The Levers of Wealth and Freedom

The newest debate at Cato Unbound is a good one. In their opening essay, David Schmidtz and Jason Brennan want to dispel a “big myth” about liberty, the big myth being the supposed incompatibility between positive and negative freedom. As a quick refresher: positive freedom refers to our capabilities; negative liberty refers to non-interference; many philosophers since Isaiah Berlin’s seminal essay believe a state cannot aim to achieve both. Pursuing one seems to destroy the other, so they say. But, to the contrary of this received wisdom, Schmidtz and Brennan write:

We think both negative and positive liberty matter.  Negative liberty matters in part because it is a highly effective, if imperfect, way of promoting positive liberty.

They are not the first to square this conceptual circle. John James Cowperthwaite called it positive non-interventionism. The result is Hong Kong. Isaiah Berlin may have been a tenured Oxford don, capable of fine-grained conceptual analysis with a first rate prose style, but Cowperthwaite sowed the seeds of Asia’s growth for the next 50 years. Philosophers were also quite taken aback by the advent of quantum mechanics. But then again, who wasn’t?

This is as good an opening as any to criticize myopic philosophers for not thinking “meta” enough. (Philip Pettit’s follow-up essay and John Christman’s are guilty of this as well.)  It is baffling and unfortunate. Instead of thinking about a system of systems, they focus on a single system of governance and how we should evaluate it. Phrases about what particular governments and societies ought to do are peppered throughout. And this may be an important first step–no doubt we ought to understand which values we want the particular institutions we live under to embody–but these philosophers stop far too short of the big question: what meta-institutions will maximize or establish our highest aims and values?

For instance, which is more likely to increase positive liberty or enlarge the sphere of non-domination for more people more quickly?

1. Our existing system of nation states perpetuated as is.
2. A global consolidation of nation-states into a single world government.
3. An open-ended entrepreneurial system in which the number of nation-states is increased over the next few decades by means of peaceful secession, seasteading, Free Cities, Charter Cities, and other approaches to the entrepreneurial creation of new sovereignties.

I agree whole-heartedly with each essayist that this is an empirical question. The matter cannot be decided with conceptual analysis from an armchair. But it is a question they all fail to ask. So what does history say?

Well roughly and in the main, in any single nation it supports Schmidtz and Brennan’s contention: the best means for increasing the set of our capacities is by establishing negative liberty as the national rule set for governance.  I say “roughly” because I take negative liberty to approximate the conditions measured by such indices as the Fraser Institute’s index for economic freedom, which takes into account the security of property rights, the rule of law, the size of the government, access to sound money, free trade, free minds, and so on. And over the last 50 years or so, there is a very strong correlation between a nation’s level of wealth and health and how fully it embraces economic freedom. (See here.)

But this is small scale thinking over too short a time scale.

Small digression on history–here’s a sign of tenured ineptitude. Christman saves his economic illiteracy and ignorance of history for his last paragraph. Does Penn State really promise to pay this man a salary in perpetuity? He writes:

Finally, for many of us, the track record of economic forces and the workings of competitive markets in effectively improving the lives of citizens in an equitable and morally acceptable manner, in a world where over one billion people still live on less than one dollar a day with no foreseeable prospect of meaningful improvement from market innovations, is already an obvious and dismal failure.

Ummm, yeah, citation needed? (Btw, tip to Penn State-guy: when making factual assertions it’s a good idea to base them in fact.) But he does raise a good point. There are two puzzles that promoters of positive liberty must explain: what Kling and Schulz call the Hundred-Year Gap and the Development Gap. The Hundred-Year Gap refers to differences in the kinds of goods and services available now as compared to those available a century earlier. It also involves comparing improvements in the length and quality of life for the average person across that time. I’ll also include knowledge about Nature and the universe, since the greater our knowledge, the more we’re able to tease out her secrets for our benefit. And on these measures, over the last century positive liberties have multiplied exponentially.

The Development Gap compares these same concerns across regions today. For example, the average income in Africa is less than $2,000 a year per person; in the U.S. it is greater than $30,000. Quality of life measures are even worse for people in poor regions. Diseases easily treated in the West kill millions in Africa and elsewhere. On nearly all measurements that approximate positive liberty, these regions are failing.

Admittedly there are some positive liberties that cannot be measured in wealth or health. Perhaps tolerance, I don’t know. But even for these less tangible concerns, the disparity between a century earlier and today holds just the same. Across regions, too. (Pace Christman, a tenured prof in a wealthy country, I’m not really concerned with debating the desirability of wealth and health as essential components of well-being and fulfillment. I take them as given.)

The positive liberty enthusiast cannot avoid coming to terms with this tale of scarcity and abundance. And he has to take seriously the laws, institutions, norms and practices that add fuel to the fire of growth. He also has to appreciate the difficulty of raising the poorest billion of the world out of poverty. If we’re truly concerned with positive liberty for all, as Brennan and Schmidtz and Christman appear to be, we shouldn’t limit ourselves to thinking about life within a particular nation. We need to think about what global system of nations and city-states will promote liberty with greater success than others.

Why is this important? Well for starters, there’s simply a lot of knowledge about governance we don’t have. It may be that there are more efficient ways of promoting positive liberty, especially within the context of particular regions, histories and cultures. We need some room for experimentation; we need room for greater customization in governance.

Most importantly, however, is this fact: negative liberty is not enough to promote prosperity over 100 year time spans or in developing countries. Or I should say it’s necessary, but not sufficient. There are a host of political and social obstacles that accumulate to prevent this.

At any rate on this scale and across eras and regions, what are the curbs to the discovery of new knowledge, whether it concern governance, authentic living, science or medicine? What fortifies the old at the expense of the new? What limits our positive liberties on a global scale?

Breaking Cardwell’s Law

Not all, but a good portion of economic growth is driven by innovation. And D.S.L. Cardwell observed that the creativity of most innovative societies is often short lived. The history of technological advancement is spasmodic and full of rare bursts. Britain between 1760 and 1800 or China from 130o to 1400 are epochs of great flourishing. But more often than not, these bursts of innovation peter out. Why this happens is a great puzzle. In his Turning Points in Western Technology, Cardwell is silent on this decline. He observes the rough historical pattern, but provides no explanation for it.

One plausible explanation, put forward tentatively by Joel Mokyr in The Gifts of Athena and in The Lever of Riches, is the following–the more vested interests are able preserve the status quo, the stronger resistance to innovation will become. It’s an Olsonian narrative. Because new technologies and new knowledge threaten the rents collected by current industry leaders, these leaders will exert no small effort to curb or extinguish the growth of the new.  Of course, when the market is the sole arbiter of which innovations thrive, these displacements occur frequently and without resistance. To take but one example, investors in Tower Records sustained great losses on account of iTunes and had no protection against this.  But if a system of governance were to allow, say, a Google to prohibit the discovery of more efficient search algorithms, then Google’s owners will work within that system to establish such a barrier. In fact, a lot of protectionism and regulation can be explained in this way: vested interests displacing the market from the role of arbiter, using instead a political process to decide what wins and what loses.

So what happens is that the innovators of today become the vested interests of tomorrow. And overtime, the barriers to entry they erect will accumulate and bring innovation to a halt. There are other obstacles I should mention as well: conservatism and technophobia, a status quo bias, tenured Penn State philosophers, the alienation some experience when dislocated by new invention, and so on. At any rate, prosperity suffers. Cardwell’s Law holds. And in the terms of this debate, positive freedom is imperiled.

But Mokyr offers a way out. And it goes like this. Innovation atrophies only for a single closed economy. But if we were to have a set of open and fragmented competing economies–a system of competing systems–then the resulting diversity, pluralism and independence will prevent the establishment from clogging the line of progress. It is for this reason that Western Europe continued to thrive over the last 500 years, while large empires like China, Russia and the Ottoman Empire did not. On this point Mokyr writes:

[Cardwell’s Law] holds for individual European societies, of course, but precisely because Europe was fragmented it does not hold for the continent as a whole. It is as if technological creativity was like a torch too hot to hold for long; each individual society carried it for a short time. So long as there was another nation or economy to hand the torch to, however, some light source illuminating the landscape has been glowing in Europe more or less continuously since the eleventh century. As Cardwell put it ‘the diversity inside a wider unity has made possible the continued growth of technology over the last seven hundred years.’

And he quotes David Hume, who in 1742 wrote that:

Nothing is more favorable to rise of politeness and learning than a number of neighboring and independent states, connected together by commerce and policy. The emulation which naturally arises among those neighboring states is an obvious source of improvement. But what I would chiefly insist on is the stop [i.e., constraint] which such limited territories give both to power and authority.

What Hume calls power and authority, of course, is what I have been calling vested interests and the forces of conservatism. And, sadly, those constraints he mentioned have been disappearing for years. We seem to live in the great age of centralization and conformism. What is to be done?  How can we obtain the benefits of fragmented and open economies that Hume describes?

Let a Thousand Nations Bloom

At the Long Now Foundation, Paul Romer asked, “What if there were no new countries?”

The answer: a stagnation of positive liberty. Because as much as we would like to believe the U.S. will be the technological leader of the world forever, there is little reason to believe it can be sustained once we extrapolate from history. But if someday soon we see the emergence of new places, places where people can migrate to and where new systems of governance can be tried, we can improve the odds that the next Hundred Year Gap will be even larger than the previous and that the Development Gap will disappear.

If we want more positive liberties, both for those who live in the future and those who live in poor regions, we need an entrepreneurial system in governance. We need the number of nation-states to increase over the next few decades.  Peaceful secession, seasteading, Free Cities, Charter Cities, and other approaches to the entrepreneurial creation of new sovereignties–all these are the levers of freedom and wealth. They are the protectors and promoters of positive liberty. Don’t let tenured philosophers tell you any differently.