Creating Rich Societies

While teaching in China last week, I shared this chart with students to emphasize the point that poverty has been the norm throughout human history.

It was only a couple of hundred years ago that free markets emerged and parts of the world began to get rich.

The moral of the story is that good policy creates good outcomes.

But how do you get good policy? To help answer that question, Johan Norberg has a must-read article at Human Progress.

He starts by explaining that elites often like the status quo and are thus resistant to change and innovation.

Economic, intellectual, and political elites in every society have built their power on specific methods of production… The vested interests have an incentive to stop or at least control innovations that risk upsetting the status quo. They try to reimpose orthodoxies and reduce the potential for surprises… An escape from stagnation requires a culture of optimism and progress to justify and encourage innovation, and it takes a particular politico-economic system to give people the freedom to engage in the continuous creation of novelty.

He then explains that this stifling approach eventually was overcome, starting in western Europe.

Why? In large part because of jurisdictional competition, which encouraged the creation of classical liberal societies.

Luckily, this culture emerged forcefully in western Europe in the 17th and 18th centuries, in the form of….classical liberalism, which removed political barriers to thought, debate, innovation, and trade. …Why did this happen in Europe, and why then? …elites everywhere reacted to surprising innovations by trying to enforce political authority and intellectual orthodoxy. What made Europe different was that the elites failed. Unlike the Chinese or Ottoman empires, Europe was blessed with political and jurisdictional fragmentation… Europe was split into a mindboggling array of polities, independent cities, autonomous universities, and different religious denominations. Hundreds of different sovereigns could not coordinate repression and impose one orthodoxy on all. That always left room for thinkers, entrepreneurs, and banned books to migrate to the jurisdiction most hospitable to their particular heresy. …Fear of change therefore began to give way to a fear of stagnation. …The associated classical liberal transformation, pioneered by the Dutch Republic, and then taken further by Great Britain and the United States, simultaneously widened the freedom for new experiments and enterprises through greater equality under the law, more secure property rights, and freer domestic economy and expanding markets.

For all intents and purposes, societies based on classical liberalism allowed “creative destruction.”

That meant innovation and that meant higher living standards. Unimaginably higher living standards.

All of which helps to explain why it’s very important to preserve jurisdictional competition. As Johan explained, governments are far more likely to allow innovation and disruption if they are competing with other governments.

In other words, we must reject global governance.

P.S. To understand the miracle of modern-day prosperity, I strongly recommend these videos by Don Boudreaux, Deirdre McCloskey, and Kite & Key.