The Rational Optimist (P.S.)

by Matt Ridley

In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

(the smaller the scale, the better planning works).

The size of the average American company is down from twenty-five employees to ten in just twenty-five years.

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.

firms are temporary aggregations of people to help them do their producing in such a way as to help others do their consuming.

Where commerce thrives, creativity and compassion both

The innovations that made the world nicer, it may be argued, are institutions, not technologies: things like the golden rule, the rule of law, respect for private property, democratic government, impartial courts, credit, consumer regulation, the welfare state, a free press, religious teaching of morality, copyright, the custom that you do not spit at the table and the convention that you always drive on the right (or left if in Japan, Britain, India, Australia and much of Africa).

a country’s economic freedom predicts its prosperity better than its mineral wealth, education system or infrastructure do. In a sample of 127 countries, the sixty-three with the higher economic freedom had more than four times the income per capita and nearly twice the growth rate of the countries that did not.

It concluded that Americans can draw upon more than ten times as much intangible capital as Mexicans, which explains why a Mexican who crosses the border can quadruple his productivity almost immediately. He has access to smoother institutions, clearer rules, better-educated customers, simpler forms – that sort of thing.

‘Rich countries,’ concluded the Bank, ‘are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.’

For Adam Smith capital is ‘as it were, a certain quantity of labour stocked and stored up to be employed, if necessary, upon some other occasion’.

If you can store the labour of others for future use, then you can spare yourself the time and the energy of working for your own immediate needs, which means you can invest in something new that will bring even greater reward.

The first signs of private property are the stamp seals of the Halaf people, 8,000 years ago on the borders of Syria and Turkey: similar seals were later used for denoting ownership.

The characteristic signature of prosperity is increasing specialisation. The characteristic signature of poverty is a return to self-sufficiency.

‘All pre-industrial economies, no matter how simple or complex, are capable of generating misery and will do so given enough time.’

‘Where there are no institutional restraints on such behaviour, systematic killing of unrelated individuals is so common among human beings that, awful though it is, it cannot be described as exceptional, pathological or disturbed.’

America’s horse population peaked at twenty-one million animals in 1915; at the time about one-third of all agricultural land was devoted to feeding them.

To put it another way, today people farm (i.e., plough, crop or graze) just 38 per cent of the land area of the earth, whereas with 1961 yields they would have to farm 82 per cent to feed today’s population. Intensification has saved 44 per cent of this planet for wilderness.

Food processing with preservatives, much despised by greenchic folk, has greatly reduced the amount of food that goes to waste.

Cities exist for trade. They are places where people come to divide their labour, to specialise and exchange.

The oldest cities were in southern Mesopotamia, in what is now Iraq. Their emergence signified that production was becoming more specialised, consumption more diversified.

Thus was set the pattern that would endure for the next 6,000 years – merchants make wealth; chiefs nationalise it.

Specialisation raised the standard of living for both.

a free trade area lends itself easily to imperial domination. Soon, through tax, regulation and monopoly, the wealth generated by trade was being diverted into the luxury of the few and the oppression of the many.

A Bronze Age empire stagnated for much the same reason that a nationalised industry stagnates: monopoly rewards caution and discourages experiment, the income is gradually captured by the interests of the producers at the expense of the interests of the consumers, and so on. The list of innovations achieved by the pharaohs is as thin as the list of innovations achieved by British Rail or the US Postal Service.

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.

‘Humanity’s great battle over the last 10,000 years has been the battle against monopoly.’

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.

Empires, indeed governments generally, tend to be good things at first and bad things the longer they

governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.

Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure’. Because it is a monopoly, government brings inefficiency and stagnation to most things it runs;

Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.

By 1920, for example, 80 per cent of all beef eaten in London was imported, mostly from Argentina, which was one of the richest countries in the world as a consequence.

The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty – that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer (coerced trade in slaves or drugs may be a different matter). Free trade works for countries even if they do it and their neighbours do not.

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.

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. The result was the world’s greatest economic boom. 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.

Henry Ford said he was driven to invent the gasoline buggy to escape the ‘crushing boredom of life on a midwest farm’,

Urban opportunity is what people want. In 2008 for the first time more than half the people in the world lived in cities. That is not a bad thing. It is a measure of economic progress that more than half the population can leave subsistence and seek the possibilities of a life based on the collective brain instead. Two-thirds of economic growth happens in cities.

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.

As Edward Glaeser put it, ‘Thoreau was wrong. Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.’

‘In the preindustrial world, sporadic technological advance produced people, not wealth.’

Specialisation and exchange fuelled population growth.

In the thirteenth century the population of England seems to have doubled, from over two million to something like five million people.

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.

had generated soon found its way into scholarship, art or science, or in the case of Leonardo da Vinci, all three. Per capita income in England was probably higher in 1450 than it would be again before 1820.

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’.

Your chances of being a victim of homicide in England fell from 0.3 per thousand in 1250 to 0.02 per thousand in 1800: you were ten times more likely to be killed in the earlier period.

Bangladesh today is the most densely populated large country in the world, with more than two thousand people living on every square mile; it has a population greater than Russia living on an area smaller than Florida.

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 babies added in to cover childhood deaths and a slightly male-biased sex ratio. But in 2002, the UN changed this assumption as it became clear that in country after country the decline in baby-making went straight through the 2.1 level and kept on dropping. If anything, the decline may accelerate as the effect of small family size compounds. Nearly half the world now has fertility below 2.1. Sri Lanka’s birth rate, at 1.9, is already well below replacement level. Russia’s population is falling so fast it will be one-third smaller in 2050 than it was at its peak in the early 1990s.