“Rapid Growth as a
Over the past sixty years of U.S. global leadership, there has been a surprising consensus in Washington about the economic policy underpinnings of world stability. Every U.S. government, of whatever ideological complexion, has rhetorically affirmed the causal connection between poor economies and threats to peace.
For the Roosevelt Administration, and especially for Secretary of State Cordell Hull, the key lesson of the 1930s was that trade protection and bad economic policies led to war. In closing the 1944 Bretton Woods conference that molded the postwar monetary order, Treasury Secretary Henry Morgenthau stated: “Prosperity, like peace, is indivisible. We cannot afford to have it scattered here or there among the fortunate or to enjoy it at the expense of others. Poverty, wherever it exists, is menacing to us all and undermines the well-being of each of us.”
If in the mid-20th century Americans widely believed that depression and disappointment produced radicalized politics and turned nations toward aggressive expansion, in the early 21st century this analysis of state-level behavior has been extended to explain the actions of individuals. The widespread belief that terrorism is a consequence of poverty and the absence of economic opportunity is thus only the latest update of a very venerable doctrine. While the Bush Administration has never argued that poverty is the main cause of terrorism in any simple or direct sense, it has echoed earlier expressions of American economic internationalism in a supporting role to its main thesis, the Freedom Agenda. Thus the September 2002 National Security Strategy declares:
A strong world economy enhances our national security by advancing prosperity and freedom in the rest of the world. Economic growth supported by free trade and free markets creates new jobs and higher incomes. It allows people to lift their lives out of poverty, spurs economic and legal reform, and the fight against corruption, and it reinforces the habits of liberty.
From Franklin D. Roosevelt to George W. Bush such statements have not been empty rhetorical phrases. They have entailed expensive commitments to build prosperity outside the United States, to finance post-conflict reconstruction, to write off debts incurred by bad governments when a reformist successor arrived in place, and to push economic aid in the interests of democracy.
Attention to policies of spurring economic growth abroad has ebbed and flowed, of course. Probably the high point of the American endeavor to industrialize the world in order to make it freer and safer came in the early 1960s, under the Kennedy Administration. It was at this time that the most influential textbook on the relationship between economic development and the propagation of American values appeared, Walt W. Rostow’s Stages of Economic Growth. Published in 1960 and tellingly subtitled A Non-Communist Manifesto, Rostow developed his own anti-Marxist form of economic determinism in which he saw the peaceful possibilities of an age of high mass consumption. But he also saw an alternative Soviet-inspired model for growth that might prevail unless the West spent sufficiently to make its style of consumer capitalism more attractive. The policy implication was therefore clear: The United States needed to buy its way to universal peace. So as the decolonization juggernaut gathered momentum, U.S. foreign aid ambitions peaked. USAID was born in 1961—Rostow was in the room for the signing ceremony, being President Kennedy’s deputy national security advisor at the time—and pragmatic meliorism ruled the conceptual roost.
In these circumstances, given the massive weight of the explicit policy consensus—to say nothing of its implicit and unrecognized Calvinist undertones—it took considerable courage to formulate a dissent. That was what the brilliant economist and political scientist, the late Mancur Olson, attempted in 1963 in a widely read (and much criticized) article in the Journal of Economic History entitled “Rapid Growth as a Destabilizing Force.”
Olson began his argument by calling off a list of the influential, the great and the good people who had restated the consensus: not just Rostow, but the philosopher Hannah Arendt, then-World Bank President Eugene Black (who was obviously in the development business), and Dwight Eisenhower’s Vice President, Richard M. Nixon. But then he showed in case after case how rapid development acted as a destabilizer, leading to growing inequality and the breaking down of traditional foci of loyalty and cohesion in castes, classes, families and guilds. He concluded that there was an “(almost Marxian) ‘contradiction’ between this new distribution of economic power and the old distribution of social prestige and political power.” Rapid growth produces more people who are déclassé, and such people incline to cause trouble, whether they are losers on the way down or winners on the way up. Olson also pointed out that rapid economic growth was associated with increased urbanization, and that “the concentration of population in cities can sometimes make agitation cheaper and the spread of new ideas faster.”
Moreover, Olson argued counterintuitively that rapid rates of economic growth would produce an absolute reduction in living standards for many, even most, poorer people. There were three parts to this argument. First, the investment required to produce rapid economic growth involved the sacrifice of current consumption. Second, rapid growth is usually associated with sharp income polarities, such that “median income might fall while average income rises” as the “gains of the gainers are more than sufficient to compensate for the losses of the losers.” And third, rapid growth is often accompanied by high inflation, and since wages are stickier than prices, a family may be earning more money and still suffer a loss in purchasing power. That is why, argued Olson, “There may, instead, very well be a general decrease in living standards with economic growth.” And since the institutions for ameliorating poverty and the consequences of unemployment would not be well developed in societies with no experience of such matters, economic advance then was likely to produce a savage and disruptive response, precisely in the manner Marx had foreseen.
Now Marx, of course, was optimistic about the ultimate outcome of such upheavals, while Olson was deeply pessimistic. The examples Olson gave were Czechoslovakia, the strongest economic performer of interwar central Europe, and the country with the highest Communist vote in free elections; Cuba, which had progressed spectacularly in the years before Castro’s revolution; and the more historic case of Russia, which had grown with explosive dynamism in the last years of the czarist empire. Olson would have found modern examples in the young terrorists of Egypt and Saudi Arabia (and western Europe), who are more likely to come from ascending middle-class backgrounds in which they experience in their own mental universe the clashes between traditional and modernizing values. Consequently, had he lived to a deservedly ripe old age (he died suddenly at age 66 in February 1998), he would have surely rejected the conventional but erroneous association of poverty and terrorism we so often hear today.
Olson was much more imaginative than Rostow, and in particular had a keen sense of the contribution of social fragmentation and division in generating apparently irrational responses to economic developments. Instead of promoting economic growth at breakneck speed and trying to make Western-style economies grow more rapidly than Soviet-style ones, the goal of U.S. policy should be, Olson argued, the promotion of slow but steady improvement. Better to aid very poor countries trying to get their civil society and forms of governance right so they could grow stably in due course than to aid countries just shy of the takeoff phrase to achieve rapid growth now. The right model is the peaceful adaptation of Victorian Britain rather than the violence of Czar Nicholas II’s rapidly rising Russia. Using then ubiquitous Rostowian terms, Olson wrote: “If, when these nations reach the takeoff stage, the United States then gives them vast amounts of aid and makes the transition to a modern economy even more abrupt and disruptive than it would otherwise be, this will surely stimulate political and social instability.”
At the time, Olson’s argument did not convince many. It certainly (and scandalously) failed to get him tenure at Princeton, as did his 1965 book The Logic of Collective Action, now almost universally considered to be one of the most influential economic arguments of the past century. In 1967 Olson left academia for a time, becoming a deputy assistant secretary in the Department of Health, Education and Welfare. In 1970 he joined the faculty of the University of Maryland, where he remained until his death in 1998.
Now, some of the points Olson made in his 1963 essay were exaggerated and a few were silly, such as when he looked not at interwar Czechoslovakia but at its postwar successor and concluded that in the 1950s, when the economy boomed, the Communist vote rose from four to 12 million. It was obviously easy (and correct) for critics to say that these were controlled and manipulated elections. But his general argument is at least half right. Thus, as Olson knew in 1963, the World War had its origins in a Germany that was not at all sluggish, but rather the strongest and fastest-growing power in Europe. Its leaders wanted a political role in the world commensurate with its rising economic strength and, when they encountered resistance, they pushed for military conflict. (Rostow, by contrast, had found pre-1914 German aggression hard to explain in his framework, and instead concentrated on Austria’s backwardness and the German Kaiser’s alleged political opposition to modern-age mass consumption.)
How does Olson’s analysis apply today? Well, at the moment at least, it looks as if there is nothing to fear from China. Like Germany in the mid-19th century (but not in the years before 1914), or Japan in the 1960s, China sees many advantages in participating in the international order more or less as it is currently configured. Might this change? Germany certainly became assertive, owing mostly to the social pressures and tensions incited by rapid economic growth. When it feared that it might be overtaken by the next rising economic power, the vast Russian empire, assertiveness turned into aggression. By the early 20th century, Germans had concluded that Russia’s faster demographic growth and rapid industrialization posed a military threat.
China can already see considerable problems in the medium term. Forty years from now, a demographic implosion within China, the consequence of its one-child policy, will make European and Japanese concerns about aging populations look trivial. Before then, profound inequalities between China’s poor countryside and its dynamic industrial centers will generate tensions, which may be increased by the gender imbalance—young men greatly outnumber young women. Combine this with a tottering authoritarian regime and, perhaps, a surging, successful India, and something like the pre-1914 German scenario looks realistic. A government impressed by past national achievement, but fearful of being overtaken and deeply worried about its own legitimacy, may well look for an outlet in foreign policy to mobilize domestic support or ward off pressing political opposition.
Political scientists over the past decade have approached this question in a very different way than did Rostow or Olson, who drew on empirical examples in a rather haphazard fashion in order to muster support for their underlying explanatory argument. The modern academic method tries to establish as big a database as possible, make heroic efforts at classifying countries as democratic or non-democratic, and then try to establish statistically significant correlations with economic growth and with trade and financial openness. In the 1990s Adam Przeworski and others thought they had destroyed modernization theory by showing that dictatorships were not any more likely to become democracies on account of higher income levels. Carles Boix and Susan Stokes then used even more sophisticated statistical methods to defend the proposition that economic growth (and higher incomes) was indeed likely to produce more democracy.1
This debate has been as inconclusive as the 1960s version fought out between Rostow and Olson, but both more irritating and more removed from the problems of the world as it really is. In the first place, Olson never claimed that economic factors alone determined political conditions. “It would be absurd”, he wrote in 1963, “to attempt to explain political instability through economic growth alone.” Such humility is not as readily apparent in the more recent debate. But beyond that, there is a very obvious objection to the technique of statistical correlation and the induction of causal influence.
Is it helpful to take a large number of data points of measurements of democratization and liberalization, both commercial and financial, and attempt to establish correlations? Even if one finds a general association, does the finding matter? After all, we may be interested in the one or two exceptions that can become terrifying and dangerous rather than the overall positive trend. To take an analogy, aircraft engineers were right to conclude that the world’s first passenger jet airplane, the Comet 1, would fly safely most of the time: But that correlation was not relevant, since a small number of flights actually ended in crashes. In analyzing likely dangers, we might want to focus on the political economy of exceptional cases rather than on what is normal. In other words, a great deal depends on what happens in single cases such as China. Even a relatively small country such as Venezuela under Hugo Chávez can set off an avalanche of problematic politics, even if more than 98 percent of similar cases do not.
Olson continued to wrestle with the fundamental problems raised by the 1963 article. In The Logic of Collective Action, and even more fully in The Rise and Decline of Nations (1982), he looked primarily at rich and mature industrial societies where the gradual accumulation of special interests generated powerful political pressures that were at odds with the general interest of society. His critical insight was that trade unions or employers’ pressure groups were likely to make demands that carried a high social cost. So unions would negotiate wage rises that might benefit their members, but would price non-members out of jobs. Industries would demand particular protection that would make it hard for new entrants to compete. The prime example of Olson’s diagnosis of sclerosis was 1970s Britain, locked in a corporatist and collectivist deadlock. Olson then ascribed the post-1945 economic successes of West Germany and Japan to their defeat and the destruction of these sclerotic structures during war and occupation. But at the moment he was writing, the balance of growth in the industrial world shifted, and the more historically continuous Britain and the United States began to look like better economic performers. The Rise and Decline of Nations soon took on the appearance of being directed at an inappropriate target.
Olson’s last book, published posthumously, successfully extended the same type of argument to poorer and developing countries.2 If there was a powerful political “over-arching interest”, there might be a long-term identification of policy with the interests of the general population. Such an “over-arching” interest might be a democracy in which parties built on broad interest coalitions had a long-term interest in welfare maximization. It might be a benevolent authoritarianism, in which a monarch or other authoritarian ruler could be sure that he or his successors would be around in a distant future to reap the rewards of wise policies (Olson’s favorite modern example was Singapore). But a dictator who reckoned on not being in power for long would steal as much as possible as quickly as possible and secret it away in proverbial Swiss bank accounts to the detriment of the general welfare.
This final Olsonian analysis raised once more the question that had been at the heart of the 1960s debates: Are there policy measures that can be brought from the outside to ensure a long-term vision that is likely to be peaceful rather than aggressive? Simple increases in foreign aid in many cases raised the incentives for rulers to steal from their subjects. Some of the civil wars in former Soviet republics (Tajikistan was the prime example) and in sub-Saharan Africa in the 1990s were often described as wars over who would control the fax machine connected to the World Bank.
Olson also made the very important point that there are different types of democracy, and that democracy as such is not necessarily a simple good. Some sorts of democracy work well with internationalism (this is the origin of the famous democratic peace argument, originally made by Immanuel Kant). These democracies could be described as rule-based or liberal democracies. But other types of democracy, populist or even demagogic in nature, assert national separateness and the need for solidarity in the face of a threatening international order. One characteristic of such a democratic (majoritarian) vision is that it often links an international order perceived as hostile with the interests in the domestic order of minority groups (often, but not always, ethnic groups: Jews in interwar Europe or modern Russia; Chinese in Indonesia, Malaysia or the Philippines). The result is the politics of class war, but conducted with a vicious and destructive ethnic and racist edge.
An obvious answer to the demand for a policy vision that reconciles prosperity and peace would be to say that there must logically be a world general interest that is analogous to the overall national interest in particular cases. Most people would believe that that interest lies in peace and the avoidance of sharp and unanticipated shocks. How can rulers be bound into a long-term vision and deterred from the twin evils of kleptocracy and nationalistic populism? Can there be a general or world interest that is articulated powerfully enough to counter destructive and destabilizing particular interests?
Historically, the problem has lain in specifying that overarching vision. Two alternative worldviews have been in continual intellectual competition with each other since the late 18th century. In the first, there is widespread acceptance of the rules that hold a globalized world together: rules about the trade regime, about monetary relations, about principles of corporate governance or banking regulation that can be applied across national boundaries to the general benefit of all. In the second, these accepted rules are reinterpreted as arbitrary devices promoted to favor particular interests in particular states. Democracies should be about rules, and that is the reason to expect that they will more often than not hold the first view. But the effects of violent disturbances in a world governed by a very complex set of rules and conventions highlight the elements of arbitrariness inherent in such a system and will tend to produce populist political leaders who fan resentment. When that happens, democracies may try to reinvent rules to their own advantage, but that can be a disruptive action that leads to an erosion or even an overthrow of democratic principles on the global level, and a disintegration of the principles of international order altogether.
In working out when one or the other of these paradigms prevails, Olson’s 1963 examples may be very useful. The reason why growth in 19th-century Britain was more politically tranquil than in Germany was actually not so much related to the pace of growth, but rather to the way it occurred within a context of well-defined and understood domestic and international rules. For the same reasons, even very high growth in post-1945 Japan or West Germany was stabilizing, and in these cases, the rules were imposed largely from the outside, by the Allies in the immediate aftermath of 1945. The destruction of established interests in those cases facilitated growth. Olson was also absolutely on target in identifying traditional social structures—notably families—as essential to the relationship between economic growth and political and social stability.
Olson’s final conclusions, about the desirability of an overarching interest, can be reinterpreted in another sense: as a demand for an overarching general system of rules that is legitimate because it does not obviously and ex ante privilege a particular state or interest. He was clearly and absolutely right in his work, from beginning to end, to see that such a legitimate and rule-based system could not simply be established for others by a dominant power using financial incentives. Stability, democracy and legitimacy cannot be bought; they have to be earned by those who expect to benefit from them. If this was made clear already in December 1963, why must we go through the same agonies, generation after generation, to rediscover the hard way what just a little attention to the repository of our wisdom offers to anyone for the taking?
Przeworski and Fernando Limongi, “Modernization: Theory and Facts”, World Politics (January 1997); Przeworski et al., Democracy and Development: Political Institutions and Material Well-being in the World, 1950–1990 (Cambridge University Press, 2000); Boix and Stokes, “Endogenous Democratization”, World Politics (July 2003).
Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (Basic Books, 2000).