1979: When a Historic Shift went unnoticed
Quite a few years ago, I got mildly obsessed (if there is such a thing) with an early version of the chart below . The chart portrays a historic shift for the Indian economy and it was a shift which went largely unnoticed. In fact, wholly unnoticed. That shift began in 1979.
The chart (I first saw it in this paper) portrays what some historians and economists called “The Great Divergence” – the centuries long widening of incomes between the West and the Rest over the course of the 19th century and well into the second half of the 20th. India’s per capita income is set to 100 for each year and all other countries are scaled off that – so in 1939 for example, US per capita income was 10 times that of India – by 1950 it had risen to about 15 times of Indian average income. You can make similar comparisons for other countries.
In 1979, the difference between American and Indian per capita incomes peaked and India began a period of catch-up with not just the US, but with the West in general which continues today. But that year also set in motion another divergence – between India and China which also continues.
It’s ironic, because 1979 wasn’t actually that great a year for the Indian economy. GDP growth was negative, inflation was high, and there was general gloom all round as is clear from this article in the Economic and Political Weekly at the time.
But in 1979, the US was in no great shape either. Inflation was high, and the economy was hit by the second oil shock. Beginning in 1979, the Chairman of the Federal Reserve at the time, Paul Volcker, began a punishing series of interest rate hikes and by the early 80s, the US itself had tipped into recession. Both India and the US were to eventually recover, but in one respect at least, things were never to be the same again.
The data can be found here. They are from the Maddison project database. All average incomes in 1990 dollars. The data series are patchy for many countries (e.g. China) for earlier years, especially before 1950.
The original chart appeared in the paper linked above, which was part of an NBER project called ‘Globalization in Historical Perspective’.
February 28, 2013