Richard Pomfret

 

On his book The Age of Equality: The Twentieth Century in Economic Perspective

Cover Interview of January 05, 2012

In a nutshell

This book is about adopting a longer-term perspective to understand the world we live in.

In the 1800s a handful of countries, initially in western Europe and lands settled by Europeans, illustrated the potential of market economies to increase output to unprecedented levels.  The formula was no secret and other European countries and Japan were experiencing economic growth by the end of the century.  Traditional societies loathe to increase individual liberty fell behind, while countries which prospered in the Age of Liberty came to dominate a global economy and their empires spanned the globe.

By the early 1900s success was breeding tensions, centered on the distribution of the fruits of prosperity.  Tensions between established and rising economic powers fuelled a war of unmatched battlefield killing, which led to the collapse of dynastic empires centered in Saint Petersburg, Constantinople, Vienna, and Berlin.  In Russia, and later in Germany, new regimes emerged which rejected unfettered capitalism in favor of state-controlled economies aimed at benefiting workers (Communism) or the nation (Fascism).  The market economies with democratic political systems and individual liberties were slow to respond to the challenges, and the 1920s and 1930s were dismal decades for most of them.

Conflict between systems erupted in a war which saw the defeat and discrediting of Fascism by 1945, and in a cold war which ended with the disintegration of central planning and widespread rejection of Communism.  The winner was the market economy, but not the unbridled capitalism of the 1800s.

Successful high-income countries introduced measures to protect those disadvantaged in a market economy (the old, the disabled, the involuntarily unemployed, etc.) and to promote equality of opportunity (through public education and healthcare).  The extent and nature of these measures varied from cradle-to-grave support in Scandinavia to more limited provision in the United States, but all provided basic schooling and accepted responsibility for the destitute.

Outside the high-income countries, the interventionist government policies adopted by modernizing countries in mid-century were jettisoned in the final decades of the century, following the lead of the Asian tigers whose economies embraced “Asian values” but clearly involved resource allocation driven by world prices and a welfare state.

By the end of the century, the idea that the desirable economic system was market-based with government intervention to promote equality of opportunity and of outcomes was dominant worldwide.  The world experienced greater prosperity than ever before, and greater equality than a century earlier within and across countries.  Yet, this is not the end of history.

Many states remain autocratic and unequal, although such regimes have been under increasing pressures for change, especially in Africa and in the Arab world.  Some high-income countries, notably the United States, have experienced growing inequality in recent decades, but relevant political debates are not about abandoning either the market economy or government provision of social services.  The extent of government involvement is debated in the early twenty-first century, focusing on healthcare in the United States and on tertiary education in western Europe.  And aging populations raise concerns about support for the elderly.  But the principle of public policies to mitigate inequality is unquestioned.

The long-run challenges in the twenty-first century will be how to live in an interdependent world.  Disputes between powerful nations cannot be settled by force in a world with weapons of mass destruction.  Uncoordinated national policies will be inadequate to address global warming, epidemics, or unpredictable threats such as stray asteroids.  The consequences of failed states may be felt by others (e.g. Somalia-based piracy) and raise issues of responsibility to protect people from genocide or other crimes when their own state fails to do so (e.g. in Libya).  To enjoy the benefits of the globalized economy will require an Age of Fraternity.