Let's talk about billions. Let's talk about past and future billions.

We know that about 106 billion people have

ever lived. And we know that most of them are dead. And we also know that most of them live or lived in
Asia. And we also know that most of them were or are very poor -- did not live for very long.Let's talk about
billions. Let's talk about the 195,000 billion dollars of wealth in the world today. We know that most of that
wealth was made after the year 1800. And we know that most of it is currently owned by people we might
call Westerners: Europeans, North Americans, Australasians. 19 percent of the world's population
today, Westerners own two-thirds of its wealth.
Economic historians call this "The Great Divergence." And this slide here is the best simplification of the
Great Divergence story I can offer you. It's basically two ratios of per capita GDP, per capita gross domestic
product, so average income. One, the red line, is the ratio of British to Indian per capita income. And the
blue line is the ratio of American to Chinese. And this chart goes back to 1500. And you can see here that
there's an exponential Great Divergence. They start off pretty close together. In fact, in 1500, the average
Chinese was richer than the average North American. When you get to the 1970s, which is where this chart
ends, the average Briton is more than 10 times richer than the average Indian. And that's allowing for
differences in the cost of living. It's based on purchasing power parity. The average American is nearly 20
times richer than the average Chinese by the 1970s.
So why? This wasn't just an economic story. If you take the 10 countries that went on to become the
Western empires, in 1500 they were really quite tiny --five percent of the world's land surface, 16 percent of
its population, maybe 20 percent of its income. By 1913, these 10 countries, plus the United
States,controlled vast global empires -- 58 percent of the world's territory, about the same percentage of its
population, and a really huge, nearly three-quarters share of global economic output. And notice, most of
that went to the motherland, to the imperial metropoles, not to their colonial possessions.
Now you can't just blame this on imperialism -- though many people have tried to do so -- for two
reasons. One, empire was the least original thing that the West did after 1500. Everybody did empire. They
beat preexisting Oriental empires like the Mughals and the Ottomans. So it really doesn't look like empire is
a great explanation for the Great Divergence. In any case, as you may remember, the Great Divergence
reaches its zenith in the 1970s, some considerable time after decolonization. This is not a new question.
Samuel Johnson, the great lexicographer, [posed] it through his character Rasselas in his novel "Rasselas,
Prince of Abissinia," published in 1759. "By what means are the Europeans thus powerful; or why, since
they can so easily visit Asia and Africa for trade or conquest, cannot the Asiaticks and Africans invade their
coasts, plant colonies in their ports, and give laws to their natural princes? The same wind that carries them
back would bring us thither?"
That's a great question. And you know what, it was also being asked at roughly the same time by the
Resterners -- by the people in the rest of the world -- like Ibrahim Muteferrika, an Ottoman official, the man
who introduced printing, very belatedly, to the Ottoman Empire -- who said in a book published in
1731, "Why do Christian nations which were so weak in the past compared with Muslim nations begin to
dominate so many lands in modern times and even defeat the once victorious Ottoman armies?" Unlike
Rasselas,Muteferrika had an answer to that question, which was correct. He said it was "because they have
laws and rules invented by reason." It's not geography.
You may think we can explain the Great Divergence in terms of geography.We know that's wrong, because
we conducted two great natural experiments in the 20th century to see if geography mattered more than
institutions. We took all the Germans, we divided them roughly in two, and we gave the ones in the East
communism, and you see the result. Within an incredibly short period of time, people living in the German
Democratic Republic produced Trabants, the Trabbi, one of the world's worst ever cars, while people in the
West produced the Mercedes Benz. If you still don't believe me, we conducted the experiment also in the
Korean Peninsula. And we decided we'd take Koreans in roughly the same geographical place with, notice,
the same basic traditional culture, and we divided them in two, and we gave the Northerners
communism. And the result is an even bigger divergence in a very short space of time than happened in
Germany. Not a big divergence in terms of uniform design for border guards admittedly, but in almost every
other respect, it's a huge divergence. Which leads me to think that neither geography nor national
character, popular explanations for this kind of thing,are really significant.
It's the ideas. It's the institutions. This must be true because a Scotsman said it. And I think I'm the only
Scotsman here at the Edinburgh TED. So let me just explain to you that the smartest man ever was a
Scotsman. He was Adam Smith -- not Billy Connolly, not Sean Connery -- though he is very smart
indeed. (Laughter) Smith -- and I want you to go and bow down before his statue in the Royal Mile; it's a
wonderful statue -- Smith, in the "Wealth of Nations" published in 1776 -- that's the most important thing that
happened that year ... (Laughter) You bet. There was a little local difficulty in some of our minor colonies,
but ...
(Laughter)
"China seems to have been long stationary, and probably long ago acquired that full complement of
riches which is consistent with the nature of its laws and institutions. But this complement may be much
inferior to what, with other laws and institutions, the nature of its soil, climate, and situation might admit
of." That is so right and so cool. And he said it such a long time ago.
But you know, this is a TED audience, and if I keep talking about institutions,you're going to turn off. So I'm
going to translate this into language that you can understand. Let's call them the killer apps. I want to
explain to you that there were six killer apps that set the West apart from the rest. And they're kind of like
the apps on your phone, in the sense that they look quite simple.They're just icons; you click on them. But
behind the icon, there's complex code. It's the same with institutions. There are six which I think explain the
Great Divergence. One, competition. Two, the scientific revolution. Three, property rights. Four, modern
medicine. Five, the consumer society. And six, the work ethic. You can play a game and try and think of one
I've missed at,or try and boil it down to just four, but you'll lose.
(Laughter)
Let me very briefly tell you what I mean by this, synthesizing the work of many economic historians in the
process. Competition means, not only were there a hundred different political units in Europe in 1500, but
within each of these units, there was competition between corporations as well as sovereigns. The ancestor
of the modern corporation, the City of London Corporation, existed in the 12th century. Nothing like this
existed in China, where there was one monolithic state covering a fifth of humanity, and anyone with any
ambitionhad to pass one standardized examination, which took three days and was very difficult and
involved memorizing vast numbers of characters and very complex Confucian essay writing.
The scientific revolution was different from the science that had been achieved in the Oriental world in a
number of crucial ways, the most important being that, through the experimental method, it gave men
control over nature in a way that had not been possible before. Example: Benjamin Robins's extraordinary
application of Newtonian physics to ballistics. Once you do that,your artillery becomes accurate. Think of
what that means. That really was a killer application. (Laughter) Meanwhile, there's no scientific revolution
anywhere else. The Ottoman Empire's not that far from Europe, but there's no scientific revolution there. In
fact, they demolish Taqi al-Din's observatory,because it's considered blasphemous to inquire into the mind
of God.
Property rights: It's not the democracy, folks; it's having the rule of law based on private property
rights. That's what makes the difference between North America and South America. You could turn up in
North America having signed a deed of indenture saying, "I'll work for nothing for five years. You just have
to feed me." But at the end of it, you've got a hundred acres of land.That's the land grant on the bottom half
of the slide. That's not possible in Latin America where land is held onto by a tiny elite descended from the
conquistadors. And you can see here the huge divergence that happens in property ownership between
North and South. Most people in rural North America owned some land by 1900. Hardly anyone in South
America did.That's another killer app.
Modern medicine in the late 19th century began to make major breakthroughsagainst the infectious
diseases that killed a lot of people. And this was another killer app -- the very opposite of a killer, because it
doubled, and then more than doubled, human life expectancy. It even did that in the European
empires. Even in places like Senegal, beginning in the early 20th century,there were major breakthroughs
in public health, and life expectancy began to rise. It doesn't rise any faster after these countries become
independent. The empires weren't all bad.
The consumer society is what you need for the Industrial Revolution to have a point. You need people to
want to wear tons of clothes. You've all bought an article of clothing in the last month; I guarantee it. That's
the consumer society, and it propels economic growth more than even technological change itself. Japan
was the first non-Western society to embrace it. The alternative, which was proposed by Mahatma
Gandhi, was to institutionalize and make poverty permanent. Very few Indians today wish that India had
gone down Mahatma Gandhi's road.
Finally, the work ethic. Max Weber thought that was peculiarly Protestant. He was wrong. Any culture can
get the work ethic if the institutions are there to create the incentive to work. We know this because today
the work ethic is no longer a Protestant, Western phenomenon. In fact, the West has lost its work
ethic. Today, the average Korean works a thousand hours more a yearthan the average German -- a
thousand. And this is part of a really extraordinary phenomenon, and that is the end of the Great
Divergence.
Who's got the work ethic now? Take a look at mathematical attainment by 15 year-olds. At the top of the
international league table according to the latest PISA study, is the Shanghai district of China. The gap
between Shanghai and the United Kingdom and the United States is as big as the gap between the U.K.
and the U.S. and Albania and Tunisia. You probably assume that because the iPhone was designed in
California but assembled in China that the West still leads in terms of technological innovation. You're
wrong. In terms of patents, there's no question that the East is ahead. Not only has Japan been ahead for
some time, South Korea has gone into third place, and China is just about to overtake
Germany. Why? Because the killer apps can be downloaded. It's open source. Any society can adopt these
institutions,and when they do, they achieve what the West achieved after 1500 -- only faster.
This is the Great Reconvergence, and it's the biggest story of your lifetime.Because it's on your watch that
this is happening. It's our generation that is witnessing the end of Western predominance. The average
American used to be more than 20 times richer than the average Chinese. Now it's just five times, and soon
it will be 2.5 times.
So I want to end with three questions for the future billions, just ahead of 2016, when the United States will
lose its place as number one economy to China. The first is, can you delete these apps, and are we in the
process of doing so in the Western world? The second question is, does the sequencing of the download
matter? And could Africa get that sequencing wrong? One obvious implication of modern economic
history is that it's quite hard to transition to democracy before you've established secure private property
rights. Warning: that may not work. And third, can China do without killer app number three? That's the one
that John Locke systematized when he said that freedom was rooted in private property rights and the
protection of law.That's the basis for the Western model of representative government. Now this picture
shows the demolition of the Chinese artist Ai Weiwei's studio in Shanghai earlier this year. He's now free
again, having been detained, as you know, for some time. But I don't think his studio has been rebuilt.
Winston Churchill once defined civilization in a lecture he gave in the fateful year of 1938. And I think these
words really nail it: "It means a society based upon the opinion of civilians. It means that violence, the rule of
warriors and despotic chiefs, the conditions of camps and warfare, of riot and tyranny, give place to
parliaments where laws are made, and independent courts of justicein which over long periods those laws
are maintained. That is civilization --and in its soil grow continually freedom, comfort and culture," what all
TEDsters care about most. "When civilization reigns in any country, a wider and less harassed life is
afforded to the masses of the people." That's so true.
I don't think the decline of Western civilization is inevitable, because I don't think history operates in this
kind of life-cycle model, beautifully illustrated by Thomas Cole's "Course of Empire" paintings. That's not the
way history works. That's not the way the West rose, and I don't think it's the way the West will fall. The
West may collapse very suddenly. Complex civilizations do that, because they operate, most of the time, on
the edge of chaos. That's one of the most profound insights to come out of the historical study of complex
institutions like civilizations. No, we may hang on, despite the huge burdens of debt that we've
accumulated, despite the evidence that we've lost our work ethic and other parts of our historical mojo. But
one thing is for sure,the Great Divergence is over, folks.
Thanks very much.
(Applause)
Bruno Giussani: Niall, I am just curious about your take on the other region of the world that's
booming, which is Latin America. What's your view on that?
Niall Ferguson: Well I really am not just talking about the rise of the East; I'm talking about the rise of the
Rest, and that includes South America. I once asked one of my colleagues at Harvard, "Hey, is South
America part of the West?" He was an expert in Latin American history. He said, "I don't know; I'll have to
think about that." That tells you something really important. I think if you look at what is happening in Brazil
in particular, but also Chile, which was in many ways the one that led the way in transforming the institutions
of economic life, there's a very bright future indeed. So my story really is as much about that convergence
in the Americas as it's a convergence story in Eurasia.
BG: And there is this impression that North America and Europe are not really paying attention to these
trends. Mostly they're worried about each other. The Americans think that the European model is going to
crumble tomorrow. The Europeans think that the American budget is going to explode tomorrow. And that's
all we seem to be caring about recently.
NF: I think the fiscal crisis that we see in the developed World right now -- both sides of the Atlantic -- is
essentially the same thing taking different formsin terms of political culture. And it's a crisis that has its
structural facet -- it's partly to do with demographics. But it's also, of course, to do with the massive
crisis that followed excessive leverage, excessive borrowing in the private sector. That crisis, which has
been the focus of so much attention, including by me, I think is an epiphenomenon. The financial crisis is
really a relatively small historic phenomenon, which has just accelerated this huge shift, which ends half a
millennium of Western ascendancy. I think that's its real importance.