A breath of fresh air in a world of doomsday predictions, Matt Ridley makes the case that we should all be a little more optimistic.
The Rational Optimist takes a look at the evidence facing most modern pessimism—on climate, poverty, trade, innovation—and finds that much of what we think we know is false.
Pessimism is warranted if nothing changes, but that is the core thesis of the book: things always change.
Excellent book.
At some point, human intelligence became collective and cumulative in a way that happened to no other animal. No single person knows how to make a computer mouse; it’s the combination of many people over a long period of time.
Experiments in laboratories by the economist Vernon Smith and his colleagues have long confirmed that markets in goods and services for immediate consumption – haircuts and hamburgers – work so well that it is hard to design them so they fail to deliver efficiency and innovation; while markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. Speculation, herd exuberance, irrational optimism, rent-seeking and the temptation of fraud drive asset markets to overshoot and plunge – which is why they need careful regulation, something I always supported. (Markets in goods and services need less regulation.)
I am a rational optimist: rational, because I have arrived at optimism not through temperament or instinct, but by looking at the evidence. In the pages that follow I hope to make you a rational optimist too. First, I need to convince you that human progress has, on balance, been a good thing, and that, despite the constant temptation to moan, the world is as good a place to live as it has ever been for the average human being – even now in a deep recession. That it is richer, healthier, and kinder too, as much because of commerce as despite it. Then I intend to explain why and how it got that way. And finally, I intend to see whether it can go on getting better.
Falling consumer prices is what enriches people (deflation of asset prices can ruin them, but that is because they are using asset prices to get them the wherewithal to purchase consumer items). And, once again, notice that the true metric of prosperity is time. If Cornelius Vanderbilt or Henry Ford not only moves you faster to where you want to go, but requires you to work fewer hours to earn the ticket price, then he has enriched you by granting you a dollop of free time. If you choose to spend that spare time consuming somebody else’s production then you can enrich him in turn; if you choose to spend it producing for his consumption then you have also further enriched yourself.
Housing, too, is itching to get cheaper, but for confused reasons governments go to great lengths to prevent it. Where it took sixteen weeks to earn the price of 100 square feet of housing in 1956, now it takes fourteen weeks and the housing is of better quality. But given the ease with which modern machinery can assemble a house, the price should have come down much faster than that. Governments prevent this by, first, using planning or zoning laws to restrict supply (especially in Britain); second, using the tax system to encourage mortgage borrowing (in the United States at least – no longer in Britain); and third, doing all they can to stop property prices falling after a bubble. The effect of these measures is to make life harder for those who do not yet have a house and massively reward those who do. To remedy this, governments then have to enforce the building of more affordable housing, or subsidise mortgage lending to the poor.
Happiness
Two papers were published in 2008 analysing all the data, and the unambiguous conclusion of both is that the Easterlin paradox does not exist. Rich people are happier than poor people; rich countries have happier people than poor countries; and people get happier as they get richer.
That is to say, on average, across the board, on the whole, other things being equal, more money does make you happier.
Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective.
The multiplication of labour
This is the diagnostic feature of modern life, the very definition of a high standard of living: diverse consumption, simplified production. Make one thing, use lots. The self-sufficient gardener, or his self-sufficient peasant or hunter-gatherer predecessor (who is, I shall argue, partly a myth in any case), is in contrast defined by his multiple production and simple consumption. He makes not just one thing, but many – his food, his shelter, his clothing, his entertainment. Because he only consumes what he produces, he cannot consume very much.
Self-sufficiency is poverty
It is fashionable these days to decry ‘food miles’. The longer food has spent travelling to your plate, the more oil has been burnt and the more peace has been shattered along the way. But why single out food? Should we not protest against T-shirt miles, too, and laptop miles? After all, fruit and vegetables account for more than 20 per cent of all exports from poor countries, whereas most laptops come from rich countries, so singling out food imports for special discrimination means singling out poor countries for sanctions. Two economists recently concluded, after studying the issue, that the entire concept of food miles is ‘a profoundly flawed sustainability indicator’. Getting food from the farmer to the shop causes just 4 per cent of all its lifetime emissions. Ten times as much carbon is emitted in refrigerating British food as in air-freighting it from abroad, and fifty times as much is emitted by the customer travelling to the shops.
The call of the new
None the less, you do not have to be starry-eyed about the Stone Age to find aspects of modern consumer society obscenely wasteful. Why, asks Geoffrey Miller, ‘would the world’s most intelligent primate buy a Hummer H1 Alpha sport-utility vehicle’, which seats four, gets ten miles to the gallon, takes 13.5 seconds to reach 60 mph, and sells for $139,771? Because, he answers, human beings evolved to strive to signal social status and sexual worth. What this implies is that far from being merely materialist, human consumption is already driven by a sort of pseudo-spiritualism that seeks love, heroism and admiration. Yet this thirst for status then encourages people to devise recipes that rearrange the atoms, electrons or photons of the world in such a way as to make useful combinations for other people. Ambition is transmuted into opportunity.
The cumulative accretion of knowledge by specialists that allows us each to consume more and more different things by each producing fewer and fewer is, I submit, the central story of humanity. Innovation changes the world but only because it aids the elaboration of the division of labour and encourages the division of time. Forget wars, religions, famines and poems for the moment. This is history’s greatest theme: the metastasis of exchange, specialisation and the invention it has called forth, the ‘creation’ of time. The rational optimist invites you to stand back and look at your species differently, to see the grand enterprise of humanity that has progressed – with frequent setbacks – for 100,000 years. And then, when you have seen that, consider whether that enterprise is finished or if, as the optimist claims, it still has centuries and millennia to run. If, in fact, it might be about to accelerate to an unprecedented rate.
Starting to barter
Friedrich Hayek called the catallaxy: the ever-expanding possibility generated by a growing division of labour. This is something that amplifies itself once begun.
Innovation networks
According to the anthropologist Joe Henrich, human beings learn skills from each other by copying prestigious individuals, and they innovate by making mistakes that are very occasionally improvements – that is how culture evolves. The bigger the connected population, the more skilled the teacher, and the bigger the probability of a productive mistake.
The trust juice
The more you look at altruism and cooperation, the less uniquely human it appears. Oxytocin is common to all mammals, and is used for mother-love in sheep and lover-love in voles, so the chances are that it is available to underpin trust in almost any social mammal. It is necessary, but not sufficient to explain the human propensity to exchange.
As a broad generalisation, the more people trust each other in a society, the more prosperous that society is, and trust growth seems to precede income growth.
If trust makes markets work, can markets generate trust?
A successful transaction between two people – a sale and purchase – should benefit both. If it benefits one and not the other, it is exploitation, and it does nothing to raise the standard of living. The history of human prosperity, as Robert Wright has argued, lies in the repeated discovery of non-zero-sum bargains that benefit both sides.
Coercion is the opposite of freedom
The twenty-first century, when commercialisation has so far continued to spread, is already a time when battery farming and unilaterally declaring war have just about become unacceptable. Random violence makes the news precisely because it is so rare; routine kindness does not make the news precisely because it is so commonplace. Charitable giving has been growing faster than the economy as a whole in recent decades. The internet reverberates with people sharing tips for free.
The lesson of the last two centuries is that liberty and welfare march hand in hand with prosperity and trade.
I am happy to cheer, with Deirdre McCloskey: ‘Hurrah for late twentieth-century enrichment and democratisation. Hurrah for birth control and the civil rights movement. Arise ye wretched of the earth’. Interdependence through the market made these things possible. Politically, as Brink Lindsey has diagnosed, the coincidence of wealth with toleration has led to the bizarre paradox of a conservative movement that embraces economic change but hates its social consequences and a liberal movement that loves the social consequences but hates the economic source from which they come.
Moreover, for all their eventual sins, entrepreneurial corporations can do enormous good while they are young and growing. Consider the case of discount retailing. The burst of increasing productivity that countries like America and Britain rather unexpectedly experienced in the 1990s at first puzzled many economists. They wanted to credit computers, but as the economist Robert Solow had quipped in 1987, ‘you can see the computer everywhere but in the productivity statistics’, and those of us who experienced how easy it was to waste time using a computer in those days agreed. A study by McKinsey concluded that the 1990s surge in the United States was caused by (drum roll of excitement) logistical changes in business (groan of disappointment), especially in the retail business and especially in just one firm – Wal-Mart. Efficient ordering, ruthless negotiating, hyper-punctual time keeping (suppliers must sometimes hit a thirty-second window for deliveries), merciless cost control and ingenious responses to customers’ preferences had given Wal-Mart a 40 per cent efficiency advantage over its competitors by the early 1990s. Wal-Mart’s competitors rapidly followed suit, raising their own productivity by 28 per cent in the later 1990s, but Wal-Mart had not stood still, gaining another 22 per cent in the same time, even as it opened an average of seven new three-acre supercentres a month for a decade. According to Eric Beinhocker of McKinsey, these ‘social-technology’ innovations in the retail sector alone accounted for fully a quarter of all United States productivity growth. Tesco probably had a similar effect in Britain.
Like corrugated iron and container shipping, discount merchandising is among the most unsophisticated yet enriching innovations of the twentieth century. A single, routine, minuscule Wal-Mart decision in the 1990s – not to sell deodorant in cardboard boxes – saved America $50 million a year, half of which was passed on to customers. Charles Fishman writes: ‘Whole forests have not fallen in part because of a decision made in the Wal-Mart home office ... to eliminate the [deodorant] box.’
On average, when it lands in a town, Wal-Mart causes a 13 per cent drop in its competitors’ prices and saves its customers nationally $200 billion a year.
Yet critics of corporate giants, who normally complain about profiteering, still disapprove of Wal-Mart, saying the low prices are a bad thing because smaller businesses can’t compete or that Wal-Mart is ‘the world’s largest sweat shop’ for paying low wages even though Wal-Mart pays twice the minimum wage (and as I was writing this announced $2 billion in bonuses to staff, despite the recession, because of record sales). It is true that the growth of Wal-Mart in the 1990s, just like the opening of a new Wal-Mart in a certain town, created turmoil. Competitors went bust or were forced into humiliating mergers. Suppliers found themselves driven to new practices. Unions lost their leverage over retailing workforces. Cardboard box makers went to the wall. Consumers changed their habits. Innovation, whether in the form of new technology or new ways of organising the world, can destroy as well as create. A Wal-Mart store drives small general retailers out of business as surely as the computer drove the typewriter out of business. But against this must be balanced the enormous benefits that (especially the poorest) customers reap in terms of cheaper, more varied and better goods.
Commerce and creativity
Nike, born in 1972, grew into a huge company merely by contracting between factories in Asia and shops in America from a relatively small head office. Wikipedia has a paid staff of fewer than thirty and makes no profit. Whereas the typical firm was once a team of workers, hierarchically arranged and housed on a single site, increasingly it is a nebulous and ephemeral coming together of creative and marketing talent to transmit the efforts of contracting individuals towards the satisfying of consumer preferences.
In that sense ‘capitalism’ is dying, and fast. The size of the average American company is down from twenty-five employees to ten in just twenty-five years. The market economy is evolving a new form in which even to speak about the power of corporations is to miss the point. Tomorrow’s largely self-employed workers, clocking on to work online in bursts for different clients when and where it suits them, will surely look back on the days of bosses and foremen, of meetings and appraisals, of time sheets and trade unions, with amusement. I repeat: firms are temporary aggregations of people to help them do their producing in such a way as to help others do their consuming.
That is the point of agriculture: it diverts the labour of other species to providing services for human beings.
Farming is the extension of specialisation and exchange to include other species.
In the conventional account it was agriculture that made capital possible by generating stored surpluses and stored surpluses could be used in trade.
Agriculture was possible because of trade. Trade provided the incentive to specialise in farmed goods and to generate surplus food.
Capital and metal
Almost by definition, the more wealthy somebody is, the more things he acquires from specialists. The characteristic signature of prosperity is increasing specialisation. The characteristic signature of poverty is a return to self-sufficiency.
The many ways of modifying genes
There is one respect in which the environmental critique of modern agriculture has force. In the pursuit of quantity, science may have sacrificed nutritional quality of food. Indeed, the twentieth-century drive to provide a growing population with an ever faster-growing supply of calories has succeeded so magnificently that the diseases caused by too much bland food are rampant: obesity, heart disease, diabetes, and perhaps depression. For example, modern plant oils and plentiful red meat make for a diet low in omega-3 fatty acids, which may contribute to heart disease; modern wheat flour is rich in amylopectin starch, which may contribute to insulin resistance and hence diabetes; and maize is especially low in the amino acid tryptophan, a precursor of serotonin, the ‘feel-good’ neurotransmitter. Consumers will rightly be looking to the next generation of plant varieties to redress these deficiencies. They could do so by eating more fish, fruit and vegetables. But not only would this be a land-hungry option, it would suit the wealthy more than the poor, so it would exacerbate health inequalities.
Instead, genetic modification provides an obvious solution: to insert healthy nutritional traits into high-yielding varieties: tryptophan into maize to fight depression, calcium transporter genes into carrots to help fight osteoporosis in people who cannot drink milk, or vitamins and minerals into sorghum and cassava for those who depend on them as staples.
The virtue of fragmented government
The Phoenician diaspora teaches another important lesson, first advanced by David Hume: political fragmentation is often the friend, not the enemy, of economic advance, because of the stop which it gives ‘both to power and authority.
This is not to say that democratic city states are the only places where economic progress can occur, but it is to discern a pattern. Plainly, there is something beneficial to the growth of the division of labour when governments are limited (though not so weak that there is widespread piracy), republican or fragmented. The chief reason is surely that strong governments are, by definition, monopolies and monopolies always grow complacent, stagnant and self-serving.
The Moloch state
Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialisation. But then governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.
There is a lesson for today. Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure’. Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members. Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.
Repeal the corn laws again
The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty – that it seems incredible that anybody ever thinks otherwise.
Free trade works for countries even if they do it and their neighbours do not.
Still they tried: North Korea under Kim Il Sung, Albania under Enver Hoxha, China under Mao Zedong, Cuba under Fidel Castro – every country that tried protectionism suffered. Countries that went the other way include Singapore, Hong Kong, Taiwan, South Korea and later Mauritius, bywords for miraculous growth.
Yes, of course, trade is disruptive. Cheap imports can destroy jobs at home – though in doing so they always create far more both at home and abroad, by freeing up consumers’ cash to buy other goods and services.
If Europeans find their shoes made cheaply in Vietnam, then they have more to spend on getting their hair done and there are more nice jobs for Europeans in hair salons and fewer dull ones in shoe factories. Sure, manufacturers will and do seek out countries that tolerate lower wages and lower standards – though, prodded by Western activists, in practice their main effect is then to raise the wages and standards in such places, where they most need raising. It is less of a race to the bottom, more of a race to raise the bottom. Nike’s sweatshops in Vietnam, for example, pay wages three times as high as local state owned factories and have far better facilities. That drives up wages and standards. During the period of most rapid expansion of trade and out-sourcing, child labour has halved since 1980: if that is driving down standards, let there be more of it.
The apotheosis of the city
Trade draws people to cities and swells the slums. Is this not a bad thing? No.
All across Asia, Latin America and Africa, a tide of subsistence farmers is leaving the land to move to cities and find paid work. To many Westerners, suffused with nostalgie de la boue (nostalgia for mud), this is a regrettable trend. Many charities and aid agencies see their job as helping to prevent subsistence farmers having to move to the city by making life in the countryside more sustainable. ‘Many of my contemporaries in the developed world,’ writes Stewart Brand, ‘regard subsistence farming as soulful and organic, but it is a poverty trap and an environmental disaster.’ Surely a Nairobi slum or a São Paolo favela is a worse place to be than a tranquil rural village? Not for the people who move there. Given the chance they eloquently express their preference for the relative freedom and opportunity of the city, however poor the living conditions. ‘I am better off in all facets of life compared to my peers left behind in the village,’ says Deroi Kwesi Andrew, a teacher earning $4 a day in Accra. Rural self-sufficiency is a romantic mirage. Urban opportunity is what people want. In 2008 for the first time more than half the people in the world lived in cities. That is not a bad thing. It is a measure of economic progress that more than half the population can leave subsistence and seek the possibilities of a life based on the collective brain instead. Two-thirds of economic growth happens in cities.
As far as the planet is concerned, this is good news because city dwellers take up less space, use less energy and have less impact on natural ecosystems than country dwellers.
As Edward Glaeser put it, ‘Thoreau was wrong. Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.’
Increasing self-sufficiency is the very signature of a civilisation under stress, the definition of a falling standard of living.
What a happy conclusion. Human beings are a species that stops its own population expansions once the division of labour reaches the point at which individuals are all trading goods and services with each other, rather than trying to be self-sufficient. The more interdependent and well-off we all become, the more population will stabilise well within the resources of the planet. As Ron Bailey puts it, in complete contradiction of Garrett Hardin: ‘There is no need to impose coercive population control measures; economic freedom actually generates a benign invisible hand of population control.’
The world would follow suit and by the late twentieth century, 85 per cent of all the energy used by humankind would come from fossil fuels. It was fossil fuels that eventually made slavery – along with animal power, and wood, wind and water – uneconomic. Wilberforce’s ambition would have been harder to obtain without fossil fuels. ‘History supports this truth,’ writes the economist Don Boudreaux: ‘Capitalism exterminated slavery.’
Fossil fuels cannot explain the start of the industrial revolution. But they do explain why it did not end. Once fossil fuels joined in, economic growth truly took off, and became almost infinitely capable of bursting through the Malthusian ceiling and raising living standards. Only then did growth become, in a word, sustainable. This leads to a shocking irony. I am about to argue that economic growth only became sustainable when it began to rely on non-renewable, non-green, non-clean power. Every economic boom in history, from Uruk onwards, had ended in bust because renewable sources of energy ran out: timber, crop land, pasture, labour, water, peat. All self-replenishing, but far too slowly, and easily exhausted by a swelling populace.
Heat is work and work is heat
You can take this reductio ad absurdum two ways. You can regret the sinful profligacy of the modern world, which is the conventional reaction, or you can conclude that were it not for fossil fuels, 99 per cent of people would have to live in slavery for the rest to have a decent standard of living, as indeed they did in Bronze Age empires. This is not to try to make you love coal and oil, but to drive home how much your Louis Quatorze standard of living is made possible by the invention of energy-substitutes for slaves.
Wind turbines require five to ten times as much concrete and steel per watt as nuclear power plants, not to mention miles of paved roads and overhead cables. To label the land-devouring monsters of renewable energy ‘green’, virtuous or clean strikes me as bizarre. If you like wilderness, as I do, the last thing you want is to go back to the medieval habit of using the landscape surrounding us to make power. Just one wind farm at Altamont in California kills twenty-four golden eagles every year: if an oil firm did that it would be in court. Hundreds of orang-utans are killed a year because they get in the way of oil-palm biofuel plantations. ‘Let’s stop sanctifying false and minor gods,’ says the energy expert Jesse Ausubel, ‘and heretically chant “Renewables are not green”.’
The mad world of biofuels
This is what makes the ethanol and biofuel boondoggle so enraging. Not even Jonathan Swift would dare to write a satire in which politicians argued that – in a world where species are vanishing and more than a billion people are barely able to afford to eat – it would somehow be good for the planet to clear rainforests to grow palm oil, or give up food-crop land to grow biofuels, solely so that people could burn fuel derived from carbohydrate rather than hydrocarbons in their cars, thus driving up the price of food for the poor. Ludicrous is too weak a word for this heinous crime.
In 2005, the world made roughly ten billion tonnes of ethanol, 45 per cent of it from Brazilian sugar cane and 45 per cent from American maize. Add in a billion tonnes of biodiesel made from European rape seed and the result is that roughly 5 per cent of the world’s crop land has been taken out of growing food and put into growing fuel (20 per cent in the United States). Together with drought in Australia and more meat eating in China, this was the key factor that helped push world food supply below world food demand in 2008 and cause food riots all over the world. Between 2004 and 2007 the world maize harvest increased by fifty-one million tonnes, but fifty million tonnes went into ethanol, leaving nothing to meet the increase of demand for all other uses of thirty-three million tonnes: hence the price rose. The poor, remember, spend 70 per cent of their incomes on food. In effect, American car drivers were taking carbohydrates out of the mouths of the poor to fill their tanks.
Which might just be acceptable if either biofuel had a big environmental benefit, or it saved Americans money so they could afford to buy more goods and services from the poor and help them out of poverty that way. But since Americans are in effect being taxed thrice over to pay for the ethanol industry – they subsidise the growing of maize, they subsidise the manufacture of ethanol and they pay more for their food – the ability of American consumers to contribute to demand for manufactured goods is actually hurt by ethanol, not helped. Meanwhile, the environmental benefits of biofuels are not just illusory; they are negative. Fermenting carbohydrate is an inefficient business compared with burning hydrocarbon. Every acre of maize or sugar cane requires tractor fuel, fertilisers, pesticides, truck fuel and distillation fuel – all of which are fuel. So the question is: how much fuel does it take to grow fuel? Answer: about the same amount. The US Department of Agriculture estimated in 2002 that each unit of energy put into growing maize ethanol produces 1.34 units of output, but only by counting the energy of dried distillers’ grain, a by-product of the production process that can go into cattle feed. Without that, the gain was just 9 per cent. Other studies, though, came to less positive conclusions, including one estimate that there was a 29 per cent loss of energy in the process. Drilling for and refining oil, by contrast, gets you a 600 per cent energy return or more on your energy used. Which sounds the better investment?
If you want to reduce carbon dioxide in the atmosphere, replant a forest on former farmland.
Moreover, it takes about 130 gallons of water to grow, and five gallons of water to distil a single gallon of maize ethanol – assuming that only 15 per cent of the crop is irrigated. By contrast, it takes less than three gallons of water to extract, and two gallons to refine, a gallon of gasoline.
But do not forget the single most important problem with biofuels, the one that makes them so capable of making environmental problems worse – they need land. A sustainable future for nine billion people on one planet is going to come from using as little land as possible for each of people’s needs.
Efficiency and demand
Energy efficiency has been rising for a very long time and so has energy consumption. This is known as the Jevons paradox after the Victorian economist Stanley Jevons, who put it thus: ‘It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth. As a rule, new modes of economy will lead to an increase of consumption.’
I am not saying fossil fuels are irreplaceable. I can easily envisage a world in 2050 in which fossil fuels have declined in importance relative to other forms of energy. I can envisage plug-in hybrid cars that use cheap off-peak (nuclear) electricity for their first twenty miles; I can imagine vast solar-power farms exporting electricity from sunny deserts in Algeria or Arizona; I can imagine hot-dry-rock geothermal plants; above all, I foresee pebble-bed, passive-safe, modular nuclear reactors everywhere. I can even imagine wind, tide, wave and biomass energy making small contributions, though these should be a last resort because they are so expensive and environmentally destructive. But this I know: we will need the watts from somewhere. They are our slaves. Thomas Edison deserves the last word: ‘I am ashamed at the number of things around my house and shops that are done by animals – human beings, I mean – and ought to be done by a motor without any sense of fatigue or pain. Hereafter a motor must do all the chores.’
The concept of a steady final state, applied to a dynamic system like the economy, is as wrong as any philosophical abstraction can be. It is Pareto piffle. As the economist Eamonn Butler puts it, the ‘perfect market is not just an abstraction; it’s plain daft ... Whenever you see the word equilibrium in a textbook, blot it out.’ It is wrong because it assumes perfect competition, perfect knowledge and perfect rationality, none of which do or can exist. It is the planned economy, not the market, that requires perfect knowledge.
The possibility of new knowledge makes the steady state impossible. Somewhere somebody will have a new idea and that idea will enable him to invent a new combination of atoms both to create and to exploit imperfections in the market.
Driven by science?
Likewise, of the four men who made the biggest advances in the steam engine – Thomas Newcomen, James Watt, Richard Trevithick and George Stephenson – three were utterly ignorant of scientific theories, and historians disagree about whether the fourth, Watt, derived any influence from theory at all. It was they who made possible the theories of the vacuum and the laws of thermodynamics, not vice versa.
Later science did contribute to the gathering pace of invention and the line between discovery and invention became increasingly blurred as the nineteenth century wore on. Thus only when the principles of electrical transmission were understood could the telegraph be perfected; once coal miners understood the succession of geological strata, they knew better where to sink new mines; once benzene’s ring structure was known, manufacturers could design dyes rather than serendipitously stumble on them. And so on. But even most of this was, in Joel Mokyr’s words, ‘a semidirected, groping, bumbling process of trial and error by clever, dexterous professionals with a vague but gradually clearer notion of the processes at work’. It is a stretch to call most of this science, however. It is what happens today in the garages and cafés of Silicon Valley, but not in the labs of Stanford University.
The inescapable fact is that most technological change comes from attempts to improve existing technology. It happens on the shop floor among apprentices and mechanicals, or in the workplace among the users of computer programs, and only rarely as a result of the application and transfer of knowledge from the ivory towers of the intelligentsia.
Exchange!
The perpetual innovation machine that drives the modern economy owes its existence not mainly to science (which is its beneficiary more than its benefactor); nor to money (which is not always a limiting factor); nor to patents (which often get in the way); nor to government (which is bad at innovation). It is not a top-down process at all. Instead, I am going to try now to persuade you that one word will suffice to explain this conundrum: exchange. It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world.
Go back to that word ‘spillover’. The characteristic feature of a piece of new knowledge, whether practical or esoteric, whether technical or social, is that you can give it away and still keep it.
Innovators are therefore in the business of sharing. It is the most important thing they do, for unless they share their innovation it can have no benefit for them or for anybody else.
And the one activity that got much easier to do after about 1800, and has got dramatically easier recently, is sharing.
Infinite possibility
The wonderful thing about knowledge is that it is genuinely limitless. There is not even a theoretical possibility of exhausting the supply of ideas, discoveries and inventions. This is the biggest cause of all for my optimism.
‘Implicit confidence in the beneficence of progress’ said Hayek, ‘has come to be regarded as the sign of a shallow mind.’
Let me make a square concession at the start: the pessimists are right when they say that, if the world continues as it is, it will end in disaster for all humanity. If all transport depends on oil, and oil runs out, then transport will cease. If agriculture continues to depend on irrigation and aquifers are depleted, then starvation will ensue. But notice the conditional: if. The world will not continue as it is. That is the whole point of human progress, the whole message of cultural evolution, the whole import of dynamic change – the whole thrust of this book. The real danger comes from slowing down change. It is my proposition that the human race has become a collective problem-solving machine and it solves problems by changing its ways. It does so through invention driven often by the market: scarcity drives up price; that encourages the development of alternatives and of efficiencies. It has happened often in history.
Worse and worse
Consumers are ‘overwhelmed with relatively trivial choices’ says a professor of psychology. This notion dates from Herbert Marcuse, who turned Marx’s notion of the ‘immiseration of the proletariat’ by steadily declining living standards on its head and argued that capitalism forced excessive consumption on the working class instead. It resonates well in the academic seminar, causing heads to nod in agreement, but it is sheer garbage in the real world. When I go into the local superstore, I never see people driven to misery by the impossibility of choice. I see people choosing.
As the average age of a country’s population rises, so people get more and more neophobic and gloomy. There is immense vested interest in pessimism, too. No charity ever raised money for its cause by saying things are getting better. No journalist ever got the front page by telling his editor that he wanted to write a story about how disaster was now less likely. Good news is no news, so the media megaphone is at the disposal of any politician, journalist or activist who can plausibly warn of a coming disaster. As a result, pressure groups and their customers in the media go to great lengths to search even the most cheerful of statistics for glimmers of doom.
One American charity, Population Services International, came up with a better idea. It sold the nets for fifty cents to mothers attending antenatal clinics in Malawi and subsidised this price by selling the nets for $5 to richer urban Malawians. The poor mothers who bought these nets with half a day’s wages made sure they were used properly. In four years, the proportion of children under five sleeping under such nets went up from 8 per cent to 55 per cent.
To do more good and less harm, says Easterly, the aid business could be transformed into a more transparent marketplace where donations compete to fund projects and projects compete to attract donations. Fortunately, the internet makes this possible for the first time. Globalgiving.com, for instance, allows projects to bid for donations from any donor.
In forums like this, aid could be democratised, taken out of the hands of inefficient international bureaucrats and corrupt African officials, taken away from idealistic free-market shocktherapists, separated from arms deals, removed from big industrial projects, distanced from patronising do-gooders and given person-to-person. A rich country could give each taxpayer a tax break for each suitable donation. To those who say that this would make an uncoordinated, unplanned business, I reply: exactly. Grandiose goals and centralised plans have just as long and just as disastrous a history in aid as they do in politics. Nobody planned the industrial revolution, or China’s economic surge. The planners’ role was to get out of the way of bottom-up evolutionary solutions.
Bound to fail?
It is true that Botswana has a small and ethnically somewhat homogeneous population, unlike many other countries. But its biggest advantage is one that the rest of Africa could easily have shared: good institutions. In particular, Botswana turns out to have secure, enforceable property rights that are fairly widely distributed and fairly well respected. When Daron Acemoglu and his colleagues compared property rights with economic growth throughout the world, they found that the first explained an astonishing three quarters of the variation in the second and that Botswana was no outlier: the reason it had flourished was because its people owned property without fear of confiscation by chiefs or thieves to a much greater extent than in the rest of Africa. This is much the same explanation for why England had a good eighteenth century while China did not.
The world is your oyster
In Cairo it would take seventy-seven bureaucratic procedures involving thirty-one agencies and up to fourteen years to acquire and register a plot of state-owned land on which to build a house. No wonder nearly five million Egyptians have decided to build illegal dwellings instead. Typically, a Cairo house owner will build up to three illegal storeys on top of his house and rent them out to relatives.
(Incidentally, there is now overwhelming evidence that well crafted property rights are also the key to wildlife and nature conservation. Whether considering fish off Iceland, kudu in Namibia, jaguars in Mexico, trees in Niger, bees in Bolivia or water in Colorado, the same lesson applies. Give local people the power to own, exploit and profit from natural resources in a sustainable way and they will usually preserve and cherish those resources. Give them no share in a wildlife resource that is controlled – nay ‘protected’ – by a distant government and they will generally neglect, ruin and waste it. That is the real lesson of the tragedy of the commons.)
Property rights are not a silver bullet. In some countries, their formalisation simply creates a rentier class. And China experienced an explosion of enterprise after 1978 without ever giving its people truly secure property rights. But it did allow people to start businesses with relatively little bureaucratic fuss, so another of De Soto’s recommendations is to free up the rules governing business. Whereas it takes a handful of steps to set up a company in America or Europe, De Soto’s assistants found that to do the same in Tanzania would take 379 days and cost $5,506. Worse, to have a normal business career in Tanzania for fifty years, you would have to spend more than a thousand days in government offices petitioning for permits of one kind or another and spending $180,000 on them.
The key policies for Africa are to abolish Europe’s and America’s farm subsidies, quotas and import tariffs, formalise and simplify the laws that govern business, undermine tyrants and above all encourage the growth of free-trading cities. In 1978 China was about as poor and despotic as Africa is now. It changed because it deliberately allowed free-trading zones to develop in emulation of Hong Kong. So, says the economist Paul Romer, why not repeat the formula? Use Western aid to create a new ‘charter city’ in Africa on uninhabited land, free to trade with the rest of the world, and allow it to draw in people from the surrounding nations.
Warmer and richer or cooler and poorer?
As for fresh water, the evidence suggests, remarkably, that, other things being equal, warming will itself reduce the total population at risk from water shortage. Say again? Yes, reduce. On average rainfall will increase in a warmer world because of greater evaporation from the oceans, as it did in previous warm episodes such as the Holocene (when the Arctic ocean may have been almost ice-free in summer), the Egyptian, Roman and medieval warm periods. The great droughts that changed history in western Asia happened, as theory predicts, in times of cooling: 8,200 years ago and 4,200 years ago especially.
The same is true for storms. During the warming of the twentieth century there was no increase in either the number or the maximum wind speed of Atlantic hurricanes making landfall. Globally, tropical cyclone intensity hit a thirty-year low in 2008. The cost of the damage done by hurricanes has increased greatly, but that is because of the building and insuring of expensive coastal properties, not because of storm intensity or frequency.
In measuring health, note that globally the number of excess deaths during cold weather continues to exceed the number of excess deaths during heat waves by a large margin – by about five to one in most of Europe.
The global food supply will probably increase if temperature rises by up to 3°C. Not only will the warmth improve yields from cold lands and the rainfall improve yields from some dry lands, but the increased carbon dioxide will itself enhance yields, especially in dry areas. Wheat, for example, grows 15–40 per cent faster in 600 parts per million of carbon dioxide than it does in 295 ppm. (Glasshouses often use air enriched in carbon dioxide to 1,000 ppm to enhance plant growth rates.)
The four horsemen of the human apocalypse, which cause the most premature and avoidable death in poor countries, are and will be for many years the same: hunger, dirty water, indoor smoke and malaria, which kill respectively about seven, three, three and two people per minute.
If you want to do your fellow human beings good, spend your effort on combating those so that people can prosper, ready to meet climate challenges as they arrive.
Economists estimate that a dollar spent on mitigating climate change brings ninety cents of benefits compared with $20 benefits per dollar spent on healthcare and $16 per dollar spent on hunger.
Decarbonising the economy
To get a toehold in the electricity market at all, wind power requires a regressive transfer from ordinary working people to rent-seeking rich landowners and businesses: as a rule of thumb, a wind turbine generates more value in subsidy than it does in electricity. Even in 6,000-turbine Denmark, not a single emission has been saved because intermittent wind requires fossil-fuel back-up (Denmark’s wind power is exported to Sweden and Norway, which can turn their hydro plants back on quickly when the Danish wind drops). Meanwhile a Spanish study confirms that wind power subsidies destroy jobs: for each worker who moves from conventional electricity generation to renewable electricity generation, ‘two jobs at a similar rate of pay must be forgone elsewhere in the economy, otherwise the funds to pay for the excess costs of renewable generation cannot be provided.
A big contribution will surely come from solar power, the least land-hungry of the renewables. Once solar panels can be mass-produced at $200 per square metre and with an efficiency of 12 per cent, they could generate the equivalent of a barrel of oil for about $30. Then, instead of drilling for $40 oil, everybody will be rushing to cover their roofs, and large parts of Algeria and Arizona with cheap solar panels.
Most of Arizona gets about six kilowatt-hours of sunlight per square metre per day so, assuming 12 per cent efficiency, it would take about one-third of Arizona to supply Americans with all their energy: a lot of land, but not unimaginable. Apart from cost, solar’s big problem, like wind’s, is its intermittent nature: it does not work at night, for instance.
But the obvious way to go low-carbon is nuclear. Nuclear power plants already produce more power from a smaller footprint, with fewer fatal accidents and less pollution than any other energy technology. The waste they produce is not an insoluble issue. It is tiny in volume (a Coke can per person per lifetime), easily stored and unlike every other toxin gets safer with time – its radioactivity falls to one-billionth of the starting level in two centuries. These advantages are growing all the time. Better kinds of nuclear power will include small, disposable, limited-life nuclear batteries for powering individual towns for limited periods and fast-breeder, pebble-bed, inherent-safe atomic reactors capable of extracting 99 per cent of uranium’s energy, instead of 1 per cent as at present, and generating even smaller quantities of short-lived waste while doing so. Modern nuclear reactors are already as different from the inherently unstable, uncontained Chernobyl ones as a jetliner is from a biplane. Perhaps one day fusion will contribute, too, but do not hold your breath.
The way to choose which of these technologies to adopt is probably to enact a heavy carbon tax, and cut payroll taxes (National Insurance in Britain) to the same extent. That would encourage employment and discourage carbon emissions. The way not to get there is to pick losers, like wind and biofuel, to reward speculators in carbon credits and to load the economy with rules, restrictions, subsidies, distortions and corruption.
Remember I am not here attempting to resolve the climate debate, nor saying that catastrophe is impossible. I am testing my optimism against the facts, and what I find is that the probability of rapid and severe climate change is small; the probability of net harm from the most likely climate change is small; the probability that no adaptation will occur is small; and the probability of no new low-carbon energy technologies emerging in the long run is small. Multiply those small probabilities together and the probability of a prosperous twenty-first century is therefore by definition large. You can argue about just how large, and therefore about how much needs to be spent on precaution; but you cannot on the IPCC’s figures make it anything other than very probable that the world will be a better place in 2100 than it is today.
And there is every reason to think that Africa can share in that prosperity. Despite continuing war, disease and dictators, inch by inch its population will stabilise; its cities will flourish; its exports will grow; its farms will prosper; its wildernesses will survive and its people will experience peace. In the mega-droughts of the ice ages, Africa could support very few early hunter-gatherers; in a warm and moist interglacial, it can support a billion mostly urban exchanger-specialisers.
How good could it get?
So in describing the world of 2100, I am bound to sound like somebody stuck in the world of the early twenty-first century, and make laughable errors of extrapolation. ‘It’s tough to make predictions,’ joked somebody, perhaps Yogi Berra: ‘especially about the future.’
But here goes, none the less. I forecast that the twenty-first century will show a continuing expansion of catallaxy – Hayek’s word for spontaneous order created by exchange and specialisation.
This catallaxy will not go smoothly, or without resistance. Natural and unnatural disasters will still happen. Governments will bail out big corporations and big bureaucracies, hand them special favours such as subsidies or carbon rations and regulate them in such a way as to create barriers to entry, slowing down creative destruction. Chiefs, priests, thieves, financiers, consultants and others will appear on all sides, feeding off the surplus generated by exchange and specialisation, diverting the life-blood of the catallaxy into their own reactionary lives. It happened in the past. Empires bought stability at the price of creating a parasitic court; monotheistic religions bought social cohesion at the price of a parasitic priestly class; nationalism bought power at the expense of a parasitic military; socialism bought equality at the price of a parasitic bureaucracy; capitalism bought efficiency at the price of parasitic financiers. The online world will attract parasites too: from regulators and cyber-criminals to hackers and plagiarists. Some of them may temporarily throttle their generous hosts.
It is just possible that the predators and parasites will actually win altogether, or rather that ambitious ideological busybodies will succeed in shutting down the catallaxy and crashing the world back into pre-industrial poverty some time during the coming century. There is even a new reason for such pessimism: the integrated nature of the world means that it may soon be possible to capture the entire world on behalf of a foolish idea, where before you could only capture a country, or perhaps if you were lucky an empire. (The great religions all needed empires within which to flourish and become powerful: Buddhism within the Mauryan and Chinese, Christianity within the Roman, Islam within the Arab.)
It will be hard to snuff out the flame of innovation, because it is such an evolutionary, bottom-up phenomenon in such a networked world.
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