IIFT 2020

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Cultural arguments once loomed large in explanations of the ways in which countries differed economically and politically. Economists mostly abandoned such reasoning in the 20th century, not only because it provided cover for racists but also because of its lack of explanatory power. In 1970 Robert Solow, a Nobel prize winner, quipped that attempts to explain growth with variables such as culture generally ended up “in a blaze of amateur sociology”. This position is changing, however, and not before time. A better grasp of how cultures work may be needed to understand modern political economy.

The responsible intellectual use of cultural argument begins with clear terminology. In "A Culture of Growth", published in 2016, Joel Mokyr, an economic historian at Northwestern University describes culture as a set of beliefs, values, and preferences, capable of affecting behaviour, that are socially (not genetically) transmitted and that are shared by some subset of society". Economists typically treat rational self-interest as the lodestar of human behaviour. But Mr Mokyr recognises that acquired social codes also influence individual choices, and thus broader economic activity. Culture is not immutable, as those who ascribe countries’ diverging fates to deep-rooted cultural attributes often suggest. It evolves as the ideas and influence of different groups shift.

Cultural evolution is essential to the thesis of "A Culture of Growth", which attempts to explain why sustained growth began where and when it did. Mr Mokyr says that factors often credited with kick-starting industrialisation- such as capital accumulation and the cost and supply of certain kinds of labour- may be necessary but are not sufficient. The true catalyst was a continent-wide evolution in beliefs. In Europe between the 16th and 18th centuries, a group of intellectuals often called the “Republic of Letters" groped their way towards a bold new view of nature and knowledge. Francis Bacon, an English intellectual and early contributor to the movement, thought that through disinterested and open inquiry, nature's secrets could be understood and then manipulated to the benefit of humankind. Such views helped nurture the Scientific Revolution and the Enlightenment, but also percolated through society, influencing behaviour. Once the notion became widespread that objective knowledge was possible and could be used to improve people's lives, the emergence of self-sustaining economic growth was near-inevitable.

In a recent essay Enrico Spolaore of Tufts University writes that Mr Mokyr’s ideas show how economists might make better use of culture. He does not simply argue that Europe industrializedfirst because of a particular European cultural way of being. Rather, he identifies a specific cultural change - the rise of an evidence-based, humanistic approach to scientific inquiry - which led to a shift in behaviour that enabled industrialisation. He contrasts this with, for example, China, where rationalistic schools of philosophy such as Mohism were eclipsed in intellectual circles by tradition-venerating Confucianism. China’s fate is not down to something inherent in Chinese culture. Rather, history unfolded one way in one place, and another in another.

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To say that all individuals are embedded in and the product of society is banal. Obama rises above
banality by means of fallacy: equating society with government, the collectivity with the state. Of
course we are shaped by our milieu. But the most formative, most important influence on the
individual is not government. It is civil society, those elements of the collectivity that lie outside
government: family, neighborhood, church, Rotary club, PTA, the voluntary associations that
Tocqueville understood to be the genius of America and source of its energy and freedom. Moreover,
the greatest threat to a robust, autonomous civil society is the ever-growing Leviathan state and those
like Obama whosee it as the ultimate expression of the collective. Obama compounds the fallacy by
declaring the state to be the font of entrepreneurial success. How so? It created the infrastructure—
roads, bridges, schools, Internet—off which we all thrive. Absurd. We don’t credit the Swiss postal
service with the Special Theory of Relativity because it transmitted Einstein’s manuscript to the
Annalen der Physik. Everyone drives the roads, goes to school, uses the mails. So did Steve Jobs. Yet
only he created the Mac and the iPad.

Obama’s infrastructure argument is easily refuted by what is essentially a controlled social
experiment. Roads and schools are the constant. What’s variable is the energy, enterprise, risk-taking,
hard work and genius of the individual. It is therefore precisely those individual characteristics, not the
communal utilities that account for the different outcomes. The ultimate Obama fallacy, however, is
the conceit that belief in the value of infrastructure—and willingness to invest in its creation and
maintenance—is what divides liberals from conservatives.

More nonsense.Infrastructure is not a liberal idea, noris it particularly new. The Via Appia was built
2,300 years ago. The Romans built aqueducts, too. And sewers. Since forever, infrastructure has been
consensually understood to be a core function of government. The argument between left and right is
about what you do beyond infrastructure. It’s about transfer payments and redistributionist taxation,
about geometrically expanding entitlements, about tax breaks and subsidies to induce actions pleasing
to central planners. It’s about free contraceptives for privileged students and welfare without work—
the latest Obama entitlement-by-decree that would fatally undermine the great bipartisan welfare
reform of 1996.

What divides liberals and conservatives is not roads and bridges but Julia’s world, an Obama
campaign creation that may be the most self-revealing parody of liberalism ever conceived. It’s a
series of cartoon illustrations in which a functional Julia is swaddled and subsidized throughout her
life by an all-giving government of bottomless pockets and “Queen for a Day” magnanimity. At every
stage, the state is there to provide—preschool classes and cut-rate college loans, birth control and
maternity care, business loans and retirement. The only time she’s on her own is at her grave site.
Julia’s world is totally atomized. It contains no friends, no community and, of course, no spouse. Who
needs one? She’s married to the provider state. Or to put it slightly differently, the “Life of Julia”
represents the paradigmatic Obamapolitical philosophy: citizen as orphan child. For the conservative,
providing for every need is the duty that government owes to actual orphan children. Not to
supposedly autonomous adults. Beyond infrastructure, the conservative sees the proper role of
government as providing not European-style universal entitlements but a firm safety net, meaning
Julia-like treatment for those who really cannot make it on their own—those too young or too old, too
mentally or physically impaired, to provide for themselves.

Limited government so conceived has two indispensable advantages. It avoids inexorable European-
style national insolvency. And it avoids breeding debilitating individual dependency. It encourages
and celebrates character, independence, energy, hard work as the foundations of a free society and a
thriving economy—precisely the virtues Obama discounts and devalues in his accounting of the
wealth of nations.

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As Western holiday makers escape their daily grind and head to the beach this summer, a concern is likely to resurface- literally really, if it washes up on the pristine sand in front of them. In the past two years plastic litter in the ocean seems to have eclipsed other environmental anxieties among rich-world consumers. Harrowing images of sea life ensnared in plastic bags, as depicted in “Blue Planet II”, a popular British television series from 2017 presented by Sir David Attenborough, would be enough to make anyone choke on the plastic straw in their pifia colada-if, that is, you were offered one. Politicians everywhere are responding to voters’ demands by banning straws, stirrers and other single- use plastics. The UN says that last year 127 countries had restrictions on plastic bags. This month Panama became the first Central American country to outlaw them. Britain is considering a tax on plastic packaging made with less than 30% recycled content. In March 560 members of the European Parliament backed a law that would require 90% of plastic bottles to be recycled by 2029. Just 35 voted against.

Given the environmental footprint of substitutes like cotton bags, aluminium cans or paper boxes-which often require more energy and water to make and transport than plastic equivalents- new regulations could in fact end up doing harm to the planet. Nonetheless, the plastics industry can expect ever more curbs on its products, a trend that will force businesses involved to reshape. Bottles, boxes, films and the like consume nearly half of global output of the polymers on which they rely. Many companiesin the $375bnplastic-packaging value chain-which comprises producers of oil and gas (the main feedstock), petrochemical giants packaging firms and consumer brands-look ill-prepared.

Companies either end of the chain are the least vulnerable. Beverage-makers will happily switch from oil-derived plastic to recycled stuff for their bottles-or to aluminium cans-so long as the numbers add up (which they do when high oil prices push up the cost of virgin plastic). Even so, ExxonMobil or Coca-Cola cannot relax. Seema Suchak of Schroders, an asset manager, estimates that fizzy-drinks firms that fail to reduce their reliance on virgin plastics could see annual profits shrink by 5% over the next decade or so because of regulations and taxes spurred by the consumer backlash. According to Paul Bjacek of Accenture, a consultancy, recycling all plastic packaging, rather than the 1% that is reused today could cut annual growth in demand for oil and gas from 1% to 0.5% by 2040 as recycled materials gain market share.

Plastic packaging firms could suffer more. Credit-raters at Moody's have warned that Britain's proposed tax on plastic bottles could hurt their makers by discouraging use by consumer goods companies and driving up the cost of recycled plastic, a scarce raw material as recycling rates are low. Ms Suchaklooked five big makers of plastic packaging and found that the pre-tax profits of four of them could fall by 11-33% in the medium term if they stick with virgin plastics. Amcor, an Australian giant, lists environmental concerns as the number-one risk in its latest annual report.

Then there is the petrochemicals industry. In a much-cited analysis from 2016, consultants at McKinsey calculated that the value of plastic disposed after a single use is $80bn-120bn a year. Reducing the number could benefit society but harm purveyors of virgin materials. Last year Spencer Dale, chief economist of BP, a British oil giant, estimated that more plastics regulation could reduce demand for petrochemicals by a sixth in the next 20 years. Around a quarter of the revenues of Germany's BASF DowDuPont of America come from plastic. Both could suffer.