Wednesday, January 15, 2014

On National Ruin

Allister Heath writes in CityAm (London) 15 January: "The French embassy’s strange attack on me misses the point” HERE
It was Adam Smith, the great economist, who put it best. “There is a great deal of ruin in a nation”, he once explained, seeking to reassure a panicky young interlocutor. Smith’s point was immensely powerful: it is very hard even for the most misguided, most economically illiterate of politicians to destroy a country’s economy. It takes years, a lot of effort and pretty extreme policies to erode a large stock of human and physical capital built up over a long period of time. A few unusually destructive governments have pulled it off, of course, but it takes some doing, especially when an economy reaches a certain critical threshold in terms of GDP, education, infrastructure and large private sector companies. Capitalism is an extraordinarily resilient system.
I always remember Smith’s wise words when I think about France, a country that I love but which has thoroughly lost its way. It remains wealthy but has been in relative decline for years, suffers from horrific levels of unemployment and awful social problems and is now led by a President intent on trying to test Smith’s maxim to destruction. The modest pro-reform polices he outlined yesterday show that he still doesn’t understand how a market economy works. They were a case of too little, too late, and smacked of a bizarre, corporatist belief that the government can somehow strike a deal with the “private sector”, cutting tax in return for the creation of a pre-set number of jobs. Strange.
Good to see accurate quotations from Adam Smith for a change, though I might quibble with its total relevance to France in 2014.  Smith was indeed seeking to assure his “young friend”, Sir John Sinclair of Ulbster, who was affected by the reverses of its army in North America in 1782 and felt “if we go on we must be ruined” (Sinclair Correspondence, i: 390-1).  That’s where Smith’s response is relevant.  He wrote “Be assured my young friend, that there is a great deal of ruin in a nation” (Smith: Correspondence, footnote 4, page 262).
Smith, ever the pragmatist, ended the fifth edition of Wealth Of Nations with the admonition: The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost immense expence, without being likely to bring any profit; for the effects of the monopoly of the colony trade, it has been shewn, are, to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realize this golden dream, in which they have been indulging themselves, perhaps, as well as the people; or, that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be compleated, it ought to be given up. If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances (WN V.iii.92: 946-7).
The “rulers of Britain” ignored Smith’s conclusion from the experiences of its First Empire in North America and went on to reconstitute its imperial ambitions by founding a Second Empire, which continued up to the post-2nd World War and finally whimpered to an end in the 20th century.  The country was no yet "ruined", thanks to the successes of the former colonial British subjects.
Allister Heath applies Smith’s apt observation to the eventual outcome of a county pursuing ruinous policies of trying to micro-manage modern economies with prodigal over-borrowed government interference, including scores of quangos and regulatory bodies that never have enough foresight and knowledge, nor even the good sense to abide by the policy of ‘markets where possible, and the state where necessary’.
At root, government legislation from Cromwell’s time that tried to impose a British mercantile monopoly through the Navigation Acts was the main cause of the eventual demise of the Britain’s American Empire. ‘Tis a pity that Smith’s admonition was ignored in his last paragraph. 
Free trade trumps mercantile tariffs and protectionism, a still unlearned lesson despite the evidence to the contrary.  The President of France has yet to learn these lessons, Hence Allister Heath will have the last say as the sorry endemic ‘ruin’ of France continues, though its total ruin will take a lot longer than anything imminent. As Smith said on a different subject.  Ruin, even is most expensive slaughters in world wars, takes time to take final collapse.


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