The Wealth and Poverty of Nations

"I’m one of those economists who love reading history books . I think we can learn an incredible amount from past episodes, because while I do think that economics is a science, it’s a science of a historical kind. It’s a bit like geology, where you have to understand past processes through the bits of evidence that you can see in the rocks around you. You can’t carry out experiments in geology, and you can’t really carry out experiments very widely in economics, though there are special cases. So history books are really important source material for economists. As well as historical data, we need all the additional detail and colour you get from reading history. The Wealth And Poverty of Nations is one of several really fantastic economic history books of recent times that address the big question, the main question in economics, which is: ‘What makes people prosperous? What makes an economy grow?’ And we have to be humble and say we don’t actually have a very good answer to that question… We’re still searching for what the right answer is. Different historians emphasise different aspects. Landes’s book emphasises the importance of culture in economic history, and there are other economic historians, like Joel Mokyr, who would emphasise the same kind of thing. So the idea people have about the economy, and how society ought to work, will affect economic growth and how it turns out. “While I do think that economics is a science, it’s a science of a historical kind.” There’s a fantastic example that’s always stuck with me. It’s about Jacob Rothschild, who died of an infected abscess. He died through want of an antibiotic that would cost $10 these days. He was the wealthiest man of his era, but he couldn’t be cured of a simple infection because innovation just hadn’t taken us to that point yet. It’s a really powerful example for me, because it points out that the thing about capitalist economic growth that makes people better off isn’t more stuff – it’s different stuff. It’s the innovation and it’s the variety, and it’s the new products. Another terrific example was a television series that was on in 1999, ahead of the millennium, called The 1900 House . A family was asked to live their lives as if they were living in 1900 and not 1999, down to every last detail. And the thing that nearly made the mother want to give up the experiment was that she didn’t have shampoo and she couldn’t get her hair properly clean. When you think of the new, fantastic high-tech innovations there have been, like cars and computers and so on, they didn’t matter to her. She could live without those, but she could not live without shampoo. And those apparently minor innovations actually make a fantastic difference to people’s wellbeing and their prosperity. That is what economic growth is all about – understanding, over time, the conditions that allow people to have new ideas and to innovate. That’s what’s fundamental and that’s what The Wealth and Poverty of Nations is all about. I think it means the conditions in a society that determine how people think. Is it possible to have new ideas, or will you be regarded as a dangerously subversive heretic for having new ideas or doing things differently? Are there certain ways for women to behave that mean it’s very difficult to increase the general level of education in the society? Are there belief systems that people have that mean things have to be done one way, and not another? So that’s how I think about it. Another aspect I suppose is the social capital dimension of culture, how much people trust each other, because trust is fundamental to any economic exchange. Unless you’re handing over one item for another in a face-to-face barter, then you’re depending on trust. So the level of social capital is very important – how tight-knit the community is, how much people in the society will trust strangers, can you transact with people outside your own village, outside your own town, or in a different country? Globalisation actually places huge demand on the level of trust in the world economy – you really have to have confidence that if you place your order on the internet, somebody in the factory in China is going to deliver the product so that it will eventually turn up on your doorstep."

"If Diamond’s book is a very long term economic history, Landes does it for the last 500 years. He provides an explanation for why Western Europe was the cradle for modern economic growth and looks at the development of the institutions that made modern economic development possible. Landes provides the best account I know of these kinds of developments. To me, there is a pluralism theme that is common to most of the elements that he describes. Here I mean pluralism in the sense of freedom of experiment in economic terms and freedom of thought in political and intellectual terms. Or indeed has the lack of pluralism inhibited growth there in the past? One of the big questions of economic history is why economic growth did happen in Western Europe and not in China 200 years ago. It’s the question Kenneth Pomeranz takes on in his book The Great Divergence . I did think about putting it on my list, but it is not as well written as the others and I don’t think its thesis is entirely convincing. I think that pluralism is the story. Most of Western Europe was an area that encouraged freedom of thought and experiment whereas China, until very recently, has not. It does continue to restrict freedom of thought, but much less now than it did. Economic pluralism and political pluralism seem, in principle, separable. But there don’t seem to be any examples of being able to sustain one without the other."

"This is an enormous book, which I read from the index backwards. It is a powerful and interesting analysis of the entire flow of the world. The digital debate which is going on now takes place in the context of the last 400 or 500 years. We live with the consequences of changes from rural living to urban living, of the granting of suffrage to women, the arrival of labour-saving devices, or the decline of the Church and the family unit as the centre of life. And these grand changes that took place over the last few hundred years are playing out right now in the way that we live. If we’re in crisis now, it’s because of that progress rather than the Internet having changed everything. David Landes, for example, argues that the most significant invention for the last 800 years was the mechanical clock. Because until you have the mechanical clock and can reliably subdivide time, you can’t have capitalism. How can you sell your labour by the hour if you don’t know what an hour is? The Wealth and Poverty of Nations is filled with wonderful sketches of things like that, which are old but incredibly relevant now. There are truths about the development of our society, and the ties between economy, society and technology. Whatever you think of the conclusions of the book as a whole, the analysis as it goes along is pretty gripping, and relevant to the digital period. The things which drive social change today are very often things which were buried 150 years before. The discussions that people are having right now about how the digital age has changed everything very often should go back to what happened in 1880 or 1920. What The Wealth and Poverty of Nations treats with are the underpinnings of the world that we live in, and the solid ground on which any discussion of the digital arena must stand."

"Well, this relates to Landes, whose central belief is that institutions matter: the actual structure of society is far and away the most important thing. When we look at Burma we see a turning point when the military took control in a coup in 1962, and instigated a Stalinist policy of nationalisation and xenophobia. Precisely at the point where other Asian countries were beginning to understand that their success would come through economic reform, openness and trade, Burma decided to close itself off from the rest of the world, from innovation, and the essential institutional framework that brings about economic development. This book is important to me because it highlights precisely the foundations of economic development that disappear from Burma after 1962. We see the disappearance of good governance, property rights, and the rule of law. We also see the disappearance of rationality and reason when it comes to policy-making. In other words, a profound institutional regression takes place. Looking at Burma, you should read Landes in conjunction with Ron Chernow’s biography of Alexander Hamilton , which is an incredible story of successful nation-building."

"The Wealth and Poverty of Nations. Another huge historical sweep on economic development and, perhaps controversially, this time more a view of why the West has been particularly successful and why other countries have not. I think there’s a danger that recent events may begin to question some of those assumptions, but as a tentative exploration of the issue of economic progress and culture, it’s fascinating. One of the stories here is about clocks, and how the Europeans would bring their clocks along when it came to trading with China. Europeans used clocks as a coordinating mechanism: what time you arrived for work, and what time you went home in the evening. Whereas the Chinese initially regarded clocks as being almost a decorative toy, so you’d end up with this weird situation throughout China with extremely long hours being worked in the summer and extremely short hours in the winter, which were all determined by the lack of understanding of this particular technology. I think what’s clever about the book in one sense is that it points out that it’s not just the technology that’s important but how you use it. If you invest in lots of computers, unless you can do something with them and work out how you can become more productive, the computers in themselves are utterly useless. There are lots of examples of this in the world: you have to work out how best to use a technology before investing in it. Yes, there’s a lot of Enlightenment thinking going on in this particular book. I’m not 100 per cent sure that this still stacks up, because one big challenge to the whole Enlightenment process is the rise of Asia over the last 50-60 years. It has proved to have been successful for a number of decades now, so it does raise some big questions as to whether it’s either the same model and we haven’t understood it, or a different model, in which case it’s a challenge to Western assumptions about liberal democracy, and so on. New technology can cause tremendous upsets. I think often people forget that the technologies partly explain why it is that some countries have become rich or some others have remained poor or become poor. What of course we don’t know is whether countries that are currently wealthy might subsequently become poor in the future, and I think this is a big question for the West, actually. If China and Brazil and India trade increasingly with each other, and the demographics of the world’s population continue to change in a way that makes the West increasingly unimportant, there are some big questions as to whether the West itself, having unleashed this wonderful new information technology, will go the same way as, say, Islam in the 14th and 15th centuries: of having a technology that has been so disruptive that it makes life much more difficult for the West than it assumed 20 or 30 years ago. They do. The one thing you could say is that countries which have recently lost it, like say the UK, or maybe Austria, have remained relatively wealthy. But it may be like the demise of the Roman Empire: it took hundreds of years to fall flat on its face, and maybe we’re seeing the same kind of process in the West. Landes wouldn’t support that view: he’d say there’s a particular model that’s worked well and here are the reasons why. But the lessons from history seem to be that those who think they’re going to be powerful suddenly find that their power has gone. I’m not sure I agree with all of it but it’s a fascinating book, particularly for these examples of how technologies were used in different parts of the world with completely different conclusions."