ROSSA O'KEEFFE-O'DONOVAN: (00:02) Thanks very much for coming, everyone. As you all know, we're delighted to have Professor Oded Galor delivering a lecture on his new book, “The journey of Humanity”. Oded is the Herbert Goldberger Professor of Economics at Brown University and he's visiting GPI until the end of June, so if you're about in the building feel free to try and capture him in that time. And his research spans a number of subfields in economics including growth, long-run development, economic history and evolutionary economics and he's best known for developing and founding Unified Growth Theory. He has numerous affiliations and has won many awards and accolades. We only have an hour schedule, so I'm not going to go into them and I'm  not going to list them here. And Oded will give a 45-minute lecture followed by 15 minutes of Q&A, so please save your questions to the end. For those following online, you can submit questions using the online form and I'll read them out at the end, but there's no option for you to kind of say the questions. I'll just have to read them out, so do please be specific with the questions. But without further ado, let me hand over to Oded and thanks very much.

ODED GALOR: (00:59) Thank you very much. I'm delighted to be here and to discuss the book that I just released about two months ago. So broadly speaking, "The Journey of Humanity", the book that I released, as I said, two months ago, is an attempt to explore the evolution of human societies since the emergence of an anatomically modern human in Africa nearly 𝟹𝟶𝟶,𝟶𝟶𝟶 years ago. In particular, this is an attempt to resolve two of the most fundamental mysteries that surround this journey – what I will define as the mystery of growth. Namely, what are the roots of the dramatic transformation in living standards that occurred in the past 𝟸𝟶𝟶 years after 𝟹𝟶𝟶,𝟶𝟶𝟶 years of stagnation, but if you wish, why is it the case that in the past 𝟸𝟶𝟶 years living standards as measured by income per capita, increased 𝟷𝟺-fold, whereas over a 𝟹𝟶𝟶,𝟶𝟶𝟶-year-period, arguably, there was no change in the standard of living; and the second mystery would be the mystery of inequality, namely, what is the origin of the vast inequality in the wealth of nations, why some countries are rich and others are poor. And why is it the case that in the past 𝟸𝟶𝟶 years, we're seeing an enormous increase in the gap in the wealth of nations?

(02:40) Now, over most of human existence, as suggested by Hobbes, human life was largely “Nasty, Brutish and Short”. In fact, human life was remarkably similar to the life of any other species on planet Earth. Humans were preoccupied by survival and reproduction, living standards were very close to the subsistence levels and there were minor differences in living standards across time and across space. In fact, only about three or four centuries ago, ¼ of newborns did not reach their first birthday and nearly half of them did not reach their reproductive age, about ⅒ of women perished during childbirth, life expectancy fluctuated in a very narrow range of 𝟸𝟻 to 𝟺𝟶 and rarely exceeded 𝟺𝟶 and an economic crisis over this time period did not require belt tightening but led rather to mass starvation and ultimately extinction.

(03:56) Then something very dramatic occurred in the past 𝟸𝟶𝟶 years, literally a metamorphosis. We see a dramatic transformation in living standards within and across societies – world income per capita increases by a factor of 𝟷𝟺 over a 𝟸𝟶𝟶 year period after literally 𝟹𝟶𝟶,𝟶𝟶𝟶 years of stagnation, life expectancy has more than doubled, and as I said earlier, a great divergence took place in income per capita across the globe.

(04:33) Now to illustrate this metamorphosis, consider for a moment residents of Jerusalem at the time of Jesus 𝟸,𝟶𝟶𝟶 years ago, Roman Jerusalem and whisk them in a time machine forward from Jerusalem in the Roman period to the time period of the beginning of the 𝟷𝟿ᵗʰ century, namely, Ottoman ruled Jerusalem. This 𝟸,𝟶𝟶𝟶 year jump, in the context of this time machine, nevertheless, would lead into instantaneous adaptation. Past knowledge would be largely applicable, technological improvements will be merely incremental and would permit rapid adaptation to the new environment, occupations would require very similar skills and life expectancy would remain the same. And as a result of it, it would not require any adaptation of the mindset of individuals potentially to future-oriented behavior. Now consider the same individuals and whisk them now in a time machine only 𝟸𝟶𝟶 years forward from Ottoman Jerusalem of the 𝟷𝟿ᵗʰ century to contemporary Jerusalem. his will be a shocking experience, a devastating experience. Past knowledge would be largely obsolete, modern technologies would appear to these individuals as witchcraft, occupations would require incomprehensible skills and life expectancy would instantly double and would require a future-oriented mindset, a mindset that permitted education decisions, saving decisions, lifecycle decisions. Something very dramatic occurred in the world economy in the past 𝟸𝟶𝟶 years that did not occur over 𝟹𝟶𝟶,𝟶𝟶𝟶 years earlier.

(06:36) Now, in contrast to some conventional wisdom that exists in some circles, that are primarily based on misinformation, living standards had not increased gradually in the course of human history, certainly not since the Neolithic Revolution. What we see in the course of human history is that technology is advancing gradually in the course of human history. This technology is not resulting in greater economic prosperity. It has a negligible impact on living standards. Instead it contributes to the size of the human population, and in fact, the recent rise in the standard of living reflects what I will define as a phase transition, namely, an abrupt transformation once a critical tipping point has been reached.

(07:32) Now to understand this metamorphosis, consider for a moment the evolution of income per capita in the past 𝟸,𝟶𝟶𝟶 years. As you can see here, on Year 𝟷 until the middle of the 𝟷𝟾ᵗʰ century, income per capita is very close to the subsistence level. There are fluctuations around this subsistence level but largely, they are very minor deviations. Then suddenly, we see something very dramatic that occurs in the past 𝟸𝟶𝟶 years, an enormous increase in the standard of living, as I said, a 𝟷𝟺-fold increase in the standard of living within a 𝟸𝟶𝟶 year period. In fact, if I would be able to erase the labels on the x-axis and the y-axis here and I will show this graph to a random scientist, most people will view this graph as a reflection of tectonic activities. These are not tectonic activities . The eruption that we see here is the eruption in income per capita. Income per capita is relatively stable over a long period of time, and then we see this enormous eruption. We can argue whether, in fact, some growth occurs in the 17ᵗʰ century, in the 18ᵗʰ century. It is negligible. The change is really dramatic is in the past few 𝟸𝟶𝟶 years.

(08:57) In addition, something equally dramatic occurred over this time period. Not all societies are taking off at the same time period. Some societies are taking off earlier than others. Western European nations and their offshoots in North America are taking off first. Others are lagging behind for a prolonged period of time. And as a result of it, an enormous divergence is occurring in the world economy. Remember that the take-off on average is associated with a 𝟷𝟺-fold increase in income per capita. And this implies that if one country or one region of the world is lagging behind and another one is taking off 𝟸𝟶𝟶 years earlier, an enormous gap is created in the wealth of nations. This is precisely what we see over this time period. Look at the richest regions of the world in the 𝟷𝟾𝟶𝟶s and compare them to the poorest one, the ratio in income per capita is about 𝟹:𝟷 and if you look at it today, the ratio can be 𝟷𝟻:𝟷, 𝟸𝟶:1 even 𝟷𝟶𝟶:𝟷, depending how you define regions. So naturally, the mystery of growth and the mystery of inequality are intimately linked and if we would like to understand the roots of inequality today, we have to focus on the distant past. We have to understand what are the forces that led into this differential timing of transition across the globe? Why is it the case that some societies took off at the beginning of the 𝟷𝟿ᵗʰ century and others only towards the end of the 𝟸𝟶ᵗʰ century, if at all.

(10:38) So the resolution of these two fundamental mysteries, this mystery of growth and the mystery of inequality, requires then the identification of the forces that permitted the transition from stagnation to growth across the globe. But in addition, it requires the identification of the origins of the differential timing of the transition across the globe, why some societies are taking off much earlier than others. And ultimately, it requires the identification of what I will define as deep-rooted forces, historical forces and pre-historical forces that operated in the distant past and led into this differential takeoff across the globe.

(11:24) Now naturally, if we will be able to resolve these mysteries, we will be in a better position to design strategies that could mitigate inequality across the globe as a whole. Now, based on my argument, that much of the inequality that we see across the globe today is originated in the differential timing of the transition that occurred 𝟸𝟶𝟶 years ago, it is quite apparent that what would be required in order to resolve these mysteries is a unified theory of economic growth, a theory that will link the distant past and the present. Now, if you look at the process of development as a whole, the process of development as a whole can be divided into three fundamental phases: the Mathusian Epoch, the Post-Mathusian Regime and the Modern Growth Regime.

(12:19) Now the Mathusian Epoch originates with the emergence of an anatomically modern human in Africa nearly 𝟹𝟶𝟶,𝟶𝟶𝟶 years ago, and it lasts over 𝟿𝟿.𝟿% of human existence. What is interesting about this period is the dualism that it reflects. On the one hand stagnation in living standards, but on the other hand, certain dynamism in the context of technology, population and human adaptation. And it is this dynamism that, after a 𝟹𝟶𝟶,𝟶𝟶𝟶 year period, is leading into the beginning of economic growth in the course of the Post-Mathusian Regime. But when growth occurs initially, the Mathusian forces are still operating in the sense that much of the growth is counterbalanced by population growth and it is only in the post 𝟷𝟾𝟽𝟶 period, in the context of the most advanced societies in the world, it will see the onset of the demographic transition and emergence of modern economic growth.

(13:26) Now, interestingly enough, it is the Malthusian Epoch that holds many of the secrets that are behind the mystery of growth and the mystery of inequality, namely, if we would like to understand the roots of inequality today, we have to look at the distant past and the forces that operated during the Malthusian Epoch and led into this divergence that occurred in the past 𝟸𝟶𝟶 years. So as I said, the Mathusian Epoch is characterized by this interesting dualism, on the one hand stagnation and on the other hand dynamism. Stagnation in living standards, income per capita fluctuates without a trend over a prolonged period of time very close to subsistence, life expectancy fluctuates in a very narrow range between 𝟸𝟻 to 𝟺𝟶 over a prolonged period of time – this is the notion of stagnation – but at the same time, during the Malthusian Epoch, we see great dynamism that ultimately rescues humanity from the poverty trap it was associated with in the Malthusian Epoch. And this dynamism is in the context of technology, in the context of population and in the context of human adaptation. So what we see over this time period is that at any point in time technological progress is nearly negligible, population growth is nearly negligible, human adaptation is nearly negligible. The 𝟹𝟶𝟶,𝟶𝟶𝟶 year period is an enormous period and over this period, we move from stone tool technology to steam engine technology, we move from population on planet Earth that is about 𝟸.𝟻 million in the eve of the agricultural revolution 𝟷𝟸,𝟶𝟶𝟶 years ago to about 𝟷 billion people in the midst of industrialization, a 𝟺𝟶𝟶-fold increase, and we see great adaptation of the human population through the technological environment and at the same time, the geographical environment. And it is this Malthusian dynamics that ultimately rescues humanity from the poverty trap, the Malthusian trap, and permits the transition from stimulation to growth.

(15:46) So there are three critical elements in the Malthusian Epoch that will be critical in understanding and resolving the mystery of growth and the mystery of inequality. The first one is the impact of technology on the size of the population. So during the Malthusian Epoch, technological progress naturally led into an increase in income per capita. But unlike today's world in which this increase is relatively current, this was only a short-run effect. And why is it so? Because the increase in population growth, the increase in income per capita generated a reduction in child mortality, generated an increase in fertility rate and as a result of it, population grew and the resources that were generated by technological progress were divided over a larger population and consequently, income per capita inevitably reverted back to the previous equilibrium position. So when technology arrived, there was a spike in income per capita, but it was not long-lasting. Income per capita reverted back to the previous equilibrium position. Why is it so important? Because it implies that during the Malthusian Epoch, technologically advanced societies or land-rich societies had higher population density, but very similar level of income per capita. Unlike today's world, in which technologically advanced societies are more prosperous, in the past, technologically advanced societies like China, were more populous, not more prosperous.

(17:30) And the evidence are very striking about it. Look at the relationship between land productivity and population density in the year 𝟷𝟻𝟶𝟶, for instance, you can see the places that are more productive had higher population density. But if you look at the relationship between land productivity and income per capita, there is no relationship, namely, places that had higher land productivity and more people, but not richer people. And the same is true in terms of technology. In those societies where technology was more advanced, we see greater population density, but very similar level of income per capita. So that's one important element of the Malthusian Epoch. When technology advanced, more people were supported, but not richer people.

(18:23) The second element that is important for the resolution of the mystery of growth and the mystery of inequality is the impact of technological progress on human adaptation. So, as I said, the Malthusian pressure affected the size of the human population, but at the same time, it affected the composition of the population. Survival was not random. Survival was based on the adaptability to the technological environment. So traits that were complementary to the growth process generated autologically higher income and as a result of it, in the Malthusian world, higher reproductive success, and therefore, they became more prevalent in society. And this implies that human adaptation over this time period raised the prevalence of complementary traits to the technological environment and reinforced the process of development and ultimately the takeoff from stagnation to growth. This is the second key element, human adaptation that is reinforcing the growth process.

(19:31) And the third element has to do with the origins of technological progress over this time period. During this time period, the size of the population and the composition of the population fostered technological progress. Why is it so? Because larger populations and larger number of potential innovators and is a factor in the supply of innovations. And larger populations generated larger demand for innovations, and again, this fostered technological adaptation. In addition, it generated greater diffusion of knowledge, permitted a division of labor and trade and consequently affecting the technological environment.

(20:12) So what we see in the course of human history, there are certain winds of change that are governing the process of development. And there are three of them. And during the Malthusian Epoch, it is the size of the population and the composition of the population based on human adaptation that affects technological progress, and in turn, technological progress is governing the size of the population and the composition of the population. And these winds of change are rotating gradually in the course of human history. We start with a modest population in Africa 𝟹𝟶𝟶,𝟶𝟶𝟶 years ago. This population is equipped with the human brain, they are able to develop new technologies, these technologies support more people, more people support better technology, etc. Initially, the pace is very, very slow. We move from one stone technology to another stone tool technology over thousands of years. But the process becomes more and more rapid, and as I said earlier, in the course of this process, we see that the size of the human population increases more than 𝟺𝟶𝟶-fold even in the course of the past 𝟷𝟸,𝟶𝟶𝟶 years. Now, why is it so important? It is important because at a certain point, humanity reaches a tipping point, if you wish, in which technological progress is so rapid, that in order to cope with the rapidly changing technological environment, individuals must start to invest in their education. So, human capital becomes essential to permit individuals to cope with the rapidly changing technological environment. How do you invest in human capital? Parents are quite poor. They cannot economize on their own consumption and as a result of it, they are forced to reduce their fertility rates. So, responsible parents are forward looking. They understand that their children will operate in an environment in which human capital, education broadly speaking, will be very important. They start to invest in education, but they cannot afford the same number of children. They reduce the fertility rate. Why is it very important? Because this implies that the Malthusian equilibrium vanishes and the counterbalancing effects of population on the progress of technology is being eliminated. So the growth is freed from the counterbalancing effect of population and the holy triangle, if you wish, technological progress, human capital formation and the decline in population growth are all pushing the world into the sustained Growth Regime.

(23:01) So this can illustrate for you the theory that I just proposed, that as I said, is based on quite a profound mathematical theory that is known as Unified Growth Theory that I advanced in the past 𝟸𝟶 years or so. What you can see here quite clearly is that we start in Africa with a certain size of population. As I said, these people are equipped with the human brain and they are able to advance the technology. Technological advancement permits more people to be supported, but in addition, it changes the composition of the population due to human adaptation. And the winds of change are rotating and reinforcing one another over a prolonged period of time, up to the point in which technological progress is rotating rapidly, very rapidly. The importance of human capital is growing and growing and growing. It doesn't have an effect until we reach a tipping point. At this tipping point, we really truly see a phase transition, a bifurcation point in which suddenly, individuals are investing in human capital, their fertility is starting to decline and the world is gravitated towards the Modern Growth Regime.

(24:22) Now to understand it in a different way, think about the phase transition that perhaps is more familiar to you, which is the phase transition that we see in nature from liquid to gas. As we know, when we heat water, at a certain point when the water temperature reaches 𝟷𝟶𝟶˚C, we see a transition, a phase transition from liquid to gas. Now but in this process, we don't see this transition taking place for a long period of time. The temperature is increasing and increasing and increasing. There is a tipping point that is associated with the phase transition. Same is true in the course of human history. Technological progress starts to increase, very modestly initially, accelerates, and then it reaches a critical point. When it reaches this critical point, we see a phase transition. Literally, a phase transition in the sense that we move from one equilibrium to another and under the new equilibrium, in fact, investment in human capital is taking place, fertility starts to decline, the growth process is free from the counterbalancing effect of population and the world is sailing into the Modern Growth Regime. But very importantly, as you've seen in nature, not all water molecules are converted from water to gas at the same speed, some of them are converting earlier than others. And the same is true in the world economy. Not all societies, not all regions are moving from the Malthusian Epoch into the Modern Growth Regime at the same time and as a result of it a huge divergence is taking place in the world economy.

(26:07) Now, so when you think about the march of humanity, it appears to a large extent that the march of humanity thus far has been unstoppable. If you think about shattering and dreadful events in the distant past, say the Black Death in the middle of the 𝟷𝟺ᵗʰ century or World War I and World War II in the 𝟸𝟶ᵗʰ century, the Great Depression, the Spanish Flu and most recently COVID-𝟷𝟿, it appears that these events are devastating the population that are living through them, but ultimately, they have limited impact on the grand arc of human development, namely, the grand arc of human development is ultimately driven by these winds of change that are operating relentlessly. It can slow down for a moment due to a potential crisis, but in the end, drivers of human history are unstoppable up to this point in time. And beyond that, look at the Black Death, for instance, it appears that living standards are recovering quite swiftly from each of these catastrophes, and in some sense, humanity is recovering from these dreadful events with greater strength and greater resolve.

(27:29) But the question is whether climate change, in fact, will be the most important and the most devastating catastrophe of all that will ultimately derail humanity from its long-run march. And here, the journey of humanity is providing some hopeful outlook. And the hopeful outlook is not based on a naiveté about the world. Naturally, climate change is quite a challenge, but nevertheless, the hope is coming from the following observations – if you should think about climate change it is originated by technological acceleration that is bringing about steam engine technology, industrialization, industrial pollution and climate change. But this technological acceleration, as I’ll argue momentarily, is associated with additional forces. It is associated with human capital formation. Society is much more educated and as a result, we can understand the looming catastrophe that is associated with climate change and perhaps reform behaviors accordingly. But perhaps most importantly, it is associated with the power of innovations. And we saw this power of innovations in the context of COVID-𝟷𝟿. If COVID-𝟷𝟿 would have affected humanity 𝟸𝟶𝟶 years ago, perhaps COVID-𝟷𝟿 would have lasted for decades and would have devastated humanity to an enormous extent. But here the ingenuity of humanity is permitting us to develop mRNA technologies within a year and to a large extent, allow us to sit in this room maskless, except for one individual, and enjoy the benefits of modern technologies. So again, we develop the power of innovation and we saw in the past that human ingenuity is such that, in fact, it will come to our rescue when it will be needed.

(29:39) Now in addition, what we see during this time period is the persistent decline in fertility. As you know, even India reduced fertility rate just below replacement level a few months ago. And this implies that the number of polluting individuals will decline gradually. This implies that, in fact, the burden on the environment will decline temporarily and this mitigation of the current trend of climate change will buy scientists three or four decades to develop revolutionary technologies that perhaps will turn this climate change into a fading memory, not immediately, but perhaps a century from now. So again, the conviction here is not based on naiveté, it's based on the fact that we need not to be complacent. We need to adopt environmentally friendly technologies. We need to be engaged in setting very strict standards about carbon emissions. But if we encourage further fertility decline, we will be in a position to buy scientists a few decades, in which as I said, human ingenuity perhaps can generate the type of technologies that will turn this climate crisis into a fading memory.

(30:59) Now, the second part of the book is dealing with the mystery of inequality, namely, what are the roots of global inequality as we see it today? As I argued before, if you look at inequality today, much of it was originated in the beginning of the 𝟷𝟿ᵗʰ century at a time when societies took off from stagnation to growth.

(31:22) Now, when you think about proximate causes of uneven development across the globe, it is tempting to say that the differences across societies are based on differences in human capital formation, physical capital formation and technological level, namely, the societies that are more advanced are investing more in education, more in physical capital and more in technologies. This doesn't take us anywhere because the question is why some societies fail to efficiently invest in physical and human capital and why some societies fail to adopt advanced technologies.

(32:00) In order to resolve these issues, we have to ask ourselves, what are the historical and pre-historical barriers in the process of development, namely, how deep-rooted factors affected this differential timing of the transition from stagnation to growth. And when I will refer to deep-rooted factors, I will refer to institutional characteristics and cultural characteristics. And ultimately, I will refer to what I will define as the ultimate factors and the geography and societal characteristics, as I will define momentarily.

(32:37) So let's start with institutions. Let's think about the fingerprints of institutions in the context of inequality as we see it today. Literally, if we review the history of the world, we see the emergence of differential institutions across societies. We see that some societies are adopting growth-enhancing, inclusive institutions, democratic institutions, and other societies are adopting growth-retarding extractive institutions. And naturally, this differential adoption is contributing to the gap that we see across nations. Naturally, when you think about differential institutions across the globe, institutions are not ‘manna from heaven’. Typically, they are not occurring out of the blue, they are adapting to the environment in which people are operating. So yes, there are some instances in human history in which institutions are emerging in some 'critical junctures', some random junctures in human history. Think, for instance, about the effect of the Black Death. The Black Death is generating scarcity of labor, and as a result of it, it leads into the decline of feudalism here in the UK and ultimately leads into the emergence of property rights and perhaps to an early industrialization. The Black Death is naturally a random event that potentially contributed to the emergence of differential institutions across the globe. Or  you can think about the Glorious Revolution. Naturally, one can think about counterfactual history, in which in fact, James II would have defeated William of Orange, The Glorious Revolution would not have occurred and Britain would have remained an absolute monarchy rather than a constitutional monarchy. So yes, this is a random event that led into the emergence of a constitutional monarchy and arguably, to industrialization. You can think about perhaps the most striking element which is the division of Korea along the 𝟹𝟾ᵗʰ parallel that naturally generated the communist hell in the north and perhaps a democratic pseudo heaven in the south. This is a random event associated with an institution that is generating divergence, but as I said, these are the rare instances in human history that we can count on one hand and perhaps we will need a few more fingers from the next hand. In most cases, institutions evolved gradually in the course of human history. So when society is moving through the Neolithic Revolution, we see an increase in population density, and as a result of it, great demand for institutions that will permit individuals to cooperate in the construction of public goods, that will protect property rights and will permit certain cohesiveness in the operation of the society. Alternatively, think about the suitability of land for large plantations. Those societies that resided in places where the crops were such that it was suitable for large plantations ultimately generated very large landowners that had a say in the political arena, and as a result of it, we see the implementation of extractive institutions and ultimately, even the horrific institution of slavery. We can think about the disease environment and its effect on population density and the delayed adoption of centralized institutions. So the bottom line is, institutions are, of course, very important but to a large extent, institutions are a byproduct of earlier processes that are triggering the development of one type of institution over another.

(36:39) So this leads us to step back in human history and to think about the cultural factor. What is the effect of culture on economic development? As was the case with institutions, naturally, if we look at human history, at a certain point in human history, we see the emergence of differential cultural traits across regions. Think about it in the context of Northern Italy versus Southern Italy. So we see growth-enhancing traits such as social capital that are emerging in Northern Italy and we see growth-retarding traits such as family ties that are emerging in the south and they are leading into divergence in a place like Italy that has the same political institutions. But again, as I said before, cultural traits are rarely manna from heaven. There are some instances in which random growth-enhancing cultural mutations occurred and perhaps the most prominent case is coming from Judaism, in which mandatory literacy in the 𝟷ˢᵗ century CE that was not associated with any economic motivation, led ultimately into the emergence of investments in human capital that persisted because of the ultimate rewards to human capital in the urban environments. Or we can think about it in the context of the Protestant Reformation in which emphasis of thrift and entrepreneurship ultimately prevail. But again, the beginning is not necessarily economically motivated. And as I said, in the context of institutions, culture largely evolved and adapted to the environment in which people operated. When the return to human capital increased, we see a gradual change in the cultural attitude towards child quality, towards education. Environments that are characterized by higher crop yield, crops that are generating a higher return than other ones are environments in which farmers are induced to be engaged in planting and harvesting. This is a behavior that requires future-oriented mindsets, and as a result of it, future-oriented mindset is evolving in some regions of the world and not in others. In regions in which climatic volatility is very pronounced, we see the emergence of loss-aversion, and as a result of it, the depression of entrepreneurs spirit. In regions in which suitability of land for the use of the plow is very pronounced, we see gender division of labor, due to the fact that the plow requires upper body strength, and consequently gender biases that persist to the present. So again, cultural factors are very important, but they're not a prime element. There is a factor behind them.

(39:37) So this leads us to the shadow of geography, namely, how geography affects much of the inequality that we see across the globe. You can think about geographical characteristics in the form of soil quality, in the form of climate, the disease environmental or even geographical isolation. And they have an indirect long shadow impact on, as I said, the evolution of cultural and institutional characteristics. In addition, geography has a direct effect on the evolution of societies by depressing labor productivity, by depressing human capital formation or by depressing trade and technological progress in the context of isolation. But this is not necessarily the long shadow of geography; this is the direct, immediate effect of geography. So geography is very important for the understanding of the evolution of culture and the evolution of institutional characteristics.

(40:39) But when we think about geography and we think about different layers of influence, and in the second part of the book I'm peeling gradually different layers of influence – colonialism, institutions, culture, geography, and now I’m getting into the Neolithic Revolution. As we know, about 𝟷𝟸,𝟶𝟶𝟶 years ago, some societies are transitioning from hunter-gatherer stage of development into agricultural stage of development. This transition from hunter-gatherer tribes to agricultural communities is associated with the emergence of non-food-producing class. This non-food-producing class is associated with knowledge creation in the form of science, technology and written languages and it generates a technological head start and those societies that are moving into the Neolithic earlier have a technological edge that persists over time. And according to Jared Diamond in his influential thesis, much of the variations in income per capita across the globe today can be traced to the differential timing of the Neolithic Revolution across the globe. Those societies that moved earlier are more prosperous today. Unfortunately, the Diamond hypothesis as it's related to today's world is entirely false. Although it is entirely accurate in understanding the past, namely, variations in the Neolithic Revolution explain variation in income per capita in the Middle Ages fantastically well, but they're entirely mute in understanding income per capita today Aad the reason is the following, the Diamond hypothesis is right. The Neolithic Revolution is generating a technological head start, but in addition, it generates comparative advantage in agriculture and as we move into the modern world and as we move into a globalized world, specializing in agriculture is a dead end. It has limited externalities, limited spillovers in terms of education and ultimately, this cancels the beneficial effect of the technological head start. As I said, the Diamond hypothesis is very intriguing, but it's not really relevant for the understanding of the world in which we live today. It is very relevant with understanding of the world up to the year 𝟷𝟻𝟶𝟶.

(43:08) So if you remember when I started my discussion, we started in Africa and we marched forward from Africa to the present. In the second part of the book I am taking a step backward, looking at the contemporary world and I'm moving all the way back to Africa. Why do I move back all the way to Africa? Because it turns out that the exodus of anatomically modern human from Africa 𝟼𝟶,𝟶𝟶𝟶 to 𝟿𝟶,𝟶𝟶𝟶 years ago had a tremendous impact on the distribution of population diversity across the globe, and ultimately, comparative development.

(43:45) Let me try to explain the argument very quickly. So during the exodus of modern humans from Africa, as I said, 𝟼𝟶,𝟶𝟶𝟶 to 𝟿𝟶,𝟶𝟶𝟶 years ago, departing populations carried with them only a subset of the diversity that existed in the original population. And why is it so? Well, this is a simple statistical theory. The population in Africa is small. The departing population is small. If you draw from a limited distribution, the draw is not a representative sample, some of the traits that existed in Africa are being lost in the process. Now, when I'm referring to population diversity it's a very broad concept. It's cultural diversity, phenotypic diversity, behavioral diversity, linguistic diversity and all these processes are affected by this compression. Now, migration is sequential and consequently lower diversity will be found among ancesteral populations at greater migratory distances from Africa.

(44:53) Let me show it to you here. So if we have an initial population in Africa with a certain degree of diversity, certain diversity in cultural traits and this population is migrating into the Fertile Crescent. According to this idea that is known as the serial founder effect, the population that will reside in the Fertile Crescent will be less diverse. Some traits will be lost in this migratory process. Then this population is residing in the Fertile Crescent expanding upon a point in which the carrying capacity of the environment is no longer sufficient and they continue to migrate. Some move westward 𝟺𝟻,𝟶𝟶𝟶 years ago into Europe, and again, there is a decline in diversity. Others are moving gradually into the Americas crossing the Bering Strait 𝟸𝟻,𝟶𝟶𝟶 years ago, reaching South America 𝟷𝟺,𝟶𝟶𝟶 years ago. And as you can see in this process, the further you are from Africa, the lower is the level of diversity that you will find across the globe. And the evidence is striking. You look at migratory distance from Africa in ten thousands of kilometers and you look at diversity and we can measure it in different ways, the same outcome will emerge. You can see the striking negative relationship, namely, the most diverse population in the world is the African population, followed by the European population, the Asian population, the Oceanian population and Native Americans in America.

(46:25) Now why is it so important? It is so important because diversity has conflicting effects on economic development. They have beneficial effects on creativity and innovations because diversity is associated with cross fertilization of ideas, complementarities in the production process, but at the same time, there are adverse effects on social cohesiveness. More diverse societies tend to suffer from mistrust and the evidence is striking. More diverse societies tend to disagree about the desirable public goods and consequently more diverse societies tend to be more engaged in conflicts.

(47:06) And this implies that if we have positive and diminishing effects of diversity on innovations and positive and diminishing effects of homogeneity on social cohesiveness, then one should expect a handshake relationship between diversity and productivity, and the evidence is striking.

(47:26) You look at the world, this is in the context of organization in the year 1500, there is a sweet spot level of diversity. There is an intermediate level of diversity that maximizes productivity. Look at the world in the year 𝟸𝟶𝟶𝟶, again, there is a sweet spot level of diversity. But importantly, if you look at the sweet spot level of diversity in the year 𝟷𝟻𝟶𝟶, it is associated with societies such as China, Korea and Japan. It will not typically appear to us as optimally diverse, and this is a different period. Technology is not advancing very rapidly and cultural fluidity is not needed to be prosperous in terms of productivity. It is much more important to be socially cohesive. But as we move to today's world, in fact, a society at the tip of the hump is the United States, namely, in that sweet spot level of diversity increasing the process of development is expected to continue to increase as we march forward.

(48:30) And if you look at all ethnic groups across the globe, 𝟷,𝟸𝟼𝟻 ethnic groups that are recorded in the graphic Atlas, the same pattern will emerge starting from 𝟷𝟶,𝟶𝟶𝟶 BCE to the year 𝟷𝟻𝟶𝟶, pronounced hump-shaped relationship. Now, this is not only statistically significant, it is enormously significant from an economic viewpoint, as I will show you momentarily.

(48:56) But let's think about the picture as a whole. We talked before about the winds of change, population size, human adaptation and technological progress. And as I said, they rotated in the course of human history up to a point in which a tipping point was reached and ultimately the world marched from the Malthusian Epoch into the Modern Growth Regime. Naturally, this rotation is not occurring in a vacuum. It is occurring in a context that is partly based on institutions and culture. For instance, if we have institutions that are protecting property rights, technological progress will be faster than otherwise. These institutions and cultures are those affected by technological progress, by the size of the population and the composition of the population and affecting it at the same time. And then we have the initial factors, the ultimate factors, geography and migratory distance from Africa, that again, are affecting institutional development, that are affecting cultural factors and affecting the winds of change. And as a result of it, some societies are taking off earlier than others because of historical conditions that led into greater rotations of these routes of change and brought, as I said, takeoff in Europe that is culturally fluid, for instance, earlier than in China that is relatively homogeneous a culture.

(50:22) Now, if you ask yourself, what is the magnitude of the effect that we are referring to? It turns out the deep-rooted factors, factors that were determined hundreds of years ago, thousands of years ago and even tens of thousands of years ago, explain 𝟾𝟼% of the variations in income per capita today. And if you think about the different forces that I refer to, the dispersal of humans out of Africa that occurred earlier, explain about 𝟷𝟽% to 𝟸𝟼% of the variation in income per capita today. Time since human settlement and the Neolithic Revolution is about 𝟹%. It is mostly time since human settlement because, as I told you, the Neolithic Revolution has little explanatory value. Geo-climatic factors, incredible impact, 𝟸𝟽% to 𝟹𝟾%, the disease ecology, 𝟿% to 𝟷𝟺%, cultural factors about 𝟸𝟶% and political institutions in the form of executive constraints and Polity Ⅳ between 𝟹% and 𝟿%. So what you can see here is that there are many factors, I mean, the view of human history is rather holistic. There are many factors that are affecting economic development and if we want to resolve inequality, we have to tackle them individually.

(51:46) Now, just before closing, does this imply that history is a fate? Does this imply that in fact, that one cannot mitigate the legacy of these historical conditions? And the answer is, history is of course, not a fate. What in fact, we are learning here is that if we understand our history better, we will be in a better position to design our future, but in a very particular way. We want to develop growth-enhancing policies. These growth-enhancing policies have to be country-specific, history-specific. World Bank policy of one-policy-fits-all does not apply here. Naturally, each society has particular elements, particular hurdles in their process of development and one has to mitigate each of these individual hurdles. So this policy will be history-specific, country-specific, geography-specific. One policy does not fit all nations.

(52:53) Let me give you one example before closing. Think about the issue of diversity. If you take societies that are highly diverse, say African societies, and as a result, they suffer greatly from civil conflicts, as we know. And in these particular societies, education is important, but the curriculum is as important. Namely, we have to emphasize, we have to use resources to assure that there is more social cohesiveness, there is more tolerance, there is more respect for difference, there is more respect for other ethnic groups, somehow developing the ability of society to cherish pluralism. But if you take societies in the other end of the spectrum, societies that have very homogeneous, societies like Bolivia, for instance, then the challenge there is very different. Education policy in Bolivia will have to generate more diversity than is present at the moment, namely, educating children how to think outside of the box, allowing children to feel comfortable with challenging the status quo, namely, developing pluralism in a place where pluralism is absent otherwise.

(54:08) If you think about cultural traits, if in fact, we are targeting a particular society that is lacking future-oriented mindsets, then again, if it turns out to be the case that the native crops that are relevant for this particular societies were not conducive for agricultural investment, and as a result of it, were not generating future-oriented mindsets among these cultural national populations, then again, more resources should be targeting this particular element in this particular society. This will not be needed in Europe, where in fact, native crops were very conducive for agricultural investment and developed great amounts of future-oriented mindsets. And this can be very relevant for other societies, and again, implies that resources will have to be used very wisely.

(55:06) Now broadly speaking, when you think about progressive policies, typically, some of us wish to adopt progressive policies because of our moral values. Here, the suggestion is that many progressive policies are in fact economically efficient and they hold the key for human prosperity. And this is gender equality and its impact on labor force, participation of women and a reduction in fertility, tolerance and its ability to affect the societies that are very diverse in benefiting from cross fertilization of ideas and generally the virtues of diversity that according to this study, will increase over time and will become more and more pronounced.

(55:55) Thank you very much. [