We’ve Never Had It Better, and Capitalism Should Get the Credit

By Johan Norberg

Monday, September 25, 2023

 

Free markets get a bad reputation. According to a recent poll, only 21 percent of Americans have a “very positive” impression of capitalism, which means that more Americans believe they have experienced a ghost than the benefits of capitalism. Support is even smaller among the young, 46 percent of whom say that humanity is doomed.

 

Politicians think that the lesson both from China’s rise and the pandemic is that global supply chains are dangerous, and that we need trade barriers and industrial subsidies. In Washington, D.C., the latest bipartisan issue is to bash corporations for being on the wrong side in the culture wars.

 

It’s easy to understand why people worry about the state of the world. The past 20 years have brought us financial crises, populist revolts, Covid-19, and war in Europe. But here is another important data point: According to objective indicators of human well-being, those 20 awful years have also been the best 20 years in human history.

 

Measured by real GDP per capita, roughly a third of all the wealth that humanity has ever attained was produced in the past two decades. Global extreme poverty was reduced by more than 130,000 people — every day. The child mortality rate almost halved, so 4.4 million fewer children died in 2022 than in 2002.

 

If you are the kind of person who dismisses all indicators of progress with the automatic reply “but inequality,” you will be delighted to hear that global inequality just declined for the first time since the Industrial Revolution. The world’s Gini coefficient, a common way of measuring inequality, fell from 70 to 60 points 2000–2018.

 

My compatriot, Greta Thunberg, claims that global warming can’t be solved by “fairy tales” about economic growth and technology. But in fact, that is precisely what is happening. Since 2010, more than 40 countries have turned the corner. They are now reducing their carbon-dioxide emissions in absolute terms while also growing their economies. They just happen to be the world’s richest capitalist economies.

 

How can trends reveal the best of times when headlines indicate the worst of times? Because the very job description of entrepreneurs is to constantly adapt their behavior to changing circumstances and solve new problems, unless regulations and tariffs stop them.

 

Just look at the shelves at your local grocery. As the world shut down during the pandemic, many expected shortages of necessities. After all, new trade barriers had been created, inputs failed to arrive, and most of the workforce was stuck at home. But astonishingly, almost nothing happened. Through round-the-clock work to change suppliers, reallocate labour, tweak production methods, and redirect transportation, the food industry managed to rebuild global supply chains in just a few days, and soon your shelves were stocked again.

 

This was not done through command and control. It worked because it was not a centralized process, as thinkers like Adam Smith and Friedrich Hayek would have pointed out. Knowledge about the economy cannot be centralized, especially not knowledge about a rapidly changing world. Each adjustment was based on local knowledge of what could be done in a particular business with the available raw materials and the workforce present — and of what they could stop doing without creating worse shortages elsewhere.

 

As the 19th-century transcendentalist philosopher and poet Henry David Thoreau wrote, trade and commerce seem to be made of rubber because they always “manage to bounce over the obstacles which legislators are continually putting in their way.”

 

And contrary to the popular narrative, countries and companies with diversified supply chains — not concentrated ones — adjusted the best. If you put all your infant formula in one repatriated basket, you just have to drop it once to suffer a national shortage, as Americans found out last year.

 

The superiority of free markets is that it is a discovery process. Millions of market actors are constantly experimenting, improvising, and getting real-time feedback on what works and what doesn’t. Only by relying on this very real people power will we continue to be superior to China, not by imitating the Communist Party’s recent turn to heavy-handed interventionism, which is already harming its economy.

 

Fear of a dangerous world makes some people long for leaders who protect us and just get things done quickly and top-down. But whether this comes in the form of socialism, populism, or  so-called national conservatism, it is a way of destroying the decentralized search process by which we actually find solutions.

 

That’s why they always make me think of the joke about the job interview: “It says in your CV that you are quick at mathematics. What is 17 times 19?” “Sixty-three.” “Sixty-three? That’s not even close!” “No, but it was quick.”