Plenary 2 - Niall Ferguson on Capitalism, Socialism, and Democracy

[Music] you [Music] good morning everybody it's a pleasure to be here in in Edinburgh as a Glaswegian of course I am obliged to disparage Edinburgh but but last night I greatly enjoyed the the drinks reception on the battlements of edinburgh castle because it taught you all why the Scots invented tweed and I was the only person wearing tweed and the only person not suffering from hypothermia by the time we went in to dinner I'm going to begin this morning's proceedings with a talk inspired by Smith but also by a man who criticized him a Joseph Schumpeter I'll talk for a oh I don't know 40 minutes will probably suffice and then I've got a tremendously talented and distinguished panel who will come and tell you why I'm wrong in various ways should should be fun and I I think we can match former Prime Minister Gordon Brown for dynamism and discussion I I was present for the discussion yesterday and I don't think he said anything at all which was very prudent of him some of you will have seen the statue of of Adam Smith if you've wandered around this fair city and you probably assume that it was erected shortly after his death in fact it's really quite recent and it's the work of the great Scottish sculptor sandy Stoddard along with the companion statue of of humor I think it's a very healthy thing that at a time when people tear down historic statues in other parts of the world the Scots are creating new historic statues presumably for future generations to tear down I'll explain why future general might decide to tear down the statue of Adam Smith in the course of what I'm going to say I want to begin with two Smith quotations being an historian rather than an economist i-i've actually read The Wealth of Nations sorry I couldn't resist that and this is this is an extraordinary passage in book 1 chapter 9 about China China seems to have been long stationary and probably long ago acquired that full complement of riches which is consistent with the nature of its laws and institutions but this complement may be much inferior to what with other laws and institutions the nature of its soil climate and situation might admit of a country which neglects or despises foreign commerce and which omits the vessels of foreign nations into one or two of its ports only cannot transact the same quantity of business which it might do with different laws and institutions in a country to where though the rich or the owners of large capitals enjoy a good deal of security the poor or the owners of small capitals enjoy scarce any but are liable under the pretense of justice to be pillaged and plundered at any time by the inferior mandarins the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit Smith was right about so much that it's hard to keep track of all the things he was right about when I was writing a book entitled civilization I came across this passage and realized that it encapsulated the argument that I was attempting to make Smith had already worked it all out in the 1770s what made China appear economically stationary in the late 18th century which we know from more recent research it was stationary in the sense that per capita income wasn't growing at all but had in fact been shrinking and would continue to shrink into the 19th century was nothing specific to Chinese culture nothing specific to the Chinese race but had to do with China's laws and institutions smith's central argument here is that if you change the laws and institutions and in particular if you introduced trade free trade in particular to China you would have quite different outcomes you would very likely have rapid growth eventually policy changes in China after the 1970s proved Smyth right it's an astonishingly insightful passage and it sums up I think what came to be the institutional school of economics it's really a kind of Doug north passage but as you all know the Theory of Moral Sentiments the earlier work is just as important a contribution by Smith and so here's another crucial quote this is from towards the end of the book a part 6 section 2 chapter 2 the man of system is apt to be very wise in his own conceit and is often so enamored with the supposed beauty of his own ideal plan of government that he cannot suffer the smallest deviation from any part of it he goes on to establish it completely and in all its parts without any regard either to the great interest or the strong prejudices which may oppose it he seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard he does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them but that in the great chessboard of human society every single piece has a principle of motion of its own altogether different from that which the legislature might choose to impress upon it if those two principles coincide and act in the same direction the game of human society will go on easily and harmoniously and is very likely to be happy and successful if they are opposite or different the game will go on miserably and the society must be at all times in the highest degree of disorder what genius Smith understands even before the era of economic planning even before the great visions of utopia that came along in the 19th century and caused so much havoc in the 20th that the grat the grand figure of the planner who imagines himself master of the chessboard of society will only wreak havoc if he goes against the grain of the motive forces of the individual human chess pieces it's all there and that's why when David invited me to come to speak at this conference I I accepted because I sometimes feel that we still underestimate the extent of Smith's genius the profundity of his thinking It was as if Smith saw modernity coming and realized all the mistakes that we would make in it and tried I'll be at vainly to Warner's against them so Smith was right right about the invisible hand right about the market but also right about the way in which civil society operates the way we relate to one another through what we now call empathy but he called sympathy why then did in the mid 20th century Joseph Schumpeter expressed such pessimistic views about the future of what one might call a Smith ian order if you read capitalism socialism and democracy which she wrote between 1938 and 1940 - you realize how deeply pessimistic Schumpeter was about those things that Smith held dear can capitalism survive Schumpeter asked no I do not think it can can socialism work of course it can Jupiter made four points about why he thought this but one is very famous the capitalism operates on the basis of creative destruction a good thing but a highly disruptive one and therefore potentially a source of of resistance secondly he made a point familiar since Marx's work the capitalism tends towards monopoly and corporatism not competition thirdly he made the very correct observation that capitalism creates educates and subsidizes a vested interest in social unrest namely intellectuals and finally a Schumpeter argued socialism is politically irresistible both to bureaucrats and Democratic politicians and this was why Schumpeter was pessimistic about what lay ahead in the post second world war world and anticipated that socialism would win and capitalism would lose these are not bad points as you'll see we may find ourselves revisiting these arguments if as I'm going to argue socialism is making a comeback I've already made one jibe at the economics profession here's another the most influential textbook of macroeconomics the one I was told to read when I was an undergraduate at Oxford in the 1980s was Paul Samuelson's book that book consistently and wrongly predicted that the Soviet Union would overtake the United States in economic terms at some point in the foreseeable future in the 1961 edition Samuelson argued that Soviet gross national product would exceed that of the United States between 1984 and 1997 they pushed back the date of Tsar Paso to 2002 to 2012 and the 1980 edition and this chart appeared in successive editions of the book a book inflicted on generations of innocence in American economics departments the Soviet economy Samuelson argued is proof that contrary to what many skeptics had earlier believed a socialist command economy can function and even thrive Samuelson Schumpeter's pupil and Nobel laureate cannot have read Adam Smith or at least not very closely this was all rubbish what actually happened was that the Soviet economy even on a generous purchasing power parity adjusted basis never got closer than 44% the size of the US economy and as its growth rate slackened and finally became flat it fell over further behind by 1991 at the end of its existence its economy was less than a third the size of the United States and I'm old enough to remember that moments of seeming triumph in 1989 when it appeared that we who had made the argument for free markets who had made the argument against economic planning had been vindicated by the collapse of the Soviet empire in Central and Eastern Europe if you look at San Gogol engram of references in english-language publications to socialism they fell off a cliff after 1989 and interestingly discussion of capitalism prior to 2008 also diminished remember capitalism's a term of abuse not originally Marxist it was actually a Tory term of abuse in the 19th century and I urge people who believe in the free market and this principles of Smith not to use the term because of the very use of the term capitalism legitimizes it's it's opposite socialism that's why they declined more or less in lockstep after it was clear that socialism was defunct back there in most democracies in most OECD countries there was a sustained decline in marginal tax rates marginal personal income tax rates and corporate income tax rates as it became clear that the very high marginal tax rates of the 1960s and 1970s led to suboptimal results in terms of growth here again it seemed as if the argument was being won and yet a funny thing happened on the way to the present that was the financial crisis the financial crisis which people realised was happening in late 2008 but which obviously had begun somewhat earlier in early 2007 even late 2006 ought to have been an opportunity for the left to make a comeback since it very clearly fit into the model of crisis as an inherent feature of of capitalism but in fact the people who made the left-wing argument that the financial crisis happened therefore bankers should go to jail did much worse politically than the people on the populace right who said the financial crisis happened and therefore we should restrict immigration and impose tariffs and do other things along those lines it's a surprising outcome when you come to think of it that the left did quite badly after 2008 only really in Greece did the left profit from the crisis it's only much more recently that the left has begun to make serious signs of political recovery and what is very striking is that on both sides of the Atlantic socialism has made a comeback amongst the young here are two charts to illustrate the point the first on the left is American data from earlier this year and it shows that although most Americans have a more positive reaction to the word capitalism than to the word socialism by a rough 61 to 39 ratio that's not true amongst the generation aged between 18 and 24 61% of whom have a positive reaction to the word socialism as compared with 58% to have a positive reaction to the word capitalism what one sees a somewhat similar pattern in the British data you can see here in fact that there's even more anti-capitalist feeling amongst British younger British voters and so we find a really quite significant generational polarization going on in at least the english-speaking world where young people and this may include your children don't see a great many representatives of Generation Z in the room but your children are very probably far more attracted to socialism than you are and more attracted to socialism than you may realize so I want to talk about that because it seems to me that we face a really meaningful problem if the next generation the generation in effect currently at university or of university age believes that socialism is preferable to capitalism let me talk some more about why that matters in my most recent book the square in the tower I tried to show how an age of large online social networks would be an age in which extreme ideologies would flourish along with fake news and there's no doubt in my mind that one can't explain the rise of the populist right and more recently the populist left without reference to technology technology is disrupting existing structures of politics undermining established parties and creating opportunities for extreme ideologies to spread especially when the leaders of the populist right and left understand better how to use use social media than the centrists the Christian Democrats and Social Democrats and one only really needs to look at these accounts the Twitter accounts of Bernie Sanders Alexandria Acacio Cortez and Jeremy Corbyn to appreciate that something very remarkable is happening Boris Johnson has about six hundred thousand followers on Twitter which he only joined relatively recently that's one percent of Donald Trump's number of followers but it's also substantially less than the two million Twitter followers that Jeremy Corbyn has our Colburn is actually the number one British politician on social media so this is I think a remarkable phenomenon and not one to be underestimated but by and large I found that people are particularly in the British media and academia underestimate the importance of social media as if they still haven't quite learnt the lessons of 2016 let's try and drill down and understand a bit better what is meant here because of course it depends what you mean by capitalism when you ask Americans to express their positive or negative views of small business or entrepreneurs or free enterprise they're far more positive about those things than they are about capitalism or for that matter big business and reassuringly they have an even more negative view of the federal government than of big business and as a collective including all age groups they remain on on balance sceptical about socialism in fact for that reason I think it will be pretty disastrous for the Democratic candidate next year if the word socialism can be associated with that person as I'm almost sure the Trump campaign will endeavor to to do regardless of who the nominee is so I don't think we should jump to the wrong conclusion here much of what is is going on here is that the word capitalism simply has negative associations whereas small business and entrepreneurship don't even more interesting is to understand what Generation Z is the Americans call it or we'd say generation Zed it's terribly confusing so maybe we should probably go with ijen which I rather prefer igen captures the fact that the generation circa 20 years old has grown up with smartphones and grown up with social media they never had a time of innocence which at least the Millennials did and they behave I think consequently very differently what do they mean by socialism Gallup has a bunch of polls about this trying to guess at what Americans understand by socialism when they ask Democrats you can see the answers up here quality government services free health care 13% which isn't very many of Democrats think it implies government ownership I love the fact that six percent think that socialism means being social including activity on social media that's actually a relatively low proportion amongst young Australians it's almost twice that our socialism I'm on Facebook all the time mate the really revealing answer to the question came from AOC Alexandria Ocasio quarters in an interview with Anderson Cooper what we have in mind she said and what my policies most closely resemble are what we see in the UK in Norway in Finland in Sweden aha so that's socialism for young Americans this is pretty interesting when you actually go to Sweden which I assume a OC has not done because Sweden is in fact a very model of a dynamic market economy ranked ninth in the World Economic Forum's competitiveness ranking just behind the United Kingdom which is on 8th 12th and the World Bank's ease of doing business League table and even 19th and the Heritage's Heritage Foundation's into the list of economic freedom so there's a confusion clearly at work here when young Americans talk about socialism what they have in mind is some idealized or caricatured version of Scandinavia or Northern Europe in which things like higher education are free or healthcare is seemingly free it really has nothing to do with what seems to me the central notion of socialism which is the collective ownership of the means of production that that was the defining feature of socialism as an ideology the argument which Marx was not the first to make that you needed to have some public control rather than private control of capital it seems as if very few young people have that model in mind it's all rich with irony to idealize Scandinavian socialism when it's in decline or when as in Denmark it's simply metamorphosing into a respectable version of right-wing populism is I think a huge case of in transatlantic translation the reality in Europe is that social democracy which was the respectable version of socialism that emerged after World War two is in deep decline in almost every country in some cases it faces extinction so I I sense here a great deal of confusion that we need as educators to try to address remember the reason that young people are confused about socialism is that nobody taught them anything about it at university and if you don't believe me take a look at the courses that are on offer in the major universities on both sides of the Atlantic you will find almost nothing on what happened with all the different 20th century experiments with Marxism and its variants there are precious few courses that might have helped educate aoc when she was at Boston University and cleared up this confusion shown her that what happened in Scandinavia was in fact that the experiment with really large-scale social democratic intrusion in the economy was a failure and had to be abandoned after crises in the 1990s the correct analysis is that there is a spectrum of redistribution you can see it in these oecd data on Gini coefficients for the countries that we have data for mostly oacd countries what you can see here is if you just look at the the the the black lines at the top in equality before taxes and transfers and then the red inverted triangle inequality after taxes and transfers and then redistribution as a percentage only you ranked countries by the extent of redistribution that occurs there is a spectrum that ranges from Chile and South Korea at the left-hand side of the chart all the way a to Finland in Ireland at the right side of the x-axis and that is the spectrum from which each democracy gets to choose you choose through democracy how much redistribution you want to do and if you don't want to do much if you essentially want to leave things as they are pre-tax then you can be chillin but if you want to make a really big impact and change the distribution then you can be Ireland or Finland that's really the discussion that we're having it's utterly confusing to cast it in terms of socialism and capitalism because in reality each of these countries resembles the other in the fundamental institutions that are used to make the redistribution decision you may think that the United States should move from the left side here it is just nixed to Israel and New Zealand you may think it should move all the way towards Finland and Ireland in terms of redistribution make that argument in 2020 seek to persuade voters that that is the kind of dis redistribution that you should have in the United States good luck I just have ten minutes to talk about an entirely different challenge that believers in economic freedom confront today and that is the challenge that I certainly underestimated in 1989 in 1989 I guess I was guilty of Eurocentrism I thought that what happened in in Berlin in in Gdansk what happened in Prague that all of this ultimately mattered more than what happened in Beijing and we now see that this was a grave error and that in fact we should have attached more importance to what happened in Beijing than to what happened in all of the Central and East European cities put together China which at least purports still to be a socialist country has produced the biggest economic surprise of our lifetimes this chart shows China's gross domestic product of a percentage of the u.s. GDP in two different measures purchasing power parity adjusted and and current dollar terms on the PPP basis China's already a larger economy than the United States had overtake a ticket in 2014 according to the IMF s data on the current dollar basis it probably will overtake the United States unless there's a drastic change in the growth rates in the two countries and about 10 years time now remember what differentiates China from the Soviet Union is that China's reformers beginning with banks helping allowed a private sector to flourish so to speak around the core of state-owned enterprises and so the non-state sector contributes around two-thirds of China's growth and 8/10 of all new jobs and we heard yesterday from a products of that extraordinary economic revolution it has been a triumph by almost any measure except the kind of measure that Smith might have asked us to apply unlike Europe China has been able to build technology companies comparable in size to the big technology companies of the United States these are not state-owned enterprises folks they are extraordinary achievements of of Chinese private enterprise and if you haven't been to Hangzhou or Shenzhen if you haven't spent time at seeing what the Chinese tech sector can do then you haven't really understood what has happened in the world particularly what has happened since China's entry into the World Trade Organization in in 2001 which created I think the foundation for this period of extraordinary innovation but and I think this hasn't been remarks or nearly enough in western coverage under-season ping China has significantly changed direction the government's goal has been to beef up the state-owned enterprises the government has tended to constrain the big tech companies in ways that they complain about when you have lunch or dinner with the leaders there was a period when although it's recently changed it was clear that credit was flowing disproportionately to the state-owned sector and private sector companies were struggling to satisfy their credit needs at reasonable rates this is Nick lardy's the recent study on the subject I want to emphasize that that trend has changed not least because the government has had a big shock in the last couple of years in terms of its own economic problems I want to conclude bring bringing us back really to two smith that the key issue here that we need to focus on and it's a timely thing to focus on given events in Hong Kong is not so much democracy as the rule of law the real distinction it seems to me between China's system and the system of the United States or indeed of the European Union is the fundamental limitation on the rule of law that exists in China the world Justice Project assigns scores for different measures of legal order the efficiency of the criminal justice system regulatory enforcement and so forth and if you compare the United States and China here the United States is orange china's and blue only by the measure of order and security is China ahead of the United States by all the measures that we probably attach more importance to in the West fundamental rights openness of government absence of corruption and so forth China is significantly behind the United States I included Sweden in this chart just as a reminder that the United States long ago ceased to be the gold standard for rule of law it's actually by almost every measure inferior to the North European democracies but that I think should only emphasize the point what matters in the end is not whether you're socialist or capitalist that I think has become a false dichotomy what really matters is whether you have the rule of law or not China has indeed succeeded as every politician says in every speech I'm kind of bored of it now in pulling hundreds of millions of people out of poverty and this is the greatest achievement in human history yes but those people who have been pulled out of poverty and a become middle-class in the last 30 years in China find that they do not have property rights in the way that we understand them in the West nor can they allocate their capital freely as they would if they lived in the West and that is why the entire Chinese system exists behind not just a Great Firewall to exclude for an Internet content it also exists behind a firewall of capital controls which were they to be removed would allow a vast outflow of capital from China to the rest of the world as China's middle class an upper-middle-class sought to differentiate or diversify rather their portfolios that seems to me one of the most glaring illustrations of the fundamental weakness of the Chinese system we as educators need to explain more than we have done in the past thirty years the connection historically from socialism to lawlessness what is happening in Venezuela today was not hard to predict indeed I remember predicting it when I visited Venezuela while writing civilization there 10 years ago and yet so many of the Hollywood socialist types defended Hugo Chavez regime so to to Jeremy Corbyn glamorized it even as it hollowed out the rule of law and set that country on a course to disaster socialism with Chinese characteristics has absolutely classic characteristics when it comes to the rule of law and if you don't believe me look at these photographs of the so-called re-education camps that have been created for China's Muslim Uighur minority population or reflect on what is happening in Hong Kong these days socialism is fundamentally about absence of rule of law once it crosses that line from social democracy to true socialism where the means of production must be controlled by the state and where the planner that Smith marked in the Theory of Moral Sentiments become so powerful that he or she almost inevitably perpetrates injustice the reality that this model produces corruption as well as abuses of power is a reality we cannot emphasize enough when we try to teach people the history of the last 200 years let's not forget also at a time when the young sea saving the planet as integral to their new political ideology that the country is doing the least to save the planet right now include China and the country that's making the biggest reductions in co2 emissions are cording to the most recent BP data is the United States this is an inconvenient truth for those people who want a narrative of socialism that is that is green let me conclude and then invite my colleagues up on the stage to discuss this with another Smith quote strikes me that we'll look back in about ten years on a political crisis in China but more also on a an environmental crisis that affects Asia much more than it effects North America and we'll wonder why we didn't spend enough time discussing their asymmetrical outcomes of climate change why we acted as if the planet would all as it were be affected equally Smith thought about what a disaster in China would mean to people in his native Scotland in the Theory of Moral Sentiments let us suppose that the great Empire of China was suddenly swallowed up by an earthquake and let us consider how a man of humanity in Europe who had no source of connection with that part of the world would be affected upon receiving intelligence of this dreadful calamity he would I imagine first of all express very strongly his sorrow for the misfortune of that unhappy people he would make many melancholy reflections upon the precariousness of human life and the vanity of all the labors of man which could thus be annihilated in a moment he would too perhaps if he was a man of speculation and enter into many reasonings concerning the effects which the disaster might produce upon the Commerce of Europe and the trade and business of the world in general and when all this fine philosophy was over when all these humane sentiments had been once fairly expressed he would pursue his business or his pleasure take his repose or his diversion with the same ease and tranquillity as if no such accident had happened the most frivolous disaster which could befall himself would occasion a more real disturbance if he was to lose his little finger tomorrow he would not sleep tonight as I said ladies and gentlemen Smith was an astonishing thinker and a man with a sense of irony that is clear in that wonderfully Voltaire Ian passage we I'm glad to say have gathered together to celebrate his contribution to ask ourselves how it applies to our own time I hope I've persuaded you that it applies very forcefully not only because Smith was right about the way the economy works but also because Smith was right about its inseparable relationship to a civil society that must above all rest on law thank you very much indeed [Applause] and now it's my great pleasure to invite three extraordinary distinguished thinkers and also friends of mine to the stage that doesn't mean they'll be friendly to me by the way please welcome Harold James Peter Schwartz and Orville Schell I don't know quite how to conduct this trial since I'm as I'm the accused so perhaps perhaps I'll kind of chair it in the simplest fashion by simply in inviting you each to offer some comments and then we'll have a general discussion and why don't we begin with Harold and and move towards me via Orville and Peter Harrell thanks so much can you hear me is the microphone working wonderful and it was a great presentation I'm very very happy to be here in this celebration of the thinking and the influence and also the interpretation of what it means for our life today and in the future of Adam Smith and Neil is an old friend of mine but he also wanted me to be critical so let me start by something critical both of Neil and Smith and Smith had a view of economic change that was inevitably retrospective if we think of 1776 the year of the wealth of nations it's also as the Bank of England banknotes remind you they used to have on the 20 pound note to Adam Smith but then there's a note with James Watt and Matthew Boulton so 1776 was the year of the perfection of the steam engine as well as the year of the Declaration of American independence and the steam engine was absolutely transformative the application of carbon energy was what really made the world a very very different place in the middle of the 19th century and it's absolutely unsurprising that Smith didn't see that couldn't see that it was going to take place in the future so the wealth of nations famously begins with the description of the pin Factory the division of labor and the division of labor is a great thing but it doesn't produce the technical change which was the change that really revolutionized the world and I think Neil's discussion suffers from a bit of the same problem and that is that what Neil's presentation this morning didn't reflect on was how the technology the technological revolution of today in particular AI is going to really transform the discussion of socialism capitalism and what we do in the future and let me explain that a little bit and the the application of artificial intelligence and means that something that was a kind of hopeless and as neil correctly pointed out destructive utopia in the 20th century becomes in the 21st century a potential reality and in the 1920s in the immediate aftermath of the Bolshevik Revolution the economic planners in the Planning Institute in the young Soviet Union Gause plan um worked out what they thought was a model of the economy and they had something like six or seven hundred simultaneous equations that they needed to solve they couldn't work how to solve them the technology wasn't there but the application of the the computer power of today and the thinking computer power of today means that those pieces of the of chess on the chess board that Neal was thinking about in his metaphor those can actually be thought of and programmed and so instead of having an incapacity of the planner we have both in the corporate world and in the state world institutions that actually reflect and project and anticipate and tell us what to do so when we use Amazon it's a famous thing the Amazon comes up with the suggestions of what you might like to have and this kind of artificial intelligence is going to be applied much much more radically in the Chinese setting and that's exactly the way in which the Chinese model it seems to me is likely to develop it's likely to for instance use your use of social networks as a way of indicating what you might like to do what you will do what you shouldn't do what would be dangerous to you and so it's a vision of complete control and it needn't necessarily be by government organization it can be by a private corporation as well and but it's a vision of complete control and that produces a planning that in the 21st century is realistic whereas the planning of the 20th century was unrealistic and too many people this is frightening so the question is what we can do about it and there's one term that Neal used briefly in his presentation put it in what used to be called scare quotes neoliberalism and it seems to me if you look at the discussion of today almost everybody will tell you neoliberalism has failed neoliberalism was a disaster neoliberalism produced the financial crisis and actually the concept that lies behind the neoliberal thinking developed in the late 1930s it's usually thought to have been initiated in a seminar a colloquium in Paris in 1937 is very Smith Ian and it's about the application of rules in order to try to constrain both state power and private power and both of those are thought of as threatening and again think about Smith Smith is very III think very very perspicacious on this one and that a lot of the polemic in Smith's work is devoted to an attack on the power the mixing of politics and economics in the East India corporation in the 1930s the discussion was about the power of big business groups organized in cartels to suppress or manipulate price information and one of the important I think producers of the diner dynamism if the late 20th century was the application of competition policy first in the United States and then by the United States military government in Europe and then by the success in Germany in the 1950s extended into the European Economic Community so competition policy is what the what the Europeans did best what the European still to do best and if you want a kind of illustration of how this can really produce a dynamism a capitalism that produces the goods and think of the long Department of Justice case against IBM through the 1970s it was a case that was never really resolved but the consequence of it was that when IBM developed the personal computer they didn't think that they should bundle the software with the hardware and so they left software to a small firm really insignificant little firm called Microsoft if that was the it wasn't the consequence of a market decision it was the consequence of a Department of Justice process against IBM and so thinking about the the order and the way in which competition policy is enforced seems to me to be a really really important part of dealing with the the challenge of this this world in which we get actually a destruction of the old' transparency of prices for instance if you do an experiment in this room if we would all try to work out the set the price for an airplane fare to New York it would give us very different answers on our to our telephones because it would take into account the algorithms take into account what we've looked for in the past if they know that I've been looking for flights to New York they know that I'm pretty desperate to do that in the price goes up so there's an in transparency about pricing which is actually undermining a critical part of the mechanism that Smith thought rightly was essential to the dynamics of a capitalist system and that's exactly the function of what public policy should should be thinking about and it's got a high political element the moment you I think probably all noticed when President Trump wanted to single out a European figure as the hate figure for the United States the person who hates the United States more than anybody else in Trump's tweet and was Margaret of estiga the Commission the Competition Commission of of the European Union so competition policy is really going to be at the center of it if I've got two minutes more to one and a half and so just on the on the question of the fiscal story I thought very interesting what Neal was saying and but the fiscal story is I think also something where we need to get into more details about what exactly is going to be taxed and what is going to be redistributed and so the figures that we saw were stories about income tax and I think if you're thinking about the the the creation of a society in which people feel more comfortable and also in which the International mobility is allowed we're going to move more and more away from a society that taxes income to a society that taxes immobile wealth and real estate and that involves enormous political economy problems in making the transition from those those different tax systems but it's I think the challenge of the future so those areas competition policy and the actual form of taxation seem to me what to be what there are real political issues of the if the next years will be about what we should really attacking them in a Smith Ian sense but we should also be aware of the way in which technology is really producing an absolutely new kind of challenge thank you thanks very much indeed Harold given that we've got half an hour just over half an hour left and we want to have some audience participation I'm going to tax oval and and Peter so that I'm going to give you each five minutes which is unfair but so is life Orville we are the first thing that occurs to me is what a beautiful writer Adam Smith is I mean what elegant elegance he states his thinking and you know we crave like that kind of elegant well-ordered thought process to make sense out of the world were in and you know listening to you talk Neil I must say my my head is just sort of exploding with a thousand ideas and I think that's partially because the world is in such a state of disorder now that we hardly know even we yearn for that good old Cold War days when we know who is on what side and you know we had socialism and capitalism lines and everything was divided up neatly but that's not true anymore and I think knew what you were trying to do properly is to try to figure out what is the main contradiction in the world now and you know it isn't between socialism in capitals and we don't even know what socialism means socialism with Chinese characteristics is not socialism it's Leninism what we have in China today is a system that that let it through Marx out of a helicopter a long ago and it kept Leninism and what's Leninism well Neel describes it as a very compromised rule of law element and this is true it's emphasizing one party discipline rule how do you make the party ascendant how do you make it well organized and how do you make it continue its its tenure is the only party ruling the country it seems to me that that this is what you're implying when you say rule of law is really the critical fulcrum here and I think that the the the what we we are sort of grappling with is that very question of where is the primary contradiction in them in the world today and I think it is precisely the err between a fart arianism and the only other thing we can say is you know liberal democracy that that seems to not quite work anymore either and so we're groping around for ways to define what's on what side and where do we stand if capitalism once belong with democracy and Leninism and Marx's and belong together what's the what's the equation each side of the equation now so this is really where I sort of enter into this trying to make sense out of the world and I think here China's quite helpful we used to sort of think rather quaintly that five-year plans were very retrograde and then we got a little bit nostalgic to think that the Chinese can plan and we can't and there's a certain truth to that we got a little bit nostalgic to think that well maybe if Neil says the Chinese have pulled hundreds of millions out of poverty so they must be doing something right maybe were retrograde and then we had the 2007 collapse and started self-doubting so nobody quite knows where to repair and what ideology what political system what economic system makes sense so either way I think this is our challenge here today at this conference what part of capitalism what part of socialism are worth blending together and keeping and what does work I don't know the answer to it but I handed over to Peter Schwartz to perhaps illuminate us thank you well yeah I have to say it's a great delight for me to be here sitting between two good friends of mine who are both brilliant writers and I I've written not quite as many books as them and it's painful for me when I read both of them because they're both such brilliant writers it's painful the quality of the writing I come in both books I will say that Neil and I've had the privilege of debating before he began the lasted we were debating his book the war of the world brilliant but painful book that he began by saying I'm a historian therefore I talk to dead people as in Adam Smith I'm a futurist and I talked to imaginary friends so let me bring that perspective first of all on China I do think it is interesting that mal emphasized late in his life perpetual revolution rather than a kind of Leninist order from the top he too became I think profoundly concerned by the state bureaucracy and the kind of stagnation that was implicit in it and recognized it and was willing to set loose the forces of chaos as we heard yesterday from Wang Sheng in a very painful spasm that lasted a couple of decades yeah we'll get to trump in a moment but just as an observation that China also went through its de institutionalisation phrase phase if you will a trump an AOC well Trump turned electoral politics into reality TV that we no longer have a conventional national electoral process we have a reality TV show with a vote on who win who did the best job on TV voters get to call in as it were and the thing about aoc is not her ideology as she gets that she too is a reality TV star she's playing reality TV not conventional electoral politics and the game has changed in a fundamental way and if anything Trump is probably the single biggest force undermining the rule of law in America today in almost everything that he does and so if it is really about the rule of law we are in deep trouble because that is precisely at the heart of Donald Trump's ideology law does not matter my personal choice matters more than anything else if anything he is in some sense a Leninist in that regard so let's be clear about his non ideology he has no ideology it is merely narcissism the only thing that matters to Donald Trump is Donald Trump okay three something you didn't mention but where I think there was a kind of ideological error that was made in the thinking of recent years had to do with the fall of the Soviet Union and why it fell and many conservatives have argued it was the brilliance of Ronald Reagan's national security strategy the defense build-up Star Wars that basically forced them into bankruptcy not so that had a little to do with it what it had to do with was the internal contradictions of socialism just as many predicted and in fact it was the failure of the Soviet economy that collapsed the Soviet Union when I was in shell we actually looked at the future of the Soviet economy and reached the conclusion that the Soviet Union would be gone by the 1990s that in fact the Berlin Wall will fall by 1990 and there would be no Soviet Union because its economy was in such dire straits when Kathleen and I went to Moscow in 1987 and met with Gorbachev staff at the Institute for Strategic Studies they showed me identical graphs you could lay on top of the graphs we had it's shell that showed precisely the state of the Soviet economy and when I met with Gorbachev a few years later he too was shocked because they had been in an act of self-deception so what collapsed the Soviet Union was precisely what Adam Smith was talking about not Ronald Reagan's defense build-up and by focusing on that we lost the opportunity of that fundamental critique of socialism that was available by giving undue credit to Ronald st. Reagan okay now in the u.s. redistribution is not at all discuss today the language doesn't exist of redistribution in fact even worse today we are now beginning to talk about things like reparations which will be if you want to destroy the Democratic Party pick up a debate and support reparations for Native Americans for African Americans and as we heard the other day Kamala Harris isn't african-american enough right so she would not qualify for reparations the left is in the process of self-destruction in America as it always does and finally I actually want to respond to something that Harold suggested here about the ability of say China today to manage a very complex society I mentioned yesterday that among the things I've had the privilege of doing is writing several films and one of the film's was Minority Report and I think one of the things that is very evident is that as we've studied complexity that as you get up with more and more complex societies they become much more less predictable professor McDonald from heriot-watt it's written a recent book on applying complexity theory to strategy I haven't gotten the book yet but it must be a really good book having said that the point is simply this that China is no more controllable than any other society from any central authority it is very much like Minority Report they're trying they've got the surveillance systems that are applying the AI they're going fast and they will have no more success than they had in the past in trying to manage a system that is inherently complex and unpredictable as a result and that unpredictability of complex systems the path dependence of it makes it almost impossible for any central authority to manage a large dynamic complex society I think that's it thank you thank you so much Peter you you in some ways took the words out of my mouth I think you've framed this discussion exactly right Harold's argument would be that the the AI allows totalitarianism and economic planning to work in a way that it didn't in the 20th century and therefore China will win and I think oval it's probably the person best qualified on the panel today to give an opinion on that I'm with you Peter I think that there's something to be said for revisiting Dostoyevsky's notes from underground that ultimately the dream which Dostoyevsky marks of a society based on equations algorithms timetables and what he didn't know to call machine learning is bound to be undermined by the human factor in the sense that I don't think a bourgeois society of the sort that now exists in China can readily submit to totalitarianism 2.0 on the contrary I'm struck by just how much dissent I encounter in China particularly from middle class educated types Harold isn't an antitrust competition policy which you praised impossible in the Chinese system and won't ultimately the the Chinese SOE succumbed to some version of the Soviet problem even if the private sector remains dynamic it's still a Soviet economic system at heart and final thought inspired by this discussion won't we all learn to game the system I mean once I know that the price to Berlin is cheaper for Harold than it is for me I'm like Harold did you buy me a ticket to Berlin because I totally know Google is gonna screw me and so this is where the dose desk in element comes in it notes from underground das disk he says you know no matter how well-planned they make our world man will reserve the right to be stupid and it's the sheer bloody mindedness of Homo sapiens that the planners never quite take into account and and which Smith did take into account and as you say he's a beautiful writer but he's also alive to our reality as as human beings our utter inability to beat chess pieces on somebody else's board I've really enjoyed the discussion I want to make sure that the audience has time to jump in we've 20 minutes for questions please make sure that you ask a question it's got one sentence with a question mark at the end there's a hand raised just down near the front here recognized friend yes right down on the third row please yes thank you and we'll just there's a microphone sir I'm gonna do two or three sentences a so I am curious that you emitted any mention of corporatism in in this discussion and that you set up a conflict between socialism and and I think corporatism has in fact triumphed in every part in almost every part of the world I think it is as much if not more of a threat then socialism of what you called Latin and this is precisely because to a considerable degree it does deliver the material goods and it is not it can also accommodate the rule of law but yet it is sapping of the human spirit and I see that as much more of a threat than that's proposed to do is to collect a bunch of questions and then we can sort of wrap as a panel in the final five minutes there's a bunch of hands has gone up which is highly encouraging wouldn't the microphone can the microphone get over to the top my left hand side Thanks and then we'll go to a not the other side of the room so get that microphone the second microphone and move it towards the gentleman almost immediately opposite over there thank you yes go ahead so for the price of one just to say that in in your talk there is a capitalism which is evolving and a socialist but for some reason should be as Marx define it in his view or in your view centuries ago this shouldn't be the case I mean we should allow also the concept of socialism to evolve and in this context I see a certain contradiction in what you said about the fact that all the discussions about socialism and what happened with central planning have disappeared from textbooks and from curricula had they not be had they not disappeared perhaps some people would have spent some time as to thinking how to define how to combine the best of both systems and or additional systems and come up with something that really works because at the moment central planning doesn't work and what we are experiencing in the Atlas actual world doesn't work either so what about this for this combination I have written in various places that had we spent one percent of the time that we are spending in define in analyzing capitalism in actually trying to defer to to identify a different workable system we might have been in a much better world than we are now thanks very much sir can socialism evolve could it have evolved reminds me of Third Way discussions that we used to have back in the night 90s yes sir you're you're on next can we get you a microphone I'm oh I'm sorry I must have I did say the man directly opposite so I gave clear instructions but they won't follow yeah so often happens you see how being an economic planner is impossible I simply plan to the microphone to be there even that didn't but you're you're on next sir I guarantee it yes once I in your discussion I'm reminded of the old saw that on the right everything is the paradox we just can't understand it on the left it's a contradiction but in the center it's a dilemma and we wring our hands what to do is the question I think Orville you said you didn't know what to do in the spirit of David David Tisa's proposal at the beginning that we might have a manifesto at the end of this it's a question as Marx phrased it it's not to understand the system is what to do to change it do we have any suggestions as to what to do to actually bring about a change that we would like to say because I'm hearing lots of very good discussion about the problems etc but what the hell do we do about it the old question what is to be done Cherno Chucky's question appropriated by Lenin yes sir so I just like to offer us a comment on on the Scandinavian story I'd like to propose that the Scandinavians and the Social Democrats already in the 50s and 60s the leading thinkers did not believe that economists or bureaucrats should run corporations but it action should be managers and that there was in fact private ownership and in fact it was basically about redistribution you know we could discuss numbers and so forth but I think redistribution was the key point for the Social Democrats and access to education and so forth but already in the 50s and 60s the Swedish leading thinkers danish leading thinkers and so forth then in the 8th he's going to your to your point Nile in the in the 80s when the Social Democrats are basically voted out in the Scandinavian countries what you saw was I think a center-right the coalition's move in and the first thing they would say for example in Denmark was we will not challenge the welfare state that's not what this is about so I'd like to just propose that and I think we and I appreciate you put Sweden up as a as a conversation here we have a lot of us-china and so forth but so what was it that was going on in the Nordic countries and what was that work with the problems there and what are the problems but I think we need to be really careful about the characterization of socialism thank you thanks very much we've got full questions I think we can probably take a couple more and then come back to the panel not sure quite who's next but there's gentleman very close to a microphone very close yes great talks I love them all my question is what happened to Russia I mean we're talking about systems and you know the rapid development in China from from from almost nothing to substantial growth I remain puzzled I mean I've consulted with Russian companies and I still remain puzzled as to why Russia they have no exports except weapons I mean they don't there's no toys there's no machines there's no toasters there's no there's no nothing coming out of Russia what you guys are experts on this kind of stuff I just want to know more about what happened there and why do they need lenin back what happened to russia what we'll take one more question yes sir there's questions for Peter directed towards Neil do you agree that the outcomes of climate change will be asymmetrical and have repercussions for the global economic system therefore thank you very much well I think we'll now come back to the panel we've had a question about corporatism can socialism evolve what is to be done what really happened in scale Naevia what the heck happened to Russia and what will the symmetrical or asymmetrical consequences of climate change be what I'll suggest we do is go back in in in reverse order starting with Peter then oval then Harald and I'll offer if there's any time a final thought Peter I'll take whichever of these questions I'm taking yeah the last two Russia and climate change so climate change yes climate change is underway we are in a period of climate change climate change began a long time ago it is heavily driven by humankind that is the reality and so the only question is can we change the trajectory in the long time and can we deal with the consequences in the short run and the consequences will be asymmetrical they will not be identical everywhere the reality of climate change is not global warming but extreme weather in more places more often and what we've been experiencing in recent weeks is a perfect example of that if extreme heat will have extreme weather storms extreme droughts extreme floods all of these will be increasingly common in more places around the world the places that are most vulnerable or the coastal regions of the world where we will actually see more rapid sea level rise than most people believe so there will be whole countries island countries that will be extinguished and many coastal regions most of Bangladesh will disappear and about a hundred million Bangladeshis will have to leave home without an Amex card and they won't be welcome very many places and so this is going to be one of the great humanitarian crises the world ever faces so I I do think it is a fundamental issue I think it is something that the world is not yet even begun to contend with in terms of the scale of the consequences and its timing it is not 50 years it's now and it will continue to be worsening over the years ahead the only question is can we manage the consequences and can we change the trajectory in the long run that's climate change Russia well Russia has become a mafia state very sadly they had a very tragic result after the collapse of the Soviet Union and that tragic result was Boris Yeltsin and Boris Yeltsin was hopelessly incompetent and created the contact for in fact the rise of the oligarchs and literally handed the country to a former KGB agent who then transformed himself into a Mafia don and has been running an excellent system for Vladimir Putin and this is I've had the unhappy privilege of spending time with him and he have only met one other man like him which was Hafez Assad both of whom could have put a bullet through your brain without having to think twice about it and this is a man who's completely ruthless and serves one purpose and that is himself and he that is why there are no exports other than oil and gas because they've developed nothing else in Russia today it's why he and Donald Trump get along so well they are two of a kind thank thank you be oval I'm glad the the subject of climate change came up because in a certain way all of the other things we've been talking about today are phenomenal compared to that that is the crisis that will binds us all together and for which we have no no remedy the only the only remedy of course requires that the US and China somehow get together because after all they are the two largest carbon emitters in the world and it is precisely for this reason that the discussion we've been having is so critical because unless we find a way to dock and have some kind of ability to collaborate even as we have these antithetical political systems we have the second ama competition well then we are not going to find a ability to remedy the climate change question and indeed you could look at almost every other global question as well and that is why I think the to analyze what it is that China is today and also to look very carefully at the United States what is happening in the United States and populism around the world is so important is because it will be it will determine whether these are other questions the global economy climate change pandemics nuclear proliferation these are the questions which really are be deviling the world and in our divided state we're uh Turley incapable of dealing with so I'm glad this this this question arose because it is the the question that makes all of these other considerations meaningful Thank You Harold finally our on the climate change issue I agree absolutely with Peter with all this is the key issue and but I would like also to point out that it means that the discussion of what globalization and what globalization future is like will look completely different because if you think of it all the cities that were at the center of globalization were on the waterfront they were a long time ago Venice sinking completely now London New York Shanghai Hong Kong and one of the interesting features of the post is even ping time is the one belt one Road initiative which is deliberately an attempt to construct a globalization that is land-based and and where the center of Asia is drawn into it as well as the fringes the maritime fringes of the Eurasian landmass and it great questions I think we can't really answer the mall except I just wanted to say I absolutely agreed with Mr B days point about corporatism absolutely right that it's planning in in in corporations planning in governments they're they're similar and that's really what I meant with the AI story in the center and you know some people said capitalism has failed or something has failed but actually a no it hasn't failed it's been brilliantly successful it delivers exactly the kinds of goods that we want it's it's it's it's very very successful in that area it fails in a different sense it fails in in two different senses really one is the story about the climate and the second is what it does to us as deep human beings and that I think is an open question and on Peter's point what destroyed the Soviet Union and I think it's right that it was partly destroyed by its economic contradictions but it was partly also destroyed by the inhuman character of it the fact that it ignored human wishes and so in that sense I would put as it were the critique of John Paul the second is more important than the critique of Ronald Reagan let me offer a few concluding reflections at the end of this excellent discussion I agree I'm a corporatism is all around it one sees it in Silicon Valley strangely almost as much as in in Washington I think the question that every country and cooperation will be grappling with is who can keep closest to smith's principles in the realization that the further we drift away from them the further we drift in the direction of enormous ly powerful quasi monopoly is engaged in surveillance capitalism the worse for us and I think Harold was very right to raise that that issue of competition the battle over antitrust the battle over regulation of the giant tech companies is going to be a hugely important one one thing that only implicitly came up in the discussion of climate is that the mass migration problem is only going to get worse as a consequence of of what you mentioned Peter Sweden's interesting because Sweden had a wonderful thing going with quite high levels of redistribution and as he rightly said a basically private-sector economy but it's it's model was not well designed to cope with large-scale immigration and the problems failures of assimilation that are well known in cities like Malmo are now I think generalized problems in in many parts of Europe and I think that Europeans ain't seen nothing yet because large-scale climate change impacts in in Africa in the Middle East as well as in South Asia are going to mean ever larger numbers of people trying to get to Europe much much larger as a problem than the one that the United States confronts given the relatively small populations of the Central American countries that are the main source of migrants there and that's relevant to Russia - Russia has a larger Muslim proportion of its population than any European country a really large proportion of recruits to the Russian army now forget the exact number are Muslim and and this is something that seems to me putinism can't really easily deal with so I think one of the the big challenges that we we probably didn't talk nearly enough about is is which systems are best able to cope in an age of mass migration comparable with the 19th century when in relative terms comparable volumes of people moved around the world not just from Europe to North America but massive emigration from failing at Qing China I think the United States is much better designed to cope with an era of mass migration although it does require its Congress to reform its immigration system we know roughly what a successful immigration system can look like and we know that the US has the tradition to cope much better than Sweden much better than the North European welfare state with these sorts of issue with my yes speaking as a recently minted American I would say that wouldn't I'm and let me conclude with the final question to which I don't know the answer which of these systems we've been discussing is most likely to come up with workable solutions to the problems that we call climate change is it really the case that China's totalitarianism 2.0 is going to get this right it hasn't been getting it right thus far though I've heard more speeches about about green economics in China than I'd like to count but the the emissions story is certainly anything but a good news story or will it in fact the private sector would it be competitive free market economies with multiple firms that arrive at the solutions the mitigations the technology solutions that we desperately need I honestly don't know the answer to this question and I wish Smith were here to give us the answer because it's just the kind of problem that he was brilliantly designed to answer I do know thinking of what Harold said that the clear solution to the problem is is to have coastal cities with lots of hills and funnily enough funnily enough we are having this meeting in just one such place so globalization with climate change strikes me as being extremely good news for Scotland all we need is a is the next Adam Smith to figure out how best to benefit from it I want to ask you to join me in thanking this extraordinary good panel fine Spanish wines [Applause] [Music] you [Music]

Channel: New Enlightenment Conference, Edinburgh, 2019

Views: 33,553

Rating: 4.8220339 out of 5

Keywords: Adam Smith, The Wealth of Nations, Economics, The global order, socialism, capitalism, China, futurist, labor, Joseph Schumpeter, free trade, open markets, Theory of Moral Sentiments, tade, New Enlightenment

Id: QCWIiTXORGU

Length: 86min 4sec (5164 seconds)

Published: Sun Aug 18 2019

Reddit Comments

[u/stereoroid]

Pretty good - I’ve been reading Ferguson for years, and while he isn’t always right, he’s good on topics like this. Definitions are important here, and I agree that they’re going to be important in next year’s US Elections.

The word “Socialism” is going to be used as a stick to beat any candidate who suggests that the government get more involved in healthcare, for example, even though a single payer system such as Medicare expansion would not be Socialism as the word is defined. It would be as Socialist as the US Military, another state-run enterprise that insulates its members from the whims of the free market. But that won’t stop Trump from failing to pronounce the word correctly in every stump speech.

So while I agree with Ferguson’s analysis here, he made the point that voters are confused about the terminology too, and young voters may vote for a “socialism” that has more to do with the Social Democratic policies of Northern Europe than anything Marx wrote about. It’s going to be interesting.

[u/Flexit4Brexit]

Submission statement:

Niall Ferguson lectures on capitalism, socialism, and democracy. Ferguson describes where we are, first through economic history, second through opinion polling, and third through institutional integrity.