Bookshelf: The capitalist way forward

This champion of classic liberal economic thinking says a new dirigisme is taking hold in the West.

by David Smith, economics editor of the UK's Sunday Times
Last Updated: 23 Jul 2013

If Deepak Lal did not exist, I have no doubt it would be necessary to invent him. A highly accomplished technical economist with an excellent reputation, Lal is also the most formidable and forthright champion of classical liberal economic thinking. When political correctness creeps in to the debate, as it does when intelligent people start talking about 'capitalism with a human face', Lal is on to them like a terrier.

The Third Way, about which we hear rather less these days, comes under his harsh spotlight. So does the vogue among economists and politicians for promoting happiness as an alternative to economic growth. The happiness movement - whose proponents such as Richard Layard of the London School of Economics suggest that above a per capita income of about $10,000, rising incomes do not lead to greater happiness and propose either that people should work less hard or that their 'excess' incomes should be taken away from them through higher taxation - is guilty of a basic confusion, says Lal.

It confuses, as he writes, "questions of how best to make a living (material beliefs)" with those concerning "how one should live (cosmological beliefs)". In other words, if people are unhappy, it has nothing to do with the failures of capitalism but plenty to do with how people choose to spend their time and money.

And just in case that puts off potential readers, Lal writes in a very accessible, non-technical way. The book is wide-ranging, with chapters ranging from 'Liberal International Economic Orders' and 'The Changing Fortunes of Free Trade' through 'Money and Finance' to 'The Greens and Global Disorder'. All are covered in a splendidly robust way. I particularly liked his assault on the Green movement, which, like happiness proponents, is profoundly anti-growth and anti-capitalist; essentially, it hijacks popular concerns over the environment to advance what he describes as "a new secular religion". Most of the Green scares, he writes, are without foundation.

I have a huge amount of sympathy with this. The supposed scientific consensus over global warming is, when you dig a little deeper, no consensus at all. Much of the debate over global warming is profoundly unscientific, yet when non-scientists take part they are told they do not understand the science. Or they are told that even if it is impossible to be precise about global warming, the precautionary principle should apply.

Lal has nothing but contempt for the Greens. When technological solutions to environmental problems are proposed, they oppose them. When market solutions are advanced, they reject them. When it is pointed out that the global warming that has occurred, and which is likely to occur in future, is within past climatic variations, they close their ears. "Its primary target is to prevent the economic development which alone offers the world's poor any chance of escaping their age-old poverty," he writes. "This modern-day secular Christian crusade has exchanged the saving of souls for saving Spaceship Earth."

If this makes Lal sound like a grumpy old man, that would be about as misleading as it is possible to be. He first came to prominence a quarter of a century ago with The Poverty of Development Economics, which had a profound impact on thinking about how to lift poor countries out of poverty. At the time, what he described as the 'dirigiste dogma' ruled. Poor countries, it was thought, could not hope to develop without direct government involvement in key sectors and such intervention was also necessary to achieve income redistribution. Free trade, meanwhile, could not be relied on to bring about economic development. All fashionable at the time and all wrong.

His new book concludes on a different tack. Developing countries have learned, by and large, that economic liberalism is the best way forward. Broadly speaking, this has been the approach in China and India. The problem instead lies in countries that should know better: "As the former repressed economies of the Third and Second Worlds are gradually adopting the classical liberal policy of laissez-faire, there has been hardly any change in the bloated size and role of government in the US and EU - the erstwhile rhetorical champions of free markets and limited government intervention."

It goes further. If Lal's crusade against dirigiste dogma was successful in the developing world, it is struggling in the rich countries. The new dirigisme, as he describes it, is taking hold in Washington and Brussels. He will keep on fighting it and making the classical liberal case better than anybody else. We can only pray that he wins the argument.

Reviving the Invisible Hand: the case for classical liberalism in the 21st century, Deepak Lal, Princeton University Press, $29.95, ISBN: 0-69112-591-0.

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