John Nye on Revisionist Economic History and Having Too Many Hobbies (Ep. 54)
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Is John Nye the finest polymath in the George Mason economics department?
Raised in the Philippines and taught to be a well-rounded Catholic gentleman, John Nye learned the importance of a rigorous education from a young age. Indeed, according to Tyler he may very well be the best educated among his colleagues, having studied physics and literature as an undergraduate before earning a master’s and PhD in economics. And his education continues, as he’s now hard at work mastering his fourth language.
On this episode of Conversations with Tyler, Nye explains why it took longer for the French to urbanize than the British, the origins of the myth of free-trade Britain, why Vertigo is one of the greatest movies of all time, why John Stuart Mill is overrated, raising kids in a bilingual household, and much more.
Listen to the full conversation
Read the full transcript
TYLER COWEN: I’m here today with my colleague John Nye, who is a renowned economic historian, professor of economics at George Mason University. He holds a chair at the Mercatus Center, and he is also international adviser to Higher School of Economics in Moscow. John, welcome.
JOHN NYE: Thank you, Tyler.
COWEN: Let’s start with a few questions about France and French economic history. It’s commonly believed that from the 17th through 19th centuries, French per capita income was about 70 percent that of Great Britain. Why was France poorer, if indeed you accept those numbers?
NYE: I think it’s complicated, but the simple story is France was more agricultural. England urbanized much more quickly. France covered a much larger area with a larger population and a much more diverse population than Britain did.
But mostly I’d say the answer has to do with France having lower agricultural productivity and being more heavily rural than England was.
COWEN: And why did it take longer for France to urbanize?
NYE: This is a bigger issue. I think it has a lot to do with their arrangement of their property rights and the difficulties of transferring, of moving people from the land to the cities.
COWEN: Was the backwardness of French agriculture a reason why, to this day, France, in some ways, has better food than Great Britain?
NYE: I’m not sure about that. There’s a lot of discussion about this, but certainly I’d say the regional nature of the agriculture contributed to a lot of what we think of as good food, but it’s not just that.
I’m not going to get into it since that’s really one of these big, long, drawn-out debates in economic history that isn’t fully . . . Basically, nobody quite agrees on some of these issues of why France was behind England, and how much was it behind, if at all.
COWEN: So if the French, during these centuries, are poorer, why are relatively so few of them moving to the New World compared, for instance, to Germans, or British for that matter?
NYE: One of the issues is why aren’t they moving at all to the city in the sense that . . . One way to think about it is that French industrial production is much closer in productivity to English industrial production, that is per capita, whereas French agricultural production, well through the 19th century, is below that of England per capita, or Britain per capita.
Yet there’s a much slower transformation of French agriculture to industry. Some of that may have to do with various cuts of land taxes and regulations that encouraged people to stay on the land and discouraged investment in the cities, but it’s very unclear. It is exactly one of those big puzzles in French economic history that people are still worrying about. It’s not unlike the problem of structural backwardness in a lot of poorer countries today.
COWEN: When was it exactly that France caught up to Britain in terms of per capita income, and how was that fundamental underlying immobility somehow neutered or erased?
NYE: Depending upon whom you believe, some people say it wasn’t till the ’60s that they fully catch up. It’s unclear about this. I would say things are a bit blurry in the early 1900s, but probably it’s not till sometime in the early 20th century that they fully catch up.
COWEN: We think of France, or at least I do, as having a fairly high-quality bureaucracy and quality civil service. Where does that come from in French economic or political history?
NYE: A lot of that has to do with the old imperial tradition and with the French basically creating the beginnings of the modern education system. To some extent, what the revolution did was, they took a number of the old imperial academies and turned them into what are now known as the Grandes Écoles.
You have the Polytechnique, and you have Normale Supérieure, and part of what they did is that they turned these into feeding grounds for the state, but also as a means of attracting the best and the brightest, no matter where they came from.
They were, for example, one of the earliest to make, say, mathematics an important part of the curriculum instead of just, say, Latin and Greek, as was more common in the British elite schools. The Polytechnique, which was developed during the revolution, produced many of the major political leaders in France in the 19th and 20th centuries.
COWEN: If we go, say, to early 19th century France, and we just look at quality of economists and quality of thought on free trade, are the French ahead or behind the British?
NYE: Hmmm, that gets a little tricky, but I’d say they’re a little bit behind the British, but not very much.
NYE: That’s late-middle 19th century. Then the French are fully equal. Cournot, of course. Cournot, mathematically, probably develops a lot the things we tend to think of as modern economics. The way we do monopoly analysis, simple monopoly, supply, demand, these are all Cournot, as well as duopoly and so forth and so on. Overall, it’s not as integrated as the group in Britain, but they’re very similar.
COWEN: You’ve argued that we’ve underrated how free trade France was throughout much of the 19th century. What exactly is the myth there? And how would you describe the reality?
NYE: That’s a long project I worked on for over 15 years of my life, and it led to my 2007 book, War, Wine, and Taxes. It starts from the fact when, early on in my career, I was doing some work in Second Empire France and looking at their tariff policies, and one of the things I did routinely was to compare average tariffs in Britain and France, something which apparently, at the time I was doing it, no one had ever bothered to do.
One of the things that shocked me was that, from about the 1850s, or certainly the 1860s, to the end of the 19th century, France had, in fact, much earlier, going back to the ’30s, France seemed to have lower average tariffs than the British did, for I would say three-quarters of the 19th century. It’s not till the end of the 19th century that Britain catches up with France in terms of openness of trade.
That led me to investigate both why this important fact was so misunderstood in economic history, that the French were, de facto, less protectionist in many ways than Britain for, say, more than half of the century, and why people didn’t notice that amid all the fanfare about the Corn Laws.
COWEN: What are the intellectual origins of this myth of free-trade Britain? Where does it come from? Are we overrating the British in every other way, or is there some specific reason?
NYE: Well the specific reason there definitely has to do with the Corn Laws. With the repeal of the Corn Laws, Britain also repealed lots and lots of tariffs, but if you go back— Taussig first noticed this — that they removed lots of tariffs, but often on things that were a trivial part of trade. In contrast, many of the tariffs that even Adam Smith complained about in The Wealth of Nations, in particular the wine tariffs, were not touched.
When the British often proposed bilateral free-trade agreements with both France and Spain, the first things the French and the Spanish asked for was to renegotiate tariffs on wine, and the British said, “No, no, no, we can’t touch that,” and they said, “Well, those are our big exports to you. How do you expect us to have a free-trade agreement?” So that killed any attempt at bilateral trade.
I think the modern analogy would be to think about Japan. Japan could negotiate completely open tariffs in every manufacturer item, but so long as they kept agricultural tariffs, and their heavy constraints — in fact, virtual prohibitions — in the US rice in many cases, there’s not much change there.
That’s what Britain did. Britain had a comparative advantage in manufacturers, so they were willing to go to free trade in manufacturers, but they were very, very protectionist when it came to consumption items and, in particular, beverages — wine, but also all alcoholic products, rum, sugar, tea, coffee, et cetera.
COWEN: If elites have so much influence over trade policy, why is it that Britain got rid of the Corn Laws at all? Because the Americans were one of the major beneficiaries. It hurt some British interest groups. Why did that happen?
NYE: I think part of the reason for that is that the long 19th century is a period in which the industrialists are becoming much more important. And you have two aspects about this.
The bilateral agreement in 1860 between Britain and France allows Britain to get access now to French markets in terms of their manufactures by having the French remove their prohibitions and lower their tariffs. But it also is a world in which increasingly those who were benefiting from some of these restrictions wanted to have them removed as freer trade was being more and more favorable to Great Britain.
Finally, the other thing that occurred is that people forget that initially, the wine tariffs, which go back to the late 1600s and early 1700s, were primarily protectionist. They were an attack on France, but because of the high tariffs, the British were able to impose very high taxes on domestic alcohol, in particular things like beer, but also gin, whiskey, et cetera.
They became so dependent on the revenues from those alcoholic products that, in fact, one of the things that happened is, even when the consensus was growing for liberating trade in alcohol, there was still concern about tariffs, and so the rise of the income tax and other forms of taxation gave them increased leeway to make these changes.
On free trade
COWEN: As you know, in today’s America, there’s a major debate between bilateral and multilateral approaches to free trade, and most intellectuals, maybe without even thinking about it very much — they tend to think the multilateral approach is necessarily better.
What is it you think we learn from the 19th century experience?
NYE: In fact, one of the things I do know about the 19th century is that there’s no evidence that either unilateral free trade or multilateral did very much.
Almost all the free trade in Europe in the 19th century was a product of, initially, the bilateral trade agreement between Britain and France, sometimes known as the Anglo-French Treaty of Commerce of 1860, in which they each agreed to much more liberalized trade on a most-favored-nation basis. Once they accepted this, then what happened is, anyone who signed on to either Britain or France on the most-favored-nation basis then bought into, in some sense, this system.
What’s interesting is that after the Corn Laws, Britain is telling everybody to unilaterally lower their tariffs because free trade’s so good. And the French and the Spanish are screaming, “What about your wine tariffs?” But then in 1860 they negotiate this secret treaty between England and France, or Britain and France. Again, I have to keep repeating, even though it’s called Anglo-French Treaty.
Suddenly, pretty much every power in Europe joins in. Within the decade, virtually all the major powers in Europe are locked into a free trade agreement with Britain and France because they’re afraid of being left out because the two major powers in the continent have negotiated this treaty. In fact, the only Western power who sees their tariffs rise is the United States, thanks to the Civil War.
COWEN: Is there a bilateral approach to trade agreements that, today, could give us freer trade than multilateralism?
NYE: I think it certainly hasn’t been tried. For example — I’m just throwing this from out of nowhere — if the US were to negotiate a genuinely strong bilateral agreement with the UK and, perhaps, one Asian partner, I wouldn’t be surprised if that would essentially create huge incentives for most of the EU and large chunks of Asia to join in.
COWEN: Thinking about economic history more generally, if we look at America today, and if our goal is economic growth, what would you say is America’s biggest institutional deficit?
What institution would benefit us the most if it were to marginally increase in status? Would it be university? Family? Church? Business? Something else? What’s gone wrong in America from a moral/ideological point of view?
NYE: That’s getting into too many things, but if we just stick to things I personally care very deeply about, I would like to see a return to an earlier period of pure meritocracy. I would like to see that much more, both at the level of university, at companies, and so forth and so on.
I would like to see objective tests and standards used to judge quality whenever possible, and I think that the rise of an anti-meritocratic notion or the idea that meritocracy should be adjusted for social needs has made it very hard to have, I think, state-of-the-art production in many areas.
COWEN: What do you think of the argument that people are, in some ways, not morally strong enough to live with meritocracy?
You think of the chess world — people have ratings. The ratings really do reflect how good a player you are. Adam Smith himself suggested that when quality is transparent, people will tend to be depressed. He compared the mathematicians to the poets and said the poets were happier because each could believe he was a great poet. Are we strong enough to live with meritocracy?
NYE: I think the problem with that is the following. I agree with you, it really upsets people, and for that reason, we don’t see meritocracy in most venues, even in academia. But I think the real problem that you get in the United States is, given the ethnic and cultural diversity of the United States, then what you get is, you get tribalism along lines that recreate many of the things that I think the liberal republic was designed to get rid of. You basically recreate factionalism.
COWEN: Some questions from American economic history. If we think of the decline of slavery in the 19th century and then the Civil War, was that the result, ultimately, of economic factors? Or it simply was political force, and there was a war, and the South lost? But was slavery evolving out of the South for economic reasons?
NYE: I’m not an expert in this area, so I’m just going to recite the consensus. I believe the consensus is that pure economic factors weren’t going to drive it out, at least in the short to the medium run. Perhaps over another century it would have, but the evidence, as at least it was presented to me in economic history classes — which I haven’t always kept up with — suggests that the political factors were very important in getting rid of it, including the war.
COWEN: If you think more generally about 19th century economic growth, the numbers we have for GDP growth — they often don’t appear impressive. Is it that growth actually was slow, the numbers are wrong, the big effect was simply getting more people into the country? How do you interpret the 19th century American episode — slavery aside — the growth of the rest of the country?
NYE: I think American growth was quite impressive. I mean, 2.5 percent averaged over a century or a century and a half is quite a lot of growth, in fact, especially if you take into account the standard biases and the way in which GDP does things.
Moreover, I think there was slow growth in the sense that you were integrating a large, very poor population, both domestically and through immigration, and all these things contributed to what looks like slow growth. But it’s not really slow growth by historical standards, and I don’t think that’s a surprise at all.
Moreover, we tend to overvalue the ways in which the First Industrial Revolution transformed things. Most of the big growth boosts come in the second half of the 19th century in what people call the Second Industrial Revolution. If you look at the statistics for the First Industrial Revolution, there’s no evidence that the workers’ living standards dramatically improved till about the ’40s or ’50s — I mean the 1840s or 1850s.
If you, say, date the Industrial Revolution to 1760, what you observe is very slow growth in England. Fast in comparison to what had happened in previous centuries, but slow in to what happens today, and even slower for the working classes. You only see this acceleration that we think of as modern economic growth in the Western states, in particular Britain, France, the US, and Germany, starting in the 1850s and ’60s or so.
COWEN: What spurs that second wave? Is that fossil fuels or something else?
NYE: I think there, it’s agglomeration of mass urbanization, industrialization, innovation, across the board in multiple manufacturing. Everything is — not just fossil fuels — railroads, steam technology, production, greater trade, all these things are coming together. Now you’re seeing what we think of in these big waves of changes and things of that sort.
COWEN: Do you view American 19th century history as having had a resource bounty or a resource curse?
NYE: I think the evidence is strong there — again, this is not my area — but the evidence is that that is one case in which the United States had institutions that were good enough to take advantage of the resource bounty.
COWEN: If we think about the First Industrial Revolution in Britain, many factors driving that revolution have been cited: ideology, coal, population growth in demographics, the building of a culture of science and engineering, and so on. What’s the underrated factor behind the First Industrial Revolution?
COWEN: Luck? What is the good luck? What’s the lucky event? Not being invaded or . . . ?
NYE: I think, or not having the war turn out worse. Britain was at war for 50 percent of the 18th century, and that’s up to the early 1800s. I think, in many ways, one of the things we underestimate is the extent to which the wars in Europe did not lead to greater destruction. If something had led to a more cataclysmic event, if Napoleon had won the war but then there had been a fight back, you might have had a far greater upheaval.
It sounds fancifully science fiction today, but I really think that Europe has benefited from an extreme degree of political and economic competition. But extreme political and economic competition is beneficial if you don’t destroy the underlying order that makes competition and innovation possible in the first place.
COWEN: Frank Fukuyama has suggested that, whether Britain or England — I’m not sure — had a more mature state early on, along with Denmark, and this is why they were not successfully invaded. They were fiscally strong, they could build a navy. They didn’t lose any of those wars in the sense of being conquered. Do you agree with his argument? Do you think that was luck?
NYE: No. I don’t think it’s luck, but I think there’s a number of things to consider. To begin with, the fact that you need to cross the water to get to Britain is an advantage in their favor. In much the same way, Britain had some advantages, say, Japan had in Asia, where that the Chinese were never able to overwhelm Japan for similar reasons.
Having to cross the channel — it was nontrivial, given older technologies. It was not an easy thing to conquer Britain in the same way that it wasn’t easy for Britain to hang onto Normandy, or England to hang onto Normandy. I think the geography matters.
Secondly, England did have a more centralized state earlier, but that was made possible by fiscal reforms, which is another thing I discuss in my book. War, Wine, and Taxes talks about the fact that it’s ironic that in the period we think of as liberal Britain, Britain had the fastest-growing tax revenues throughout the 18th century of any country in western Europe. British tax revenues rose 450 percent from the 1700s through to the end of the 18th century, which is remarkable since everybody else was trying to raise revenues and were unsuccessful at doing so.
On the Industrial Revolution
COWEN: What do you think of the argument that classical liberal ideology was somehow an essential part of the Industrial Revolution?
NYE: I think it played a role, but it was one of these Baptists and bootleggers stories. There were both those who ideologically were in favor of greater liberalism and free trade, but I don’t think they would have succeeded if they hadn’t benefited from the venality of many of the ministers who wanted to increase the power of the city and increase the power of the British civil state at the expense of the landed aristocracy.
If you think about it, one of the things that improved markets did — and, in particular, improved national markets in agriculture — was to make agriculture more efficient. But in making it more efficient, they essentially destroyed the local monopoly of many agricultural landholders who weren’t that very efficient.
So you had some big winners, but one of the things it did is that it made England a more efficient whole. You get consolidation, both in terms of the most powerful domestic and commercial industries, and you get consolidation in agriculture. And consolidation in agriculture eventually made it possible for people to move out of agriculture as well.
Growth in both agriculture and industry favored a more powerful Britain, but a much weaker set of dispersed aristocratic elites, who altogether had the control of the British Parliament. But as these dispersed elites were getting weakened, both the rise of the state directly through greater regulation and indirectly through having more concentrated, in some sense, centers of power.
There is a lot of evidence that British landholders were much more concentrated by the mid-19th century than the French were. So there was a greater inequality in ownership, and that was favorable, again, to certain elites, who benefited from the shift to liberalism.
COWEN: Now it’s often argued that the British economy — or maybe it’s just British companies — they fall behind in some regards in the mid-to-late 19th century. Do you agree, and if so, why did that happen?
NYE: This, I am not so sure about. I think we see a lot of things there, and it’s hard to tell how much of that is what’s happening interwar period and how much of it is the turn to socialism around the time of World War II. But there’s certainly the case that Britain loses some of its innovative edge.
On the other hand, Britain does still play a very big role intellectually. So I’m not quite sure I understand why Britain underperforms, but there is something to be said for both a regulatory story and, in some sense, a breakdown of the state capacity having to do with greater conflict between the upper classes and the working classes in Britain.
COWEN: Now, there’s a collapse of globalization occurring in 1914, in the First World War. If you think about this in terms of an abstract model, what exactly happened? And was it inevitable?
NYE: I don’t think it was inevitable at all. I do think World War I was a genuine shock to that. That is to say, I think that you could have imagined a world in which globalization would have received more support and more development for at least a couple of more decades.
But it is also true that what you see is that historically, there doesn’t . . . Put it another way: There’s not much evidence that human beings somehow evolve into very liberal political entities. So the periods that promote political and economic liberalism tend to be short-lived, historically.
There’s not much evidence that human beings somehow evolve into very liberal political entities. So the periods that promote political and economic liberalism tend to be short-lived, historically.
What’s interesting about the last 250 years is how relatively stable political liberalism has been. Whether or not that’s an anomaly, or that’s the beginning of a totally different change in the way human beings organize themselves is, I think, for the future.
But I think the assumption that political liberalism, as we’ve seen, that foments both increased individual freedoms as well as increased economic freedoms, plus economic growth, is either stable or sustainable is not clear-cut to me.
COWEN: Particular mistakes aside, what were the systemic mistakes the Western world was making in, say, 1910, 1912?
NYE: I think the systemic mistake really boils down to how do you deal with the problem of power? How do you deal with the problem of different groups, different cultures wanting their place at the table? It’s clear that, if you look, a lot of the fight of imperialism was great-power competition.
If you look in the Far East, for example, some people may know that the United States took the Philippines from Spain at the end of the period of Spanish control of the Philippines in 1898, and partly this was due to Perry’s decision to sail into Manila Bay.
One of the things that’s not discussed — most people are unaware of — is that the German and British fleets were waiting in Hong Kong. They were waiting to see what the Americans did. And it’s quite likely that, had the Americans not steamed into Manila Bay, that the Germans or British would have intervened in the Philippines once the Spanish collapsed.
On things under- and overrated
COWEN: Now in many of these discussions, we have an interlude called overrated versus underrated. And since you’re a polymath, I thought we would make ours slightly longer than usual. Are you game?
NYE: Let’s try.
COWEN: Okay. Napoleon III.
NYE: Oh, vastly underrated.
NYE: Napoleon III — he’s the nephew of Napoleon Bonaparte. He’s often referred to as the idiot emperor or the little Napoleon. And a lot of that has to do with the fact that he’s considered to be a bumbler. He lost trust . . . he basically lost large parts of eastern France in the Franco-Prussian War.
But in fact, Napoleon III ushered in many of the great reforms of the 19th century, not least of which, the 1860 Anglo-French Treaty of Commerce. But also, under Napoleon III’s regime, he was able to promote not just freer trade but greater industry, modern banking. A lot of what is modern Paris comes about under Napoleon III. The development of the railroad and the road networks comes under Napoleon III.
Moreover, the growth in the wages of the working classes starts to increase after the 1850s. The late 19th century, contrary to what people think of, is not, in fact, a period of massive inequality, but it’s a period of greater consumption equality all across western Europe. And certainly in France, Napoleon III has a great deal to do with that.
COWEN: Filipino food, overrated or underrated? And why isn’t there more of it in the United States that’s good?
NYE: Well, since I like Filipino food, I’d say it’s underrated. But if we just focus on the question, why isn’t there more Filipino food, there are two things to note.
One is that the biggest reason, I would say, is that no one has yet found a sufficiently America-centric Filipino food to sell. Think about the most common popular American Asian foods. That would be Chinese. And when we think of the good Chinese food, it’s not, in fact, what made Chinese food a household name.
The fact that you and I can buy very good Sichuan or Cantonese food is not a function of the best dishes. It’s a function of the kind of mediocre chow mein, fried rice, which has nothing to do with the chow mein or fried rice that you get in Hong Kong, and things like moo goo gai pan and sweet and sour pork. Because you don’t have this mass appeal food underlying it, you can’t experiment with the better stuff.
Secondly, I don’t think Filipinos know how to pick the dishes that are not just good for the Philippines, but good for Americans, so that, in particular . . . again, think about, say, even Korean food, which is probably the most authentic food I think of in America relative to the home base. It’s not the same thing. Even with the Koreans, Americans tend to like stuff like bulgogi and the barbecues and their fried chicken.
COWEN: The boring dishes.
NYE: But in fact, the dishes that a lot of people eat in Korea are not things most Americans would like to eat on a regular basis, which is big emphasis on the various kinds of kimchi, the pickles, the hot soups, the noodles. In the same way, there’s a lot of Asian dishes that are not as common. Or if you look at Thai food — Thai food that’s served in most Thai restaurants has very little to do with what you would eat in Thailand.
I think Filipinos haven’t found a way of packaging food that is sufficiently exotic and uniquely Filipino but will appeal to American tastes. Once you can do that, then it’s possible for, I think, the more interesting regional dishes that will also be interesting to foodies to get introduced as well.
COWEN: And for those of you who don’t know, John grew up in the Philippines and was born there.
The movie by Alfred Hitchcock, Vertigo?
NYE: It’s one of the greatest movies of all time.
COWEN: Is it underrated?
NYE: It is underrated. I think that, despite its high ranking, it should be rated even further. I mean, look at this movie. On all margins, it’s great. Jimmy Stewart, who is often thought of as this aw-shucks kind of guy is portrayed in a very dark kind of way. It’s a very maudlin take on the average American, as well as being very introspective and very suspenseful. And there are so many things that other directors steal or take from Hitchcock from these pictures. I think Vertigo, Rear Window, To Catch a Thief and North by Northwest are all peerless.
COWEN: And if there’s an underlying political subtext or import of Hitchcock, what do you think that would be? Not what he necessarily intended as his politics, but what’s in the movies in terms of human nature and political man?
NYE: Well, I think there’s this question of suspicion and the tendency to not appreciate how much is going on under the surface. I think people tend to see these things narrowly in terms of Cold War paranoia. But Hitchcock was a political conservative, and he was much more of the very old British conservative view that one should be wary in times of —
COWEN: Suspicion is metaphysical, right?
NYE: Yes, exactly.
NYE: That in times of peace, be aware that these things are not necessarily self-sustaining. I would say that’s the conservative worldview — that civilization and order are not default states of mankind. It’s very Hobbesian.
COWEN: The classical pianist, Vladimir Horowitz, overrated or underrated?
NYE: Well, I’m not a musician, but for me — personal taste — I think he’s overrated.
NYE: There’s a certain flashiness about him, and I much prefer other pianists to him.
COWEN: Who’s the underrated classical pianist then?
NYE: Oooh, that’s hard.
COWEN: Dinu Lipatti, if you don’t like Horowitz?
NYE: Yeah, yeah, yeah.
COWEN: Arthur Rubinstein?
NYE: Gilels more than Pollini.
COWEN: Okay. In chess, Magnus Carlsen, overrated or underrated?
NYE: I think he’s neither. I think he’s properly rated.
COWEN: Properly rated.
NYE: I think he’s properly rated, yes.
COWEN: And is he going to beat Caruana?
NYE: There, I’d say yes, probably, but two to one. I think Caruana has maybe a one-in-four— maybe not even a one-in-three — one-in-four chance, at most. But Carlsen is clearly the most phenomenal player to come along since Kasparov.
COWEN: In the history of ideas, John Stuart Mill?
NYE: I think John Stuart Mill’s take on liberalism is too much of an ivory tower take, and I think that it doesn’t take into consideration . . . it’s too normative. It’s too much what should liberalism be about as opposed to what I think of as a lot of my career has been about, which is just trying to understand what kinds of things made liberal reform possible in the real world? What kinds of things made liberal reform sustainable in the real world?
I often talk about it — the way I tell my classes is something like the following.
In economics, we’re always talking about the benefits of free markets, the benefits of trade, the benefits of open competition. And yet, by that standard, the revealed preference of humanity is to be poor, since the periods of really open trade growth and innovation are very tiny in the long span of world history. Or innovations take a long time to develop, and they’re often held back, and the waves of innovation and growth often crash on the rocks of stagnation or even failure.
So in that sense, what we really need to understand is, why is that so hard to do? What is it about the human condition? What is it about the problems of organizing mankind in the world that includes problems of political organization, coercion, violence, dissent, that makes order such a constraint on what is permissible in terms of freedom?
COWEN: Russia’s economic future — are we underrating it?
NYE: No, unfortunately. I think Russia suffers very much from two problems. One is the well-known problem of resource curse. I do think that Russia having abundant oil and gas makes it very hard for them, for their political economy to develop properly, for all the known reasons.
But the other thing I think is not talked about is that, since Russia became such a gigantic empire, in particular in the 19th century, Russia has had such a hard time. I would argue the political impetus, the imperatives of holding together such a large land mass and all the peoples in it, and worrying about its borders, overwhelms incentives to promote growth and development within the country.
COWEN: But the USSR is gone. Say they would hand over parts of eastern Russia to China, just as a gift, write them off —
COWEN: I’m not predicting this, but let’s take this as a hypothetical. Isn’t it then a fairly well-defined national unit? They have a lot of human capital, still some good systems of training.
NYE: Look, but that’s different. If Russia could hand over two-thirds of its land mass and keep a large chunk of what we think of as western Russia, I think it would develop a lot faster. But that’s exactly what will not happen.
Look, forget about handing anything over to the Chinese. The Russians don’t properly develop Vladivostok. They don’t properly develop the Russian Far East. Why shouldn’t Vladivostok, for example — just to take it off the top of my head — be as fully developed as San Francisco is for the United States? In some sense, it’s the other outpost. You have the eastern leaders and you have the western leaders.
What you don’t see is, you don’t see cities in Russia on the eastern part which are as advanced, as successful, as commercial, and as dynamic, both intellectually and commercially, as Moscow and St. Petersburg. And their inability to permit that or encourage it — or in fact, in my view, their tendency to discourage it because, for various complicated reasons — is part of what holds Russia back.
COWEN: But if we’re trying to think through Russian culture, clearly there are some things they’re very good at. The history during World War II of disassembling and then reassembling factories in the east — that was astonishing. Mobilizing manpower, building certain kinds of tanks pretty quickly and effectively. Then in other areas, the performance is much weaker.
Do you have an integrated theory of Russian culture that at least partially fits in what the country’s very good at and very bad at?
NYE: No, I don’t. But what I do think is the following: I think that much of the things that are very good about that state capacity are tied to the political constraints and also make it hard for them to encourage diverse competition.
And one of the fears they have is — and one could argue that this is part of what happened in the 1990s — is the breakdown of the worst aspects of the Soviet empire also broke down some of the many better aspects in terms of their ability to provide a high-quality, say, secondary educational system, high-quality average university quality, and to have very good state capacity.
So re-creating this state capacity while also promoting greater economic diversity and economic competition is, I think, one of the great challenges for Russia.
COWEN: What is it you think we know about religion and economic growth, if indeed anything?
NYE: I think, to the extent that what we think of as modern economic growth began in the West and was a very uniquely Western phenomenon in the modern sense, only later adapted by Japan and then more recently by many Asian economies, it’s clear that Christianity played a very big role.
And I think one of the things that, say, Fukuyama mentions in one of his recent books, and others have mentioned, is the role the Catholic Church played in promoting the nuclear family: banning cousin marriage without special permission, focusing on trying to unify romantic love with formal marriage, asking for the consent of women in the marriage vows, focusing on the need for celibacy and the need for monogamy, discouraging polygamy and the extended family.
All these things were part and parcel, or at least supported what we think of as the underlying institutions that nourish capitalism.
Whether or not, say, for example, a more Eastern version of capitalism would have arisen under China with polygamy, with very soft pantheistic religions, that’s a separate question. But as we think of the way in which modern economic development has occurred, it’s also co-evolved with the rise of the Western state, which is tied to the rise of the way in which Christianity played out, both as a secular force as well as a spiritual one.
NYE: Well, Michel Houellebecq, I think —
COWEN: Forgive my pronunciation.
NYE: Houellebecq, in my view, is very interesting in that he’s an avowed anti-liberal. But what’s interesting about him is that he sees two things, I think. He sees, in some sense, the loss of confidence in Western traditions that seems to be very typical of many leading Western elites today.
And secondly, I think he sees the problems that were articulated very differently by people like Keynes or by Schumpeter, about the fact that capitalism evolved in the West against a certain background of social, religious, and cultural norms, which are often undermined by the aspect of competition itself.
In particular, Houellebecq is very big on the issue of sexual competition and the way in which breakdown of the nuclear family, the rise of open divorce, the sexual revolution — all these things create a market in which you have huge numbers of losers.
Even without formal polygamy, that easy divorce and fairly loose sexual morals lead to a world in which you are re-creating some form of polygamy, and that these lead to stresses that go far beyond the standard inequalities that you talk about economically, and that, in many ways, are actually more intractable than the inequalities economically.
You could imagine a world in which everyone had the Star Trek reproducer that allowed them to make any physical object available. You could get any food you wanted, any car, any clothing, but then that would make the inequalities based upon physical characteristics, whether they be beauty — and even if you could fix beauty with plastic surgery, you would still have charm and personality and intelligence and power, and all these things would be involved in those.
And that would be even more intractable — talk about meritocracies that you can’t do anything about. I think that Houellebecq makes that a very big part of this issue about the sense in which having an overriding religious belief and having very strong control of family and sexual relations is very appealing to large numbers of people in the world.
On the Philippines
COWEN: A few questions about the Philippines. Speaking of religion, why has the Philippines become so Christian, and Catholic in particular, when most of East Asia, or Asia, has not?
NYE: Well, to begin with, basically the Catholic Church colonized the Philippines. People may not realize that the Spanish had very little power to colonize the Philippines militarily. It was very difficult. The Philippines has over 7,000 islands. It’s quite scattered; it’s a lot of mountains, jungles. Spanish soldiers would die of malaria.
So most of the colonization outside the Manila region was often handled by the Church in the sense that the Church had incentives to send people there and to kind of proselytize. And it’s in the course of proselytization that they extended the influence of the central Spanish government.
In addition, the military intervened in much the same way they did in a lot of South America. There were many separate tribes; the Philippines was not united. So very often, some of these deals, “I’ll help you defeat your enemy in exchange for your owing allegiance to the central power,” and things of that sort.
But even after these deals were made, day-to-day Christianization, education, and in some sense homogenization of Filipinos into the greater Philippine nation was often taken care of by priests. And the Philippines was formally divided by the Catholic Church into which areas were controlled by various orders, whether the Dominicans, the Benedictines, the Franciscans, or the Jesuits.
COWEN: Are nations spread across many islands, including also Indonesia, inherently at a disadvantage for economic development?
NYE: I certainly think they have a disadvantage in terms of some of the issues of state capacity and order that are a prerequisite for economic development. Take Mindanao in the south, which is a constant problem for the Philippines. In some ways, Mindanao has never fully colonized. That is to say, neither the Spanish nor the Americans nor even the Japanese during World War II were able to fully control Mindanao.
Today, it is the scene of many struggles between the Muslims and the Christians there, as well as the various kinds of revolutionary factions that still exist in Mindanao. I remember having a discussion about this with the distinguished economist Jim Robinson, who wrote the paper about the fact that in Mindanao you have too many strong men, and that the problem in Mindanao is you have bad institutions.
I said, “Jim, you’re putting the cart before the horse. You have bad institutions because it’s so hard to run Mindanao, so it’s not a surprise that the politicians that emerge in Mindanao are those who basically are good at forming private armies or making local connections.”
No one group is strong enough to make Mindanao totally independent, and yet the center in Manila is not strong enough to fully, in some sense, control that island either. And so that area has always been a hotbed of political struggle and instability.
COWEN: Now that China is a true world power, and China also tends to use some of the overseas communities of ethnic Chinese to further the ends of China as a nation, how will relations with the ethnically Chinese minority evolve in the Philippines?
NYE: Well, that is a big issue because I think there is a suspicion that many of the Chinese are working in the Chinese government’s interest. At the same time, there are many ethnically Chinese Filipinos who owe no allegiance to China and are much more loyal to the Philippines, and so you’re going to get these problems.
One of the very big issues is, how can, not just the Philippines, but all of East Asia take advantage of often very successful ethnic Chinese minorities without incurring the suspicion that they’re being disloyal to their home country or loyal to China instead?
And the more that China tries to intervene in local politics in the region, the more you’re going to see these kinds of clashes. I worry about this a lot because many of the greatest massacres that have occurred in history have occurred by rioting people against ethnic minorities like the Chinese in India or the Chinese in Southeast Asia.
COWEN: What’s the untold story of how China itself managed to reform?
NYE: Well, that is a deep issue, but I have a theory, or rather theory is too strong a word. There is a phenomenon I’ve observed that I really haven’t seen written about. One of the things that, for me, is very unique about China that not many people have discussed in any real detail is the extent to which China began its reforms outside of the biggest cities.
Just thinking about that alone, to begin with Guangdong and Fujin provinces and those regions, places like Shenzhen, Guangdong, Fujin, Xiamen — to think about those cities and regions is quite remarkable. Virtually every major reform always involves the major centers of commercial power, but those would have been Beijing and Shanghai, and they were totally left out of it.
In my view, that occurred for a number of reasons. One is that, by avoiding that, you avoid the usual problems — political, economic problems of interfering with the rents of the established companies. Second, you have plausible deniability if it fails. You say, “Ahh, what did you expect of the backwater?”
Third, Fujian, of course, is Fujianese, which shares a language and ethnic heritage with the majority of the people in Taiwan, and in Guangdong is Cantonese, which, of course, shares ethnic heritage and the language with Hong Kong, who are mostly Cantonese.
One of the things that’s very interesting in the early parts of China’s reforms, you had investors from abroad, mostly from Taiwan and Hong Kong, investing in China in a period in which China did not have formal property rights. Family and ethnic connections were often used to make informal social deals to maintain these relations.
Moreover, the Chinese government was well aware that if they defaulted in some way, then they were giving up the future stream of investment that would come from these places. So in many ways, this was very, very unusual.
The final and most unusual aspect about China’s reform is, once these new regions started to grow, the center was not successful in shutting them down. You need to understand that throughout history, whenever central powers saw regional powers in their countries develop, you often crushed it.
Even this happened in conflict between the king and the big city. The good example is Francois I of France, who often had, because of the problems that people like Doug North have talked about, a credible commitment, could not borrow money except with very high interest rates. But by uniting with the city of Paris, he was able to actually borrow at lower interest rates than he could by himself. Yet he broke those deals, and he allowed himself to go back to higher interest rates because he was fearful that Paris becoming too powerful would weaken his authority.
And in the period particularly of the Reformation, seeing people like John Calvin being protected in Geneva was a concern that Paris would become a hotbed of reform or a hotbed of opposition to the central powers of the French government.
COWEN: If I think about the economy of Taiwan, two things strike me. First, in international supply chains, Taiwan reaps a pretty high percentage of value added, but at the same time you’ve had wage stagnation at the median in Taiwan longer than almost anywhere. How do we put the economic picture of Taiwan together?
NYE: I’m not very sure about this, but my guess is that in Taiwan, there’s too much of an incentive to take advantage of the Chinese market, of just use cheaper labor or of selling to Chinese rather than thinking about how do we reform Taiwan itself.
And how do we — because Taiwan needs many more reforms — they’re very smart people, they’re highly developed, but somehow Taiwan has not been able to move up the food chain fast enough to develop, in some sense, very advanced technologies and to make Taiwan, say, an intellectual hub.
I would say for example, take even universities. There’s no reason that Chungda and Taida, the two leading universities in Taiwan, shouldn’t be more like the top university in Singapore, but they’re not. Some of this has to do with the unwillingness of Taiwanese to switch graduate programs to be much more heavily in English, and that there’s a certain reluctance to learn English or difficulty that they have.
On the one hand, if you talked to Taiwanese — like my in-laws — they are very much in favor of their kids learning English. On the other hand, they perceive this as an impossibly difficult thing unless the kids live in the United States or Australia or England for a certain period of time.
So all of these things swirl together. It’s not unlike some of the problems Japan has, but with the extra problem that Taiwan is torn between their desires to remain reasonably independent while at the same time being dependent on making deals with the mainland.
COWEN: And how is it that you and your wife managed to bring up your son so he could speak Chinese?
NYE: Well, you have to understand that when I first met my wife, we met in Paris and I spoke no Mandarin; she spoke no English.
COWEN: And she’s from Taiwan, right?
NYE: She’s from Taiwan. Eventually I learned conversational Mandarin, and she learned English, but we noticed that — we were going to bring up our son — she was very worried about the fact that many of our friends who were Taiwanese — even though both parents spoke Mandarin and, in fact, in many cases, both parents didn’t speak English very well — their kids would grow up not wanting to speak Chinese at all.
I chalked this up to the observation that little kids want to conform, and they don’t want to be picked on, especially if they grew up, say, speaking Mandarin. But then they get picked on in kindergarten, or they just feel weird because they’re answering in a strange language.
I did some reading into literature, and what I finally came up with was this suggestion to my wife. I said, “Here’s what we’re going to do. For the first two years of his life, our eldest son — you’re only going to speak to him in Mandarin, and I’m only going to speak to him in English.” So instead of it becoming a strange language, English becomes Daddy’s language and Mandarin becomes Mommy’s language. And strangely enough, that worked. Our son became very fluent.
I did some reading into literature, and what I finally came up with was this suggestion to my wife. I said, “Here’s what we’re going to do. For the first two years of his life, our eldest son — you’re only going to speak to him in Mandarin, and I’m only going to speak to him in English.” So instead of it becoming a strange language, English becomes Daddy’s language and Mandarin becomes Mommy’s language. And strangely enough, that worked. Our son became very fluent.
Now the downside of it is, actually, he got confused a bit early on. In some ways, some at the preschool said he’s a little developmentally handicapped, but it was really funny — he wasn’t, he was a little slower. And then one day, it clicked, and he was fluent in both. In fact, he was fluent in Chinese first, before English.
The funny thing was, very often there was a period when he would say everything twice, so he would say, “Look, airplane, kàn kàn, fēijī!.” and he would just talk about these ways. Sadly, that theory didn’t work with our second son because we didn’t count on the fact that the second son has the older brother to play, and so the second son has the same phenomenon, where he understands quite a bit of Mandarin but doesn’t want to answer in Mandarin.
COWEN: Let’s say that a country with a fair amount of money, but not necessarily high credibility in every way, and a nondemocratic government — they appoint you to build a university system for them and to create a top world-class university. Say it’s a Gulf nation.
Is it even possible that they try to do this? Is the credibility gap too strong? How much money do they need? How would you think about actually trying to do this?
NYE: Well, I think there’s two factors. One is, are they willing to commit the money to it? And second, are they willing to go through the phase of credibility building? That’s the hardest thing. Many people make the early phase possible, but then they falter at the later one, and that’s the real issue.
How credible are you going to be with respect . . . Even something like tenure is something not very well understood. Are you willing to fire people before they get to tenure? And are you willing to guarantee tenure after? How do you do that? How do you do it so it’s credible? Many countries cannot even guarantee that the policies instituted by one ruler will be followed by the next. And this is a very, very big issue.
However, you see a lot try. Singapore has done quite a very good job. Hong Kong has done quite a lot. The Gulf is trying now, I’m not quite sure with what success, but there’s surely — the King Abdullah University of Science and Technology has been hiring a lot of top people in the sciences. But I’m not sure how successful they’re being at creating a really vibrant university that will attract the best and the brightest to come there.
Russia, I don’t want to talk too much about that because that’s partly what I’m involved in in Russia as well. The Russians have a program to try to provide incentives for their leading universities to hire on the international market and integrate that with their local professors. I would say the Higher School of Economics in Moscow is the most successful university institution in Russia so far at doing that. But it’s still very early in the game, and it’s always a challenge.
On the John Nye production function
COWEN: Let me ask you just a little bit about what I call the John Nye production function. Economics aside, what would be an example of a book that had a great influence over you in your life? Not Doug North.
NYE: No, no, I understand.
COWEN: Not The Downward Sloping Demand Curve.
NYE: I think I told you once that, as a boy, one of the most influential books to me was the book Memoirs of a Sword Swallower by Dan Mannix. This is a fairly obscure cult book, but it’s an autobiography of him running away to the circus, or the carnival actually, and learning to become both a sword swallower and a fire eater.
What was interesting to me about that, at the age of 10, was both the interesting detail at the level of how he got involved in magic and in the carnival and the functionings of the day-to-day, as well as the exoticism for a boy in the Philippines — just thinking about the way the world had developed.
It didn’t make me want to run away to the carnival or to the circus. But it made me think about things in a very, very different way. And it really spurred my interest in fantasy, in horror, in science fiction, all heavily driven by my interest in that book.
COWEN: And what would be a book from the history of ideas? More narrowly.
NYE: That’s a little trickier. I would say in recent years, the book I’ve been pondering a lot is Hobbes’s Leviathan.
NYE: Because I think we’ve lived through such a period of relative peace and order that we are taking for granted how unprecedented this is. Despite all the wars that erupted since World War II, there has not been a major global conflict at that level in many, many . . . in nearly, what, three-quarters of a century now? And that’s quite unusual.
It’s also unusual that the number-one leading military power has done so little, contrary again to what a lot of people say about it, to expand its power militarily. And there are a lot of reasons for that, many of them very good, both moral as well as practical.
Nonetheless, that’s an anomaly in world history, I think, in many ways. And I still think there’s a kind of second law of thermodynamics for political economy in which disorder has a pull. And I worry a lot about the stability of the liberal world order in the next century.
COWEN: How much of a pessimist was Hobbes?
NYE: I don’t know. I’m not very good at psychologizing older writers.
COWEN: But there’s an optimistic interpretation, that what he called absolutism, which I think is not the same as modern totalitarianism at all — it’s a strong state of some kind.
NYE: Correct. Correct.
COWEN: But that could in fact solve the problem, or no?
NYE: But that’s almost like saying, let’s assume a can opener. It’s exactly the problem. The thing I’m really frustrated by is that it doesn’t matter whether people are writing from a socialist or a libertarian perspective. Too much of the discussion of political economy is normative. It’s about what should the ideal state be?
I’m much more concerned with the questions of what good states are possible? And once good states are created that are possible, what good states are sustainable? And that, in my view, is a still understudied and very poorly understood issue.
COWEN: Now, as you know, we have many talented colleagues, but probably you would count as the best educated amongst the group — educated in the broad sense of the term — we all have PhDs. To what would you attribute that?
NYE: It’s two things. One is, I was raised and educated in the Jesuit tradition. I went to an elite Jesuit school in the Philippines growing up. One of the things about that school was that there was a very big emphasis on the educated Catholic gentleman that it was supposed to produce. It was not enough to be good in the one subject. You were presumed to be good in all subjects at the very high level.
Secondly, I felt, growing up, that the Philippines really was an intellectual backwater, and I had this mythic view in my mind of what the center would or should be like. And I thought to myself as wanting to learn things so that I would be prepared to play a role as a participant in world discussion. To that end, I studied many different things.
As you know, my undergraduate background is in physics, but I also was, for a while, a double major in literature. I taught myself French, as well as, later, Mandarin, and now I’m trying to learn Russian. And all these things are part and parcel of my sense that it’s not enough to be good at . . . In some sense, the spirit of the age favors specialization, and my personal tastes favor generalization or being a polymath. Or as my advisor once to put it, I have too many hobbies.
In some sense, the spirit of the age favors specialization, and my personal tastes favor generalization or being a polymath. Or as my advisor once to put it, I have too many hobbies.
COWEN: Let’s say a smart young person were to come to you and ask for advice. How do I self-educate myself in a broadly similar way?
NYE: Well first, should they? I mean, the fact of the matter is that there’s a lot of costs of being broadly self-educated. The fact of the matter is —
COWEN: But you don’t regret it, right?
NYE: 90 percent of the time; 10 percent of the time I do. But clearly, a lot of it will have to just read a lot, read very deeply. If you are a humanities person, take some hard math and science classes. If you’re a science person, read Shakespeare. Learn a foreign language, really learn it. Spend some time.
And when people learn a foreign language, in particular, I would say the one aspect of foreign language learning that’s underappreciated is accent. Most people say, “Oh, my accent is good enough, and then I’m fluent.” But in fact, for most people around the world, accent is the first thing you notice about someone when they’re speaking a foreign language.
If you have bad grammar and have a very limited vocabulary, but you can say 100 basic phrases with 90 percent accurate accent, most people will say you speak fairly well. If you have, however, a fairly high degree of fluency and you have a really strong American accent, a lot of people will still perceive you as not speaking well.
Without acquiring or making the effort to acquire a decent accent — I’m not talking about perfectly mimicking someone who’s fluent, but of getting a decent accent — you won’t, in my view, get a full understanding of what that language and that culture brings to you.
COWEN: And to close, please recommend a novel for us to read.
NYE: Well, if I had to recommend a novel, the one that I like to come back to is The Idiot by Dostoevsky. The others are more famous.
COWEN: But why The Idiot?
NYE: Well, The Idiot’s quite interesting because of the figure of Prince Myshkin, and that is the idea of the innocent surrounded by all this scheming, and this blood and gore and evil.
Dostoevsky is always worried about the problem of spirituality within the context of a real world that’s changing, that’s dynamic, that has good and bad and evil, and how do we reconcile that? And I think The Idiot, even more than Crime and Punishment or The Brothers Karamazov, has, at least for me, a very uniquely appealing depth to it.
COWEN: John Nye, thank you very much.
NYE: Thank you, Tyler.