uncertainties, corruption problems and the end of the so-called commodity supercycle have weakened the country’s investment and business environment, but the situation appears to be improving.
Brazil gained an average of 4.5% in 2006-2010 and 2.8% in 2011-2013. In 2014, growth was 0.5%. After a pullback of 3.3% in 2016, a rising trend emerged: +1.1% in 2017 and 2018, +0.9% in 2019. But in 2020, there was another pullback of 4.1% and pushed Brazil back from ninth to twelfth place.
- Nominal GDP: $1.36 trillion
- GDP based on PPP: $1.33 trillion
Australia has the largest economy in the Pacific Ocean and the ninth most capitalized stock exchange in the world. It grew its GDP steadily from 2009 until the crisis in 2020.
In 2013, the country was the world’s 12th largest GDP; by 2018, it was overtaken by South Korea and Spain. But in that same year, 2018, Australia was the country with the highest median wealth per adult.
GDP growth was 2.4% in 2017, 2.7% in 2018, 1.7% in 2019, and was down 2.4% in 2020.
- Nominal GDP: $1.28 trillion
- GDP based on PPP: $1.80 trillion
Spain’s economy is steadily ranked 5th by volume in Western Europe and is returning faster than Italy’s to its pre-crisis 2008 level. In the sectoral structure, 2/3 are services, 12% – industry, 2.3% – agriculture. One of the engines of the economy – tourism. Attendance in Spain has grown every year from 2009 to 2020.
Active growth is hampered by weakness in the information technology, electronics, and communications engineering sectors.
Real GDP growth was 3% in 2017, 2.6% in 2018, 2.2% in 2019, and an 11% decline in 2020. The IMF forecast for 2021 is GDP growth of 6.4%.
- Nominal GDP: $1.08 trillion
- GDP based on PPP: $2.44 trillion
In 2001, Mexico was the eighth largest country in the world in terms of nominal GDP. By 2004 it was out of the top ten, and by 2009 it was in 15th place where it is still today.
The oil industry plays an important role in the economy of this country. So in 2015-2016, Mexico’s nominal GDP declined 18.8% due to unfavorable oil price movements. This was followed by growth, and the country almost “recouped” what it had lost.
According to the IMF, Mexico’s GDP grew 2-2.1% in 2017-2018, rose 0.4% in 2019, and rolled back 8.2% in 2020. The forecast for 2021 is 5% growth.