December 12, 2005

Exit Strategies

Jim Bennett points to an interesting and important article by Arnold Kling that asks: what causes prosperity? I'm currently reading The Wealth and Poverty of Nations by David Landes, which seeks to answer the same question. No one really knows. Kling points out that poverty does not have a cause: it has always been the default state of humankind. What requires explanation is wealth. Specifically, why did northwestern Europe (led by England) begin to break out of the endless cycle of poverty around 500 years ago? Ernest Gellner calls this "The Exit". Max Weber tried to explain the exit by reference to the Protestant work ethic. But why did the peoples of northwestern Europe (English, Scots, Dutch, Germans, Danes, Swedes, Norwegians) become Protestant in the first place? Landes puts great weight on the scientific outlook that emerged first in Italy but that passed by southern Europe and passed to northwestern Europe beginning with the burning of Giordano Bruno, the trial of Galileo, and the Inquisition. But why were the English and Dutch much more predisposed to scientific inquiry and open publication of new ideas? Others point to the corruption of the Portuguese and especially Spanish (who originally dominated the Atlantic trading area) because of the influx of gold from the New World and the overwhelming presence of slave labor on the plantations of Brazil and the Caribbean. But why were the Spanish and Portuguese empires more susceptible to these corrupting influences than were the English and Dutch empires? Everywhere you look, causes are not ultimate but can be pursued further back into history, until the evidence becomes less and less substantial although all the more tantalizing. (I suppose that's what makes history so fascinating.)

Yet this exercise is not of merely historical interest. No people on earth want to remain in poverty (even if their government wants to keep them there). Most countries would love to replicate the success of northwestern Europe and north America if they only could. Some countries, such as Japan and Korea, have pretty much succeeded. Other countries, such as China and India, are trying hard to do so. Other countries, such as Argentina and the Philippines, have tried but not succeeded very well. Other countries have not even tried (vast swaths of Asia and Africa). Yet there is no one formula for success. All we know is the Anglosphere social model seems to work extremely well, and that social models that are similar to the Anglosphere model in certain ways (high trust, open minds, mostly open markets, etc.) tend to work well enough to produce significant, sustainable wealth. But there is no magic bullet. As a long-time libertarian I used to think that removing government impediments was the answer, but that approach seems awfully simplistic to me now. Government emerges from culture and social life, which means that unfortunately most places get the government they deserve (corrupt in low-trust cultures, hegemonistic in traditionalist cultures, etc.). Just changing the government from the outside (cf. Iraq) or, for you anarcho-capitalists, removing it altogether (cf. Somalia) will not result in prosperity in the absence of a culture of trust, individualism, high risk-tolerance, entrepreneurialism, respect for work and education, open inquiry, literacy, science, and technological innovation (or at least most of those, and probably more). How many cultures can lay claim to even half of those attributes? Sadly, not nearly enough.

David Landes, too, stresses the importance of culture. The countries of northwestern Europe got a head start on everyone else in the modern industrial world because of their distinctive cultural traits, and Britain got a 100-year head start among those nations because of the Anglosphere social model. Latin America mainlined an Iberian culture of (at the time) militarism, corruption, and Inquisition -- a legacy it has found hard to shake even today. The Islamic world has lacked the traits of open inquiry, commercial trade, and learning from other societies for hundreds of years, and was not helped more recently by the so-called scientific socialism of post-colonial elites. Most African nations are even further down the ladder of civil society, honest dealing, education, and health -- a whole continent plagued by misfortune. Since the end of World War II the only real exceptions to a growing divergence between the West and the Rest have been in East Asia, led by Japan, joined by Korea, Taiwan, Singapore, and more recently places like Malaysia and China. Landes ties the East Asian success stories to hard work, serious thrift, clear-thinking honesty (both to recognize one's plight and communicate about how to change it), extreme patience, and tenacious perseverence.

These are not pleasant conclusions to have to draw. We'd all like everyone to be rich and happy. Furthermore, tying wealth and poverty to culture seems to personalize it in ways that are simultaneously triumphalist and demeaning (we're better off because we're better, and you're worse off because you're worse). Easier, then, to avoid hard evidence and difficult conclusions. Yet, no matter how you slice it, culture matters. Thankfully, people have free will and can choose to face reality, understand their problems, work harder, save and invest more, focus on production over consumption, demand better governance, criticize in a constructive way, set higher goals, and work to achieve them. The painful experiences of economic deprivation, military defeat, ecological disaster, and the like can provide means to focus the mind and inspire effort; so can the image of a better life to be had by emulating those who blazed the path to modernity -- not following them, but joining them as equals in moving humankind forward scientifically, economically, technologically, and culturally.

None of this is going to get any easier. We understand more than we ever did about the role of cultural traits in societal success, but that does not necessarily make cultural change a breeze: it is still a tough, confusing slog. And the fact that life gets faster all the time may make it easier to leapfrog into modernity, but also harder for cultures to adapt. Instead of the centuries it took Britain and Europe to create modernity, cultures such as Korea, China, and India have only a few generations to do it. And even though human beings are deeply flexible, it's an open question whether people can change that fast. The coming Singularity revolutions in info-, bio-, and nano-technology will increase the pace of change even more, to levels that right now seem inconceivable. Those changes will challenge all cultures and civilizations, the Anglosphere included.

May you live in interesting times...

(Cross-posted at one small voice.)

Posted by Peter Saint-Andre at December 12, 2005 10:29 PM

It is compounded by the fact the many entrepreurial people stuck in low-trust, corrupt societies make the rational personal decision -- emigrate to a more favorable culture. Our gain, their countries' loss. But this ends up with a sorting effect -- our cultures become yet more entrepreneurial and open, the societies they leave become less entrepreneurial and more closed.

on the other hand, such people now stay in touch with their homelands, and some of the attitudes they gain here flow back to their homelands.

Posted by: Jim Bennett at December 12, 2005 11:16 PM

Emperically, one can obsserve that poverty is caused by corrupt government - which generally means non-democracy (since in a functioning democracy corrupt leaders will be removed), and prosperity is caused by the rule of law and free enterprise.

A more interesting question is: Are there any better systems? Democracy, free enterprise and for the sake of discussion, a free press all have problems. The first two seem to be the best forms of government and economy known to mankind but all three of these institutions have incentives to lie and cheat.

In Democracy, politicians always bend the truth about their opponents and their opponents' policies.

In free enterprise, marketers always bend the truth about the products they are selling. There is incentive to engage in anti-competitive business practices, abuse labor, pollute the environment.

In the free press the media always presents a distorted picture of reality dwelling on bad news about crime, corruption, wrong doing and lurid events. This can provide a valueable check on other institutions to a degree, but it also gives the public a distorted view of the world. This is especially true when, as is often the case, facts are presented in a way intended to support a preconceived bias.

Through laws we try to keep these institutions undercontrol but that is a far different situation than if these institutions naturally behaved with integrity.

So are there even better ways to organize society?

Posted by: sans-nom at December 13, 2005 01:25 AM

Douglass C. North wrote a book called "Understanding the Process of Economic Change."

In it he hypothesizes that institutions within an economy are most important in helping it suffer economic change and build wealth. He explains what conditions, in his opinion, created the atmostsphere that allowed Northwest Europe to develop the systems it did (as well as cultural norms that fit such systems). He does not talk of an Anglospheric system (indeed, these economic systems first arose in France, which is home of our modern financial systems). However, I believe the anglospheric nations, by culture and organization represent the best of all the systems and traditions that came out of that process of change that began in northwest Europe.

[If anything France is an exception. What they declare as the Anglo-Saxon model, really began in France, but was killed on the vine by the revolution and Napoleanism.]

Posted by: ElamBend at December 13, 2005 08:21 AM

So are there even better ways to organize society?

I think we're well advised not to even try to use the phrase 'organize society'. Past attempts along those lines have had iffy results at best.

The best you can do is setup a framework that provides for personel freedom and rule-of-law and let the people work things out.

Granted this feels sloppy - you wouldn't build a building to rules like that - but it's the practical approach.

But - to answer your question - I don't say that Democracy is the be-all to end-all but I can't envision a system that works better.

Posted by: Brian at December 13, 2005 09:32 AM

"Many forms of government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those others that have been tried from time to time." -- Winston Churchill

Posted by: Peter Saint-Andre at December 13, 2005 09:44 AM

Agreed. Rather than talk about better ways to organize society, I think the focus should be on how to strengthen civil society -- to take those characteristics that make civil society what it is, and look for ways to make them stronger, and to expand the network of civil-society ties wider; i.e., across borders to the extent it is possible. (Cross borders between cultures too distant from each other, and you start to lose the set of common unstated understandings that make civil society function) This set of interlinked civil societies is what I've been calling the "network commonwealth".)

Posted by: Jim Bennett at December 13, 2005 11:14 AM

When democracy, free markets, and a free press function properly, they are all self-correcting over time. There will always be some disagreement over truth. But if there is a sufficient consensus that human understanding is imperfect, yet capable of more closely approximating the truth through open debate and periodic accountability, then an outlook basic civil society can be said to exist.

Posted by: David Billington at December 13, 2005 11:59 AM

"When democracy, free markets, and a free press function properly"

Don't truly free markets automatically create the best form of democracy? Forced democracy seems to be a failure, time and again. Free market "democracy" should, by nature, guarantee a free press and a free base of people.

Posted by: a.b. dada at December 13, 2005 03:14 PM

IMHO at least part of the answer for the way poor countries can become wealthy is contained in the book, THE MYSTERY OF CAPITAL, by Hernando De Soto. He posits that being able to have title to property backed by the law and the courts is fundamental to all societies that are wealthy. In most poor countries the governments are either kleptocracies or dictatorships, which discourage creation of wealth except for the favored few. De Soto consults to third world countries trying to convince them that the system of private property ownership works, but the governments are always suspicious of it.

I was in Kenya during Moi's administration. I saw some wonderful furniture being built at reasonable prices by a myriad of roadside craftsmen. I suggested to my guide that the craftsmen should band together and set up a group to export the furniture to developed countries. His reply, "Oh no, if they become too succesful the government will just move in and take it away from them." That shocked me, but made me realize what a kleptocracy Moi's government was.

There is another book, RICH NATIONS-POOR NATIONS, by Barbara Ward that posits that poor countries with natural resources should set up a national savings program to create the capital for wealth creation. However, her book was written forty years ago and globalization has made capital much more available to resource rich third world countries. That sort of capital accumulation should not be as necessary if only the country allows court enforced ownership of private property.

Those of us in the Anglosphere take this simple right of private propertry ownership for granted, but when you look at poor countries you will see that that right may be given lip service but isn't really enforced.

In my travels I also found that any former colony of Spain, France, or Portugal has governments shot through with systemic bribery. Even though the Philippines was a U.S. territory for a while, it was a Spanish colony first and their democracy struggles because it runs on the old time graft and bribery.

Let us hope that the Iraqis will be able to adapt to this idea. Right now I see problems because of the tribalism and religious sects that will try to keep their members in line and discourage real wealth building.

Posted by: JJ at December 13, 2005 05:37 PM

I think you've hit the problem as to why so many countries have trouble following in the Anglopshere's footsteps; the time constraints. As you point out England and northwest Europe has centuries to develop and correct any mistake and learn from them whereas other countries must do repeat the process in decades. Albert Hirschman wrote that those time constraints made the development sequence much more sentistive to shocks. If one thing goes wrong, then everything falls apart and the country literally regresses to where it started from.
Hence, the origins of fracasomania that many countries experience.
Further, as most countries are hedgehogs, rapid change overwhelms their coping mechanism and suffer a breakdown. The stimuli are just too much for them to handle at once.
So the research has to focus on how do we help the countries adapt to the rapid pace so as not to overwhelm their coping mechanisms? That'll be tough but I guess that's the challenge.

Posted by: xavier at December 14, 2005 01:36 PM

I've got a single factor that can predict most of the differences in living standards around the world: Lynn and Vanhanen's estimates of national average IQ:

See Figure 1 of this paper:

Looks like IQ alone can predict 64% of global distribution of income. Not bad for an oft-criticized measure of processing speed....

And the IQ numbers don't budge dramatically over the decades---East Asia had high IQ's back in the bad old days of the 50's and 60's. So reverse causation isn't going to take you where you want to go...

So maybe "healthy culture" is mostly a polite euphemism for IQ.....But I doubt it. High-IQ societies have a *chance* to build something great, but they often fail (cf. Spain, Italy, China in recent centuries). Can we try necessary but not sufficient?

Posted by: Garett at December 15, 2005 06:13 PM