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From Poverty to Prosperity: an ATN Book Review

December 8, 2009

Kling and Schulz on the origins and causes of wealth

Gentle reader, do get yourself a copy of Arnold Kling’s and Nick Schulz’s new book on revamping the sweet science of economics. It’s a wonderfully concise introduction to development, economic history, the roots of progress, wealth-creation, entrepreneurialism, and innovation–all this and more. In between chapters, the book features informative interviews with a handful of economists, ranging from Robert Solow and Paul Romer to Joel Mokyr, Edmund Phelps and Douglass North. It’s a great introduction to their work. Highly recommended.

Many of the book’s key concepts incite the imagination of the competitive government enthusiast. Kling and Schulz do not really broach the subject, but one cannot help but see how one system works–as say, with the importance of technology  and entrepreneurialism to improving the quality of life–and then imagine applying it to government. Government, Inc., after all, is just one kind of industry.

Cardwell’s Law For Governance

Cardwell’s Law says that no nation remains technologically innovative for long. It is a truth rarely acknowledged that with great stability comes hard mental and political cholesterol. Vested interests, wanting to hold fast to their dominant position, will erect all sorts of impediments to stifle would-be challengers. Innovation flags. Stagnation ensues. Life is worse for all.

Fortunately those trends failed to gain supremacy in the West during the last 200 years or so. The theory of history that Kling and Shulz present casts the co-evolution of rules and technology as the main drivers for improving our standards of living. And underlying the importance of rules and technology are the institutions and norms of behavior that foster them. The more a society opens itself up to change, the more a society encourages entrepreneurialism, the more likely it is that our quality of life will continue to improve. It is a virtuous cycle of positive, if disruptive feedback.

Why cannot this same model apply to governance? If national rule-sets are a technology, then Cardwell’s law plausibly holds here as well. In the industry of governance, there is little competition, no new entry, and rarely any exit. At a global scale, vested interests reign at the expense of innovation and progress. And yet we know there are better rule-sets that will improve our standards of living. Those rules we know of, we can’t enact, because of democratic sclerosis. And those rules we know not of, we can’t experiment to find. To make matters worse, we fail to encourage entrepreneurship in legitimate politics whatsoever.

Not having studied economics formally, I was surprised to learn from Kling and Schulz that the idea of entrepreneurship lies outside the orthodoxy of the discipline. So much worse then for the government-law providing entrepreneur who lies outside every theory of political philosophy but ours!

David Ogilvy, the famous advertiser of the 50s and 60s, wrote that you can judge a company by how many new, beneficial products it brings to market. The same might be said of governments and national rule-sets. We’re dealing with nearly extinct volcanoes here.

Innovation is an anarchic, tempestuous and unpredictable muse. Her gifts come without warning. But if we want all the good things in life–more time with those we love, more vacations, more art, more achievement, more heroism–we have to court her.

We have to have a society that welcomes and celebrates new products, new ideas, new entry into any market, and quickly moving capital to finance their creation. We want a society that isn’t satisfied with a better way of shipping ice blocks from the north to warm climates in the south. We want a society that invents refrigerators and air conditioners.  To continually improve our quality of life, we need anthropogenic category 5 gales of creative destruction on all levels. Kling and Schulz do a wonderful job of highlighting all that.

Now we just have to apply it to national rule sets. Good luck!

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  2. December 9, 2009 5:24 am

    Excellent, Mike, thank you. I’ve long been a fan of Arnold Kling’s. And, yes, the idea of entrepreneurship lies outside mainstream economic theory. One of the reasons that I call myself a fan of “Austrian economics” is quite simply the Austrians were the only ones who remembered details like property rights and entrepreneurship throughout the 20th century. Now that we know that secure property rights and entrepreneurship are key to prosperity, we can blame 20th century development economics for perpetuating 20th century poverty much longer than is necessary. The Marxists were really bad, but the neo-classical economists were not great.


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