_9_ _Ways Out of Poverty - Diffusing_<sup>_Best Practices and CreatinmCapabilities_</sup>

**The diffusion of ideas and**<sup>**incomegrowth.**Technicalandorganizational innovations</sup> have led to an unprecedented<sup>creationof wealth (box1).Innovations havethe nice</sup> feature that, unlike physical<sup>objects, theycan be used over and over again,if they can be</sup> communicated.<sup>2 3</sup> It is this<sup>feature of ideas that makes it possible for poor countriestoday</sup> to raise incomes much faster<sup>than has ever before beenfeasible.</sup>

## **Box** 1: The speed of wealth creation

Before the 18kh century per<sup>capitaincome grew very slowly.When they grew,populationgrowthnsked</sup> offsetting any progress, just<sup>as T. Robert Malthus arguedat the beginning of the mdustnalrevolution.In</sup> the run-up to the industrial<sup>revolutionper capita incomestartednsing. However,it took some350 years</sup> for incomes to double in pre-industrial<sup>Europe.During theindustrial revolution,the richest country,</sup> Britain, initially (1780- 1830)<sup>saw average individual incomesriseat a speed that wouldhave required</sup> 175 years to double them.<sup>Thereafter growth pickedup. Britainwas able to double per capita incomes</sup> within a span of 65 years in<sup>thelate19"hcentury.At the timeno other country couldrival this</sup> performance. However, by<sup>thesecond half of the</sup> 2<sup>0d' century,a whole rangeof countries,for example</sup> Botswana, Chile, China, Ireland,<sup>Japan, Koreaand Thailand were able togrow for sustained penodsat</sup> rates that doubled per capita<sup>incomein about10to 15years.</sup>

# Source: Cameron (1991); Crafts<sup>(2000).</sup>

For the first time in human<sup>historyit has becomepossiblefor largenumbersof people to</sup> escape from poverty within<sup>a life span.Today people in poorer countries can make use of</sup> new technology, new learning,<sup>and betterways of doing thingsthat were developedin</sup> more advanced economies.<sup>Theycan learnfrom organizational innovationin both firms</sup> and governments. Openness<sup>tolearnfrom other countries-or withina countryfrom</sup> centers of growth-is thus critical<sup>for rapid income growth and poverty reduction. 24</sup> The diffusion of ideas has<sup>also becomeeasier.Many more ideas are recorded, and the</sup> means of communication<sup>have becomefaster,moreefficientand more ubiquitous.Ideas</sup> might not move quite as<sup>easily asfinance these days,but onecanacquire newideas</sup> embodied in imported machines,<sup>buy technology licenses,study at home or abroad,and</sup> use the Internet. And Korea<sup>shows that acquiring new technologyand ideasfrom</sup> overseas is fairly cheap.<sup>It spent less than1.5 percentof theincreasein GDP over1973-</sup> 79 on the technology licenses<sup>that underpinnedmanufacturinggrowth.2 5</sup>

## **23** Romer, 1993.

**24** Note that the static efficiency<sup>gais from tradeliberalization cannot explain the main benefits from</sup> openness. Static gains from<sup>tradeare typically one-off benefitsin the orderof 2 percent of GDP or maybe 4</sup> to 6 percent of GDP in the<sup>presenceof product differentiationor economiesof scale.These areimportant</sup> but not nearly as important<sup>as thegainsfrom learningthat drive successfulgrowth processes.</sup> **25** See Olson, 1996. More<sup>generally, while innovatorscan earna fair deal of money,they rarely receivethe</sup> full rents from their innovation.<sup>For example,Thomas AlvaEdison receivedbut a fraction of the benefits</sup> that electric light created. Even<sup>patent protection, unlessexcessive, just affords the innovating firm on</sup> average with a normal rate of<sup>returnon thecost of invention.Patent protectionis meant to preventthat new</sup> ideas are simply made available<sup>for free so that mventorsretain an mcentiveto spend time and money to</sup> mnovate. But most of the<sup>benefitsof successfulinventionsare passedto consumersin competitive markets.</sup>