A lengthy economic history of the global economy is not the most likely of books to help with the unwinding and recovery that is needed after delivering a budget. I resisted more relaxing temptations for Slouching Towards Utopia by the American economist James Bradford DeLong.
I am glad that I did. This is a slightly frustrating, occasionally drawn-out but magnificent reflection on the history of our global economy. Written with a verve untypical of an economist, it demands full engagement from the reader.
The ambition is clear from the very beginning. The author contends that the stock of useful ideas that can influence economic progress increased by over twentyfold between 1870 and 2010.
But a picture of untrammelled progress is not offered. DeLong concludes that the history of this century “cannot be told as a triumphal gallop, or a march, or even a walk of progress along the road that brings us closer to utopia. It is, rather, a slouch. At best.”
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This history is devoted to understanding why economic growth has not delivered more for citizens of the world. Ideas make a profound difference. The work and influence of two economic thinkers, Friedrich von Hayek and Karl Polanyi, demonstrate this.
Hayek argued for the effectiveness of the free market in creating benefits for society as it offers the best system for organising the exchange of trade and information. The state cannot improve these outcomes as, in his view, incomplete information leads to poor decisions.
Polanyi, correctly, determined that there are rights beyond those recognised by the market. They include a right to a stable community. If such rights are not delivered then “society … will intervene, and re-embed the economy in its moral and religious logic so that these rights are satisfied”.
The shifting equilibrium between these differing world views is examined, with the history of this ever-changing balance beginning in 1870. The author believes this marks the time at which societies became sufficiently organised to change their pace of innovation.
DeLong concludes that north Atlantic economies “had invented not just textile machinery and railroads, but also the industrial research lab and the forms of bureaucracy that gave rise to the large corporation”.
This spurred a period of transformative economic growth. The scale of invention doubled. States and corporations became more successful at deploying these technologies.
The carnage of the first World War brought this progress to a devastating end. The author analyses the political and economic failures that, in the aftermath of this war, sowed the seeds for seething discontent. These failures included the inability to generate enough decent employment and the inability to distribute sufficient income as poverty surged.
The turmoil of the interwar era, and the rapid growth in the decades after the second World War, are described through the lens of the “three overwhelming, totalizing ideologies” of the 20th century.
These belief systems are: faith in the power and fairness of the market economy; belief in the ability of the socialism of Lenin and Stalin to reconfigure these market economies into an earthly utopia; and support for the power of fascism to yield a politics of solidarity for a unified people.
This is the moment at which the slouch nature of any progress is intensified
It looked as if these destructive forces could, just about, be constrained. By 1973 the largest economies in the world were three times as well off in material terms as they had been in 1938. The energy crises of the 1970s ended this expansion and created the political environment for the market-based evangelism of Thatcher and Reagan to flourish.
This is the moment at which the slouch nature of any progress is intensified. The author argues that it is only inequality that flourishes, but that victory in the cold war legitimised this political regime.
The world’s technological capability has multiplied, but the benefits to society are lessened by the inadequacies of states confronted by the might of a global economy. The global financial crisis and the rise of political populism is the dismaying conclusion of this grand history.
Much is missing from this history. The seismic change in the scale and consequence of the Chinese economy feels underestimated. The history of developing economies and their recent challenges, also, do not receive sufficient attention.
Other themes in this history feel overdeveloped. The detailed examination of the rise of Lenin and Stalin feels like a chapter from a different book. Likewise, the history of how the second World War started overshadows consideration of the economic consequences of the war.
However, the love of learning that permeates these pages make this an exceptional work. DeLong is clear about what really matters: “Economic improvement, attained by slouch or gallop, matters.” This book is prescient in warning of the risks posed by inflation to such gradual improvements.
That is why, even in the aftermath of a budget, this is an essential read.
- Paschal Donohoe is the Minister for Finance and president of the Eurogroup
