Markets for Managers: A Managerial Economics Primer

CHAPTER 12 Global Prosperity

‘Productivity isn't everything, but in the long-run it's almost everything.’

—Paul Krugman¹

This chapter asks some broad and fundamental questions about the application of economic theory to the real world, and the role of the economist as a force for making the world a better place. According to some estimates the richest man of all time was Mansa Musa I.² He ruled the Malian empire in the fourteenth century and his personal net worth reached $400bn (in 2012 dollars). But how would his living standards compare to the average person today? For a start he died aged 51. The richest American of all time was John D. Rockefeller. But the quality of his house, or his car, would seem deprived by today's standards. In addition, those billionaires lived in an age where income differences were visible. These days, if you bumped into a billionaire you would be unlikely to be able to tell.³ This chapter will ask how some nations grow rich, and apply the economic way of thinking to politics. The insights on topics such as bureaucracy, rent-seeking and interest groups are directly applicable within a firm, and we will see how public goods and regulation affect managerial decisions. We will also look at how economies can go through periods of rapid transition, and the ways in which the same themes operate in corporate transformation.

12.1 GROWTH THEORY

The first question I ask students when we discuss economic development is the following:

What causes poverty? ...