I sometimes pick up quick-to-read paperbacks, either fiction or non-fiction, at airports to help pass the time during my flight. So, on a recent short break to Malta, I bought Dambisa Moyo’s How the West Was Lost, published a short while ago, which seeks to argue that for various reasons, good and bad, the West (essentially, Western Europe and North America) is in danger of losing out to the East. I was intrigued enough to pay a few quid for the book, but in the end I should have known better.
Moyo has a lot of things to say with which free marketeers might approve of: she denounces the way in which the banking system has encouraged over-use of debt financing, creating all manner of problems, culminating in the sub-prime mortgage disaster and associated asset price bubble; she also understands that modern Welfare States have created many problems. However, for all that she tries to accept that the rise of the former Third World nations from poverty is a Good Thing and to be applauded, I cannot help but feel that she does not really mean it very much. She’s a mercantilist who sees economics as a titanic fight between states and is hostile, or at least sceptical, about the capacity of people operating in markets under the rule of law. And she repeats the canard that the panic of 2008 demonstrated the dangers of unfettered capitalism, oblivious to the fact that the monetary policies of the Fed, etc, were policies of state institutions, as was the interference in the US and other housing markets by governments (Freddie Mac, etc).
In fact, she seems wedded to a sort of neo-Malthusian argument that says that the desire for prosperity and higher living standards in places such as China is unmitigated bad news for the West as there are finite resources in energy, etc, and that Eastern prosperity comes at the expense of the West’s. In other words, she is arguing that economics is, in some ways, a case of winners and losers. Indeed, she talks repeatedly about the idea of there being a race, often using the very word… “race”… to make her points.
Here is one typical paragraph in which she says the West is suffering from all that terrible selfish individualism and we should benefit from a bit more of that no-nonsense collectivism as seen in China (page 172):
“Frankly speaking, the constitutional framework that has defined the US for the past three centuries is not likely to be amended in order to hand over more power to the state. Yet arguably more power, more flexibility and fewer committees are exactly what is needed. What sense does it make in the depths of the financial crisis – a state of economic emergency by most accounts, which brought the country and the world to its knees – for the President of the United States to have to build consensus around a desperately needed fiscal stimulus package before he and his advisors can act?”
She seems curiously unaware of to what extent the powers of the Federal government in the US have already gone way beyond what was envisaged by the Founders – and that’s a bad thing – and that in other Western nations, such as the UK, the government of the day has considerable powers, or has yielded great powers to the European Union and its legions of unelected officials. And yet for Ms Moyo the problem is that is far too much of this pesky liberalism, checks and balances, and so forth. I hate to say it, but she’s coming close to flirting with a form of fascism.
There are other, equally poor, arguments. For instance, she argues that the vast majority of citizens in Western nations have only reaped a small share of the benefits of greater trade and so on because many of the profits earned are paid to shareholders. For instance: (page 178) “The only thing companies were interested in was the company’s profitability and therefore the shareholders’ return on capital.”
Wow, the owners of firms want to make a profit (as opposed to making a whacking great loss, presumably). But even this line ignores the fact that by “shareholder”, we do not just mean a few isolated fat, capitalist bastards in suits; no, we also mean all the millions of people – including people a bit like Ms Moyo – who have savings plans, 401K plans, mutual funds, pension pots, etc. This line of hers also does rather beg the question of what should happen to these profits – should they be taxed in “reinvested” by governments? In several instances, she praises the behaviour of governments, such as oil-rich states, and their massive “sovereign wealth funds”, arguing that these are used to benefit domestic populations. Well they may be in some cases, but even a cursory awareness of public choice economics should alert Ms Moyo to the dangers of corruption, mis-allocation of capital, political favouritism and faddism that often comes when government agencies disburse vast sums. The flashy public spending projects of the past have often brought dubious rewards.
And I just knew I had wasted my aircraft reading time when she scorned Ricardo’s Law of Comparative Advantage, arguing that unless all countries play “fair” (which never happens), then the argument for free trade that the LCA underpins is chucked away.
This argument – that free trade is only beneficial if everyone plays nice – has been demolished time and again. A good example comes from Deepak Lal, in his book, Reviving the Invisible Hand.
Here is a passage:
“a country will benefit from removing its own tariffs and import restrictions even if all its trading partners maintain theirs. For as long as the domestic prices of goods in our country under autarky differ from those at which they can be imported and exported under free trade, the country will be able to obtain the gains from trade both by obtaining imported goods at a lower cost than they are produced at home (the consumption gain) and by specialising in producing and exporting those goods in which it has a comparative advantage and importing the others (the production gain), irrespective of the tariff applied by their trading partners. For these trade restrictions only damage the protectionist country’s welfare, and it would be senseless not to improve one’s own welfare just because someone else is damaging theirs. There is no point throwing rocks into one’s harbour just because others are throwing rocks into theirs. Hence, there is an incontrovertible case for every country to unilaterally adopt free trade, irrespective of the protectionist policies of other countries – with one exception. Suppose that a country is the only producer of some good – say, oil.”
He goes on to explain this case but says that in fact, retaliatory trade practices and other issues take the edge off this argument also.
It is all such a pity. She started well, but I really wish I had read that new Lee Child thriller instead.