MARK COLVIN: While the members of the first and second fleets were struggling to survive in Botany Bay, back in Europe the industrial revolution was getting under way. The empires that the British, the French and other European nations had built up became handy sources of raw materials for manufacturing, and markets for the factories' products. At the same time, economic history was being made by developments like the limited company and the invention of insurance.
A new book, Bourgeois Dignity: Why Economics Can't Explain the Modern World
, argues that over time we've stopped being able to appreciate what happened then.
Its author, Deirdre McCloskey, is Distinguished Professor of Economics, History, English, and Communication at the University of Illinois at Chicago. She calls what happened a revolution in rhetoric. I asked her what she meant.
DEIRDRE MCCLOSKEY: Rhetoric is an ancient word which ought to be seen as more honourable than it is. In English we have numerous words for bad speech. I think we need a word for the art of speaking that's neutral. It might as well be that old Greek word.
MARK COLVIN: I supposed it's accrued some of the meanings of hifaluting [sic] speech. You'd have to [inaudible]?
DEIRDRE MCCLOSKEY: Yes, that's often believed. But that's not how I think of it, or how sophisticated students do. Aristotle called it simply "the art of persuasion." We certainly need persuasion in the world—the only alternative to persuasion is violence.
I would claim that there was a rhetorical change in the 17th and 18th centuries in northwestern Europe that increasingly allowed people to think about their futures and possible innovations in their futures in a civilised conversation—instead of in orders and confrontations and violence.
The coffee house of the late 17th century or the newspaper of the 18th century — these were characteristically middle-class institutions, in which people were free to imagine progress.
MARK COLVIN: You say that conventional economics doesn't really explain the world that we live in. What would?
DEIRDRE MCCLOSKEY: What would is a combination of economics and the humanities. What's extraordinary about the modern world is indeed its very rich economic life, reinforced concrete, TVs, the ability to talk on the phone across continents. These are all extraordinary.
So they're economic consequences. But I argue in the book that the ultimate causes were changes in what Marx called "ideology" and I call "rhetoric." That's what what was unusual about north-western Europe. The ordinary material changes that economists consider—trade and exploitation and investment and so forth—existed elsewhere. They existed in the Roman Empire, in China and Japan and the like, yet didn't result in an industrial revolution and the modern world.
MARK COLVIN: So in practical terms how would you translate that into the real world, the modern world?
DEIRDRE MCCLOSKEY: The real world, when you come to think about it, must always be a world of language—the way we organise corporations, the way we talk in markets, the way we think up innovations are all matters of language.
So "real" is verbal. My favorite recent examples—and what made it plausible to write such a book—are China and India. In 1978 the Chinese Communist Party decided to allow people to innovate. All of a sudden the Chinese economy started growing at eight to 10 per cent in real terms every year. And then in 1991 the same thing happened in India, and since then the Indian economy has been growing at seven to eight per cent per capita every year.
Now those are enormously fast economic growths. They are the most important facts in the modern world: they're the most important events in the past 30 or 40 years.
MARK COLVIN: But can China continue to prosper if it only liberalises its economy and doesn't allow people to think, speak and vote freely?
DEIRDRE MCCLOSKEY: No, I don't think it can. The examples of South Korea and Taiwan stand out in this respect. They too were authoritarian and un-free, and then they enriched and became free. Now they have free elections. I expect that'll happen to China, too. But remember that China is still very, very poor. Average incomes in Australia are in the order of $US 110 earned and spent every day. On that same scale Chinese national income per head is about $13 a day.
MARK COLVIN: India has liberalised and already has a form of democracy. Is India eventually likely to overtake China?
DEIRDRE MCCLOSKEY: Absolutely. I was depressed for a long time because the largest authoritarian country and un-free country in the world, China, was growing so much faster than India. But, thank God, the largest democracy in the world in 1991 freed up its economy—more or less in the same way that Australia did at the time—and consequences for India have been spectacular.
In the long run I think the creativity of the Indian economy—it's a tremendous, it's a tremendously diverse place as you know—is going to count in its favour. But I don't want to speak as though this is a horse race, with second-best being a loss. I'm just thrilled that 40 per cent of the world's population—that is, China and India—is now rapidly entering the modern world. And so should we all!
MARK COLVIN: Professor Deirdre McCloskey of the University of Illinois at Chicago.