The Rational Optimist (P.S.)

by Matt Ridley

As Hayek put it, ‘once the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed towards the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.’

In most hunter-gatherers, women spend long hours gathering, preparing and cooking staple foods while men are out hunting for delicacies. There is, incidentally, no hunter-gatherer society that dispenses with cooking. Cooking is the most female-biased of all activities, the only exceptions being when men prepare some ritual feasts or grill a few snacks while out on the hunt. (Does this ring any modern bells? Fancy chefs and barbecuing are the two most masculine forms of cooking today.)

When did this specialisation begin? There is a neat economic explanation for the sexual division of labour in hunter-gatherers. In terms of nutrition, women generally collect dependable, staple carbohydrates whereas men fetch precious protein. Combine the two – predictable calories from women and occasional protein from men – and you get the best of both worlds. At the cost of some extra work, women get to eat some good protein without having to chase it; men get to know where the next meal is coming from if they fail to kill a deer. That very fact makes it easier for them to spend more time chasing deer and so makes it more likely they will catch one. Everybody gains – gains from trade. It is as if the species now has two brains and two stores of knowledge instead of one – a brain that learns about hunting and a brain that learns about gathering.

The lesson of the ultimatum game and hundreds like it is that again and again people emerge from such experiments as nicer than you think. But the even more surprising lesson is that the more people are immersed in the collective brain of the modern commercial world, the more generous they are. As the economist Herb Gintis puts it, ‘societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual’. His evidence comes from a fascinating study in which people in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game. Those societies with the least experience of dealing with outsiders were the most hard-hearted, ungenerous and narrowly ‘rational’. Machiguenga slash-and-burn farmers from the Amazon most often offered just 15 per cent of the sum to their co-subjects, and in all but one cases, the second player accepted. Likewise, a Hadza hunter-gatherer from Tanzania usually makes a very small offer and experiences few rejections. On the other hand, players from those societies that are most integrated into modern markets, such as the Orma nomads of Kenya or the Achuar subsistence gardeners of Ecuador, will usually offer half the money just as a Western undergraduate would. The whale-hunting Lamalera of the island of Lembata in Indonesia, who need to coordinate large teams of strangers on hunts, offer on average 58 per cent – as if investing the windfall in acquiring new obligations. Much the same hap...

There was once a German philosophical conundrum known as Das Adam Smith Problem, which professed to find a contradiction between Adam Smith’s two books. In one he said that people were endowed with instinctive sympathy and goodness; in the other, that people were driven largely by self-interest. ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it,’ he wrote in Theory of Moral Sentiments. ‘Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour,’ he wrote in The Wealth of Nations. Smith’s resolution of the conundrum is that benevolence and friendship are necessary but not sufficient for society to function, because man ‘stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons’. In other words, people go beyond friendship and achieve common interest with strangers: they turn strangers into honorary friends, to use Paul Seabright’s term. Smith brilliantly confused the distinction between altruism and selfishness: if sympathy allows you to please yourself by pleasing others, are you being selfish or altruistic? As the ph...

oxytocin specifically increases trusting, rather than general risk-taking. As with lovers and mothers, the hormone enables animals to take the risk of approaching other members of the species – it ‘links the overcoming of social avoidance with the activation of brain circuits implicated in reward’. It does this partly by suppressing the activity of the amygdala, the organ that expresses fear. If human economic progress has included a crucial moment when human beings learned to treat strangers as trading partners, rather than enemies, then oxytocin undoubtedly played a vital role.

There is a vast history behind the trustworthiness of a tube of toothpaste, a long path of building trust inch by inch. Once that path is trodden, though, trust can be borrowed for new products and new media with surprising ease. The remarkable thing about the early days of the internet was not how hard it proved to enable people to trust each other in the anonymous reaches of the ether, but how easy. All it took was for eBay to solicit feedback from customers after each transaction and post the comments of buyers about the sellers. Suddenly every deal lay under the shadow of the future; suddenly, every eBay user felt the hot breath of reputation on his neck as surely as a Stone Age reindeer hide salesman returning to a trading place after selling a rotten hide the year before. When Pierre Omidyar founded eBay, few believed as he did that trust between anonymous strangers would prove easy to create in the new medium. But by 2001, fewer than 0.01 per cent of all transactions on the site were fraud attempts. John Clippinger draws an optimistic conclusion: ‘The success of trust-based peer organizations such as eBay, Wikipedia, and the open-source movement, indicates that trust is a highly expandable network property.’ Perhaps the internet has returned us to a world a bit like the Stone Age in which there is no place for a fraudster to hide. That response would be naïve. There is plenty of innovative and destructive cyber-crime to come. None the less, the internet is a place w...

My point is simply this: with frequent setbacks, trust has gradually and progressively grown, spread and deepened during human history, because of exchange. Exchange breeds trust as much as vice versa. You may think you are living in a suspicious and dishonest world, but you are actually the beneficiary of immense draughts of trust. Without that trust the swapping of fractions of labour that goes to make people richer could not happen. Trust matters, said J.P. Morgan to a congressional hearing in 1912, ‘before money or anything else. Money cannot buy it ... because a man I do not trust could not get money from me on all the bonds in Christendom.’

Marxism said that capitalists got rich because workers got poor, another fallacy.

The lesson of the last two centuries is that liberty and welfare march hand in hand with prosperity and trade. Countries that lose their liberty to tyrants today, through military coups, are generally experiencing falling per capita income at an average rate of 1.4 per cent at the time – just as it was falling per capita income that helped turn Russia, Germany and Japan into dictatorships between the two world wars. One of the great puzzles of history is why this did not happen in America in the 1930s, where on the whole pluralism and tolerance not only survived the severe economic shocks of the 1930s, but thrived. Perhaps it nearly did happen: Father Coughlin tried, and had Roosevelt been more ambitious or the constitution weaker, who knows where the New Deal might have led? Perhaps some democracies were just strong enough for their values to survive. Today there is much argument about whether democracy is necessary for growth, China seeming to prove that it is not. But there can be little doubt that China would – indeed may yet – see either more revolution or more repression if its growth rate were to fall to nothing.

Companies have a far shorter half-life than government agencies. Half of the biggest American companies of 1980 have now disappeared by take-over or bankruptcy; half of today’s biggest companies did not even exist in 1980. The same is not true of government monopolies: the Internal Revenue Service and the National Health Service will not die, however much incompetence they might display. Yet most anti-corporate activists have faith in the good will of the leviathans that can force you to do business with them, but are suspicious of the behemoths that have to beg for your business. I find that odd.

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.

It was Joseph Schumpeter who pointed out that the competition which keeps a businessman awake at night is not that from his rivals cutting prices, but that of entrepreneurs making his product obsolete. As Kodak and Fuji slugged it out for dominance in the 35mm film industry in the 1990s, digital photography began to extinguish the entire market for analogue film – as analogue records and analogue video cassettes had gone before. Creative destruction, Schumpeter called it. His point was that there is just as much creation going on as destruction – that the growth of digital photography would create as many jobs in the long run as were lost in analogue, or that the savings pocketed by a Wal-Mart customer are soon spent on other things, leading to the opening of new stores to service those new demands. In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

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.

The intelligentsia generally looks down on commerce as irredeemably philistine, conventional and lowering in its taste. But for anybody who thinks great art and great philosophy have nothing to do with commerce, let him visit Athens and Baghdad to ask how Aristotle and al-Khwarizmi had the leisure time to philosophise. Let him visit Florence, Pisa and Venice and inquire into how Michelangelo, Galileo and Vivaldi were paid. Let him go to Amsterdam and London and ask what funded Spinoza, Rembrandt, Newton and Darwin. Where commerce thrives, creativity and compassion both flourish.

When Michael Shermer and three friends started a bicycle race across America in the 1980s, they began with virtually no rules. Only with experience did they have to bring in rules about how to deal with being arrested for causing a traffic jam on a hill in Arizona and other such unexpected complications. So while it is true that institutional innovators in the public sphere are just as vital as technological innovators in the private, I suspect that specialisation is the key to both. Just as becoming a specialist axe maker for the whole tribe gives you the time, the capital and the market to develop a new and better form of axe, so becoming the specialist bicycle racer enables you to make up rules about bicycle racing. Human history is driven by a co-evolution of rules and tools. The increasing specialisation of the human species, and the enlarging habit of exchange, are the root cause of innovation in both.

In the first half of the twentieth century, the Neolithic Revolution was interpreted by Gordon Childe and his followers as a bettering of the human condition, which brought obvious benefits: stored food with which to survive famines; new forms of nutrition close at hand, such as milk and eggs; less need for exhausting, dangerous and often fruitless treks through the wilderness; work that the unfit and injured could still do; perhaps more spare time in which to invent civilisation.

Late in the Uruk period clay tablets appear with uniform marks on them meticulously accounting for merchants’ stocks and profits. Those dull records, dug into the surfaces of clay tablets, are the ancestors of writing – accountancy was its first application. The message those tablets tell is that the market came long before the other appurtenances of civilisation. Exchange and trade were well established traditions before the first city, and record keeping may have played a crucial role in allowing cities to emerge full of strangers who could trust each other in transactions. It was the habit of exchange that enabled specialists to appear in Uruk, swelling the city with artisans and craftsmen who never went near the fields.

The Harappan people ate a lot of fish and grew a lot of cotton, things they had in common with citizens of another valley on the far side of the world. Caral in the desert of the Supe Valley in Peru was a large town with monuments, warehouses, temples and plazas. Discovered in the 1990s by Ruth Shady, it lies in a desert crossed by a river valley and was only the biggest of many towns in the area, some of which date from more than 5,000 years ago – the so-called Norte Chico civilisation. For archaeologists there are three baffling features of the ancient Peruvian towns. First, their people had no cereals in their diet. Maize was yet to be invented, and although there were several domesticated squashes and other foods, there was nothing so easily accumulated and stored as the grain which was the staple of Mesopotamia. The idea that cities are made possible by largescale hoarding of grain thus takes a blow. Second, the Norte Chico towns have yielded no pottery of any kind: they were ‘preceramic’. This surely made both the storage and the cooking of food more difficult, again undermining one of the favourite tenets of archaeologists trying to explain how cities began. And third, there is no evidence of warfare or defensive works. So the conventional wisdom that cereal stores made cities possible, that ceramic containers made them practical and that warfare made them necessary takes quite a knock from Norte Chico. So what was driving people together into these South American t...

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 – unless you count Cannae, fought by a mercenary army paid by Carthage. I do not mean they were necessarily nice: they traded in slaves, sometimes resorted to war and did deals with the piratical Philistine ‘sea peoples’ who destroyed coastal cities around 1200 BC, but 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.

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. Monarchs love monopolies because where they cannot keep them to themselves, they can sell them, grant them to favourites and tax them. They also fall for the perpetual fallacy that they can make business work more efficiently if they plan it rather than allow and encourage it to evolve. The scientist and historian Terence Kealey points out that entrepreneurs are rational and if they find that wealth can more easily be stolen than created, then they will steal it: ‘Humanity’s great battle over the last 10,000 years has been the battle against monopoly.’

Rome’s particular speciality, from its very first days until the end of its empire, was simply to plunder its provinces to pay for bribes, luxuries, triumphs and soldiers’ pensions nearer to home. There were four respectable ways for a prominent Roman to gain wealth: land-owning, booty from war, money lending and bribery. Cicero pocketed over two million sesterces (three times the sum he had previously quoted to illustrate ‘luxury’) from his governorship of Cilicia in 51 and 50 BC – and he had a reputation as an especially honest governor.

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.

‘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.’

What seems to have happened is that some time between 1700 and 1800, the Japanese collectively gave up the plough in favour of the hoe because people were cheaper to hire than draught animals. This was a time of rapid population expansion, made possible by the high productivity of paddy rice, naturally fertilised by nitrogen-fixing cyanobacteria in the water and therefore needing little manure (though human night soil was assiduously collected, carefully stored and diligently applied to the land). 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. A good Japanese sword had a blade of strong though soft steel, but with a brittle, hard edge made lethally sharp by incessant hammering.

It was Britain’s fate to escape the quasi-Malthusian trap into which Japan, Ireland and Denmark fell. The reasons are many and debatable, but here it is worth noting a surprising demographic factor. 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. 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 – this was in around 1600, but the differential was similar at other dates. Such differential reproduction happened in China, too, but to a much lesser extent. 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.

‘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.

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.

The secret of the modern world is its gigantic interconnectedness. Ideas are having sex with other ideas from all over the planet with ever-increasing promiscuity. The telephone had sex with the computer and spawned the internet. The first motor cars looked as though they were ‘sired by the bicycle out of the horse carriage’. The idea for plastics came from photographic chemistry. The camera pill is an idea that came from a conversation between a gastroenterologist and a guided-missile designer. Almost every technology is a hybrid. This is one area in which cultural evolution has an unfair advantage over genetic evolution. For insuperable practical reasons connected with the pairing of chromosomes during meiosis, cross fertilisation cannot happen between different species of animal. (It can, indeed does, happen between species of bacteria, 80 per cent of whose genes have been borrowed from other species on average – one reason bacteria are so darned good at evolving resistance to antibiotics, for example.) As soon as two races of animals have diverged substantially, they find themselves able to produce only sterile offspring – like mules – or none at all.

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.