Trade-Tested Progress
Trade-tested progress, a concept championed by economist Deirdre McCloskey, encapsulates the transformative power of market-driven innovation and exchange in fostering unprecedented economic growth. This paradigm, which McCloskey prefers over the term "capitalism," emphasises the role of ideas, institutional betterment, and unforced exchange in driving the "Great Enrichment" that has dramatically improved living standards since 1800.
Bourgeois Revolution
The Bourgeois Revaluation, a pivotal shift in societal attitudes toward commerce and innovation, catalysed the unprecedented economic growth known as the Great Enrichment. This ideological transformation, which occurred in northwestern Europe around 1700, led to a dramatic increase in real income per capita, with estimates ranging from 2,900% to 10,000% over two centuries. The revaluation's impact extended beyond mere economic metrics, fostering a "business-respecting civilisation" that dignified entrepreneurial pursuits and allowed for the flourishing of trade-tested betterment.
Key consequences of the Bourgeois Revaluation include:
* Rapid technological innovation and market expansion
* Widespread acceptance of the "Bourgeois Deal": short-term profit-seeking leading to long-term societal enrichment
* Alleviation of poverty on a global scale, particularly evident in the recent economic transformations of China and India
* Shift in political and social structures, favouring more egalitarian systems that valued ordinary people's contributions
* Emergence of a new ethical framework that balanced commercial pursuits with other virtues, challenging traditional prejudices against the bourgeoisie
This revaluation, rooted in the "Four Rs" of Reading, Reformation, Revolt, and Revolution, fundamentally altered the trajectory of human progress, demonstrating the profound impact of ideological shifts on material conditions.
Permissionless Innovation
Permissionless innovation, a cornerstone of modern technological progress, operates on the principle that experimentation with new technologies and business models should be allowed by default. This approach contrasts sharply with precautionary regulatory frameworks, fostering an environment where innovators can develop and deploy ideas without seeking prior approval. The dynamics of permissionless innovation are characterised by the following:
* Continuous experimentation across multiple levels, from student teams to large corporations
* Reduced development costs through crowdsourced problem-solving
* Accelerated innovation cycles, particularly evident in the IT sector's modular technologies and APIs
* Strengthened ecosystems, exemplified by the proliferation of mobile apps on platforms like Android and iOS
These dynamics have propelled the United States to the forefront of global innovation, particularly in sectors like social media and the sharing economy. However, recent bipartisan shifts towards more restrictive policies threaten to undermine this permissionless paradigm, potentially stifling future technological breakthroughs and economic growth.
Trade-Tested Economic Growth
Trade-tested economic growth, a key component of the trade-tested progress paradigm, emphasises the positive relationship between trade openness and economic development. Empirical evidence consistently demonstrates that trade liberalisation contributes to economic growth through various channels. The endogenous growth theory posits that trade openness facilitates innovation and knowledge transfer, particularly benefiting developing economies through access to advanced technologies. The equation describes this process:
g = f(A, K, L, T)
where g is economic growth, A is technology, K is capital, L is labour, and T represents trade openness.
Recent studies employing sophisticated econometric techniques have revealed:
* Positive effects of trade openness on both short-term and long-term economic growth
* Differential impacts across developed, developing, and least developed countries (LDCs)
* A strong complementary relationship between trade openness and capital formation in promoting growth
* Enhanced productivity through increased competition, economies of scale, and "learning by doing" effects
However, the magnitude of trade's impact on growth varies, contingent on financial development, institutional quality, and human capital factors. This nuanced understanding underscores the importance of complementary policies to maximise the benefits of trade-tested economic growth within the broader context of trade-tested progress.
Conclusion
According to Deirdre McCloskey, fostering trade-tested progress in a society requires a multifaceted approach emphasising cultural, institutional, and ethical factors. The key elements include:
* Cultivating a "bourgeois dignity" that respects and values entrepreneurship, innovation, and commercial pursuits
* Promoting an economy for permissionless innovation where individuals are free to innovate without requiring prior approval from authorities
* Establishing a robust system of property rights and rule of law to protect innovations and encourage risk-taking
* Encouraging an ethical framework that views profit-seeking through trade as morally acceptable and socially beneficial
* Fostering a culture of trust, honesty, and cooperation, which McCloskey argues are crucial for innovation and entrepreneurship
* Embracing an interdisciplinary approach to economic analysis that incorporates insights from history, rhetoric, and other social sciences
* Maintaining open markets and free trade to facilitate the testing of innovations through unforced exchange
McCloskey emphasises that these factors, particularly the shift in societal attitudes towards commerce and innovation, were instrumental in driving the "Great Enrichment" of the past two centuries. By implementing these principles, societies can create an environment conducive to trade-tested betterment and sustained economic progress.