The education revolution of the twentieth century was that basic education became available for most people in democracies. The education revolution of the twenty- first century will be that good education will become available for an increasing proportion of children. If you are against that, then you are the true elitist: you are the one who wants to keep poor kids in lousy schools.
A Bigger Society
The bigger story I am telling, using education as the example, is that over the past fifty years governments encroached too far on the realm of civil society. That had its benefits where (as in the case of primary education) there was insufficient private provision. But there were real costs, too.
Like Tocqueville, I believe that spontaneous local activism by citizens is better than central state action not just in terms of its results, but more importantly in terms of its effect on us as citizens. For true citizenship is not just about voting, earning and staying on the right side of the law. It is also about participating in the ‘troop’ – the wider group beyond our families – which is precisely where we learn how to develop and enforce rules of conduct: in short, to govern ourselves. To educate our children. To care for the helpless. To fight crime. To keep the streets clean.
Since the phrase ‘big society’ entered the political lexicon, abuse has been heaped upon it. In the same month that I delivered the lectures on which this book is based (June 2012), the Archbishop of Canterbury called it ‘aspirational waffle designed to conceal a deeply damaging withdrawal of the state from its responsibilities to the most vulnerable’.33 Even Martin Sime, the chief executive of the Scottish Council of Voluntary Organizations – who claims to believe in ‘selfhelp’ – has described the big society as a ‘toxic brand ... a Tory con trick and a cover for cuts’.34 It will be clear by now that I am much more sympathetic than these gentlemen to the idea that our society – and indeed most societies – would benefit from more private initiative and less dependence on the state. If that is now a conservative position, so be it. Once, it was considered the essence of true liberalism.
In the preceding pages, I have tried to argue that we are living through a profound crisis of the institutions that were the keys to our previous success – not only economic, but also political and cultural – as a civilization. I have represented the crisis of public debt, the single biggest problem facing Western politics, as a symptom of the betrayal of future generations: a breach of Edmund Burke’s social contract between the present and the future.
I have suggested that the attempt to use complex regulation to avert future financial crises is based on a profound misunderstanding of the way the market economy works: a misunderstanding into which Walter Bagehot never fell.
I have warned that the rule of law, so crucial to the operation of both democracy and capitalism, is in danger of degenerating into the rule of lawyers: a danger Charles Dickens well knew.
And, finally, I have proposed that our once vibrant civil society is in a state of decay, not so much because of technology, but because of the excessive pretensions of the state: a threat that Tocqueville presciently warned Europeans and Americans against.
We humans live in a complex matrix of institutions. There is government. There is the market. There is the law. And then there is civil society. Once.– I’ m tempted to date it from the time of the Scottish Enlightenment – this matrix worked astonishingly well, with each set of institutions complementing and reinforcing the rest. That, I believe, was the key to Western success in the eighteenth, nineteenth and twentieth centuries. But the institutions in our times are out of joint.
It is our challenge, in the years that lie ahead, to restore them – to reverse the Great Degeneration – and to return to those first principles of a truly free society which I have tried to affirm, with a little help from some of the great thinkers of the past.
It is time, in short, to clear up the beach.
e Strictly speaking, Magdalen is part of a state-funded university, the independence of which has intermittently been challenged by the government. But the college remains a self-governing entity with its own endowment.
Conclusion
Inequalities Explained
Why are some countries so much richer than others? To be precise, why are real wages – wages adjusted for the cost of living – higher in some countries than in others? Real wages in London were more than seven times higher than in Canton on the eve of the First World War, whereas they had been roughly comparable (allowing for diff erences in patterns of consumption) 200 years before.1 This was despite the fact that between 1700 and 1900 the world economy became far more integrated, with unprecedented flows of capital, goods and labour. Today, in another age of globalization, we encounter similar diff erentials. Manufacturing wages in China are no longer onetwentieth of the US level, as they were in 2005 ; indeed, they are projected to rise from onetenth to one-fifth of American wages between 2012 and 2015. In purchasingpower parity terms, the gap is already even narrower. The number of Big Macs an employee of McDonald’s can buy with an hour of work is just four times higher in the United States than in China.2 Yet that is still a significant gap.
While there is a consensus that such diff erentials are related to differences in ‘total factor productivity’, there is little agreement as to what is responsible for such diff erences. Explanations that emphasize the role of geography, climate, disease or naturalresource endowments are less convincing today than they seemed in the eighteenth century. Scientific knowledge, technological innovation and market integration have greatly reduced the significance of distance, weather and germs, while mineral wealth has been revealed to be as much a curse as a blessing. Explanations that assert racial differences in intelligence or industriousness are no longer taken seriously. There are pronounced differences in IQ between genetically indistinguishable populations, such as West and East Germans before 1991, or the Irish and IrishAmericans in around 1970 . We can also trace far more rapid changes in average IQ over time than can be explained in terms of biology.3 The roles of religion, culture or ‘national character’ have also long intrigued sociologists. But the evidence of economic history is that shifts from poverty to prosperity generally happen too suddenly and in too many diff erent cultural milieus to be explained in such terms.
In any case, the diff erences in economic welfare within countries are in some ways just as big as the diff erences between them. In 2007 the average income of Americans in the top 1 per cent in terms of income was thirty times that of the average income of Americans in the remaining 99 per cent. This is another differential that has changed rapidly in recent years – but, unlike intercountry inequality, intracountry inequality has been increasing rather than diminishing. In 1978 the top percentile was just ten times richer than everyone else. By most measures, American society is as unequal today as it was in the late 1920s.4 Another way of putting this is that a massive proportion of the benefits of the last thirty- five years of economic growth has gone to the superelite. That was not true in the period between the Great Depression of the 1930s and the Great Inflation of the 1970s. Between 1933 and 1973 the average income of the 99 per cent rose (before tax) by a factor of four and a half. Yet from 1973 until 2010 it actually fell.5
So what exactly is going on? As we have seen, narrowly economic explanations that focus on the impact of financial forces (‘deleveraging’), international integration (‘globalization’), the role of information technology (‘off -shoring’ and ‘outsourcing’) or fiscal policy (‘stimulus’ versus ‘austerity’) do not off er sufficient explanations. We need to delve into the history of institutions to understand the complex dynamics of convergence and divergence that characterize today’s world. The democratic deficits of Chapter 1, the regulatory fragility of Chapter 2, the rule of lawyers of Chapter 3 and the uncivil society of Chapter 4 : these offer better explanations of why the West is now delivering lower growth and greater inequality than in the past – in other words, why it is now the West that finds itself in Adam Smith’s stationary state.
The Urban Future
In these concluding pages, I want to ask what my diagnosis of a great institutional degeneration in the Western world implies about the future. To answer that question it is helpful to borrow former US Defense Secretary Donald Rumsfeld’s famous typology of ‘known knowns’, ‘known unknowns’ and ‘unknown unknowns’ – but to add a fourth category: ‘unknown knowns’. These are the future scenarios that are quite well known to students of history, but which are ignored by everybody else.
Let us begin with the known knowns. Aside from the laws of physics and chemistry, the following things are unlikely to change significantly in the foreseeable future: the normal (or bellcurve) distribution of intelligence in any population, the cognitive biases of the human mind, and our evolved biological behaviours. We can also assume that the global population will continue to rise towards 9 billion, though with nearly all of the increase concentrated in Africa and South Asia, and that in the rest of the world the age structure will tilt further in the direction of the elderly. On the other hand, at least some key commodities – base metals and rare earths in particular – will remain in finite supply. However, the pace of global technological diff usion seems likely to remain high and that this will encourage the continued migration of people from the country to the cities. The developing world’s new ‘megacities’ – conurbations with populations of more than ten million – will thus play a defining role in the twenty- first century. There are already twenty of these: six (led by Shanghai) in China, three (led by Mumbai) in India, along with Mexico City, S?o Paolo, Dhaka, Karachi, Buenos Aires, Manila, Rio de Janeiro, Moscow, Cairo, Istanbul and Lagos. These, along with 420 other nonWestern cities, could generate close to half of all the growth between 2012 and 2025, according the McKinsey Global Institute.6
In many ways, this is an exciting prospect. The physicist Geoffrey West has shown that there are both economies of scale (in infrastructure) and increasing returns to scale (in human creativity) from the process of urbanization. In his words: ‘Cities are ... the cause of the good life. They are the centres of wealth creation, creativity, innovation, and invention. They’ re the exciting places. They are these magnets that suck people in.’ West and his colleagues at the Santa Fe Institute have identified two remarkable statistical regularities. First, ‘every infrastructural quantity ... from total length of roadways to the length of electrical lines to the length of gas lines ... scaled in the same way as the number of gas stations.’ That is to say, the bigger the city, the fewer gas stations were needed per capita, an economy of scale with a fairly consistent exponent of around 0.85 (meaning that, when a city’s population increases by 100 per cent, it needs to increase the number of gas stations per capita by only 85 per cent). Secondly, and more surprisingly:
Socioeconomic ... things like wages, the number of educational institutions, the number of patents produced, et cetera ... scaled in what we called a superlinear fashion. Instead of being an exponent less than one, indicating economies of scale, the exponent was bigger than one, indicating ... increasing returns to scale ... That says that systematically, the bigger the city, the more wages you can expect, the more educational institutions in principle, [the] more cultural events, [the] more patents are produced, it’s more innovative and so on. Remarkably, all to the same degree. There was a universal exponent which turned out to be approximately 1.15, which ... says something like the following: If you double the size of a city from 50,000 to a hundred thousand, a million to two million, five million to ten million ... systematically, you get a roughly 15 per cent increase in productivity, patents, the number of research institutions, wages [per capita] ... and you get systematically a 15 per cent saving in length of roads and general infrastructure.7
People even walk disproportionately faster in big cities than in small ones. There is a disproportionately wider range of possible jobs to do. All this is best explained in terms of network effects. True, there are equally large negative externalities: bigger cities have disproportionately bigger problems with crime, disease and pollution. But provided we can innovate fast enough, West argues, our megacities can avoid – or at least postpone – the moment of collapse.f
West’s analysis explains why the process of urbanization – which is in many ways at the heart of the history of civilization – is more than exponential. Although his data are drawn from all over the world, however, we know that there is a major diff erence in the benefits of urbanization between New York or London, on the one hand, and Mumbai or Lagos, on the other. In late July 2012, a massive failure of the power grid in northern India – which deprived 640 million people of electricity – provided a reminder that megacities are very fragile networks. We know, too, that at times in New York’s history – notably the late 1980s, when violent crime peaked – the negative externalities of urban networks came close to outweighing the positives.
The argument of this book implies that the net benefits of urbanization are conditioned by the institutional framework within which cities operate. Where there is effective representative government, where there is a dynamic market economy, where the rule of law is upheld and where civil society is independent from the state, the benefits of a dense population overwhelm the costs. Where these conditions do not pertain, the opposite applies. Put diff erently, in a secure institutional framework, urban networks are what Nassim Taleb calls ‘antifragile’ : they evolve in ways that are not only resilient in the face of perturbations, but actually gain strength from them (like London during the Blitz). But where that framework is lacking, urban networks are fragile: they can collapse in the face of a relatively small shock (like Rome when attacked by the Goths in ad 410).
Shooters and Diggers
In the spaghetti Western The Good, the Bad and the Ugly, there is a memorable scene that sums up the world economy today. Blondie (Clint Eastwood) and Tuco (Eli Wallach) have finally found the cemetery where they know the gold they seek is buried – a vast Civil War graveyard. Eastwood looks at his gun, looks at Wallach and utters the immortal line: ‘In this world, there are two kinds of people, my friend. Those with loaded guns ... fland those who dig.’
