The Rational Optimist (P.S.)

by Matt Ridley

China, meanwhile, was heading the other way, into stagnation and poverty. 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. According to Angus Maddison’s estimates, it was the only region in the world with a lower GDP per capita in 1950 than in 1000. The blame for this lies squarely with China’s governments.

Even the rebirth of China in the late twentieth century owes much to the fragmentation of government and to an explosion of local autonomy.

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. One of the paradoxical features of modern China is the weakness of a central, would-be authoritarian government.

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 behaviour of Hongwu, the first of the Ming emperors, is an object lesson in how to stifle the economy: forbid all trade and travel without government permission; force merchants to register an inventory of their goods once a month; order peasants to grow for their own consumption and not for the market; and allow inflation to devalue the paper currency 10,000-fold. His son Yong-Le added some more items to the list: move the capital at vast expense; maintain a gigantic army; invade Vietnam unsuccessfully; put your favourite eunuch in charge of a nationalised fleet of monstrous ships with 27,000 passengers, five astrologers and a giraffe aboard, then in a fit of pique at the failure of this mission to make a profit, ban everybody else from building ships or trading abroad.

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

At first glance, medieval England furnishes a tidy example of such diminishing returns.

The national sheep flock boomed to perhaps ten million animals, more than two sheep per person. The English had found a comparative advantage in their mild, wet, grass-growing climate – a gain from trade – supplying Europe’s fibre. Specialisation and exchange fuelled population growth.

sold wool for cash rather than strove for self-sufficiency. They presumably used that cash to buy bread from the baker who bought flour from the miller, who bought grain from other farmers, who therefore got cash too.

Put yourself in the shoes of a grain farmer in Damerham. The miller wants all you can grow, so you encourage both your sons to marry early and rent a few acres off you. The carter, the miller, the baker, the merchant and the shepherds are all doing the same: setting their children up in business. Family formation – which had always been as much an economic as a biological decision – increased markedly in the thirteenth century. The consequence of all this early and frequent marriage was fecundity. In the thirteenth century the population of England seems to have doubled, from over two million to something like five million people.

Inevitably, and gradually, the population boom overtook the economy’s productivity. Rents inflated and wages deflated: the rich were bidding up land prices while the poor were bid ding down wages.

pay packets shrank, demand for the goods supplied by merchants must have begun to stall. To feed the growing population, marginal land was being ploughed, and was yielding fewer and fewer grains for each grain sown. Diminishing returns dominated. Predatory priests and chiefs did not help. Before long hunger was a real risk. It came suddenly in the sodden summers of 1315 and 1317, when wheat yields more than halved all across the north of Europe.

The population then stagnated for three decades until the Black Death arrived in the 1340s and caused a crash in human numbers. The plague returned in the 1360s, followed by more bad harvests and more plague outbreaks. By 1450, the population of England had been reduced to roughly where it had been in 1200.

Ironically, the plague may have been one of the sparks that lit the Renaissance, because the shortage of labour shifted income from rents to wages as landlords struggled to find both tenants and employees. With rising wages, some of the surviving peasantry could once more just afford the oriental luxuries and fine cloth that Lombard and Hanseatic merchants supplied.

There was a rash of financial innovation: bills of credit to solve the problem of how to pay for goods without transporting silver through bandit country, double-entry book-keeping, insurance.

The point is this. In 1300, Europe was probably on a trajectory towards a labour-intensive ‘industrious’ revolution of diminishing returns.

Yet by 1400, Europe had partly switched to a labour-saving ‘industrial’ trajectory instead, and the pattern was repeated after the cold and brutal seventeenth century, when famine, plague and war once more reduced the European population: in 1692–4, perhaps 15 per cent of all French people starved to death. Unlike Mesopotamia, Egypt, India, Mexico, Peru, China and Rome, early modern Europe became capital-intensive, not labour-intensive. That capital was used to get work out of animals, rivers and breezes, rather than people. Europe was, in Joel Mokyr’s words, ‘the first society to build an economy on non-human power rather than on the backs of slaves and coolies’.

It was Britain’s fate to escape the quasi-Malthusian trap into which Japan, Ireland and Denmark fell.

Britain, more than any other country, had unintentionally prepared itself for industrial life in an elemental, human way. For centuries – leaving out the aristocrats (who left fewer heirs because they died from falling off horses) – the relatively rich had more children than the relatively poor.

Because there was little or no increase in the standard of living between 1200 and 1700, this overbreeding by the rich meant there was constant downward mobility. Gregory Clark has shown from legal records that rare surnames of the poor survived much less well than rare surnames 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.

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.

When Asia experienced a population boom in the early twentieth century, it had no such emigration safety valve. In fact, Western countries firmly and deliberately closed the door, terrified by the ‘yellow peril’ that might otherwise head their way. The result was a typical Malthusian increase in self-sufficiency. By 1950 China and India were bursting with the self-sufficient agrarian poor.

Is it female emancipation? Certainly, the correlation between widespread female education and low birth rate is pretty tight, and the high fecundity of many Arab countries must in part reflect women’s relative lack of control over their own lives. Probably by far the best policy for reducing population is to encourage female education.

Most cities are – and always have been – places where death rates exceed birth rates. Immigration sustains their numbers.

In other words, the best that can be said for sure about the demographic transition is that countries lower their birth rates as they grow healthier, wealthier, better educated, more urbanised and more emancipated.

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.

Birth rates have risen in eighteen of the twenty-four countries that have a Human Development Index greater than 0.94. The puzzling exceptions are ones such as Japan and South Korea, which see a continuing decline.

all in all, the news on global population could hardly be better, though it would be nice if the improvements were coming faster. The explosions are petering out; and the declines are bottoming out. The more prosperous and free that people become, the more their birth rate settles at around two children per woman with no coercion necessary. Now, is that not good news?

‘One of the most extraordinary facts of the [eighteenth] century was the enlargement of the consuming classes,’

The historian Edward Baines noted in 1835 that the ‘wonderful cheapness of cotton goods’ was now benefiting the ‘bulk of the people’: ‘a country-wake in the nineteenth century may display as much finery as a drawing room in the eighteenth.’ The capitalist achievement, reflected Joseph Schumpeter a century later, ‘does not typically consist of providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.’

was coal that gave the industrial revolution its surprising second wind, that kept the mills, forges and locomotives running, and that eventually fuelled the so-called second industrial revolution of the 1860s, when electricity, chemicals and telegraphs brought Europe unprecedented prosperity and global power.

Can I stretch the industrial revolution upon the Procrustean bed of my hypothesis, as I have done for the upper Palaeolithic, Neolithic, urban and commercial revolutions, too? Thanks mainly to new energy technologies, what took a textile worker twenty minutes in 1750 took just one minute in 1850.

That was in essence why the second half of the industrial revolution made Britain rich. It made it possible for fewer people to supply more people with more goods and more services – in Adam Smith’s words, to make ‘a smaller quantity of labour produce a greater quantity of work’.

energy-substitutes for slaves.

jeremiad

Jevons paradox

‘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.’

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. As Friedrich Hayek argued, knowledge is dispersed throughout society, because each person has a special perspective. Knowledge can never be gathered together in one place. It is collective, not individual. Yet the failure of any particular market to match the perfect market no more constitutes ‘market failure’ than the failure of a particular marriage to match the perfect marriage constitutes ‘marriage failure’. In an exactly analogous way, the science of ecology has an enduring fallacy that in the natural world there is some perfect state of balance to which an ecosystem will return after disturbance.

Innovation is like a bush fire that burns brightly for a short time, then dies down before flaring up somewhere else. At 50,000 years ago, the hottest hot-spot was west Asia (ovens, bows-and-arrows), at 10,000 the Fertile Crescent (farming, pottery), at 5,000 Mesopotamia (metal, cities), at 2,000 India (textiles, zero), at 1,000 China (porcelain, printing), at 500 Italy (double-entry book-keeping, Leonardo), at 400 the Low Countries (the Amsterdam Exchange Bank), at 300 France (Canal du Midi), at 200 England (steam), at 100 Germany (fertiliser); at 75 America (mass production), at 50 California (credit card), at 25 Japan (Walkman). No country remains for long the leader in knowledge creation. At first blush, this is surprising, especially if increasing returns to innovation are possible. Why must the torch be passed elsewhere at all? As I have argued in the previous three chapters, the answer lies in two phenomena: institutions and population.

Increasing returns would indeed peter out if innovators did not have a new wave to catch every thirty years, it seems. Note that the greatest impact of an increasing-return wave comes long after the technology is first invented. It comes when the technology is democratised.

It is not the speed but the cost – in terms of hours of work – that counts. The death of distance may not be new, but it has been made affordable to all.

Americans were ‘far more likely to use credit cards than to approve of them’.

This nicely captures the paradox of the modern world, that people embrace technological change and hate it at the same time. ‘People don’t like change,’ Michael Crichton once told me, ‘and the notion that technology is exciting is true for only a handful of people. The rest are depressed or annoyed by the changes.’

admitted that even today scientists’ job is really to come along and explain the empirical findings of technological tinkerers after they have discovered something.

The inescapable fact is that most technological change comes from attempts to improve existing technology.

way to incentivise innovation, as any Silicon Valley venture capitalist will tell you, is to bring capital and talent together.

Where would Amazon, Compaq, Genentech, Google, Netscape and Sun be without Kleiner Perkins Caulfield?

imperial Rome, no doubt scores of unknown slaves knew how to make better olive presses, better watermills and better wool looms, while scores of plutocrats knew how to save, invest and consume. But the two lived miles apart, separated by venal middlemen who had no desire to bring them together. A telling anecdote about glass repeated by several Roman authors rather drives home the point. A man demonstrates to the emperor Tiberius his invention of an unbreakable form of glass, hoping for a reward. Tiberius asks if anybody else knows his secret and is assured nobody does. So Tiberius beheads the man to prevent the new material reducing the relative value of gold to that of mud. The moral of the tale – whether it is true or not – is not just that Roman inventors receive negative reward for their pains, but that venture capital was so scarce, the only way to get a new idea funded was to go to the emperor. 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.’