Reasons to be cheerful

The human brain seems hard-wired to pessimism – often called realism.  There is indeed much to gloomy or worried about at the moment. Quite a bit of it is talked up here: don’t get me started on the subject of economic growth! But it is always helpful to challenge oneself, and in this season of good cheer, I thought I would give it a go. So here are five things that give me hope.

1. Solar Power

Solar panels are a truly transformative technology, in ways that we are only slowly starting to appreciate. It is a distributed technology, which requires little infrastructure of itself (though of course to transport its output large distances does require substantial investment). It doesn’t require much maintenance once installed, as there are few moving parts.  It reduces marginal costs of energy to very little. And advances in battery technology make its one major drawback – that it only produces when there is sunlight – much more manageable. It is an economic proposition that fossils fuels are finding it harder and harder to compete with. Thanks to these technologies China is already ahead of its decarbonisation goals. It is indeed thanks to China that the technological advance has been so swift. It is the underlying economics of solar power that makes decarbonisation a feasible proposition, and one that is developing its own momentum. Wind power has some of the same features, but many more difficulties. We should not be placing tariffs on Chinese exports of solar panels or batteries, but saying “thank you very much” and importing all that they can produce. Domestic production will catch up in time.

2. The bad guys can’t deliver

Our modern era is sometimes compared to the 1920s and 1930s, which saw the rise of the Nazis, Fascists and Stalinism. The rise of the far-right today is often compared to these movements. But the context is very different. Then there was much unused economic potential, thanks to misguided (as we now see it) conservative economic policies, and industrial technology that provided a ready and highly productive use for relatively unskilled labour – and much untapped demand for that technology’s output. Fascist regimes could readily produce dramatic economic results by unleashing infrastructure investment programmes – and even by building up armed forces. This would come to be called “Keynesian economics”. The results gave these regimes popular legitimacy. This was especially dramatic in Germany and helped Naziism to become an embedded ideology. No such opportunity exists in the 2020s. Advanced technology does not produce lots of new jobs – or not of the right sort. Labour markets are already quite tight, so that expansionary fiscal policies, and excessive military spending, produces inflation, and not lower unemployment. Instead, the policies of today’s near-fascists result in cronyism, corruption, inflation and general underperformance. That undermines their legitimacy.

Playing for the biggest fall is Vladimir Putin’s Russia, however much he manages to achieve in Ukraine. Russia has a massive demographic problem, with a very low birth rate. The war is making that much worse. Mr Putin’s obsession with pollical control is resulting in cronyism and the suppression of initiative: this is not good for economic efficiency – while sanctions arising from the war reduce Russia’s options. Instead, Russia is heavily dependent on hydrocarbons. See 1. above. Events in Syria show how quickly an excessively tyrannical regime can crumble – and shares elements with the fall of the Soviet regime. 

I hesitate to call China evil in the same way as Russia. Its leadership is much more able, and recognises the need to keep corruption in check and for economic efficiency. It has some impressive achievements to its name (see 1. above). But it remains an imperialist power, and actively tries to undermine the West. It too has a demographic problem, and it is finding that an obsession with political control comes with increasing costs. It does not present a shining alternative to western ways, as it once thought it did. 

3. Information technology

I am thoroughly sick of the hyping of artificial intelligence (AI), and the way it is crowbarred into any topic you care to name. But it is part of an astonishing development of information technology that will transform our lives in ways that we barely understand. I don’t think it translates into increased productivity in the smooth way that some talk of. As with most technologies it will have to change the way we work and think about things before it will have a real impact. But it should improve economic efficiency and human wellbeing in the longer run. My hope is that it will make some of the public service challenges developed countries face more tractable, reducing the pressure on government finances.

4. The developing world

A lot of the progress made by the developed world in the later part of the 20^th Century and the first years of the 21^st comes down to the opportunities provided by less developed countries in East Asia. As these countries developed their economies, they presented trading opportunities and gains from trade with the developed world. This has run its course, and has actually gone into reverse, as East Asian economies converge with developed world ones (and in some cases have joined that developed world), reducing trade gains (a process which, of course, has been enormously beneficial to those East Asian economies). This has been a regular hobby horse of mine as this piece of basic economics is so widely under-appreciated, even by economists who should know better. And yet there remain two large areas of the less developed world which have yet to advance properly: South Asia (notably India) and Africa. Might not the development of these economies provide further opportunities for mutual benefit?

This is far from straightforward. The East Asian model saw the transfer of workers from subsistence agriculture to manufacturing industry, mass producing consumer products for export, in exchange for a different suite of products and services from the developed world. That model is surely done. Manufacturing technology is so advanced that there are too few jobs at stake, and the developed world’s appetite for “stuff” is surely approaching saturation – although we should remember that potential markets include those East Asian economies, including China, too. To advance, the South Asian and African economies must move the workforce out of agriculture. India has made important strides, but has yet to seriously tackle agricultural reform. But what should surplus agricultural workers do?  Here I’m struggling a bit, but I’m sure that 1. and 3. above are part of the solution. It may be that their development will be less dependent on exports. At the moment, their biggest economic impact arises from the export of labour though emigration, affecting Europe and the Middle East in particular (also America, where immigrants also come from Latin America – which is less of a development opportunity). This has mutual benefits but the stresses in host countries are showing, and this is not sustainable in the longer term. 

Of course this effort must be led by the developing countries themselves, and not as part of a paternalist relationship with the developed world – as the East Asian progress owed little to the West except in the cold, hard mutual benefits of trade. There is a lot of baggage here but it is in the developed countries’ interests if they are to take their people out of poverty.

5. Liberal values become world values

I’m on fairly safe ground on the first three of my choices; number 4 is a bit shaky. This one is a bit of outrageous optimism. The later 20th Century was a post-colonialist age. Colonialism by the big European powers was pretty much over, though colonialism in Asia by Russia and China lived on. But the pall of colonialism hung over those European powers and still dominated political narratives. Newly independent nations blamed all their ills on their colonial past, and sought compensation in some form or other from the former colonists. They adapted the narrative somewhat to put pressure on the USA too as some sort of “neo-imperialist”. Meanwhile the developed world – the Western powers, consisting largely of those ex-colonisers, espoused liberal values as being universal ones, and criticised others when they fell short. These two narratives got tangled up, and many less developed countries accused developed countries of imposing alien values to their own advantage, and accused them of racism on top.

This all has another narrative: the West remained extremely powerful after decolonisation, and even more so once it had seen off its Communist rival the Soviet Union. Developing countries needed to plead their case to get aid and assistance; the Western powers never let their liberal values get in the way of self-interest, leading to accusations of hypocrisy that were often justified. Then some of these developing nations became more powerful. China worked its way into superpower status (in large part through trade with the West); other countries, like Iran, became more assertive. The anti-liberal movement gained momentum. Liberal values were Western values, and were a new way of promoting a kind of moral colonialism.

The result was ugly. The number of oppressive regimes grew. Medium-sized powers felt free to interfere in regional affairs, allowing a series of awful civil wars to take root. Western liberals feel beleaguered. And they are criticised at home, by conservatives who are fed up with what they see as the trashing of their countries’ history and culture; and by the left who promote anti-colonialist attitudes, and indulge in identity policies among minority communities that would not be tolerated by those minorities if they were in the majority..

And yet the West’s critics still look to the West for leadership in such matters as combatting climate change. “It’s your fault,” they suggest, “so you fix it.” China, by now the biggest contributor to world pollution and climate change sits idly by, though at least they are developing post-carbon technologies – see 1. above. India persists in its victim mentality, apparently unable to see that with a billion people they can’t just complain from the sidelines.

But this is breaking down. The rise of the populists, and especially Donald Trump, means that the West is retreating from its leadership role. And yet the West still looks to be one of the best places to live in the world. Few would say that of China – and especially if you don’t happen to be Han Chinese. And problems such as climate change change and civil wars rage on, with less developed countries as their main victims. This is creating something of a leadership vacuum, which the less developed countries need to fill. And their favoured narratives are losing traction. East Asian countries that have transitioned to developed status did this largely through their own efforts, assisted by free trade with the developed world. They had to move on from the victim mentality and take on proper agency of their own. It is not that African and south Asian countries are necessarily wrong about the damage of colonialism and slavery, but that their obsessing about this is no basis for building a prosperous future.

Meanwhile Western values and the moral high ground don’t look so bad. Capitalism has proved to be the only viable route to prosperity. The cynicism of non-Western powers, like China and Iran, to say nothing of Russia, is very evident, and has hardly promoted world peace. They are not creating great places to live (even if China’s progress must be acknowledged, it compares unfavourably with places like Taiwan). China may be free of Western hypocrisy, but that just leaves its naked self-interest unvarnished – as it develops its very own brand of hypocrisy. Western values really do have a universal application.

This would be good news because if we see a better quality of leadership from non-Western countries, then global problems will become more tractable. They will push forward harder on de-carbonisation, starting at home; they will be less free about arming rebel movements among their neighbours. A bit more humility on the part of Western countries would certainly be appropriate, but people being what they are, that will not be forthcoming.

When reflecting on this I am reminded of one of the courses I studied in my final year at Cambridge, when I was studying history. It was on the philosophy of international relations and led by Professor Harry Hinsley. How do you achieve peaceful international relations? One line of argument suggested that you needed a dominant power to act as a sort of policeman. Another suggested that you needed an empowered supra-national authority. The first is an uninviting prospect, the second is clearly infeasible, and leads to the problem of how that world authority is to be accountable. A more hopeful idea is that if the world was divided into autonomous nations, whose sovereignty ended at agreed borders, then those countries would learn to live with each other out of self-interest. This was in effect the system that Europe developed after the Seven Years War in 1763. Europe didn’t banish war, but the periods of peaceful relations lasted longer than before. The problem was that wars become harder to stop once started. I would like to think that the medium-sized nations of the world – Turkey, Saudi Arabia, United Arab Emirates, Iran, Israel in particular – will start to learn this lesson. Also that the newer great powers – China and India – will realise that they must play a bigger leadership role if world problems are to be tractable. And that neo-imperialist powers, Russia and to a lesser extent China, realise the futility of their enterprise and start to focus on the real needs of their populations. None of this necessarily involves embracing liberalism – but somehow I feel that it leads there.

Hope springs eternal

Good news tends to happen slowly and it isn’t newsworthy. But there is no denying that the world is entering a rough patch. Economic growth has run out of road in the developed world – as at last even the FT’s Martin Wolf is starting to appreciate. He says that this is causing the current political dysfunction, but it’s worse than that. The US is widely admired for delivering the best growth story, and yet the dysfunction is as bad there as anywhere. Actually the changes required to generate growth are as painful as trying to live without it. But the march of technology and scientific understanding goes on – and we don’t need conventionally understood economic growth for the world to become a better place. Think of a place where people don’t consume any more on average in developed countries (though with a more equal distribution), but who live longer, healthier lives, and where there is much less crime. A world where greenhouse gases in the atmosphere are steadily being reduced, where extreme poverty is being pushed back, and which is not so blighted by armed conflict. Apart from the beating back of poverty, none of these things needs economic growth – and the growth required to combat poverty is required only in less developed countries. This advance can be ecologically sustainable. I have not lost hope that the world can get much closer to such a vision.