Thursday, August 04, 2005

False Flags

Mr Stuart Hayward, columnist for the Bermuda Sun, 3 August 2005, blasts at a Mr Bob Stewart, ex-Shell Executive, for some trenchant attacks on a Rotary Club sponsored, volunteer forum, known as the Sustainable Development Initiative (SDI).

Coming into this public argument without any briefing on what the purpose of the SDI is, how its recommendations will be implemented, of who Bob Stewart is and his intentions, suggests that the prudent course would be to say nothing for or against SDI and Bob Stewart’s case; hence, I shall say nothing for one side or the other.

However, Stuart Hayward makes some side-comments about something I do know about, namely Adam Smith, and I shall comment on these:

“These themes identify Bob Stewart as one of the remaining economist dinosaurs who follow Adam Smith.”

It is not clear just which version of Adam Smith Bob Stewart is supposed to be following. If it is the Adam Smith of the lost legacy tendency, then it is of too recent a vintage to be described, even rhetorically, as akin to the dinosaurs (i.e., out of date already).

Humankind has lived on earth for around 200,000 years (so far); the dinosaurs as a genre lasted around 170 million years, so they must have been doing something right for them to survive so long. They died out about 65 million years ago. The real Adam Smith lived just over 200 years ago; the mythical Adam Smith was invented about 100 years ago and, unfortunately, is still going strong.

Judging second-hand what Bob Stewart believes about Adam Smith is fraught with difficulty as we cannot be sure that Stuart Hayward reports him accurately, but he puts it this way:

“This group [presumably the ‘dinosaur’ economists] believe there should be no government control over anything”.

Clearly, Bob Stewart is not talking about the real Adam Smith of 1723-90, but of a mythical ‘Adam Smith’ invented in the late 19th century and preached endlessly about in the 20th century, who is alleged to have been an extreme libertarian anti-state economist, so familiar on US campuses and in the speeches of corporate leaders, usually when they want to government to do something for them!

Smith certainly believed in clear roles for government in the 18th century, as Book V of “Wealth of Nations” testifies. Apart from defence, justice, education and infectious diseases, Smith saw a clear role for the state wherever private capital was insufficient, or the possibility of profit too remote, but where expenditures were needed for the benefits of commerce and society.

In Smith’s days this was confined to roads, canals, harbours, street lighting, and pavements (sidewalks?). But that was a formidable agenda. Britain’s roads were atrocious and hampered trade and it needed thousands of miles of them. Add in defence, justice and education and this is a formidable agenda for government expenditure.

Perhaps the work of the SDI deliberations would likewise qualify for government support – I do not know because I do not know its remit – or at least support for any practical suggestions that would benefit Bermuda. We must wait and see to decide on that issue. But one thing is for certain: Bob Stewart cannot use Adam Smith as an authority to condemn SDI, it never being a principle of Adam Smith that state support was wrong in principle. Smith was pragmatic, not an ideologue.

Stuart Hayward makes a final reference to Adam Smith:

”Apparently Adam Smith didn’t foresee monopolies (or ‘duopolies’ in the case of Shell and Esso) where companies got so big they crushed the competition and used their economic clout to persuade governments into selective interventions that advantage the economic behemoths and penalise economic ‘weaklings’ – that is, most ordinary people.”

Again, I can say categorically that the notion that Adam Smith believed that “merchants and manufacturers” should be left alone to do whatever they wanted is a myth, believable only if you have never read “Wealth of Nations”. His book is a long polemic against the notion that: a) merchants and manufacturers will operate solely in the public interest by doing other than conspiring against consumers to institute high price–high profit regimes, monopolistic practices and restrictions on competition; and b) legislators blindly follow ‘advice’ from the same merchants and manufacturers, under the pretence that they know what is best for the economy, and create a legal basis for advancing private self-interest.

Smith’s tirades (not too strong a word) against ‘mercantile’ practices and servile governments that do the bidding of these people, shows clearly where he would have stood in respect of anti-competitive monopolies, oligopolies and cartels, if he had lived to see them.

Smith did not live long enough to know the phenomenon of capitalism, nor even the word (invented in 1858); his markets were small affairs, like street markets in small towns, not global markets so familiar today, and if anything, Smith was on the side of ‘ordinary people’. He saw markets growing in importance and, through the division of labour and free bargaining, he saw them producing a general opulence right across society.

To what extent this applies to SDI, Bermuda and its economy is open to informed judgement. If Bob Stewart is accurately reported, it looks to me he is sailing under a false flag if he ascribes to Adam Smith the ideas he claims for him.

Gavin Kennedy (Prof)
Author: Adam Smith’s Lost Legacy (Palgrave Macmillan, 2005)


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