Editor's note: In this excerpt from a forthcoming book
from Harvard University Press, Lectures on Economic Growth,
the Nobel-winning economist Robert E. Lucas Jr. makes his
case that for a lesser-developed country to transform to a
modern, growing economy, it must experience an increase in
the rate of the accumulation of human capital. Societies and
their citizens must be open to the "new possibilities
that development creates."
The first part of this excerpt describes Lucas' introduction to the ideas surrounding economic growth, and the second
partincluding a reference to the work of V.S. Naipaul, the 2001 recipient of the Nobel Prize in Literatureframes the central idea that runs through the entire book: the pre-eminence of accumulating human capital.
"On the Mechanics of Economic Development" (Chapter
1 of this volume) was written for the 1985 Marshall Lectures
at Cambridge University. My week in Cambridge was part of a
month-long trip that included weeks in England, Israel, Finland,
and France. This was my first visit to any of these four countries,
and indeed my first trip of more than a day or two outside the
United States. In Finland I gave the Yrjö Jahnsson Lectures,
later published as Models of Business Cycles. In Israel
I gave the David Horowitz Lectures, basically a repeat of the
Marshall Lectures. In France I spoke at the University of Paris,
Dauphine; and at the evening seminar series chaired by Edmund
None of these hosts had asked me to speak on economic growth
and development. I was expected to speak on rational expectations
and macroeconomics, as I did in Finland. But the Jahnsson Lectures
had proved difficult to writeI was in the process of adjusting
my thinking on business cycles to the shock of Kydland and Prescott's
workand I did not look forward to the prospect of spending
the latter half of my career trying to hang on to what I had
done in the first half. The invitation from Cambridge came well
in advance, so I had plenty of time. Why not use the opportunity
to try something new?
Though I had never written on growth or development, I had been
interested in these topics for as long as I could remember. How
can an economist not be interested in the wealth of nations? I had
taught an undergraduate elective course in development economics
at Carnegie-Mellon, and again at Chicago: an excuse to look at some
data, read some papers, and work out some models, without the responsibility
for covering the literature that teaching a graduate course entails.
The question I asked myself and my students in these classes was
whether one could use modern growth theoryas exemplified by
Robert Solow's (1956) paperto think about the behavior of
poor countries as well as rich ones.
The modern theory of growth, which originated in the 1960s
and has continued to be developed in new, interesting ways,
provides a tractable and empirically fairly successful account
of twentieth-century growth in the United States and the post-World
War II growth of Japan and much of Europe. Growth theory has
matured into a successful basis for applied economics, in the
sense that it provides an agreed-upon framework for quantitative
studies of taxation, monetary policy, and social insurance.
The basic idea of "On the Mechanics of Economic Development,"
articulated in its initial sections, was to see if modern growth
theory could also be adapted for use as a theory of economic
Adaptation of some kind was evidently necessary: The balanced
paths of growth theory, with constant income growth and the
assumed absence of population pressures, obviously do not fit
all of economic history or even all of the behavior that can
be seen in today's world. The theory is, and was designed to
be, a model of the behavior in the recent past of a subset of
highly successful societies. The strategy I adopted in "Mechanics"
was to take the fact that the industrial revolution had occurred
in some societies as an unexplained given, and to try to think
about the economics of the relations between economies in which
sustained growth was under way and economies that remained stagnant.
On Human Capital
The central idea in all the essays in this volume is that the successful
transformation from an economy of traditional agriculture to a modern,
growing economy depends crucially on an increase in the rate of accumulation
of human capital. As have Schultz and Becker and others before me, I have
tried to show how this idea, embodied in aggregative models of economic
growth, produces behavior that conforms better to the facts of economic
development than the behavior predicted by models centered on other visions
of the engine of growth. Yet the sources and perhaps even the character
of this increase in human capital growth remain somewhat ill understood,
a deus ex machina, an invisible cause to which important visible
effects are attributed.
But what is visible depends on where one looks. Look, for example,
at V.S. Naipaul's great novel of economic development, A
House for Mr. Biswas. The novel begins with the story of
Mohun Biswas's birth and death, all within its first 40 pages.
He is born in rural Trinidad, a grandson of immigrants who had
come from India as indentured servants. As a small boy, his
ambition is to become a herder of cattle like his older brothers.
At his death, he is an unemployed journalist in Port-of-Spain,
living in a ramshackle house, with no assets to support his
wife and large family after he is gone. What life within such
limits is to sustain the reader for the novel's remaining 540
pages? Yet measured by the cultural distance between Mr. Biswas's
parents and his children, his life is a story of amazing progress.
By the end of Biswas's life, his oldest son, AnandNaipaul's
own fictional counterpartis a scholarship student at Oxford.
Between Anand and Mohun Biswas's parents is the entire 25-to-1
difference between living standards in India and living standards
in Western Europe and the United States.
Biswas himself is no Horatio Alger figure. His talents are
modest, and his willingness to ingratiate himself with those
who might advance his career is nonexistent. He passes from
one mediocre, limited job to another. But his unwillingness
to accept the limits of each current situation as permanent,
to make the best of it, turns out to be his strength. Through
all his misfortunes and setbacks Mr. Biswas is able to maintain
the sense of himself as a man with possibilities, with options,
a man who is in a position to set limits on what he will put
up with. And equally important, he lives in a society that will
let him survive with this attitude. An African slave with these
attitudes, working the same sugar cane fields as Biswas's father
and brothers did, would have been beaten to death, or starved
as an outcast. So too might have been his own grandfather. But
in the Trinidad of the interwar and World War II periods, options
were available. A man with a little literacy could move
from rural to small town to Port-of-Spain jobs, jobs where he
could interact with people who could teach him a little more.
Somehow Biswas survives, marries, supports a family after a
fashion, and succeeds in passing on to some of his children
this sense of living in a world with possibilities, a world
that can reward those who accept the challenges it offers.
We know from direct experience that the passage in two generations
from traditional agricultural society to the modern world that
A House for Mr. Biswas describes is not a singular one.
In my neighborhood in Chicago I bring my shirts to a laundry
operated by a Korean woman, recently arrived, whose English
is barely adequate to enable her to conduct her business. Her
shop is open from 7 to 7, six days a week. As I enter, her 3-year-old
daughter is seated on the counter being drilled in arithmeticwhich
she is very good at and clearly enjoys enormously. Fifteen years
from now this girl will be beginning her studies at Chicago
or Caltech, alongside the children of professors and Mayflower
The mathematics and science that this girl will study and perhaps
contribute to were not created by the efforts of her and her
family, just as the culture in which V. S. Naipaul was immersed
when he arrived at Oxford was not the product of his and his
father's effort. These are parts of the body of knowledge that
is generally available for access by suitably prepared people,
"free to the people" as Andrew Carnegie had engraved
over the entrances to the public libraries he built. The growth
of what Kuznets called "the stock of useful knowledge"
is, as everyone agrees, an essential factor in the industrial
revolution. Without the existence of this stock, the efforts
of families like the Naipauls would add up to nothing, or next
Without in any way disputing this point, I am making a complementary
point: Growth in the stock of useful knowledge does not generate
sustained improvement in living standards unless it raises the
return to investing in human capital in most families. This
condition is a statement about the nature of the stock of knowledge
that is required, about the kind of knowledge that is "useful."
But more centrally, it is a statement about the nature of the
society. For income growth to occur in a society, a large fraction
of people must experience changes in the possible lives they
imagine for themselves and their children, and these new visions
of possible futures must have enough force to lead them to change
the way they behave, the number of children they have, and the
hopes they invest in these children: the way they allocate their
time. In the words of a more recent title of Naipaul's, economic
development requires "a million mutinies."
For someone born into a traditional agricultural society, these
decisionswhat occupation to follow, what training to acquire,
when and whom to marry, how many children to try to have and
how to raise themhave already been made. It is not that
there is nothing to think and argue aboutMr. Biswas's
in-laws argued over which sister gave her children the best
beatings!but that none of the possibilities being argued
over leads anywhere new.
This situation cannot be changed by new knowledge, by the arrival
of a blueprint. A blueprint that showed how to raise yields per
acre in Jamaica to the levels of yields in Java would have a dramatic
initial effect on Jamaican farm output, but as Malthus and Ricardo
showed two centuries ago, a new equilibrium would be established
with larger production and population and no increase in average
farm income: High yield per acre is the reason that Java is the
most densely populated agricultural area on earth, but it has no
connection with sustained growth in living standards. In the end,
the blueprint changes nothing in the lives and the life-decisions
of those who work on the farms. It creates no new possibilities
for individual families.
In a successfully developing society, new options continually
present themselves and everyone sees examples of people who
have responded creatively to them. Within a generation, those
who are bound by tradition can come to seem quaint, even ridiculous,
and they lose their ability to influence their children by example
or to constrain them economically. The people who respond to
the new possibilities that development creates are also the
ones who make sustained development possible. Their decisions
to take new risks and obtain new skills make new possibilities
available for those around them. Their decisions to have fewer
children and to try to prepare those children to exploit the
opportunities of the modern world increase the fraction of people
in the next generation who can contribute to the invention of
new ways of doing things.
In economically successful societies, today, these are all familiar
features of the lives of ordinary people. In pre-industrial societies,
all of these features are rare, confined if present at all to small
elites. If these observations are central to an understanding of
economic growth, as I believe they are, then we want to work toward
aggregative models of growth that focus on them.
Excerpted from Lectures
on Economic Growth by Robert E. Lucas Jr. published in February
2002 by Harvard University Press. Copyright (c) 2002 by the President
and Fellows of Harvard College. Used by permission. All rights reserved.
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