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A roadmap to prosperity

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Image by Erik Johansson.

Image by Erik Johansson.

I’m only at chapter 14 of Deirdre McCloskey’s Bourgeois Dignity (there are 46), but it’s already been worth the read. I wish I could prescribe it to all our Economics students, not only because it’s clever and brilliantly written but also because it’s entertaining, at least as entertaining as discussing the causes of the Industrial Revolution can be. While most of the book is about the Industrial Revolution of 200 years ago, the first few chapters deal with growth today: why some countries prosper, and why other’s take longer to do so. (In the end, we’ll all be rich. My quip, not hers.)

There are many memorably passages, but Chapter 13 mentions South Africa, and I’d thought I’ll follow her advice and “borrow” her ideas. Here’s selected paragraphs from pages 121-124:

England in the eighteenth century could not possibly have experienced the present-day Chinese growth rate of real incomes per head of 10 percent per year, even in its greatest booms. The doubling of income per head in a mere seven years that the Chinese rate implies could not happen before very recent times, with gigantic piles of already-invented ideas such as the power loom or the light bulb or the printer circuit waiting to be borrowed, if one will but let people use them for the profit due a person with a newly borrowed idea, and cease from sneering at and stealing from and executing those who earn the profits. The historian of technology David Edgerton speaks of “the shock of the old,” in which people – even very poor people in the favelas of Brazil – keep finding new uses for old technologies, such as sheets of corrugated iron.

China and India, in other words, can take off the shelf the inventions laboriously developed by the Watts and the Edisons of the past three centuries – and by the Chinese and Indian inventors of earlier centuries, together with the Incan potato breeders and the brass casters of Benin, all of whose inventions had been taken up eagerly by the curious Westerners. Indians invented fine cotton cloth, which then became the staple of Manchester, but latterly in its fully mechanized form became again the staple of Mumbai. The Chinese invented mass-produced pig iron, which then became the staple of Swedish Uppland and English Cleveland and American Gary, but latterly with some additional chemical engineering the staple of the Kamaishi Works in Japan and now the Anshan works in China. And so Sweden in the late nineteenth century and then Japan in the early and middle twentieth century and China in the early twenty-first century caught up astonishingly quickly.

Richard Easterlin would agree with the speed implied by the metaphor of “taking technology off the shelf”. He wrote in 2003 that “since the early 1950s, the material living level of the average person in today’s less-developed countries…, which collectively account for four-fifths of the world’s population, has multiplied by threefold”, much faster than presently rich countries grew in the nineteenth century. It has led to Paul Collier’s Top Four to Six Billions. Similarly rapid has been the rise in life expectancy and the fall in fertility and the rise of literacy: on all counts, notes Easterlin, it is “a much more rapid rate of advance … than took place in the developed countries in the past”.

Good policies are boringly similar: rule of law, property rights, and above all dignity and liberty for the bourgeoisie. The happy countries end up looking similar, because each has automobiles, computers, higher education. Good policy allows taking technology off the shelf, and achieving a pretty good life for ordinary folk in two or three generations. It has happened repeatedly, as when the United States adopted British manufacturing, or Germany the same. Consider such recent miracles of leaping over putatively inevitable stages as Taiwan or Hong Kong or Singapore. Perhaps we should stop being gob-smacked every time it happens. Give people liberty to work and to invent and to invest, and treat them with dignity, and you get fast catching up.

In other words, what does not need much scientific inquiry is how the Indians and the Chinese, having been denied innovation for decades by imperial edict and warlord pillaging and socialist central plan and lack of widespread education, can get rich quickly by gaining peaceful access to well-stocked shelves of inventions, from the steam engine to the forward contract to the business meeting. Routine economics predicts that, after decades of disastrous economic luck, the misallocations and spurned opportunities will be so great that considerable fortunes can be made pretty easily, and the average income of poor people can be raised pretty easily, too. If Brazil and South Africa can be persuaded to adopt the liberal economic principles that are presently enriching China and India (and that had enriched Britain and Italy more slowly and therefore less obviously), there is no reason why in forty years the grandchildren of presently poor Brazilians and South African cannot enjoy something pretty close to Western European standards of living. That’s not ideological prejudice, some neocon fantasy in support of American imperial power. It’s a soberly obvious historico-experimental fact, which has already curbed American power. On the other hand, if Brazil and South Africa persist in unhelpful economic policies (such as South Africa’s labor laws based on German models), they can retain a gigantic, unemployed underclass and an inferior position relative to the United States, just as long as they find that attractive.

If it’s so infallibly simple, why are we so unfailingly ignorant?


Written by Johan Fourie

May 5, 2013 at 17:46