Book Review - "Open - The Story Of Human Progress"

Today marks the an anniversary of the German reunification. The fall of the Berlin wall was a historical moment. It was the day that was supposed to mark the victory of liberal democratic capitalism over other forms of political constitutions, the victory of open societies over closed ones. It was supposed to mark “The End of History”.

Unfortunately for us, Francis Fukuyama, who coined the term, was not predicting an end to the struggle between proponents of open and closed societies, but only that the question of which system was better at producing wealth and giving citizens a sense of recognition and dignity was decided in favor of liberal democratic capitalism. To the contrary, he was predicting continuous struggles and attacks on this form of society.

Open

Johan Norberg’s “Open - The Story Of Human Progress¹” delivers a forceful and wide ranging account of openness “and its enemies” throughout history.

Open Exchange

Trade is not imposed onto us, it is something that people, even children, do, if they are not stopped by the state - or their parents respectively. This behavior is often referred to as “the market” and observed all over the world. Norberg gives the example of the economist Charles Wheelan, who asked us to imagine the best possible machine. It would turn agricultural produce to CPUs, it could turn books into clothing, furniture into cars, medical advice into electricity and water into wine. This machine would turn anything you already had into anything you wanted.

This machine exists and is called “trade”. It’s the fastest way to to increase your own prosperity with what you already produce yourself.

When we are able to trade, we all benefit from specialized knowledge we don’t posses. Of course not all benefit from trade equally. Some gain so much more from their skills, hard work or just pure luck. But it’s especially the poorer households that gain from trade: “the 10 per cent richest American households would lose less than 10 per cent of their purchasing power if there were no international trade. The poorest 10 per cent, however, would lose almost 70 per cent.”²

Norberg faces some criticism of opponents of free trade, like concern about the “balance of trade” or “the Chinese took our jobs”. But I think there are some criticisms about industries with significant economies of scale and large technological barriers, for example semi-conductor manufacturing, where some of the arguments for free trade do not hold up. An increase in the mobility of capital punches some wholes in Ricardo’s arguments about comparative advantage. Addressing these would have contributed to “steelmanning” the case for free trade.

Open Doors

A policy that is economically even more beneficial to a country is free immigration.

Two-thirds of the average person’s material wealth is determined by where in the world they happen to work. Allowing people to move where they are paid the best would benefit the economy greatly. Abolishing all barriers to goods and services would increase global GDP by a couple of percentage points, but abolishing barriers to people would increase it by 60-150%. That’s not an open borders policy. It is of course still necessary to have legal ports of entry, where sought after criminals, or - in a less complete implementation of open immigration - people without visa, could be rejected. Interestingly, there is no policy in today’s world that could be more controversial than picking up these trillion-dollar bills. Because most gains of immigration accrue to the migrants themselves, one way of reducing opposition to them would to tax them at higher rates. Norberg speculates that money raised in this way could be paid out as “immigration bonus” to natives/naturalized citizens. Fears about “losing a culture” are countered with the observation that “we are all mongrels”, a hotchpotch of different ancestors, religions, ideas and philosophies. Norberg scolds failed forms of integration, where large immigrant groups cluster in a few areas, far from the labor market and without ever learning the language of the new country, because it keeps people from mingling and benefitting from each other.

Open Minds

It is active, demanding work to keep an open mind and not become dogmatic.Even the work of Aristotle became sanctioned dogma once and stifled progress. Science is being aware of the transitory character of our results and knowledge. Various civilizations, like the Chinese, the Islamic world, the Persians, the Phoenicians and so on where the bearers of openness and knowledge. Openness is not altruistic, it is long-term selfishness. But it’s hard work.

Open Societies

Those with social status, officially certified skills, tacit knowledge, special equipment, natural resources or any kind of privileged position tied to a specific way of doing and producing things, were always critical whenever someone introduced new technologies or organizational forms that threatened it. Often, they followed their incentive and took control of the political process and to stop it, or at least slow it down. They succeeded every time, except once so far. In Europe, they failed: kings and emperors failed to unify the European continent; the Church failed at imposing a single religious orthodoxy; and monopolies and guilds failed to block new technologies and business models.

Closed

There are of course counterforces to openness. A lot us them can be explained by evolutionary psychology. Knowing (maybe) the cause of something, does not mean that you know the solution to a problem, though.

An example is identity. They can be created easily. Clothing will often be sufficient to create teams. Even if people know that they are randomly assigned to a group, they still favor their ingroup. Once these identities have been formed, people will give up improvements, if the other party gets less. There are some visible attributes, like skin color, which can be the basis for the identity of some people. The downside is that groupish thinking can easily be triggered, it appears to be one of the defaults of human psychology: being member of tribe. The upside is that new, more inclusive identities can be created.

Another problem is “folks economics”. What people without training and “just” common sense think about how the economy works. A major part of it is zero-sum thinking; the idea that someone’s gain is your loss. When people think like this, they will act groupish. People often seek for win-win outcomes in personal relations, but thinking of us as belonging to a group, we are willing to sacrifice our metaphorical eyes and wealth to make others worse off. This is of course what free, unforced trade is aimed at overcoming.

Of course that does not mean that all wealth is acquired legitimately or even legally. There are billionaire cronies that can make large chunks of the economy zero-sum, like some fossil fuel interests of real estate. But then there are Schumpeterian entrepreneurs, who are overthrowing entrenched interests and get fantastically rich while doing so. Breaking up monopolies might be better than banning entrepreneurship.

Unfortunately, public systems that take from some to give to others create a lot of zero-sum situations, obviously one of the reasons why politics might have become more confrontative. Another area of zero-sum economics is status. The relative position of person in a value hierarchy comes at the expense of other people. The good news is that open societies allow people to choose from and compete in a lot of different value hierarchies.

Norberg observes that a fault line in politics more relevant than the “political teams” we are on right now, is between people that want open-ended, dynamic innovation and factions that either want to freeze the current status or want a managed path to an imagined past - or future. This last group is large enough to include reactionaries, who want to roll everything back and ban new and even old technologies on the grounds of unspecified “risks” and technocrats, who try to prescribe certain technologies and forms of social cooperation top-down. They want innovation by expert consent, something that has historically not worked consistently so far.

Norberg makes it clear that he is with Fukuyama in believing that openness will be under constant attack.
He cites work that a leaning to authoritarianism is not a stable personality trait but a predisposition, a Low-level generalized tendency to prefer oneness and sameness over freedom and diversity. When people with this tendency feel a threat to society, they become intolerant of diversity and dissent and are willing to restore unity by government control, even if it wrecks the rule of law and free speech. They will demand the enforcement of conformity and obedience. When this happens, there is a risk that the dynamic becomes self-fuelling: the group that values individual autonomy over social conformity tends to react to such threats by becoming even more libertarian in times of risk. This group’s different reaction reinforced the polarization in society and heightens the perceived threat.

This may lead to the strange situation, where people don’t even care much about which policies are implemented, as long as someone does it forcefully from the top and makes it all-encompassing. Our media reinforces the bias and level of perceived threat.

Open or Closed?

It seems obvious that we will have a constant battle within societies between being open and being closed. But having a default mode for tribalism does not mean it cannot be changed. Being prewired is different from hardwired. So what can we do?

We know that there are huge gains from being open, but there are also costs. Costs of free trade are concentrated to small groups that take the largest hit, even though the costs are twenty times larger than the costs and the benefits are primarily for low and middle-income households. But if you personally are unemployed, the unemployment rate is 100%. If people think they will lose out, they will close up. Norberg offers some interesting ideas for this problem, for example a wage insurance, where the difference to a previous job is paid for. This is obviously bad for left behind communities, because these will lose a lot people quickly, but it is good for people. Another of his proposals is the negative income tax, which can ease the process of changing jobs - or even starting a company and offers security. He insists that education has to change, because constantly upgrading skills for changing labor market demands is a better fit than the “learn once and get a diploma”-approach. Governments, according to Norberg, should be more like job buddy, a tool giving advise about what skills are in demand, than a welfare buddy. Housing prices are of course a problem, but rent control makes it harder to move. It doesn’t help to be lectured about being a “somewhere”, firmly rooted in a place and community rather than an “anywhere”. Many people are just stuck. A solution could be changes to zoning laws and building permits.

There are more suggestions, but in summary, we need institutions that enable permissionless innovation.

We have learned from psychological tests that sometimes a single person speaking up is enough to break conformist thinking. A single dissenting point of view can open minds. So it is our responsibility to speak up. Norberg did. Convincingly and entertainingly.