Paul Collier and the False Promise of “Centrism”

I confess that I often feel deflated. Just as its detractors declare and lament the victory of capitalism, the state continues to expand. Populism is on the rise, from the outright ugliness of Orban or Putin or Erdogan, to the milder forms of President Trump’s trade and immigration policies, or France’s public spending concessions to the gilets jaunes.

In The Future of Capitalism: Facing the New Anxieties, Paul Collier offers (back-handedly) a fillip to friends of liberty and markets. While he frets that “unfettered” capitalism has lost its way, he also argues that capitalism has won decisively in the battle of ideas.

This assertion is downright perplexing.

Collier, an economist, who directs Oxford’s Center for the Study of African Economies, and who formerly directed development research at the World Bank, is wrong, of course. To be sure, the world is facing anxieties and pathologies. But capitalism cannot possibly be the cause; the world is suffering from too little capitalism, as governments continue to elbow their way into voluntary transactions and hamper growth. What should really amaze us, however, is the magic that markets are able to perform in spite of the potholes and speedbumps (and police roadblocks) that the state erects in its path.

Centrism and Populism

Collier recognizes that capitalism has led to much good, in terms of wealth, poverty eradication and opportunity. He is also worried that capitalism (in its post-1980 “unfettered” form) is leaving many behind. He specifically identifies three divides: educated elites v. the non-educated; urban v. rural; and developed v. developing world. According to Collier, in addition to being ethically problematic, these divides are prudentially risky, as they have led to a rise of populism.

As a solution, Collier dons the mantle of centrism, as he rejects ideologies of both the left and right in favor of pragmatism. Specifically, he proposes remedies along three broad axes: (1) restoring ethics to the firm, the family, and the world; (2) increasing and targeting redistribution to those who are left behind (the less educated, the rural, and those outside the developed world); and (3) social engineering by a gentler, more benevolent, more “maternal” state, to fix market failures. In this, Collier does not reject capitalism tout court; rather, in the tradition of John Maynard Keynes, he wants to save capitalism from itself.

What is wrong, then, with Collier’s diagnosis, and his prescription? Pretty much everything. Collier has written a simplistic book that misdiagnoses the problems and suggests as prescriptions more of the very poisons that have led us to this pretty pass. To his credit, Collier recognizes that “a book that is easy to read is hard to write” and he can thus be forgiven for his lack of precision and use of sweeping generalizations. And he is right to force our attention on ethical questions—especially those of us who recognize the superiority of markets, but might tend blithely to ignore some of the pains associated with rapid economic growth.

But Collier is wrong about fundamentals. His errors can be grouped into three broad categories: (1) capitalism has delivered widespread growth, much more broadly than he acknowledges; (2) this world is not one of unfettered capitalism, but of rampant interventionism—this intervention (and not capitalism) is the root of the anxieties Collier rightly identifies; and (3) the pragmatic centrism that Collier advocates is not pragmatic and not centrist, but warmed-over interventionism—and the same kind of interventionism that led us to the contemporary situation Collier laments.

Despite the many impediments it faces, capitalism has delivered. On a global level, the percentage of the world population living in extreme poverty has fallen from 36% in 1990 to 10% in 2015. In the US, income inequality has indeed increased (although this is arguably because of intervention, rather than growth). But the mean income of the lowest two quintiles has increased by 22% and 15%, respectively, and the median income has increased by 21%.[1] And these greater incomes are buying more, as the price of just about everything has fallen (with the notable exception of housing, healthcare and education—three of the most regulated and subsidized industries).

A basic bundle of household appliances cost the average worker 885.6 hours of work in 1959, versus 170.4 hours of work in 2013. During that time, the “hours-of-work” cost at the average worker’s wage fell from 100.5 to 23.3 for a washing machine; 90.9 to 20.7 for a dishwasher; and 127.8 to 20.7 for a color TV—and all these examples do not even consider quality change within the goods themselves. This is compounded by considering one extraordinary fact: the “whole range of items commonly found in US households, including poor ones, that did not even exist a generation ago.” The readily available necessities of today’s millennials was the stuff of science fiction for their grandparents.

Another way of looking at the increased consumption available to the lowest-income groups involves looking at the percentage of households that had certain consumer goods just 30 years ago versus now. In 1984, 58.2% of poor households had a washing machine; in 2005, 68.7% did (and 84% of all households). During that same period, household ownership of air conditioners in the lowest income groups went from 42.5% to 78.8%; for computers (not including smart phones), from 2.9% to 42.4%, and the list goes on. Similarly, food expenditures have fallen from a third to an eighth of income for the average American household in the past century; the USDA reports that, from 1970 to 2007, food expenditures as a percentage of income fell from 14% to 9%. [2] In sum, we must be cautious about the rise in income inequality. First, because it hides an underlying growth for all. And second, because it hides an increase in well-being. “Poor Americans today live better, by . . . measures [of consumption] than did their middle class counterparts in the 1970s”—”as a result, inequality of consumption is far less than inequality of income or wealth.” [3]

The Remedy of Growth

Too much poverty remains, but we must contextualize the increasing divides between rich and poor, as the poorest are faring much better than they were 50 years ago, thanks to capitalism—that is, thanks to capitalism, when it is allowed. Indeed, despite Collier’s lamentations about the Nozick-Friedman revolution of the 1980s, capitalism has been receding in the past 30 to 50 years. Lest I open myself to accusations that I am an ideologue, I will now turn to the very pragmatism that Collier enjoins us to employ.

Government has been growing since 1970. In the US, in 1970, total government spending (federal, state, and local) stood at about 20% of GDP; by 1980, it was about 33%; today, it stands at about 36%. To this, we can add an estimated 10% of GDP in compliance costs with federal regulations. The US national debt has soared past 100% of GDP, thanks in large part to the very social redistribution programs that Collier applauds. The percentage of Americans requiring an occupational license—in the name of “public safety”—has grown from 5% in 1950 to about 33% today. The Institute for Justice reports that “on average, these licenses force aspiring workers to spend nine months in education or training, pass one exam and pay more than $200 in fees. One third of the licenses take more than a year to earn.” This is problematic, as the literature shows an inverse relationship between the size of the state and economic growth, and a positive relationship between economic freedom and economic growth. And it is precisely the poorest and those who are left behind who stand to benefit the most from economic growth. As Hazlitt explains in The Conquest of Poverty, if

everybody’s real income doubles . . . the marginal satisfactions of those at the bottom of the income scale are increased by more than the marginal satisfactions of those at the top. The latter merely buy more luxuries, or save more; the former can afford more necessities. Hence even a merely proportional increase in unequal incomes tends to reduce inequalities in real welfare. Or to put it another way, the proportional inequalities tend to mean less.

To this, we can add the disparate impact of increasing regulations (even if those regulations are nominally adopted to help the poorest).[4]

The same principle applies at the city and state level. In the US, the literature shows a clear correlation between metropolitan economic freedom and economic growth. At the global level, those who remain poor do so not because of globalization and capitalism—but, quite the contrary, because they have insufficient access to markets. For a tragic, if overused example, we need only look at Venezuela’s dramatic drop in economic freedom, with dramatic effects on poverty and human flourishing.

Pragmatic and Interventionist

In light of these facts, it is puzzling to hear Collier call himself a pragmatic centrist, when he is advocating for more taxes, more redistribution of wealth, and more central planning—even though these are precisely the things that cause lingering poverty and prevent the poorest from accessing the benefits of markets. Collier’s alleged centrism is in fact more of the same, warmed-over interventionism. But it is still interventionism, and we can predict the same sad consequences (which will then be blamed on “unfettered” capitalism).

I am curious to know how such an accomplished scholar, an Oxford professor who has held chairs at Harvard and Sciences Po Paris could be so disconnected from reality. Alas, his conclusion has come as part of a general redefinition of terms. Thus is “capitalism” blamed for what is in fact a blend of cronyism and interventionism; the rampant interventionism that started in Western democracies in the 1930s has somehow become “centrism”; and “neoliberalism” and “unfettered capitalism” end up being used to describe high levels of interventionism and redistribution. Collier’s main prescription, “centrism” offers a false promise, and would better be described as “market socialism” or “corporatism.” Collier, to be sure, is no Marxist, and does not advocate outright confiscation of the means of production. But, with other clever interventionists, he has found that the market delivers the most economic output—an output that can be redistributed and managed by the state.

One example is particularly jarring. Collier calls for (further) restrictions on immigration, to alleviate pressure on UK housing prices, and to avoid the further disintegration of the national sense of mutual obligation. Ethically, this does not jibe with his claimed concern for those in the developing world; research shows that global labor mobility would increase world GDP by up to 100%, dwarfing the ineffective government-to-government transfers of international aid. Economically, Collier once again misidentifies the causes: high housing prices are largely a consequence of government subsidy and regulation. And the fraying of the family and mutual obligation comes largely from the very redistribution efforts Collier applauds, but which have crowded out traditional forms of civil society support.[5] In a world of “free” education, families have a diminished sense of solidarity for educating their next generation. In a world of confiscatory and redistributive state retirement programs, individuals have less incentive to plan prudently for their futures, and intergenerational solidarity as eroded, as this generation no longer faces the primary responsibility for the last. And in a world of government welfare, individuals and civil society institutions no longer face the primary responsibility of helping their needy neighbors, as mutuality is replaced by bureaucracy.

Collier’s book does have some appeal; it is an inspiring call to compassion and to addressing contemporary ills. It is also downright confused. We must address the new anxieties—for ethical reasons, but also as a pragmatic defense against illiberal populism. But the first step—rather than further government “medicine”—is to stop poisoning the patient, and return to capitalism. A capitalism informed by ethics, yes.[6] A capitalism that leaves breathing room for civil society to help those temporarily left behind by capitalist growth—without killing the process of growth. But also a true capitalism, based on opportunity, free exchange, and a government limited to the defense of rights and rule of law.

[1] Brad Hobbs and Nikolai G. Wenzel (2019): “Income Inequality and Poverty: Are We Asking the Right Questions?” Working Paper.

[2] John Iceland, Poverty in America 3rd. ed. (Berkeley, Los Angeles, and London: University of California Press, 2003), 27.

[3] Steve Horwitz (2015), “Inequality, Mobility and Being Poor in America,” Social Philosophy and Policy, Volume 31, Issue 2. The consumption statistics in the preceding two paragraphs are also from this paper.

[4] For more on this, see the special issue of Public Choice: Regressive Effects of Regulation, edited by Diana W. Thomas (Vol. 120, Issue 1-2, July 2019).

[5] On this, see Marvin Olasky, The Tragedy of American Compassion (Regnery, 1994), and David Beito, From Mutual Aid to the Welfare State (Chapel Hill: University of North Carolina Press, 2000).

[6] As a start, see John Mackey and Raj Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business (Cambridge, MA: Harvard Business Press, 2012).