In conversations about economic growth, usually only two components of growth are talked about. Those are capital and labour. Capital is the investment in land, machinery and tools that labour then uses to produce output. The greater the output, the higher the GDP and hence, richer the country.

There’s a third variable here that’s arguably more important but completely ignored in the discourse — Total Factor Productivity (TFP). For instance, agricultural output depends on how much land is available (capital) and how many workers can be hired (labour). But farming techniques play an important role in output. Drip irrigation allowed the same yields without a commensurate increase in water costs. TFP refers to all such improvements in output that are achieved without increase in either capital or labour.

As late as 1880, 50% of the US workforce was employed in agriculture. In 2025, that figure is less 2%. Yet, the US is able to grow much more food today than in the 19th century. All of these are possible due to improvements in productivity.

The same story repeats in India. Prior to the Green Revolution, food shortages were common. As is well known, India famously imported wheat in the 1960s from the US’s “PL 480" aid programme. High Yielding Variety (HYV) seeds were later adopted by farmers starting in 1966-67. The outcome was a tripling in yields of cereals, with only a 30% increase in land area cultivated. Wheat and rice also saw their yields increase. In general, modern farming techniques use less land and labour while producing more food than humanity has ever produced.

This is the very definition of abundance and wealth. Everyone has access to as much food as they wish to consume. So much so that we have GLP-1 pills to help the obese lose weight by reducing their hunger levels.

This occurs across the world. Due to the Industrial Revolution, Britain was able to produce huge quantities of textiles. In fact, it was so dominant, that by 1850 it was producing more than half the world’s cotton. Only those countries that put up heavy protective tariffs against British cotton imports were able to have cotton spinning industries survive. With such an advantage across many industries, Britain was able to rapidly industrialise and provide an abundance of material wealth to its citizens. I’m not denying that colonization had an impact. But that wouldn’t have been possible without the superior productivity provided by the Industrial Revolution.

TFP in Colombia has stagnated over the past three decades. Consequently, this puts a cap on the amount of economic growth possible. There is mounting evidence to show that the “middle-income trap" is often due to a stagnation in productivity growth.

India’s TFP growth. 1955-2019. 2017 is indexed at 1.0. Source: St. Louis Fed.

The above graph shows the growth in India’s TFP over the decades, from 1955 to 2019. 2017 is indexed at 1.0. Relative to that, productivity in 2019 was at 1.017. That implies a TFP growth rate of approximately 0.8% per year.

USA’s TFP growth. 1955-2019. 2017 is indexed at 1.0. Source: St. Louis Fed.

This graph now shows the US’s TFP growth from 1955-2019. 2017 is again indexed at 1. The index of productivity in 2019 is 1.016. That implies a yearly TFP growth rate only a tad lower than India’s.

This should be ringing alarm bells. There are three concerns here:

Starting approximately in 2012,........

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