When I first studied economics ( a long, long time ago) the textbook explanation of why income differed between countries was based on capital. In the simplest version (for example, that of Harrod and Domar), rich countries had a bigger stock of capital than poor countries, and the problem was one of accumulating sufficient capital to catch up. In more sophisticated versions, rich countries had more modern capital stocks, and therefore benefited from embodied technological progress.
Even when I was a student, this kind of thinking was already being superseded by notions such as human capital theory [1]. Still, I’ve never seen a really convincing refutation. It strikes me that computers and the Internet provide one, at least as far as differences among developed countries are concerned.
Taking the United States as the leading country, by how many years does its stock of computers and Internet connections lead that other members of the OECD? Take a relatively poor and poorly-connected country like Spain for comparison. In 2001, only 9 per cent of the Spanish population was connected to the Internet, a figure that elicits the description “technological backwater”. Although estimates vary widely, it seems reasonable to suggest that the US reached this figure around 1995. It also seems reasonable to suggest a similar (roughly two-generation) US lead in relation to computers. That is, in the sector where its lead is arguably greatest, the US is six years ahead of Spain.
Now, if we suppose that labour productivity grows by around 2 per cent per year (this is generous), the combination of larger capital stocks and embodied technological change might account for a difference in income per person of around 12 per cent. This is comparable to the difference associated with differential timing of business cycles (two years of boom vs two years of recession), that is, it can be disregarded for most practical purposes.
I’m leading up to an argument that, in an important sense, the process of convergence among developed countries is complete, or close to complete. Differences in income per person, on average and for different groups within society, reflect differences in individual and social choices rather than the kind of differences typically considered in growth theory. I’ll try to develop this further in subsequent posts.
fn1. Despite its origins in Chicago, and the unattractive nature of its central metaphor, human capital theory leads directly to social-democratic policy conclusions. zelnorm removed from the market hernia
John Quiggin 
John, I didn’t grasp the point here in the end. Could you possibly clarify it briefly just for the benefit of the dim?
Spain is six years behind, each year confers an advantage of two percent in productivity, therefore IT superiority accounts for twelve percent of the difference. But US GDP per capita is 80 percent higher than Spain’s (you don’t mention this but I guess it must be an implicit part of the argument), therefore the difference in capital-labour ratios must matter after all? Or human capital? Or Spanish labour-leisure choices?
I think John’s point is: Who needs the Internet when you have really great tapas bars.
In a general equilibrium sense social outcomes are determined by preferences and technologies. So in that sense your point re convergence and choices is trite. But it becomes meaningful if you translate the general point into specific terms. Do societies want to enjoy more leisure, more public goods or more social justice?
In the past such choices have been denied to us. For example if we chose efficiency over equity or more leisure our very survival, it was alledged, would be at stake – we won’t ‘compete’.
My view is that overall we work too hard as a society and don’t enjoy enough the fruits of great past productivity gains in terms of increased leisure. Instead we fritter these gains away in conspicuous consumption that is dubious in raising our non-envious welfare. In part this is a ‘rat race’ Prisoner’s Dilemma.
I was particularly disappointed that French efforts to undo this dilemma by imposing compulsory limits on work hours have come unstuck in the face of rationalist critiques that productivity was suffering. That choices exist in this regard is interesting and worth pointing out.
John,
Sorry to be Moses, but before this drops off the radar, I’d just like to reiterate that I’m very curious about this, especially since I’m teaching a course on growth next semester. Are you really saying it boils down to tapas and siestas versus American work frenzy?