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Freedom and the Great Enrichment - Global Perpectives: Indigo Era

Freedom and the Great Enrichment

Professor Deirdre McCloskey

Distinguished Professor at the University of Illinois at Chicago

Deirdre McCloskey is the Distinguished Professor of Economics, History, English and Communication at the University of Illinois at Chicago. She has received six honorary doctorates since 2007, and has been awarded the Julian L. Simon Memorial Award for her research into the advancement of human achievement. She was talking to Edward Amory.

Q   Your recent book, ‘Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World’, focuses on the role of ideas, in particular how we must focus on people, rather than technological innovations. Why do you place people at the centre of your argument?

I strongly emphasise technological innovations, which I call “trade-tested betterments.” The contrast is with sheer accumulation, without betterment, brick on brick or “good institutions” without betterment, such as the English common law, institutions which did not change much and were often conservative rather than progressive. But, yes, people. It is people, after all, who devise the betterments out of their imaginations. After 1800 their imaginations were fired by liberalism, that is by a new, if rough, equality before the law, and a new, if rough, equality of dignity in society. To get a great mass of trade-tested betterments, and the consequent Great Enrichment, northwestern Europe in the 1600s and 1700s and later needed to develop a mass of liberated people, inspired to innovate as never before. So it did, with the payoff after 1800 anywhere from 3,000 to 10,000 per cent increase in real income per person.

Q:  You have written about how people in the poorest parts of the world will, in time, be as rich as those in the richest part of the world. How will this happen? What are the forces that will drive it?

The forces that will drive the whole world to become rich are temperate self-interest and temperate governance. As the blessed Adam Smith put it in 1755, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.” Surely there can be no racial reason – as we have come to understand after the fall of eugenics – to go on supposing that sub-Saharan Africa or Latin America or the Middle East must forever be poorer than Europe or the Anglosphere.

Q:  How will the ‘Great Enrichment’ idea that has enriched our lives since the 1800s apply to the next two centuries?

In the next two centuries, or the next fifty years, we will see South America, Africa, and the rest join in the Bourgeois Deal. I argue in my books that the new ideological deal was, “Let me earn profits from a trade-tested betterment, and I will make you rich.” The enrichment will cause, and be caused by, a cultural explosion, casting fifth-century Athens and the Renaissance into the shade.

Q: Do you think change in the world is accelerating? If so, do you believe that humanity will benefit from this increased pace of change, and why?

Yes, growth is definitely accelerating. Take real, inflation-corrected GDP per person, a pretty good measure of the goods and services available to the people. It has leapt up in the past few decades, and (with bumps from recessions) is growing at the fastest pace in world history. Having a decent little house and enough food and reasonable education for one’s children is a gigantic improvement over the miseries of 1800, or of 1900, or even of 1960. I readily admit that GDP isn’t everything. But to sneer at it, and to constrain growth carelessly in aid of redistribution or environmentalism, is to condemn the wretched of the earth to perpetual wretchedness. The constraining satisfies the egos of a proud clerisy of theorists advising governments, but it is bad policy, and unethical. The wretched urgently need 30 times higher real GDP per capita, which is what the Great Enrichment gave the wretched of the now rich places.

Q:  Technology appears to be concentrating wealth, or at least entrepreneurial wealth, in the hands of fewer rather than more individuals. How will your Great Enrichment survive this trend?

Concentration of wealth isn’t a trend, not in a way that matters. Wealth is paper stocks and bonds, or the physical capital behind them. But its distribution, which even on the narrow measure was less equal in 1900 than it is now, and much less equal in 1800, is not the relevant story. Human capital has become in the past 150 years a much more important share of earnings each year, returns which are always a return on the total of physical and human capital… and out of the income the world consumes. Consumption is much more equally distributed than the income, not to speak of the wealth. You can’t put on more than one pair of pants at a time, which in that respect makes you equal to your poorest neighbour. That you have sixty pairs in your closet is nice for you, but not a gigantic improvement over having three pairs, washable with newly invented detergents in newly invented washing machines for hire in the newly invented institution of free-enterprise laundromats. And what one might call basic consumption out of the total consumption – the modest housing, food, and education for a dignified human life – is much more equally distributed even in now-rich countries than it was in 1960, not to speak of in 1800. That is, the important equality has increased, not declined, even recently.

In 1960 it was much more sensible and ethical to worry about the 4 out of 5 billion on the planet that were at the miserable bottom, than about how many yachts or bejewelled watches Liliane Bettencourt had. By now the miserable bottom has fallen to 1 billion out of today’s 7 billion. The world is much more equal than it was, if measured in ethically relevant terms: basic consumption, rather than the irritating excesses of the top 1 per cent. The share of the world’s people living in the utter misery of $1 or $2 a day, for example, has been halved in the past few decades.

To go on chattering about concentrated financial wealth when it’s not happening much, when it is caused, when it does happen, by housing policy more than inheritance, when it reverses because of entrepreneurial entry (Uber, for example), and when it is not the sort of inequality that actually matters (namely, basic consumption for a dignified life), is to stir up an insatiable envy and anger. The stirring up has had political results which we see now worldwide.

Q:  The cultural factors which you argue are at the heart of the Great Enrichment would appear to benefit a limited number of countries at the expense of others. They have greater freedoms and better education. How will the developing world, with less freedom, poor governance and limited education, compete?

The crux in dealing with poverty is not exactly, “cultural factors” which most economists believe, erroneously, to be given and fixed. Rhetoric, ideology, policies can change, and quickly. They did in China in 1978 and India in 1991. If badly governed, the developing world will not do well. If well governed by the modest standards articulated by Smith, it will grow rapidly, and get the education it needs. The cry for more education, by the way, is often a despairing excuse for not liberalising the economy directly and quickly. I have seen it in South Africa. Black people do poorly, because they are excluded from employment by the labour laws installed in 1994. The political left calls not for relaxation of the crippling labour laws, but for more education, to make the poor worth hiring at the high minimum wage. The policy is cruelly back to front. If people had jobs they would see to the education of their children soon enough. Meanwhile they could sell food on the street or get basic consumption with a steady job in a factory. They do so in Singapore and Botswana and South Korea. They can in South Africa, if the left will only relent. The worst form of government is to cripple the economy for nationalism or socialism or, if you like both of these two, their combination in national socialism. Inability to compete, though, is not the right word to describe the problem. Trade is not a football game. The world is not zero sum. France’s prosperity does not damage Chad’s. The right word is ‘poverty’. China and India grow at over 7 per cent per year per capita. Brazil and South Africa are lucky to achieve 2 per cent. Why? Good, quasi-liberal, ideas-and-entrepreneurship theories of economic policy on the one hand and bad, illiberal, capital-accumulation-and-dependency theories on the other. The lagging countries can change – after all, China and India, frozen for decades in central planning socialism, did so. Let us pray for liberalism.

Q:  What are the most important factors that we need to consider for the economies of cities and countries to be strong, robust and adaptable over the next century?

As the theorist of vibrant cities, Jane Jacobs said in all her work, what we do not need is arrogant architects such as Le Corbusier or highhanded city planners such as Robert Moses wrecking our cities. “Germane correction,” she wrote in 1984, “Depends on fostering creativity in whatever forms it happens to appear in a given city at a given time. It is impossible to know in advance.”

Q:  You have also emphasised the importance of equality – in the sense that when people had equality before the law and equality of social dignity, it, “made people bold to pursue betterments on their own account.” Do you see a parallel in the twenty-first century with the rise in flexible working, self-employment and entrepreneurs wanting to make their own decisions?

Self-employment often arises from restrictions on the terms on which people can be employed. Uber taxis are a good example, eroding the absurd monopoly of taxis city-by-city worldwide. I would rather reduce the corrupt regulations that create the incentive to self-employ in the first place. But given excessive custodianship, the self-employment – in the black economy, for example – is the only way out. Mohamed Bouazizi again.

Q:  You have suggested a move towards “humanomics”. Could you expand on what “humanomics” might entail?

The economy works to a surprising degree with words – not commands, but changes of mind, persuasion, “sweet talk”. As the making of things and the delivery of services becomes, thankfully, more and more cheaply automated, humans will more and more be left in the business of sweet talk, deciding what to do and how. Sweet talk is already a quarter of income in rich countries, and rising. “The study of words and meaning” merely makes us wiser about persuasion. We’d better be, or we fall for the Donald Trumps of the world.

Q:  Where do you think the centres of the Great Enrichment of the next 200 years will be, and why?

Sub-Saharan Africa will become the artistic and intellectual centre of the world. It has the largest genetic variation, on account of what geneticists call “the founder effect” which applies to the expansion of any species of plant or animal. When the descendants of all other Homo sapiens left Africa in dribs and drabs after about 70,000 BC many of their genetic lines died out on the trip. Unusual human abilities, to the extent they are genetic, are therefore much more common in the old heartland of Africa than in the new settlements in Eurasia. Unusual African abilities are already evident in sports. The East Africans dominate long distance running and the descendants of West Africans dominate sprinting. There is no reason to doubt that unusual artistic and intellectual abilities, too, lie untapped in the great genetic variability south of the Sahara. Consequently, in fifty years or so, when Africa is as well off as Europe, it will nurture the best musicians, artists, mathematicians, scholars, and chefs. The leading studios and universities and editorial offices in 2100 will be populated by Africans.

Q:  What advice would you give to someone at school today about how they should set about shaping their future?

Learn how to think. Stop reading The New York Times, get off the internet, and start reading serious books. Read on the assumption that half of what most people believe is nonsense. It is. Learn one subject, such as economics or literature or mathematics or philosophy, deeply and critically, in order to understand what “depth” and “criticism” really is. But then read widely, if necessarily somewhat superficially, in for example the best of popularisations, such as by Matt Ridley or A. N. Wilson or John Horgan. Read the best novels – never the current best sellers, which are often rubbish – but the old ones that have survived the test of time, such as Willa Cather or Jane Austen or Leo Tolstoy. Read history at the highest academic level you can stand. Read, read, read, and learn thereby to think for yourself. Don’t become a follower of any party line, as tempting as they are.

Q:  You say you are an optimist. Is this, do you believe, an intellectual position or an attitude of mind?

It’s mostly an attitude of mind – one does not change gender, as I did in 1995, unless one is optimistic! But that it is a ‘mere’ attitude does not make it mistaken as an intellectual position, too. As the great and optimistic historian and essayist T. B. Macaulay wrote in 1830, “On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?” On what principle, indeed, except an ever-fashionable pessimism, which over and over since 1800 has proven to be mistaken?