The RATIONAL OPTIMIST
How Prosperity Evolves
By Matt Ridley
Fourth Estate, 438pp.
Reviewed: 26 June, 2010
When a general gloom for the future of our species is amplified by disaster-hungry media, I opened this book with some hope. The title offered a chance to be both optimistic and rational.
By the end of the book the gloom had been stirred, but not shaken. The welcome stir was Matt Ridley’s catalogue of our remarkable human history of adapting to great and unforeseeable problems, on every scale from the microbial to the global. We have also generated almost continuous growth in overall quality of life, across most of a multiplying global population.
Regrettably, Ridley’s arguments did not shake this reader’s view that the individuals of our species, given freedom of choice, too often choose to avoid the measurable, individual short-term pain that is needed for an immeasurable, collective long-term gain.
Ridley presents himself as a true believer in private enterprise and market forces as the only reliable engine of prosperity. Specialisation and exchange in goods, services and ideas is the unique comparative advantage that has driven our species on a path of economic growth and betterment to which Ridley sees no credible end, short of cosmic calamity far beyond human intervention.
A claim to be rational is always contestible. Matt Ridley is really an optimistic neo-liberal, and his guru is Friedrich Hayek, the father of neo-liberal economics.
Ridley champions bottom-up market dynamics as humanity’s saving virtue, and blames society’s failures on a very long list of human villains: chiefs, priests, poll-driven politicians, bureaucrats, financiers, professors, out-of-control militarists, privilege-seeking corporations and monopolists. All are described as “parasites” on the productivity generated by the hard-working makers and traders further down the social tree.
This kind of quasi-Marxist analysis was popular during Chairman Mao’s Great Proletarian Cultural Revolution and under Pol Pot – but Ridley also abhors charismatic politicians and planned economies. It can be confusing for a reader to work out how, if the role of government should always be minimized, then all these competing stakeholder interests are to be reconciled.
Ridley clearly states that markets are never perfect and he derides boffins who theorise about market perfection. The key to trust in markets lies in stable institutions backed by an accepted rule of law. But he doesn’t seem to trust anyone who might have the responsibility for generating, renovating or administering such institutions and laws.
Few sacred cows of economic development are left unkicked. International foreign aid is a curse on African development, not its saviour. Pure science generates less innovation than does private tinkering. Do-gooders and academics of all kinds do more harm than good.
He is not a climate change skeptic, because he accepts a human contribution to actual global warming. But he denies that this is necessarily serious, or even a bad thing. He quotes numerous sources to suggest that more carbon dioxide in the atmosphere, and dissolved in the sea, will cause negligible harm and possibly some good. In any case, the human costs of drastic curbs on carbon emissions would, he asserts, far outweigh any probable benefits.
Coal and oil are what liberated humanity from slavery, at an environmental cost far less than reliance on renewable energy could have done. Rejection of fossil fuels now would severely retard global economic development and would most punish the least developed economies. Left to the market, without governments trying to pick winners among alternative energy sources, efficiency and diversification will evolve relatively painlessly.
In the end, Ridley pins his optimism on Hayek’s concept of “catallaxy” – a spontaneous economic order created by specialization and unhindered exchange between individuals and scaling up to larger economic units. He believes human intelligence will become more collective, and innovation will become more bottom up, thanks to the “dot-communism” of information exchange enabled by the Internet and allied communication ecologies. This will (probably) solve all challenges, if only the human “parasites” can be kept at bay.
Ridley sees the recent Global Financial Crisis as an episode of the kind of “creative destruction” that clears away dead wood and encourages a renaissance of bottom-up entrepreneurship. It’s one thing to ignore the destruction of wealth experienced by millions of individuals, but where’s the evidence for the upside? But then Ridley admits, with regret, that he was Chairman of the british Northern Rock bank that had to be nationalised in 2008, after suffering the first run on a british bank in 150 years. Not much catallaxy in that episode.
For what it’s worth, Ridley’s lesson from the bank crash is that uncontrolled markets always work for goods and services, but can not be trusted with speculative trading in assets. That’s a tricky policy to implement with nothing but an invisible hand.
This book needs to be read as a polemic in a style endemic to british journalism. Facts and opinons are marshalled to support a rhetorical purpose rather than pretending to offer a balanced enquiry. Extensive sources are cited but most readers, like myself, will never check them. I found enough instances of dubious attribution, or casual dismissal of effects on large populations, to stir my skeptical juices.
In thirty years Ridley’s optimism, rational or not, may turn out to have been justified. I enjoyed his polemics and derived some tonic value from his positive spin, but ultimately was not convinced that catallaxy alone will save us.
Richard Thwaites has worked with politicians, public servants and journalists, top down and bottom up.