Reviving the Invisible Hand
Deepak Lal, Princeton University Press, 2006, 320 pages, £29.50, (Paper £18.95).
Professor Deepak Lal’s new book, Reviving the Invisible Hand is a superb exposition of the case for global free markets. It is also a passionate plea for the continuance of global conditions that have for the first time given the promise of general emergence from poverty in his native India, together, of course, with China. These two countries, which held most of the world’s poor in 1980, have enjoyed spectacular success in the past 25 years, growing at average annual rates of 6 per cent and 9 per cent, respectively. This book should be compulsory reading in economics, social sciences, politics, and probably philosophy curricula in univer-sities.
The breadth and depth of Lal’s historical account of the emergence of free-market economics is impressive, culminating in the first ‘Liberal International Economic Order’ (LIEO) under the leadership of the British Empire from the repeal of the Corn Laws in 1846 to 1914. The United States, after failing to take up the baton of free trade in the 1920s and (especially) during the Depression, has presided over the second LIEO since the Second World War, this in turn spreading to Developing Asia, with the Tigers imitating Japan, then the death of Mao; lastly the discrediting of the Nehru dynasty and its economic policies, and then its overseas affiliation with the defunct Soviet Union. His account of the history and strengths of liberal capitalism, and its achievement in securing undreamed-of wealth for the major part of the populations where it holds sway, is the heart of the book.
Lal explicitly directs his book to the ‘general reader’: its language is accessible to the interested and intelligent non-expert. 70 out of 300 pages devoted to footnotes and bibliography may have been necessary to streamline the main text, but he does his cause no favours in two related substantive respects. A key issue in free-market development is the distribution of income. Lal demonstrates convincingly that the world distribution of income has improved since China and India were opened up in 1980. He accepts that inequality has increased within key countries, notably China and the US (but not India).
While the world distribution of income must be the dominant criterion, ameliorating inequalities within key countries must play a role in the free-market argument. Yet Lal favours ‘flat taxes’ and appears sceptical of redistributive measures. And it does not help when he brushes off the ‘seeming evils’ of the original breakthrough into industrialisation in Britain. Even accepting his contention that the real income of the poor increased marginally in the first 50 years of the new era (1780-1830) it clearly went down relative to the rich, and was accompanied by atrocious conditions: average life expectancy, blighted by cholera, etc, of (eg) 17 years in Bolton in the 1820s, and numbers in the 20s in much of the industrial north of England. Without doubt, the total quality of life of the poor in England was worsened, compared with life on the land before the 18th century enclosures. And this was not a short-run matter by the Keynesian criterion, 50 years being two lifetimes.
Also ungenerously, Lal cannot resist impugning the motivation, not only (and rightly) of predatory African (and other) governments, but also of the bureaucratic and politically-motivated leadership of the numerous NGOs that infest the world scene with opposition to global free markets. His attack on the Greens and the rest is splendid, and well deserved. But he should acknowledge that they, like he, do in many cases actually have ideals, even if they are wrong.
Charles Dumas
Lombard Street Research