The Political Economy of Prosperity

Successful Societies and Productive Cultures

Peter Murphy

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429015410
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Why do some nations and cities attain high levels of economic and social prosperity? What makes them so successful? The kinds of factors habitually cited in answer to these questions explain why nations improve their economic and social performance but not why a small group of nations (or cities) perform much better than the rest. Economists stress efficient markets, effective industries and functional factors like transport, health, education, and infrastructure. Political scientists emphasize honest and democratic government. This book argues that three further factors are key: paradoxes, patterns, and portals.

To an unusual degree, the world's most prosperous economies and societies think and act paradoxically. At their core are enigmatic, puzzle-like belief systems that elicit cooperation via abstract patterns rather than personal connections. They are often accompanied by high levels of autodidactic self-directed learning and intense creation in the arts and sciences. These factors, when combined, facilitate large-scale interactions between strangers and, in so doing, they energize markets, industries, cities, and publics. Pattern-based political economies are especially prominent in the portal cities, regions, and nations that are concentrated along the world's maritime circumference in North America, East Asia, North-Western Europe, and Australasia. It is only by integrating additional cognitive, cultural, creative, and geographic elements that we can truly understand the successes of prosperous economies.

This book represents a significant contribution to the literature on political economy, economic growth, and prosperity.

1 Prosperity

Growth

Prosperity is a recent historical phenomenon. In 1800, the 17 countries for which we have reasonable estimates had an average GDP per capita of US$1,656 (in constant 2011 dollars) – US$4.50 a day.¹ In 1850, across 35 countries, the average was US$2,034. In 1900, it was US$3,538 covering 44 countries. In 1950, it was US$3,769 including 140 countries. In 2016, a recorded 169 countries had an average GDP per capita of US$18,631 – US$51 a day. The productive capacity of the world in two centuries had multiplied by a factor of least ten. Considering how few countries in 1800 we have reliable figures for, it is almost certain that the world’s overall productive capacity grew considerably more than tenfold in two centuries.

This remarkable achievement compares with the record of virtually no growth in the centuries between the time of the Roman Empire and 1500.² In year 1 ce, 13 component parts of the Roman Empire had an average GDP per capita of US$1,175 – US$3.20 a day. In 1500, nine countries for which estimates exist had an average GDP per capita of US$1,778 – virtually unchanged in 15 centuries.³ In a handful of countries after 1500, there is the first inkling of accelerating growth. The United Kingdom and the Netherlands each enter the nineteenth century with a level of economic prosperity two-and-a-half times the recorded average.⁴ By 1851, Switzerland’s annual product per head is US$5,349, twice the recorded average. By 1860, Australia had reached twice the world average, the United States the same by 1920 (Tables 1.1 and 1.2).

These are modernity’s exception societies. They pioneered a template for economic and social prosperity. Crucial to that template are growth-generating, self-organizing systems. This growth model ‘takes off’ in the settler societies in the nineteenth century; in Sweden in the late nineteenth century; in Japan, Germany, Norway, Denmark, and Finland in the early twentieth century; and in Ireland, Iceland, Singapore, Hong Kong, Taiwan, and Israel in the second half of the twentieth century (Tables 1.1 and 1.2).

There are a number of wealthy societies – though, strictly speaking, not prosperous societies – that are wealthy because they are resource-dependent states (Table 1.3). The current study brackets those states, principally because most resource-dependent states are poor rather than wealthy. States that rely heavily on the sale or export of resources are mostly low-income countries. There are a handful of resource-reliant states that are rich. However, their wealth is more the result of geological accident than the fruit of systemic human activity. It’s the latter that is the basis of prosperity.

Table 1.1Economic growth, 1820–2016: high-performing nations/territories

Table 1.2Rate of economic growth, global, 1820-2016

Table 1.3Resource-dependent states, 2016

A handful of modern societies figured a way to harness human activity in a manner that mixed human purpose, order, and freedom in a historically unprecedented manner. This model proved to be exportable to would-be medium-income countries. After 1950, the model to varying degrees spread across the globe. The number of middle-income countries increased accordingly.⁵ In 1950, the median GDP per capita for all countries was US$2,570; in 2016, it was US$12,464 (in constant 2011 dollars). Accompanying the growth of the middle-income countries, with levels of prosperity fivefold what they were 70 years before, was a mild increase in the difference between the median level of national prosperity and the upper level. In 1950, Switzerland had the highest GDP per capita (US$21,147). The median for all other countries was US$2,570, 12 percent of the Swiss figure. In 2016, Norway was the highest, with US$82,814 per capita.⁶ The global median was 15 percent of Norway’s level, and the global average was 22 percent of Norway’s GDP per capita.

GDP per capita is a standard measure of prosperity. It is a useful shorthand for prosperity. But how useful? To what extent does GDP per capita capture not only the economic prosperity of a nation but also its social prosperity? What use is the wealth of a nation if that wealth is not also reflected in the longevity and literacy of the population and the moderate distribution of income across the nation? Consequently, the present study draws on social components of prosperity as well as economic ones. Yet, for all that, the difference between countries ranked by GDP per capita and countries ranked by multiple social and economic factors is not huge. Without the growth of real GDP per capita, the considerable blessings of modern life are simply not possible.

Circular causality

Prosperity exists. What explains it? The first thing to be said is that prosperity is not the result of a single factor. We cannot understand it if we try and isolate a sole dominant driver that is the ‘cause’ of it, any more than we can say that there is an ‘independent variable’ that strongly ‘correlates’ with prosperity. Prosperity cannot be reduced to a single cause. Rather, it is multifactorial. Many things co-create it. Social facts are complex. Reducing them to one or two driving forces misconstrues their nature.

As a consequence, among the multiple factors that are significant in shaping prosperity, none of them strictly speaking is the ‘cause’ of prosperity or (more cautiously put) an ‘independent variable’ strongly ‘correlated’ with prosperity. Social causation does exist. But it does not work in the manner of a law-like relationship. It is not the case that if X exists then prosperity follows. Nor can we simply say that factor X is ‘strongly correlated’ with prosperity, because social causation is circular. Social causes have effects. But those effects are also in turn causes. Markets, for example, stimulate industries, propelling their rise. But emerging industries also create new markets. A buoyant labor market increases real wages, making larger houses more affordable. But, conversely, dense expanding cities stimulate productivity increases, allowing the real wages in labor markets to grow. The cause is the effect; the effect is the cause. Social causation is circular in nature.

Circular causation can be best understood as a pattern. It is like a color wheel, a set of contrasting colors that are complementary. Contrasts operate through oppositions; ratios and proportions organize oppositions into pleasing complementarities. The pair ‘contrast-complement’ neatly sums up the kind of ambidextrous ‘contrary-harmonic’ factors that animate prosperous economies and societies.

Prosperity is not reducible to one causal factor or decisive variable. Rather, it is a product of a number of significant factors. Each factor influences the other. Every factor is a cause and an effect. All of the significant factors are organized in a pattern-like manner. They contrast with each other; they complement each other. They are the effect of each other and the cause of each other. Though it might sound complex, in reality those who participate in modern social systems grasp this state of affairs fairly easily. This is because human beings readily think in pattern terms. This is a deeply embedded human cognitive capacity.

Patterns are formed by contrasts. Patterns organize oppositions into legible wholes. Black-and-white, void-and-mass, large-and-small, high-and-low, foreground-and-background are typical kinds of complementary oppositions. Patterns use devices like proportion, symmetry, rotation, homology, and ratio to structure these oppositions in ways that are clear and easy to interpret and understand. Via patterns, complexity is turned into a kind of simplicity. ‘Pattern-and-ratio’ constitutes one of two principle ways in which persons in successful modern societies orientate themselves. ‘Pattern-and-ratio’ provides the basis for ordered liberty – the most satisfying and most productive way of living in a modern society.

‘Pattern-and-ratio’ is not the only way that human beings classify things – including themselves. They do so by rules (procedures, lists, sequences, registers, and inventories), ranks (high-low, better-lesser, hierarchies, grades, statuses, and identities), intervals (degrees of difference, more-less, larger-smaller), and ratios (geometric means, harmonic means) (Table 1.4). ‘Rules-and-hierarchies’ is the second principle way that persons in modern societies orientate themselves. The paradigms of ‘pattern-and-ratio’ and ‘rules-and hierarchies’ compete for the soul of modern societies.

Table 1.4Social organization of polarities

Systems

Successful modernity has a strongly functional character. It generates interacting self-organizing systems. These, when combined, generate prosperity. Underlying this is pattern thinking. Pattern thinking combines opposites in pleasing ways. The intellectual version of this is paradox. Patterns are the stuff of everyday systems. Paradox is the stuff of the highest peaks of creation. Both run in parallel. Both are pivotal aspects of successful modernity. Highly proficient modern markets are inconceivable without the expectation of buyers that those who are sellers can provide goods or services that are simultaneously lower in price and higher in quality and the corresponding belief on the part of sellers that this is possible. This kind of pattern thinking suffuses successful economies and societies. Just as the price system is crucial to modern economies, so are engineering systems. The maxim of the engineer is to produce more outputs with less inputs. This is the technological criterion of efficiency – just as lower prices for higher quality goods is the market criterion of economy. Both are paradoxes.

Systems dominate modern life. This is in contrast to premodern societies. Systems are self-organizing. They lack central direction.⁷ They evolve and adapt spontaneously. Millions even billions of persons participate in them every day. Each person makes decisions individually, none of which by itself determines the shape or direction of the system. But collectively these untold number of decisions coalesce into patterns of action. Individuals in turn respond to these patterns. They adapt their decision making and choices to take account of the prevailing social pattern. These responses, when combined, then reshape the patterns of the system. Mutual adaptation occurs, in this case at both the level of system and the level of individual.

Modern societies are built around five key systems: markets, industries, cities, publics, and households. A sixth, lean government, is not so much a self-organizing system as a necessary complement of the quintet of self-organizing systems. These systems interact. Each is a system in itself and an environment for another system.⁸ Each causes effects in the others. Those effects in turn act back upon the initial system. Causes have effects; effects act as causes. The result is upward and downward spirals of action and interaction.

The systems that dominate modern life are functional. The opposing twin of function is hierarchy. This includes both premodern social hierarchies and modern organizational hierarchies. Hierarchies organize societies via statuses. Persons belong to ranks. Ranks are structured like a set of Matryoshka nesting dolls. Hierarchies are stacked inside hierarchies, running from the extended family through the wider society onto the state. Premodern societies are typically composed of a series of nested hierarchies. Each of these hierarchical units has to perform tasks and achieve goals. To that extent, hierarchies are functional. But their function is subordinate to that of status. Every rank, from the modest to the grand, has to obey a higher authority. This is true whether we are talking about a kin, clan, band, tribal, patrimonial, patron-client, or feudal society. Some mobility may occur between smaller and larger hierarchies and between up and down hierarchies. Societies transform from one kind of hierarchical stacking order to another. But the hierarchic principle of up-and-down, ascending-and-desce...