Bill Emmott - International Author & Adviser

Article

The 20th Century
The Economist - September 1999

On the yellow brick road




What might the 21st century bring? Some clues can be found by looking at the ebb and flow of the 20th, writes Bill Emmott, the editor of The Economist

THE fin of this siècle has been an astonishingly positive period, far more positive than most people in the 1980s, and certainly the gloomy 1970s, would have thought possible. Liberty—political, economic and personal—has become a widespread fact for the first time. The threat of war casts its dark shadow over a smaller proportion of the world´s population, and fewer people live in constant fear of arbitrary arrest, torture or worse. Too many still do. Nevertheless, Franklin Roosevelt´s four freedoms—from fear and from want, and of belief and of expression—are possessed by more people, more securely, than ever before.

On the grand stage of geopolitics, for the first time in more than a century there is no imminent challenge, nor even preliminary tussle, for the rank of world leader, held since 1945 by the United States. No country appears to believe that it can soon hold sway over a whole region or a larger part of the globe. And in the mêlée of business and trade, this relatively peaceful world finds itself in the midst of two technological revolutions that promise sharp, and on balance beneficial, changes to life, work and even love, driven by computers and by the various forms of genetic engineering.

It reads like the most famous quote from Voltaire´s "Candide": all is for the best in the best of all possible worlds. Or perhaps the latest conceited statement from a believer in the 18th-century Enlightenment idea that human progress is inevitable, that all problems are solvable by reason, and that mankind is forever chipping away at new frontiers. Or maybe the blinkered view of a pampered member of a western elite who waves aside with an airy generalisation the vast problems and privations encountered by millions of people.

But that is not the intention. For there are two striking things about this period, and neither of them is Panglossian or triumphalist. The first is that, despite its undoubted warts, this decade is quite different from the rest of the 20th century. For most of the first 90 years, even during times of great achievement, terror was rife in large parts of the world, large-scale conflict seemed imminent both within and between countries, democracy was a minority sport, and huge numbers of people were shut away, by force or by choice, from economic or cultural interaction with other nations.

Which may explain the second striking thing: that few people, even in the fortunate places where high living standards and fairly secure liberties have long been taken for granted, are anything like as optimistic as this article´s first two paragraphs suggest. In part, this may simply be because such generalities are remote from the true worries of ordinary folk.

But another reason for the lack of rejoicing may be that those freedoms are fragile and come attached to a sobering lesson. If this century has taught us anything, it is that progress is not linear, or like a ratchet, but rather that it can go into long periods of ruinous reversal—and that the idea of the perfectibility of human nature, of an attainable Utopia, is the most dangerous idea of all. The hard-won liberty enjoyed by many in the 1990s, and that hoped for by the billions of people who have yet to win it, has not been provided by a wonderful wizard, ensconced in an emerald city. It is a liberty valued as a protection against purveyors of dogma, ideology and certainty of any kind.


This survey is about the lessons from those past 100 years: about what that long period can tell us about some of the things that liberals—in the sceptical, free-market English sense—are, or should be, preoccupied with today, and why those lessons should leave us with an attitude that is known by winemakers as paranoid optimism—the hope that this year´s wine will be better than ever, mixed with a fear that it might be ruined by too much sun, too much rain, or some other calamity. But first it is worth asking: is today really as good as it seems?

To be so positive about the past few years can easily appear unbalanced. After all, those years have included genocide in Rwanda; other brutal and continuing African wars; the scourge of AIDS; the series of wars in the former Yugoslavia; the testing of nuclear weapons by two old foes, India and Pakistan; the theft of American nuclear secrets by China; the spread of drug abuse and drug-related crime; the fear of worldwide climate change; continuing mass poverty in Africa, India and elsewhere; the sudden crash of East Asian and then Latin American economies; and, last but not least, the growing fear of the use by terrorists of nuclear and other weapons of mass destruction.

This is indeed a formidable list of problems, and mass communications bring them all closer to home. To Europeans and Americans close to Europe, this year´s war in Kosovo was particularly disturbing because of the loud echoes of the Europe of the 1930s and 1940s: of forced migration, the separation of families and the slaughter of men, the way nationalism can trump all other arguments and emotions, and the horror of the large-scale bombing of towns and villages.

All those negatives must, however, be set against the better signs. Perhaps surprisingly, Kosovo did not set superpower against superpower, even after the accidental bombing of the Chinese embassy in Belgrade. Russia, disgruntled as it is, appeared to see no advantage in confronting the United States or standing shoulder-to-shoulder with its brother Serbs.

More broadly and over a longer period, the replacement of central planning by market-based economics and a general lowering of trade barriers have begun to lift millions of people around the world out of poverty, giving them more income, more education and more freedom of choice. Given that the developing world was held in the grip of empires until the middle of this century, and that communist, socialist and autarkic ideas subsequently led most poor countries to shut their doors until the 1980s or early 1990s, this is a very new phenomenon. It is too early to say whether it will last, and too soon to start logging the benefits. One (short-term) source of optimism, however, arises from the East Asian crash of 1997. That crash was the first big test of this new belief in a more integrated world economy, and there has been surprisingly little sound of doors being slammed shut again since.

More people are being lifted out of poverty; but there are also more people. The population of the globe, having begun the century at around 1.6 billion, has just passed 6 billion, and looks destined to grow further (see chart 1). Such growth is the by-product of falling mortality rates, especially among infants, thanks chiefly to improvements in sanitation and basic health care, combined with a mix of technological advance and (for some) prosperity which have boosted agricultural yields and improved diets. Life expectancy, paradoxically in a century in which technology helped politicians to commit mass murder on many occasions (see table 2), has increased hugely almost everywhere: from around 45-50 years to 75-80 in the richer countries; from 20-40 to 50-60 in poorer ones.

Population growth, although a consequence of good things, has in aggregate been feared as a bad thing: as a population "explosion" that threatens to overwhelm the earth´s resources and cause conflict and perhaps catastrophe. It still might. But it is conflict that poses by far the biggest danger. The remarkable fact is that, even though the earth´s population has more than trebled in a century, the best measure of the scarcity of resources—price—has fallen virtually throughout that time for just about everything extracted from or grown in the earth, yet has risen, in the form of wages, for the one thing that has become far more abundant: people.

Moreover, the likelihood of a population explosion appears to be receding. Part of that, alas, is due to the devastation being wrought by AIDS in Africa. But mostly it is because fertility levels are dropping sharply in most poor countries and all rich ones. The latest "medium-fertility" forecast from the UN for world population in 2030 has been cut to around 8 billion, with 10 billion being reached some time during the century, and even those figures could prove to be over-estimates. All over the world, people seem to respond to better welfare and improved chances of survival by having fewer children.

Stand back, Dr Pangloss: such demographic change still brings new issues and new problems, notably of ageing populations, even in the poor world. It also means that whereas population growth may not be a global problem, it could often be a very nasty local one, causing conflict over local resources, especially water, and privation when politics (frequently) or natural disaster (occasionally) cause local scarcity or epidemic disease even within a wider world of abundance and improving health.

Although there is no early prospect of a global shortage of any of the earth´s resources, a larger population does change the earth and its environment, removing forests, cultivating land or building on it, and driving out other species, and that is itself a cause for legitimate concern. Yet even on those measures, the signs are better than is often thought. In the rich countries, the air that we breathe and the water we drink or swim in is cleaner now than in 1900 or 1950, and it is clear that, given the will, it can be made cleaner in poor (and now increasingly more polluted) countries as well.

The drift, as sceptics will have detected, is back towards the Enlightenment optimism derided earlier: that all problems are solvable. Indeed, that is particularly true of environmental issues. All the evidence suggests that pollution can be controlled, climate change can be countered, and the depletion of resources can be dealt with through a mix of innovation, regulation and market signals. But, and here is the limit to such blue-sky optimism, this does not mean that it will be: solvable problems are not always solved.

As an example, take this century´s greatest consumer icon, the motor car. It is hard to remember that when the 20th century began, the car was seen as a move towards cleanliness: the manure, urine and carcasses that horse-drawn transport left behind in big cities were not only unpleasant and costly to clear up, but also helped spread disease. The car was at the heart of the growth of industrial capitalism, and proved a huge boon for personal freedom. But even by the 1920s it was becoming controversial, as urban congestion and traffic accidents mounted.

By the 1950s and beyond, it became steadily clearer that the exercise of each person´s freedom imposes costs on others through congestion, noise, pollution, ugliness and danger, as well as having indirect effects by encouraging urban sprawl. In response, people generally want others´ behaviour to change, but resist having their own freedoms curtailed. Freedoms, jobs, economic activity on the one hand; cleanliness, nature, safety on the other. In a liberal society, how can a choice be made?

It is far from easy. But what this century´s experience suggests is that without a liberal society it is virtually impossible. The worst pollution, the greatest dangers of environmental catastrophe, the most egregious disregard of the costs and risks that a particular action, a factory, a nuclear-power station imposes on other people have all taken place in dictatorships. Even cars in communist countries became noisier and more polluting than capitalist ones. That brings in the final broad justification of this survey´s paranoid optimism: the spread of democracy.

Even in the rich world, in 1900 democracy scarcely existed. Only six countries out of 43 then recognised as nation states had something that began to deserve the name, and even there the suffrage was invariably limited, with some men and all women excluded. The rich world´s real democratic boom took place only after 1945, when Germany, Italy and Japan joined the fray. And in the poorer world, post-independence India, famously the world´s largest democracy, was for decades the exception that proved an authoritarian rule. In 1980, of the world´s 121 countries, only 37 were democracies, and those accounted for a mere 35% of the world´s population. By 1998, 117 of the count by then of 193 countries were broadly democratic, accounting for 54% of the world´s population.

Intellectuals with a historical bent might wonder whether this is cause for optimism at all: one of the rallying calls for both fascism and communism was the notion that democracies were terminally weak. Democracies certainly muddle their way through, trading interest against interest, rather than blazing a clear and exhilarating course. And, as systems depending on majority votes, they have particular difficulty handling the views of large ethnic minorities. But democracy now exerts a powerful appeal, less because of what it can do than because of what people hope it will stop, namely the horrific clarities associated with unaccountable authority.


So, on this optimistic platform from the 1990s, what might the 21st century build? It is natural to ask, but do not believe the answers. As Sam Goldwyn, the old movie mogul, said, "Never prophesy, especially about the future."

There are far too many uncertainties and complexities for any long-range forecast to have a chance of getting it right. Just remember what people have been saying over the past dozen years or so about the prospects of this or that country. The Soviet Union would not collapse. Japan was bound soon to overtake America as the world´s largest economy, and enhanced political power would follow. No, wait a minute, the future was Europe´s, thanks to its new integrated market and dollar-defying currency. America was in decline, guilty of imperial over-stretch. Or was it triumphant, ahead in every new technology and displaying a stripe of capitalism everyone else would have to emulate?

The only safe prediction is that by 2010 many, perhaps all, of the predictions made this year will already have been proved wrong. So what can anyone do? Follow the advice of one of this century´s greatest men, Winston Churchill, who said that "The further backward you look, the further forward you can see."

That is the spirit of this survey. This century has seen a long and tortuous journey towards today´s liberties, a continuing journey that in future needs to bring those liberties to others, too. It has been a journey framed by changing views of liberal capitalism, of whether, rather as in the world of the Wizard of Oz, the tin boss can have a heart and the scarecrow worker can have a brain. So perhaps the first thing to examine should be the ideas about those bosses and workers that ruined much of the century, and in the battle against which Churchill had his finest hours. Why did communism and fascism take hold, and could it happen again?

The strange case of Karl and Adolf

The ideologies proclaimed by fascists and communists were, respectively, empty and phony. But behind these scourges lay a different debate, and a recurrent concern

The ideologies proclaimed by fascists and communists were, respectively, empty and phony. But behind these scourges lay a different debate, and a recurrent concern

TO SOMEONE born in Britain in the second half of this century, it is hard to imagine either that fascism and communism could have appealed to billions of people, or that the regimes founded on those ideas, now widely scorned as idiotic as well as barbaric, endured for so long. Yet 20 years ago it would have been natural to describe the century as a war amongst "isms", one in which fascism had been defeated but in which the real battle, that between capitalism and communism, was still under way. To say that would not have been simply to make a realpolitik observation about the confrontation between the Soviet Union and the United States. This was a battle of ideas.

Or at least it was seen as one. Marxism and its adaptations, Leninism and Maoism, were up against liberal, democratic capitalism in its various forms. Yet it is a fair bet that many historians, writing in 2050 or 3000 with the detachment that such a vantage point will offer, will wonder whether this was really a fight about the ideas of Karl Marx and his descendants, or whether it was just a tussle between different forms of another idea, nationalism. For Marx´s basic propositions had already been proved wrong by October 1917, when Lenin´s Bolsheviks seized power in Russia.

The growing industrial working class in Europe and America, far from getting poorer and more miserable, had become considerably better off, both absolutely and relatively, since "The Communist Manifesto" had been published in 1848. The grievances and interests of that working class had become the focal point of politics, but revolt was advocated only by a tiny minority. Far from creating two classes, capitalists and the proletariat, that grew ever more distant from each other, things were becoming muddled by the emergence of a middle class. Far from showing international class solidarity, workers fought patriotically in the trenches of the first world war. The automatic economic laws that gave Marxism its scientific pretensions proved to be anything but automatic.

But perhaps it did not matter, for neither of the two countries in which communist revolutions occurred, Russia (1917) and China (1949), remotely resembled the industrial, capitalist societies in which Marx had said that revolts would inevitably take place. Nor did these two countries, or for that matter Fidel Castro´s Cuba or Ho Chi Minh´s Vietnam, implement anything Marx would have recognised as communism, at least not after the first few years.

So some detached historians will be tempted towards pragmatic, circumstantial explanations: a daring putsch by a small sect in Russia, exploiting the chaos and misery of the great war; the adoption of the modern mass-production techniques of Henry Ford, arch-capitalist, to industrialise Soviet Russia; the use of the new mass-communications technologies to establish a totalitarian grip, and of terror to force change; the wielding of Marxism-Leninism as a religious faith to muster support and mask barbarities; the fortuitous emergence of Hitler´s fascism and his territorial ambitions in Eastern Europe to galvanise Russian nationalism and to provide international sympathy; the endurance of colonial empires, where liberation movements looked fondly on Russia merely because it was different from the western oppressors.

Similar circumstantial explanations for the rise of Hitler and Mussolini, fascism´s tamer inventor, and their emulators in Spain and Portugal, Franco and Salazar, have already become conventional wisdom. These dictators were creations of the first world war, which destroyed the social and political order in Germany and Italy. The Versailles treaty punished and humiliated Germany, and the raising of national barriers to trade in the 1920s and 1930s yielded economic failure.

The fascist creed was emptier than communism, clearer about what it was against than what it was for, but Hitler and Mussolini mustered support by offering organisation instead of chaos (like Stalin, Hitler admired Ford); by amplifying the nationalism of the first war into a spiritual and racial creed; and by offering an undefined "leadership", which was really a call for faith in their "sorceror-like abilities", as Peter Drucker put it in his book, "The End of Economic Man", which in 1939 made that émigré Austrian´s reputation. Just as Stalin benefited by being an anti-fascist, Hitler exploited Soviet Russia´s association with the idea of world revolution, painting Jews and Bolsheviks alike as internationalist threats.

Such circumstantial explanations are comforting, for they suggest that in the absence of similarly extreme circumstances such regimes will not recur. The lesson "Avoid world wars and great depressions" is not hard to grasp. This still leads to a helpfully sober view of human nature, because fascism´s magic solutions and communism´s Utopian ones commanded initial support, or at least acquiescence, from Italians, Germans and Russians who had previously been thought too civilised and rational for such things.

Moreover, to add to the sobriety, some of the threads that ran through both sorts of regime could also be found in democratic countries in Europe and North America in the 1930s: an interest in eugenics and a policy of sterilising groups such as the mentally handicapped; celebration of physical fitness; social engineering; concern about population numbers and resource shortages. And, as Mark Mazower points out in his book, "Dark Continent: Europe´s Twentieth Century", the fighters for freedom and against fascism and racism in 1939-45 were rank hypocrites, since they were themselves running dictatorial empires in which racial superiority was a strong theme. No wonder that Mahatma Gandhi, when asked what he thought of western civilisation, replied that it would be a good idea.


Many people living in communist states shared the view that ideas were not the real issue. "Capitalism is the exploitation of man by man," ran an old joke. "Under communism it is the exact opposite."

Yet although nationalism and circumstance may explain the way things happened, there was still a fundamental clash between communism and fascism on the one hand and democratic capitalism on the other. It was between running a society from the top down, with central control and a command economy, and from the bottom up, with dispersed power and a market economy. It was about political organisation—dictatorship versus decentralisation or democracy—as well as the choice between command economics and the market. But although politics hogged the news, economics held the key.

In 1961, when Nikita Khrushchev claimed that communism would "bury" capitalism, he was getting to the heart of the matter. And when, during the next dozen years, America and Russia vied to get ahead in the space race, they were largely engaged in a display of economic muscle-power. It did have political significance for the superpower stand-off, but it was even more important for the sustenance of Russia´s internal dictatorship. If a command economy could work over the long term, then the dictatorship could survive. If it failed, and power-dispersing, market solutions had to be employed, the regime would be threatened.

It failed. Contrary to Marxist dogma, changing the ownership of factories or farms from private to public did not make workers more motivated or direct their use to better things. At best the effect was neutral, but over time it became negative. More important, central planning proved distinctly undynamic. Even the most brilliant bureaucrat could not consistently work out what product to make next, how much of it to make, or how to make it more efficiently. The market is the only way yet found to conduct experiments about these things and to discover people´s changing preferences. Command economies conducted no experiments and worked by ignoring preferences.

Why, then, did command economies take so long to fail? The second world war prolonged their life, by delaying the onset of corruption in Soviet Russia, by preserving the idea of sacrifice as a national duty, by lending respectability to the idea of centrally directed production. Such ideas can work in wartime, which provides a clear motivation for designers, workers and managers, as well as a competitive discipline of sorts. After the war, dictators naturally suppressed the signals of dissent that would otherwise have become evident in the 1960s and beyond. And capitalism had also been a pretty dismal failure for several decades, so did not offer a compelling alternative.

Support for communism in the West played an important role too. Communists may or may not have been sure they were doing the right thing, but plenty of westerners told them they were. This was true both of the words of writers and the actions of governments. Central planning and public ownership became popular all over Europe.

Western support began to arise in the 1930s, in part from a belief that Stalin´s methods were working. That belief was sustained by means of faked statistics and, in the 1950s, by the success of the earth-orbiting Sputnik project. This was echoed by dreamy western views of egalitarian Chinese peasant communes and other romantic notions: Britain´s Labour Party still ends its annual conference with the ritual singing of "The Red Flag", a socialist anthem.

A further reason lies in the quasi-religious quality of Marx´s theories as a call to Utopia, the effect of which quickly wore off inside communist states but endured outside. This durability was assured by one brilliant, debate-crushing ingredient: the claim ("historical materialism") that all freedom is an illusion, because everyone is trapped by their historical and material circumstances. If you disagree, you are a victim of false consciousness. Only once mankind is emancipated will people act according to their true, co-operative nature.

Now, even that mind-bending argument fails to trap many people. But just as important as the appeal of communism in the West was a revulsion against capitalism, even against its successes. Well into the 1980s, 10-20% of the electorates of France and Italy were voting for communist parties—even after the mass murders, gulags and famines of Russia and China became evident. As François Furet, a French historian, put it in his book, "The Passing of an Illusion", many apparently intelligent people in France, Britain and even America felt that "The regime founded in October 1917 was good in spite of the disasters following its birth, whereas capitalism was bad in spite of the riches it engendered."

Just false consciousness in reverse? That is a convenient assumption. But it is as well to keep in mind that many intellectuals in the West still consider capitalism to be immoral: too devoted to a vulgar worship of money, too dependent on greed, too deeply founded on adversarial individualism. They probably always will.

Freedom from want?
From each according to their ambitions, to each well beyond their needs: that is the capitalist creed

IF YOU look at the past 100 years in the 40-50 countries that are now considered rich, what trend do you see? Bradford De Long, a professor at the University of California at Berkeley, describes it in the title of his forthcoming book on the 20th century as "Slouching towards Utopia". Slouching, because despite huge material and scientific progress, people are grudging about it all. Utopia, not because perfection has been reached or is attainable, but because the state of wealth and knowledge in 1999 would have more than satisfied the Utopias envisaged by many previous crystal-gazers and proselytisers. Consider what has happened:

•Farming, forestry and fishing, which for centuries had meant hard labour, in 1913 accounted for 28% of employment in America, 41% in France and 60% in Japan, though only 12% in Britain. Now, mechanised farming and new technology have hugely increased food production, yet the proportion of the workforce employed in these arduous activities has dropped below 6% in all those countries.
•Services, seen today as a modern sector of the economy, in some countries already accounted for a larger share of jobs in 1913 than did farming: 43% in America and 44% in Britain, though only 27% in France and 22% in Japan. Now the figures range from 60% in Japan to about 75% in America. But the nature of those services has changed. A century ago, most of them involved a direct personal service: being a servant, in other words. Now, most are indirect and concerned with information: education, accountancy, government, communication and so on.
So the rich today have far less direct command over people—fewer servants, fewer exclusive services—even though they have far more command over things. Household tasks have become increasingly mechanised, through washing machines, vacuum cleaners, dishwashers and so on, and food production more industrialised, reducing the time devoted to cooking at home. That means far fewer women are employed as cooks and maids, but many more are able to go out to work.
•Mass labouring in the fields was replaced by mass labouring in the factory, and with it employment by new, large corporations, amid mass urbanisation and at times mass unemployment, a new concept. This accelerated a change already under way in the 19th century. But industry changed, too: production that had involved a lot of craft skills was replaced by machine tools and routine assembly work. Early cars were made by craftsmen, and each one was slightly different. Beginning in the 1920s in America, though much later in Western Europe and Japan, products and processes became standardised.
•Workers started to be treated as interchangeable, albeit trained, units, organised more or less scientifically to make processes more efficient. That was true for several decades in American capitalism, German Nazism and Soviet communism alike. But whereas in Germany and Russia production was celebrated and wages and consumption were suppressed, in America and the rest of Europe consumption was king. As the century wore on, more and more people were employed for their technical, literary and professional skills, as "white-collar" workers. Employment in non-profit organisations—charities, private hospitals—also began to rise, providing nearly 8% of all jobs in America in 1995, 6% in Britain and over 12% in the Netherlands.
•Mass consumption gave rise to mass advertising, through the new mass-communication outlets of radio and television, as products were sold with more emphasis on style, image and brand. Vance Packard complained in a 1957 book that advertisers were "hidden persuaders", manipulating minds and denying free will. But people went on buying, and advertisers went on trying to work out why.
•Throughout the century, "knowledge"—ie, brainpower—was increasingly taking over from manpower, horsepower and material power. Norman Angell, a British socialist, pointed this out in "The Great Illusion" in 1910; Peter Drucker, by then a management guru, wrote a book about it in 1967; Tony Blair and Bill Clinton caught on in the late 1990s.
•Mass employment in mass production led to the creation of mass trade unions and the securing of mass labour rights. By 1930, 6.8% of workers in America and 25.3% in Britain belonged to a trade union. By 1950, the numbers had risen steeply to 22.3% and 39.9% respectively. By 1996-97, as employment had shifted away from mass production and unions were felt to have become less effective at increasing most people´s bargaining power or job security, union membership had declined sharply, to 14.1% and 30.1% respectively.
•America led in virtually everything: growth, productivity and incomes, new products and new processes, applying new ideas first or most effectively even if it did not invent them. Early in the century, it received a big influx of migrants from Europe. By the end of the century it was virtually alone among the rich countries in still permitting substantial immigration, although by now most of its migrants were from Asia and Latin America.
•Inequality diminished sharply, thanks to mass education, higher wages, progressive taxation and the increasing value, particularly for the poor, of public services and job protection. War broke some social barriers and taboos, but education made the biggest difference. Some countries—Germany, Japan—became more equal than others, such as Britain but especially the United States. In the past 20 years inequality has begun to increase again.
•Government spending as a share of GDP in 1913 ranged from 1.8% in America, 6.3% in Sweden, 8.3% in Japan, 12.7% in Britain and 14.8% in Germany to 17% in France. Now it ranges from 34% in America and 54% in France to 65% in Sweden, requiring levels of taxation that would have caused riots in 1900. Health care and education were two growth areas, but the biggest slice went to transfers and subsidies—the taxing of one person to hand the money to another, who would not always be poorer.
•Spending on leisure—which is hard to define, but includes travel, entertainment and holidays—was also a new thing. It grew from 2-3% of GDP in America in the early 1900s to roughly 10% now. Where at the turn of the century a Briton worked for 2,700 hours a year, by the 1990s people in rich countries generally put in only around 1,400-1,800 a year. Paid holidays became the norm, ranging from two to three weeks a year in America and Japan to six weeks a year in Germany. Beginning in the 1960s and 1970s, ordinary people joined the jet-set.

Of this list of change and plenty, that last point is especially worth dwelling upon. Commentators in the early 1900s would have been surprised by all that money being spent on leisure, and especially by the idea that time off is being enjoyed by the poor as well as the rich: no work at weekends, holidays at all, let alone abroad. But they would have been most surprised that, once ordinary folks´ basic needs were covered, they carried on working hard.

In his book "In Praise of Idleness", Bertrand Russell wrote in 1935: "The idea that the poor should have leisure has always been shocking to the rich." But he went on to argue that: "Only a foolish asceticism...makes us continue to...work in excessive quantities now that the need no longer exists."

John Maynard Keynes would also have been surprised. In "Economic Possibilities for Our Grandchildren", written to brighten up the gloomy days of 1930, he forecast that 100 years from then we would be eight times better off in economic terms (which has already happened), and that this would mean the long struggle to produce enough to meet basic needs would at last be over. The majority would then work for only 15 hours or so a week. A few would work harder, in pursuit of wealth. But most would not, seeing the love of money as "one of those semi-criminal, semi-pathological propensities".

He was wrong, and most do not see money in that way. Why not? To want more than you have, whether in monetary or other terms, is a basic human instinct. As they sang in "South Pacific", if you don´t have a dream, how can you have a dream come true? But also, work has a value beyond providing a living, and that applies to humbler occupations as well as the high-brow. The view held by Russell and Keynes, and echoed by Hannah Arendt in "The Human Condition" in the 1950s, that human beings are really frustrated philosophers, keen to spend time in contemplation, has proved to be bunkum. After all, to those writers contemplation was not leisure; it was their work.

Are people happy amid all this plenty? Andrew Oswald, an economics professor at Warwick University in Britain who has studied data available for America and Europe, finds that the most extreme indicators of unhappiness—suicide or attempted suicide—show a clear fall in the rich countries in proportion to the population. In 1911, he says, 2,600 men in England and Wales committed suicide; in 1990, the figure was 2,800, in a much larger population. Less extreme data are less reassuring, however. In polls, people in both continents say they have become happier in recent decades, especially in Europe, but everywhere the rise in happiness is a lot smaller than the increase in wealth.

The most plausible explanations are that relative wealth matters far more than the absolute sort, and satisfaction is always relative to expectations. "Positional goods", ie, ways to establish your relative status through your car, clothing or other possessions, become important in a society that is not only affluent but has also shed the clear social rankings and rigidities that were common in Europe and Japan. Fred Hirsch, a British economist (and once a writer on The Economist) who coined the term in a book in 1976, argued that the rise of positional goods would limit growth, since by definition they had to be scarce. Yet people have proved ingenious at creating ever more sources of exclusivity.

The importance of relativity is also a big reason why inequality remains a serious issue even in countries where the poor have video recorders. Rich conservatives often decry this. But if those plump and prosperous types care about having more than others, why should it not be legitimate for the poorer people to care a lot about having less? Still, inequality is at its most potent when it reflects an inequality of opportunity or access, the sense that there are firm barriers to progress regardless of effort or merit. That was particularly true in Britain, for example, before mass public education and the breakdown of hereditary rankings.

Another reason, however, why plenty seems to bring neither happiness nor relaxation is that luxury has not brought security, except for a lucky few. Indeed, some think that modern capitalism has increased insecurity, by substituting a heartless "cash nexus" (ie, wages) for old ties of faith, family, community or social position. This is an odd view; in western society at least, social position has always, in the end, been founded on money. Jane Austen´s novels were about little else. But perhaps the more that you have, the more you are worried about losing it. Marxists used to talk of inevitable "crises of capitalism". They were right in one sense: capitalism has proved worryingly unstable.

Freedom from fear?

Capitalism will always have dramas. It is governments that turn them into crises

Capitalism will always have dramas. It is governments that turn them into crises

BEFORE the Great Depression of the 1930s, the conventional view among economists, shared by businessmen and politicians, was that recessions were nature´s purgative. They had to be endured, but you felt better for it afterwards. This was fine if you had a country house in which to sit out the recession, but unlikely to make you love capitalism if you were queuing at a soup kitchen. This consensus view had something going for it, but it missed out an important point: if purgatives are made too powerful, they can be life-threatening.

What most people remember about the Great Depression, apart from the Wall Street crash, the dole queues and the Okies in "The Grapes of Wrath", is that at first governments sat on their hands, saying the purgative had to be endured and they could do nothing. Then Keynes came along to argue that, on the contrary, they should do a lot because in a depression public spending was the only thing capable of boosting demand. Pay people to dig holes, if you must, and then to fill them in again. But whatever you do, spend.

Like most memories, this is accurate only in parts. And it gets the crucial bit wrong. Governments did not sit on their hands: instead they made things worse. A lot worse.

America´s central bank, the Federal Reserve Board, had helped bring about the crash in 1929 by raising interest rates. That may have been the right thing to do: America had had a huge speculative boom, albeit fuelled by the Fed´s previous loose monetary policy. But then the Fed kept its rates high well after the crash. In 1930-31, just when money was getting painfully short as banks cut lending to stay in business amid a liquidity crisis, the Fed reduced its own lending. And in 1931-32 it raised interest rates again after Britain´s decision to let the pound break free from the gold standard led to fears of gold outflows. Other central banks also raised interest rates.

Then, Congress and the White House joined in. In 1930, just when trade was needed more than ever to keep economies going, President Herbert Hoover signed the Smoot-Hawley tariff act, ignoring formal protests by more than 30 countries, sharply raising tariff barriers and triggering a worldwide spate of retaliatory protectionist measures. Chart 3, shows the terrifying result: world trade, already shrinking in 1929, fell by two-thirds by 1933.


Finally, just when extra spending or lower taxes would have helped keep the economy going, most governments cut spending to balance their budgets. This last error is remembered because of Keynes and because of President Roosevelt´s "New Deal" spending programmes (though he was loth to borrow to finance them). But although budget balancing was damaging, it was probably less important than the monetary and trade mistakes, since government spending at the time was quite small in relation to the economy as a whole: only about 8% of GDP in America, though already 20-30% in most West European countries, including Britain.

Economists and historians are still debating exactly what caused the Great Depression, and doubtless always will. But most agree that government action turned what would have been a modest recession into the most devastating downturn of the century. Like other downturns, it certainly acted as a purge, but ended up almost killing the patient.

The only downturn in a big country during this century to match America´s in the 1920s and 1930s has taken place in Japan. In 1924-29, Wall Street´s Dow Jones rose by 300%, and then plunged by 84% in 1929-32. Like America in the 1920s, Japan in the 1980s was filled with a euphoric sense that old economic rules no longer applied. The Nikkei average climbed by 492% in 1980-89; property prices trebled. But in 1990-98 the Nikkei lost 64%, and property prices fell by more than two-thirds. Despite this, Japan has escaped a great depression: living standards have stayed high, unemployment fairly low.


It would be premature to declare this episode closed, and the danger passed. But some tentative conclusions can already be drawn from a comparison of the 1930s and the 1990s. One is that the Bank of Japan copied the mistake made by America´s central bank, though not as zealously. Like the Fed in the 1920s, it had loosened monetary policy in the 1980s and thus fuelled the speculative boom in share prices and property lending. It then helped bring on the crash in early 1990 by successively raising interest rates, and afterwards proved reluctant to cut rates again for fear of restarting the asset-price boom. This may well have made the crash worse.


In two important respects, however, lessons learnt from earlier calamities prevented Japan´s drama from becoming a crisis. One was that neither the country itself, nor its trading partners, followed the Smoot-Hawley example. World trade remained as open as before the crash, as did Japan´s trade, which enabled its exports to go on growing even as domestic activity slowed. At times, most notably during a row with America over car exports in 1995, this openness looked in danger, but the threat passed.

The second saviour was that the Japanese government used fiscal policy to moderate the downturn. It was in good shape to do so. In 1990 the general government budget had a surplus of 2.9% of GDP; by the end of the decade successive spending packages had produced a deficit of 8.7% (and rising) of GDP, but had prevented the severe contraction that the economy would otherwise almost certainly have suffered.

A third saviour, however, was luck, and it led the Japanese government to act in a harmful way. The open and healthy world economy, combined with rapid growth in Japan´s nearby markets in East Asia, helped persuade the Finance Ministry that its nastiest problem—huge piles of bad loans at all of Japan´s banks—would in time sort itself out as the economy revived. So the ministry chose to conceal the problem, both in its own reports and by allowing banks to massage their accounts.

In a way, it was taking on board a lesson from the 1930s: that the government had to step in to deal with banking collapses. But it drew the wrong conclusions from it, denying reality and colluding with misleading accounting. Compared with America´s, Japan´s post-war governments have been fairly interventionist, thinking that they knew best and that people would trust in their judgment. But in the 1990s Japanese people lost faith in their bureaucrats. As people became more worried about jobs, they saved more and spent less, so both the economy and the banks got worse, not better.

The Finance Ministry´s luck turned in 1997 when East Asia had its own crash, hitting Japanese exports and damaging consumer confidence in Japan still further. Only since then has a depression looked a real possibility for Japan, with consumer prices falling and banks beginning to go under. But that threat did at last force the government to start a proper clean-up of the banks. As long as the world economy stays open, those measures look likely to keep Japan away from disaster.


So misguided governments make capitalism´s crises worse. But what about speculators: are they not the true master criminals? Behind most deep recessions there are financial booms and busts. As Walter Bagehot, a Victorian editor of this paper, wrote, "At particular times a great deal of stupid people have a great deal of stupid money and there is speculation and there is panic." Surely one of the problems of liberalism is that in these days of globalised, free-flowing capital there is more speculation, the panics are bigger and the chances of innocent bystanders getting hurt multiply?

Certainly, that was the conclusion many people drew from the crash of East Asia´s financial markets in 1997-98. And there can be little doubt that panic among international investors did indeed play a part, as troubles were transmitted from one East Asian country to another, and then, like a ghastly (if slow-moving) plague, across the oceans to Latin America and across the steppes to Russia.

It would be wrong, though, to think that the 1990s have therefore brought in a new and far scarier era for financial markets. Such panics are, as that quote from Bagehot suggests, as old as the hills. They are an integral and always disturbing part of capitalism´s instability. Nor is international panic a novelty. Wall Street´s 1929 crash was swiftly transmitted across borders, and the damage to the world economy was aggravated by the collapse of Credit Anstalt, an Austrian bank, in 1931 when foreign lenders withdrew their funds. Many of the banking and currency crises in Latin America at the turn of the century had an international flavour, because Argentina and Brazil were importing bucketsful of capital, mainly from Western Europe.

And here is another constant. One type of financial institution is hugely more dangerous than all the rest, even though it claims to be the safest: the bank. Its basic danger (though modern pressures on its profits have added others) arises from its age-old asset-liability mismatch: it borrows short-term from depositors and doles out the money to borrowers on a fairly long-term basis. As deposits can leave quickly, whereas loans stay put, when a bank gets into trouble, it does so in spectacular fashion. Speculators may lurk in the wings of financial crises, but banks always occupy centre stage. This was true in Thailand and Indonesia in 1997-98; in Sweden in 1990-91; in America in the 1930s; and in Germany and France in 1901 and 1907 respectively.

So what is new? Barry Eichengreen and Michael Bordo, two American economists, compared the financial crises that have taken place throughout this century in a paper delivered last month at a conference held by the Reserve Bank of Australia. Three things stand out. The first is that many of the most painful episodes, measured by the subsequent drop in GDP in the country or countries concerned, occurred when banking and currency crises coincided: ie, when international and domestic woes fed upon each other. There were nine such twin crises in their sample of 15 emerging countries in 1880-1913, just one in their six rich countries over that period, and as many as 14 in their sample of ten emerging countries in 1973-98. Twin crises have become more frequent.

The second point, however, is that throughout the century, countries bounced back from such crises fairly quickly. The 1930s were a cruel exception. Even so, countries bounced back more rapidly at times when they were using a fixed and politically credible currency regime such as the gold standard (and now, it will be hoped in Europe, the euro). This was because even if a currency´s fixed rate was temporarily suspended, investors expected it to be restored at the previous rate in due course, so after the crisis came a new inflow of capital betting on the restoration. The semi-fixed rates used by East Asian countries in 1997-98 did not enjoy this self-regulating virtue. The gold standard in the 1920s and 1930s had lost the credibility it had before 1914.

The third point is, on the face of it, less encouraging to a free-marketeer. This is that the period when there were hardly any banking crises, and few currency crises, was 1950-73, under the Bretton Woods regime of fixed exchange rates, named after the place in New Hampshire where it was agreed on in 1944, at the same time as the IMF and the World Bank were being set up. Apart from the fixed rates, the other main financial characteristic of that period was that most governments imposed strict controls on domestic and international capital transactions, which many did not relax until the 1980s. For poor countries, it was by no means a happy period: capital did not (and mostly could not) flow in their direction. But for the lucky rich it was a golden age.

Free to be European

The European Union has a split personality—part liberal, part conservative, part nationalist

The European Union has a split personality—part liberal, part conservative, part nationalist

EUROPE´S century is justifiably seen as a story of the perils of nationalism and of its ugly sister, racism. Yet it also offers a tale about the dismal consequences of beggar-my-neighbour, stop-the-world-I-want-to-get-off economic nationalism. Stalin´s "socialism in one country" was a disaster. But so was the capitalism in one country that many West Europeans attempted between 1914 and 1950.

European countries were already quite protectionist before 1914, with high tariffs on imports in France and Germany; and even Britain, once the high priest of free trade, committed apostasy in 1915. But in the 1920s and 1930s economic nationalism got much worse. One immediate cause after 1918 was the creation of new countries which gave themselves new tariffs, import quotas and subsidies both against outsiders and against the formerly integrated markets they had just left. Another was the creation of the Soviet Union, which raised an ideological barrier to trade. But France, Germany and Britain too all raised their own barriers.

Intra-European enmities loomed large. So did the notion, arising from the first world war, that self-sufficiency was essential for survival as well as to win wars. But the outside world also played its part. America raised its tariffs in 1921 and 1922, making it harder for the Europeans to export goods in order to repay their war and reconstruction debts to America. In 1924, Congress shut off immigration from Eastern and Southern Europe and from Asia, taking away Europe´s safety valve. Concern in Europe was growing about new, low-wage rivals in Latin America, Canada, Japan and Australia. And then, in the biggest blow of all, America in 1930 raised its average tariff to 59%, with the Smoot-Hawley tariff act.

The Europeans retreated into various forms of isolation. Britain, France and the Netherlands hunkered down with their empires, raising outside tariffs to give preference to imperial trade. Fascist Italy went for corporatism, favouring national firms in alliance with government. Nazi Germany, hit hardest by the depression of the 1930s, went for arms manufacture and barter trade.


As well as the better-known background of war and the Holocaust, it is that economic nationalism you need to bear in mind when thinking about the European Union—or Common Market, or European Community, as it has variously been known since it started life with the 1957 Treaty of Rome.

The economic map of Europe in those days was a strange one—not at all the sort of map that nature would have drawn. Normally, a country´s neighbours are among its largest trading partners, certainly on a continent such as Europe with close historical and cultural links. Transport costs favour the neighbours, and it is generally likelier that firms physically close to one another will establish the trust and depth of mutual knowledge that favour business transactions. Yet in the 1930s, France´s third biggest trading partner was Algeria. In 1957, Germany´s biggest was America. The natural patterns of trade and personal interchange had been distorted by two wars and 50 years of economic nationalism.

The European Union can be seen as an attempt to recreate some of those natural patterns, albeit at a time when another political divide—the iron curtain—was cutting the continent in half. It was also, as is usually said, an attempt to stop Europeans fighting one another, to bind France and Germany together. Yet those aims could have been achieved (and were) in other ways. Economic nationalism, too, was being dealt with at other levels, through the trade liberalisation rounds of the GATT and through the establishment of the International Monetary Fund and the World Bank.

But despite those multilateral initiatives, the desire to blunt economic nationalism alone might have been enough to explain the Common Market´s launch. After all, if taken at its word, the essence of the European idea, and indeed the Rome treaty itself, is liberal, and goes well beyond the GATT: the renunciation of national policies which had seemed individually desirable but which collectively were disastrous; the use of that and later treaties to make the renunciation binding and credible; the transfer of sovereignties away from capricious national politicians. What could be more liberal than the free movement of people, goods, capital and services?

Many of the principal achievements of the European Union have indeed been liberal ones: the abolition of internal tariffs (completed among the original six members in 1968) and the transfer of external trade policy to the EU executive, the European Commission; the outlawing of state subsidies to companies, a process begun in 1983 but not yet completed; the establishment of antitrust policy at a European level, begun in 1990; the outlawing of non-tariff barriers to internal trade, begun by a ruling at the European Court of Justice in 1979 but not properly undertaken until the single-market project of 1985-92; and the most spectacular example, the adoption by 11 countries of a single currency on January 1st 1999, transferring power over monetary policy to an independent European Central Bank.

Yet all those dates, coming long after 1957, carry a powerful clue. It has taken more than 40 years to establish anything like an integrated, "common" market. Only this year has an integrated financial market begun to develop, thanks to the euro. In many areas—transport, telecommunications and energy, to name but three—the common market is only just beginning to be created. Far from moving too rapidly towards integration, as the EU´s British detractors often claim, the opposite is true: it has moved far too slowly.


The reason has been continued economic nationalism, combined with sharply different views among the member countries about what the Union is for. This is not surprising in a collective effort of six, then nine and now 15 countries. But it has blunted the Union´s effectiveness, and makes predictions about its future hazardous.

Most notably, the liberal ideas of unity and free movement have been widely subverted. Subsidies, non-tariff barriers, closed financial systems, national champions: all these have been used by EU members to keep their economies apart ever since 1957. At the same time countries have sought to divert EU powers and resources to their national benefit.

The biggest collective spending policy, the common agricultural policy, under which half the EU budget is devoted to farm subsidies, has become a nationalist feeding trough. It is a case study of how a system of subsidies, once created, becomes almost impossible to dismantle. It is also highly protectionist, throttling poor countries´ farm exports. A study earlier this year by Patrick Messerlin, a French economist, carried out for the Institute for International Economics in Washington, DC, estimated that the total cost to the EU itself of its external protectionism—covering goods and services as well as food—adds up to around 7% of the Union´s GDP each year. That is $600 billion.

Regional and structural funds, designed to improve the infrastructure and industrial development of poorer regions within Europe, are another feeding trough. The coal and steel treaty, set up in 1951, was used in the 1970s and 1980s to delay the restructuring of those old industries and to establish a de facto cartel. Countries vie to turn external trade negotiations to the benefit of their local pressure groups. The so-called "social chapter" has in practice sought to protect existing labour legislation in France and Germany against competition from smaller, poorer countries.

A few members still believe in co-ordinating planning, research, protection or subsidies at a European level. Others believe that, in an economic space much larger than a single country, change (eg, Americanisation, or Japanese competition) can be kept at bay. Yet others think European rules are the only way to make their national politicians act as economic liberals. And others still see all this economic and trade stuff as just a price to be paid for the establishment of a unit large enough to bargain on equal terms with the United States and Japan, and to carry foreign-policy clout. Britain has wanted to influence events on the continent, though has never really wanted to ally itself to its neighbours wholeheartedly. Europe´s governments, to adjust an old Japanese saying, want to climb into the same bed but have different dreams.

It is a muddled, contradictory picture. Recently, with stronger competition enforcement, the single currency and the single-market programme, the liberal tendency has gained ground. As the Union becomes larger, perhaps expanding to 20-30 countries, an activist supranational government is becoming harder to operate. And liberal optimists think the euro will force national governments to free up their own labour and goods markets, in the hope of creating enough jobs to reduce unemployment from its current 10-15% of the workforce.

That more liberal trend looks set for the next few years, during which collective thinkers may well have their minds more on foreign policy co-operation than on economic or social intervention. But it cannot be counted upon to turn the EU into the stuff of Hayek´s dreams—a Federal Europe whose rules tell its members what not to do, but do not try directly to tell them what they should do. The occupants of the European bed continue to have a wide range of dreams, and the negotiating logic of the union still leads towards muddles and pork barrels.

Still, there is little chance of imminent break-up. The EU is a success, as measured by the desire of more countries to join it. The muddles are not, so far, of a sort to pitch nation against nation. The only real candidate for such a fight could arise from the euro. There could be a moment in the depths of a recession in which one government is under pressure to do something about unemployment but finds itself unable to take action on its own. Anti-European emotions could become stirred up. But do not bet on it. Muddling through—finding a way to accommodate each member´s concerns—is both the most maddening thing about the European Union, and its greatest talent for survival. That is also a talent that will be needed in the world´s other big, should-be-federal-but-isn´t, country: Communist China.

The last emperors

Market economy, dictatorial government: is that what Chinese mean by yin and yang, the harmony of opposites?

MOST westerners think of Europe as the anvil on which this century´s greatest tragedies were hammered out—two continental-scale wars, Hitler´s Holocaust, Stalin´s slaughters and famines. Yet China has at least an equal claim for that undesirable title. And, with a dictatorship still ruling over more than a billion people, who will "celebrate" its 50th anniversary this autumn, it stands today as a violent slap in the face for those who have already proclaimed the victory of liberal democracy.

Looked at through a long telescope, the story of China is one of an extraordinary decline over hundreds of years, in absolute terms at least from 1820 until 1952 and in relative terms up to 1978, followed by a so far brief economic revival. Early technical advances, together with the size of the country´s population—estimated at 380m in 1820, compared with 170m in Europe—made China the world´s biggest economy until it was overtaken by the United States in the 1890s. With a population now of 1.3 billion, its natural rank should be that again, and if recent trends continue it will overtake America again between 2010 and 2020.

Like pre-1860 Japan, China had for centuries done its best to shut out foreign influence, ideas and pressure. Unlike in Japan, however, its rulers were bureaucrats whose highly centralised, often arbitrary rule prevented much of a merchant or entrepreneurial class from emerging. And whereas Japan reacted to the increasing evidence of western technological and economic superiority in the mid-19th century by deciding that it had to adopt and adapt western ways to survive, China tried to keep foreigners at bay. Those who favoured opening up were overruled.

The result was increasing weakness, a civil war (the Taiping rebellion in 1850-64) far more devastating than the internal strife Japan suffered at the same time, and successive military defeats by foreigners, including, most notably, Japan itself in 1895. In economic terms, the result was declining income per head, even during a long period up to 1914 when the rest of the world economy was growing strongly.

Since then, China has been a case study of all the generalisations that economists use to explain why poor countries have not, as a rule, narrowed the gap with rich countries´ standards of living (see next article). Rather than importing technology, China banned foreign contacts; rather than establishing the rule of law, including clear property rights, successive regimes failed to do so or became arbitrary confiscators themselves; rather than letting farmers make enough money to buy consumer goods, the government squeezed farmers to try to help industry; rather than ensuring there was peace, it succumbed to, or even fostered, war.

This last has been especially important. One part or another of China was involved in a military conflict of some sort from 1895 until 1952. Japan used it as its principal colonial adventuring ground, so it took Taiwan in 1895 and southern Manchuria (from Russia) in 1905, snuggled up to China´s borders by taking Korea in 1910, and seized the rest of Manchuria in 1931 before launching a full-scale invasion of China in 1937. Those last two actions were, in effect, the true beginning of the second world war.

No one knows the exact death toll from the Japanese army´s slaughters of civilians and soldiers in China: estimates range from 1.5m to more than 6m, to which can be added 10m-15m more who died of starvation and disease. Meanwhile, however, China´s own government, the nationalist Kuomintang led by Chiang Kai-shek, was matching the Japanese death for death. Through its efforts to establish its authority from 1928 onwards, and later in its civil war with Mao´s Communists, it is thought to have killed up to 10m Chinese.


That background may help to explain some of the behaviour of Mao Zedong´s Communists after they seized power in 1949, but also the strangely sympathetic view the West took of them even as, over the next 30 years, they managed to kill at least as many of their own countryfolk as had Japan and Chiang Kai-shek added together.

The behaviour it helps to explain is Mao´s surprisingly severe policy of isolation from the outside world, although that also served his brainwashing campaigns. Foreign powers had caused mayhem in China, and even Soviet Russia had given support to Mao´s opponents, the Kuomintang: better to keep them all away, which Mao did after breaking with Russia in 1958-62. The western sympathy arose from the romantic idea of Mao´s Long Marchers as a resistance or liberation movement against the Japanese and the very bloody KMT. And Mao began with a lot of idealistic supporters at home, men with an egalitarian, let´s-roll-our-sleeves-up-and-build-China spirit, women with all that, heightened by euphoria at their sudden apparent equality and liberation.

This helped cover up an initial slaughter of 1m-2m landlords in 1949, as well as dissent about the collectivisation of agriculture in the mid-1950s into huge communal units, which John King Fairbank, America´s leading China scholar, called "a modern form of serfdom". The peak of Mao´s death-toll came in 1958-61, during an effort to make up for the failure of collectivisation to boost production. The so-called Great Leap Forward involved the mass mobilisation of rural labour to build dams, irrigation and other infrastructure. There were fewer people to work the fields, and more grain was grabbed for the towns. The result was a rural famine in which perhaps 30m died.

To complete the grisly arithmetic, Mao launched the Cultural Revolution in 1966, ten years of deliberate chaos designed, if that is the word, to shake up all the party institutions and established officials. One million or more people are thought to have died in the ructions and persecutions of the period, and something like 100m were scarred by it, physically or mentally.

All these death-toll figures are estimates. And China is a big place. But if Mao was responsible for, say, 35m deaths in less than 30 years, that is equivalent to 6% of the population of 545m which he took over in 1949. Some think even this horrific estimate is conservative.


When Deng Xiaoping took power in 1978, two years after Mao´s death, China had already had more economic growth in the preceding 25 years than in the century before that. This was because, by Chinese standards, it had enjoyed an unusual amount of peace and law and order, combined with some Stalinist technology and much Stalinist organisation. But it wasn´t good enough. China was getting weaker and poorer relative to the rest of the world, and was still struggling to feed its growing population.

Deng´s solution was simple: capitalism. Gradually, he implemented most of the economists´ prescriptions about how poor countries could catch up. He introduced market prices for farmers, who as they got richer started to buy consumer goods; he established some property rights for the first time since 1949; he allowed towns and villages to build and own light industry; he opened China to trade and foreign investment, so that technology could be imported. It was "socialism with Chinese characteristics", in which, he said, "to get rich is glorious."

The result was dramatic, and is by now familiar. China´s GDP grew at an average of 9.7% a year for almost two decades; its share of world GDP (measured by purchasing power) rose from 5% in 1978 to 11.8% by 1998; its income per head rose six times as fast as the world average. About 20% of the population—200m people—were lifted above the subsistence line. Hundreds of millions gained the freedom to choose what to spend their money on and even where to live, as they were increasingly allowed to move to the new jobs in the cities.

In the 1970s and even the 1980s, when western scholars were asked to explain why Japan had prospered so mightily since 1860 and China had not, many reached for cultural explanations. Confucianism, stronger in China than Japan, frowned on commerce. Japan had a more homogeneous tribe, capable of organising itself in groups, whereas China was fragmented and fractious. It was nonsense, all of it. Japan had the rule of law, capitalism, and an economy fairly open to trade. As soon as China tried something akin to those three, it began to prosper.

What it has not had, however, is democracy. Neither, until 1945, did Japan. Might it come soon to China? Many doubt it, and others argue that it would not be a good idea. But the Communist Party´s control has already been weakened by the dispersal of power to individuals, to companies and to the regions. If that devolution were to continue, or even accelerate, the party would surely wither away. It might remain in place as a convenient fiction, but the true power would lie elsewhere, in a lot of hands rather than a few. Democracy would eventually suggest itself as a way to balance the interests of all those different hands.

That, at least, is what liberal logic would suggest. Indeed, such logic suggests that the party is damned not only if growth continues but also if it fails. Failure could happen quite soon, for China already appears (though facts are hard to come by) to be in an economic crisis. As and when this—or a subsequent—crisis worsens, there will be no one to blame but the party.

Yet if you ask a western businessman in China whether the Chinese want democracy, you will get a predictable snort: "Of course not; they want stability, and they want to get rich." This is probably true, but it misses the point. Recession means unemployment, which means renewed poverty and probably instability. Last time the economy sagged, ten years ago, crowds gathered in Beijing´s Tiananmen Square to call for democracy, and troops were sent in to kill thousands. What people in such circumstances are demanding is accountability, and the richer they get the more they want it, so they can protect their gains against mismanagement or confiscation.

The real question for the future is whether in China accountability will actually mean democracy, or at least a smooth path towards it. Two other possibilities ought to be borne in mind, given Chinese history. One is that accountability could bring protracted bloodshed in a civil war, and a return to the 150-year pattern of stagnation. The other is that in response to that, or to quasi-democratic mass pressure, someone might try an adapted form of dictatorship, playing on China´s Confucian traditions under which individuals are supposed to support the state, not the other way around. Everyone needs to band together to make China great. Just don´t call it communism.

Such an authoritarian approach, playing on the "Asian values" of collective responsibility and duty propagated in Malaysia and Singapore, would merely delay the day when the market economy proves itself to be incompatible with centralised power. But communism itself, like the lengthy capitalist dictatorships in Indonesia and Chile, has endured for a surprisingly long time. The liberal logic, that a free economy leads also to free politics, applies only to the long run. And in the long run, as Keynes might have said, a lot more Chinese could be dead.

Some argue that whereas such communitarian politics can work in a city state such as Singapore, it could not possibly do so for more than a billion Chinese. But with lashings of nationalism and some stirring up of anger at old humiliations, it just might. It is, after all, the way Taiwan was run for about 40 years. The result would be grim for today´s democratic Taiwan, and would create a dilemma for Asia´s biggest regional power, Japan. But it might gain some support in the West, where many people are disturbingly willing to believe that the freedoms they value for themselves are not necessary or desirable for people in poor countries.

Free to be poor

Few poor countries have managed to catch up with the West—or even to narrow the gap

IN 1900, if you had told an economist what technological progress was going to be made during the century, especially in world-shrinking transport and communications, he (for an economist then would certainly have been male) would first have fainted in disbelief. Then, when he had recovered, this learned economist might well have forecast that in such a shrinking world the gap in wealth and income per head between rich countries and poor ones would also narrow.

Yet it hasn´t; instead, it has widened substantially. According to a study by Lant Pritchett of the World Bank, in the Summer 1997 issue of Journal of Economic Perspectives, in 1870 the world´s richest industrial countries, Britain and the United States, had an income per head roughly nine times that of the poorest country. In 1990 America´s income per head was more than 45 times that of Chad or Ethiopia, say. Mr Pritchett calculates that in 1870 the average income per head of the world´s 17 richest countries was 2.4 times that of all the other countries; in 1990, the same group was 4.5 times as rich as the rest. The gap is still widening.

Yet at the beginning of this century many people believed that things would go the other way. One of the first big events of the 1900s was the defeat of Russia by Japan in 1905. This was taken as a sign that the balance of world power might be moving away from the Europeans; or, more neutrally, that the industrial revolution could now take hold in other, non-European cultures. Japan had been importing technology since the 1860s, and although it already had quite a high living standard it was keen to catch up with the West. It did, first in the 1930s and then again in the early 1960s. Not far behind was a small group of other, mainly East Asian countries. But all the rest remain a long way back.

Perhaps, as with so many things, it is only economists who find this surprising. Plenty of people think the dice are loaded, and always will be, to help the lucky get luckier. Yet there have also been times, in the 1920s, for example, and the mid-1990s, when richer people have been scared that their luck was about to turn: that mobile capital and low transport costs meant their industry was about to move to wherever wages were lowest.

Faster growth in poor countries would be good for everybody, since we would all buy more of each other´s goods and services. So sunnier people have also periodically predicted that the latest new technology was at last going to make that happen. One of the most recent such forecasts was in "The Race to the Intelligent State", a book by Michael Connors, a British fund manager. Published in 1993, the book argued that information technology could well take hold faster in poor countries than rich ones, as well as helping the poor subvert their dictatorships. If so, it would be a welcome change.

So why haven´t more poor countries caught up? Most answers to that question are essentially tautologous. They don´t have the skills, history stands in the way, they have too little capital, their culture is not entrepreneurial. These are just detailed ways of saying that poor countries are poor.


A more helpful study, "Economic Freedom of the World", was first published in 1996 by 11 economic think-tanks around the world and has been updated annually since. It suggests that most of the explanations lie in the way poor countries are governed, rather than in their natural disadvantages or in unfair treatment by the rich.

The aim was to see whether countries in which people had more economic freedom were also richer and grew more rapidly. Broadly, economic freedom means the ability to do what you want with whatever property you have legally acquired, as long as your actions do not violate other people´s rights to do the same. Goods and services do not, alas, arrive like manna from heaven; their arrival depends on property rights and the incentives to create and use them. So the kinds of questions that need asking include: Are property rights legally protected? Are people hemmed in by government regulations and trade barriers, or fearful of confiscation? Are their savings under attack from inflation, and can they stash their cash wherever they want?

The study´s authors settled on 17 measures of these things, to be expanded in this year´s update (forthcoming in October) to 23, and rated over 100 countries on each of them, going back to 1970 where possible. They then used a panel of economists to weight the measures according to their importance. Chart 6 shows the results; chart 7,, groups countries into bands according to their overall score. The conclusion is abundantly clear: the freer the economy, the higher the growth and the richer the people. Countries that have maintained a fairly free economy for many years did especially well.

Source: Economic Freedom of the World, The Fraser Institute (www.freetheworld.com)


This is not an argument for raw laisser-faire. Rather, the study indicates that economic freedom is a broad concept, which requires a great deal from government if it is to work its living-standard-enhancing magic. Government needs to set a clear and predictable regulatory and macroeconomic climate: protecting property rights, enforcing the law, avoiding inflation and, just as important, not grabbing all the money for itself. Things must be arranged in a way that gives people an incentive to invest. And investment means not just building factories or clearing land for farms, but also, for example, deciding to educate children or offering training to workers.


In post-communist Russia there is a market economy, and property rights are fairly well established. But high inflation, currency restrictions and credit controls get in the way, as well as crime, corruption, unpredictable regulation and political instability. India, too, has some of the prerequisites, and its freedom score has improved since 1990, but licensing rules, price controls, state ownership, currency controls and high barriers to trade all still stand in the way, as well as rampant corruption.

Broadly, the countries that fail to grow and to improve their people´s living standards can be divided into two groups. In one, the problem is that there is no real or sustained government, because of anarchy, civil war or broader conflict. In the other, the problem is that government stands in the way, either because it steals money or because it fails to provide the necessary freedoms and opportunities.

The first of those categories—what international-relations scholars call "failed states", which mainly means Africa—is the harder to assess. Outsiders, whether countries, the United Nations or non-government organisations, can and should seek to help, but whether they can succeed will depend on the co-operation of local factions.

The second category is easier to analyse and to provide prescriptions for, and things are looking better there. Many countries were held back by the cul-de-sac of socialism, which deepened poverty. But since the Soviet Union collapsed in 1991, a lot more countries have taken a new, more liberal road, and many have begun to succeed: these include India, as well as former communist countries in Eastern Europe and the authoritarian countries of Latin America which, in 1950-90, attempted their own brand of government-led autarky. Privatisation has been all the rage, and has worked well as long as public monopolies have not simply been replaced by private monopolies. Investment in public education is on the rise. The control of inflation, scourge of Latin America, has become far tighter.

Yet having a government, and successful examples to emulate, does not guarantee success. Governments frequently do not choose to offer economic or indeed political freedom, and waste the resources at their disposal. Often, as in Mobutu´s Zaire, or with the junta in Myanmar, this is because they are more interested in personal power and enrichment than in promoting national advancement.

Sometimes it is because liberalisation is disruptive: it redistributes power away from the currently fortunate (such as, in India, state-enterprise workers, or holders of licensed monopolies), who naturally lobby against change. Hindustan Motors, based in the nominally communist Indian state of West Bengal but a long-time near-monopolist car maker for the whole country, stands as a monument to such inertia. It still makes a barely upgraded version of a 1950s Morris Oxford, the Ambassador. The local government is wondering how on earth to deal with the losses the company is making now that it faces competition from cars people actually want.

Might the failure of countries such as India to lift their people out of poverty have worldwide consequences? It could, but so far its effect on the rich countries has been indirect at best: a guilty conscience when pictures of starvation or squalor appear on television, and the fear of huddled masses yearning to migrate to a better place. The wars caused by poverty are generally local, occasionally regional, sometimes run by terrorists. Migration, a big feature of the world at the turn of the century, is no longer so prevalent, largely because most rich countries restrict it.

The dirty truth is that people in the West worry more about the poor becoming rich and competing with them than about the poor staying poor. One reason for this, though misconceived, is understandable, however: the fear that economic growth in the poor countries might mean a dirtier world.

Our durable planet

The worst pollution does occur in poor countries. But it reflects a lack of democracy more than an excess of economic growth

The worst pollution does occur in poor countries. But it reflects a lack of democracy more than an excess of economic growth

The worst pollution does occur in poor countries. But it reflects a lack of democracy more than an excess of economic growth

The worst pollution does occur in poor countries. But it reflects a lack of democracy more than an excess of economic growth

"THE world´s environment is surprisingly healthy. Discuss." If that were an examination topic, most students would tear it apart, offering a long list of laments: from local smog to global climate change, from the felling of forests to the spread of roads and cities, from poisonous harbours to the extinction of species. The list would largely be accurate, the concern legitimate. Yet the students who should be given the highest marks would actually be those who agreed with the statement. The surprise is how good things are, not how bad.

After all, the world´s population has more than trebled during this century, and world output has risen hugely, so you would expect the earth itself to have been affected. Indeed, if people lived, consumed and produced things in the same way as they did in 1900 (or 1950, or indeed 1980), the world by now would be a pretty disgusting place: smelly, insanitary, toxic and dangerous.

But they don´t. The reasons why they don´t, and why the environment has not been turned to rack and ruin, have to do with prices, technological innovation, social change and, in democracies, government regulation in response to popular pressure. That is why today´s environmental problems in the poor countries ought, in principle, to be solvable.

Raw materials have not run out, and show no sign of doing so. Logically, one day they must: the planet is a finite place. Yet it is also very big, and man is very ingenious. What has happened is that every time a material seems to be running short, the price has risen and, in response, people have looked for new sources of supply, tried to find ways to use less of the material, or looked for a substitute. For this reason prices for energy and for minerals have fallen in real terms during the century. The same is true for food. Prices fluctuate, in response to harvests, natural disasters and political instability; and when they rise, it takes some time before new sources of supply become available. But they always do, assisted by new farming and crop technology. The long-term trend has been downwards.

It is where prices and markets do not operate properly that this benign trend begins to stumble, and the genuine problems arise. Markets cannot always keep the environment healthy. If no one owns the resource concerned, no one has an interest in conserving it or fostering it: fish is the best example of this. Markets also fail if the damaging activity is not captured by a price but rather is shared by society: pollution, whether of air, ground or water, is the main example of where, as a result, corporate and social interests collide. Such cases are not easy to deal with. It is hard to compare the social benefit of environmental protection with the cost of that protection; hard to judge the best way for governments to intervene; hard to be sure, in some cases, even of the facts, such as the rate of species loss or of deforestation, let alone how to interpret them.

Yet, for all that, the record in the rich countries this century is good. Once an issue has been identified, and electorates and governments have become convinced that something ought to be done, something has been done. The oldest and worst sources of air pollution—sulphur dioxide and smoke particles—have been brought steadily under control (see chart 8), ending 300 years of deterioration. So have levels of lead in the air. The only—and it is a significant only, as the next article will argue—exception is that vehicle emissions of some pollutants have stayed high as petrol consumption has outpaced the effect of tighter controls. However, water, whether in rivers or the sea, has become far cleaner since the 1950s, as governments have increasingly insisted on waste water being treated before release.


In other words, the experience of this century has been the opposite of that claimed by many environmentalists. Where most of the economic growth has occurred—the rich countries—the environment has become cleaner and healthier. It is in the poor countries, where growth has been generally meagre, that air and water pollution is an increasing hazard to health. For such countries, the issue is not whether environmental problems can be solved, but how to make sure that they are when it is in the national interest to do so.


One of the blockages is knowledge. Governments, whether in the rich world or the poor, are not philosopher kings, able effortlessly to assess pollution problems and to calculate finely the best way to solve them. So the best solutions have been ones that have tried to use markets and price signals, generally through taxes, to alter behaviour. Such solutions offer a chance to experiment and to see how people and firms react, rather than simply slapping down a law or regulation and sitting back to watch what happens.

People´s behaviour is often not what the philosopher kings expect. When Mexico tried in 1989 to deal with air pollution by banning certain types of car on particular days of the week, many people reacted by buying a second, older (and therefore more polluting) car that could be used on those days. Bans and rules anyway have a habit of attracting a more pernicious sort of price signal, corruption. A quicker way for a government to improve its environment is to examine its list of subsidies. Artificially cheap water and energy, as well as tax breaks for mining, are scourges of the environment worldwide.


Which, however, gets to the heart of the matter. The real difficulty has lain in reconciling the differing interests and views involved. You can be green if you deprive farmers of their subsidised water, but they will complain. You can be green if you force companies to bear the cost of installing anti-pollution equipment in their factories, but they will protest, or try to bribe officials not to enforce the law, or will lay off workers. In dealing with these trade-offs, the poor countries´ problem is more political than economic. Few poor countries are democracies, and few of those are fully fledged ones, with broad equality of power and genuine accountability.

The improvement in rich countries´ environment has been closely correlated with the growth of democracy in those countries. The first stringent anti-pollution laws were passed in the 1950s, when democracy was blossoming. Japan was hit by the dreadful Minamata disease, caused by mercury poisoning, in the late 1950s; that, and a series of other pollution disasters, gave rise first to citizens´ protest movements, and then, belatedly, to new laws to control toxic effluent and air pollution. In their imperfect way, democracies are able to give voice to the social costs of dirt and danger. That is not true for authoritarian governments that can afford to turn a blind eye to pollution.

The rich democracies do have a special problem of their own, which sometimes harms the poor too. It is that in recent years the debate on environmental issues has often been hijacked by green pressure groups, because the media and its reading or watching public is more suspicious of government, of scientists and of companies than it is of pressure groups. This hijacking tends to exaggerate the dangers, inviting Draconian solutions.

For example, acid rain was said to be killing developed countries´ forests; but according to the World Resources Institute in Washington, DC, Europe´s forest cover actually grew by 0.3% a year in 1990-95, and North America´s by 0.2% a year. The Amazon, it was claimed, was being cleared at a rapid rate; it was, but at less than half the advertised rate. The WRI says Brazil´s total forest cover shrank by 0.5% a year in 1990-95, the same as that of South America as a whole.

Climate change is the biggest of these cases of environmental hijacking, although so far the pressure groups have been pretty unsuccessful in forcing governments to take drastic action. Perhaps that is just as well, because scientific estimates of the rate of climate change have steadily been downgraded. They remain in doubt, although the balance of probability has moved towards a belief that a modest amount of global warming is under way.

In democracies, politicians have resisted Draconian measures, on this issue as on others, because they shrink from the idea of imposing real costs during their time in office for potential benefits later. That instinct faces a tough test, however, from everybody´s favourite toy: the motor car.

The poetry of motion


The car epitomises the century´s progress, as well as today´s dilemmas


The car epitomises the century´s progress, as well as today´s dilemmas


The car epitomises the century´s progress, as well as today´s dilemmas


The car epitomises the century´s progress, as well as today´s dilemmas

"O BLISS! O poop-poop! O my! O my!" Probably about one in three articles about the car and its social and political significance begins with that quote from Toad, in Kenneth Grahame´s "Wind in the Willows", published in 1908. But then Toad´s exclamations of the joys of motoring—the freedom, the sense of power, the pleasure of forcing others to get out of your way—perfectly encapsulate the appeal of the car. In the book, remember, Toad also gets into trouble: he crashes and is arrested. Which is fitting, given the amount of anguish that the car causes these days.


Much of that anguish derives from its effect on the environment, which really means its effect on other people. As machines go, the car is not terribly noisy, nor terribly polluting, nor terribly dangerous; and on all those dimensions it has become better as the century has grown older. The main problem is its ubiquity, and the social costs that ensue from the use by everyone of something that would be fairly harmless if, say, only the rich were to use it. It is a price we pay for equality.

Before becoming too gloomy, it is worth recalling why the car has been arguably the most successful and popular product of the whole of the past 100 years—and remains so. The story begins with the environmental improvement it brought in the 1900s mentioned in the introduction to this survey. In New York city in 1900, according to "The Car Culture", a 1975 book by James Flink, a historian, horses deposited 2.5m pounds of manure and 60,000 gallons of urine every day. Every year, the city authorities had to remove an average of 15,000 dead horses from the streets. It made cars smell of roses.

Cars were also wonderfully flexible. The main earlier solution to equine pollution and congestion was the electric trolley bus. But that required fixed overhead wires, and rails and platforms, which were expensive, ugly and inflexible. The car required merely the asphalting of roads, which was helpful anyway; it could go from any A to any B, and allowed towns to develop in all directions with low-density housing, rather than just squashed along the trolley or rail lines. Rural areas benefited too, for they became less remote. Postal services could deliver regularly; farm children could go to better schools.

Most of all, however, the car brought freedom and represented equality. It spread far more quickly in America because incomes there were higher and more equal, and the market was more competitive. By 1927, America accounted for 80% of the world´s stock of these machines originally developed in France, and had one motor vehicle for every 5.3 people. It also spread rapidly in other countries with plenty of space, European immigrants and a fluid society: New Zealand (10.5 people per car); Canada (10.7); Australia (16); and Argentina (43). France and Britain both had ratios of 44 people per motor vehicle. Economically troubled Germany was miles behind, at 196.

That sense of independence, of the ability to get up and go where you please, to do what you please, has stayed with the car to this day. In Japan in the high-growth 1960s, when the war was finally being left behind, the basic aspiration of an ordinary family was described as the achievement of "the three Cs": car, cooler and colour TV. In Japan a new phrase appeared: mai car suru, to drive around in your car at weekends. Similar phrases will be popping up in today´s emerging markets, once incomes per head go above the $6,000 level beyond which sales of cars seem always to rise sharply.

Another constant is that ever since pollution became a concern in the 1950s, pundits have predicted—wrongly—that the car boom was about to end. In his book Mr Flink argued that by 1973 the American market had become saturated, at one car for every 2.25 people, and so had the markets of Japan and Western Europe (because of land shortages). Environmental worries and dwindling oil reserves would prohibit mass car use anywhere else. The political strength of the industry was on the wane: the industry still provided one in every six jobs in America, but government now provided one in every five. "Projections for a vast increase in the number of motor vehicles on our roads over the next several decades have lost credibility", he wrote.

He was wrong. Between 1970 and 1990, whereas America´s population grew by 23%, the number of cars on its roads grew by 60%. There is now one car for every 1.7 people there, one for every 2.1 in Japan, one for every 5.3 in Britain. Around 550m cars are already on the roads, not to mention all the lorries and motorbikes, and about 50m new ones are made each year worldwide. Will it go on? Undoubtedly, because people want it to. India has only one car for every 350 people. If, as is to be hoped, its people become richer, freer and more equal, many more will want cars. Is this the tyranny of the motorist? Hardly. We are all motorists.


Free choice and the popular vote will keep the car rolling on. But voters will also want to change the way the car rolls on, to try to moderate the three different sorts of difficulty that it poses: pollution, congestion and development.

Governments have been grappling with all three, under popular pressure, mainly since the early 1970s; sometimes they have outpaced the car, but then it has overtaken them again. Planning regulations and green belts have limited development; quotas and tolls have been used, a little, to control congestion; bans, laws, targets and taxes have been used to address pollution. Why not just attack the car as such, with laws, bans or huge taxes, to try to deal with all three problems simultaneously? Because it would offend everyone, which politicians in a democracy try to avoid. Besides, the three types of problem are separate in their economic characteristics and, therefore, in their political ones.

Congestion is a lot less likely to be dealt with than pollution. This is because almost all the direct costs of congestion—delay, frustration—are carried by the very people sitting in the traffic jam (though some are carried by people buying products which the jam has made costlier to deliver). If people want to avoid jams, they can make their own choices: not to drive, or to go at a different time, or to install a mobile phone so that they can do something useful while they wait. In a few highly congested city centres, road pricing will surely be used to smooth out traffic use. But congestion will have to become a great deal worse, and more widespread, before a broad swathe of voters supports a lot of road pricing.

The indirect cost of congestion is localised pollution: all those cars, lorries and buses sitting below your window, belching out fumes. Road pricing might reduce that. But it would not have a big effect on pollution, for the real worries about that arise from the continuous presence in the air of exhaust gases. Most of the cost of that is borne not by those being transported, but by everyone breathing in the air, principally in cities, which makes it likelier that politicians will have to try to deal with it.

Since 1970, very little has been done about congestion, beyond building more roads, but quite a lot has been done about pollution, because it is a greater social evil. So far, most of the action has been in the form of rules: about exhaust emissions, catalytic converters, inspections and so on. Almost certainly, there will be more such rules in future, chiefly to try to accelerate the introduction of clean electric cars, run by batteries and, the greatest hope of all, fuel cells. Yet rules to force the pace of technical change are unlikely to be enough.

The reason is that most of the pollution comes from existing cars. Fuel cells and batteries may well start to enter commercial use within the next few years, but they will take time to be widely accepted by motorists, given the need for a network of rechargers or hydrogen-refuelling stations before such cars become useful. So if governments are serious about reducing pollution, they will have to levy taxes on older, petrol-driven cars, to try to make people use them less, or on the petrol itself. Yet the refusal of politicians to impose higher taxes on petrol in the land of free choice and democracy, the United States, does not bode well.

Control of the car will depend on the willingness of voters to accept controls, and to vote back into office politicians who impose them. This also applies to development. It is a matter of political choice, between different goals and competing interests. The already-haves are ranged against the have-nots. The outcome is uncertain.

What seems more certain, in the next few decades at least, is that the pressure of population in the most developed countries will ease: the population has stabilised and may fall in Western Europe and Japan, and its growth has slowed (to 0.8% a year) in North America. This will reduce the pressure to build more new houses and roads. But it is likely to increase the choices available to that half of the population which the motor car has already helped to greater freedom and independence: women.

Dorothy´s dream


There will be no going back for the female of the species; indeed there may be quite a lot more going forward

TWO sorts of equality—before the law, and of opportunity—are given top billing by liberals. Unlike the socialist dream of equality of outcome, they are achievable without gigantic losses of incentive and a commensurate sacrifice of justice; and they do not involve a large loss of liberty, at least not one that most would think unacceptable. Yet what is remarkable is how recent the provision of these equalities has been even in countries that have long considered themselves bastions of liberalism, and how incomplete the effects have remained.

There is plenty of room to argue about what is meant by equality of opportunity, and whether positive discrimination is needed to provide it. But even putting that debate to one side, it is worth recalling that racial equality before the law was given a fairly firm basis in America only with the civil rights acts of 1964 and 1965; before then, the United States was one of the two great homes of apartheid, in legal terms as well as in its social arrangements. And it is as well to note that equality before the law still does not apply in most countries, including America, to homosexuals.

Equality of opportunity, across class and sex as well as race, has depended greatly on the degree of access, on merit, to public education: in America, broad access to high schools came about in the 1920s, while broad-based college education began with the GI bill of rights in 1944. In Britain the Butler education act of the same year brought the masses into secondary schools for the first time, and only subsequently in the 1950s and 1960s did universities expand. And, if you want to know why Japan has been highly egalitarian since 1945 as well as an economic success, its establishment of mass access to high-school education—which had begun before the war, but was entrenched afterwards—should be high on your list of explanations.

Arguably, the biggest gap of all was that half the population in Britain and America—ie, women—did not have the most basic democratic equality of all, the equal right to vote (and thus to hope to influence the laws before which they wished to be equal) until the 1920s: it came in America with the equal suffrage amendment in 1919-20 and in Britain in 1928, when the right to vote was extended to women under 30. In France it took until 1944, in Canada until 1950, in Switzerland until 1971.

Notoriously, Woodrow Wilson, the president (1913-21) most identified with the promotion of worldwide democracy, opposed giving American women the vote. (He also ordered black and white workers in federal offices to be segregated.) Equally surprisingly, in 1923, when British women gained equal legal rights to sue for divorce, the first female MP, Nancy Astor, opposed the bill.


Eighty-odd years with the vote in America; a growing presence in the workforce (with 60-80% of women aged 25-54 in rich countries now holding down jobs), especially as more clerical office jobs became available; now, a widely held concern that family breakdown is bringing social ills. Might this female century have run its course?

Social norms, argues Francis Fukuyama of George Mason University in America, have been through a "Great Disruption" (the capital letters are his) and are likely to settle back to a new equilibrium, with more freedom and work for women than in the bad old days, but less than in the disorderly 1970s and 1980s. Well, social norms are impossible to predict, but the demographic and educational statistics do not make this look very likely.

As with other victims of discrimination, there are several related causes behind women´s freedoms and unfreedoms. Social norms; the changing structures of economies from activities that discourage female workers to those that do not; educational access and attainment; wars that jolted views about equality as well as suddenly altering the shape of the labour force; the changing technologies of birth control: all these have played their part.

Education, which is part cause and part effect, is the simplest to measure and to track. There is still a clear inequality among older people in the percentage of the population in OECD countries that have been through upper secondary and university-level education, with many more of the men having been educated. Yet for the latest generation to leave university, that now aged between 25 and 34, equality has at last been achieved in OECD countries as a whole (it was achieved earlier in America, for women now under 44). Gaps remain—in Britain, Germany and (sharply) Switzerland, more men still go to university than women—but the narrowing trend holds everywhere.

Equal education does not mean equality in the workforce; far from it. But it has been a powerful force for change, in shaping women´s aspirations, employers´ demand for females, and female earning-power. And the education statistics suggest that the evolving presence of women in the workforce is only in its early stages.

In Western Europe, Japan and North America, population growth has either halted altogether or is slowing, so in future employers are likely to want to hire more and more educated women. Those companies and organisations that want to appeal to such women will thus have to try even harder to make family and working life more compatible, with crèches, tele-working, flexible hours and so on. Maternity leave is never going to be popular with bosses, but if anything the need for this and other concessions to female biology is going to increase.

For now, the "glass ceiling"—the much-complained-about bar to female promotion to top jobs—remains in place. A proportionate (ie, 50-50) presence in top positions may never be attained unless family responsibilities are revolutionised, but the main assault on the boardroom barricades has only just got under way. The number of senior women, in government as well as in companies, is likely to rise well beyond the current tiny minority.


Another point complicates matters, however, especially for those lower down the ladder. This is that although women now make up 40-50% of the workforce in rich countries (and in some cases more than half of those actually in employment), most are in jobs markedly different from, and often worse-paid than, those done by men: teachers, nurses, saleswomen, secretaries, waitresses. Women are also disproportionately represented in the lowest-paid jobs of all. This segregation can also still be seen in education, with many more boys studying science or vocational courses, more girls studying the arts.

Might women change their minds about going out to work in the face of all that social disorder—crime, delinquent children, divorces and so on? There is no sign of it. A poll for the Whirlpool Foundation, a research body linked to the eponymous white-goods producer, found in the mid-1990s that most women in Western Europe and North America would want to work whether or not they needed the money. In Europe, indeed, Whirlpool found that 59% of working women were contributing half or more of their household´s total income (French women led that ranking, at 72%). To see how attitudes have changed, try a Gallup poll in America in 1936: it found that 82% of people (male and female) said that a married woman should not earn money if her husband was capable of supporting her.

Attitudes to working women vary considerably, even in the richer countries. One reason, according to Françoise Coré, who conducted a study of female employment for the OECD, is that in countries where agriculture declined rapidly and early, and in which urbanisation and industry took over, the habit of fairly equal sharing of work between men and women was lost for a long time. New social expectations grew up along with the urban, nuclear family. This was true in Britain and America, for example, whereas in France the shift from agriculture came much later, with a shorter gap before new service professions expanded to create jobs for women. This sort of difference also explains why sexual equality is more pronounced in Finland´s labour market than in neighbouring Sweden´s.

Such a mixed heritage also explains why it is wrong to conclude that increasing female participation in the workforce—with its 1960s assistant, the contraceptive pill—has caused crime and disorder. Even if the correlation could be shown to be based on causation, it would be wrong then to argue that female liberties should be curtailed with any degree of compulsion. Mr Fukuyama stops short of this, but he praises Japan for having forbidden the use of the pill (on outrageously spurious and illiberal grounds) until this year, and wonders whether this will now bring family breakdown and rising crime to Japan.

Yet the correlation, surely, is a broader one: that female liberation was merely a part of a general social change, as greater urbanisation, affluence and mass education loosened family ties. There may have been a disruption, but the causes of it were wider than just a change in the status of women and in the ability to control pregnancy. And family ties are far from the only old bonds to have loosened. They have also grown looser in the arena in which many women struggle: big business.

The big bad boss

Liberals fear concentrated power. That is why they favour open competition and free trade

Liberals fear concentrated power. That is why they favour open competition and free trade

Liberals fear concentrated power. That is why they favour open competition and free trade

Liberals fear concentrated power. That is why they favour open competition and free trade

HERE is a paradox. The 20th-century dream of left-wing, progressive and Utopian thinkers has been of finding a way to encourage people to collaborate. Working as a community has exemplified all that is good. Acting as an individual, as a mere atom has been seen as bad. One institution, essentially invented during this century, has been supremely successful at exactly that, at gathering together large numbers of people in a voluntary, collaborative effort, to share their skills, knowledge and effort for a common purpose. It is called the company. And it is viewed with great suspicion.

Sometimes, the critical view of businesses is that of the lowly man bemused at the incompetence of his superiors: this can be seen in Scott Adams´s "Dilbert" cartoons, the 1990s successors to a long line of lampoons. Sometimes, it has arisen from the alienating sense that the members of the group, the workers, are merely small, replaceable cogs in a vast impersonal machine, as in Charlie Chaplin´s "Modern Times" in the 1930s, and in many Japanese manga comics in the 1990s.

This suspicion would not have been surprising at the turn of the century, when the modern company was being invented. Until then, businesses had been run by their owners and for their owners, a breed known in America as robber barons: Andrew Carnegie, Cornelius Vanderbilt, John Rockefeller and others. But in America and in Europe technological change was making it desirable and possible for these businesses to grow much bigger.


In America, this brought on a merger boom that has been surpassed only in the past two years (see chart 11 below). In Europe firms merged too, or built alliances through cartels. In Europe such monopolies lasted and in some cases were expanded right through until the 1950s, with the collusion of governments. In America, the popular outcry gave rise to antitrust legislation, from the 1890s onward.


You might have expected the next two great evolutionary changes to moderate or even almost eliminate the hostility. These were that managers were taking over the running of companies from owners, with shareholders becoming more fragmented and distant; and that the parallel development of mass education brought in a much greater sense of equality of opportunity. By 1946, in "The Concept of the Corporation", Peter Drucker rightly observed that the company had replaced the church as the representative institution of society.

The company was becoming the closest thing society had to a meritocracy; and it was no longer the creature of one hugely wealthy individual or family. Then along came a third great change, chiefly in Britain, America and the Netherlands, though also to a lesser extent in Japan: the company pension fund. In its modern form, of a fund that sought to provide for workers´ retirement through broad, diversified investments in equities and bonds, it was launched in 1950 by Charles Wilson, boss of General Motors. Within a year, 8,000 other such plans had been set up in America.

This gave employees a direct interest in corporate profits and economic growth, as well as some long-term security. They were, in the now popular term, "stakeholders". In time, ownership of virtually all corporate America and corporate Britain was transferred to the pension funds and their institutional sisters, life-insurance companies; in other words, indirectly, to the employees themselves.

Such collective ownership ought, in theory, to have softened people´s suspicion of big business. Yet this evolution of companies away from personal or family ownership actually seemed to make big corporations more alienating rather than less: large, impersonal groups demanding a conformity satirised on screen in "The Stepford Wives" in 1975 and criticised in a 1956 book by William Whyte, "The Organisation Man". For, in big firms, it now meant that those at the top had no personal contact with those in the middle or at the bottom. The company lost its personality, its soul. It also lost clarity and vigour.

That is a big reason why, since 1990 or so, the institutional shareholders that own American and British firms have resumed a 1930s habit of paying managers as if they were entrepreneurs, with incentive schemes, share options and so on. The result has been an increasing inequality between top managers and their colleagues, and an increasing number of articles decrying "fat cats". Yet the funny thing is that this may actually be helping big business´s reputation. Although societal inequality as a whole may bring dangers, the rewards now being earned in business—and in the newest entrepreneurial arena, the Internet—seem to be attracting talented young people back into the private sector.


This still leaves the basic paradox: why have people harboured suspicions towards business, given that they seem to want the jobs and status that companies provide, and buy their products and services with gusto? Simple dislike of the profit motive may help explain it, but that is not enough: few people reject the role that selfishness plays in their own lives, so why do so when evaluating business?

One reason is that people are more hostile to groups than Utopians suppose. Groups demand conformity and impose uncomfortable mutual obligations. There may be good reasons to join them, and benefits from doing so that cannot be found elsewhere, but it is as well to keep your distance. Companies, after all, demand a lot of commitment, but all too often show little commitment in return.

Another is sheer size. As companies merge and invest across borders, they seem to be getting bigger. Barely a week goes by without a new record being set for the largest merger, or without some chairman or other predicting that, in ten years´ time, their industry will be dominated by just a few large firms and that Acme Corp plans to be among them.

Yet although this is a reasonable thing to say, it hardly ever seems to happen. As chart 10 (above) shows, few industries are currently dominated by true monopolies. That does not mean that firms are not getting bigger, but that economies have grown bigger too. Although dozens of multinationals are now larger than many a national economy, as long as countries have kept their economies fairly open to trade, competition between all these big firms has proved to be open and intense too.

Free trade and free competition offer vital protections for the individual against being squashed by these giants. Free-market thinkers find themselves in two minds about this. In one mind, they adore incentives, and the desire to dominate and monopolise is the greatest incentive of all. Remove it, and you risk reducing investment and innovation. Yet, in their other mind, they value competition as a discipline, and loathe concentrations of power, whether in government, overmighty trade unions or dominant companies, for they expect that, in time, it will be abused and will itself threaten liberty.

The first mind is really a conservative mind; the second is that of the liberal. That is the one to which The Economist allies itself, but experience still suggests that one of the conservatives´ observations needs to be taken into account: namely that in practice monopolies are hard to establish and sustain, because other firms are drawn in to compete away excess profits and to dream up technological innovations. Governments should therefore be cautious in their interventions, for they generally know much less about the coming technologies than do the various competitors. But if true dominance is established, and new firms are prevented from entering the business, governments must crack down.

If you look at competitive trends across the whole century, two things emerge. One is that the economy in which competition has been policed most vigorously has also been the most enterprising: the United States. This has enriched lawyers and economists acting as "expert" witnesses, but by and large it has kept prices down and business invigorated without destroying incentives.

The second is that monopoly has been most damaging when it has been established in collaboration with government, for this magnifies the concentration of power and eliminates the chance of new competition. That has often been true in Western Europe, where cartels were legally enforceable in the 1920s and 30s and where states set up their own monopolies as well as licensing others. Later, it came dressed up as the idea that as a "national champion", the monopoly would be able to stare foreign firms in the eye. The price for nurturing such national champions has been steep: lack of innovation, high prices, subsidies.


People are right, in other words, to be suspicious of companies. They would be wrong to attack them willy-nilly or to vilify the profit motive, and by and large they don´t. Capital and labour have never been in inexorable opposition to one another. But such concentrated power, in big corporate groups with command over huge amounts of cash, needs to be watched carefully. To enforce competition, playing one powerful interest against the other, is the best protection.

One view that is widespread today is that information technology, particularly through the Internet, is making this concern obsolete, by giving consumers more information and freedom to choose, and making smaller firms more viable. Don´t bank on it. As well as giving some advantages to the smaller, nimbler newcomer, cheap and instant communications also offer many benefits to giants. Many also believe that they are bringing a new and fearsome beast, globalisation. Yet this is far less new—or fearsome—than you might think.

A semi-integrated world


More together, but still defined by our separateness

"ON THE economic plane," said The Economist, "the world has been organised into a single, all-embracing unit of activity." Ah yes, globalisation is a hot topic. Except that we said this in 1930. "Always ahead of its time," the kindest readers say. "Always wrong in its judgments," comes the muttering from less charitable quarters. But perhaps the truth lies elsewhere: globalisation—the shrinking of distance and the increase in interplay and interdependence—has been a theme of the whole century, and longer. It is also far from complete.

On any dimension of integration you care to choose, globalisation has been going on for a long time. Deep cultural interchange, and in particular today´s bête noire, American cultural imperialism? Charlie Chaplin, a British migrant, was a worldwide star in Hollywood movies in the 1920s. At that time, three-quarters of the films shown throughout the world were made in America. Baseball arrived in Japan in the 1890s (along with "Spencer the balloon man", who caused a sensation).

Electronic interdependence? That, wrote Marshall McLuhan, a Canadian academic, in 1962, "recreates the world in the image of a global village". Working abroad? In the early 1900s, tens of thousands of Italians took seasonal farm jobs in Argentina each year. Trade, overseas investment and even e-commerce? John Maynard Keynes, writing in 1919 about Europe before the first world war, said that:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could adventure his wealth in the natural resources and new enterprises of any quarter of the world...The projects and politics of militarism and imperialism, of racial and cultural rivalries appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice.

Keynes was, of course, writing only about the opportunities for an elite. But, even so, many of the most dramatic causes of global shrinkage were already in place. The electric telegraph had the biggest effect. By 1914, it took less than a minute to transmit a cable message from London to New York, and financial-market prices for the same liquid security or commodity on both sides of the Atlantic had become identical. Telephones made communication even easier, and steamships moved people and things around the globe.

So what has changed? The first thing to observe is that the degree of integration has ebbed and flowed during the century, according to the changing tides of politics. High trade barriers in the 1920s and 30s; immigration controls; bans on foreign investment in various countries; bans on cultural interchange: all these considerably reduced integration until the 1950s, when barriers between Western Europe, North America and Japan began to be lowered. But politics still kept much of the world separate, thanks to ideology and beliefs about self-sufficiency. It is the demise of those political barriers that has brought on this decade´s acceleration of global integration. The widespread decision, during the 1990s, to open markets, allow foreign investment, boost trade, and liberalise film and television sales, has been a political one. And like any such voluntary political choice, it is reversible.

Admittedly, raw figures for trade as a proportion of GDP for the world´s two biggest economies, America and Japan, look much the same in 1999 as they did in 1914. But a study for the Brookings Institution in Washington, DC, by Michael Bordo, Barry Eichengreen and Doug Irwin, three American economists, shows that this is misleading. The trade in manufactures covered by such headline trade figures now adds up to a much larger proportion of the reduced amount of GDP that manufacturing accounts for. Added to it must be trade in services (accountancy, banking and so on), which is many times larger now than a century ago (see chart 12).



The onrush of cheap communications, powerful computers and the Internet all explain why many people feel that, nowadays, change is happening ever more rapidly as technological progress accelerates. Moore´s law, that the power of microchips doubles every 18 months, has been tested and found correct. This is what gives people the sense of a world shifting beneath their feet.

Yet the implication that rapid change is a new phenomenon is again misleading. If you measure the time it takes for a technology to become widely diffused, today´s experience does not seem unusual. Take the car. The basic patent for an internal-combustion engine capable of powering a car was filed in 1877. By the late 1920s—50 years later—over half of all American households owned a car.

The comparable dates for the computer are harder to tie down, but the first big computer, based on vacuum valves, was built in 1946. The transistor—the first semiconductor device—was invented at Bell Laboratories in 1948. The first patent for an integrated circuit was filed in 1959. Now, in 1999—50 years after the first one was built—around half of American households own a computer. The pace of introduction has been similar to that of the car. You have to cheat, choosing only the date for the personal computer, say (mid-1970s), or the Internet (ditto) to make it seem much more rapid.

Comparing its diffusion among private users is, you might say, unfair to the computer, for that machine´s main use is in businesses. On that measure, the best historical analogy is with electrification, and the spread of the electric dynamo into factories. According to Paul David, a historian at Stanford University in California, the first electricity-generating stations had been installed in New York and London in 1881, but it took well into the 1920s before the dynamo became widely used and started to raise productivity. The adoption of the computer in business has also been slow, and failed to have any measurable impact on productivity until very recently.

Electrification wrought its big changes in the 1920s. So did the car, at least in the United States. Of the two, electrification had the broadest impact on productivity across all kinds of activity, but the car did most to generate demand for a whole series of new products and services: components, cars, repairs, garaging, fuel supply, roads, motels and so on. And when these two revolutions came together in the giddily changing 1920s, it was in the run-up to the 1929 crash.

So what of IT and the Internet? They, too, are generating rapid change, in homes, in businesses, in organisations of all kinds. Using the Internet on your laptop computer, you can, sipping your morning tea in bed, order the products of the whole earth and reasonably expect their early delivery. But the reason the Internet is causing such rapid change is not really technological. It is because of what economists call a "network effect": the fact that some products become far more useful once a lot of other people are also using them. Even Bill Gates, ace technology-watcher, failed to realise in 1994-95 that the Internet was about to explode.

The Internet is creating new needs and altering the way companies, in particular, keep in touch with their customers and suppliers. But it looks unlikely to generate a wide range of new products and services; more likely, it will mainly grab them away from traditional channels. Might it mean that governments can no longer control what their citizens see or read? Certainly it reduces their control. But Serbia´s successful use of propaganda during the Kosovo war suggests that the effect is limited. Might it, like cars and electrification, end up with a Wall Street crash? Well, there´s a question.


Might it, combined with all that increased trade, and integrated capital markets, and television, and all the travelling that people are now doing, mean that everyone becomes homogenised, drinking Coca-Cola, wearing chinos, going on and on about democracy and shareholder value? President Kennedy famously declared, in 1963, that he was a Berliner. Must everyone nowadays, in this globalised, market-led age, declare that they are Americans?

The reality is more complicated than that. Western culture and capitalism has been washing over the world for a long time, but that is not the same as saying that the world is becoming Americanised. After all, America, too, is being buffeted by cultural and economic interchange. For the past 15 years, America has been a net importer of capital, not an exporter. So matching the Pizza Huts popping up in cities the world over have been BMWs made in South Carolina, insurance firms owned by Dutch multinationals, or Hollywood studios taken over by Japanese and Australians.

Nor, at present, are capitalist "systems" converging on the American one. A world in which the American government collects taxes equal to 34% of GDP and the Swedish one 63% clearly retains a considerable variety in capitalist arrangements. Only the extreme end of the spectrum, the command economy, has become less densely populated. America itself, the supposed home of the equity markets, is switching rapidly towards financing its companies by debt, whereas French, German and Japanese companies, once famous for their reliance on bank debt, are hurtling in the opposite direction.

Films and television programmes are the only cultural areas in which Americans dominate. In music, books, sport, food, drink, fashion and many other fields, local suppliers dominate local markets, and foreigners have made inroads into America itself. In the words of the 1999 United Nations Human Development Report: "The debate on whether there is cultural homogenisation remains open. There are no surveys showing that people are becoming alike."

The more telling pressure imposed by globalisation is for the increasing adoption not of American products or ways, but of three American characteristics: freedom, equality and adaptability. If you open your country up, and choose to bind yourself closer to others, this increases your citizens´ freedom of choice and of movement. Increased access to information inevitably exposes your remaining economic, social or political inequalities to scrutiny. Once people know what they are being deprived of, they start to care more about it. That brings change, and openness brings change more rapidly across your borders, in wave after wave.

The need for freedom, equality and adaptability are the lessons the rest of the world has to learn from the United States, which has developed these characteristics triumphantly (though sometimes turbulently) during the century. There is, though, a further characteristic which America, too, would do well to learn from this bloody century: humility.

Behold, the emerald city

The century has shown it to be full of humbug and false claims of certainty. That, in essence, is the case for liberalism

THE age since 1900, when Frank Baum wrote "The Wonderful Wizard of Oz", has been packed with discovery, invention and achievement. The atom has been split, the building blocks of life and of matter discerned, described and manipulated. Men have walked on the moon and have seen, through their clever telescopes, to the edges of the universe. Terrible but victorious battles have been fought in the cause of freedom, of self-determination, against evil empires. The saintly Nelson Mandela has been president of South Africa after spending 27 years in jail. Britain has had a female prime minister, who wasn´t saintly but shook things up.


To fly from one side of the world to the other has become routine. The cost of communicating with each other around the globe is fast becoming an irrelevance. For all the fears about dumbing down, education and literacy are now basic expectations, and more books are being written and bought than ever. Economic growth marches on and on, with no reason to expect that it faces any limits that human ingenuity could not breach.

Human organs have been transplanted, and vaccines and antibiotics can conquer most bacteria. Some diseases have been virtually eliminated, though mainly thanks to better sanitation and to insecticides. Pretty soon, medicine is likely to be transformed by information technology and genetics. Doctors will diagnose your ills from afar, using sensors and remote computers. They will see even further inside your body and brain than this century´s inventions, X-rays (actually from 1895) and magnetic-resonance imaging, have allowed.

Alongside the conventional cures of drugs, diet and surgery will come the tools of genetics, reading the way in which you have been programmed to see how your mind or body behaves and, if it is desired, altering the programming itself. Unlike genetically modified food, which sparks fears of unseen dangers and contamination, this genetic therapy is likely to be as widely accepted as organ transplants have been. It will bring with it anxious debates about morality and personal responsibility, but will also promise to cure many currently incurable diseases and conditions.


There is plenty of reason to believe that all those political, economic and scientific trends will make for a better world—more prosperous, more peaceful, less wracked by fear of brutality, poverty or disease, one in which the press of population eases as the 21st century rolls on. Yet there are also plenty of grounds for paranoia, for believing that all this promise could turn to dust: a financial crash in America that could, as after 1929, turn the world´s leading nation inwards; a political development in China or Russia that brings back aggressive nationalism; a bout of nuclear terrorism, by a state or an individual; a frightening misuse of that new genetic science.

After all, promise turning to dust was a big feature of the century that is just ending. It has been no fairy tale. Frank Baum said in the introduction to his story of Oz that it was intended to be one "in which the wonderment and joy are retained and the heartaches and nightmares are left out." By 1939, when Judy Garland starred in MGM´s movie version, the real world had had heartaches and nightmares aplenty, and worse were to come.

Some of them involved the very science that has laid the foundations of much of the human wonderment of today. At the peak of 19th-century fervour, enthusiasts came to consider science to be morally superior. There was no such thing as sin or evil, thought the most mechanistic scientists, just ignorance; in due course they would be able to transform man and control nature. In 1899 Ernst Haeckel, a German disciple of Charles Darwin, wrote a best-selling book called "The Riddle of the Universe", in which he argued that science would soon solve all problems, and in doing so would eliminate war.

With Hitler´s gas chambers, Stalin´s experiments in agricultural biology and the Japanese imperial army´s in human biology, any moral authority that such zealots ascribed to science was buried with its victims. Science, it became clear, had no particular moral content: it could serve good, but could also bring evil.

Today, both the authority of science and popular admiration for it are again justifiably high. But it makes no claim to moral superiority. Where it still errs is in its occasional air of certainty, though this is often attributed to science by politicians, companies, pressure groups or the media rather than claimed by the scientists themselves. The most common examples lie in the bewildering array of findings and recommendations on food and diet. Another came in the 1950s and 1960s, when the danger of bacteria developing resistance to antibiotics was ignored. Over-confidence regularly shows up in assessments of the environment, and will feature in debates about genetic engineering.

Science is all about knowledge, but it is a knowledge that is constantly being tested and challenged by new theories and findings. Indeed, the most striking thing in this great age of scientific discovery is not how much scientists know but how little. Sir John Maddox, a long-time editor of Nature, a renowned scientific journal, mapped the frontiers in 1998 in a magisterial book, "What Remains to be Discovered". "What stands out," he wrote, "is that there is no field of science that is free from glaring ignorance, even contradiction." That may seem a damning judgment, but is not intended as such. Instead, it is meant to offer an inspiring challenge to tomorrow´s explorers.

It may also help explain what, to many 19th-century scientists and even economists, might have seemed a puzzling feature of the 1990s: the continued strength of religion. After all, when Darwin produced his ideas about evolution in 1859, it was widely feared that they would undermine the very foundation of religious belief.

Together with affluence and education, they probably did. The genuinely devout are a smaller proportion of the population in all the rich, originally Judeo-Christian countries, and fewer people there now have well-formed beliefs about heaven and hell, or an afterlife at all. But religious observance and affiliation are nevertheless still strikingly high, especially in the United States. In Gallup polls this year, 88% of adult Americans said that religion was either very important or fairly important in their lives, down surprisingly little from the 95% who made that claim in 1952.

Some of the explanation for this is social rather than religious. But alongside it should also be placed the burgeoning of "new age", spiritualist beliefs of many kinds. In Western Europe, church membership and attendance have declined sharply. However, even there, some revival can be detected in the 1980s and 1990s, as well as lots of new-age activity. And, as in the United States, the figures conceal a big transfer from older, traditional churches to new independent bodies. A similar movement has taken place in Japan.


Those points about science and religion are worth keeping in mind for the next time someone tells you that you are living in a knowledge economy. To be told this is irritating for two reasons: first, because it is old hat, in that the economic shift from manpower to brainpower has been going on throughout this century; and second, because it is so inappropriate. The most important knowledge that has been gained is of the scope of our ignorance.

Perhaps most of all, this applies to the discipline that gives The Economist its name. Depressions have been created by over-confident economists and their followers, as have inflations, hyperinflations and unemployment. The notion that economics is a science, in the sense that it can accurately map human behaviour and then predict and manage the consequences of a given action, is scorned in the common speech of most politicians and many economists. Yet the actions of those same politicians and economists when in government, both in the capitalist and the communist worlds, belie that scorn. Governments run their economies as though they could be certain about the outcomes, and have mostly been proved wrong.

What economists need most is humility. That may seem a surprising conclusion for a publication which, every week of the century, has published leading articles suggesting that this problem or that could be solved if only the following steps were to be taken. For sure, this newspaper too is often guilty of over-confidence. But, though it may not always be obvious, humility does lie at the heart of the liberal philosophy that The Economist has espoused ever since 1843.

The liberal presumption in favour of the market, of capitalism and indeed of freedom itself, is driven by intellectual humility: the acceptance that a process of constant experimentation, involving the freely expressed views and actions of millions of people, is likely to produce a better, more adaptable outcome than one involving a committee of economists, politicians, bureaucrats, businessmen or even journalists, drawing up a grand blueprint. This presumption is humble because it acknowledges the extent of our ignorance.

Liberalism involves, or should involve, an awareness that science cannot have all the answers, and that technological change will not inevitably make things better. Humbly, it should realise that there is no one right way to manage an organisation, and no one right way to arrange social relationships, whatever a sociologist or psychologist may claim. Above all, the humble liberal has to be aware of a paradox: that when you think you have come up with a series of solutions to political or practical problems, as in our leader pages or indeed in this survey, the thing that should scare you most is the idea that someone might be able to assemble the power actually to implement them all.

Famously, Lord Acton, a 19th-century liberal, observed that "power tends to corrupt, and absolute power corrupts absolutely". What is generally remembered is the second half of that phrase, especially as this century has had so many cases of the horror of absolute power. But the first half is, if anything, more important. And the point it contains, that holders of power will, sometimes consciously, sometimes unconsciously, exploit it for their own ends, lies behind the liberal´s suspicion not only of government—even in democracies—but also of big business, trade unions, pressure groups and all others who accumulate power. Man is not perfectible, but neither is government or any other big group.

Isaiah Berlin, an émigré Jew from Latvia and then an eminent political theorist at Oxford, gave the best summary of the century´s basic issue in his 1958 essay on "Two Concepts of Liberty". This contrasted negative liberty—individuals´ freedom to make their own choices—with the idea, essential to socialism and other philosophies of centralised direction, of positive liberty, the notion that people should be helped, or forced, to do what was deemed to be in their best interests. The moral case against positive liberty is easy to see. The practical case against it is that those doing the deeming, even when well-meaning, are claiming a knowledge and certainty which they do not—and cannot—have.

The extremes of positive liberty were seen in the false claims of communism. But they are also inherent in attempts, whether by conservatives, socialists or anyone else, to force people to live in particular ways, to shape their businesses in a certain manner or work for particular firms, to refrain from smoking cigarettes even in private, to bear costs and obligations for the sake of society or a presumed community interest. Such illiberal behaviour may be commonly associated with dictatorship but it is also a strong tendency in democracy, for majority votes are in effect mandates to do things that minorities did not want.

Which is one of the biggest reasons why, along with the justified optimism about economic, social and scientific possibilities which we should take with us into the 21st century, we must keep by us that winemakers´ paranoia. Things can go wrong, not just because of the acts of chance or God that vex the viticulturalist, but also because of the many acts of man that, deliberately or in error, threaten our liberties and our freedom of choice, that are liable through false claims of certainty to send us in new and dangerous directions, even in the most mature democracies. Let the final words belong to Thomas Jefferson: "The price of liberty," he wrote, is "eternal vigilance."

Sources and bibliography

Special thanks for special help are owed to: Peter Drucker; Bradford De Long of the University of California at Berkeley, drafts of whose book "Slouching towards Utopia?" can be found here; Douglas Irwin of Dartmouth College, New Hampshire; and Angus Maddison.

Many of the general books listed were sources for more than one of the articles; others are grouped by topic to make them easier to find, but many of these, too, straddle the survey´s many boundaries.

Click on the titles to buy the books from Amazon.com (or Amazon.co.uk)

GENERAL HISTORIES

"Dark Continent: Europe´s Twentieth Century" by Mark Mazower, Knopf, 1999 (British edition, Penguin 1999)
"The Twentieth-Century World: An International History" by William R. Keylor, WWW Norton & Co., 1998 (British edition, Little Brown, 1998)
"The American Century " by Harold Evans, Knopf, 1998 (British edition, Jonathan Cape, 1998)
"The Century" by Peter Jennings and Todd Brewster, Doubleday, 1998 (British edition, Bantam, 1999)
"The Oxford History of the Twentieth Century" by Michael Eliot Howard and William Roger Louis, Oxford University Press, 1998 (British edition)
"Fins De Siecle: How Centuries End, 1400-2000" by Asa Briggs and Daniel Snowman, Yale University Press, 1996 (British edition)

ECONOMIC HISTORIES

Bradford De Long—"Slouching towards Utopia" (Drafts can be downloaded from Bradford De Long´s site)
"Growth Triumphant; The 21st Century in Historical Perspective" by Richard A. Easterlin, University of Michigan Press, 1996 (British edition)
"Monitoring the World Economy 1820-1992" by Angus Maddison, OECD, Paris 1995
"The World After Communism: A Polemic for our Times" by Robert Skidelsky, Out of Print
"Major Recessions: Britain and the World 1920-1995" by Christopher Dow, Oxford University Press, 1999 (British edition)
Andrew Oswald´s paper "Happiness and Economic Performance" can be downloaded (in PDF format)

CAPITALISM AND ITS CRISES

"The World in Depression, 1929-1939" by Charles P. Kindleberger, University of California Press, 1986 (British edition)
"Capitalism and Freedom" by Milton Friedman, University of Chicago Press, 1963 (British edition)
"Manias, Panics and Crashes: A History of Financial Crises" by Charles P. Kindleberger (British edition, John Wiley & Sons, 1999)
"Lombard Street" by Walter Bagehot (British edition)
"The Sun Also Sets: The Limits to Japan´s Economic Power" by Bill Emmott, Out of Print
"The Ministry: The Inside Story of Japan´s Ministry of Finance´s Economic Power" by Peter Hartcher, Harper Collins, 1998 (British edition)
"A Random Walk Down Wall Street" by Burton Gordon Malkiel, WW Norton & Co., 1996 (British edition)
Michael Bordo and Barry Eichengreen´s paper will be available from Michael Bordo´s site in September

EUROPE

"This Blessed Plot: Britain and Europe from Churchill to Blair" by Hugo Young, Overlook Press, 1999 (British edition, Macmillan, 1998)
"Jean Monnet: The First Statesman of Interdependence" by Francois Duchene (British edition, WW Norton & Co., 1996)
"The French Exception" by Andrew Jack (British edition, Profile Books, 1999)
"La Grande Illusion: A Survey of France" by Sophie Pedder, The Economist, June 5th 1999

GOVERNMENT AND CAPITALISM

"Beyond the Welfare State" by Robert Skidelsky (British edition, Social Market Foundation, 1997)
"The Grabbing Hand: Government Pathologies and Their Cures" by Andrei Shleifer and Robert Vishny, Harvard University Press, 1999 (British edition)
"The Visible Hand: A survey of the World Economy" by Clive Crook, The Economist, September 20th 1997
"The Road to Serfdom" by Friedrich Hayek, University of Chicago Press, 1994 (British edition, Routledge, 1976)
"Changing Fortunes of Economic Liberalism—Yesterday, Today and Tomorrow" by David Henderson, IEA Occasional Paper 105, 1998

COMPANIES

"The Concept of the Corporation", Transaction Publishers, 1993 (British edition), "The Unseen Revolution: How Pension Fund Socialism Came to America", Out of Print and "Management Challenges for the 21st Century", Butterworth-Heinemann, 1999 (British edition),by Peter F. Drucker
"Company Man" by Anthony Sampson, Out of Print
"Organisation Man" by William Hollingsworth Whyte, Out of Print. Extracts from William Whyte´s book, "The Organisation Man", are available here
"The Modern Corporation and Private Property" by Adolf Berle and Gardiner Means, Transaction Publishers, 1991
"The Hidden Persuaders" by Vance Packard, Out of Print
"The New Industrial State" by J.K.Galbraith, New American Library, 1986
"The Nature of the Firm: Origins, Evolution, and Development" by Oliver E. Williamson and Sidney G. Winter, Oxford University Press, 1991 (British edition)
"Morgan: American Financier" by Jean Strorse, Random House, 1999 (British edition, Harvill Press)

POPULATION

"A Concise History of World Population" by Massimo Livi-Bacci, Blackwell, 2nd Edition, 1997 (British edition)
"The State of Humanity" by Julian Lincoln Simon, Blackwell, 1995 (British edition)

UNDER-DEVELOPED COUNTRIES

"Development As Freedom: Human Capability and Global Need" by Amartya Kumar Sen, Knopf, 1999 (British edition, Oxford University Press, 1999)
"Divergence, Big Time" by Lant Pritchett, Journal of Economic Perspectives, Summer 1997
Economic Freedom of the World can be downloaded from The Fraser Institute

CHINA

"China: A New History" by John King Fairbank and Merle Goldman, Harvard University Press, 1998 (British edition)
"Chinese Economic Performance in the Long Run" by Angus Maddison, OECD, 1998, The Brookings Institution
"Does China Matter?" by Gerald Segal, Foreign Affairs, September 1999

WOMEN

"The Great Disruption: Human Nature and the Reconstitution of Social Order" by Francis Fukuyama, Free Press, 1999 (British edition, Profile Books, 1999)
OECD education tables, see particularly tables C4.5 and C5.2

DEMOCRACY

Data from "Death by Government" by Rudy Rummel is available from his site
"On Democracy" by Robert Alan Dahl, Yale University Press, 1999 (British edition)

CARS

"The Car Culture" by James J. Flink, MIT Press, 1975
"The Machine That Changed the World: The Story of Lean Production" by James P. Womack, Daniel T. Jones and Daniel Roos, Harper Collins, 1991 (British edition, Simon and Schuster, 1990)
"My Years with General Motors" by Alfred P. Sloan, Doubleday, 1996

THE ENVIRONMENT

"Down to Earth: A Contrarian View of Environmental Problems" by Matt Ridley, IEA, 1995
"Costing the Earth: The Challenge for Governments, the Opportunities for Business" by Frances Cairncross, Island Press, 1995 (British edition, Earthscan, 1995)
"Dirt Poor: A survey of the Environment and Developing Countries" by Daniel Litvin, The Economist, March 21st 1998

COMMUNISM AND NAZISM

"The Great Illusion" by Norman Angell, Heineman, 1910 (First published as "Europe´s Optical Illusion", 1909
"The End of Economic Man: The Origins of Totalitarianism" by Peter Drucker, Transaction Publishers, 1995 (British edition)
"The Politics of Despair" by Hedley Cantril, Basic Books, 1958

LEISURE AND CAPITALISM

"In Praise of Idleness and Other Essays" by Bertrand Russell, Routledge, 1994 (British edition)
"Economic Possibilities for Our Grandchildren" by John Maynard Keynes, Entropic Conservationists, 1987

GLOBALISATION AND TECHNOLOGY

"The Lexus and the Olive Tree" by Thomas L. Friedman, Farrar, Strauss & Giroux, 1999 (British edition, Harper Collins, 2000)
"The Economic Consequences of the Peace" by John Maynard Keynes, Penguin, 1995
"The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox" by Paul A. David, Journal of Economic History, May 1990
"Wiredlife" by Charles Jonscher, John Wiley & Sons, 1999
"Information Rules: A Strategic Guide to the Network Economy" by Carl Shapiro and Hal R. Varian, Harvard Business School, 1998 (British edition)
"Prosperity: The Coming Twenty-Year Boom and What It Means to You" by Bob Davis and David Wessel, Times Books, 1998 (British edition)
"World Boom Ahead: Why Business and Consumers Will Prosper" by Knight Kiplinger, Kiplinger Books, 1998 (British edition)
"Technology, Communication and the Performance of Financial Markets 1840-1975" by Kenneth Garbade and William Silber Journal of Finance), June 1978
"The Computer Revolution: An Economic Perspective" by Daniel Sichel, Brookings, 1997
"Is Globalisation Today Really Different than Globalisation a Hundred Years Ago" by Douglas Irwin, Michael Bordo and Barry Eichengreen. The paper is available at NBER

SCIENCE AND RELIGION

"Genome: the Autobiography of a Species in 23 Chapters" by Matt Ridley, Fourth Estate, 1999
"The Alarming History of Medicine" by Richard Gordon, St. Martins Press, 1997 (British edition)
"The World´s Religions" by Ninian Smart, Cambridge University Press, 1998 (British edition) "Future Church" by Peter W. Brierley and George Verwer, Monarch Publications, 1998

LIBERALISM

"Isaiah Berlin: A Life" by Michael Ignatieff, Owl Books, 1999 (British edition, Chatto and Windus, 1998)
"Capitalism and Freedom" by Milton FriedmanUniversity of Chicago Press, 1963 (British edition)
"Capitalism With a Human Face" by Samuel Brittan, Fontana, 1996 (British edition)









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