For most of history, economic gains were swallowed by population growth
Before industrialisation, every advance in farming or technology mostly produced more people, not richer ones, as food supplies capped living standards. Economists call it the Malthusian trap. The Industrial Revolution broke out of it because output rose faster than population, and ordinary incomes began a climb that has not stopped.
Economic growth means a society producing more and better goods and services, usually measured as the rise in inflation-adjusted GDP or GDP per person. Economists separate intensive growth, from using labour, capital, energy and materials more efficiently, from extensive growth, which just adds more inputs. Short-term swings, including recessions that shrink output and raise unemployment, ride on top of the long-run trend and are hard to predict.
Rising labour productivity has been the biggest driver of higher living standards. In a famous estimate, MIT's Robert Solow attributed 80 percent of the long-term rise in American income per person to technological progress, leaving only 20 percent to extra investment. Productivity also lowers real costs: over the 20th century many goods fell in real price by more than 90 percent. Specialisation, the ever finer division of labour, plays a central part as well.
The first industrial era swapped hand methods for machines and made metal parts cheap enough to be interchangeable. The second replaced muscle, human and animal, with steam, electricity and internal combustion. Railways, steamships, reapers, steam-powered factories and cheap steel lifted late 19th century output. Mass production in the 1920s arguably contributed to overproduction and the Great Depression, after which demand for cars, telephones and other goods helped growth resume. As industrialised countries got richer their population growth slowed, a shift known as the demographic transition.
American growth slowed after 1973 while Asia surged, first Japan, then the Four Asian Tigers, China, Southeast Asia and the Indian subcontinent. South Korea is the starkest case: in 1957 its income per person was below Ghana's, and by 2008 it was 17 times higher. Japan's own growth has slowed markedly since the late 1980s, and US productivity briefly spiked between 1996 and 2004.
Source: Economic growth
