The Rational Optimist (P.S.)

by Matt Ridley

Trade, says Johann Norberg, is like a machine that turns potatoes into computers, or anything into anything: who would not want to have such a machine at their disposal?

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.

Just as Henry Ford said he was driven to invent the gasoline buggy to escape the ‘crushing boredom of life on a midwest farm’, so, says Suketa Mehta, ‘for the young person in an Indian village, the call of Mumbai isn’t just about money. It’s also about freedom.’

Two-thirds of economic growth happens in cities.

The economist Pietra Rivoli writes, ‘As generations of mill girls and seamstresses from Europe, America and Asia are bound together by this common sweatshop experience – controlled, exploited, overworked, and underpaid – they are bound together too by one absolute certainty, shared across both oceans and centuries: this beats the hell out of life on the farm.’

Industrialisation became contagious: the increased productivity of cotton mills encouraged demand from the chemical industry, which invented chlorine for bleaching, and from the printing industry, which turned to drum printing to print coloured cloth. By cutting the price of cotton, it also released consumer expenditure for other goods, which stimulated other manufacturing inventions. And of course to make the new machines, it demanded high-quality iron, which was made possible by cheap coal.

Coal makes the electricity that lights your house, spins your washing machine and smelts the aluminium from which your aeroplane was made; oil fuels the ships, trucks and planes that filled your supermarket and makes the plastic from which your children’s toys are made; gas heats your home, bakes your bread and makes the fertiliser that grows your food. These are your 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.’

There is no equilibrium in nature; there is only constant dynamism.

The story of the twentieth century was the story of giving everybody access to the privileges of the rich, both by making people richer and by making services cheaper.

And even the later stages of the industrial revolution are replete with examples of technologies that were developed in remarkable ignorance of why they worked. This was especially true in the biological world. Aspirin was curing headaches for more than a century before anybody had the faintest idea of how. Penicillin’s ability to kill bacteria was finally understood around the time bacteria learnt to defeat it. Lime juice was preventing scurvy centuries before the discovery of vitamin C. Food was being preserved by canning long before anybody had any germ theory to explain why it helped.

It is no coincidence that the growth of technology industries took off after the mid-1970s when Congress freed pension funds and non-profits to invest some of their assets in venture funds. California is not the birthplace of entrepreneurs; it is the place they go to do their enterprising; fully one-third of successful start-ups in California between 1980 and 2000 had Indian- or Chinese-born founders.

Imperial China, too, sent strong signals of discouragement to anybody whose inventiveness challenged the status quo. A Christian missionary in Ming China wrote: ‘Any man of genius is paralysed immediately by the thought that his efforts will bring him punishment rather than rewards.’

Though they may start out full of entrepreneurial zeal, once firms or bureaucracies grow large, they become risk-averse to the point of Luddism. The pioneer venture capitalist Georges Doriot said that the most dangerous moment in the life of a company was when it had succeeded, for then it stopped innovating.

3M – flush with success after its employee Art Fry dreamed up the idea of nonstick sticky notes (Post-its) while trying to mark the place in his hymn book in church in 1980 – told its technologists to spend 15 per cent of their time working on their own projects and by harvesting customers’ ideas.

A large study by the Organisation for Economic Co-operation and Development concluded that government spending on R&D has no observable effect on economic growth, despite what governments fondly believe. Indeed it ‘crowds out resources that could be alternatively used by the private sector, including private R&D’. This rather astonishing conclusion has been almost completely ignored by governments.

It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world.

Henry Ford once candidly admitted that he had invented nothing new. He had ‘simply assembled into a car the discoveries of other men behind whom were centuries of work’.

When Charles Townes invented the laser in the 1950s, it was dismissed as ‘an invention looking for a job’. Well, it has now found an astonishing range of jobs nobody could have imagined, from sending telephone messages down fibreglass wires to reading music off discs to printing documents, to curing short sight.

but not until Romer’s ‘new growth theory’ in the 1990s was economics fully back in the real world: a world where perpetual innovation brings brief bursts of profit through temporary monopoly to whoever can commandeer demand for new products or services, and long bursts of growth to everybody else who eventually gets to share the spilled-over idea.

The Ming and Maoist emperors had rules restricting the growth of businesses; forbidding unauthorised travel; punishing innovation; limiting family size. They do not say so, but that is the inevitable world the pessimists want to return to when they speak of retreat.

The earth’s atmosphere has warmed, and it seems that the great 100,000-year experiment of human progress is about to be tested against rising sea levels, melting ice caps, droughts, storms, famines, pandemics and floods. Human activity is causing much of this change, especially by the burning of fossil fuels, whose energy has been responsible for raising the living standards of many of the world’s nearly seven billion people, so humankind faces a stark dilemma in the coming century between continuing a carbon-fuelled prosperity until global warming brings it to a calamitous halt, or restricting the use of carbon and risking a steep decline in living standards because of the lack of alternative sources of energy that are cheap enough. Either prospect might be catastrophic.

Some of the most urgent needs of Africa can surely be met by increased aid from the rich world. Aid can save lives, reduce hunger, deliver a medicine, a mosquito net, a meal or a metalled road. But statistics, anecdotes and case histories all demonstrate that the one thing aid cannot reliably do is to start or accelerate economic growth. Aid to Africa doubled in the 1980s as a percentage of the continent’s GDP; growth simultaneously collapsed from 2 per cent to zero. The aid that Zambia has received since 1960, if invested instead in assets giving a reasonable rate of return, would by now have given Zambians the income per head of the Portuguese – $20,000 instead of $500. Although in the early 2000s some studies managed to find evidence that certain kinds of aid sometimes trigger growth in countries with specific economic policies, even these conclusions were later dashed by Raghuram Rajan and Arvind Subramanian of the International Monetary Fund in 2005. They could find no evidence that aid resulted in growth in any countries. Ever.

As William Easterly puts it while criticising the shock therapy that did such harm in both the Soviet bloc and Africa, ‘you can’t plan a market’. The top-down imposition of a bottom-up system is bound to fail.

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.

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.

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 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.