Headlines 2016

The idea is the idea of growth

2016-09-05

Photo: Bosse Johansson.

On Friday, September 2 well-known economist Deirdre McCloskey, professor at University of Illinois at Chicago, opened a seminar entitled "The idea is the idea of growth". Bettina Kashefi, chief economist at the Confederation of Swedish Enterprise, and Ola Pettersson, chief economist at the Swedish Trade Union Confederation, participated in the subsequent panel. Professor McCloskey spoke about her book Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. She explained how ideas – liberal ideas – are the basis of economic growth.

Bourgeois Equality is the third book in the "The Bourgeois Era" trilogy. McCloskey explained at the Stockholm seminar that she started this project in the early 1990’s. “In the wake of the 1980’s greed-is-good, I as a Chicago school economist realized that the matters of ethics, surrounding the bourgeoisie might have more [impact] when it comes to the nature and cause of wealth of nations.”

 

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From left panel members Ola Pettersson, chief economist of The Swedish Trade Union Confederation, Deirdre McCloskey, and Bettina Kashefi, chief economist of The Confederation of Swedish Enterprise. Photo: Bosse Johansson.

 

In the second book, The Bourgeois Dignity: Why economics can’t explain the modern world, McCloskey explores the question of how much “the usual suspects” can explain how we became so rich. “Let’s take the case of Sweden” she said. “In the 1800‘s Sweden was the poorest country in Europe per capita, except for Russia. Then, in the middle of the 1900’s century the Swedes discovered liberalism – and Sweden being the impoverished sophisticate, because everyone in Sweden could read – and also became an engineering power house.”

Deirdre McCloskey explains that the economic growth came out of the change in attitudes toward the bourgeoisie. She said that her argument is not the one of Max Weber (the founder of modern sociology) i.e. psychological change. Rather, McCloskey argues that merchants, manufacturers, and inventors throughout history have had about the same psychology: Ah, I can make some money here by making low and selling high. “That motive is ancient”. Thus leaving us with the third book in the trilogy: Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World.

“It is the surrounding society coming to praise or at least not hate the middle class. And doing so didn’t overregulate and kill the middle class. This resulted in the modern world, explains Deirdre McCloskey adding that she, if she had had the wit, would have added a word to the subtitle to the third book: How liberal ideas … Explaining that her idea of liberal is “completely conventional”. She referred to 1800’s century liberal thinking, above all Adam Smith. The idea that each man and woman has the right to pursue his/her project in his/her own way. Smith calls it “upon the liberal plan of equality, justice and liberty". "By equality Adam Smith meant equality of opportunity”.

“It is liberalism, an idea, not the material conditions of Europe in the 1800th century or even the institutional conditions of Europe – as helpful as those were – that changed this part of the world” said McCloskey.

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The seminar in Stockholm was "sold out". Photo: Bosse Johansson.

 

Why don't you race for institutionalism or trade or capital accumulation, or exploitation as the reasons for growth, Deirdre McCloskey was asked:

“Because other societies, at the time and before, had all of those. The largest trade area in the world in the many centuries before the 1900’s was the Indian Ocean. India, China and the Arab world were immersed in trade with each other. As far as institutions are concerned, the British institutions were good but so were they at the time in China. What’s peculiar about Northwestern Europe is, including Sweden to some degree, is the idea of liberalism. The idea that every person is equal”

 

2016-09-02 McCloskey händer.jpgDeirdre McCloskey explained how ideas can change ordniary peoples lives but also a entire society. Photo: Bosse Johansson.

 

Deirdre McCloskey described how this idea kept invading people’s minds. She mentioned watchwords: Equality, justice and liberty. “You keep hearing those words, echoing down [for example] American and Swedish history. And it matters. It changes how politics works, and it creates a society in which ordinary people ‘can have a go’, have a chance.”

At the seminar she explained the power of this idea. “Under feudalism you are locked into your position as an agricultural labor. The Swedish trilogy The Emigrants starts with this guy trapped in Sweden as a farmer. That’s the change: leaving a society where you are slotted into a 'cast'. With this change you get massive innovation.” McCloskey added: “The pace of innovation is gigantic in the 1900th century. The income per capita starts to shoot up. After the mid-1900th century liberalization in Sweden results in income per capita growth that is faster in Sweden than any other country in the world except Japan. In 1900 Sweden, Finland, France, Germany had an average income, in modern terms, of about 3 dollars a day. By now, in Sweden and in the OECD countries, the income per day is over 100 dollars.  This great enrichment is utterly unique in human history.”

 

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The large audience came from academia och organizations as well as businesses and the political arena. Photo: Bosse Johansson.

 

During the panel discussion, Ola Pettersson, LO, claimed that ideas are part of the explanation why countries like Sweden have become rich, adding that he agrees with Deirdre McCloskey in most respects. McCloskey on the other hand played down the role of trade unions: “I don’t believe we are rich because of the unionization”. Bettina Kashefi, Confederation of Swedish Enterprise, talked about entrepreneurship: “Still people despise successful businessmen in this country”. She mentioned that the Law of Jante is perhaps the reason that the Swedish Government wants to constrain the profits of firms that work in the welfare sector. Or it is pure ignorance”. Kashefi asked McCloskey if a legal framework is the reason that Iran – rich in entrepreneurs, capital and material resources – is not one of the world’s rich countries. “Historically you had a legal framework in Persia,” said McCloskey, adding that she needs to learn more about Iran.

 

2016-09-02 McCloskey Ekot.jpgFolowing the seminar Deirdre McCloskey was interviewd by Swedish Public Radio/Ekonomiekot. Listen to the interview September 2, 2016 at 18.05. Photo: Bosse Johansson.

 

What about the contradiction between labor and capital from an economic point of view, asked Thomas Gûr, who moderated the talk. McCloskey answered: “The division of national income between labor and capital hasn’t changed very much. And it is reasonably stable over centuries. The big change in Sweden and everywhere else is the falling share of land.”

Ola Pettersson agreed that in the long run it is economic growth that matters for incomes. But if you look at what constitutes a good society, at each point in time, distribution seems to matter a whole lot. ”You have to make a distinction between how people feel and how they are. The danger in feeling that it is unfair, and saying all over it’s unfair, it’s unfair, it’s unfair… you allow the sin of envy. I think that we all agree that envy is insatiable and endless.”


The trilogy "The Bourgeois Era” by Deirdre McCloskey:

  • The Bourgeois Virtues: Ethics for an Age of Commerce. Vol. 1, 2006, University of Chicago Press.
  • Bourgeois Dignity: Why Economics Can't Explain the Modern World. Vol. 2, 2010, University of Chicago Press.
  • Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. Vol. 3, 2016, University of Chicago Press.

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