What ultimately drives economic growth and development? Is it culture, institutions, norms, innovation, technology, or some combination of all these things and other factors? Is there any way in which we can organize societies that will allow them to escape mass impoverishment? Or must we simply wait for massive technological breakthroughs to occur? And if that is the case, can the impact of such changes be magnified or, alternatively, deadened by political arrangements of any given society?
These are perennial questions, and they continue to produce lengthy responses from scientists, economists, political scientists, moral philosophers, and historians. In some cases, such inquiry is underpinned by the search for the magic bullet that will kill stagnation, or the golden key guaranteed to open the door to prosperity and wider societal improvement. Others focus more directly on understanding the complexity of change and why the same set of factors operative in different societies often leads to vastly different results.
Similar questions are at the heart of attempts to understand the causes of social and economic regression. Sometimes the answers are clear. If you collectivize your economy, you can expect that, at some point, the command-and-control model will induce stagnation and measurable decline. In other instances, the primary reasons for regression are not immediately obvious, and even a great deal of sustained research into these matters often produces very tentative answers that are almost immediately challenged in the scholarly literature.
At the end of the Cold War, when the United States strode the world in its singular moment of global dominance and its great rival, the Soviet Union, had ceased to exist, there were many who were confident that the ways to improve society and the economy were now established beyond reasonable doubt. The economic argument had been won, and the faster that markets and their underlying institutional foundations could be put into place, the quicker would be the transition to a modernity characterized by freedom, prosperity, and order.
Almost 40 decades later, things look quite different. Getting markets in place remains critical for progress, but it is plainly not enough. There are also many who have no strong interest in promoting markets and limited government. Sometimes their reasons are ideological. In much of western Europe, for example, deep attachment to the conviction that societies simply must have a high degree of significant top-down political management has played a role in Europe falling further and further behind the United States in terms of technological development. Nor is there any shortage of individuals and groups who take a dim view of innovation, technological or otherwise, because they think (or recognize) that their position will come under threat when there is a change in the status quo.
There is thus nothing guaranteed about economic development and social improvement more generally, and it is entirely possible for such things to slow down, if not halt altogether. In our time, understanding how this occurs is more urgent, given the decline in many people’s faith that, under the right conditions, we can expect many things to be better.
These realities help to make a new book, How Progress Ends: Technology, Innovation, and the Fate of Nations, by the Oxford economic historian Carl Benedikt Frey, especially timely. The title might suggest that Frey is somewhat of a doomsdayer, but the book’s content belies that. For, as Frey illustrates in numerous places, we have reason to be optimistic, but only if we understand the complex interaction between institutions and technology and how this has played out in different settings.
Refreshingly, Frey does not provide his readers with a laundry list of factors that diminish the pace of progress. He is also anxious to get beyond the worthy but well-worn debate about the relative importance that ought to be ascribed to bottom-up-driven development via entrepreneurs compared to the significance that should be attributed to political factors. That said, technology and how societies react to technological innovation is a central theme that pervades the book. Frey shows that it is entirely possible for political institutions in once-advanced societies to effectively strangle technological change and to start to fall behind other nations in which there is openness to such change, as well as an acceptance that some significant trade-offs may have to be made that will not please everyone.
Frey begins by outlining what he describes as the “mechanics of progress.” He pays close attention to the social networks that sustain progress and innovation (such as the coffeehouses at which Enlightenment thinkers congregated) but also the role played by bureaucracy—especially the type that Max Weber studied closely.
These things are often seen as being opposed to each other. But, as Frey points out, there are many occasions when the power of state bureaucracy has been used to clear away obstacles to decentralization, wide market exchange, and economic growth. He notes, for instance, how it was the Prussian state in the post-Napoleonic era that pushed through major domestic reforms that pulverized guilds and their ability to block the emergence of modern businesses and greater economic freedom in Prussia and eventually Germany as a whole. Post-Meiji Japan is another example of conscious political decisions made by the rulers of a centralized state to modernize the country and thereby allow Japan to break out of a semi-feudal framework and, eventually, to advance so rapidly that it was able to defeat militarily a major European power, Russia, in 1905.
A similar process occurred in Britain, insofar as markets were able to integrate faster and deeper than in most other European nations because of Acts of Parliament that upheld property rights and made it harder for guilds to gain traction in the economy and society more generally. To be sure there were plenty of laws passed by successive parliaments that reflected the influence of guilds trying to shore up their position, even to the point of successfully lobbying for the banning of specific technologies such as needle-making machines. Nonetheless, the overall trajectory was toward the steady weakening of guild power that created space for innovation and experimentation.
The challenge that all countries encounter, Frey stresses, is that some of the things that allow progress to occur, such as an efficient and streamlined state bureaucracy, can themselves start to become obstructions to improvement. For example, government bureaucracies will, at some point, start to become ill at ease with the unpredictability of free markets and the ups-and-downs associated with the business cycle. They will consequently attempt to exercise greater control over the pace and nature of progress, and thereby inadvertently undermine the sources of technological improvement.
Having laid out a broad theory of how progress occurs and then starts to die, much of the rest of Frey’s book involves his exploration of his thesis’s cogency through historical case studies. Proceeding chronologically, and beginning with ancient China, before turning to medieval and early modern Europe as well as specific nations such as Prussia and Russia, Frey illustrates how the same pattern consistently recurs. Progress mostly occurs because of technological change, and the process is often aided by institutional arrangements that help to remove barriers to the fuller realization of a given technological innovation. In many cases, this enables nations to catch up to more economically developed countries.
At some point, however, the returns from this approach start to diminish, and outright regression begins to transpire. The causes, according to Frey, vary. One that features prominently throughout the book is the capture of bureaucracies by special interests, which then use state power to try and impede new entrepreneurs and competitors from entering the marketplace. There is also no shortage of cases in which bureaucracies over time develop their own agendas that have little to do with the country’s general welfare or the advancement of progress.
Frey is careful, however, to be nuanced in the way he describes the process of growth and decline. Nineteenth-century Prussia and Czarist Russia, for example, may have both been autocratic states intent on modernization, but there were also plenty of differences that help to explain the different outcomes. Russia, Frey notes, had a weak society but also a weak state. The combination of a population enfeebled by the persistence of serfdom and a Russian state that struggled to implement comprehensive reform created enormous impediments to systematic success in that regard. Making matters worse was the Russian state’s heavy reliance upon repression to maintain control of society. This generated deep distrust toward the government on the part of important groups such as industrial elites. Other factors included the relative insecurity of property rights as well as the regime’s efforts to control private-sector development. In short, while Russia did manage impressive development in the 19th century, especially in areas like railroad construction, the roots of its relative backwardness vis-à-vis countries like Germany and Britain were never comprehensively addressed.
Looking at the present, Frey focuses readers’ attention upon the two countries that, thus far, have proved themselves the powerhouses of progress in the 21st century. Though China and the United States are vastly different countries, they far outstrip everyone else, something exacerbated by the relative stagnation and absence of technological breakthroughs that has characterized western Europe for some time. Frey, however, worries that neither the United States nor China will be able to master the problems that eventually lead to stagnation.
In the case of America, Frey is concerned that many of its advantages, especially those associated with federalism, are starting to fray as a consequence of the obstacles created by the growth of regulation, the influence of lobbyists on federal and state governments and legislatures, as well as a legal system that increasingly provides enormous scope for people to impede, undermine, or even terminate innovation and technological change. Certainly, American federalism enables people fed up with political basket cases and regulatory behemoths like California, New York, and Illinois to flee to more amenable economic environs like Texas and Florida. But that does not ward off the impact of federal regulation or the influence of lobbyists upon a federal government that is far more powerful than it was in the 19th century.
As for China, Frey sees a different dynamic at work. The decentralizing reforms enacted when Deng Xiaoping was in power and efforts to mildly liberalize parts of the economy in certain areas of the country enabled the People’s Republic to escape the economic catastrophe of Maoism. The same reforms helped China eventually surpass the economies of Japan and western Europe.
After 2008, however, China started pursuing a different path. Indeed, Deng’s political and economic reforms were never about generating any meaningful political pluralism. A hallmark of Xi Jinping’s rule has been to crush meaningful political debate within China, including inside the CCP itself. These political developments go together with an ever-expanding curtailment of what were always highly limited property rights. Exacerbating these problems is the nonexistence of judicial independence in China. According to Frey, this adds up to a political and economic environment likely to militate against successful ongoing technological development.
None of this is to suggest that Frey is fundamentally pessimistic about the possibility of nations sustaining progress over prolonged periods of time. Rather, Frey’s conclusion is one of realism, one that provides an important rejoinder to some of the naivety that characterized discussion of such matters in the 1990s. To that extent, Frey’s book serves as an important caution to those who think that China’s rise is unstoppable or who believe that America will eventually make the right policy decisions. In other words, progress, for all its benefits, is never inevitable.
