The road to prosperity according to Deirdre McCloskey

On Wednesday November 5, Swedish Entrepreneurship Forum arranged Swedish Schumpeter Lecture 2014. This year’s speaker was Deirdre McCloskey, professor in economics, history, English and communication at University of Illinois, Chicago. The theme of the lecture was How We Actually Got Rich: The Liberal Plan of Equality. Deirdre McCloskey persuasively spoke of how attitudes towards entrepreneurship  and innovation have raised the economic development forward.

Deirdre McCloskey

Professor Deirdre McCloskey is a well renowned economist and historian who have written 16 books and nearly 400 articles about economic theory, economic history, philosophy, feminism and ethics amongst other subjects. She has been described as a conservative economist but she presents herself as a progressive, Christian and post-modern proponent of free market economy.

Deirdre McCloskey started out by telling that she is a great fan of Joseph Schumpeter, the Austrian-German-American political economist who primarily is known for his studies in economic development, innovation and creative destruction.

When Schumpeter published his first book in 1911, a pessimistic picture of the future prevailed, McCloskey said. The world was poor. Since then, what she calls, “The Great Enrichment” happened and thanks to new innovations the world has grown richer.

– So what do you think are the greatest economic changes the past forty years? McCloskey asked rhetorically.

Deirdre McCloskey

The spread of economic development

According to McCloskey the great depression of 1929 did not have a long lasting effect on the world. The world recovered in only one year.

– The greatest change is the spread of economic development across the world. In a short period of time countries like China and India have had remarkable economic expansions. How did this happen?

At the start of the 19th century the word innovation meant something bad, since it means that life is about to change. Imperialism changed the world quickly, but it never made countries rich, McCloskey claimed.  Not exploitation, investment nor saving has built our prosperity. So what made the world richer? According to McCloskey, an ideological and sociological changed occurred.

– The biggest change comes from ethics and rhetoric.

An ideological change

In her latest book Burgoise Dignity: Why Economics Can’t Explain the Modern World McCloskey claims an ideological change, a belief in the free exchange, has shifted focus towards entrepreneurship and innovation. Thus, capitalism and free market made us richer, in combination with a greater respect for other humans as well as a will to make life better for all.

Advising the audience on the future, McCloskey proposed that we keep nurturing capitalism and let entrepreneurs who are willing to take risks operate freely. She encouraged everyone to fight xenophobia as well as let people move across borders without restrictions; to make sure people will be left alone doing what they do best, being creative.

– Both women and men have all the opportunities in the world to do what they want, McCloskey said in conclusion.

Monica Arvidsson

Economic inequality leads to democratic instability

Monika Arvidsson, Chief analyst of the think tank Tiden, asserted that income inequality is on the rise in society. There are still a large number of poor households and inequality between the genders remains.

– A cleaner have to work for 59 years to make what a large corporation CEO earns in one year.

If the trend persists, the income gap will be as bad as it was at the turn of the last century, Arvidsson continued.

– This is not a step forward.

In such scenario the people’s democratic power might become unbalanced. To a larger extent wealthy people can take part in political life, they also have a superior possibility to influence politics. A focus on profits will not lead to greater social responsibility, only a focus on consumerism. Lastly, Arvidsson wanted to see a better balance between free market and democracy. Loosely regulated markets will not serve society.

– Capitalism is good, but it must also be good value for average Joe.

Deirdre McCloskey replied to Arvidsson’s remarks mentioning that she could relate to Arvidsson:

– I have been a Marxist, I have been a socialist, I have been it all, I have even been a man!

With this said, we have never been this equal and the discussion should not be about relative poverty. Instead it should be about absolute poverty, McCloskey meant. She found Arvidsson’s arguments nationalistic, since relative poverty focuses on Sweden. A focus on absolute poverty on the other hand will help more people globally.

Jesper Roine

Threat from the free market

Jesper Roine, Associate Professor and Deputy Director at SITE, Stockholm School of Economics, said that he generally agrees with McCloskey. However, he could see a few areas of concern. Just as Arvidsson he found extreme wealth as a danger of a democratic free market society. Free market policies could be set aside if the extremely rich use their power to influence politics to a larger extent.

– Lately, some of the reforms in the US have not been in the free market direction.

Globalization and free market is perceived as a threat in some circles, Roine noted. A closure of for example Saab or similar companies can, in some cases, only be accepted by the population if people know that there are social security nets to catch those who lose their jobs. Therefore there is a point with redistribution policies since it actually can protect the free market.

– Innovation comes from the whole population, not only from one individual.

Consequently, Jesper Roine could also see another reason for redistribution policies. In case opportunities are unequal, society stands to lose talented people, he said in conclusion.

Deirdre McCloskey said she does not mind to pay taxes and some redistribution, but there are problems with a too large government.

– The government should not act as an unemployment agency for those with university degrees.

To sum up, she argued that a national income guarantee might work, but not a minimum wage which could shut out workers with low qualifications from the labour market.

P J Anders Linder

Support for free market falls

The last commentator of the afternoon was P J Anders Linder, editor in chief at the Axess Magazine, who enlightened the audience that the 150 year jubilee of the introduction of freedom of enterprise in Sweden is this year. This reform was the foundation for our prosperity and made us more equal.

– If McCloskey is right, the biggest gift we got is the faith in free market, entrepreneurship and free exchange.

Nonetheless, Linder had noticed a tendency for a falling faith in free market. Only about 70 percent of the Americans and 45 percent of the Spanish population think that  the free market is something good. Remarkably, the highest support is recorded in Vietnam with 95 percent.

– We should ask ourselves if we have nurtured this way of thinking, if business people have acted shortsighted and been irresponsible.

The problems faced cannot be solved by the state, was Deirdre McCloskey’s opinion on the matter. The picture many have of Sweden during the 20th century is a country with a large government which takes care of the individuals’ needs. However, this is a romanticized picture and such society should not be applied to nine million people, McCloskey warned.

Hang the rich from lamp posts

Finally the audience got a chance to ask questions, the first was put forward by Bruce Lyne, KTH. He wanted to know if society as it is today, with a large focus on consumerism, can support more wealthy people. The consumerism focus is wrong, Deirdre McCloskey meant. Many argue that high consumption equals good economy.

– What if all we had to do to increase our wealth was consume, not invent anything ever. This is economical nonsense!

The danger is when people think of consumerism as the solution, Jesper Roine added. This belief only leads to more money printed and more loans taken, he argued.

– Consumerism is not the problem, however not enough investments are a problem, said Monika Arvidsson.

Johan Eklund, Swedish Entrepreneurship forum, wanted to know what we can do about the failing faith in free markets.  Researchers need to act as a bridge towards the citizens Deirdre McCloskey meant.  Nevertheless, the government should not tell the citizens how to feel about capitalism, it will only lead to failure, she added.

– The government has told us to be radical environmentalists, in Sweden people are praying to the woods and radical environmentalism has been thought in schools.

These radical movements do not have a sensible way to view the world and the cause is the government, which has told people what to think, Deirdre McCloskey said.

Claes Gustafsson, KTH, asked the last question and wanted to know if absolute economic equality is good for the economy.

– I do not think this will ever happen, and if it does I do not think is neither good nor bad for the economy.

McCloskey told the audience of how she started with economics to be able to help the poor, but a focus on redistribution is wrong.

– If the rich are the cause of poverty, hang them from lamp posts!

If we take all the money from the wealthy and give it to the poor, it won’t improve their income much, she argued. On the other hand, free market economics can.

Deirdre McCloskey and Pontus Braunerhjelm

Before Deirdre McCloskey left the stage, Swedish Entrepreneurship Forum’s CEO, Pontus Braunerhjelm, presented her with a diploma and a thanked her for the participation in Swedish Schumpeter Lecture 2014. After the seminar followed a mingle, where McCloskey kept discussing the topics of the day with the seminar’s participants.

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