Part III. Growth, Quality, Happiness, and the Poor

Nor during the Age of Innovation have the poor gotten poorer, as people are always saying. So sophisticated a writer as Eagleton leaves his readers in the book mentioned with a socialist cri du Coeur against a “political system which is incapable either of feeding humanity or yielding it sufficient justice.”³⁹ This is mistaken. The system has delivered in bulk the feeding ($30 a day vs. $3 a day, West Germany in 1989 versus East German, Norway now versus Norway in 1800) and the justice (democracy, anti-colonialism, a free press, the end of lynching, equality for women, independence for the Irish Republic). In every half-century if not in every single decade the within-country equality of distribution has improved, and never has it much worsened. Eagleton’s ancestors and mine in mad Ireland were dirt poor. In real comfort they stood hat in hand far below their Anglo-Irish masters. Look at us now. In 2002 Ireland’s GDP per capita in purchasing-power-parity dollars was third in the world, just ahead of the U.S.’s, where many of the once-Irish then lived.⁴⁰

Look at your own ancestors compared your present condition. You are much better off, and have much more scope to pursue Bildung. Admittedly you don’t own a 75-foot yacht. Too bad. But being an adult person of sense who reads books and thinks for herself, you know that such pleasures of the rich and famous exceed yours only a little in actual human value—there’s the truth in happiness studies, that is, the truth that pot-of-pleasure happiness has sharply diminishing marginal utility. “Gie fools their silks, and knaves their wine;/ A man’s a man for a’ that.” As the historical anthropologist Alan Macfarlane puts it, “there has been a massive leveling. . . . There has recently [in the late twentieth century] been a tendency for the gap between rich and poor to open up again. At a wider view, however, there is no longer a vast gap between the 1-5 percent who have 1000 times the income of the average. . . . There is a more gradual gradient of wealth.”⁴¹ I just now considered the statistical claim that the American poor have done badly in the late twentieth century. In relative terms the claim is true and lamentable, as I said, a result of an education-hungry economy facing a stagnation in already-rich countries in the percentage of college-educated people (education leapt up in such places during the expansion of the 1960s, but then leveled off), and a globalization that brings $30 a day to the very poor of the earth but with the side effect of eroding the wages of auto workers in rich countries.⁴² A similar rise in the British and American premium on skill is said to explain somewhat growing inequality in the early nineteenth century.⁴³ The division of the pie has for such reasons fluctuated a little now and then—though on the whole the income distribution is remarkably stable over centuries. Gini coefficients and Pareto parameters, the economists observe, don’t change very much. And anyway over those recent centuries the size of the pie has grown so fast that the poor are absolutely better off.

Economic historians agree that the poor have benefitted the most from modern economic growth. Your ancestors, mine. Even in properly bourgeois economies of course the pie is not divided out perfectly equally, then or now, here or there. But that is true of any system. If you think full-bore communism was egalitarian, think again. In logic, of course, someone always occupies the bottom ten percent of the income distribution, except in Lake Woebegone. It would be true even if the average world income were Norway’s $137 instead of its actual $30 per day. But since 1800 the whole distribution has moved up. In statistics and in substance the very poorest have benefited the most. The economist and demographer Robert Fogel, a careful student of such matters, notes that “the average real income of the bottom fifth of the [American] population has multiplied by some twentyfold since 1890, several times more than the gain realized by the rest of the population.”⁴⁴ The bottom ten percent have moved from dangerous under-nutrition to over-nutrition (sometimes also dangerous). That means more to you and me, the descendents of groveling peasants, Monty-Python style, than does the gain to Her Ladyship in the big house from increasing her stock of jewelry from one diamond necklace to sixteen (as blameworthy as such profligacy is). Famine has lessened worldwide—this contrary to the alarms from environmentalists such as the paleontologist Niles Eldridge, who predicted confidently in 1995 that “the have-nots will. . . increasingly succumb to famine.”⁴⁵ No, they won’t, and don’t, and haven’t. As the economic historian Cormac Ó Gr´da wrote in 2009, “famines are less frequent today than in the past and, given the right conditions, less likely in the future.” He notes that “even in Africa, the most vulnerable of the seven continents, the famines of the past decade or so have been, by historical standards, ‘small’ famines.”⁴⁶

And when income distribution has worsened between countries, such as between Hong Kong and People’s Republic of China from 1948 to 1978, or between West and East Germany from 1949 to 1990, or South and North Korea from 1953 to the present, or Little Havana in Florida and Big Havana in Cuba 1959 to the present, or Turkey and Iraq 1950 to the present, or Botswana and Zimbabwe from 2000 to the present, it has usually been because the stagnating countries rejected openness and innovation, often in spectacularly perverse style.⁴⁷ Their masters dishonored the bourgeoisie and did not give it the liberty to innovate. They jailed millionaires and enslaved women and planned the economy with a corrupt or power-hungry or merely stupid purpose. Many on the European left still admire Kwame Nkrumah (1909-1972), as a socialist idealist. But his idealism 1955-1966 ruined the poor of Ghana. One of the richest economies of Africa became in a decade one of the poorest. The rulers of failed economies, when not motivated by such growth-killing ideologies of left or right, accomplished the same result by simply stealing, as in Nigeria or Gabon, or as in some parts of Europe before the bourgeois age (and in some parts still). The pie under such rulers does not get larger, and so the misgoverned countries fall behind the pie-enlarging countries (for all their imperfections) such as West Germany or Turkey.

Even somewhat sluggishly growing countries—Brazil comes to mind—have been able to make up in part for their low rates of income growth (at least by the standards of the rapidly growing and free-market places like Korea or Singapore) by having better death and illness rates. Such betterment, of course, is an imported fruit of modern and bourgeois economic growth. In truth Brazil under President Luis Inacio Lula da Silva, he of rational populism, has grown pretty smartly, with a better political foundation for sustaining the growth, perhaps, than the other of the four “BRICs” (Brazil, Russia, India, and China). A place like the often Communist-governed Kerala state in southwest India still expresses in hard form the hostility to bourgeois innovation that characterized all of India in the three decades after Independence. Kerala makes up for low growth of income with the lowest rates of illiteracy and the highest life expectancies in South Asia—compliments of medical and other discoveries by bourgeois innovators elsewhere, and of a Karalese history of excellence in education and honesty in government. Compare the city of Bologna in Italy, which for a long time was governed well by Communists. Kerala, however, is also known as the Indian capital of the brain drain, since its policies are irrationally hostile to enterprising people. They leave.

The economic history of innovation therefore fulfils the so-called difference principle of the philosopher John Rawls, most famously the author of A Theory of Justice (1971). The principle is that a change is ethically justified when it helps the very poorest. Markets and innovation did. (Rawls, by the way, is properly read in his wider oeuvre as non-socialist, maybe even a little pro-market.⁴⁸ ) No one of sense views multiple mansions for millionaires as the payoff of modern economic growth chiefly to be admired. Neither did Rawls. Neither did the actually existing Age of Innovation, not over the long run.

The over-cautiously measured factor of sixteen or eighteen, or its correctly measured and much higher equivalent, has solved a lot of problems of poverty. You can see the solutions in bits of the larger story. The surviving descendants of the poor people in Alabama whom Walker Evans photographed in 1936 for his book with James Agee, Let Us Now Praise Famous Men, are today perhaps 10 or 20 times materially better off (in the cautious metric) than their famous ancestors. They graduate from college, often, and always drive a car. Some of them teach English at Duke. The surviving children of the poor people of Great Plains agriculture whom John Steinbeck wrote about in 1939 in The Grapes of Wrath are easily 8 or even 16 times better off than their parents were then. They have substantial houses in El Cerrito and buy their coffee at Peet’s. Some of them teach economics at Berkeley. All the more revolutionary, therefore, has been the change since 1700 in the scope for the average resident of Britain, or since 1820 for the average resident of the United States, or since 1868 for the average resident of Japan, or since 1978 for the average resident of China. All these people started out unspeakably poor, living on one to four dollars a day. Let the economy around them innovate and their children and grandchildren soon become well-to-do bourgeois.

“Capitalism developed,” we say. We say it especially about what came later as a result of the rhetorical Revaluation—Europe and its offshoots became more and more “capitalistic,” right down to intercontinental jet travel and the sub-prime mortgage crisis. Europeans prefer to call their system a “social market economy,” yet admire innovators, and for the most part do not trammel the innovations (the long struggle over Sunday-closing laws in Germany and France and the Netherlands illustrates the temptation to trammel). The Chinese insist on calling what they do when they buy low and sell high “communism.” Mainland Chinese graduate students visiting American universities have as a result no grasp of the central ideological distinction of the twentieth century. All right. Americans more readily accept the word once used to sneer at markets and innovation and private property, “capitalism.” American graduate students have as a result a much firmer grasp of the history.

But the word “capitalism”—a coin which like “ideology” was struck around 1800 and whose value in our scientific rhetoric is due mainly to Marx’s appropriation of it—points in the wrong direction, to money and saving and accumulation.⁴⁹ It brings to mind Scrooge McDuck in the Donald Duck comic books, with his piles of money. Or in a slightly more sophisticated version it brings to mind Charles Montgomery Burns in The Simpsons, with his piles of factories. What’s wrong with such images? This: the world did not change by piling up money or capital. Economists since the eighteenth century have favored the notion of piled-up capital as the maker of modernity, because it emphasizes cost, about which they are expert, and because it is easy to describe mathematically. Since the late nineteenth century the master mathematical expression claiming that piles of capital acquired at great cost, K, together with existing labor, L, cause our enrichment measured in “Quantity” of goods and services—namely, Q = F(K,L)—has thrilled the economists, and has satisfied their Augustinian-Calvinist theology.⁵⁰ But the cartoonists are off the mark, and so are the economists. The routine repetition of investment, arranged in capital accumulation, doesn’t swing (“two chords and a backbeat,” the jazz musicians snicker).⁵¹ Innovation does. If it ain’t got that swing/ It don’t mean a thing. Piling up is not the heart of economic growth. Innovation is. Let’s retire the fraught and misleading C-word.

We’ll do better to call what was born in Europe in early modern times, enriching the world during the nineteenth and twentieth centuries beyond all expectations, by some word without the misleading connotations of “capitalism.” If you like neologisms you can call it if you wish “innovism,” but the best of a weak field seems to be simply “innovation.” The economic historian Nick von Tunzelmann notes that “technological change became cumulative. . . . The breakthroughs . . . led to a succession of further advances. . . . Earlier changes involved a period of disequilibrium [when, say, the undershot waterwheel had been introduced] followed by a return to some kind of equilibrium as the . . . change was absorbed. . . . Instead, [in the last two centuries] a systemic change took hold in which entrepreneurs had to suppose that any improvement . . . might soon be eclipsed.”⁵² Bill Gates fends off claims that Microsoft is a monopoly by noting that at the very moment he is speaking some bright entrepreneurs in a garage might be devising the innovation that will overturn Microsoft—just as Steve Jobs and he overturned Big Blue. The new rhetoric which in time made the modern world has also been called “the triumph of entrepreneurship” or “the honoring of commercial and mechanical innovation” or “continuously emergent novelty” or “the invention of invention” or “creative destruction” of an old product by an old (or sometimes, as Tunzelmann argued, “creative accumulation” of new qualities in an old product, or an entirely new product) or “good capitalism” (as Baumol, Litan, and Schramm 2007 describe American entrepreneurial capitalism) or, in a phrase that Wynton Marsalis and Geoffrey Ward improvised recently to describe the social significance of jazz, an “explosion of consensual creativity.”⁵³ Using an expression like “The Age of Innovation” as a synonym for the misleading “Modern Capitalism” will point in the right direction. As the economist Allyn Young put it in 1928, it was “an age when men had turned their faces in a new direction and when economic progress was not only consciously sought but seemed in some way to grow out of the nature of things.”⁵⁴

The enrichment of any nation which has allowed innovation and the bourgeois virtues to do their work—that is, the enrichment by historical standards of the average person, the truly poor person as well as the captain of industry—argues in favor of innovation and the bourgeois virtues. It supplies so to speak a practical justification for the bourgeois sin of being neither a soldier nor a saint. You might reply, and truly, that money isn’t everything. But as Samuel Johnson replied in turn, “When I was running about this town a very poor fellow, I was a great arguer for the advantages of poverty; but I was, at the same time, very sorry to be poor.”⁵⁵ No one who bought a lottery ticket has yet turned down a check for her winnings. Or you may ask the inhabitants of India (average per capita income in 1998 in 1990 dollars $1,746) or China ($3,117 then) whether they would have liked an American income at that time ($27,331), a lottery of birth. The figures are only a little less tilted to the American side now. Or you can note the direction of permanent migration then, and more so now, West Africans waiting in Libya to make a perilous crossing to Italy, or Mexicans braving the deserts of the American Southwest to engage in the terrible crime of working north of the border. As an Hispanic comedian said early in the 2008-2009 recession, “You will know that things are really bad in the U. S. when the Mexican stop coming. ” In the 1930s actually they did stop coming, and many fewer came in 2009 than in 2007.

The thing to be explained, then, is the gigantic material enrichment of the modern world, an enrichment permitting lives of greater spiritual and intellectual scope. In Britain it was (very conservatively measured) a factor of sixteen since 1700. Even including the world’s regions that have not been able to take full advantage of innovation and of the bourgeois virtues, the real and cautiously measured income per head of the world has increased since 1800 by a factor of ten—this in the teeth of a rise in population of a factor of 6½. Why?

39. [back] Eagleton 2009, p. 326.
40. [back] UN/World Bank common data base at http://globalis.gvu.unu.edu/ indicator.cfm? IndicatorID=19&country=BZ#rowBZ
41. [back] Macfarlane 2000, p. 5.
42. [back] Goldin and Katz 2008.
43. [back] van Zanden 2003, p. 57. The finding is not uncontroversial.
44. [back] Fogel 2002, p. 37.
45. [back] Eldridge 1995, p. 7.
46. [back] Ó Gráda 2009, pp. 2, 1
47. [back] Maddison estimates per capita real income in Turkey as rising (rather slowly) 1950 to 2002, rising slower in Baathist Syria during the same period, and rising smartly in Iraq and Iran until the 1970s, and then until 2002 actually falling (in Iraq's case to 20 percent of its peak per capita income, achieved in 1979). See Maddison 2006, pp. 564-565.
48. [back] Rawls 1993; Buchanan 2003.
49. [back] True, Marx himself didn't use Kapitalismus much. In the German of Das Kapital, Vol. 1, he used Kapital and kapitalische on nearly every page, but rarely Kapitalismus. The English translation used "capitalism" only twice. Carlyle twenty-three years before, in Past and Present (1843), uses "mammonism." Later, and especially in the twentieth century, that age of multiple -isms, "capitalism" became common.
50. [back] The reference to theology is not merely ornamental. See Nelson 1991, 2001, and 2010.
51. [back] Marsalis and Ward 2008, p. 131.
52. [back] Tunzelmann 2003, p. 85.
53. [back] "Entrepreneurship" is from Schumpeter and his Austrian tradition (for example Schumpeter 1926 [1934] and "creative destruction" is from Schumpeter 1942 (1950), pp. 82-85 (borrowed from Werner Sombart's Krieg und Kapitalismus of 1913), "continuously emergent novelty" from Usher 1960, p. 110; "invention of invention" from various hands, such as Nathan Rosenberg, David Landes, and Joel Mokyr, and ultimately from Whitehead 1930, p. 120, quoted in Tunzelmann 2003, p. 85; "creative accumulation" in Tunzelmann 2003, p. 88; and jazz from Marsalis and Ward 2008, p. 167.
54. [back] Young 1928.
55. [back] Boswell 1791, for 1763, Aetat. 54, (Vol. 1, p. 273).