Quotable (#223)

Mokyr:

The idea that European political fragmentation, despite its evident costs, also brought great benefits, enjoys a distinguished lineage. In the closing chapter of The History of the Decline and Fall of the Roman Empire (1789), Edward Gibbon wrote: ‘Europe is now divided into 12 powerful, though unequal, kingdoms.’ Three of them he called ‘respectable commonwealths’, the rest ‘a variety of smaller, though independent, states’. The ‘abuses of tyranny are restrained by the mutual influence of fear and shame’, Gibbon wrote, adding that ‘republics have acquired order and stability; monarchies have imbibed the principles of freedom, or, at least, of moderation; and some sense of honour and justice is introduced into the most defective constitutions by the general manners of the times.’ […] In other words, the rivalries between the states, and their examples to one another, also meliorated some of the worst possibilities of political authoritarianism. Gibbon added that ‘in peace, the progress of knowledge and industry is accelerated by the emulation of so many active rivals’. Other Enlightenment writers, David Hume and Immanuel Kant for example, saw it the same way. From the early 18th-century reforms of Russia’s Peter the Great, to the United States’ panicked technological mobilisation in response to the Soviet Union’s 1957 launch of Sputnik, interstate competition was a powerful economic mover. More important, perhaps, the ‘states system’ constrained the ability of political and religious authorities to control intellectual innovation. If conservative rulers clamped down on heretical and subversive (that is, original and creative) thought, their smartest citizens would just go elsewhere (as many of them, indeed, did).

Political disintegration combined with cultural-market integration was the key.

In 18th-century Europe, the interplay between pure science and the work of engineers and mechanics became progressively stronger. This interaction of propositional knowledge (knowledge of ‘what’) and prescriptive knowledge (knowledge of ‘how’) constituted a positive feedback or autocatalytic model. In such systems, once the process gets underway, it can become self-propelled. In that sense, knowledge-based growth is one of the most persistent of all historical phenomena – though the conditions of its persistence are complex and require above all a competitive and open market for ideas.

Quotable (#172)

Is technology now de-globalizing? The argument (at Stratfor):

Opportunities for producing and assembling products and their components have spread worldwide, making it is easier for countries to climb the production value ladder. States at the bottom, extracting raw materials, can gradually move up, first making low-value components and then progressing to higher-value ones or basic assembly. But just as technology spurred globalization and the shifts in international trade that followed, so, too, will it revolutionize how countries again do business with one another. Compounded by the economic and demographic changes taking place today, automation, advanced robotics and software-driven technologies are ushering in a new era — one of shorter supply chains that will provide fewer opportunities for the developing world. Regions once labeled “emerging economies” may instead stagnate, and the divide between the haves and have-nots within and among nations could widen further. …

End of an Era?

Tyler Cowan expects a phase-change in Chinese development (with video).

“Imagine about 10% a year growth for almost 35 years — that has transformed everything.” But the ‘low-hanging fruit’, he argues, is now gone. Deep and prolonged recession could be in prospect, but the medium-term prospect — based on massive (and durable) investment in human capital — remains unambiguously positive.

“Perhaps the greatest danger is capital flight …” which could easily go nonlinear.

Big Plans

Whatever else this might be, it’s big.

For decades, China’s government has tried to limit the size of Beijing, the capital, through draconian residency permits. Now, the government has embarked on an ambitious plan to make Beijing the center of a new supercity of 130 million people. […] The planned megalopolis, a metropolitan area that would be about six times the size of New York’s, is meant to revamp northern China’s economy and become a laboratory for modern urban growth. […] “The supercity is the vanguard of economic reform,” said Liu Gang, a professor at Nankai University in Tianjin who advises local governments on regional development. “It reflects the senior leadership’s views on the need for integration, innovation and environmental protection.” […] The new region will link the research facilities and creative culture of Beijing with the economic muscle of the port city of Tianjin and the hinterlands of Hebei Province, forcing areas that have never cooperated to work together.

The integrated ‘supercity’ would have a population larger than Japan’s (and larger than all but eight countries in the world, excluding China itself).

Mind the Gap

“‘China’s Ideological Spectrum’ has created a spurious impression of an ‘ideological gap’ among different regions in China,” says Global Times, responding to this paper.

The Global Times opinion isn’t very well argued, but insofar as it is criticizing the paper for its distinctively Westernized construction of the ideological spectrum, it has a point. While economic liberalism is positively correlated with economic growth, political liberalism is not. As a study by Lant Pritchett and Lawrence H. Summers concludes:

… nearly every country that experienced a large democratic transition after a period of above-average growth (more than the cross-country average of 2 percent) experienced a sharp deceleration in growth in the 10 years following the democratizing transition. Among 22 countries in which episodes of large democratic transition coincided with above-average growth, all but one (Korea in 1987 with an acceleration of only 0.22 percent) experienced a growth deceleration. The combination of high initial growth and democratic transition seems to make some deceleration all but inevitable. The magnitude of the decelerations was very large: The median deceleration across the 22 countries was 2.99 percent and the average deceleration was 3.53 percent.

(Yasheng Huang makes a spirited contrary case.)

Quotable (#72)

From Carlota Perez’s Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (2002, p.159):

When reading the accounts of the 1870s and 1880s written by those who lived through them, one is inevitably struck by the similarities between the evolution of compound engines and ships and that of chips and computers, between the process of generation of a world economy through transcontinental transport and telegraph and the present process of globalization through telecommunications and the Internet. By making the relevant distinctions between that context and this one, the power of those technologies and of these, the worldviews of that time and our own, we can learn to distinguish the common and the unique in all such processes. The same happens when reading the glowing accounts of economic success in the 1920s and the similar writings about the ‘new economy’ in the 1990s. If one is willing to accept recurrence as a frame of reference and the uniqueness of each period as the object of study, then the power of this sort of interpretation comes forth very strongly.

(The entire book is, of course, a masterpiece.)

RIP LKY

The greatest statesman of modern times has died. Without Lee Kuan Yew (1923-2015), there could have been no Deng Xiaoping.

Mr Lee_0

There is little, if anything at all, listed among his failings that is not more realistically appraised as an unfashionable virtue.

Obituaries at Bloomberg, in The Economist and The Wall Street Journal.

The Fork

There are numerous intense controversies attending the emergence of Bitcoin, but (surely) the most consequential concerns the temptation of mainstreaming. Max Chafkin captures its contour well:

… a loose collective of crypto-anarchist hackers — which at one time included [Vitalik] Buterin — plans to release bitcoin software called Dark Wallet that’s designed to guarantee total anonymity, thus circumventing all attempts at regulation. (Buterin has since moved on to Ethereum, a cutting-edge platform based on units of “ether” that’s intended to decentralize control of all transactions on the Internet.) Dark Wallet’s cofounder Cody Wilson, 26, previously made headlines for starting Defense Distributed, which has posted digital files that anyone can use to 3-D-print essential parts of an AR-15 assault rifle. Wilson, a University of Texas law-school student turned global anarchist hero, readily concedes that Dark Wallet, like burner cell phones and encrypted e-mail, will likely appeal to criminal elements. In fact, he wouldn’t be surprised if the Islamic State adopted Dark Wallet for laundering money and financing bombings. “It’d be the highest compliment you can get,” Wilson says, “if the greatest terrorist organization in the world is using your software.”

Can a currency fit for terrorists also be, as the venture capitalist Marc Andreessen has called bitcoin, an “opportunity to imagine how the financial system can and should work in the Internet era”? Probably not for long. Many big bitcoin investors are betting on technological platforms, not the currency itself. Like Napster, bitcoin may usher in revolutionary change but not survive to see its effects.

(This overview by Daniel Krawisz is a good complement to the Chafkin story.)