On Monday, October 11, the Royal Swedish Academy of Sciences will name the recipient of the 2021 Nobel Prize in Economic Sciences. My fingers will be crossed for professor of economics, history, English, and communications Dierdre McCloskey. No living economic historian has done as much to solve humanity’s most important riddle: What caused the Great Enrichment that took hold in Holland and England at the end of the 18th century and now has spread to most of humanity?
McCloskey looks beyond mechanical explanations based on an “industrial revolution,” as though the steam engine itself chugged humanity to new standards of living. She documents that the primary causal factor was ideas – the legitimization of the wealth-creating behaviors of innovators, traders, investors, and marketers. In earlier ages, such people were considered outcasts, rather than celebrated. For centuries, people thought that economic growth was reducible to the accumulation of capital, but McCloskey argues that it was innovation, and not capital, that explains modern prosperity. Once the spirit of “innovism” (her word) afforded dignity to bourgeois pursuits so that people felt liberated to improve their lot in life, the magic of Adam Smith’s invisible hand lifted communities and countries to never-before-seen heights of prosperity.
The Nobel Prize in Economic Sciences typically honors techniques and not the historical analysis of economic activity. Although McCloskey has published dozens of books and over 400 major journal articles, covering subjects ranging from price theory to analysis of risk and statistical technique, she may be unpopular among some economists for her conclusion that ordinary people, and not self-styled experts, are the engines of progress. She embraces what she calls “a humane true liberalism” that focuses on personal liberty and equality for all under the law. Such views are anathema among those professors who imagine that they and their followers in the bureaucracy are entitled to control the levers of the economy, which they conceive as a machine in need of their careful tending. McCloskey believes instead in trusting regular people to work out solutions voluntarily, as happens reliably (though in unpredictable ways) in free societies.
McCloskey’s writings go against the grain of this cultural moment of lockdowns, of decisions from on high about what business activities are “inessential,” and of executive decisions about where factories may or may not be built. She understands that order is rarely the outcome of commands, but of free cooperation. We ignore that central insight at our peril. We know that standards of living improve to the extent that societies permit innovation – that is, when enterprise is free, and when innovators and entrepreneurs submit their wares to the market test. Her work reminds us that, to create and sustain the institutions of economic freedom, we need to promulgate respect for entrepreneurship and innovation – and for the profits that successful entrepreneurship and innovation bring – while restraining governments from confiscating, overriding, and smothering innovation and enterprise.
In short, prospering societies require the right economic mentalities. Can we measure economic mentalities across countries and cultures? That’s the focus of a new Global Index of Economic Mentality (GIEM) that Hungarian economist Pal Czegledi, Argentine economist Carlos Newland, and I have developed and introduced.
The GIEM uses data from the World Values Survey to measure how ordinary people think about markets and government. Comparable current data are available from 79 countries. Our analysis finds that New Zealand, Czechia, Sweden, the United States, and Bulgaria top the list of countries that value private initiative over government intervention. Because there is a positive correlation between economic mentality and economic institutions, it’s particularly interesting to observe outliers that might prove to be unstable. The populations of Vietnam, Belarus, and Ethiopia appreciate free enterprise in a way that is at odds with the laws under which they live. On the other hand, Chile stands out as a country that has had a rather high degree of economic freedom enshrined in its laws, but in which public sentiment does not match the institutions. Policies that succeeded in reducing the percent of Chileans living in poverty from 38.6% in 1990 to 8.6% in 2017 are largely viewed as illegitimate and unfair within the country.
Another worrisome finding: when you compare the economic mentality of people 40 years and older with that of those under 40, the United States had the largest negative gap. America’s older generations remain generally pleased with free enterprise, but they have failed to foster a similar appreciation among young adults.
We might worry whether the U.S. will retreat further from free enterprise – from the mentality that so profoundly transformed the world. As McCloskey notes, “Give the middle class dignity and liberty for the first time in human history and here’s what you get: the steam engine, the automatic textile loom, the assembly line, the symphony orchestra, the railway, the corporation, abolitionism, the steam printing press, cheap paper, wide literacy, cheap steel, cheap plate glass, the modern university, the modern newspaper, clean water, reinforced concrete, the women’s movement, the electric light, the elevator, the automobile, petroleum, vacations in Yellowstone, plastics, half a million new English-language books a year, hybrid corn, penicillin, the airplane, clean urban air, civil rights, open-heart surgery, and the computer. The result was that uniquely in history the ordinary people, and especially the very poor, were made much, much better off.”
If that’s what’s at stake, as the GIEM suggests, it’s worth asking whether there are ways to work systematically to revive the spirit of dignity and liberty that is the foundation of innovism.
Recently, FP Analytics, the independent research division of Foreign Policymagazine, published a study that highlights the roles played by independent think tanks in protecting the norms of liberal democracy, respect for human rights, and the market-friendly policies associated with rising living standards. Such organizations leverage relatively small budgets into big changes in the climate of ideas. The results, especially in poor countries and poor communities, are breathtaking. For example, the Center for Development and Enterprise Great Lakes, a central African think tank, initiated and pushed through a campaign to free cross-border trade from interventions, obstructions, and crippling paperwork and taxes that had subjected traders – 80% of whom are women – to extortion, shakedowns, and abuse, including rape. Closer to home, the Beacon Center in Tennessee has made the state a leader in removing licensing restrictions that had stood in the way of people starting a business or getting a job. Of course, think tanks also work more broadly to celebrate insights that should be spread outside the halls of academia. One example is Caminos de la Libertad in Mexico City, which will be honoring Dierdre McCloskey with its prestigious “Una Vida por la Libertad” annual award on October 11.
I hope that Professor McCloskey receives a call that same day from the Nobel committee. Such a much-deserved recognition would spotlight the central challenge of our day: reviving respect for those who innovate to improve our lives and for the free markets that test those innovations. As McCloskey notes, capital is far less important than ideas. We strive to leave wealth to our children, but if we deprive them of the idea of liberty, future generations will be poorer in both spirit and in body.
