The Rational Optimist: How Prosperity Evolves

by Matt Ridley

But, realising their comparative advantage in timber, the Phoenicians built ships of greater capacity, finer trim and more seaworthy mortise joints than any people before them.

Trade, once more, was the flywheel of the innovation machine.

The effect of the Phoenicians must have been to create a burst of specialisation all around the Mediterranean.

It is common to find that two traders both think their counterparts are idiotically overpaying:

But in truth, was there ever a more admirable people than the Phoenicians? They knitted together not only the entire Mediterranean, but bits of the Atlantic, the Red Sea and the overland routes to Asia, yet they never had an emperor, had comparatively little time for religion and fought no memorable battles

the Phoenicians seem to have managed to resist the temptations of turning into thieves, priests and chiefs better than most successful people in history.

Through enterprise they discovered social virtue.

political fragmentation is often the friend, not the enemy, of economic advance, because of the stop which it gives ‘both to power and authority’.

Modern philosophers who aspire to rise above the sordid economic reality of the world would do well to recall that this trade made possible the cross-fertilisation of ideas that led to great discoveries.

The chief reason is surely that strong governments are, by definition, monopolies and monopolies always grow complacent, stagnant and self-serving.

The Mauryan empire in India seems to have harvested the prosperity of the Ganges valley to combine an imperial monarchy with expanding trade. It was ruled at its zenith in 250 BC by Asoka, a warrior who turned into a Buddhist pacifist once he had won (funny, that) and was as economically benign a head of state as you could wish. He built roads and waterways to encourage the movement of goods, established a common currency and opened maritime trade routes with China, south-east Asia and the Middle East, sparking an export-led boom in which cotton and silk textiles played a prominent part. Trade was carried on almost entirely by private firms (sreni) of a recognisably corporate kind; taxation, though extensive, was fairly administered. There were remarkable scientific advances, not least the invention of zero and the decimal system and the accurate calculation of pi. Asoka’s empire disintegrated before it had become totalitarian, and its legacy was impressive: for the next few centuries the Indian subcontinent was both the most populous and the most prosperous part of the world, with a third of the world’s people and a third of the world’s GDP. It was without question the economic superpower of the day, dwarfing both China and Rome, and its capital city Pataliputra was the largest city in the world, famous for its gardens, luxuries and markets. Only later, under the Guptas, did the caste system ossify Indian commerce.

The camel caravans of Arabia were the source of the wealth that carried Muhammad and his followers to power.

it is undeniable that Europe’s reawakening was boosted by contact with the productivity of China, India, Arabia and Byzantium through Italian trade.

Regions that participated in Asian trade grew richer than the regions that did not: by 1500 Italy’s GDP per capita was 60 per cent higher than the European average.

China went from a state of economic and technological exuberance in around ad 1000 to one of dense population, agrarian backwardness and desperate poverty in 1950.

China’s best moments came when it was fragmented, not united.

The burst of economic activity in China after 1978 was driven by ‘township and village enterprises’, agencies of the government given local freedom to start companies.

The Song era had, in short, a highly elaborate division of labour: many people were consuming what each other produced.

Then came the calamities of the 1200s and 1300s. First the Mongol invasion, then the Black Death, then a series of natural disasters, followed by the all too unnatural disaster of totalitarian Ming rule.

Western Europe only bounced back from the Black Death because it had regions of independent city states run by and for merchants, notably in Italy and Flanders.

This made it harder for landowners to reimpose serfdom and restrictions on peasant movement after the plague had briefly empowered the labouring classes. In Eastern Europe, Mamluk Egypt and Ming China, serfdom was effectively restored.

Not only did the Ming emperors nationalise much of industry and trade, creating state monopolies in salt, iron, tea, alcohol, foreign trade and education, but they interfered with the everyday lives of their citizens and censored expression to a totalitarian degree. Ming officials had high social status and low salaries, a combination that inevitably bred corruption and rent-seeking. Like all bureaucrats they instinctively mistrusted innovation as a threat to their positions and spent more and more of their energy on looking after their own interests rather than the goals they were put there to pursue.

The greatest beneficiaries of European political fragmentation were the Dutch. By 1670, uncommanded by emperors and even fragmented among themselves, the Dutch so dominated European international trade that their merchant marine was bigger than that of France, England, Scotland, the Holy Roman Empire, Spain and Portugal – combined

Between 1846 and 1860, Britain unilaterally adopted a string of measures to open its markets to free trade to a degree unprecedented in history. It abolished the corn laws, terminated the navigation acts, removed all tariffs and agreed trade treaties with France and others incorporating the ‘most favoured nation’ principle – that any liberalisation applied to all trading parties.

The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty

India, under Jawaharlal Nehru, went for autarky too, closing its borders to trade in the hope of sparking a boom in import substitution. It too found stagnation. 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. Countries that changed tack in the twentieth century include Japan, Germany, Chile, post-Mao China, India and more recently Uganda and Ghana. China’s Open Door policy, which cut import tariffs from 55 per cent to 10 per cent in twenty years, transformed it from one of the most protected to one of the most open markets in the world.

Farm subsidies and import tariffs on cotton, sugar, rice and other products cost Africa $500 billion a year in lost export opportunities – or twelve times the entire aid budget to the continent.

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.

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 wo...

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.

The world’s cities already contain half the world’s people, but they occupy less than 3 per cent of the world’s land area.

Increasing self-sufficiency is the very signature of a civilisation under stress, the definition of a falling standard of living.

that unchecked population could drive down the standard of living.

With abundant food and a fastidious approach to hygiene, the Japanese population boomed to the point where land was scarce, labour was cheap and it was literally more economic to use human labour to hoe the land than to set aside precious acres for pasture to support oxen or horses to draw a plough. So the Japanese, to a spectacular extent, retreated from technology and trade and reduced their demands on merchants as they became more self-sufficient.

The market for technology of all kinds atrophied. They even gave up capital-intensive guns in favour of labour-intensive swords

On average a merchant in Britain who left £1,000 in his will had four surviving children, while a labourer who left £10 had only two

By 1700, therefore, in Britain most of the poor were actually the descendants of the rich. They had perhaps carried down with them into the working classes many of the habits and customs of the rich: literacy, for example, numeracy and perhaps industriousness or financial prudence.

What Europe achieved after 1750 – uniquely, precariously, unexpectedly – was an increasing division of labour that meant that each person could produce more each year and therefore could consume more each year, which created the demand for still more production.

Two things, says the historian Kenneth Pomeranz, were vital to Europe’s achievement: coal and America. The ultimate reason that the British economic take-off kept on going where the Chinese – or for that matter, the Dutch, Italian, Arab, Roman, Mauryan, Phoenician or Mesopotamian – did not was because the British escaped the Malthusian fate. The acres they needed to provide themselves with corn, cotton, sugar, tea and fuel just kept on materialising elsewhere. Here are Pomeranz’s numbers: in around 1830, Britain had seventeen million acres of arable land, twenty-five million acres of pastureland and less than two million acres of forest. But she consumed sugar from the West Indies equivalent (in calories) to the produce of at least another two million acres of wheat; timber from Canada equivalent to another one million acres of woodland, cotton from the Americas equivalent to the wool produced on an astonishing twenty-three million acres of pastureland, and coal from underground equivalent to fifteen million acres of forest. Without these vast ‘ghost acres’ Britain’s industrial revolution, which was only just starting to raise living standards in 1830, would have already shuddered to a halt for lack of calories, cotton or coal. Not only did the Americas ship back their produce; they also allowed a safety valve for emigration to relieve the Malthusian pressure of the population boom induced by industrialisation.

Germany, in particular, as it industrialised rapidly in the nineteenth century, saw a huge increase in the birth rate, but a flood of emigrants to the United States prevented the division of land among multiple heirs and the return to poverty an...

The result was a typical Malthusian increase in self-sufficiency. By 1950 China and India were bursting with the self-sufficient agrarian poor.

Throughout the world, birth rates are falling.

There is no country in the world that has a higher birth rate than it had in 1960,

Until 2002, the United Nations, when projecting future world population density, assumed that birth rates would never fall below 2.1 children per woman in most countries: that is the ‘replacement rate’, at which a woman produces enough babies to replace her and her husband, with 0.1 bab...

But in 2002, the UN changed this assumption as it became clear that in country after country the decline in baby-making went straight thro...

But now that even the United Nations’ best estimate is that world population will probably start falling once it peaks at 9.2 billion in 2075, there is every prospect of feeding the world for ever.

In technical jargon, the entire world is experiencing the second half of a ‘demographic transition’ from high mortality and high fertility to low mortality and low fertility.