The Catch-Up

The churn describes growth at the frontier — how the leading economies extend the boundary of what is known. But the frontier is where only a handful of nations live. For most of the world, growth is not a matter of inventing new methods but of acquiring methods already invented — of catching up to a frontier that others have pushed far ahead. This catch-up is the heart of the question the volume was built around: why have some nations, starting behind, surged forward to join the rich, while others, no less able, have remained poor? In principle, catching up should be the easier kind of growth, for the latecomer need not bear the cost and the risk of invention; he can copy what already works, borrowing the accumulated knowledge of the leaders. And yet catch-up has proved spectacularly uneven — a few nations have accomplished it in a single generation, while many have tried and failed for centuries. The puzzle of growth, for most of the world, is the puzzle of why the seemingly easy task of catching up is so hard.

Alexander Gerschenkron, studying how the latecomers of Europe industrialized, drew the paradox sharply: backwardness, he argued, carries advantages as well as burdens. The latecomer can skip the long, costly path the pioneer had to blaze; he can import the most advanced technology directly, rather than developing it through generations of trial and error; he can adopt, in a single leap, what the leader reached only by a long climb. The advantages of backwardness mean that, in principle, the further behind a country starts, the faster it can grow once it begins, because the larger is the stock of existing knowledge it can borrow and the bigger the leap it can make. This is the optimistic logic of catch-up and convergence: the gap itself is an opportunity, the distance to the frontier a measure of how fast one might travel by borrowing what lies along the way. The poor country, precisely because it is poor, has the most to gain and the fastest possible growth available to it — if it can seize the opportunity.¹

The "if" is everything, and it is where catch-up so often fails. Borrowing a technology is not as simple as copying a blueprint, for a method invented in one place does not work in another unless the conditions to use it are present. The borrowed machine needs capital to buy it, workers skilled enough to run it, managers able to organize it, infrastructure to power and supply it, and markets to sell its output. More deeply, it needs institutions that make its adoption worthwhile and possible: secure property, so that the investment in the new method is not expropriated; functioning finance, so that it can be paid for; an educated workforce; and, crucially, the absence of the resistance the churn described — the freedom of the new method to displace the old without being blocked by those it threatens. Catch-up fails, again and again, not because the technology is unavailable — it can be bought, copied, even given away — but because the borrowing country lacks the conditions to absorb it. The knowledge is non-rival and freely available; what is scarce is the capacity to use it. And that capacity is what most poor nations lack, and cannot quickly build.²

This explains a puzzle in the data that defeated the simple Solow prediction. The Solow model predicted unconditional convergence: poor countries, with scarce capital and high returns, should grow faster and catch up to rich ones. They have not, in general; the gap between rich and poor nations has widened, not narrowed, over two centuries. But a subtler pattern does hold: conditional convergence. Among countries that share the conditions for growth — similar institutions, education, openness — the poorer do tend to grow faster and converge. Convergence happens, but only among the conditionally alike; it is not a gravitational pull that draws all nations together, but an opportunity that only those with the right conditions can seize. The countries that have caught up — the rebuilt economies of postwar Europe and Japan, the rising economies of East Asia — did so not merely because they were poor and had room to grow, but because they had, or built, the conditions to absorb the world's knowledge: the human capital, the institutions, the openness to the frontier. The countries that have not caught up lacked those conditions, and their poverty, far from guaranteeing the fast growth the simple model promised, persisted because the opportunity of backwardness went unseized.³

Here, then, is the volume's answer to the question the author placed at its center: why did some nations grow rich while others, no less able, did not? Not because some had more capital and others less — capital flows, and can be accumulated. Not because some had access to better technology and others worse — technology is knowledge, non-rival and largely available to all. Not because the peoples differed in ability — they did not. The nations that grew rich were those that built the conditions to generate and to absorb the world's growing stock of knowledge: the institutions that secured the gains of investment and innovation, the openness that let the frontier's methods flow in, the education that let the workforce use them, and the freedom that let the new displace the old. The nations that stayed poor were those where these conditions were absent — where property was insecure, where the powerful blocked the new to protect the old, where the society was closed to the knowledge beyond its borders. The difference, in a word, was not in the knowledge available, which was the same for all, but in the capacity to use it, which was not. And that capacity is built, or blocked, by the institutions the architect described — which is how the question of growth runs back into the question of the rule.⁴

The catch-up completes the volume's account of where growth comes from and why it is so unequal. Growth at the frontier is the churning creation of new knowledge; growth behind the frontier is the absorption of knowledge already created; and both depend on the conditions — the capital, the skill, and above all the institutions — that let knowledge be made and used. Through every plate runs a single thread, now ready to be drawn out: that the deepest source of growth is not the accumulation of things, which diminishing returns defeat, but the accumulation and the use of knowledge, which obeys a different and a more generous law. Capital runs into diminishing returns and stalls; knowledge does not, because knowledge is not consumed by its use and can be shared without being divided. This is the secret the whole volume has circled — the property that lets growth escape the Malthusian trap and run without end. The flagship draws it out fully: that the wealth of the modern world is the residue of ideas, and that ideas, unlike everything else, do not run out. The next plate is the flagship: the idea.⁵

For most of the world, growth means catching up — acquiring the knowledge that others have already made. Gerschenkron saw the paradox: backwardness is an opportunity, for the latecomer can borrow what the pioneer had to invent, and so leap forward faster than the leader ever climbed. But the opportunity is seized only by those who build the conditions to use the borrowed knowledge — the capital, the skill, the institutions, the freedom for the new to replace the old. Convergence is real but conditional: it draws together only those nations alike in the conditions for growth, and leaves the rest behind. So the answer to why some grew rich and others did not is not a difference in the knowledge available, which is the same for all, but a difference in the capacity to use it, which institutions build or destroy. The knowledge of the world is a common inheritance; what divides the rich from the poor is who has made themselves able to claim it. And that points to the deepest truth of growth, which the flagship now draws out: that knowledge, unlike every other source of wealth, does not run out. The next plate is the idea.