Meanwhile a new rider joins the horsemen of the apocalypse: eco logical disaster. We no longer have to worry about the exhaustion of this or that resource; technology will find substitutes.9 But we do have to attend to the serious, progressive, and possibly irremediable damage we are inflicting on the environment. This threat to well-being ties directly to economic development, for waste, pollution, and environmental damage grow with wealth and output. Other things equal, it is the rich who poison the earth.
To be sure, the rich see the peril—at least some do—and their wealth permits them to spend on clean-up and dump their waste elsewhere.* They also abound in good ecological advice to the new industrializers. These in turn are quick to point to the pollution perpetrated by today’s rich countries in their growth period. Why should today’s latecomers have to be careful? Besides, most developing countries are ready to pay the environmental price: wages and riches now; disease and death down the road. To be sure, no one has taken a poll, but this preference seems plausible. Young people—and developing countries are full of young people—think they’ll live forever. Meanwhile who can confine pollution and disease? The rich are frightened, even if the poor are not. The rich have much more to lose.
If we learn anything from the history of economic development, it is that culture makes all the difference. (Here Max Weber was right on.) Witness the enterprise of expatriate minorities—the Chinese in East and Southeast Asia, Indians in East Africa, Lebanese in West Africa, Jews and Calvinists throughout much of Europe, and on and on. Yet culture, in the sense of the inner values and attitudes that guide a population, frightens scholars. It has a sulfuric odor of race and inheritance, an air of immutability. In thoughtful moments, economists and social scientists recognize that this is not true, and indeed salute examples of cultural change for the better while deploring changes for the worse. But applauding or deploring implies the passivity of the viewer—an inability to use knowledge to shape people and things. The technicians would rather do: change interest and exchange rates, free up trade, alter political institutions, manage. Besides, criticisms of culture cut close to the ego, injure identity and self-esteem. Coming from outsiders, such animadversions, however tactful and indirect, stink of condescension. Benevolent improvers have learned to steer clear.
Besides, if culture does so much, why does it not work consistently? Economists are not alone in asking why some people—the Chinese, say—have long been so unproductive at home and yet so enterprising away. If culture matters, why didn’t it change China? (It is doing so, now.) An economist friend, master of political-economic therapies, solves this paradox by denying any connection. Culture, he says, does not enable him to predict outcomes. I disagree. One could have foreseen the postwar economic success of Japan and Germany by taking account of culture. The same with South Korea vs. Turkey, Indonesia vs. Nigeria.
On the other hand, culture does not stand alone. Economic analysis cherishes the illusion that one good reason should be enough, but the determinants of complex processes are invariably plural and interrelated. Monocausal explanations will not work. The same values thwarted by “bad government” at home can find opportunity elsewhere. Hence the special success of emigrant enterprise. The ancient Greeks, as usual, had a word for it: these metics, alien residents, were the leaven of societies that sneered at crafts (hence the pejorative sense of “banausic”) and at money. So strangers found and sold the goods and made the money.
Meanwhile, because culture and economic performance are linked, changes in one will work back on the other. In Thailand, all good young men used to spend years undergoing a religious apprenticeship in Buddhist monasteries. This period of ripening was good for the spirit and soul; it also suited the somnolent pace of traditional economic activity and employment. That was then. Today, Thailand moves faster; commerce thrives; business calls. As a result, young men spiritualize for a few weeks—time enough to learn some prayers and rituals and get back to the real, material world. Time, which everyone knows is money, has changed in relative value. One could not have imposed this change, short of revolution. The Thais have voluntarily adjusted their priorities.
The Thai story illustrates culture’s response to economic growth and opportunity. The reverse is also possible—culture may shift against enterprise. We have the Russian case, where seventy-five years of anti-market, antiprofit schooling and insider privilege have planted and frozen anti-entrepreneurial attitudes. Even after the regime has fallen—people fear the uncertainties of the market and yearn for the safe tedium of state employment. Or for equality in poverty. As the Russian joke has it, peasant Ivan is jealous of neighbor Boris, because Boris has a goat. A fairy comes along and offers Ivan a single wish. What does he wish for? That Boris’s goat should drop dead.
Fortunately, not all Russians think that way. The collapse of Marxist prohibitions and inhibitions has led to a rush of business activity, the best of it linked to inside deals, some of it criminal, much of it the work of non-Russian minorities (Armenians, Georgians, et al.). The leaven is there, and often that suffices: the initiative of an enterprising, different few. In the meantime, old habits remain, corruption and crime are rampant, culture war rages, elections hang on these issues, and the outcome is not certain.*
Convergence is the watchword of the day, the promise of eventual equality, of the generalization of prosperity, health, and happiness. That, at any rate, is what economic theory tells us, assuming mobility of the factors of production.
Experience is another matter. The numbers for the small set of advanced industrial countries seem to confirm convergence, but individual countries do not always stay with the pack. Will Japan continue to pull ahead? Will the United Kingdom continue to fall behind, or is this decade’s good news the promise of tomorrow? Will this be the East Asian century? And what about the United States? Americans should remember the refusal of the British to face up to their troubles before they too let themselves be soothed by optimistic prognoses. That’s the weakness of futurism: the soothsayers do not hang around to take responsibility for their errors. Even if they do, no one notices them any more; and they themselves remember only the good guesses. (Besides, remember the basic law: I was right when I said it.)
Meanwhile advanced and backward, rich and poor do not seem to be growing closer. Optimistic number-crunchers point to overall mini-convergence, but they put Asia with the poor, and only the special success of East Asia yields this optical illusion. Africa and the Middle East are still going nowhere. Latin America is doing a mixed job, mixed over time and space. The former Socialist bloc is in transition: some countries are doing well; others, particularly the former Soviet Union, swing in high uncertainty.
And what about contingency and mess? So many things to go wrong—war, revolution, natural disaster, bad government, crime, antiproductive ideology. Many success stories seem brittle, dependent on the political status quo. Every day’s newspaper brings messages of hope: India is changing and beginning to encourage foreign investment; peace and order “take root” in Sierra Leone; after years of internecine strife, Argentina is coming back; Russia bubbles with new enterprise as Pepsi-Cola plans new investments. Can one take these happy turns as definite? Every other day, the same newspaper brings its warnings of trouble and reversal.
The British colony of Hong Kong is perhaps the best example of wobbling uncertainty. It went back to China on 1 July 1997. The returns are not yet in. China may choose to cherish it; or it may decide to force it into line with the mainland economy. To be sure, it seems improbable that China would kill the goose that lays so many golden eggs. But how important are Hong Kong’s eggs in the larger Chinese picture? Besides, history has known similar irrationalities, and China has a history of sacrificing trade to imperial principle. Meanwhile Hong Kong business families have taken their precautions, both ways—to stay or to go. They have taken up citizenship in safer havens (some 600,000 of them hold foreign passports).10 They are also learning to speak Mandarin as well as th
eir native Cantonese and replacing Western executives with Chinese.11 A rational “minimax” strategy: minimize maximum potential loss.
Do globalization and convergence signal the end of national striving? Does the very idea of international economic competitiveness no longer make sense? The economist Paul Krugman would say so: the “views [of those who call for a national economics] are based on a failure to understand even the simplest economic facts and concepts.”12
Peremptory and dismissive, and yet the proponents of state intervention have not surrendered. We are talking here of two goals, power and wealth; and two ideals, distributive justice and impersonal efficiency. All of these hang together. Each has its own appeal, constituency, and justification.
Even within the economics profession, opinions differ. The neoclassicists say no: for them, no signals more reliable than market signals. They follow here in the steps of the great master: “Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands.”13 Adam Smith worried that these place servers might consume the produce needed to sustain the productive members of the society. (There are countries like that.)
Yet Adam Smith also understood that the state can (will) do some things—defense, police—better than private enterprise. In Ottoman Turkey, firefighting was in the hand of private companies, who came running when the alarm sounded. They competed with one another and negotiated price with house owners on the spot. As the negotiation proceeded, the fire burned higher and the stakes diminished. Or spread. Neighbors had an interest in contributing to the pot. ’Twixt meanness and greed, many a house fire turned into mass conflagration.
The issue presses in those countries where enterprise is wanting. In a world of rapid change and international competition, can society afford to wait for private initiative? Look at the role of the state in such exemplary countries as Korea, Taiwan, and even Japan: triggering, sheltering, and guiding nominally free market enterprise. To which the free marketeers make reply by recalling Pearl Harbor.
The record, then, is clearly mixed. State intervention is like the little girl who had a little curl right in the middle of her forehead: when she was good, she was very, very good; and when she was bad, she was horrid.
Besides, the state can be very useful as the servant of business. Officials have always been liable to temptation (bribes); that’s human nature. But the growth of private salaries and bonuses in expanding economies has inflated and accelerated this venalization of government and administration. Men of money can buy men of power. Presidents and prime ministers act as traveling salesmen and judge their success by deals closed and contracts signed. The British are talking of replacing the royal yacht with an even bigger vessel, the equivalent of a cruise ship for two, plus guests. This liner would cost hundreds of millions of pounds, and if experience be a guide, would eventually take more to run than to build—the more so as the very existence of such an expensive toy compels its use. (Royalty has no notion of the doctrine of sunk costs.) No matter. The ship’s proponents assure the British taxpayer that it will bring in trade. Meanwhile ideals yield to interest. China is behaving badly? The best way to straighten it out is to say nothing and do business. That may seem cynical; but it may be as good a cure as any for despotic irrationality.
The selection process goes on. Today’s search for cheap labor has moved jobs from rich countries to poor, or more precisely, to some poor countries.14 Happiness to some, deprivation to others. This mix of good news and bad is what economic change is all about. Economists and moralists applaud such transfers as rational, reflecting comparative advantage, hence reasonable and desirable. Why should employment for Malaysians and Mexicans be any less desirable than for Americans and Germans? Krugman again: “One might have expected everyone to welcome this change in the global landscape, to see the rapid improvement in the living standards of hundreds of millions of people, many of whom had previously been desperately poor, as progress—and as an unprecedented business opportunity.”15
No reason, except that job losers are unhappy and angry, and in advanced industrial nations, job losers vote. They also demonstrate and riot. The same observers who worry about the mistakes of “strategic” trade policy might focus instead on the risks and costs of conflict. A cool economist may argue that nations do not compete as corporations do; or that loss of export markets and jobs does not make that much difference to a rich country like the United States;16 or that bars to imports will not promote productivity or raise the standard of living at home; or that loss of jobs in branches that are no longer “advantageous” will be compensated by the creation of other jobs in other areas. These reasonings and clevernesses will not help workers and unions intimidated by the threat of job emigration. Nor will they console someone who loses a place and must take something less satisfying and less well paid, or who is of that twilight age that makes the very idea of starting over impractical.17
How much more vexing are the sassy dismissals that tell the public to rejoice at the prospect of cheaper cars and TV sets, which they can no longer afford, and advise them to seek jobs growing soy beans or servicing bank accounts. This, remember, is a replay of the advice John Bowring gave the member states of the German Zollverein in 1840: grow wheat, and sell it to buy British manufactures. This was a sublime example of economic good sense; but Germany would have been the poorer for it. Today’s comparative advantage, we have seen, may not be tomorrow’s. Is protection legitimate only for infant industries? Are rich countries morally obliged to eschew the devices routinely adopted by developing countries? Proponents of dependency theory have long stressed the injustice of allegedly unequal trade between strong and weak, rich and poor. But asymmetry goes both ways.
These questions do not have simple, unambiguous answers. It is one thing to advocate an active government policy; quite another to take the right measures and carry them out. One thing seems clear to me, however. The present tendency to global industrial diffusion will entail, for the richer countries, a leveling down of wages, increased inequality of incomes, and/or high levels of (transitional?) unemployment. No one has abrogated the law of supply and demand. Many, if not most, economists will disagree. They rely here on the sacred certainty of gains from trade for all. International competition, they tell us, is a positive-sum game: everyone benefits.
In the long run. This is not the place to attempt, in a few pages, a survey of the differences of opinion on this issue, which continues to generate a library of material.18 I would simply argue here, from the historical record, that
—The gains from trade are unequal. As history has shown, some countries will do much better than others. The primary reason is that comparative advantage is not the same for all, and that some activities are more lucrative and productive than others. (A dollar is not a dollar is not a dollar.) They require and yield greater gains in knowledge and know-how, within and without.
—The export and import of jobs is not the same as trade in commodities. The two may be fungible in theory, but the human impact is very different.
—Comparative advantage is not fixed, and it can move for or against.
—It always helps to attend and respond to the market. But just because markets give signals does not mean that people will respond timely or well. Some people do this better than others, and culture can make all the difference.
—Some people find it easier and more agreeable to take than to make. This temptation marks all societies, and only moral training and vigilance can hold it in check.
Withal, I do not want to advocate any particular national policy, the less so as activist intervention can as easily make things worse as better. Each case must be judged on the merits, and governments are capable of as many mistakes, and bigger, than the businessmen who try to shape and play the market. (And vice versa. Much depends on what one is trying to maximize—wealth, equality
, security, salvation, or what have you.)19 I just want to say that the current pattern of technological diffusion and catch-up development will press hard on the haves, especially the individual victims of economic regrouping, while bringing “goodies” and hope to some of the have-nots, and despair, disappointment, and anger to many of the others.
To be sure, the rich, industrial countries can defend themselves (ease but not eliminate the pain) by remaining on the cutting edge of research, by moving into new and growing branches (creating new jobs), by learning from others, by finding the right niches, by cultivating and using ability and knowledge. They can go a long way on cruise control and safety nets, helping the losers to learn new skills, get new jobs, or just retire. Much will depend on their spirit of enterprise, their sense of identity and commitment to the common weal, their self-esteem, their ability to transmit these assets across the generations.
Meanwhile what about the poor, the backward, and the disadvantaged? After all, the rich industrial countries, however much pressed by the new competition, are so much better off that it is hard to work up concern and sympathy. With all their troubles, they have a continuing obligation, moral even more than prudential, to those less fortunate. Should they give for the sake of giving? Give only when it makes sense (pays) to give? Give, as bankers do, preferably to those who do not need help? Hard love, soft? Both? I ask these questions not because I know the answers (only true believers claim to know), but because one must be aware of the inextricable tangle of conflicting motives and contradictory effects. Navigation through these rapids demands constant adjustment and correction, the more difficult because policy is constrained by domestic politics.
The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor Page 61
