Can our imagination cope with the inevitability of inequality?

Still catching up with last year’s Nobel Prize winners, I recently read Angus Deaton’s book The Great Escape: Health, Wealth and the Origins of Inequality. It is marvelously clearly written, and covers the history of improving health and economic growth in a distinctive way.

One of the book’s strongest insights is right there in the title. It is one of those ideas that seems so simple at first that it is almost trivial, but in fact becomes more and more powerful on further reflection. As Deaton puts it: “inequality is the handmaiden of progress.” Or, “a better world makes for a world of differences.” It is in the nature of progress that it creates inequality between those who benefit first and everyone else:

Escapes leave people behind, and luck favors some and not others; it makes opportunities, but not everyone is equally equipped or determined to seize them. So the tale of progress is also the tale of inequality. … Not everyone gets rich at the same time, and not everyone gets immediate access to the latest life-saving measures, whether access to clean water, to vaccines, or to new drugs for preventing heart disease.

Even if progress continues in the future, which Deaton is cautiously optimistic it will, this will inevitably produce new inequalities (even if old ones are also reduced).

This theme is also at the center of a recent and quite interesting short essay by Michael Lind, in which he argues that the ways we imagine the future have consistently failed to take account of this fact that progress is inseparable from inequality:

Science fiction traditionally has had the task of providing us with alternative visions of the future. For the most part, it has done a terrible job. The main reason for its failure is that it assumes global uniformity. …

The last time all human beings were more or less at the same level of technology and social organization was the Paleolithic Era. …By 2100 or 2200, most people on earth may be urbanites equipped with modern technology, not peasant farmers. But even in an industrialized world of wage workers and cities, the gaps between rich and poor regions are likely to remain enormous. Even as some backward areas catch up, innovative regions will shoot ahead.

The essay argues that futures that are imagined as uniform have often proved a completely unreliable guide to the actual course of events. In reality, progress produces differences among countries, which in turn create great-power rivalries, wars, and migration–all unavoidable features of our contemporary world. Thinking about progress as uniform is not just incomplete, but fundamentally misleading.

But Lind of course is really talking about politics not just the literary genre of science fiction. The example he closes with is the world government so often imagined in science fiction, with its real-life echoes in idealistic international schemes like the United Nations and the European Union. World government has of course become steadily less likely not more likely over time, and the assumption that the natural course of progress is for more homogeneity and more integration has also been sorely tested of late.

Both Lind’s essay and Deaton’s book (particularly the first half) are very much worth reading and pondering.

Jürgen Osterhammel unearths the “prehistory of the present day”

I tend to like my nonfiction books compact in size and focused in argument–as an old hack I prefer prose that is tight–but two of my favorite reads this year have radically defied this rule. Robert Tombs’ The English and Their History, which I started last year but did not finish until January, is a thousand pages in length in the print edition, basically every one of which is delightfully written and filled with interesting information (the book has been widely praised already but continues to win fans, such as Dan Wang).

The latest tome that has engrossed me almost despite myself is Jürgen Osterhammel’s The Transformation of the World: A Global History of the Nineteenth Centurywhich I bought on a whim when it made a (rather surprising) appearance as Kindle daily deal. His approach is really the exact opposite of Tombs’: narrative is rejected more or less entirely in favor of a thematic and topical approach. This strategy in fact helps keep the book consistently interesting, despite its enormous length (I’m only about two-thirds through): the treatment of each topic and subtopic is quite focused, with well-chosen facts and balanced judgments delivered in snappy sentences.

One of the book’s themes is, as he says early on, that “the nineteenth century belongs to the prehistory of the present day.” This is far from the only theme, and indeed some of the my favorite parts of the book focus on aspects of the 19th century that are quite different from 20th- and 21st-century experience (the chapter on frontiers is a particular highlight). But it is one of the delights of the book to repeatedly come across little origin stories of various aspects of modern life. Here a few examples, starting with basic stuff like foreign policy:

In the nineteenth century it is possible to speak for the first time of an international politics that sets aside dynastic considerations and obeys an abstract concept of raison d’état. It presupposes that the normal unit of political and military action is not a princely ruler’s arbitrary patrimonium but a state that defines and defends its own borders, with an institutional existence not dependent on any particular leadership personnel.

And economic and social statistics:

The nineteenth century can be seen as the century of counting and measuring. The idea of an all-embracing taxonomy now grew into a belief that the power of number—of statistical processing or even “social mathematics,” as the Marquis de Condorcet, a bright star of the late Enlightenment, put it—could open up truth itself to human reason. It was in the nineteenth century that societies measured themselves for the first time and archived the results.

Also major social phenomena like mass migration:

No other epoch in history was an age of long-distance migration on such a massive scale. Between 1815 and 1914 at least 82 million people moved voluntarily from one country to another, at a yearly rate of 660 migrants per million of the world population. The comparable rate between 1945 and 1980, for example, was only 215 per million. …Diaspora formation as a result of mass migration was ubiquitous in the nineteenth century. Only the French stayed at home.

And branded consumer goods:

The 1880s saw the birth and marketing of the branded product, with strategies planned like military operations. Singer’s sewing machine and Underberg’s herb liqueur in its characteristic bottle were present at the dawn of brand-centered marketing. It could develop because the serial production of articles of mass consumption was now a technical possibility. … Branded goods rapidly spread around the world, so that by the early years of the new century the petroleum lamp burning oil from Rockefeller’s Standard Oil Company, along with Western artificial fertilizer and cigarettes, could be found in remote Chinese villages.


Suburbanization, understood as a process whereby outlying areas grew faster than the inner core and commuting became a normal part of life, began in Britain and the United States around 1815. It would eventually be taken to extremes in the United States and Australia, whereas Europeans would never develop such a fondness for living outside the city center. … The technically advanced suburb of 1910 still feels close to us today: we describe it without hesitation as “modern.” In comparison, the pedestrian city of the early nineteenth century was positively medieval.

Beach vacations:

By 1840 the bathing resort had taken shape in England and Wales, with most of the characteristic features that we still see today. The prototype was Blackpool on the West Coast, whose 47,000 permanent residents catered (in 1900) for more than 100,000 vacationers. …Subsequently the seaside resort owed its growth to increased leisure time, greater affordability, and good railway and highway connections. By the turn of the century there were coastal resorts of more or less the same kind all around the central Atlantic and the Mediterranean, on the shorelines and islands of the Pacific, on the Baltic Sea, in the Crimea, and in South Africa.

And a phenomenon that I did not even think of as particularly modern, the dominance of coastal cities:

The nineteenth century was the golden age of ports and port cities—or more precisely, of large ports, since only a few could handle the huge quantities involved in the expansion of world trade. In Britain, exports in 1914 were concentrated in twelve port cities, whereas at the beginning of the nineteenth century a large number of cities had been involved in shipping and overseas trade. … It is probably the case that in every historical era before the nineteenth century, most of the largest cities and main centers of power or cultural splendor were not situated on the coast: Kaifeng, Nanjing, and Beijing; Ayudhya and Kyoto; Baghdad, Agra, Isfahan, and Cairo; Rome, Paris, Madrid, Vienna, and Moscow; and not least, Mexico City.

But this barely begins to convey the huge scope and wonderful variety of the book. A Chinese translation will be published in November, allowing me to recommend it to more friends.


If Chinese investment declines, will savings decline too?

I have been happy to see Brad Setser return to the blogosphere, filling the giant hole his foray into public service had opened. In a recent post, he pushed back against the conventional concern about excessively high levels of investment in China to argue that there should be more focus on the issue of high savings:

A high level of national savings—national savings has been close to 50 percent of GDP for the last ten years, and was 48 percent of GDP in 2015, according to the IMF—creates an on-going risk that China will either over-supply savings to its own economy, leading to domestic excesses, or to the world, adding to the risks from global payments imbalances.

From this point of view, the high level of investment, and the risks that come from high levels of investment, flow in part from the set of policies that have given rise to extraordinarily high levels of domestic savings. …

So I worry a bit when policy advice for China focuses primarily on reducing investment, without an equal emphasis on the policies to reduce Chinese savings.

If I understand him right, Brad is worried that if China takes everyone’s advice and slows credit and investment growth, savings will not also slow down–and therefore the balance of payments will blow out, which the rest of the world would not be happy with. I think this is obviously true in the short term: investment can move quite quickly, while savings behavior seems to change more slowly. So a sudden slowdown in Chinese investment is unlikely to be smoothly accompanied by a similar adjustment in Chinese savings. But it seems like this would be the case in any sharp cyclical adjustment in investment, so fine-tuning policy advice to China might not make much of a difference.

Over the longer term though I’m not sure I am as worried as Brad is about continued high savings in China. Brad’s concerns I think arise from the view that high savings in China are driven by structural factors, and so a cyclical slowdown in investment will not affect savings that much. He is correct to note that national and household savings rates have not changed very much recently, so counting on them changing rapidly in the future does not seem like a good bet.

I agree that savings rates tend not to change very quickly, but I also think high savings in China are to some extent a cyclical phenomenon driven by high growth and large investment in housing. This view is in part based on recent research that emphasizes the role of demographics and rapid income growth in driving household savings (see this post); the hypothesis that stingy social welfare policies are the main culprit, because they induce lots of precautionary savings behavior, was conventional wisdom around 2003-04 but has not held up well. And in part it’s because I think the housing boom drove up savings and investment at the same time, rather than just providing an investment channel for already-high savings.


An excellent paper by Guonan Ma, which I have previously cited, is one of the best and most comprehensive statements of this housing-centric view; he estimates that household investment (ie, housing), accounts for most of the rise in household savings, which in turn accounts for most of the rise in national savings:

The household sector has been the largest driver of China’s gross domestic saving, accounting for around half in 2013 and generating nearly two-thirds of the rise in the national saving rate during the two decades for which we have flow-of-funds data. … the increase we observe in household capital formation can itself account for more than three quarters of the rise in household saving and thus could explain more than half of the reported fall in the household consumption during the 1992-2013 period.

A recent paper from the Kansas City Fed on Chinese consumption also endorses the view that savings rates were pushed higher by the housing boom of the first decade of this century:

The large jump in the household saving rate from 2000 to 2010 is largely related to development in China’s housing market during this period. Before 1998, most Chinese families lived in government-provided houses; after economic reforms in 1998 removed this benefit, however, most Chinese families needed to buy their own homes. This change triggered rapid growth in the Chinese real estate sector, causing home prices to rise tremendously. Furthermore, as house prices started to increase quickly, housing became a popular investment for wealthy Chinese households, raising demand even further and exacerbating house price increases.

As I think the housing boom in China is more or less over (it seems to have peaked, in volume terms, around 2011-12), I expect housing investment to slow and decline in the future. Savings motivated by housing investment should therefore also slow and decline. So the previous decade’s rise in investment and savings rates should naturally be followed by a decline in both investment and savings rates–rather than, as Brad fears would be the case, just the investment rate.

If you think China has an SOE problem, take a look at Russia

The following summary of a recent report on the size of the state sector in Russia is truly mind-blowing:

The state has rapidly increased its presence in the economy. Together with state-owned companies, its share in GDP rose from 35 percent in 2005 to 70 percent in 2015. The number of state and municipal unitary enterprises has tripled in the last three years alone, and they continue to appear in markets with highly-developed competition where their use of administrative resources and government financing poses a serious threat to other players. Such businesses have mushroomed at the regional and municipal levels, squelching competition in local markets.

A 35% of GDP increase in the state (government + SOE) share of GDP over a decade is absolutely enormous. For all of the hand-wringing about the dire state of SOE reform and growing government intervention in China, it has seen nothing at all like this. Rather, China has gone from a positive trend of a declining state share of the economy in the 2000s to a less promising flat trend in the post-crisis yeas. My best estimate of the state share of China’s GDP is below (I use the flow of funds for government consumption and investment, and calculate gross capital formation by SOEs from the SOE share of fixed-asset investment; the flow of funds data only goes to 2013 so 2014 and 2015 are extrapolations). China and Russia seem to have had about the same state share of GDP in 2005, but since then China’s share has declined modestly:


Yes, that means that all of the huge amounts of infrastructure spending channeled through SOEs in recent years did not substantially increase SOEs’ share of the economy. Infrastructure is just not that a big a sector of the economy, and private investment in manufacturing is much more important (it’s true that the SOE share of the economy is not the same thing as broad government influence over the economy, but I’m sticking to things that can be measured at least approximately).

What has happened over the past several years is that private-sector investment, which previously was always much faster than state-sector investment, has slowed down substantially, while state-sector investment has picked up. As a result private investment is not growing much faster than state investment, and so the private-sector share of the economy is no longer rapidly rising. Nick Lardy explained it well at a recent presentation at a Peterson Institute conference:

The underlying problem or the underlying reality is that private investment growth relative to state investment growth has moderated quite a bit since 2011 and now has slowed down even more. … In part it’s because of the huge emphasis on infrastructure investment [carried out by state firms] and in part that state firms have gotten better access to what you might think of as external funding either on the form of bonds, bank credit, or the state budget. …

The rise of private firms, particularly the growing share of investment undertaken by these firms, has been a major driver of China’s economic growth in the reform period. While private industrial firms continue to dramatically outperform their sate counterparts, if the slowdown in private investment that we’ve seen so far in 2016 continues, I think it will be quite adverse for China’s medium-term economic growth.

This is definitely not a positive trend. But if the Russian numbers are at all accurate, something much more dramatic has happened there. The enormous rise in debt and distortion of the financial system that has occurred in China was sufficient only to stabilize the SOE share of GDP. So my guess is that it would be basically impossible for the state share of China’s much larger and more diverse economy to increase as much as Russia’s has, at least in the absence of radical expropriation. I guess that’s a good thing.

Some surprising continuities in Chinese economic history

Three economic historians–Loren Brandt, Debin Ma, and Thomas Rawski–have produced a very nice overview of China’s development over the past century, titled simply “Industrialization in China.” While the story of China’s post-1978 boom has been told so often it risks becoming over-familiar, the pre-1978 and pre-1949 economy is usually skipped over quite rapidly. The great virtue of this paper is how it creates a complete narrative that links the more recent period with developments as far back as the late 19th century. Standard accounts tend to focus mainly on the dramatic 1980s reforms and risk turning into hagiography of Deng Xiaoping; a different perspective helps show how China’s emergence as a global economic force was a truly long-term process:

The unusual speed of China’s post-1978 industrial growth is well known. Much less appreciated is that rapid industrial growth extends back at least to 1912. Over a period spanning nearly a century, Chinese manufacturing has grown at annual rate of more than 9 per cent.

The paper is at its best when making illuminating comparisons between different eras of Chinese economic history. In the 1920s, China became a net exporter of textiles, as local firms rapidly adopted new techniques and caught up with the productivity of British and Japanese firms–clearly a preview of post-1978 developments. But textiles were not the only success story:

Matches present a similar picture, with imports giving way to domestic production first by foreign and then by Chinese-owned firms. Liu Hongsheng, China’s “match king,” built his business in small cities ignored by foreign rivals, where customers put a premium on price over quality, and only later challenged the Japanese and Swedes in the Shanghai market, China’s largest. Liu’s strategy foreshadows the recent success of PRC start-ups in telecom equipment (Huawei) and construction machinery (Sany, Zoomlion, Liugong) that used capabilities accumulated through selling lower quality goods to less demanding markets to break into high-end global markets initially dominated by prominent multinationals like Caterpillar and Ericsson.

Another interesting continuity is between the wartime economic strategy of the Nationalist government and the industrialization drive launched after the Communist victory in 1949; indeed some of the same people were involved in both efforts:

The Nationalists and Communists shared a common vision of an industrial sector oriented toward military strength, directed by government technocrats, and dominated by state-run firms. When Communist forces routed their Guomindang rivals, the large majority of Nationalist industrial planning personnel, including the entire senior leadership of the National Resources Council, the KMT’s lead agency for economic planning, remained on the mainland, imparting a strong element of continuity to the establishment of Soviet-aided socialist planning by the incoming PRC government.

Chiang Kai-shek and Mao Zedong in 1945

Chiang Kai-shek and Mao Zedong in 1945

This probably should not be too surprising given the large role that SOEs had in Nationalist-run Taiwan until the 1980s, but the increasing divergence of the Taiwan and China models in more recent years makes it easy to overlook their historical links.

More on this theme can be found in the interesting work of Morris Bian, who has documented how the Communist state-owned enterprise system in many ways built on institutions that were created by the Nationalist government. Even the very distinctive and Soviet-influenced industrial strategy of the early 1950s–developing heavy industry in inland provinces a safe distance away from any invading force–had parallels in similar wartime efforts by the Nationalists. Here is an excerpt from chapter 2 of his The Making of the State Enterprise System in Modern China:

The Japanese invasion of Manchuria in 1931 and their attack on Shanghai in 1932 shocked the nation. Japanese aggression aroused strong Chinese nationalism and forced the Nationalist government to take a firm stand against Japan. In a speech delivered in October 1932, Chiang Kai-shek stated that ‘the Chinese nation has reached a critical moment and the fate of the nation is about to be decided’; his only purpose was to ‘revive the nation and save China.’ He proposed economic reconstruction and education as two means of saving China. What Chiang failed to mention in his public speech, however, was the fact that he was about to create a secret national defense planning commission as a first step toward resistance against Japan. …

In April 1935, the National Defense Planning Commission was renamed the National Resources Commission…what occurred was more than a name change. It marked an important change in purpose and direction. …In effect, the organization was transformed from Chiang Kai-shek’s brain trust to an organization in charge of industrial development. The development of a ‘Three-Year Plan for Heavy Industrial Reconstruction’ in 1936 best embodies these changes. … Heavy industry would receive the lion’s share of investment capital. Geographically, most planned factories were to be built in interior provinces such as Hunan and Jiangxi for fear of future Japanese aggression.

Why didn’t I read René Girard in Anthropology 101?

René Girard’s I See Satan Fall Like Lightning is perhaps the strangest, most unusual book I have read all year–as well as the one with the best title. Then again, I don’t read many works of Biblical exegesis-cum-philosophical anthropology, if that is even a genre. It was strongly recommended by a French colleague after Girard passed away last year, and not having been familiar with Girard before, I decided to fill that hole in my education.

And indeed I feel like I should have encountered him much earlier. I See Satan Fall Like Lightning may not have been the best place to start for a Girard newbie, but it does contain some of the most concise, most powerful and beautifully written statements of the key insight of social science: that human beings are not autonomous monads but fundamentally social beings, whose thoughts and actions are shaped by the people around them. (Peter Thiel, who has been vocal about Girard’s greatness, seems to have put these insights to more practical use than me or most of my classmates in anthropology did.)

Girard takes an unusual route to get to this insight, using scraps from the Bible and the Greek myths more in the manner of a literary critic, but he expresses it as well or better as any of the greats of twentieth-century social science. He might not want to be put in the company of Claude Levi-Strauss, about whom he was quite scathing, but it’s hard not to see the similarities in their grand ambition to construct a philosophical anthropology. Here’s a spectacular passage, in which Girard builds an account of human nature and culture out of just one of the Ten Commandments:

The tenth and last commandment is distinguished from those preceding it both by its length and its object: in place of prohibiting an act it forbids a desire: “You shall not covet the house of your neighbor. You shall not covet the wife of your neighbor, nor his male or female slave, nor his ox or ass, nor anything that belongs to him.” (Exod. 20:17)

Without being actually wrong the modern translations lead readers down a false trail. The verb “covet” suggests that an uncommon desire is prohibited, a perverse desire reserved for hardened sinners. But the Hebrew term translated as “covet” means just simply “desire.” This is the word that designates the desire of Eve for the prohibited fruit, the desire leading to the original sin. The notion that the Decalogue devotes its supreme commandment, the longest of all, to the prohibition of a marginal desire reserved for a minority is hardly likely. The desire prohibited by the tenth commandment must be the desire of all human beings in other words, simply desire as such. …

If individuals are naturally inclined to desire what their neighbors possess, or to desire what their neighbors even simply desire, this means that rivalry exists at the very heart of human social relations. This rivalry, if not thwarted, would permanently endanger the harmony and even the survival of all human communities. Rivalistic desires are all the more overwhelming since they reinforce one another. The principle of reciprocal escalation and one-upmanship governs this type of conflict. …

Even if the mimetic nature of human desire is responsible for most of the violent acts that distress us, we should not conclude that mimetic desire is bad in itself. If our desires were not mimetic, they would be forever fixed on predetermined objects; they would be a particular form of instinct. Human beings could no more change their desire than cows their appetite for grass. Without mimetic desire there would be neither freedom nor humanity. Mimetic desire is intrinsically good.

Humankind is that creature who lost a part of its animal instinct in order to gain access to “desire,” as it is called. Once their natural needs are satisfied, humans desire intensely, but they don’t know exactly what they desire, for no instinct guides them. We do not each have our own desire, one really our own. The essence of desire is to have no essential goal. Truly to desire, we must have recourse to people about us; we have to borrow their desires.

This borrowing occurs quite often without either the loaner or the borrower being aware of it. It is not only desire that one borrows from those whom one takes for models; it is a mass of behaviors, attitudes, things learned, prejudices, preferences, etc. And at the heart of these things the loan that places us most deeply into debt–the other’s desire–occurs often unawares.

The only culture really ours is not that into which we are born; it is the culture whose models we imitate at the age when our power of mimetic assimilation is the greatest. If the desire of children were not mimetic, if they did not of necessity choose for models the human beings who surround them, humanity would have neither language nor culture. If desire were not mimetic, we would not be open to what is human or what is divine.

Mimetic desire enables us to escape from the animal realm. It is responsible for the best and the worst in us, for what lowers us below the animal level as well as what elevates us above it. Our unending discords are the ransom of our freedom.


What I’ve been listening to lately

  • Charlie Parker – A Studio Chronicle 1940-1948. My first loves in jazz were 1930s swing and 1960s avant-garde, so it took me a while to get around to really listening to 1940s bebop and 1950s mainstream. Guess what, Parker is a genius; I know that’s not an original opinion, but I didn’t really appreciate how true it was before.
  • Bud Powell – The Complete Bud Powell On Verve. More bebop immersion. Five CDs worth of piano trios is not normally the kind of listening experience I would seek out, as there’s a big risk of stuff just sounding the same. But Powell’s vigorous, forceful playing stands out.
  • Bobby Hutcherson – Patterns. In honor of his passing I have been listening to a lot of his stuff again; I love the vibes and Hutcherson is one of the great masters. That said, his recordings under his own name tend to be a little soft-edged for my taste; he is responsible for one undisputed jazz classic, Dialogue, but it really sounds more like an Andrew Hill record. But Patterns is a good and often overlooked session, with lovely flute from James Spaulding.
  • Prince Buster – Fabulous Greatest Hits. The King of Ska is dead, long live the king; too many obituaries of late. This greatest hits record is in fact the only readily available recording by Prince Buster; to hear much, much more, don’t miss Steve Barker‘s great four-part radio tribute.