A Story of Economic Contrasts

How important are key individuals in shaping the success or failures of economies? Economists place little emphasis on individual agency, and likewise many historians tend to believe that “the development of economies and societies follows a largely predetermined direction.” Somehow this is reassuring, as it gives us the impression we may chart historical developments ahead of time. Historical materialism was so successful not least because it empowered generations of scholars and activists with an understanding of the direction the world was going—or at least a common ideological model that would aid in achieving the ends they sought. What is in many ways the opposite viewpoint—that of thinkers who see macro phenomena as the (largely unpredicted) consequences of individual action—would themselves consider it improbable that the determination and willingness of a single “great man” can change history per se. But taking unintended consequences in the extended order seriously need not lead us to doubt human agency—or freedom.

“If it be a fact that the great man may modify his nation in its structure and actions,” noted Herbert Spencer in his The Study of Sociology (1873), “it is also a fact that there must have been those antecedent modifications constituting national progress before he could be evolved. Before he can re-make his society, his society must make him. So that all those changes of which he is the proximate initiator have their chief causes in the generations he descended from.”

Neil Monnery’s A Tale of Two Economies is in some sense a polemic against historical determinism, at least insofar as promoting economic reforms is concerned. It stresses the importance of two single individuals, one a great man for many, one an obscure official and political unknown to the most, in shaping the destiny of the respective countries. What they read, how they understood life, their passions and characters had an impact on the life of millions. Monnery’s narrative is powerful because it concerns, together with two men, two countries which both “sit at a latitude of around 22 or 23 degree north, just south of the Tropic of Cancer,” that, in spite of geography, came to represent each the beacon of a peculiar political theory in the 1960’s and after: Hong Kong, what Milton Friedman and many others called an experiment in “free enterprise and free markets”; and Cuba, the last bastion of socialism after the Soviet Union faltered and China reformed.

Each of these two countries came to embody each a different political idea (whatever their deviations from the blueprint, as the real world is rather obstinate in not mirroring political treatises), and it was largely thanks to two men: Ernesto “Che” Guevara and John Cowperthwaite. To the latter, Monnery devoted a biography, entitled Architect of Prosperity , which remains the only book available on the subject. On the other hand, when a search on Amazon reveals some 2,000 books somehow related to Guevara, beginning with his Motorcycle Diaries.

A revolution is “not an apple that falls when it is ripe. You have to make it fall,” wrote Guevara. Monnery shows how these two men shook the tree.

Monnery insists that both of them were “deep and original thinkers.” This is proven by the fact both of them were not exclusively the product of their respective circumstances. Cowperthwaite was born in 1915 in Edinburgh, Scotland; Guevara in Rosario, Argentina in 1928. The first’s father was “a government surveyor of taxes” whereas the second’s was “a not particularly successful businessman. They were both the firstborn in their families, and both were named after their father.” Cowperthwaite was a good student and attended a good private school, Guevara had an intermittent education because of a severe case of asthma and he was sometimes homeschooled by his mother, who had been raised in a prosperous Buenos Aires family, educated at a convent, and nevertheless became an early feminist. Cowperthwaite was extremely proficient in Latin and Greek, and flirted to the idea of being a classicist before turning to economics. Guevara wanted to be an engineer but switched to medicine. They both had a taste for sports and neither “showed particular signs of being interested in politics in their early years.”

The key difference between the two was perhaps that Cowperthwaite had a solid education in economics, being a student at St. Andrews of James Wilke Nisbet (who had at least one other illustrious student, Alan Peacock). Economics “gave him a model of how the world might work”: looking at the way in which prices emerge, he understood that social order can be a bottom up outcome of individuals dealing with each other. “Guevara’s formative experiences were his … pancontinental motorcycle trips” which impressed upon him the need for changing the social system of Latin America. He radicalized upon witnessing, in Guatamela, the Árbenz government being overthrown by a US-financed military coup. He met Fidel Castro in 1955. Castro was then more of social reformer than a Marxist in any sense. As late as 1959, he could still assert that “I am not a communist and neither is the revolutionary movement.” In making Cuba a full blown socialist state, Monnery argues, Guevara—by the 1960s, a Marxist to the bone—played a substantial role.

Neither the way in which Hong Kong progressed, nor Cuba’s, were thus inevitable. After WW II, Hong Kong did not receive any financial aid from Great Britain, and thus had to find its own path to recovery, “relying on the business sector to seize opportunities.” The textile industry was particularly thriving, with some leading Chinese entrepreneurs moving to the island after the communists took power. A certain commitment to liberalization played a role in the rapid growth of this industry.

Yet the very fact of textiles becoming a sizable part of the economy brought “unanticipated problems as the US and the UK railed against the sun of cheap textile imports from one Kong.” In 1960, financial secretary (that is, the minister of finance) Arthur Clarke was worried the city had not to pursue “a middle way… a path well clear of the dangerous abyss into which the ‘laissez-faire’ route might lead us, but clear also of the throttling jungle of too many controls.” One might weep in reading how articulately Clarke explained the alternative, weighting pros and cons of each: so serious an account would be unheard of in today’s politics. Yet Hong Kong was not necessarily set on the laissez-faire path, as Clarke pondered the need to adopt industrial policy: “both government and the banks should lead us to the diversification of our industries [and the] government might assist the situation by adopting Pioneer Industry techniques.”

Cowperthwaite “thought it was up to business executives and owners to run their businesses, deciding how much to produce, what prices to set, where to buy raw materials” et cetera. A “multiplicity of individual decisions by businessmen,” he maintained, “produce a better and wiser result than a single decision by a government.” Yet Monnery points out that Hong Kong’s success happened not because Cowperthwaite and his colleague were trying “to plant an ideological flag,” but because they were “professional pragmatists.” Their loyalty to Hong Kong grew because of its difficult situation: it was an indefensible colony, were China to attempt to invade it, but it was in a sense what was left of the British Empire after WW II and the Suez crisis. In such conditions, the colony did not follow the same path towards welfarism and intrusive regulation that the UK took in the aftermath of the war, because it would have been too risky for what was, at the time, a developing economy.

Then the success of a relatively libertarian arrangements in Hong Kong perpetuated itself. Yet besides pragmatism, principles played a role too. Cowperthwaite tested what he knew about classical economics when he “first arrived in Hong Kong, in 1945” and “was put in charge of price control.… He soon realized the problems with attempting to set prices low enough to meet consumer needs but high enough to encourage supply, and in a dynamic environment.” He opposed subsidies that he saw as “a brazen attempt to feed at the trough of government subsidies.”

We know that nothing looks more dazzling to politicians in office than infrastructure spending. Cowperthwaite proved to be knowledgeable and fiscally responsible in that realm too:

since the early 1900s there had been considerable demand to build a tunnel linking Hong Kong Island and Kowloon. Cowperthwaite intervened in the 1950s to argue against using public expenditure to provide a service that would only be used by some residents. A decade or so later he concluded a deal with private developers whereby they would finance and build a toll tunnel, paying the government an annual franchise fee.

An exception to a general policy of laissez-faire was anyway made, for housing: if “Hong Kong is often portrayed as one of the most expensive housing markets in the world” yet “half the population live in government-built apartment blocks” in the outskirts.

Cowperthwaite is a hero to Monnery, who emphasises his competence, and even more, his integrity. Yet he does not consider Guevara a lesser intellect. An old story goes like this: Towards the end of 1959, Fidel Castro run a meeting to ask his comrade for “a good economist” to become the president of the National Bank of Cuba. Half asleep (it was apparently late at night), Guevara raided his hand. Castro replied with surprise: “Che, I didn’t know you were a good economist.” The “Che” thought Fidel asked “for a good communist.” Yet Monnery reports a comment by a Vice President of the Export-Import Bank, who maintained that Guevara understood “finance and economics… it is just like talking to another banker, except the son of a bitch is an orthodox Marxist.”

Guevara held office in a variety of capacities related to economic matters and took them seriously. In 1959, he took a three months trip to countries as different as India, Japan and Burma, to learn “how they managed their economy.” He was struck by examples of countries that succeeded in developing heavy industries and thought Cuba could do the same.

For Monnery, “the most striking element of Cuba’s economic policy since the revolution is its very comprehensive state ownership of the means of production.” Nationalizations started with land (Fidel had been long advocating land reform) but then moved to banks, industrial and commercial companies. The island was stirred in that direction by the urge to confront the “imperialist” USA (businesses sporting an American flags were the first to go) but also by Guevara, who, once converted to Marxism, had swallowed the whole thing. Since he maintained that “the sine qua non for an economic plan is that the state controls the bulk of the means of production, and better yet, if possible, all the means of production,” he acted accordingly.

Hong Kong and Cuba, Monnery argues, are two remarkable real world experiments of economies closer to resembling an ideal (true laissez-faire, true socialism) than any other in the world. To the reader of A Tale of Two Economies, is rather obvious which lessons ought to be taken: “in the late 1950s, both economies had a GDP per capita of around $4,500 in today’s money. By 2018 Cuba had slightly more than doubled its GDP per capita to around $9,000 per person. But Hong Kong reached $64,000 per capita”—seven times Cuba’s, and even exceeding the UK’s as well. This trend is confirmed by a number of other indicators. Monnery painstakingly explains that it is not “just the economy, stupid”: but that “economics and politics do not split in a tidy way.” Hong Kong’s secret lie in the rule of law and in the strict separation of the state and the economy that Cowperthwaite pursued: an arrangement which is delicate and fragile even where it proved to be the most fecund, as Hong Kong’s predicament suggests.

A Tale of Two Economies tries to blend economic analysis with the lives of two men. On one thing, Guevara was right: good or bad policies are not like apples that fall because they are ripe. They result out of leaders’ undertakings, were they romantic figures like the Che or obscure men in suits like Cowperthwaite. Even laissez-faire policies need to be, at some point, engineered by some reformers: a drift towards spontaneous order needs its architects too, as spontaneous order needs to be guarded against the authorities’ temptation to abuse their own powers. The “battle of ideas” is nothing but a battle for winning the heart and minds of our fellow men. Luck and circumstances may make some of them more influential than we can foresee.