Cents and Sensibility

What Economists Can Learn From the Humanities
by gary saul morson and morton schapiro

It’s unusual to come upon a serious book that is a collaboration between a research economist and a humanities scholar. But Cents and Sensibility*, by gary saul morson and morton schapiro, is no ordinary book. Indeed, this work by a Slavic literature professor at Northwestern (Morson) and an economist who’s written extensively on education and is now the president of Northwestern is almost as difficult to describe as it is a pleasure to read. ¶ Here, we excerpt the chapter on the great puzzle of economic development: why some economies thrive while others languish. Morson and Schapiro classify the ideas of brand-name thinkers from Jared Diamond to Walt Rostow to the Harvard-MIT troika of Daron Acemoglu, Simon Johnson and James Robinson in a way that is uniquely influenced by the humanities. ¶ They use philosopher Isaiah Berlin’s iconic distinction between “hedgehogs,” who view the world through the lens of an overarching idea, and “foxes,” who resist the urge to distill simple explanations from complex events. Think Marx in the former category, and Shakespeare — or, for that matter, Isaiah Berlin himself — in the latter. But don’t be misled by my name-dropping. Cents and Sensibility is a witty, ubersmart series of essays making it clear that the humanities really have a contribution to make in weighty analyses of the great issues of modern economics. —Peter Passell

Illustrations by Yevgenia Nayberg.

Published October 20, 2017


Economists examine a wide range of important topics. But are there any more critical than why some countries experience rapid (or at least respectable) levels of economic growth while others lag far behind?

Begin with the South Korea-Ghana puzzle. Back in the mid-1960s, these two countries had very similar levels of per capita income. But Ghana had rich reserves of natural resources (especially oil) and precious metals (namely, gold); South Korea did not. Who would have guessed that 50 years later citizens of South Korea would be almost 20 times richer than those in Ghana?

We turn first to a non-economist who offers to explain differential economic development in terms of a single factor. Why the focus on someone outside economics? Our hope here is that through an examination of how a non-economist explains economic facts in non-economic terms — in other words, seeing economics treated the way the great hedgehog economist Gary Becker treats sociology and anthropology — economists may come to appreciate how they often look to others. If the reasoning seems clearly fallacious when done by other social scientists, it will be easier to see the flaws when the same reasoning is employed by economists themselves.

In polymath Jared Diamond’s Guns, Germs and Steel: The Fates of Human Societies, the diversity of apparent causes reduces to a single one, the way Newton’s laws explain a vast diversity of astronomical and other observations. “The whole modern world,” writes Diamond, “has been shaped by lopsided outcomes. Hence, they must have inexorable explanations, ones more basic than mere details concerning who happened to win some battle or develop some invention on one occasion a few thousand years ago.”

In the pursuit of “inexorable explanations,” no contingency is allowed to have had a significant lasting effect. It follows that narratives can explain nothing but temporary fluctuations with no long-term significance. Beyond that, narratives can only illustrate how the single cause operated over time. We see here the same impulse that leads economists to avoid narrative explanations in favor of mathematical models — and for the same reason: narrative is needed when there is genuine contingency, that is, when important facts cannot be derived from the preferred model.

As an alternative, we discuss a thinker who is both an economist and a historian. Joel Mokyr’s The Enlightened Economy: An Economic History of Britain, 1700-1850, explains the rise of Britain to economic preeminence through a complex plurality of factors irreducible to any one of them. In Mokyr’s account, narrative plays an indispensable explanatory role. Of course, his book invites counterargument and might still prove mistaken, but that is the nature of “foxy” accounts. They do not promise certainty and arrive at no ultimate, let alone inexorable, explanation.

The Hedgehog of Geography

At its best, a hedgehog account can, for all its shortcomings as an overall explanation, offer surprising and important insights that others have overlooked or understated. And Diamond unquestionably does that. No one to our knowledge had ever pointed to the distribution of potentially useful plants or large domesticable animals as an important factor in explaining why some countries develop faster than others.

It comes as a shock to discover how much later some parts of the world were settled than others, and therefore how much less time some cultures had to develop useful innovations. We are accustomed to thinking in terms of vast stretches of evolutionary time next to which human activity seems both short and foreshortened. But if we focus on the much briefer stretch of human existence, significant differences in time spans become visible.

The geographical ease of diffusion turns out to play a long-overlooked role. No matter how inventive a culture may be, most inventions come from somewhere else. Cultures located among others from whom they can borrow, therefore, are much more likely to develop than isolated ones. The larger available population and the absence of geographical barriers gave the Eurasian landmass an enormous advantage over Tasmania, New Guinea or even sub-Saharan Africa. So did the fact that this landmass extends from east to west rather than north to south, making crops, which are typically suited to a given latitude and amount of sunlight, more readily movable across large distances.

These and similar observations establish Diamond’s book as an important contribution to our understanding of differential development over the very long term. And that is the nature of the best hedgehog approaches, where monomaniacal attention to a single factor can illuminate surprising facts about its operation.

Diamond begins by raising the question of differential economic development in an intriguing way. While walking on a beach in New Guinea with a local politician named Yali, he was asked, “Why is it that you white people developed so much cargo and brought it to New Guinea, but we black people had little cargo of our own?” In Diamond’s rephrase: “Why did human development proceed at such different rates on different continents?”

Although Diamond pays lip service to the possibility of non-geographical explanations, he repeatedly considers them only to describe them as “proximate” causes, which are themselves explicable in geographical terms. In the book’s epilogue, Diamond proposes as the next step the extension of geographical explanation to shorter time spans. The shorter the time span that can be explained by geographical factors, of course, the less role there is for any other explanation.

For example, Diamond offers a geographical explanation for why Europe, rather than China, led the world in technological development — a development that, given his theory, “is initially surprising, because China enjoyed undoubted advantages.” But Diamond rejects any cause but other geographical factors.

Why, then, did the Fertile Crescent and China eventually lose their enormous leads of thousands of years to late-starting Europe? One can, of course, point to proximate factors behind Europe’s rise: its development of a merchant class, capitalism and patent protection for inventions; its failure to develop absolute despots and crushing taxation; and its Greco-Judeo-Christian tradition of critical empirical inquiry. Still, for all such proximate causes, one must raise the question of ultimate cause: why did those proximate factors themselves arise in Europe, rather than in China or the Fertile Crescent?

This reasoning allows for no counterevidence. Apparently, if China had wound up on top, it would have been because of the geographical factors. The theory would have been vindicated. But as it happened, what the theory would have predicted did not turn out to be the case. That doesn’t mean the theory has been falsified, or even that some good counterevidence has been presented. Rather, it means only that some other geographical factor must be at work. And, of course, you can always find one to do the trick.

After the fact, when one’s prediction has proven wrong, one goes back and revises the theory to yield the prediction that one now knows would have been the correct one and then claims the new theory has been vindicated! We wish we could say that this escape of any possible falsification is uncommon, but it is not. And one can only wonder if, in the next 40 years, China should come to dominate the world, Diamond will find a geographical explanation for that, too — one that accounts not only for Chinese domination, but for why it did not dominate 40 years earlier? If so, why doesn’t he predict it now?

Diamond lists 14 “proximate causes” invoked by historians and economists, including institutional ones (like patents), social ones (like individualism) and intellectual ones (like religions compatible with technological development). In addition to these, which all favor economic development, some have cited factors that, they say, sometimes work one way and sometimes the other, such as war, centralized government, climate and resource abundance.

Diamond dismisses the last group because, to him, if a cause can work both ways, it does not seem to be much of a cause. For a humanist, that wouldn’t count as much of an objection any more than one could dismiss, let us say, envy, acquisitiveness or just about any other emotion as explanations for crime because sometimes they lead elsewhere. That is the nature of many things human.

But Diamond is trained as a physiologist and has written on ecology and ornithology, which, for all their complexity, do not entail the complex interactions of self-conscious human agents. Predictably enough, he rejects the other “proximate causes” because they are, well, merely proximate.

His reasoning is entirely circular. To prove that an explanation must be geographical, he asks for other possibilities and, when he finds them, discounts them because they are not geographical. Needless to say, proponents of other all-encompassing systems — say, Marxist economic ones — also dismiss other explanations as merely proximate, including geographical ones. Just as Diamond can ask why risk-taking or property rights could not themselves be accounted for in geographical terms, Marxists can ask why the effectiveness of geographical causes does not itself depend on economics. Whichever factor one chooses, one can, with sufficient ingenuity, resolve all the others into it. Just as the many advocates of a unique religious revelation all refute each other, so do the many forms of hedgehogism.

After the fact, when one’s prediction has proven wrong, one goes back and revises the theory to yield the prediction that one now knows would have been the correct one and then claims the new theory has been vindicated! We wish we could say that this escape of any possible falsification is uncommon, but it is not.

Diamond is especially keen to eliminate racist explanations of differential development and, of course, he is not unique in this respect. The odd thing about Diamond is that he refutes one sort of racism with another.

He asserts that, in his experience, not only are industrialized people no smarter than residents of New Guinea and similar places, they are actually less smart. Speaking from the perspective of more than three decades of working in New Guinea, he concludes that New Guineans impress him “as being on the average more intelligent, more alert, more expressive and more interested in things and people around them than the average European or American is.”

Having thus established the genetic superiority of New Guineans (apparently his own impression is proof enough), he proceeds to ask how it might have come about. He arrives at two explanations. First, low infant and child mortality rates in the Western world mean that most infants survive regardless of intelligence and genes. In traditional New Guinea societies, with high levels of mortality, smarter people are more likely than less intelligent ones to survive.

One might reply that it is hard to see why the fact that American children do not succumb to diseases preventable by inoculation makes them on average less intelligent. Microbes do not single out the stupid.

While this natural selection argument certainly seems to warrant documentation, the second explanation seems even more fraught. While Western children grow up being passively entertained by television, radio and movies (of course, today his worry would be about the Internet), children in New Guinea spend their time engaging with others, developing their mental abilities.

But here again, one might as well argue that since Western societies select for verbal and mathematical abilities, and that those are what most people have in mind when they speak of intelligence, Westerners must be smarter. Even if New Guinea favors some aspects of intelligence, they are not the ones that matter.

Diamond does not appear to choose arguments for their cogency and then discover they lead to his desired conclusion. He seems to select any argument that leads to his desired conclusion even if it is easy enough to construct arguments of the same cogency that lead to the opposite conclusion. That is not what respect for the truth entails. But it is where hedgehogism often leads the most intelligent people.

Diamond isn’t shy, as indicated in the first sentence of the volume: “This book attempts to provide a short history of everybody for the last 13,000 years.” Diamond says that “geography obviously has some effect on history; the open question concerns how much effect.” But there is little doubt left in his conclusion:

In short, Europe’s colonization of Africa had nothing to do with differences between European and African peoples themselves, as white racists assume. Rather, it was due to accidents of geography and bio-geography — in particular, to the continents' different areas, axes and suites of wild plant and animal species. That is, the different historical trajectories of Africa and Europe stem ultimately from differences in real estate.

Diamond writes as if there were no alternative to racism or other objectionable theories but his own. Pretending that it is either one’s own explanation or an obviously unacceptable one is a rhetorical trick more likely to be found among advertisers and political propagandists than in serious academic work.

In his discussion of technology, Diamond asks whether it is possible that the existence of some genius, and the creation of some surprising invention, might have made a difference. As he is aware, the question applies not just to technology but to all aspects of the historical process. If one asks whether Edison, Gutenberg or some other inventor made a decisive difference, one might ask (as he does) the same question about Napoleon, Alexander the Great or Julius Caesar. What if each of these men had not crossed his Rubicon?

Diamond allows that Watt, Edison and the Wright brothers made important improvements and that, without them, resulting inventions might have been “somewhat different.” Nevertheless, “the question for our purposes is whether the broad pattern of world history would have been altered significantly if some genius inventor had not been born at a particular place and time. The answer is clear: there has never been any such person.”

Diamond offers two main explanations for this conclusion. First, inventors must appear in a culture favorable for such inventions. Otherwise, the invention lacks its needed predecessors and cannot be made or, if made, cannot be implemented. Yes, indeed, but that is to answer a different question.

Of course, if Edison were born in 16th-century Tasmania he would not have invented the light bulb or the phonograph. But suppose not Edison but someone else had taken advantage of American opportunities; could she not have invented something radically different, something that came to suggest yet other inventions we cannot imagine?

If you leave someone in a forest with no paths he will find no place to go. But that doesn’t mean that, at an intersection of several roads, it does not matter which one is taken. They may lead to very different places. By the same token, it is difficult to imagine what the world would be like if Alexander the Great had not Hellenized it, or if Napoleon had not spread the ideas of the French Revolution.

Diamond also returns to what might be called the “factor out” (or “average out”) argument. The fact that people have suggested so many reasons for innovativeness makes

the historian’s task paradoxically easier, by converting societal variation in innovativeness into essentially a random variable. That means that, over a large enough area (such as a whole continent) at any particular time, some proportion of societies is likely to be innovative.

By the same token, some proportion of individuals in a society is likely to be innovative. It follows that prediction is possible in history “when the unique features of millions of small-scale brief events become averaged out.”

Diamond is not the only hedgehog to get around contingency by statistics — that is, by assuming that things average out. But in many cases they don’t. There may be “black swans,” rare and unpredictable events that change everything. Small contingencies that might easily have been different can sometimes lead to one path instead of an alternative that might just as well have been chosen and, in the process, “lock in” a different course of subsequent events.

A contingent event is one that, as Aristotle explained, “may either be or not be; events also therefore may either take place or not take place.” Chance, choice or an unpredictable combination of causes can all create such contingency. When it happens, the future course of events may swerve. To understand it, one must resort to narrative.

Diamond wants to establish human history as a hard science. He recognizes that it cannot resemble physics because experiment and precise prediction are not to be had, but he believes that it can resemble acknowledged historical sciences, such as astronomy, geology, ecology, paleontology and evolutionary biology.

Each of these deals with “chains of proximate and ultimate causes” with the former traceable to the latter. As more than one critic of his book has pointed out, Diamond’s ambition, like others who have claimed to have discovered “the laws of history,” accounts for history by removing everything historical from it.

Leo Tolstoy observed that if one stands back from the historical process and isolates a few moments (always placing special weight on the present), it is always possible to construct a simple narrative, which in turn can be seen as the effect of a few simple laws. But that simplicity is the result of a sort of historical optical illusion. Tolstoy likens it to a person who views a distant hill where only trees are visible and imagines that the hill contains nothing but trees.

Diamond imagines that unless one can have hard historical science, history reduces to one damn thing after another. Once again we are offered a choice between Diamond and absurdity, with no alternative possible. But surely there is something between hard historical laws and sheer chance with no pattern. Stephen Jay Gould in fact placed evolutionary biology itself in that middle ground.

If one were to play the tape of historical events over, he argued, history would be likely, at point after point, to take a different path. But that does not mean there are no patterns at all. Rather, there are general regulating principles operating in the background while contingency plays an important role in the foreground. For Gould, the truly Darwinian position is “laws in the background and contingency in the details,” with the contingent able to set things on very different paths.

Book 1

Foxy and Other Economists

When trying to explain growth rates, economists — like geographers, biologists and historians — employ approaches ranging from hedgehog to fox and everything in between. Technology is usually at the forefront of these analyses, with the absence of technological change leading to little or no growth in output. Of course, simply saying that technology matters doesn't necessarily suggest a particular growth strategy.

What factors give rise to the discovery and adoption of new technologies? Most agree that education plays a critical role, as investments in human capital make workers more productive and speed the pace of innovation. Innovation is at the heart of growth, according to Joseph Schumpeter, as a process of creative destruction makes old technologies and products obsolete.

Much of this work is quite technical. But in some cases, it is also unusually eclectic, at least for economists, drawing on a wide range of influences. Studies that focus on physical capital and the natural endowment of resources, for example, may fit easily into economic models. But there is also work that stresses law, climate, geography, politics, religion and even culture, which usually do not. We give examples of a hedgehog, an imaginative and influential approach that is hard to characterize, and then a couple of foxes.

Rostow: Modern History as a Whole

Those of a particular age undoubtedly remember Walt Rostow’s 1960 analysis of economic growth. His five stages were once well-known far beyond economics. Whether Rostow actually meant this model to be exclusive, he was taken to have believed exactly that: if not a hedgehog, he was rapidly hedgehogized.

It is all very neat and predictable. You begin with subsistence agriculture, limited technology and little economic mobility, then move to stage two where the demand for raw materials induces investments in physical infrastructure and the onset of social mobility. The takeoff stage, stage three, is characterized by increasing urbanization and industrialization, while stage four occurs when the industrial base diversifies and the nonprofit sector grows. Eventually, stage five means a consumer-driven economy, where income levels are high enough to promote widespread prosperity.

Once again, the search for universal laws leads a scholar down the road to hedgehogism. Don’t countries vary in so many ways — in size, in location, in their colonial legacies, their religions, their customs? Details, details, details. Hedgehogs are sure that all that messy complexity hides simple, far-reaching truths.

Rostow saw these stages as universal. To be sure, Rostow recognized that there are major differences between “Khrushchev’s Russia, Meiji Japan … Bismarck’s Germany and Nasser’s Egypt,” and insisted that his model allows one to see “the uniqueness of each nation’s experience.” Nevertheless, that uniqueness takes place within the five stages applying universally.

In one form or another, controversy over arguments like Rostow’s have dominated Western culture since the late 18th century. As Enlightenment thinkers sketched out a single possible line of progress, romantics viewed cultural and national differences as significant. For them, different paths of development are possible.

Since the single path typically made France the leader, Germans tended to favor a model of multiple paths. As France took itself to be the model of all “civilization,” Germany favored a plurality of “cultures.” Civilization came to stand for a single path and goal; culture for a plurality of them. In the former case, history had an inherent direction and the details really affected nothing. In the latter, the details made all the difference.

In Russia, this argument played out in the 1840s as a dispute between “Westernizers” and “Slavophiles.” The Westernizers thought that the only way to progress was to follow precisely in the footsteps of Western Europe, whereas the Slavophiles thought that, to succeed, modernization had to be adapted to the peculiarities of a specific culture.

Diamond seems to select any argument that leads to his desired conclusion even if it is easy enough to construct arguments of the same cogency that lead to the opposite conclusion. That is not what respect for the truth entails.

It is a common mistake to think that the Slavophiles were Luddites. Quite the contrary: they thought that, for modern technology and institutions to “take,” they could not just be imposed from above but had to grow out of the culture adapting them. You can’t just export the American or British constitution to Russia, Mexico or Iran and expect it to work. And what is true of institutions is true of technology as well.

In Anna Karenina, the hero Konstantin Levin at first tries to increase the productivity of his estate by adopting Western machinery, seed oats and work patterns. But he finds that somehow the machines that work in England always seem to break, the seed oats get ruined, and the peasants just don’t seem to be able to follow English work norms.

Levin at last finds a prosperous peasant who has innovated not from the top down but from the bottom up. He has borrowed some Western technology where it fits, adapted other innovations to fit local circumstances, and jury-rigged solutions loosely inspired by the inventions he has read about, while then adjusting the new pattern to operate as a whole. Instead of following a trajectory given in advance, at each stage he assesses how earlier innovations have worked, drops some, and pursues promising lines of development suggested by others.

The result could not have been predicted in advance but works quite well. Levin realizes that this is the way to innovate successfully. And the point applies not only to technology narrowly defined but also to what might be called social technology.

One reason Russian history is so important is that it was the first country to undergo rapid modernization, a process followed by many since. Japan, Turkey and Iran all had their equivalents of Slavophiles and Westernizers, and the comparison of Ataturk and the Shah of Iran to Peter the Great — all autocrats using their power to modernize rapidly — illustrates how the same issues keep arising.

Rostow’s many critics disagreed with his analysis in the strongest terms. They said that, at best, this was a model that explained Western development but certainly not economic growth in Asia or Africa. And it was so predetermined: you do this and it leads to that. Growth becomes inevitable, even though it is hard to find such inevitability in the real world.

A controversial (and many would say problematic) economic model at least provokes discussion and stirs others to contribute to the literature. But if its author takes his view into the policy arena, the stakes are heightened. Rostow became a highly influential presidential adviser, serving in a prominent role in both the Kennedy and Johnson administrations. It isn’t clear whether his unmistakable anti-communism and faith in capitalism came from the confidence he had in his economic growth model or whether those principles influenced the model itself. But in either case he carried those beliefs with him during his government service.

In fact, observers point to Rostow’s hawkish attitude toward Vietnam as an important contributor to our nation’s stance in building toward and then continuing that war. One wonders if Rostow imagined the United States could impose a single path of social and political development on another culture, a tempting but usually dangerous error in judgment. If so, it is a way of thinking still very much with us.

Hedgehogs are sure that all that messy complexity hides simple, far-reaching truths.
Alternative 1: Acemoglu, Johnson and Robinson

For an approach that rejects the acultural model of Rostow (as well as the single-path model of Diamond), we turn next to a particularly impressive and influential paper by Daron Acemoglu, Simon Johnson and James Robinson, which draws liberally on a variety of literatures. The authors recognize that countries that invest more in physical and human capital develop faster. No surprise there — even for Rostow. But then they step back and ask, what encourages those investments? Numerous economists have attributed this positive growth environment to the presence of the “right” institutions — a legal system that enforces well-defined property rights, a government that encourages entrepreneurial activity, and so on. Still, they ask, is it the institutions that give rise to growth or the growth that provides the wealth to afford better institutions?

It turns out that institutions have a large, independent impact on economic performance throughout the world. Recall the puzzle of Ghana. This study asks specifically whether the dismal growth history in Africa results from factors such as Diamond’s favorite, geography, or from any of a number of non-institutional causes. Their answer is no.

Instead, Africa is poorer than other continents due to its weak institutions. But why, you might ask, did a poor institutional framework develop in the first place? Are some countries randomly blessed with the right institutions and others cursed with the wrong ones? If we want to foster economic development, we’d better know that answer.

The authors tease this out in terms of the colonial experience. Europeans, they argue, used different colonization strategies, which led to different institutions. In the United States, for example, European powers settled in the colonies, setting up institutions that protected property rights and encouraged investment. In much of Africa, however, colonial powers set up extractive states whose main purpose was to transfer resources back home. The institutions that resulted had a long-term negative influence on economic progress.

But why did colonialists settle in some places and not others? Where mortality rates were very high, the Europeans stayed away; in others, they could safely settle.

So the authors nest their questions in an intriguing way. Economic growth comes largely from investments in capital; investments in capital tend to come from the presence of the right institutions; the right institutions by and large are developed where colonialists settle; colonialists often settle where mortality rates are low.

Hard to believe that factors affecting where Europeans could settle in the distant past would be linked to economic development today, but the authors show that early institutions powerfully affect institutions today and that those institutions have a strong causal link with economic development. What’s more, the authors control for a myriad of other factors — latitude, climate, the current disease environment, religion, natural resources, soil quality, ethnolinguistic fragmentation and current racial composition — and still institutions play a prominent role.

Finally, it is not the case that a country that used to have bad institutions is doomed to poverty. Nations that improve their institutions experience significant economic gains. South Korea is presented as an example of just such a change.

Of course, one could also point out that the effects of colonialism were not quite so uniform. The English and the Portuguese treated their colonies differently, and even Ethiopia, which was never successfully colonized, did not have much economic success. In general, one wants to avoid the impression that everything about a culture is due to Western influence — that is, to the culture of most of the people doing the analysis — whether for good or ill, a position that seems to take away all agency from others.

We decided to highlight this paper because we consider it a tour de force. In their extensive bibliography, the authors cite not only economists but legal scholars, historians, demographers, political scientists, biologists, physicians and more. They have come a long way from a model that explains all of development in simple economic terms.

Still, no one would argue that Yali’s question has been definitively answered. Institutions matter, and, surprisingly, they appear to reflect health conditions (mortality rates) from long ago. But what of all the other possible explanations for why countries develop? Do certain religions foster more growth than others? Why did India develop differently from Pakistan? Do certain kinds of educational investments help? What about “great men” who seem to have an outsize impact on the world? Would Singapore have developed as well without Lee Kuan Yew or China if the Gang of Four had won out instead of Deng Xiaoping? And why is it that in some places entrepreneurs are rewarded and in others they are reviled?

Does this approach claim to explain all differential economic growth? No. But it does offer a fascinating story — one where institutions matter, even if their origin is explained in a way that surely would make some historians and sociologists a bit uncomfortable.

Book 3

Alternative 2: Easterlin and Social Capability

We turn now to a foxy hero, Richard Easterlin (University of Southern California), and then move on to another highly influential economic historian, Joel Mokyr (Northwestern). They are willing and eager to cross the boundaries set by traditional economic models.

In his book Growth Triumphant, Easterlin asks, “Why isn’t the whole world developed?” While technology underpins much of economic growth, inducing investments in both physical and human capital and in the mobility of labor and capital, why did the diffusion of technology vary so greatly country by country? His answer: some had the appropriate institutions and some did not. Without the right institutions, economic growth could not take root.

But how did favorable institutional conditions develop? Education is key, fostering modern economic growth by increasing the mobility of the population. But the overriding factor is “social capability,” a term referring not just to the level of educational and technological competence but also to the presence of flourishing financial institutions along with political and social characteristics that foster economic activity and reward entrepreneurs both financially and in terms of social esteem.

Easterlin astutely argues that education doesn’t always promote economic growth; it depends whether it is secular and rationalistic. And what of the government? Does it establish a judicial system that encourages the pursuit of economic opportunity? A helpful government might not assure economic growth, but an unhelpful one sure can hamper it. It is clear that some factors shaping institutions can’t be explained in purely economic terms.

One final point regarding Easterlin: He provides an interesting analysis of the question of the impact of population change on economic growth. He is especially interested in whether the rapid increase in population that resulted from mortality declines in the developed world has impeded their economic development.

On the one hand, doomsayers follow a long tradition going back to Thomas Malthus, arguing that rapid population growth leads to a range of horrific scenarios. However, Easterlin argues, such scenarios have not come to pass. Perhaps the improvement in health itself promotes economic growth, or an expanding population has a positive impact on the creation and diffusion of knowledge. Or maybe the threat of population pressure induces changes in behavior that are beneficial to economic increases.

With theories for and against the negative versus positive impact of population growth, Easterlin looks to the empirical evidence on the link between population increases and economic changes. The result? Variations in population growth rates have no consistent relationship with growth in real per capita income.

Not an answer that would give a hedgehog much comfort. But the world is foxy, and perhaps that is why explanations that purport to work in all places and at all times seldom hold up to empirical scrutiny.

If after the fact it looks as if the idea was inevitable, that is only because we are the product of it and it is hard to imagine any other possibility.
Alternative 3: Mokyr and What People Believe

In his book, The Enlightened Economy, Joel Mokyr poses what he calls “the big problem” and “the little problem.” The “big problem” recalls Yali’s question:

Why did Western Europe succeed in doing something that no society in history had ever done, that is, break through the confining negative feedback barriers that had kept the bulk of people who had ever lived before 1800 at a level of poverty that is by now practically unknown in the West? Despite their formidable scientific and technological achievements in years past, neither the Ottoman world, nor China, nor India, even came close.

The “little problem”: why was it Britain that took the (temporary) lead in this process?

“The answers to both questions,” Mokyr contends, “need to be sought in the realm of knowledge and institutions, not geography.”

Mokyr rejects any single-factor explanation quite persuasively. He cautions against “hindsight bias” and “teleology” — that is, assuming that the outcome we know was inevitable and somehow managed to pull earlier events toward it. And he cautions against thinking that the story he singles out is all that was going on in the economy, let alone elsewhere.

A great deal happened in the British economy that was in no way or only tangentially related to the Industrial Revolution. Just because the Industrial Revolution took place does not imply that everything before and during it necessarily “caused” or even facilitated it or that everything after was caused by it.

There were many stories, each with many causes, interacting in complex and unpredictable ways. Nothing was inevitable, and contingency played a crucial role. Mokyr’s way of explaining is rich in narrative. There is no way around stories.

In particular, Mokyr rejects the tendency among economists to derive everything from economic factors. As with their antagonists, the Marxists, mainstream economists tend to attribute beliefs, ideology and cultural factors to economic causes. The causal efficacy of these apparently non-economic factors is therefore economic at one remove, just as, with Diamond, the same factors are geographical at one remove. In this perspective, nothing is “exogenous,” and everything “endogenous,” to economics.

Mokyr insists that, to the contrary, beliefs that cannot be entirely reduced to economic factors played a crucial role. His book begins, “Economic change in all periods depends, more than most economists think, on what people believe.” Mokyr above all has in mind the European Enlightenment, and he quotes John Maynard Keynes’s famous 1936 passage on the importance of ideas irreducible to economics: “the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas… soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

But note that Mokyr stresses ideas “in addition to,” not instead of, other factors. It, too, is one factor in complex interaction with others.

Ideas, in turn, depend often enough on yet another non-economic, indeed literary, factor for their success or failure. Rhetoric — or as Mokyr calls it, persuasion — played a crucial role. People did not always act in their own self- or class-interest and were sometimes persuaded to act for the good of the nation. There is no simple answer as to why some ideas win out and others do not.

A humanist would add that a lot depends on particular people. And particular people, too, may or may not emerge. Without Columbus someone else would have discovered America, but it defies common sense to assert that without Milton someone else would have written Paradise Lost.

Ideas are closer to literary masterpieces than undiscovered continents because there are many possible ideas that could arise at any time, each with its own trajectory to other ideas. If after the fact it looks as if the idea was inevitable, that is only because we are the product of it and it is hard to imagine any other possibility. The same is true of technological ideas: there is no inherent direction to inventions.

Mokyr observes, “Just as in evolutionary biology we can never know precisely why some highly fit species emerged and others, just as fit, did not, there is a baffling indeterminacy in history. Good timing and contingency explain outcomes.” And both require explanation in terms of narrative rather than overarching laws.

Britain emerged as preeminent, but it may well have been some other country. And although one can give a plausible account of why Europe, rather than China, created the Industrial Revolution, plausibility is not certainty. It derives not from timeless laws but from historical circumstances and human choices, which require narrative to understand.

By their very nature, hedgehogs lack the humility necessary to prevent mistakes from becoming catastrophes.
The Harm that Hedgehogs Do

The hubristic claim that economists (or experts in some other discipline) have arrived at hard scientific knowledge, capable of successfully guiding development, has led to disaster after disaster. These experts, armed with that putative knowledge, construct master plans of development often put into practice by authoritarian regimes. For obvious reasons, experts have aided such regimes when they are willing to put their schemes into practice. The messiness of democratic institutions makes the imposition of a comprehensive scheme almost impossible.

Cataloging the many “huge development fiascos” in Eastern European and Third World countries, the Yale political scientist James C. Scott points to the towering human cost that overconfidence in all-embracing theories has entailed.

The Great Leap Forward in China, collectivization in Russia and compulsory villagization in Tanzania, Mozambique and Ethiopia are among the great human tragedies of the 20th century in terms of both lives lost and lives irretrievably disrupted. At a less dramatic but far more common level, the history of Third World development is littered with the debris of huge agricultural schemes and new cities (think of Brasilia and Chandigarh) that have failed their residents.

It would appear that nothing causes greater evil than comprehensive schemes to abolish it. Time and again, supposed experts, backed by massive force, have put into practice development plans that did not take into account the peculiarities of particular belief systems, the importance of local experience with conditions varying in no predictable way, the role of tacit knowledge that no one can specify but that can make all the difference — and, above all, the need to proceed step-by-step to check whether one change has worked before implementing the next. By their very nature, hedgehogs lack the humility necessary to prevent mistakes from becoming catastrophes.

In Tanzania, Scott argues, the World Bank and an ideology of planning expertise combined to back Julius Nyerere’s ujamaa villages campaign. Beginning in 1973, nomads and farmers were taken from their abodes and resettled along main roads so that they could easily receive the appropriate public services, and replace traditional practices with scientific agriculture. Torn from the environment with which they were familiar, they lacked all local knowledge. The result was ecological disaster and famine.

These are mistakes a fox would be less likely to make. Experience seems to show that, in development, generalized economic theory is not enough. One needs an understanding of culture, local institutions and history as well — in short, everything that entails narrative.

To be sure, we still don’t have a definitive answer to Yali’s question. Why Korea and not Ghana? No one knows for certain. But should we ever find the answer — or answers — we suspect it will involve some factors that are far removed from traditional economic analyses. It will almost certainly involve institutions and customs and faith. And it will be much too random and too unpredictable for a hedgehog to force into a universal model.

If there were ever an area to be a fox, this is it.

main topic: Economic Development
related topics: Innovation, Public Policy