When we look around the world and find that prosperity is rising strongly in some countries but not in others, seekers of the secret formula for success ask why. Lots of temporary causes come into play: oil discoveries, tourism fads such as safari experiences and even countries setting themselves up as tax havens. But these passing influences don't really tell us what overall government policy approaches will give a country its best chance of success in the prosperity stakes.
Since about 1990 a new body of economic thinking has attributed rising prosperity to the development and application of new ideas. These new growth theorists point out that if the history of the human race were represented by the length of a football field, then living standards were basically unchanged for the entire length of the field other than the last 5cm before the far goal line. But over that last few centimetres, living standards have increased astronomically.
This period of rapidly improving living standards began with the Enlightenment in Europe in the 18th century. New ideas were encouraged and a critical mass of thinkers and inventors was achieved. Enlightenment thinkers repudiated the mysticism and superstition of pre-Enlightenment Europe, advocating instead personal freedom, open, competitive markets and scientific endeavour.
David Hume, one of the Enlightenment figures, and a close friend of Adam Smith, summed up with his statement that a wise man proportions his belief to the evidence. Isaac Newton understood the cumulative power of ideas when he said: “If I have seen farther it is by standing on the shoulders of giants.” James Watt's steam engine ushered in the Industrial Revolution and the rest, as they say, is history.
Deadly diseases were conquered and life expectancy increased. Yes it was a blood-stained 5cm, fouled by slavery, the exploitation of child labour, two world wars, state-sponsored mass starvation and genocide. Yet through the period living standards rose inexorably.
But now mysticism and superstition are making a comeback. Their revival began in the '80s with attacks on economic rationalism. Rational economic thinking was condemned in favour of economic irrationalism: ongoing protectionism, deficit financing by printing money, maintaining airlines and banks in public ownership and expanding the role of the state in the commercial world through clever devices such as WA Inc and the Tricontinental merchant bank.
By the '90s, economic irrationalists had declared competition as the new heresy, attacking the Keating government's National Competition Policy which is estimated to have increased household incomes by $3,500 per annum. Twenty-first century mysticism and superstition is finding expression in the big environmental debates. Deep green extremists yearn for a return to a pre-industrial society, before the Enlightenment when faith and dogma prevailed over rational thinking and evidence-based science. In this gentle agrarian society (absent environmentally destructive hard-hoofed farm animals), human beings are tolerated, as long as they leave no carbon footprint. These deep-green crusaders have declared their opposition to coalmining even if emerging technologies were to reduce its emissions to zero, since coal is regarded as an ugly reminder of an industrial society.
Governments of Europe and the US have draped a green cloak of respectability over their farm-subsidising biofuels policies that divert massive amounts of food grain into the production of ethanol.
In the name of saving the Earth from ecological disaster, these brutal policies have been responsible for an estimated 70 per cent of the sharp increases in world food prices over the past few years, plunging an extra 100 million people into poverty.
Recycling, we are told, is a good way to do our bit saving the environment. Anyone questioning the environmental benefits of recycling is branded a heretic. In some cities, up to 80 per cent of glass collected for recycling actually ends up in landfill because the cost of separating the different colours of glass is too high. But we feel good.
As director-general of the Queensland environment department in the early '90s I inquired into the life-cycle benefits of container deposit legislation.
Glass bottles destined for reuse need to be many times the thickness of those that are melted down or disposed of in landfill. We discovered that by the time account was taken of the energy and water costs of collecting, transporting and washing the bottles, reuse of bottles was bad for the environment. We dared not release the results of the study for fear of being howled down as environmental vandals.
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