The Rational Optimist (21 page)

The Moloch state

China, meanwhile, was heading the other way, into stagnation and poverty. China went from a state of economic and technological exuberance in around
AD
1000 to one of dense population, agrarian backwardness and desperate poverty in 1950. According to Angus Maddison’s estimates, it was the only region in the world with a lower GDP per capita in 1950 than in 1000. The blame for this lies squarely with China’s governments.

Pause, first, to admire the exuberance. China’s best moments came when it was fragmented, not united. The economy first truly prospered in the unstable Zhou dynasty of the first millennium
BC
. Later, after the Han empire fell apart in
AD
220, the Three Kingdoms period saw a flourishing of culture and technology. When the Tang empire came to an end in 907, and the ‘Five Dynasties and Ten Kingdoms’ fought each other incessantly, China experienced its most spectacular burst of invention and prosperity yet, which the Song dynasty inherited. Even the rebirth of China in the late twentieth century owes much to the fragmentation of government and to an explosion of local autonomy. The burst of economic activity in China after 1978 was driven by ‘township and village enterprises’, agencies of the government given local freedom to start companies. One of the paradoxical features of modern China is the weakness of a central, would-be authoritarian government.

By the late 1000s, the Chinese were masters of silk, tea, porcelain, paper and printing, not to mention the compass and gunpowder. They used multi-spindle cotton wheels, hydraulic trip hammers, as well as umbrellas, matches, toothbrushes and playing cards. They made coke from coal to smelt high-grade iron: they were making 125,000 tonnes of pig iron a year. They used water power to spin hemp yarn. They had magnificent water clocks. All across the Yangtze delta the Confucian dictum ‘men plough; women weave’ was obeyed with industrious efficiency so that peasants were working for cash as well as subsistence and were using that cash to consume goods. Art, science and engineering flourished. Bridges and pagodas sprang up everywhere. Woodblock printing quenched a raging thirst for literature. The Song era had, in short, a highly elaborate division of labour: many people were consuming what each other produced.

Then came the calamities of the 1200s and 1300s. First the Mongol invasion, then the Black Death, then a series of natural disasters, followed by the all too unnatural disaster of totalitarian Ming rule. The Black Death, as I shall argue in the next chapter, spurred Europe into further gains from trade and escaping the trap of self-sufficiency; why did it not have the same effect in China, where it left the country half as populous as before and therefore presumably rich in surplus land to support disposable income? The blame rests squarely with the Ming dynasty. Western Europe only bounced back from the Black Death because it had regions of independent city states run by and for merchants, notably in Italy and Flanders. This made it harder for landowners to reimpose serfdom and restrictions on peasant movement after the plague had briefly empowered the labouring classes. In Eastern Europe, Mamluk Egypt and Ming China, serfdom was effectively restored.

Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialisation; thus, even Genghis Khan’s Pax Mongolica lubricated Asia’s overland trade by exterminating brigands along the Silk Road, thus lowering the cost of oriental goods in European parlours. But then, as Peter Turchin argues following the lead of the medieval geographer Ibn Khaldun, governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs. There is a lesson for today. Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure’. Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members. Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.

Not only did the Ming emperors nationalise much of industry and trade, creating state monopolies in salt, iron, tea, alcohol, foreign trade and education, but they interfered with the everyday lives of their citizens and censored expression to a totalitarian degree. Ming officials had high social status and low salaries, a combination that inevitably bred corruption and rent-seeking. Like all bureaucrats they instinctively mistrusted innovation as a threat to their positions and spent more and more of their energy on looking after their own interests rather than the goals they were put there to pursue. As Etienne Balazs put it:

Do not be fooled by the present tense: this is Ming, not Maoist, China that Balazs is describing. The behaviour of Hongwu, the first of the Ming emperors, is an object lesson in how to stifle the economy: forbid all trade and travel without government permission; force merchants to register an inventory of their goods once a month; order peasants to grow for their own consumption and not for the market; and allow inflation to devalue the paper currency 10,000-fold. His son Yong-Le added some more items to the list: move the capital at vast expense; maintain a gigantic army; invade Vietnam unsuccessfully; put your favourite eunuch in charge of a nationalised fleet of monstrous ships with 27,000 passengers, five astrologers and a giraffe aboard, then in a fit of pique at the failure of this mission to make a profit, ban everybody else from building ships or trading abroad.

Yet the Chinese people were bursting to trade with the world. In the 1500s Portuguese carracks took silk from Macao to Japan in exchange for silver. In the 1600s junks that had slipped unofficially from the coast of Fujian arrived in Manila laden with silk, cotton, porcelain, gunpowder, mercury, copper, walnuts and tea. There they met a large Spanish galleon stuffed with silver from the Potosi mine in Peru, which had crossed the Pacific from Acapulco. It is no accident that when the Ming dynasty fell, weakened by the silver drought caused by the loss of three Acapulco galleons in three years, it fell to Manchu traders who financed their conquest by the profitable exchange of goods with Korea and Japan.

Part of the problem was that a Chinese artisan could not flee to work under a more tolerant ruler or in a more congenial republic, as Europeans did routinely. Because of its peninsulas and mountain ranges, Europe is much harder to unify than China: ask Charles V, Louis XIV, Napoleon or Hitler. For a while the Romans achieved a sort of European unity, and the result was just like the Ming: stagnation and bureaucracy. Under the emperor Diocletian (just as under the emperor Yong-Le) ‘tax collectors began to outnumber taxpayers’, said Lactantius, and ‘a multitude of governors and hordes of directors oppressed every region – almost every city; and to these were added countless collectors and secretaries and assistants to the directors.’

Since then, Europe had been fragmented among warring states. So Europeans took to their heels all the time, sometimes fleeing from cruel rulers as French Huguenots and Spanish Jews did, sometimes drawn to ambitious ones, sometimes seeking republican freedom. The Italian Christopher Columbus gave up on Portugal and tried Spain instead. The Sforzas lured engineers to Milan; Louis XI enticed Italian silk makers to set up in Lyon; Johann Gutenberg moved from Mainz to Strasbourg in search of investors; Gustavus Adolphus started the Swedish iron industry by bringing in a Walloon named Louis de Geer; John Kay, English inventor of the flying shuttle, was paid 2,500 livres a year by the French authorities to tour Normandy demonstrating his machine. In one especially bizarre case of industrial poaching in the early 1700s, Augustus the Strong of Saxony got a monopoly on the manufacture of porcelain by the cunning ploy of imprisoning a passing charlatan who claimed to be able to make gold – lest any other state get him. The man in question, Johann Friedrich Bottger, made no gold, but perfected a colleague’s technique for making fine porcelain in the hope that this would win him back his freedom. So Augustus locked him even more securely in a hilltop castle at Meissen and put him to work churning out teapots and vases. In short, competition was a grand incentive to European industrialisation, and a brake on bureaucratic suffocation, at the national as well as the corporate level.

Repeal the corn laws again

The greatest beneficiaries of European political fragmentation were the Dutch. By 1670, uncommanded by emperors and even fragmented among themselves, the Dutch so dominated European international trade that their merchant marine was bigger than that of France, England, Scotland, the Holy Roman Empire, Spain and Portugal – combined. They brought grain from the Baltic, herrings from the North Sea, whale blubber from the Arctic, fruit and wine from southern Europe, spices from the Orient and of course their own manufactures to whoever wanted them. Through efficient ship construction (not least a new division of labour within the shipyard, as observed by a curious William Petty) they undercut all other shipping costs by more than one-third. It did not last long. Within a century Louis XIV and others had ended the Dutch golden age with a mixture of war, mercantilist retaliation and high taxes, imposed to fight wars. Yet another attempt to use free trade to lift living standards bit the dust. But because this was not monolithic China, the baton was picked up by others, especially the British.

Victorian Britain’s great good fortune was that at the moment of industrial take-off Robert Peel embraced free trade, whereas Yong-Le had banned it. Between 1846 and 1860, Britain unilaterally adopted a string of measures to open its markets to free trade to a degree unprecedented in history. It abolished the corn laws, terminated the navigation acts, removed all tariffs and agreed trade treaties with France and others incorporating the ‘most favoured nation’ principle – that any liberalisation applied to all trading parties. This spread tariff reduction like a virus through the countries of the world and genuine global free trade arrived at last – a planetary Phoenician experiment. So at the crucial moment America could specialise in providing food and fibre to Britain and Europe, which could further specialise in providing manufactures for the consumers of the world. Both sides benefited. By 1920, for example, 80 per cent of all beef eaten in London was imported, mostly from Argentina, which was one of the richest countries in the world as a consequence. Both sides of the estuary of the River Plate became a vast slaughterhouse where beef was canned, salted and dried for export, the name of the Uruguayan town of Fray Bentos turning into a synonym for canned meat in Britain.

The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty – that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer (coerced trade in slaves or drugs may be a different matter). Free trade works for countries even if they do it and their neighbours do not. Imagine a situation in which your street is prepared to accept produce from other streets but they are only allowed what they produce: who loses? Yet in the aftermath of the First World War, one by one countries tried beggaring their neighbours in the twentieth century. As currencies devalued and unemployment rose in the 1930s, government after government sought self-sufficiency and import substitution: Greece under Ioannis Metaxas, Spain under Francisco Franco, America under Smoot-Hawley. Global trade fell by two-thirds between 1929 and 1934. In India in the 1930s, the British government imposed tariffs to protect wheat farmers, cotton manufacturers and sugar producers against cheap imports from Australia, Japan and Java respectively. These protectionist measures exacerbated the economic collapse. In five years from 1929, Japanese silk exports collapsed from 36 per cent of the total to 13 per cent. Little wonder that with a rapidly growing population but a shrinking opportunity to export both goods and people, the Japanese regime began seeking imperial space instead.

Then after the Second World War, the entire continent of Latin America broke with free trade under the influence of an Argentinian economist named Raul Prebisch, who thought he had found the flaw in Ricardo’s logic, and achieved decades of stagnation. India, under Jawaharlal Nehru, went for autarky too, closing its borders to trade in the hope of sparking a boom in import substitution. It too found stagnation. Still they tried: North Korea under Kim Il Sung, Albania under Enver Hoxha, China under Mao Zedong, Cuba under Fidel Castro – every country that tried protectionism suffered. Countries that went the other way include Singapore, Hong Kong, Taiwan, South Korea and later Mauritius, bywords for miraculous growth. Countries that changed tack in the twentieth century include Japan, Germany, Chile, post-Mao China, India and more recently Uganda and Ghana. China’s Open Door policy, which cut import tariffs from 55 per cent to 10 per cent in twenty years, transformed it from one of the most protected to one of the most open markets in the world. The result was the world’s greatest economic boom. Trade, says Johann Norberg, is like a machine that turns potatoes into computers, or anything into anything: who would not want to have such a machine at their disposal?