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Don’t be snobbish towards merchants & entrepreneurs, and you’ll develop

Aid Watch interviewed Deirdre McCloskey, author of the fascinating new book shown here.

Could you briefly state the thesis of your book?

Modern economic growth—that stunning increase from $3 a day in 1800 worldwide to now upwards of $130 a day in the richest countries, and anyway $30 as a worldwide average—can’t be accounted for in the usual and materialist ways.  It wasn’t trade, investment, exploitation, imperialism, education, legal changes, genes, science.  It was innovation, such as cheap steel and the modern university, supported by an entirely new attitude towards the middle class, emerging from Holland around 1600.  (It has parallels in classical music and mathematics and politics, in all of which the Europeans burst out, 1600-1800.)

What led you to focus on dignity?

I was backed into a corner by the facts!  For half of my career I assaulted the notion that sociology and politics mattered for growth.  Now I seem to be condemned to spend the last half contradicting my earlier self: one minus one equals . . . zero!  Innovation, with its handmaidens of creativity and of persuasion, is not a matter of efficient allocation or the exercise of power.  Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative.  A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies.  Look at China after 1978 and India after 1991.  So too, I say, Holland in 1600, England in 1700, the English colonies and Scotland in 1750, and on and on.  Praise God.

How does the concept relate to individual rights? Are they two sides of the same coin?

They are at least two coins that need to be paid up.  If a place has dignity for the bourgeoisie but not liberty to exercise it—think of Venice late in its history—then it will not innovate.  And having liberty without dignity—think of liberated Jews in Europe, and the dismal outcome in the Holocaust—then the liberty will prove in the long run a dead letter.  My libertarian friends want the politics by itself, Liberty Alone, to suffice.  I don’t think so: we need dignity, too.  We need the sociological admiration for innovation and markets, to protect and inspire the liberated.

What is (are) the top lesson(s) that development economists should learn from economic history but haven’t?

I don’t want to scold development economists, who like economic historians seek the answer to our most important scientific question—the nature and causes of the wealth of nations.  I was trained as a Samuelsonian economist, and taught at Chicago for a dozen years in its most creative period, so I understand and admire the sort of economics that development economists use.  We all want growth to be a story of disequilibrium, misallocation, followed by a movement to a blessed equilibrium.  The trouble is that all you get that way are little Harberger triangles of efficiency gain—not enough to explain a factor of 10 or 30 per capita.  The real story is not, for example, the deeply Samuelsonian notion that The Institution Is It (Doug North is criticized in the book).  It’s that Creativity Is It, which is more Austrian than Samuelsonian, more historical than timeless.  What you can learn from the history is that stasis reigned until we discovered dignity and liberty for ordinary people, and in particular for the disturbing, irritating class of entrepreneurs.

What does your work imply for development today?

Politics and sociology, not psychology and economics, are what make growth possible.  You can kill an economy with a License Raj or a disdain for the bourgeoisie.  People have always been maximizers in markets, but have not always been joyful innovators.  Admiring economic novelty irritates the intellectuals, and giving rein to creative destruction pains the vested interests.  But both of them, dignity and liberty, seem to be necessary.

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17 Comments

  1. VHS wrote:

    Brilliant!

    Posted March 21, 2011 at 1:15 am | Permalink
  2. david phillips wrote:

    Havent read the book, but I presume that the author has acknowledged that this interpretation has been the subject of classic works such as ‘The protestant ethic and the spirit of capitalism’ (Weber) or ‘religion and the rise of capitalism’ (Tawney)

    Posted March 21, 2011 at 7:39 am | Permalink
  3. Word_Bandit wrote:

    “We need the sociological admiration for innovation and markets, to protect and inspire the liberated.”

    If I’m reading McCloskey correctly by way of this interview, there’s a thrust towards non-monetized rewards (reflected in the historical parallel to the arts & sciences) that nurtures fiscal stability and prosperity.

    Interesting.

    Posted March 21, 2011 at 10:01 am | Permalink
  4. Peter Moon wrote:

    Dignity. I just found another good argument for not wanting to live in a world where 1,1 Billion people shit in the bush (open defecation). http://www.childinfo.org/sanitation_status_trends.html

    Well Prof, add to liberty and dignity some of the Trust you reported on earlier, maybe some related social capital (Putnam) and it seems we’re done! (normatively).

    Can we now please forget about de Soto etc?

    Posted March 21, 2011 at 10:25 am | Permalink
  5. Cyril Morong wrote:

    Candace Allen Smith said:

    “Just as the society that doesn’t venerate winners of races will produce fewer champion runners than the society that does, the society that does not honor entrepreneurial accomplishment will find fewer people of ability engaged in wealth creation than the society that does.”

    Entrepreneurs are heroes

    http://freemarketalternative.blogspot.com/2011/02/how-great-entrepreneurs-think-and-are.html

    Posted March 21, 2011 at 11:06 am | Permalink
  6. Wendy Smith wrote:

    All hail the social entrepreneurs – here, there and everywhere!

    Posted March 21, 2011 at 12:28 pm | Permalink
  7. Cyril Morong wrote:

    Here is something from Edmund Phelps

    Writing in The Wall Street Journal in October of 2006, he said, using what he called an Aristotelian perspective on the “development of talents”:

    “In an economy in which entrepreneurs are forbidden to pursue their self-realization, they have the bottom scores in self-realization–no matter if they take paying jobs instead–and that counts whether or not they were born the “least advantaged.” So even if their activities did come at the expense of the lowest-paid workers, Rawlsian justice in this extended sense requires that entrepreneurs be accorded enough opportunity to raise their self-realization score up to the level of the lowest-paid workers–and higher, of course, if workers are not damaged by support for entrepreneurship. In this case, too, then, the introduction of entrepreneurial dynamism serves to raise Rawls’s bottom scores.”

    “It would be a non sequitur to give up on private entrepreneurs and financiers as the wellspring of dynamism merely because the fruits of their dynamism would likely be less than they could be in a less imperfect system. I conclude that capitalism is justified–normally by the expectable benefits to the lowest-paid workers but, failing that, by the injustice of depriving entrepreneurial types (as well as other creative people) of opportunities for their self-expression.”

    Posted March 21, 2011 at 5:32 pm | Permalink
  8. Elliot Wright wrote:

    Seems this analysis would include the much maligned “middle-men” frequently targeted for removal from markets by development programs.

    Posted March 22, 2011 at 3:54 am | Permalink
  9. stickman wrote:

    Without trying to sound curt or dismissive of the scope of her thesis (McCloskey is a wonderful writer for one thing), isn’t this just reheating the same idea already served up by Landes et al.?

    Posted March 22, 2011 at 9:03 am | Permalink
  10. Tom Cushman wrote:

    Elliot You are on the mark. How often have I heard well intended folks, esp those working for the alphabet soups orgs, decry the “middlemen”. They seem to have no understanding of the eco(nomic) system. Too often those experts seem to have never had an revenue producing job and grew up believing those who make profit must do so at the expense of the proletariat. Middlemen add value. There are a lot of steps between producer and consumer and the fact that there is business for all of them proves the need for them. [I dont include here the bureaucrat or cop who acts as an impediment to commerce until he gets his grease.]
    NYC seems to never have a shortage of fresh flowers, fruit, bagels, fresh squeezed OJ, and hot coffee. None of which is organized by a central committee. Most used T shirts find their way to the markets in Africa the same way.

    Posted March 22, 2011 at 9:49 am | Permalink
  11. Cyril Morong wrote:

    Here is what Robert Heilbroner says about Soviet socialism in his book “The Making of Economic Society:

    “The economic system was, in fact, soon heavily dependent on so called tolkachi-wheelers and dealers who arranged for shipments to be rerouted, shortages to be filled, and excess inventories to be disposed of, either behind the authorities’ backs or with their tacit permission.”

    Sounds like middlemen if not entrepreneurs

    Posted March 22, 2011 at 10:44 am | Permalink
  12. joe wrote:

    I’m curious to read the book – I’d also guess that religion, in particular dissenting religion, must have had a big impact on innovation. It seems that in the UK, enforced exclusion of particular religious sects from university education, military etc led forced them to become entrepreneurs and build large business empires.

    Posted March 22, 2011 at 11:21 am | Permalink
  13. Dan Kyba wrote:

    I will read her book and see how it compares to Arthur Herman’s treatment of the Scottish Enlightenment, whose children we all are.

    Posted March 22, 2011 at 2:30 pm | Permalink
  14. Roger McKinney wrote:

    Rough drafts of her books are online at her site and they are great! No, she isn’t plowing new ground, but she does a better job than anyone else.
    Development follows this pattern: religion creates values; values determine institutions; institutions determine development.

    Posted March 23, 2011 at 9:35 am | Permalink
  15. Cyril Morong wrote:

    Lawrence Summers explained his vision for an entrepreneurial future last year at the White House blog.

    http://www.whitehouse.gov/blog/A-Vision-for-Innovation-Growth-and-Quality-Jobs/

    “An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter.”

    Posted March 23, 2011 at 10:33 am | Permalink
  16. Troy Camplin wrote:

    Great points. I wish everyone could read this and truly understand what is being said.

    Posted March 25, 2011 at 6:46 am | Permalink
  17. pazita wrote:

    But doesn’t wage labor (i.e. economics) spur this initial shift to an empowered, dignified middle class (where previously, the majority of people were stuck in their socioeconomic positions)?

    Of course, wage labor ends up being detrimental to the underclasses, through the harshness of the market for labor as a commodity. But still, isn’t this economic societal shift what causes the introduction of potential social mobility and dignity?

    Posted April 2, 2011 at 11:35 am | Permalink

13 Trackbacks

  1. [...] What led you to focus on dignity? I was backed into a corner by the facts!  For half of my career I assaulted the notion that sociology and politics mattered for growth.  Now I seem to be condemned to spend the last half contradicting my earlier self: one minus one equals . . . zero!  Innovation, with its handmaidens of creativity and of persuasion, is not a matter of efficient allocation or the exercise of power.  Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative.  A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies.  Look at China after 1978 and India after 1991.  So too, I say, Holland in 1600, England in 1700, the English colonies and Scotland in 1750, and on and on.  Praise God. More…. [...]

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