Review of Ridley's "The rational optimist"

In “The rational optimist”, Matt Ridley argues that, contrary to widespread perception, the human condition is improving through time, and at an accelerating rate.

Matt Ridley, a PhD in zoology turned journalist and businessman (he acted as non-executive chairman of the UK bank Northern Rock from 2004 to 2007), thus joins the ranks of luminaries such as Julian Simon and Bjorn Lomborg in claiming that the claims of the Cassandra’s of our time are both factually wrong and logically flawed.

The argument of the book rests on two pillars.

First of all, there are the factual arguments. Ridley argues that you can take almost indicator of human well-being, and that you will find that, through time and in most places, these indicators have evolved for the better: food availability, income, life expectancy, child mortality, violence, air quality, water quality, etc…

Second, Ridley suggests an overarching theory of why things got better and why, in his view, they will get even better in the future: of all species, mankind is the only one with a propensity to exchange (Ridley  explains at length why he thinks this is different from the “propensity to reciprocity” that has been discussed in behavioral economics). Exchange leads to specialization according to comparative advantage and, as Ricardo already pointed out more than two centuries ago, this leads to a higher productivity and thus to higher overall welfare. However, Ridley goes on to argue that human exchange is not limited to an exchange of goods, but also includes the exchange of ideas, which are the main source of productivity improvements over time. Mankind progresses because “ideas have sex”: the Internet, for instance, was spawned by the intercourse of the telephone and the computer. Ridley’s optimism about the future is based essentially upon the assumption that ideas will continue to have sex with each other, and lead to a productive off-spring.

A book whose avowed purpose is to row against the tide is bound to prove controversial. Before writing this review, I have briefly looked at some of the discussions on the Internet, and, as expected, there is some heated debate going on out there. As a rationalist who is not naturally inclined to optimism, I will contribute my bit here.

Before proceeding with an assessment of the contents of the book, let me first say some words on the form. Even though “The rational optimist” is not a scientific essay, it does take issue with the work of scientists and aims at influencing the public debate. If an author want this type of work to be taken seriously, rigorous referencing is absolutely required. To be honest, the referencing in this book is dreadful, and would not be accepted in an essay by an undergraduate student. First of all, even though the book contains more or less 60 pages of notes of references, several of the boldest claims of the author are actually not referenced at all! For instance, nice to hear that sperm counts are not falling, but where does the information come from? As these claims can hardly be considered to be common knowledge, one wonders why the references have been omitted. Second, although the author cites extensively from peer reviewed scientific papers, some of the (again) boldest claims come from very partisan secondary sources. I think this seriously undermines the credibility of the book. It is only  in my own field of expertise that I can assess the credibility of the claims made without verifying the original source – for other subjects, I would like to see a reference to a sources with sufficient credibility (to be honest, all the references that I did check out turned out be correct, but, again this doesn’t say anything about the veracity of the claims that have not been referenced).

A related problem is that, as far as I can judge, the author has been very selective in his references. For instance, Ridley argues that, when incomes rise, environmental quality first declines and subsequently improves: the economists amongst us call this hypothesis the “environmental Kuznets curve”. Ridley then cites one relatively old paper on the subject and creates the impression that the issue is settled. Actually, it is not: there is still a very heated debate amongst environmental economists whether or not this hypothesis is correct. One wonders if this selective referencing is a deliberate strategy or is simply the by-product of trying to cover too many fields in a short book.

Now, what about the substance?

To begin on a positive note, there are two points that I have very much enjoyed about this book.

First of all, as already indicated above, Ridley succeeds very well in explaining some essential insights from economics: the benefits from the division of labour and free trade, why the production of knowledge is fundamentally different from the production of material goods, why autarky is a very bad idea, why the failure of real-world markets does not automatically imply that governments will be able to improve upon them…  Despite the biases in the literature he quotes, I think Ridley got most issues right.

Second, he provides some detailed refutations of very concrete doom scenario’s that are fashionable in some circles. In the process, he provides several hilarious examples of past predictions of eminent collapse that have been disproved by time (to put it mildly). Everyone who thinks the end is near should look up the predictions made by the Club of Rome on the exhaustion of natural resources or by Paul Ehrlich on demographics (or on cancer prevalence).

However, on the whole, the book is disappointing, precisely because it suffers from exactly the same faults as the pessimists it wants to refute:  it gathers all the evidence that confirm its thesis, ignores largely evidence pointing to the contrary, and then jumps to conclusions.

Let me be more concrete. On the whole, I agree with Ridley that, contrary to conventional wisdom, things have indeed gotten much, much better over the last two centuries for most of mankind. I also think that those who pretend to the contrary either do not know the facts or use benchmarks against which reality will always be disappointing. However, Ridley does not really consider the questions whether these improvements are (to use a work I am not very fond of) “sustainable”.

Ridley seems to assume that, just because all past predictions of doom have turned out to be wrong, predictions of doom are inevitably wrong.  It would have been much more instructive if Ridley had carefully reviewed the assumptions and data underlying these predictions and explained why they have led to erroneous predictions (in the passing, he may have discussed Jared Diamond’s examples of past civilisations that have collapsed under environmental pressures). For instance, the predictions of the “Limit to growth” models may have been spectacularly wrong, but their most important flaw was that they did not leave any room for consumers or firms  to respond to changes in market prices. As argued by economist William Nordhaus, the fact that the authors of these models had grossly underestimated available stocks of non-renewable resources is of completely secondary importance.

Because Ridley emphasizes the faults in the work of other authors, he tends to overlook some important gaps in his own thinking. For instance, Ridley argues that, without fossil fuels, agriculture would never have been able to feed six billion people. As I am not an agronomist, I do not feel well placed to challenge the natural science underlying his calculation and, as I have found no obvious faults in Ridley’s arithmetic, I  am willing to accept this point. However, this does not reassure me at all. As Ridley acknowledges, for all practical purposes, fossil fuels are non-renewable. This means that, at a certain stage, humanity will have to switch back to sources of energy that Ridley has demonstrated not to be able to sustain six billion people. Of course, one could argue (and Ridley does argue) that we will find substitutes by the time we run out of fossil fuels. However, I find it odd that Ridley is so confident in this deus ex machina, after having spent several pages explaining why renewable energy is not an acceptable alternative to fossil fuels at all. This brings us to the fundamental problem with Ridley’s analysis: his willingness to just assume that innovation will continue at an accelerating rate.

Paradoxically, Ridley actually shows that there are a lot of mechanisms that can kill innovation. While I agree with him that the most important culprits in this field are despotic governments and religions, I think he underestimates the capacity of private monopolies to stifle innovation as well. In general, a book that puts such a high emphasis on the role innovation plays in human progress, should have put much more effort in a discussion of the social institutions that make innovation possible (or that can hamper it). As there are many more ways to get things completely wrong than to get them even more or less right, I would not be sanguine about future prospects for innovation, especially if this is the only path to a “sustainable” future.

This lack of serious analysis of institutions is another serious flaw in the book. Things have not only improved thanks to innovation – in some cases, government intervention has really changed things for the better. For instance, the decrease in the emission of sulphur oxides and nitrogen oxides in the past decades have led to a spectacular increase in our air quality, and to substantial health benefits (which have been estimated using rigorous statistical analysis). This decrease has taken place at a very reasonable macro-economic cost, mainly thanks to…innovation. Does this substantiate Ridley? No, for the very simple reason that industry would never have bothered to look for ways to reduce its emissions in an innovative ways, had these reductions not been imposed by government regulations. Optimism alone would not have solved the problem.

Let me conclude. Sir Karl Popper has claimed that optimism is a moral duty. I beg to differ. It is our moral duty to be neither cynical nor complacent, but to use our intellectual resources to make the best possible assessment of the threats and opportunities we face, and to look for solutions. Optimism is an act of faith – a rationalist would not consider faith to be a good basis for action. 

Review of Paul Seabright's "The company of strangers"

How can we explain that humans are the only living creatures who cooperate with unrelated members of the same species on projects of high complexity and requiring a high degree of mutual trust?

This is the challenging question that Paul Seabright proposes to answer in “The Company of Strangers. A natural history of economic life”.

In case you might think that this is a book about evolutionary biology, Seabright points out right from the start that the time that has elapsed since mankind started living in larger social groups than his close relatives is simply too short for the genetic hardware of homo sapiens to have adapted to these new social surroundings. While he acknowledges that “the division of labour amongst human beings must have piggybacked on a physiology and a psychology that evolved to meet a far different set of ecological problems”, Seabright sets clearly out that this is foremost a book on the social institutions that make it possible for complete strangers, not just to live together in (relative) peace, but to actually enter into mutually beneficial exchange.

The wording “mutually beneficial exchange” will probably have rung a bell amongst those who recollect their “introductory economics” courses, and it will come as no surprise to them that Paul Seabright is indeed a professor of economics at the University of Toulouse.

Is this a book about economics then? Well, if, as me, you think that economics is a subject that does not just cover the analysis of market exchanges, but provides an intellectual framework for understanding all institutions that govern human life (including family, the law, religion, politics…), then this is a book about economics. If, as me, you think that economics and evolutionary biology use basically the same intellectual framework to understand life (note that Darwin himself has always acknowledged his intellectual debts to the classical economists), then this is a book about economics - or is maybe a book about evolutionary biology after all?

As will become clear in this review, it is close to impossible to put a label on this book, whose avowed ambition is to integrate insights from economics, philosophy, evolutionary biology, psychology and political science in an all-encompassing explanation of the human condition.

The actual contents can be summarized as follows.

In a first stage, Seabright shows that even some of the simplest activities of modern societies depend upon intricate webs of cooperation that function without central coordination – an enlightening passage on this issue is Seabright’s report of a discussion with a former Russian communist party official who cannot grasp that no one is actually in charge of the supply of bread in a market economy. Seabright claims that this cooperation is the result of the willingness of individuals to cooperate with strangers “in a multitude of small but collectively very significant ways”.  

In a second step, Seabright argues that this cooperation is possible thanks to a set of institutions that have often grown by experiment or as the by-products of attempts to achieve other ends. For instance, while the social division of labour is central to the human progress, it is only possible if participants can trust each other. Therefore, institutions are needed that ensure that “cooperation not only happens but is reliable enough for others to be willing to take its presence for granted”. Maybe surprisingly for people who have not been formally trained as economists, one such institution is… money. Because we accept money “in exchange for valuable goods in spite of the fact that we may know nothing about the individuals who are offering it to us”, it “is one of the great human inventions precisely because it helps to narrow the gulf between the ingenuity of each individual and the interest of others.”  Seabright goes on to explain that, paradoxically, human cooperation requires the capacity to participate in the creating of prosperity without knowing or even caring about the overall outcome (what he calls ‘tunnel vision’). However, Seabright is not blind to the dangers of ‘tunnel vision’ and illustrates at length that, for instance, codes of professional ethics can make individual acts of local cooperation more reliable, but can also generate blindness to the more distant consequences of one’s actions (just think of the Nuremberg trials). This part of the book also contains a detailed discussion of how “reciprocity”(rather than narrow self-interest or naive altruism) is the basis of successful human cooperation.

The third part of the book takes a look at the global consequences of human interaction: the development of cities, the impact on the environment, the functioning of markets, the development of large firms … While Seabright is not blind for some of the negative effects of human interaction (such as our impact on the environment), he rightly draws the reader’s attention to the capacity of markets “to calculate prices that summarize the information necessary for allocating resources in a world of scarcity” – not surprisingly, markets are one of those institutions that make complex societies possible.  Seabright also points to the (apparent) paradox that, while firms use the market externally, they have eliminated it internally and replaced it by explicit planning and coordination – this issue sheds a lot of light on the question under which conditions planning can be superior to markets (and vice versa).

Finally, part four looks at the institutions of collective action (this is, the political institutions) and discusses how they can deal (or not) with the collective problems of mankind. Seabright emphasizes that the human capacity for cooperation can be also be directed at destructive ends, and that no unduly trust should be put on political institutions.

In case you think that a book with this scope would fill a complete shelf in your home library, be reassured: the book counts merely304 pages, notes and bibliography included.

This is precisely what makes this book outstanding. It does not offer any original contribution to the scientific literature (nor does it claim to do so), but brings together insights from different fields in an accessible summary. Those who are familiar with those fields will find no big surprises.

For the interested lay reader, The company of strangers provides a very accessible and well-written non-technical introduction to the economic analysis of institutions. As each chapter is complemented by a list of notes that refer to the more specialized scientific literature, it can be the starting point for a long journey into this fascinating field.

However, despite its accessibility, the book is intellectually rigorous and specialist readers will also find the book worthwhile. Moreover, it is chockfull of examples that can be used to illustrate principles of economics to a non-specialised audience (including undergraduate students) – I am sure economists will simply love his criticism of Naomi Klein (simply put, No logo contains two important claims that  can obviously not simultaneously be true: (a) through the creation of worldwide brands,  corporations have become all-powerful (b) corporations are engaged in a desperate struggle to survive in competition from each other). Similarly, his demystification of the moral superiority of economies based on barter or gift-giving rather than monetary exchange, should be required reading for everyone.

I must now resist the temptation to reproduce all these examples in this review: besides making me a plagiarist, it would take away any incentives to go out and buy the book for yourself.

Does this mean the book is without faults? Well, of course not. There are some loose ends in the argumentation, and one is left with the feeling that, in the end, the central question (how did we evolve from small groups of hunter-gatherers to complex large societies) remains unanswered. But this is probably more an indication of the size of the intellectual challenge set by the question than of the book’s qualities. Also, I would like to have seen a more concrete discussion of some current global policy challenges, but this probably just a result of my own professional pre-occupations.

Simply put, this is one the books I wish I’d had written. Actually, I am wondering why you are still reading this review instead of ordering it!