“What is the meaning of the sculpture?” asked the professor, who answered himself: “I don’t know.” He seemed to be a reasonable guy. He didn’t exactly criticize the government, but he pointed to ranks of new condominiums, unprepossessing with their Plexiglas-screened sunrooms and window air-conditioner units. He said that the condos sold for between $100,000 and $200,000. Or didn’t. Almost all the units were vacant. “Why are these buildings empty?” asked the professor.
“Overbuilding and overpriced.”
Multinationals were visible in every direction, Shanghai booby-hatch headquarters for Hewlett-Packard, Siemens, Sharp, Coca-Cola, SmithKline Beecham, Hoffmann La Roche, Sony. There was just one thing wrong with this business district—no business. Nobody seemed to be there at all. In the middle of a Tuesday afternoon, nothing was going on. We drove up and down empty streets along concrete fences decorated with those international cross-out silhouettes indicating prohibition of this or that: No spitting. No martial arts. No cutting trees. No firecrackers. No breaking the phone.
No breaking the phone? Along the ground were miles of conduits that formed into tall pipe arches at every intersection. These were water and waste lines. Pudong had been built on a floodplain only a few feet above sea level, on ground too muddy to dig sewers in. This hadn’t slowed construction. “The floor space of high-rises in Pudong,” said the professor, rolling his eyes slightly, “exceeds New York City.”
The real-estate glut in Shanghai is such that prices had already fallen by 30 percent in the first half of 1997. Yet the city’s supply of office space was set to increase by a third in 1998.
A free market is a natural evolution of freedom. There’s a missing link in Shanghai. This is not a Darwinian economy where enterprises prosper according to their ability to survive and grow. This is a creationist economy where prosperity is bestowed by a greater power.
Pudong is prosperous in just this way. An article in The Asian Wall Street Journal said of the government officials in charge of Pudong: “Harking back to their authoritarian instincts…they are deploying every tactic to fill the cavernous neighborhoods they’re building.” The article said that foreign banks are told they must have headquarters in Pudong if they want to do domestic-currency business, and that the International School had been moved there in hopes of luring foreign executives to the empty apartment houses. Of Shanghai in general, The Asian Wall Street Journal said, “The city was, quite literally, ordered to be great.”
The Chinese Communists are attempting to build capitalism from the top down, as if the ancient Egyptians had constructed the Pyramid of Khufu by saying, “Thutnefer, you hold up this two-ton pointy piece while the rest of the slaves go get 2,300,000 blocks of stone.”
A few months after I took my tour of Pudong, a famous economic crisis developed in Asia. And I had been staring out my bus window at the cause of it. Pudong-like senselessness had been going on all over the continent. Instead of money being invested where that money would make as much more money as possible, money was invested in strange, showy stuff. Some of these bad investments were made due to “national industrial policies,” some because of corruption, some out of local pride, and some for murky political reasons. From Thailand to Japan, bad credit had been extended, bad equities had been sold, and bad ventures had been subsidized—all in the hope that success could be had by some method other than succeeding.
Of course, if I’d been able to see this disaster coming with the fore-rather than the hind-type of sight, I’d be too rich to be writing a book. But I’d have been wrong about the Asian economic crisis anyway. Since Pudong is the worst example of Pudong-style misallocation of capital, I would have expected the business failures to have started in China. But China has no floating currency rate to sink. And its securities market is not free to go into free fall. And the ordinary people of China live in desperate poverty. So when a depression comes…they live in desperate poverty.
On my last day in Shanghai, I went to an open-air antiques market—junk market, really—with flimsy booths containing a few old vases and bracelets, and lots and lots of Mao buttons. I found a poster from the Cultural Revolution showing sturdy figures with chins uplifted in that “who cut one?” marxist pose. The woman in the booth pointed to the date on the poster, 1966, and wrote the price on the back of her hand: 100 yuan (or renmimbi, “people’s money,” as the yuan is now called)—about $12.50. A small and bent old man walked up. He had a few teeth and thick glasses. “Would you like a translation?” he said.
The poster headline reads: REVOLUTIONARY STUDENTS MUST UNITE WITH REVOLUTIONARY FARMERS AND PARTICIPATE TOGETHER IN PLURAL CULTURAL REVOLUTION IN THE COUNTRYSIDE. With the same results, we know now, as the sugarcane harvesting I saw in Cuba. I gave the woman in the booth 100 yuan.
“No, no,” said the old man. “You should have bargained with her.”
“Well,” I said, “it’s guilt money. When that poster was printed, I thought I was for Mao.”
The old man laughed, and then he said, “Oh, yes. Because I had been sent to a Japanese school during the occupation, I was exiled to the country.”
“That must have been no fun.”
“How I suffered,” he said. “But Mao was a great man.”
“You really think so?”
“But he was dictator too long. He did many harmful things. He did…” The old man thought about how to put it and then summed up the entire history of government evil in the realm of economics:
“He did too much.”
11
EAT THE RICH
We’re so close to being rich. Everybody in the world could be rich as hell. The benighted masses of India could quit pedaling bicycle rickshaws and start dragging Lear jets through the streets of Calcutta. Indians in the Brazilian rain forest could be singing in the rain. The endangered fauna would wear thong bikinis: “Save the Girl from Ipanema.” Eskimos could give up clubbing baby seals and devote their arctic vastness to building an Olympic-quality ice dancing team.
When we’re all wealthy, Sally Struthers will be featured in magazine ads headlined, YOU CAN SEND THIS CHILD TO SUMMER WEIGHT-LOSS CAMP OR YOU CAN TURN THE PAGE. CARE packages will contain oyster forks and truffles. And altruistic musicians will hold benefit concerts to raise enough money to pay the Rolling Stones to retire.
Money won’t solve all our problems. But money will give us options—let us choose the problems we want to have. Leisure conglomerates may open franchises in Bosnia and Herzegovina where Muslims and Serbs can blast each other in paintball wars. Self-destructive individuals will still exist, but instead of dying from drug overdoses in pay-toilet stalls, they will be able to expire in luxury at the Chateau Marmont like John Belushi. The Taliban fundamentalists might continue to keep women in seclusion, but they could do so by opening a Bergdorf Goodman’s in Kabul. They’ll never see those wives again.
All this is possible because the modern industrial economy works. Obviously it works better in some places than in others. But it works, even in the poorest areas. Côte d’Ivoire now produces almost as much per-capita wealth as the United States did when the Monroe Doctrine was declared, and Egypt produces more. America did not consider itself a poor country during the 1820s, and, in fact, at that time it was one of the world’s most prosperous nations.
Extensive research has been done on the history of this industrial economy, much of it by the Organization for Economic Cooperation and Development. The OECD was founded by the Marshall Plan countries in the wake of World War II, and its purpose is what its name says. The OECD wants to make everyone rich as hell, although it never quite confesses to this in its literature.
In 1995 the OECD published a book by economist Angus Maddison title Monitoring the World Economy 1820–1992. Maddison has been studying economic growth since the 1950s, and has examined and weighed the subject’s statistics and statistical estimates. On the strength of these, Maddison calculates that until the Industrial Revolution, economic growth was paltry. Measu
red in 1990 U.S. dollars, the world gross domestic product—the value of everything produced on earth—went from $565 per person in 1500 to $651 per person in 1820. That was an increase in wealth of about 27 cents a year.
But after the Industrial Revolution, something wonderful happened. The total world GDP grew from $695 billion in 1820 to almost $28 trillion in 1992. This planet had the same amount of arable land in 1992 as it had in 1820, and, arguably, fewer natural resources. Plus, population had grown from a little more than 1 billion to nearly 5.5 billion. But even so, world GDP per capita swelled from $651 to $5,145. Prosperity increased by $26 a year. Wealth has been growing a hundred times faster than it did before the Industrial Age.
The modern economy works, and we know how to make it work better. Free markets are extremely successful. The evidence is there for anyone who wants to look. Hong Kong, with 6.5 million people in 402 square miles, has an annual GDP of $163.6 billion. Tanzania, with 29.5 million people in 342,100 square miles, has a GDP of $18.9 billion.
Even a free market with lots of tax baggage and regulatory impediments is much better than a market that isn’t free. Sweden has about the same amount of arable land as Cuba, a similar range of natural resources, a worse climate, and a couple million fewer people. But Sweden’s GDP is more than eleven times the size of Cuba’s.
And the free market trumps education and culture. North Korea has a 99 percent literacy rate, a disciplined, hardworking society, and a $900 per-capita GDP. Morocco has a 43.7 percent literacy rate, a society that spends all day drinking coffee and pestering tourists to buy rugs, and a $3,260 per-capita GDP.
We know what to do, and we know how to do it. So what’s wrong with the world? To a certain extent, it’s the same thing that’s wrong with me. Because the prosaic, depressing, and somewhat shameful fact is that the secret to getting ahead is just what my parents told me it was.
The whole miracle of the modern industrial economy is based upon the things that our folks were trying to drum into our heads before we went off to college to grow sideburns and leg hair—or, as the modern case is, get pierced eyebrows and neck tattoos. It’s the advice we received at the dinner table while the Jell-O dessert puddled and our friends were waiting for us at the mall. It’s the clumsy set-piece speech our parents made in the heart-to-hearts they’d spring on us when we were really high. It’s what we heard in capital letters when we brought home grades that looked like a collection of Baywatch bra cup sizes or wrecked the car.
Hard work
Education
Responsibility
Property rights
Rule of law
Democratic government
Actually, most parents didn’t get all those items into the lecture. In fact, I’ve never heard of a parent saying, “Listen here, if I catch you running around without property rights again, I’ll take away your cell phone.” But when our parents said, “Be honest,” they were assuming that property rights were real. And when our parents said, “Obey the law,” they were making a logical inference that the law existed and that it merited obeying. And many of our parents had served in the military, defending democracy, and would remind us of this at length.
Of course, by “hard work” our parents didn’t mean that we should be doing the hard things that constitute work for the poor people in the world. Few parents hope that their children will get jobs carrying forty-pound buckets of water on their heads. Our parents wanted us to do hard work that was intelligent, fulfilling, and promised advancement in life. (Although they also wanted us to mow the lawn.) The hard work was linked to education.
However, billions of people don’t have a chance to get an education, and some of them, like religious fundamentalists and deconstructionist college professors, don’t believe the education when they get one. This is one reason that dinner-table parental advice is difficult to apply to the earth’s impoverished masses. There are also billions of people who don’t have property rights, not to mention property. Or the property rights are arbitrary, and the property can be taken away by anybody with a gun or a government title. These billions of people have trouble being responsible because being responsible means thinking of the future. They haven’t got one.
Rule of law is crucial. And it has to be good law, not Albania’s Law of Lek. So if what our parents tell us is going to be globally effective, Mom and Dad will need to bring world leaders into the dining room. All the presidents, prime ministers, dictators, generals, chairman of idiot political parties, lunatic guerrilla chieftains, and fanatical heads of crazed religious sects will need to squeeze around the imitation Queen Anne mahogany veneer (with extra leaves in) and get a real talking-to.
Then there is democracy to be considered. Democracy is a bulwark against tyranny—unless the demos get tyrannical. People can vote themselves poor, as the Swedes seem to be trying to do.
Now all the people on the planet are coming over to the house. And when they get there, what they’re going to do is…exactly what we did. They’re not going to listen.
There is a worldwide pigheadedness about money. There is a willful and even belligerent ignorance concerning ways and means. There is a heartfelt and near-universal refusal to understand the basic economic principles behind the creation of wealth.
Not all this ignorance is irrational. Some people profit from economic privation. Economists, for instance. John Maynard Keynes couldn’t have become a big shot, guiding government intervention in business and finance, if it hadn’t been for the Great Depression. And Alan Greenspan is a success because we all lost our wallets when inflation scared our pants off.
We fear the power that others have over us, and wealth is power. We’re afraid that Kathie Lee Gifford is going to make us sew jogging suits for thirty cents an hour. But are the rich really scarier than the poor? Take a midnight stroll through a fancy neighborhood, then take a midnight stroll a few blocks from the U.S. Capitol. Sure, we can get in trouble in Monte Carlo. We can lose at roulette. We can get suckered into a shady business deal with Princess Stephanie’s ex-husband. But we’re more likely to be mugged in the District of Columbia.
Not that we should begrudge the crimes of those poor people. They’re just practicing politics on a small scale. If they’d listen to their own political leaders, they’d put down the gun and pick up the ballot box, and steal from everybody instead of just us.
Political systems must love poverty—they produce so much of it. Poor people make easier targets for a demagogue. No Mao or even Jiang Zemin is likely to arise on the New York Stock Exchange floor. And politicians in democracies benefit from destitution, too. The United States has had a broad range of poverty programs for thirty years. Those programs have failed. Millions of people are still poor. And those people vote for politicians who favor keeping the poverty programs in place. There’s a Matt Drudge conspiracy theory in that somewhere.
Many religions claim to admire poverty. And some religions even advocate the practice of being poor. (Although all those religions seem willing to accept large cash donations.)
You’d think that businessmen, in the search for new customers, would always be opposed to impecuniousness. But Kathie Lee Gifford is not alone in depending on destitute workers to take pay-nothing jobs.
Then there is a certain kind of environmentalist who thinks that human deprivation means plant and animal wealth. Tanzania’s experience of rhino-subsidizing rich tourists versus rhino-killing impoverished poachers argues against this. (And an Asia where every man could afford Viagra would be the best thing that could happen to the rhinoceros.) But many “greens” still believe that increasing human prosperity is wrong. For example, the famous population-control advocate Paul Ehrlich has said, “Giving society cheap, abundant energy…would be the equivalent of giving an idiot child a machine gun.”
Finally, general poverty benefits specific wealth. If most people are broke, that’s great for the wealthy few. They get cheap household help, low ancestral-manor real-estate prices, and no crow
ds on Martha’s Vineyard. This explains the small, nasty plutocracies in impoverished countries. Maybe it also accounts for the rich socialists prominent on the political landscape for the last two centuries.
I began this book by asking why some parts of the world are rich and others are poor, and I naturally had prejudices about what the answers would be. I favored the free market, not because I knew anything about markets, but because I live in a free (or nearly free) country, and I’m a free man (as long as I call home frequently), and it works for me. I was skeptical about the ability of politics to deliver economic benefits because I did know something about that. I’d been writing about politics, at home and abroad, for years. I had a low opinion of the trade and its practitioners. And I considered culture, as an economic factor, to be a joke. How is ballet going to make the Tanzanians wealthy?
I was stupidly surprised to find out how important law is. Law, of course, derives from politics. And a political system is ultimately a product of a society’s attitudes, ideas, and beliefs—that damned conundrum, its culture.
Which brings me back to the free market. I started out looking at the free market in terms of its effectiveness, its “efficiency,” as an economist would say. I ended up looking at the free market as a moral device. My initial prejudice was right in one respect. The most-important part of the free market is the part that’s free. Economic liberty cannot be untangled from liberty of other kinds. You may have freedom of religion, if the rabbi can get off night shifts on Fridays. You may have freedom of assembly, but where are you all going to go if it rains?
The U.S. Constitution is (at least I hope it is) a statement of American cultural values. The First Amendment implies a free market. Six of the remaining nine articles in the Bill of Rights defend private property specifically. And two of the others concern rights reserved to the people, some of which are certainly economic rights. We are a free-market nation, though the electors and the elected sometimes forget it.