Breaking the low-growth deadlock: Why Deirdre McCloskey says SA should emulate India

I had the opportunity to sit down with globally renowned economist and historian Professor Deirdre McCloskey, of Chicago’s University of Illinois, to discuss her keynote at an event celebrating the legacy of Professor Ludwig Lachmann in Johannesburg this week. McCloskey is very much of the view that the humanities and economics need each other. In fact, she’s also written many books on how humanities helps bring meaning to economics. What struck me about McCloskey is that she is also a believer in the power of liberalism and its impact on freeing up economies and helping them to grow faster. And she had some interesting advice for South Africa, which is currently experiencing chronic low economic growth: look to India. The Asian country, while still dealing with many problems, has enjoyed average economic growth of between 5-7% for many years, largely because it has moved to liberalise its economy in many ways. Take a listen to this interesting interview… – Gareth van Zyl.

This special podcast is brought to you by PPS. My name is Gareth van Zyl, the Deputy Managing Editor of BizNews.com and I’m at the third and final day of the World Interdisciplinary Network for Institutional Research Symposium in Parktown Johannesburg. The symposium is paying tribute to Professor Ludwig Lachmann and is sponsored by PPS and Wits. My guest today is Professor Deirdre McCloskey.

Deirdre, thanks a lot for chatting to me today.

Well, I’m very pleased too. I love South Africa. I’ve been here a lot and I’m very glad to spread the news.

Great, well I mean it’s fantastic having you here in South Africa again and your keynote speech today was fantastic.

You can invite me any time in the cricket season.

When the weather’s a lot warmer.

Well, when I can watch cricket.

Okay fantastic. Your speech and your key note today was really striking, especially for somebody like me listening to you for the first time. One of the key themes that you were driving home today was how economics and economists should take on meaning a lot more in the field.

Yes, very much so.

For our listeners out there, can you maybe explain briefly what you mean by that?

Well, there’s a very strong tendency in economics in the last 80 years or so to say, “Oh, we don’t know what’s going on in people’s minds, all we can do is look at their behaviour”. That sounds very scientific and so on and was very characteristic of psychology until the 1950’s, but it’s silly, we’re the molecules. We know what the wage means to us, it means human dignity, it means a career, and it means fulfilment or its lack. A wage is not just a number; it involves the whole of the human spirit.

One of the interesting things that you’ve mentioned as well was that fields like mathematics actually shouldn’t really live in the sciences, but should live in the humanities.

Absolutely, of course we use mathematics in economics and I’m very much in favour of it. I think we should use more mathematics than we do, but the kind of mathematics we should use is the kind that engineers or physicists use, not the kind that the maths department sells because the maths department is interested in existence, it doesn’t care, oddly, from an outsider point of view, no one in the maths department cares about numbers, but magnitudes.

They don’t care how big things are, they want to know if they exist or not and you’d think, oh well, you have to prove something exists before you can measure it. No, that’s not true. So, in physics and engineering and in other physical sciences, they are not interested in the kind of mathematical proofs that mathematicians are interested in. Mathematics, as I said this afternoon, is part of the humanities, not part of the quantitative sciences.

One of the very interesting questions that came up was about income and obviously one of the points that you’ve raised is that income has been rising dramatically over several hundred years, but there was one academic here who asked, “Well, you know, what about the last ten years, around the world, especially post-2008/2009, many people have been saying that their incomes haven’t been rising substantially?”

That’s actually false, by the way,

Can you explain why that’s false for a lot of our listeners?

It’s false for one thing because in places like China and India, incomes have continued to zoom up and they haven’t in South Africa after the boom in the early 2000’s, mainly because of the price of minerals, the South African economy has been growing very slowly if at all. That’s because South Africa hasn’t adopted the liberal economic policies that say, India has. India has grown since 1991 at 5%-7% per capita in real terms, South Africa is lucky if it grows at 1% per year. As I said, ek hou van South Africa, I love South Africa and I want it to prosper and I wish you all would stop preventing businesses from opening until they get a business licence and doing all this and making it very dangerous to hire anyone because you can’t fire them etc.

Professor Deirdre McCloskey, of Chicago's University of Illinois
Professor Deirdre McCloskey, of Chicago’s University of Illinois.

The answer for South Africa probably lies in liberalising the economy a lot more.

Yes, that’s right, but there is a claim even in reasonably liberal economies like the United States, although we have many problems on that score too. For example, licences for occupations, we have a thousand occupations covered by licensing laws and they’re a terrible idea, but okay, there’s a claim in the United States that incomes haven’t gone up fast and actually they have because quality has improved, the  quality of medicine, the quality of TV’s, the quality of automobiles, tyres. When I was young we used to have to fix tyres all the time, they were always blowing out. Now it rarely happens, tyres go for 40 000 miles, whereas it was more like 4000 when I was a kid. So, there has been a quality change, real income has gone up for the very poorest people in the United States quite substantially in the last 30 years and even for the middle class.

It’s a bit like a rising tide.

That’s right, it is arising tied that all boats float higher and what’s most important to me is, the very poorest compared to 30 years ago, but also 50 or 100 or 200 years ago are much better off. It’s not true that the poor get poorer and the rich get richer. Modern economic history is not a zero sum game, it’s not like soccer or football, as you call it, it’s not that one side loses and the other gains, all gain. What’s important to me is that the poorest of the poor are much better off in say, Japan or Finland, or even Argentina than they were 100 years ago.

So, is capitalism not that bad then?

Capitalism is not that bad and in fact, I don’t like the word ‘capitalism’ because it makes us think that the key to our prosperity is piling up brick on brick and that’s not right. The key to our prosperity is ingenuity, is being smart, ‘slim’ as you say in Afrikaans, inventing stuff, that’s what matters. What’s extraordinary about the modern world is that since around 1800, people have gotten vastly more ingenious and if you look around you electricity, plumbing, fibres, inexpensive steel, blog, the internet, and one thing after another. That’s extraordinary and that’s what made us rich, is human creativity and what made human creativity explode was liberalism, allowing poor people, ordinary people to have a go, as they couldn’t under Apartheid to be sure, or under feudalism or where people weren’t allowed to have a go and now they are.

You’ve brought in some Afrikaans terminology and you’ve referred to South Africa’s very dark past and Apartheid, one of the points that you mentioned during your talks today.

Yes, indeed, or by the way, or the past of my own country, segregation.

Yes, some similar parallels.

It’s more than parallel. In the 1920’s the South African government, the white government, sent a commission to the American South to find out how to do Apartheid.

Right, so the two countries shared this really tragic history in terms of that, but one of the things that you mentioned today was that the white population in South Africa under Apartheid, they had all these massive advantages that the Apartheid state was giving them and yet, in terms of, I think per income capita, it didn’t really –

Per capita income in real terms grew no faster from 1950 to 1990 if you want to look at it that way, in South Africa than it did in comparable countries like Australia. I’m talking about the white income. Neither in Australia, nor New Zealand, they had their indigenous populations especially in New Zealand, but no one would claim that exploitation of the Maori was what made New Zealand rich, that had nothing to do with it and certainly not exploitation of the Aborigines in Australia, but people believed under Apartheid that they were better off because the blacks were being held down and that was just factually not true.

Does that then say that under Apartheid there also was just a total lack of ingenuity or it wasn’t much different?

There was less ingenuity than there could have been, but not entirely a lack of innovations. For example, one spectacular innovation that is South African is very deep mining and how to do it. The South Africans really know how to do it and they teach everyone else how to do it. There are other examples of this; I’m sure, bobotie for example. You ought to be exporting that.

Yes, I think we definitely must. I know that we export other products.

I love bobotie.

That’s definitely one to export. Obviously, this symposium here has been set up also to recognise Professor Lachmann. I know that you said that you used him almost as a springboard to also argue for a greater role of humanities in economics. Can you maybe just explain his impact on the world of economics and humanities and the importance of that?

Well, he was an important economist but not as important as he should have been because he was a very broadly educated German gentleman, highly educated, very broad in his understanding that economics needs to walk on both feet, both its positive, quantitative foot and its humanistic meaning foot. To make real progress, you have to walk on both feet and the trouble is that the orthodoxy in economics for a long time has been that you can hop along on the behaviourist, quantitative one foot and he said, “On the contrary, no, no, let’s do both”. He was among the very few people saying that. It’s really quite a small number of economists who were vigorously in favour of walking on two feet, both the scientific and the humanist.

Do you think there’s this increase in convergence between the two fields?

Which fields?

The economic field and the humanities.

Oh, no, there’s not because the orthodoxy enforced very strongly in the United States, is that you’re to hop along at one foot and you’re never to talk about ethics or meaning, or anything of that character. Think about your wage, what does it mean to you? It’s a number and it’s arbitrage, we say in economics, with other occupations you might be able to enter. That’s fine and that’s a sensible thing to say, but your salary means more to you than just the number, it means a career, it means your dignity compared with others. I don’t mean your ability to buy stuff; I mean how you rank in your company, say, or how you’re treated. So, the wage bargain is fraught with ethical, sociological, psychological meaning that is completely ignored in economics. Well, that can’t be the right way to do the science.

You were also talking today about a trilogy that wrote in the bourgeois era.

Yes, it’s called the “Bourgeois Era”, it’s available cheap on amazon.com 2006, 2010 and last year. It started out as an ethical enquiry into a free market society or any kind of society and then it changed into an enquiry into how we got so rich. I concluded that it wasn’t just maximising, or prudence, or the strictly economic that explains it, but there was an ethical change. As I said before, liberalism was the key, that it gave people self-confidence, millions of ordinary people starting a hairdressing salon, opening a grocery store, moving far away to have a job to support their family, all this kind of mobility and ingenuity made the economy much more productive because we invented stuff and then applied it and used it and did very well.

It was interesting how you spoke about China, which in many ways is regarded as this authoritarian society and yet, their economy’s growing very quickly. Have they embraced liberalism more, what’s the story there?

Yes, that’s right. It shows that you don’t have to adopt much liberalism to grow fast. Well, of course, it also shows that they were doing such a bad job before 1978, Mao and the Great Leap Forward and the Cultural Revolution and all these crazy policies that just wrecked the economy. Then recovering from that could be expected. If you just stopped shooting people in business, if you shoot people in business you’re not going to do well. If you stop shooting them, your income’s going to go up; the country’s income is going to go up.

An even better example is India, which as I said before, if South Africa would just do what India has done and India is still in many ways an illiberal economy. There are still tariffs among the separate states of India, there is still much massive corruption, yet it grows at 5% to 7% per year, per capita in real terms, whereas South Africa grows from under 1% to maybe 2% per year; 5% to 7% a year solves a lot of social problems. The problem with xenophobia, for example, in South Africa would evaporate if South Africans felt that they were getting much better off and that their children would be much better off and that they’re not threatened by people who escaped from Zimbabwe.

There all these global lessons around liberalism and how it works, yet we still have this push against it. Why do you think that that’s still there?

I think it’s very fundamental, I think each generation has to realise that liberalism is good policy because we all come from families and in a loving family, a loving family is a socialist community. A mum is the central planner and income, at least if you’re middle class or not so much middle class, that’s not so much a point, but if your dad works on the railway or in a distant office, you don’t understand where the economy comes from.

Whereas, if you work on a farm, if you’re raised on a farm or in a small business in which you participate from an early age, a shop or something, then you understand the market, you understand that leaving people alone to work it out for themselves with appropriate help when people get into trouble is the way to run an economy, whereas, the way I grew up and the way most other people in the modern economy grew up, they don’t know where income comes from, they don’t know how an economy works, they think the market is just a tax and we can get free lunches all the time. So, they  keep being socialist, every generation has a new crop of socialists, so all I can do is write articles and books to try to teach them that  that’s wrong.

Deirdre, just in terms of where people can read more about you and your work?

The simplest place to go is my website, you have to spell my name right though, but I think South Africans know how to spell Deirdre, but www.deirdremccloskey.org. Actually if you just put my name in and Google it, you’ll get that and then you really should rush down to Amazon and buy all my books which are wonderful.

I’m sure that many of our listeners will after this. Deirdre, thanks a lot for chatting to me today, it’s been a pleasure.

Thank you very much, it’s been fun.

All right, great, thank you very much, cheers.

Bye.

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