Blog Post

AEIdeas

Back in 1995, now-Democratic presidential candidate Bernie Sanders said, “I personally happen not to be a great believer in the free enterprise system for many reasons.”

And having watched Sanders during this primary season, it doesn’t appear to me that the self-described democratic socialist has much changed his opinion of capitalism. Which is both amazing and appalling. The single greatest story of human achievement of the past 2,000 years is the dramatic rise in living standards of the past 200 years. It’s an astounding ascent — see above chart — driven by innovative, entrepreneurial capitalism. Free enterprise. Economic freedom.

Yes, workers in advanced economies today are many multiples wealthier — almost incalculably so — than their counterparts in the early 19th century. But here is another way of looking at, thanks to a new study by consultancy Deloitte showing how technology-driving innovation has radically altered lives in Britain for the much better:

1) Technology has created more jobs than it has destroyed in the last 144 years. 2) It has been saving us from dull, repetitive, and dangerous work. Agriculture was the first major sector to experience this change. In 1871 it employed 6.6% of the workforce of England and Wales. Today that stands at 0.2%, a 95% decline. 3) Overall, technological innovation has resulted in fewer humans being deployed as sources of muscle power and more engaged in jobs involving the nursing and care of others. Just 1.1% of the workforce was employed in the caring professions during the 1871 census. By 2011, these professions employed almost a quarter of the England and Wales workforce. 4) Technology has boosted employment in knowledge-intensive sectors such as medicine, accounting and professional services. 5) Finally technology has lowered the cost of essentials, raising disposable incomes and creating new demand and jobs. In 1871, there was one hairdresser for every 1,793 English and Welsh citizens; now there is one for every 287. In 1948, a Freed-Eiseman 16-inch TV cost $795 in the US, roughly a quarter of the average annual salary, or roughly $12,000 today. A top of the range TV can be bought today for less than $1,000. On a quality-adjusted basis, the decline in prices is even more pronounced. US CPI data show that the price of a TV has fallen by 98% since 1950.

So thanks to the technology-driven innovation of entrepreneurial capitalism, we live richer, fuller lives that would be unimaginable to workers in the early 1800s or even later 1800s. Economist Robert Gordon describes the “special century” after 1870 in his new book, “The Rise and Fall of American Growth” as “more important to economic progress than have been all other centuries.” Or as my colleague Michael Strain has written:

Over the past two centuries, growth has increased living standards in the West unimaginably quickly. Many more babies survive to adulthood. Many more adults survive to old age. Many more people can be fed, clothed and housed. Much of the world enjoys significant quantities of leisure time. Much of the world can carve out decades of their lives for education, skill development and the moral formation and enlightenment that come with it. Growth has enabled this. Let’s keep growing. … Growth facilitates the flourishing life. By creating a dynamic environment characterized by increasing opportunity, growth gives the young the opportunity to dream and to strive. And it gives the rest of us the ability to apply our skills and talents as we see fit, to contribute to society, to provide for our families. A growing economy allows individuals to increase their living standards, facilitating economic and social mobility.

How could anyone not be a great believer in competitive, market-driven capitalism?