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The moral consequences of economic growth


Praise for Benjamin M. Friedman’s
The Moral Consequences of Economic Growth
“Fascinating.… A compelling [case], backed up impressively by historical evidence.… Belongs on the
required-reading list of anyone hoping to improve the world.”

—The Philadelphia Inquirer
“Persuasive.… Friedman urgently and convincingly describes a society that is failing in many respects but is

strangely unable to understand why.… His analysis should be heeded.… His book makes clear the moral
consequences of economic growth in developed and developing nations.”
—The New York Review of Books
“A powerful rebuttal to some of the conventional assumptions of this country’s governing elite.… Friedman
is a true scholar, and he scrupulously presents all sides of an argument and all the available evidence.… His is
wise counsel and a sober warning. Let’s hope someone is listening.”
—American Prospect
“Impressive.… Sophisticated.… A subtle, wide-ranging argument.… A compelling case for why societies at
all stages of development should strive to realize or sustain increases in living standards.”
—The New Leader




FIRST VINTAGE BOOKS EDITION, SEPTEMBER 2006
Copyright © 2005 by Benjamin M. Friedman
All rights reserved. Published in the United States by Vintage Books, a division of Random House, Inc., New York, and in

Canada by Random House of Canada Limited, Toronto. Originally published in hardcover in the United States by Alfred A.
Knopf, a division of Random House, Inc., New York, in 2005.

Vintage and colophon are registered trademarks of Random House, Inc.
A portion of this work previously appeared in The Atlantic Monthly.
The Library of Congress has cataloged the Knopf edition as follows: Friedman, Benjamin M.
The moral consequences of economic growth / Benjamin M. Friedman.—1st ed.
p. cm.

1. Economic development—Moral and ethical aspects.
2. Income distribution. 3. Political participation.
4. Democracy. I. Title
HD82F7168 2005

174—dc22

20045040792

eISBN: 978-0-307-77345-6
Author photograph © J. D. Sloan
www.vintagebooks.com
v3.1


For B.A.C.


Contents
Cover
Title Page
Copyright
Dedication

Preface
PART I


IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS

Chapter
Chapter
Chapter
Chapter

1 - What Growth Is, What Growth Does
2 - Perspectives from the Enlightenment and Its Roots
3 - Crosscurrents: The Age of Improvement and Beyond
4 - Rising Incomes, Individual Attitudes, and the Politics of Social Change
PART II
DEMOCRACY IN AMERICA

Chapter
Chapter
Chapter
Chapter

5 - From Horatio Alger to William Jennings Bryan
6 - From TR to FDR
7 - Great Depression, Great Exception
8 - America in the Postwar Era
PART III
OTHER TIMES, OTHER PLACES: THE EUROPEAN DEMOCRACIES

Chapter 9 - Britain
Chapter 10 - France
Chapter 11 - Germany
PART IV
DEVELOPMENT, EQUALITY, GLOBALIZATION, AND THE ENVIRONMENT

Chapter
Chapter
Chapter
Chapter

12 - Economics and Politics in the Developing World
13 - Virtuous Circles, Vicious Circles
14 - Growth and Equality
15 - Growth and the Environment
PART V
LOOKING FORWARD


Chapter 16 - Economic Policy and Economic Growth in America
Notes
Acknowledgments
About the Author
Other Books by This Author


Preface
Morality has many dimensions. In some contexts, the actions and attitudes we recognize
as moral are mostly a matter of individual behavior. Personal honesty, fair dealing,
family bonds, and loyalty to friends and co-workers would be on almost everyone’s list.
Religious belief and practice would be on many people’s. Many would also add, now in
a negative sense, aspects of sexual behavior, or use and abuse of drugs and alcohol.
This book is about how economic growth—or stagnation—a ects the moral character
of a society. But here as well, what constitutes a moral society is a matter of many
dimensions, and a question to which different people bring different conceptions.
The concept of a moral society that I take as the benchmark for examining what
di erence economic growth makes is the image held out by the Enlightenment thinkers
whose ideas were key to the creation of America as an independent nation and have
remained central to Western thinking ever since. Its crucial elements include openness
of opportunity, tolerance, economic and social mobility, fairness, and democracy. Surely
there are other valid conceptions of the moral society as well; but these are the
characteristics that I keep in mind throughout, and against which I measure the progress
or retreat that economic developments help bring about. I make no attempt here to
argue why these characteristics of a society are desirable, much less moral. I take them
to be so for the reasons Locke and Montesquieu, Adams and Je erson, and political
thinkers both theoretical and practical ever since, have recognized.
This book could have been written from any of a number of familiar viewpoints, and
not just because different people might conceive the moral society differently. Beginning
from the same benchmark, a historian, a philosopher, a psychologist—not to mention a
theologian—could well treat this subject, and presumably would treat it di erently.
Although I have drawn on these disciplines along the way, I have nonetheless written
from the perspective of an economist. After more than half a lifetime of study and
research into policies designed to keep output and employment as close as possible to
an economy’s existing potential, and to help that potential expand over time, I wanted
to be able to say why this matters for countries (like my own) where the average income
is already high and most people enjoy a comfortable standard of living. That is where
this inquiry starts.
And, of course, I have written also from the perspective of my time and place. One of
my Harvard colleagues with whom I once discussed in some detail the hypothesis about
economic growth and moral progress that I advance here, a distinguished European
scholar a decade and a half older than I, commented that only an American—and at
that, only an American of my generation—would write a book expressing such an
optimistic perspective on economic growth from a moral point of view. If this is right, I
gladly accept that identification as well.
BENJAMIN M. FRIEDMAN

Cambridge, Massachusetts


July 2005


PART I
IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS


Chapter 1
What Growth Is, What Growth Does
Economic growth has become the secular religion of advancing industrial societies.
—DANIEL BELL

The Cultural Contradictions of Capitalism1

A

re we right to care so much about economic growth as we clearly do?
For citizens of all too many of the world’s countries, where poverty is still the
norm, the answer is immediate and obvious. But the tangible improvements in the basics
of life that make economic growth so important whenever living standards are low—
greater life expectancy, fewer diseases, less infant mortality and malnutrition—have
mostly played out long before a country’s per capita income reaches the levels enjoyed
in today’s advanced industrialized economies. Americans are no healthier than Koreans
or Portuguese, for example, and we live no longer, despite an average income more
than twice what they have. Yet whether our standard of living will continue to improve,
and how fast, remain matters of acute concern for us nonetheless.
At the same time, perhaps because we are never clear about just why we attach so
much importance to economic growth in the rst place, we are often at cross-purposes—
at times we seem to be almost embarrassed—about what we want. We not only
acknowledge other values; as a matter of principle we place them on a higher plane
than our material well-being. Even in parts of the world where the need to improve
nutrition and literacy and human life expectancy is urgent, there is often a grudging
aspect to the recognition that achieving superior growth is a top priority. As a result,
especially when faster growth would require sacri ce from entrenched constituencies
with well-established interests, the political process often fails to muster the
determination to press forward. The all too frequent outcome, in low- and high-income
countries alike, is economic disappointment, and in some cases outright stagnation.
The root of the problem, I believe, is that our conventional thinking about economic
growth fails to re ect the breadth of what growth, or its absence, means for a society.
We recognize, of course, the advantages of a higher material standard of living, and we
appreciate them. But moral thinking, in practically every known culture, enjoins us not
to place undue emphasis on our material concerns. We are also increasingly aware that
economic development—industrialization in particular, and more recently globalization
—often brings undesirable side e ects, like damage to the environment or the
homogenization of what used to be distinctive cultures, and we have come to regard
these matters too in moral terms. On both counts, we therefore think of economic
growth in terms of material considerations versus moral ones: Do we have the right to
burden future generations, or even other species, for our own material advantage? Will
the emphasis we place on growth, or the actions we take to achieve it, compromise our


moral integrity? We weigh material positives against moral negatives.
I believe this thinking is seriously, in some circumstances dangerously, incomplete.
The value of a rising standard of living lies not just in the concrete improvements it
brings to how individuals live but in how it shapes the social, political, and ultimately
the moral character of a people.
Economic growth—meaning a rising standard of living for the clear majority of
citizens—more often than not fosters greater opportunity, tolerance of diversity, social
mobility, commitment to fairness, and dedication to democracy. Ever since the
Enlightenment, Western thinking has regarded each of these tendencies positively, and
in explicitly moral terms.
Even societies that have already made great advances in these very dimensions, for
example most of today’s Western democracies, are more likely to make still further
progress when their living standards rise. But when living standards stagnate or decline,
most societies make little if any progress toward any of these goals, and in all too many
instances they plainly retrogress. As we shall see, many countries with highly developed
economies, including America, have experienced alternating eras of economic growth
and stagnation in which their democratic values have strengthened or weakened
accordingly.
How the citizens of any country think about economic growth, and what actions they
take in consequence, is therefore a matter of far broader importance than we
conventionally assume. In many countries today, even the most basic qualities of any
society—democracy or dictatorship, tolerance or ethnic hatred and violence, widespread
opportunity or economic oligarchy—remain in ux. In some countries where there is
now a democracy, it is still new and therefore fragile. Because of the link between rising
or falling living standards and just these aspects of social and political development, the
absence of growth in so many of what we usually call “developing economies,” even
though many of them are not actually developing, threatens their prospects in ways that
standard measures of national income do not even suggest. But the same concern
applies, albeit in a more subtle way, to mature democracies as well.
Even in America, I believe, the quality of our democracy—more fundamentally, the
moral character of American society—is similarly at risk. The central economic question
for the United States at the outset of the twenty-first century is whether the nation in the
generation ahead will again achieve increasing prosperity, as in the decades
immediately following World War II, or lapse back into the stagnation of living
standards for the majority of our citizens that persisted from the early 1970s until the
early 1990s. And the more important question that then follows is how these di erent
economic paths would a ect our democratic political institutions and the broader
character of our society. As the economic historian Alexander Gerschenkron once
observed, “even a long democratic history does not necessarily immunize a country from
becoming a ‘democracy without democrats.’ ”2 And as we shall see from our own
experience as well as that of other countries, merely being rich is no bar to a society’s


retreat into rigidity and intolerance once enough of its citizens lose the sense that they
are getting ahead.
The familiar balancing of material positives against moral negatives when we discuss
economic growth is therefore a false choice, and the parallel assumption, that how we
value material versus moral concerns neatly maps into whether we should eagerly
embrace economic growth or temper our enthusiasm for it, is wrong as well. Economic
growth bears moral bene ts as well, and when we debate the often hard decisions that
inevitably arise—in choosing economic policies that either encourage growth or retard
it, and even in our reactions to the growth that takes place apart from the push or pull
of public policy—it is important that we take these moral positives into account.
Especially in a work focused on the positive link between economic growth and social
and political progress, it may seem strange to think that America, now so preeminent
across the world in economic terms, faces any signi cant threat in this regard. One
country after another—including even China and Singapore, which thus far have
hesitated to liberalize politically—has adopted American approaches to the management
of its economy, based on free enterprise, private initiative, and mobile capital. Why
would ongoing economic growth not therefore herald an era of further social and
political progress that would reinforce the openness of American society and otherwise
strengthen and broaden American democracy?
One concern is simply that the robust growth of the latter half of the 1990s may prove
to have been only a temporary interlude, a “bubble” as many disappointed stock market
investors now regard it, between the stagnation that dominated most of the nal
quarter of the twentieth century and further stagnation yet to come. But even the
prosperity that America experienced in the late 1990s bypassed large parts, in some
important dimensions a clear majority, of the country’s citizens. Jobs were plentiful, but
too many provided poor wages, little if any training, and no opportunity for
advancement.
Economic progress needs to be broadly based if it is to foster social and political
progress. That progress requires the positive experience of a su ciently broad cross
section of a country’s population to shape the national mood and direction. But except
for a brief period in the late 1990s, most of the fruits of the last three decades of
economic growth in the United States have accrued to only a small slice of the American
population. Nor was that short period of more widespread prosperity su cient to allow
most American families to make up for the economic stagnation or outright decline they
endured during previous years. After allowing for higher prices, the average worker in
American business in 2004 made 16 percent less each week than thirty-plus years
earlier.3 For most Americans, the reward for work today is well below what it used to
be.
With more and more two-earner households, and more individuals holding two jobs,
most families’ incomes have more than held their ground. But nearly all of the gain


realized over these last three decades came only in the burst of strong growth in the late
1990s. Despite mostly low unemployment, and some modest growth in the U.S. gross
domestic product—and despite the increased prevalence of two-earner families and twojob workers—the median family’s income made little gain beyond in ation from the
early 1970s to the early 1990s.4 For fully two decades most Americans were not getting
ahead economically, and many of those who did were increasingly hard-pressed to keep
up even their meager progress. This was not the kind of broadly based increase in living
standards that we normally conceive as “economic growth.”
Even for many families in the country’s large middle-class majority, economic
prospects have become increasingly precarious in recent decades. Young men entering
the American job force in the 1970s started o their working careers earning two-thirds
more, on average, than what their fathers’ generation had made starting out in the
1950s. By the early 1990s young workers were starting out at one-fourth less than what
their parents’ generation had earned.5
It is not surprising, therefore, that even as they expressed con dence that the U.S.
economy would continue to expand, throughout this period Americans in record
numbers also said they had no sense of getting ahead personally and that they feared
for their children’s nancial future. Even in the late 1990s, with the surge in both the
economy and the stock market in full bloom, more than half of all Americans surveyed
said they agreed that “The American dream has become impossible for most people to
achieve.” More than two-thirds said they thought that goal would become still harder to
attain over the next generation.6
The disappointment so many Americans felt at failing to achieve greater advances—
and that many feel today—is grounded in hard reality. So is the sense of many young
Americans that their prospects are poor even at times when the economy is strong. Our
citizens applaud the American economy, especially in years when it prospers, yet even
then they fear that the end of the American dream lies ahead. They do so because in the
last generation so many have failed to experience that dream in their own lives.
The consequence of the stagnation that lasted from the mid-1970s until the mid-1990s
was, in numerous dimensions, a fraying of America’s social fabric. It was no coincidence
that during this period popular antipathy to immigrants resurfaced to an extent not
known in the United States since before World War II, and in some respects not since
the 1880s when intense nativism spread in response to huge immigration at a time of
protracted economic distress. It was not an accident that after three decades of progress
toward bringing the country’s African-American minority into the mainstream, public
opposition forced a rolling retreat from a rmative action programs. It was not mere
happenstance that, for a while, white supremacist groups were more active and visible
than at any time since the 1930s, anti-government private “militias” ourished as never
before, and all the while many of our elected political leaders were reluctant to criticize
such groups publicly even as church burnings, domestic terrorist attacks, and armed
stando s with law enforcement authorities regularly made headlines. Nor was it
coincidental that the e ort to “end welfare as we know it”—a widely shared goal, albeit


for di erent reasons among di erent constituencies—often displayed a vindictive spirit
that was highly uncharacteristic of America in the postwar era.
With the return of economic advance for the majority of Americans in the mid-1990s,
many of these deplorable tendencies began to abate. In the 2000 and 2004 presidential
campaigns, for example, neither anti-immigrant rhetoric nor resistance to a rmative
action played anything like the role seen in the elections in 1996 and especially 1992.
While hate groups and anti-government militias have not disappeared, they have again
retreated toward the periphery of the nation’s consciousness. Even so, much of the
legacy of those two decades of stagnation remains. While it has become commonplace to
talk of the importance of “civil society,” many thoughtful observers increasingly
question the vitality in today’s America of the attitudes and institutions that compose it.7
Even our public political discourse has lately lost much of its admittedly sparse civility,
foundering on personal charges, investigations, and reverberating recrimination.
It would be foolish to pretend that all these disturbing developments were merely the
product of economic forces. Social and political phenomena are complex, and most have
many causes. In the 1960s, for example, conventional thinking in the United States
interpreted the wave of student uprisings on college campuses across the country as a
protest against the Vietnam War. No doubt it was, in part. That simple view failed,
however, to explain why other countries not involved in Vietnam had much the same
experience (in some cases, for example France, even more so) at just the same time. The
political and social changes that have been underway in America in our era have
multiple roots as well.
But it would be equally foolish to ignore the e ects of two decades of economic
stagnation for a majority of the nation’s citizens in bringing these changes about. And it
would be complacent not to be concerned now that the economy’s prospects are in
question once again. As we shall see, the history of each of the large Western
democracies—America, Britain, France, and Germany—is replete with instances in
which just this kind of turn away from openness and tolerance, and often the
weakening of democratic political institutions, followed in the wake of economic
stagnation that diminished people’s con dence in a better future. In many parts of
Europe, the social and political consequences of the transition from the postwar
economic miracle to today’s nagging “Eurosclerosis” are all too evident.
In some eras, both in our own history and in that of these other countries, episodes of
rigidity and intolerance have been much more intense and have borne far more serious
consequences than anything we have seen recently. But then some past eras of
stagnation or retreat in living standards have been much more pronounced as well. At
the same time, periods of economic expansion in America and elsewhere, during which
most citizens had reason to be optimistic, have also witnessed greater openness,
tolerance, and democracy. To repeat: such advances occur for many reasons. But the
e ect of economic growth versus stagnation is an important and often central part of
the story.


I believe that the rising intolerance and incivility and the eroding generosity and
openness that have marked important aspects of American society in the recent past
have been, in signi cant part, a consequence of the stagnation of American middle-class
living standards during much of the last quarter of the twentieth century. If the United
States can return to the rapid and more broadly based growth that the country
experienced during the rst few decades after World War II—or, more recently, the
latter half of the 1990s—over time these unfortunate political and social trends will
continue to abate. If our growth falters, however, or if we merely continue with slower
growth that bene ts only a minority of our citizens, the deterioration of American
society will, I fear, worsen once more.
The importance of the connection between economic growth and social and political
progress, and the consequent concern for what will happen if living standards fail to
improve, are not limited to America and other countries that already have high incomes
and established democracies. The main story of the last two decades throughout the
developing world, including many countries that used to be either member states of the
Soviet Union or close Soviet dependencies, has been the parallel advance of economic
growth and political democracy. As recently as the 1970s, fewer than fty countries had
the kind of civil liberties and political institutions that we normally associate with
freedom and democracy. By the close of the twentieth century there were nearly
ninety.8
Not surprisingly, the countries where this movement toward freedom and democracy
has been most successful have, more often than not, been countries where average
incomes have risen during these years. As we shall see, the speci c context of
developing economies creates several reasons for this to be so. To be sure, there are
highly visible exceptions—China, Singapore, and Saudi Arabia, to name just a few—and
discrete transitions in countries’ political systems usually exhibit other complexities as
well. But taken as a whole, the experience of the developing world during the last two
decades, indeed since World War II, is clearly more consistent with a positive
connection between economic growth and democratization than with the opposite.
For just this reason, concern that the robust expansion many developing countries
have enjoyed for some years may abate is likewise not a matter of economics alone. We
know that new democracies are fragile democracies. They have neither the appeal of
historical tradition nor much record of concrete accomplishments to give them
legitimacy in the eyes of what may still be a skeptical citizenry. Economic growth, or its
absence, often plays a signi cant role in spawning not only progress from dictatorship
to democracy but also the overthrow of democracies by new dictatorships.
It is too soon to judge whether the nancial crisis that beset some of the most
successful developing economies in Asia and Latin America at the end of the 1990s
marked the beginning of a new era of slower growth—due, for example, to global excess
capacity in many of the industries in which these economies compete—or merely a


warning to avoid risky nancing structures and eliminate wasteful corruption. Either
way, what should be clear is that the risks these countries face, if their growth in the
early decades of this century is disappointing, are as much political and social as they
are economic. The brutal violence suddenly in icted on Indonesia’s Chinese minority
when that country’s economy stumbled was only one demonstration of the dangers
inherent in falling incomes. For the same reason, the frequently expressed fears of what
an economic collapse would mean for the still tenuous and highly imperfect democracy
in Russia also deserve to be taken seriously.
Concerns of a graver nature surround those “developing countries” where there is
little actual economic development. In much of Africa, but elsewhere as well, living
standards are stagnant or declining. In many such countries the familiar claim is that
proper institutions—rule of law, transparency, stable government that is not corrupt—
must be in place before economic advance is feasible. But if it takes economic growth to
make these institutions viable (they go along with a democratic society although they
are not identical to it), seeking to implant them arti cially in a stagnant economy is
likely to prove fruitless.
The link between economic growth and social and political progress in the developing
world has yet other practical implications as well. For example, the continuing absence
of political democracy and basic personal freedoms in China has deeply troubled many
observers in the West. Until China gained admission to the World Trade Organization,
in 2002, these concerns regularly gave rise in the United States to debate on whether to
trade with China on a “Most Favored Nation” basis. They still cause questions about
whether to give Chinese rms advanced American technology, or let them buy an
American oil company. Both sides in this debate share the same objective: to foster
China’s political liberalization. How to do so, however, remains the focus of intense
disagreement.
But if a rising standard of living leads a society’s political and social institutions to
gravitate toward openness and democracy—as the evidence mostly shows—then as long
as China continues its recent economic expansion, Chinese citizens will eventually enjoy
greater political democracy together with the personal freedoms that democracy brings.
Since 1978, when Deng Xiaoping’s economic reforms began, the Chinese have seen a
sevenfold increase in their material standard of living.9 The improvement in nutrition,
housing, sanitation, and transportation has been dramatic, while the freedom of Chinese
citizens to make economic choices—where to work, what to buy, whether to start a
business—is already far broader than it was. With continued economic advance (the
average Chinese standard of living is still only one-eighth that in the United States),
broader freedom to make political choices too will probably follow. Indeed, an
important implication of the idea that it is in signi cant part the growth rather than just
the level of people’s living standards that matters for this purpose is that the countries
in the developing world whose economies are actually developing, like China, will not
have to wait until they achieve Western-level incomes before they experience signi cant
political and social liberalization.


If this conclusion seems optimistic, that is because it is. Traditional lines of Western
thinking that have emphasized a connection between material progress and moral
progress (as the philosophers of the Enlightenment conceived it) have always embodied
a powerful optimism about the human enterprise. The real dangers that accompany
stagnating incomes notwithstanding, many of the predictions as well as the implications
for public policy that follow from this connection encourage such optimism and are, in
turn, sustained by it.
In arguing that rising living standards nurture positive changes in political institutions
and social attitudes, it is important to be clear that practically nobody opposes
economic growth per se. Rather, a seriously credible warning of the end of economic
growth would prompt real consternation, as indeed occurred in the wake of the energy
price increases of the 1970s and, far more so, during the depression of the 1930s.
Greater a uence means, among many other things, better food, bigger houses, more
travel, and improved medical care. It means that more people can a ord a better
education. It may also mean, as it did in most Western countries during the twentieth
century, a shorter workweek, which allows more time for family and friends. Moreover,
these material bene ts of rising incomes accrue not just to individuals and their families
but to communities and even entire countries. Greater a uence can also mean better
schools, more parks and museums, and larger concert halls and sports arenas, not to
mention more leisure to enjoy these public facilities. A rising average income allows a
country to project its national interest abroad, or send a man to the moon.
All these advantages, however, lie mostly in the material realm, and we have always
been reluctant to advance material concerns to the highest plane in our value system.
Praise for the ascetic life, and admiration for those who practice self-denial, has been a
continual theme in the religions of both West and East. So have warnings about the
dangers to man’s spiritual well-being that follow from devotion to money and luxury,
or, in some views, merely from wealth itself. Even the aristocratic and Romantic
traditions, which rest on the clear presumption of having wealth, are nonetheless
dismissive of efforts to pursue it.
Further, even when people plainly acknowledge that more is more, less is less, and
more is better, economic growth rarely means simply more. The dynamic process that
allows living standards to rise brings other changes as well. More is more, but more is
also di erent. The qualitative changes that accompany economic growth—including
changes in work arrangements, in power structures, in our relationship to the natural
environment—have nearly always generated resistance. The anti-globalization protests
in the streets of Seattle, Genoa, and Washington, D.C., and even on the outskirts of
Davos, reflect a very long-standing line of thinking.
More than two centuries ago, as Europe was embarking on its industrial revolution
and Adam Smith and his contemporaries were analyzing and celebrating the forces that
create “the wealth of nations,” Jean-Jacques Rousseau instead admired the “noble


savage,” arguing that mankind’s golden age had occurred not only before
industrialization but before the advent of settled agriculture. Seventy- ve years later, as
prominent Victorians were hailing the “age of improvement,” Karl Marx observed the
raw hardships that advancing industrialization had imposed on workers and their
families, and devised an economic theory of how matters might (and in his mind,
would) become better, together with a political program for bringing that supposedly
better world into existence. Although communism is now mostly a relic where it exists at
all, romantic socialism, combining strains of Marx and Rousseau, continues to attract
adherents. So do fundamentalist movements that celebrate the presumed purity of preindustrial society.
The Club of Rome’s in uential Limits to Growth report and the “Small Is Beautiful”
counterculture of the 1970s, mounting concerns over the impact on the environment of
economic expansion, especially since the 1980s, and most recently the anti-globalization
movement mounted in opposition to the World Trade Organization and against foreign
investment more generally, are all echoes of the same theme that are thoroughly
familiar today. Environmental concerns in particular have expanded from their initial
focus on the air and water to encompass noise pollution, urban congestion, and such
fundamental issues as the depletion of nonrenewable resources and the extinction of
species. In recent years the force of competition in global markets and the turmoil of an
unsettled world nancial system have in icted visible hardships on large numbers of
people both in the developing world and in countries that are already industrialized,
just as they have created opportunities and given advancement to many others. As in
the past, the plight of those who are a ected adversely—Indonesians who faced higher
food prices when their currency plunged, Argentinians who found their savings blocked
when the country’s banking system collapsed, textile workers throughout the developing
world who cannot compete with low-cost factory production in China—has led not just
to calls for reform of the underpinnings of economic growth but to outright opposition.
What marks all these forms of resistance to the undesirable side e ects of economic
expansion or of the globalization of economic growth is that, just like earlier strands of
religious thinking, in each case they are accompanied by a distinctly moral overtone.
Ever larger segments of our society accept that it is not just economically foolish but
morally wrong for one generation to use up a disproportionate share of the world’s
forests, or coal, or oil reserves, or to deplete the ozone or alter the earth’s climate by
lling the atmosphere with greenhouse gases. While pleas on behalf of biological
diversity sometimes appeal to practical notions like the potential use of yet-to-bediscovered plants for medicinal purposes, we also increasingly question our moral right
to extinguish other species. Opposition to the global spread of markets is often couched
as much in terms of the moral emptiness of consumerism as the tangible hardships
sometimes imposed by world competition and unstable financial systems.
But if a rising standard of living makes a society more open and tolerant and
democratic, and perhaps also more prudent in behalf of generations to come, then it is
simply not true that moral considerations argue wholly against economic growth.


Growth is valuable not only for our material improvement but also for how it a ects our
social attitudes and our political institutions—in other words, our society’s moral
character, in the term favored by the Enlightenment thinkers from whom so many of our
views on openness, tolerance, and democracy have sprung. For reasons that we shall
explore, the attitude of people toward themselves, toward their fellow citizens, and
toward their society as a whole is di erent when their living standard is rising than
when it is stagnant or falling. It is likewise di erent when they view their prospects and
their children’s with con dence as opposed to looking ahead with anxiety or even fear.
When the attitudes of the broad majority of citizens are shaped by a rising standard of
living, over time that di erence usually leads to the positive development of—to use
again the language of the Enlightenment—a society’s moral character.
Hence questions about economic growth are not a matter of material versus moral
values. Yes, economic growth often does have undesirable e ects, like the disruption of
traditional cultures and damage to the environment, and yes, some of these are a proper
moral concern that we are right to take into account. But economic growth bears social
and political consequences that are morally bene cial as well. Especially for purposes of
evaluating di erent courses for public policy, it is important that we take into account
not just the familiar moral negatives but these moral positives as well.
It is no less essential to understand the proper relationship between public policies
and private initiatives regarding economic growth. Here, too, positive moral
consequences of rising living standards significantly change the story.
A commonly held view is that government policy should try, insofar as it can, to avoid
interfering with private economic initiative: the expectation of greater pro t is ample
incentive for a rm to expand production, or build a new factory, while the prospect of
higher wages is likewise su cient to encourage workers to seek out training or invest in
their own education. The same reasoning applies to private decisions on saving, starting
a new business, or adopting a new technology. The best that government can do (so the
story goes) is minimize the extent to which taxes, or safety regulations, or restrictions
imposed for the sake of national security blunt these market incentives. The “right” pace
of economic growth is whatever the market—that is, the aggregate of all private
decisions—would deliver on its own.
But this familiar view too is seriously incomplete. To the extent that economic growth
brings not only higher private incomes but also greater openness, tolerance, and
democracy—bene ts we value but that the market does not price—and to the extent
that these unpriced bene ts outweigh any unpriced harm that might ensue, market
forces alone will systematically provide too little growth. Calling for government to
stand aside while the market determines our economic growth ignores the vital role of
public policy: the right rate of economic growth is greater than the purely marketdetermined rate, and the role of government policy is to foster it.
As we shall see in some detail for the United States, there are many ways by which the
government can foster economic growth, given the political will to carry out such


policies. Except for a few years in the late 1990s, we have been systematically underinvesting in our factories and productive equipment. Just as important, we under-invest
in our nation’s human resources and we misuse what we do invest. Removing these
impediments to our growth would be highly desirable. But nding the will to do so
depends, in part, on popular understanding of why growth is so important in the rst
place.
It would be a mistake, however, to believe that only market incentives and government
economic policies are important for achieving economic growth and with it the positive
in uence on social and political development that follows from rising living standards.
While economic growth makes a society more open, tolerant, and democratic, such
societies are in turn better able to encourage enterprise and creativity and hence to
achieve ever greater economic prosperity. Alexis de Tocqueville, visiting America in the
1830s, remarked at length on how the openness of this new democratic society seemed
to spur e ort: economic advance was open to all (he was thinking only of white males),
and in a classless society rising economically meant rising socially. The resulting
opportunity to achieve and advance, Tocqueville observed, created in turn a sense of
obligation to strive toward that end. As we look back nearly two centuries later, it is also
self-evident that removing forms of discrimination that once blocked signi cant
segments of the population from contributing their e orts has further enabled the
American economy to harness its labor resources and its brainpower. On both counts,
the openness of our society has helped foster our economic advance.
America is perhaps the preeminent historical example of such reciprocity between
social and political openness and economic growth. Taken as a whole, our nation’s
history has predominantly been a mutually reinforcing process of economic advance (as
we shall see, sometimes interrupted) and expanding freedom (also sometimes
interrupted). The less fortunate experience of some other countries, most notably those
in sub-Saharan Africa since the end of the colonial period, suggests the same reciprocity
at work but in the opposite direction. Many governments there were at least formally
democracies when the colonial powers departed, but in time they became corrupt and
oppressive dictatorships. In parallel, what had been reasonably functioning economies
stagnated and then declined.
As we shall see, however, while the evidence suggests that economic growth usually
fosters democracy and all this entails, it is less clear that open societies necessarily
experience superior economic growth by virtue of their democratic practice. A mobile
society, with opportunity for all, obviously encourages economic enterprise and
initiative. But democracy is often contentious, even chaotic, and not every aspect of the
untidy process of self-government is conducive to economic expansion. Experience
clearly suggests that the absence of democratic freedoms impedes economic growth, and
that the resulting stagnation in turn makes a society even more intolerant and
undemocratic. The evidence to date suggests that this kind of vicious circle, as has


occurred in some African countries, for example, is more powerful than the analogous
virtuous circle in which growth and democracy keep reinforcing each other.
A further potentially important in uence on economic growth—and one that is
especially pertinent to the argument advanced here about the broader consequences of
rising living standards—is a society’s moral ethic. When people decide how much to
save, what size house to buy, whether to accept a new job, or whether to get more
education, they normally respond not just to personal economic incentives narrowly
construed but to established moral values and social presumptions. Businesses too are
rarely the single-minded pro t maximizers portrayed in economics textbooks. Whether
companies regularly launch new initiatives, whether they act with loyalty to their
workers and respect toward their communities, even whether they obey the law, also
reflects the broader culture of which they are a part. All societies develop moral norms—
against violence, favoring family bonds, against theft, in favor of truthfulness—as a
partial substitute for what would otherwise be hopelessly pervasive regulation aimed at
getting people to behave in ways that may be of little or no direct bene t to themselves
but nonetheless make everyone better o . Such norms are no less important in the
economic sphere.
Indeed, they may be more so. Laws and regulations are typically less e ective when
the desired behavior requires taking initiative or action, as opposed to refraining from
unwanted action. Even in highly developed, well-organized societies, it is far easier to
devise laws that discourage murder and theft than laws that encourage helpfulness to
one’s neighbors. Especially when it comes to the creative impulse that results in
enhanced economic productivity, laws and regulations are particularly useless. As we
have learned from many countries’ experience, regulations limiting how much sulfurous
smoke manufacturers can release into the air, or restricting the pollutants we can dump
into the water, are often reasonably e ective. By contrast, a law requiring businesses to
innovate, or otherwise become more productive, would be pointless.
It is not surprising, therefore, that many cultures, especially Western societies in the
modern era, have developed moral presumptions in favor of precisely those aspects of
personal behavior that lead to greater productivity and economic growth. Hard work,
diligence, patience, discipline, and a sense of obligation to ful ll our commitments
clearly make us more productive economically. Thriftiness fosters saving, which
enhances our productivity by making capital investment possible. Education likewise
increases our individual capabilities as well as our stock of public knowledge. Such
behavior brings bene ts that accrue directly to those who conduct themselves in that
way, and we value them partly on that ground. But in each case our society also regards
these qualities, or actions, as morally worthwhile.
A hundred years ago Max Weber argued that what he called “the Protestant ethic”—
an ethic in the sense of an inner moral attitude—had importantly spurred the
development of capitalist economic growth by fostering just these aspects of personal
behavior. Weber overlooked other religious and ethnic groups (Jews and overseas
Chinese, to cite just two) who share many of the attitudes toward personal behavior,


and much of the economic success, that he associated with northern European
Protestants. Moreover, even for the European Protestants whom Weber studied, there is
reason to wonder what was in uencing what in the rich interplay between religious and
economic developments. Many other in uences, of course, quite apart from ethical
norms, a ect economic growth as well. But the fundamental point remains: that certain
characteristics of personal behavior are important for economic growth, and that when
these characteristics acquire moral status the resulting ethic encourages people to
behave accordingly.
For our society’s moral values to nurture the behavior that spurs its economic growth
seems especially apt if, as I argue here, rising living standards in turn make our society
more open, tolerant, and democratic. Because we value these qualities in moral terms
rather than market terms, market forces on their own produce insu cient growth. Some
further impetus is required. Weber argued that familiar moral principles foster economic
growth. My argument here goes further: economic growth not only relies upon moral
impetus, it also has positive moral consequences. That we may depend at least in part
on moral means to satisfy our moral ends, even when the link that connects the two is
economic, has a particularly satisfying resonance.


Chapter 2
Perspectives from the Enlightenment and Its Roots
There are four distinct states which mankind pass thro: —1st, the Age of Hunters; 2dly, the Age of

Shepherds; 3dly, the Age of Agriculture; and 4thly, the Age of Commerce.… It is easy to see that in these
severall ages of society the laws and regulations with regard to property must be very different.
ADAM SMITH

Lectures on Jurisprudence 1
[T]he spirit of commerce brings with it the spirit of frugality, economy, moderation, work, wisdom,
tranquility, order, and rule.… [E]verywhere there is commerce, there are gentle mores.
MONTESQUIEU

The Spirit of the Laws2

I

n the Indian summer days of late September 1850, Londoners saw a wondrous
structure rising up on the edge of Hyde Park: a building, mostly of glass and steel,
that eventually covered seventeen acres and in parts ascended to a height of over one
hundred feet. The Crystal Palace, built specially to house the Great Exhibition of arts
and manufactures from Britain and other nations, opened on May 1, 1851. And on
display inside, in keeping with the marvel of engineering that proudly housed them,
were mostly—to put the matter bluntly—gadgets: tiny scissors and a penknife with ftyone blades; centrifugal pumps and ornamental street lamps; medical instruments,
agricultural implements, and safety devices for coal miners; marine engines,
locomotives, and a “Great Hydraulic Press.” There was even a “Model Dwelling House”
consisting of four self-contained ats, designed personally by Prince Albert, the Great
Exhibition’s royal patron and guiding spirit.3
All of these exhibits served to demonstrate the myriad ways in which advancing
technology had improved the everyday lives of British subjects, as well as citizens of
other lands throughout the world, during the rst half of the nineteenth century. But
more than that, as everyone also understood, the Great Exhibition and especially the
Crystal Palace itself were an exuberant celebration of the idea—indeed, the ideal—not
just of scienti c and therefore material progress but, far more important, of progress in
social, civic, and moral a airs as well. A giant olive tree planted inside the Crystal
Palace symbolized the further extension of this progress to the establishment of world
peace.
Not long after the Crystal Palace exhibition, the same con dence that new technology
not only was raising people’s living standards but in so doing was improving their lives
in more fundamental ways was on display in America as well. The 1876 Centennial


Exhibition in Philadelphia showed o the newest advances in communication and
transportation: essential ingredients in the e ort, then in full vigor, to build a uni ed
nation spanning a continent three thousand miles across. So too did the 1893 World’s
Columbian Exhibition, held in Chicago—in the midst of an economic depression, as we
shall see—to mark the 400th anniversary of Columbus’s arrival in the New World. Along
with such outstanding Midway attractions as the world’s rst Ferris wheel (designed
especially for the Chicago exhibition by a young engineer from Pittsburgh with the
appropriately patriotic name George Washington Ferris), the Syrian-born dancer
popularly known as “Little Egypt,” and scienti c novelties like Charles Yerkes’s
telescope and Thomas Edison’s Kinetoscope (the forerunner of the modern motion
picture camera), the Columbian Exposition prominently displayed Pullman locomotives,
American Bell telephones (visitors to the exhibition witnessed the rst long-distance call
from the Midwest to the East Coast), and the first all-electric kitchen.4
Such ideas were hardly limited to the English-speaking world. Just as Britain’s Crystal
Palace had its Great Hydraulic Press, and America’s Centennial Exhibition its steam
engine that powered all of the devices in Machinery Hall, the central item on display at
the Paris Exhibition of 1900 was a giant dynamo, forty feet tall. Henry Adams, who had
observed at rst hand much of the development of both America and Europe in the
latter half of the nineteenth century, described this colossus in his autobiography as “a
symbol of in nity,” “ultimate energy.” More than that, Adams wrote, it was “a moral
force.… The planet itself seemed less impressive, in its old-fashioned, deliberate, annual
or daily revolution, than this huge wheel, revolving within arm’s-length at some
vertiginous speed.… Before the end, one began to pray to it.”5
Despite the shock of World War I and the trials of the Great Depression, the same
ideal of technological progress giving rise to human progress in broader dimensions was
likewise readily visible at the 1939 New York World’s Fair and, even more so (not
surprisingly, in the aftermath of World War II), its successor held in 1964 in Flushing
Meadows. At the 1964 fair, any visitor who spent more than just a few minutes in the
“Progress Pavilion” sponsored by the General Electric Company clearly sensed that the
progress being celebrated extended far beyond the televisions, toasters, vacuum
cleaners, and the host of other physical objects on display. Similarly, when Ronald
Reagan, evolving from his career as an actor, appeared on television in GE commercials
proclaiming “Progress is our most important product,” most American viewers
understood that he was associating the company’s contribution to society with more
than just the products it manufactured and sold.
Today the same presumption of a connection running from technological progress to
material progress to progress in more fundamental, indeed moral dimensions of human
life is evident at Disney World’s EPCOT (the acronym stands for Experimental Prototype
Community of Tomorrow) in Orlando, Florida. At Disney World, however, the physical
symbolism achieves yet further resonance. Spaceship Earth, an eighteen-story-tall
geodesic sphere covered in silver, houses a ride through the history of communication.
The hydroponics ride displays techniques for growing edible plants in water. The


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