Interests of Social Groups, Direction of Technical Progress, and Barriers to Development: How Sustainable is the World Economic Growth?

A considerable part of literature in the theory of economic growth is devoted to detecting of a relative role of factor accumulation, technological changes and institutions in economic growth. In the present paper an attempt is made to link and explain stylized facts characterizing economic growth in the contemporary World: i) there is a high degree of heterogeneity in levels of development and growth rates of countries, ii) the countries are subdivided into groups characterized, correspondingly, by low, intermediate and high levels of the capital to labor ratio and of the average labor productivity, iii) these groups of countries are rather stable in their composition; in particular some countries with a low capital to labor ratio stay in a “poverty trap” for a long time, iv) there is a global tendency of an increase in the capital share in GNP, v) the growth is influenced by political and social factors. In this paper a model is proposed in which two types of technological changes are distinguished: (a) an endogenous growth of the total factor productivity (TFP) and (b) a change in a technological parameter of a production function defining a directedness of technological progress. The latter change in technology is controlled by social groups – owners of labor (workers) and owners of capital (“capitalists”) – in a country and takes place together with a change in factor shares. We describe areas of coincidence and of non-coincidence of interests of the social groups related to a choice of technology and, correspondingly, to a distribution of the national product. The frontiers of these areas are made more precise taking account of a boundedness of the capital to labor ratio. Roles of the TFP and the elasticity of substitution in formation of the areas of social cohesion are of social conflict are studied. It is proved that, under some conditions, a degree of social cohesion increases. In a certain degree, the model is close to models of the new political economy (see e.g. Besley, 2007) and fills their shortage of account of technological progress and of dependence of political decisions on the state of economy. The model provides a possible explanation of a stability of the poverty traps, it shows a role of the TFP as a potential for the economic growth, and, in particular, it demonstrates a possibility of an economic crisis in industrial countries in result of an “innovation pause”. The model also throws light on differences in possibilities of growth in poorly developed, actively developing and industrial countries; in particular, it explains, why there is no advantage of late start in low income countries in a poverty trap.