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Global wealth distribution: a question of more than economics

By Christopher DeMuth - posted Friday, 16 June 2000


The populations of the advanced economies are today the richest and freest people the world has ever known. The problems of obtaining and securing prosperity have now essentially been solved by science and technology, and improvements in social, legal, and economic institutions. The critical factor of production has become human capital — intelligence, skill, and information possessed by individuals and groups.

Today, average income is so high that the necessities have become practically universal. Many one-time luxuries — good food, clothing, cars, and homes; advanced communications; art and entertainment; foreign travel — have become mass-market commodities.

One of the most valuable commodities of modern life is time itself. In the economically advanced societies, people of modest income are now well enough off to be able to forego added earnings for personal time. This is producing, in any given year, legions of ‘low income’ individuals in the official statistics whose circumstances are not distressed, but who are freely choosing to invest in their own human capital or to pursue a variety of non-earning activities. That so many ordinary citizens of Australia, America, and Austria can even contemplate life as a style, and calibrate time according to its quality, is one of the greatest blessings of living in such a free and abundant era.

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Our growing wealth and equality is transforming our politics. Many of the central issues of public finance, social welfare, and class contention that dominated twentieth century politics are evaporating before our eyes. Today’s most talked-about problems of public resource allocation — such as reducing pollution, relieving traffic congestion, conserving more open space, and properly equipping our police and military forces—are hardly resource problems at all. The constraints on their solution are not material but political.

In today’s highly affluent and mass-middle-class societies, the truly serious, overarching policy problems have become cultural and ethical. They may be characterised as problems of employing our wealth and freedom properly and encompass a variety of phenomena: the profusion of obscene and violent entertainment, family breakdown, the spread of drugs and drug culture, pornography on the Internet, incidents of mass violence and terrorism, and popular anxiety over the social consequences of new biological and information technologies.

The challenge they present is learning to live in a world where wealth and freedom have amplified man’s capacities for vice along with his capacities for virtue. From time immemorial the good, the bad, and the ugly have coexisted and competed for human allegiance, but now the tasks of containment and rollback of vice and ugliness have become more daunting. The culture wars are, in these respects, like the Cold War.

Within each of the economically advanced nations, there remains sizeable impoverished sub-populations that, although receiving free medical care, schooling and other government services, have entirely missed out on the growing prosperity of the societies around them. It is now generally acknowledged that income-transfer programs have failed to address the problem of domestic poverty and have, in many respects, made them worse by encouraging illegitimacy and long-term welfare. Parties of both left and right are now heavily focused on what may be called cultural anti-poverty strategies aimed at revitalising the family, strengthening church and community institutions, socialising fatherless young men, protecting young women and single mothers, and improving schools.

The problems of absolute and relative poverty are increasingly understood in cultural terms. Since the beginning of the scientific and industrial revolution in the early 19th century and continuing to the present, economic welfare in the nations of Western civilisation—Western Europe, Great Britain, the United States, Canada, Australia, and New Zealand—has improved at fantastically greater rates than in any other nations, with the exception of Japan and the small Asian tigers since the 1960s.

At the time of the communist collapse, it seemed natural to believe that the global spread of free markets and democratic government, combined with the spread of modern medical, public health, information, and other technologies, would at last produce convergence in productivity, economic output and individual welfare between the West and the rest. But so far we are seeing not convergence but continuing divergence.

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One decade of post-communist economic reform is only a blip, of course. Yet it is unnerving for advocates of free markets and the rule of law to observe the state of nations with tolerably honest governments and sensible economic policies, such as the former East Germany. Although it has had the advantage of importing Western economic policies and legal institutions wholesale, there is little domestic entrepreneurship and economic growth and cities teem with unemployed men. Something must be at work that goes beyond technology, which is universal. Whatever it is must also go beyond economic policies and political institutions, which vary but not nearly so much as levels of economic welfare.

These developments are inspiring a ‘new development literature’, epitomised by David S. Landes’s historical tour de force, The Wealth and Poverty of Nations: Why Some Nations are So Rich and Some So Poor, which suggests that that something is culture. A culture conducive to economic growth is not only necessary but also antecedent. The unique prosperity of Western civilisation is due not so much to its economic policies and political institutions as to the culture that fashioned and sustained them—along with complementary private institutions of education and science, religion and philanthropy, commerce and industry, and art and literature.

The culture of a people or nation is, of course, an extraordinarily subtle and intricate thing. There is a strong tendency in the new growth literature to emphasize the remarkable Western knack for spontaneous voluntary association—for grasping the potential for fruitful social cooperation beyond the family unit and for forming churches, community organisations, schools and universities, giant corporations, and complex market arrangements, all of which require intricate collaboration and trust among strangers.

At least equally important to material progress are the equally remarkable Western cultural attributes of individualism, self-reliance and competitiveness. They are the inheritance of two thousand years of history in which, in the West and only in the West, no one institution of church or state and no private power has ever been able to maintain a monopoly over the lives and allegiances of citizens for any extended period of time. Limited government, private enterprise, the independent judiciary, and freedom of the press, religion, association, and inquiry are important parts of this inheritance — but only parts. Ours is also a culture where the sheer pleasures of striving and self-realisation, and the hope of winning and fear of losing, keep many of us at the office long after our material needs have been abundantly provided for. It is a culture where scientific research and intellectual life are as ferociously competitive as business and finance. It is a culture where government misconduct is pitilessly exposed and punished rather than left to fester and grow.

These tough and often lamented cultural attributes are not easily emulated, much less prescribed by the International Monetary Fund. More generally, as growing prosperity, freedom and equality within the mainstream of Western society increasingly reveals the cultural roots of material success, and strips away the old ideological explanations for lack of success, we may discover that our political institutions—which evolved to mediate conflicts over material resources—are poorly equipped to handle the more delicate and ‘private’ issues of culture and human capital.

One hopeful augury is that market-oriented think tanks such as The Centre for Independent Studies and the American Enterprise Institute, which have long been preoccupied with questions of taxing and spending, business regulation, and trade and monetary policy, are now turning with uninterrupted vigour to questions of culture, religion, education, and social norms. Another is that debates over domestic poverty, global economic development, and mainstream culture have taken a decidedly practical and nonpartisan turn, with talented intellectuals and politicians of both left and right addressing them in a practical spirit, and populist and neo-Marxist groups (such as those who took to the streets to demonstrate against the World Trade Organization last fall) increasingly confined to the fringes. We will, I predict, discover that the principles of open competition and avoidance of government regimentation, which served us so well in the economic sphere, will prove equally fertile in the realm of culture.

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This paper was originally presented as the opening address at the Centre for Independent Studies Consilium, Katoomba, 18-20 May 2000.



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About the Author

Christopher DeMuth is president of the American Enterprise Institute for Public Policy Research, Washington, D.C.

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