This is DeLong’s magnum opus, decades in the making. It is an economic history of the long-twentieth century, an epoch he defines as between 1870 and 2010. He posits that this time period was both unprecedented and the most consequential in human history. “The value of the stock of useful ideas about manipulating nature and organizing humans that were discovered, developed, and deployed into the world economy, shot up from about 0.45 percent per year before 1870 to 2.1 percent per year afterward…. A 2.1 percent average growth for the 140 years from 1870 to 2010 is a multiplication by a factor of 21.5…. As a rough guess, average world income per capita in 2010 would be 8.8 times what it was in 1870.”
DeLong points to four factors which made the long-twentieth century unique: “Technology fueled growth, globalization, an exceptional America, and confidence that humanity could at least slouch toward utopia as governments solved political-economic problems…. Twice, in that long century, 1870-1914 and 1945-1975, something every preceding generation would have called near utopia came nearer, rapidly. But these generation-long episodes of economic El Dorados were not sustained.” He gives his guesses as to the why, “Driving it all, always in the background and often in the foreground, were the industrial research labs discovering and developing things, the large corporations developing and deploying them, and the globalized market economy coordinating it all. But in some ways the market economy was more problem than solution. It recognized only property rights, and people wanted Polanyian rights: rights to a community that gave them support, to an income that gave them the resources they deserved, and to economic stability that gave them consistent work. And for all the economic progress that was achieved during the long twentieth century, its history teaches us that material wealth is of limited use in building utopia…. The shotgun marriage of Friedrich von Hayek and Karl Polanyi, blessed by John Maynard Keynes, that helped raise the post-World War II North Atlantic developmental social democracy was as good as we have so far gotten.” DeLong quotes the eminent sociologist, Max Weber, “Material interests may drive the trains down the tracks, but ideas are the switchmen.”
In the meat of his text, DeLong goes through the broad strokes of world history during the long-twentieth century, with a focus on economic factors and a focus on the global North, while also digressing to involve Japan, China, Korea, Argentina, Botswana, and others to give a global picture. “What changed after 1870 was that the most advanced North Atlantic economies had invented invention. They had invented not just textile machinery and railroads, but also the industrial research lab and the forms of bureaucracy that gave rise to the large corporation. Thereafter, what was invented in the industrial research labs could be deployed at national or continental scale…. Not just inventions, but the systemic invention of how to invent. Not just individual large-scale organizations, but organizing how to organize…. Successful economic development depends on a strong but limited government. Strong in the sense that its judgments of property rights are obeyed, that its functionaries obey instructions from the center, and that the infrastructure it pays for is built. And limited in the sense that it can do relatively little to help or hurt individual enterprises, and that political power does not become the only effective road to wealth and status.”
DeLong’s preeminent focus is on the rise of the United States, in all its fits and starts. The most notable downturn was the Great Depression. DeLong gives much credence to the role of contingency in shaping history, “Why did the Great Depression not push the United States to the right, into reaction, or protofascism, or fascism, as it did in so many other countries, but instead to the left? My guess is that it was sheer luck—Herbert Hoover and the Republicans were in power when the Great Depression started, and they were thrown out of office in 1932.” Another huge downturn, necessitating the slouch—as opposed to the march—to utopia, was World War II, preceded by the twin rises of communism and fascism. “Before the twentieth century, ideology—as opposed to religion—did not kill people by the millions and tens of millions. The stakes were not thought to be worth it. Such enthusiasm for mass murder awaited a combination of aristocratic militarism, really-existing socialism, and fascism. Thus it was only in the twentieth century that utopian aspirations about how the economy should be organized led nations and global movements to build dystopias to try to bring the utopian future closer.”
The main success story outside of the global North, for DeLong, was East Asia. “The lesson of history throughout the Pacific Rim is that as long as exports earn enough dollars for domestic businesses to obtain access to the global-north-produced machines they need, and the global-north-invented technologies they embody, and as long as the machines go to firms that are efficient and effective, this formula enables a country to advance…. And this is why it is important that subsidies go to companies that successfully export—pass a market-efficiency test, albeit a market-efficiency test applied not in some home free-market economy but among the import-purchasing middle classes of the global north.”
For DeLong, after the Great Recession, neoliberalism was discredited by the economic events of history. Instead, he remains a cheerleader for social democracies. However, DeLong is not above criticizing their actual failures. “In retrospect, the social democratic insistence on government production of goods and services is puzzling. Governments were not merely demanding, nor distributing, nor regulating prices and quality. They were engaged in production…. Even today, in the twenty-first century, there are still immense state-owned and state-managed enterprises: railroads, hospitals, schools, power-generating facilities, steelworks, chemical factories, coal mines, and others. None of which have ever been part of governments’ core competence. Organizations such as hospitals and railroads ought to be run with an eye on efficiency: getting the most produced with the resources available…. As a result, government-managed enterprises—whether the coal mines of Britain or the telecommunications monopolies of Western Europe or the oil-production monopolies of developing nations—have tended to be inefficient and wasteful.”
Perhaps, most relevant today is DeLong’s discussion of the inflationary crisis of the 1970s. “By 1969, the United States was not a 2 percent but a 5 percent per year inflation economy…. President Richard Nixon took office in 1969, and the economists of the incoming Republican administration planned to ease inflation with only a small increase in unemployment by reducing government spending and encouraging the Federal Reserve to raise interest rates. Their plan only half worked: unemployment did indeed rise—from 3.5 percent to almost 6 percent between 1969 and 1971, but inflation barely budged…. Their attempts to fight inflation by marginally increasing unemployment no longer worked because no one believed that the administration would have the fortitude to continue those efforts for very long…. One possible “solution” was to create a truly massive recession: to make it painfully clear that even if [unemployment] rose to painful levels, the government would not accommodate, and would keep unemployment high until inflation came down. No president wanted to think about this possibility. It was, in the end, the road the United States took, but largely by accident and after many stopgaps.” DeLong later explains why the public has such a hatred for inflation, “People do not just seek to have good things materially; they like to pretend that there is a logic to the distribution of the good things, and especially its distribution to them in particular—that their prosperity has some rational and deserved basis. Inflation—even the moderate inflation of the 1970s—stripped the mask away.”
Finally, DeLong concludes with the period of hyper-globalization and what economist Richard Baldwin coined “the second unbundling” of industry and intra-firm communication. DeLong states, “With the coming of the internet, it was no longer necessary for a firm’s sophisticated industrial division of labor to be geographically concentrated. You no longer had to be able to walk or drive to your supplier’s offices and factories…. It may have been the transoceanic nonstop jet flight and the international hotel chains that were the key link in this second unbundling…. Attaching to the global trade network is an immense opportunity, but it requires that everything, or nearly everything—infrastructure, scale, public administration, governance, and foreign knowledge of your production capabilities—be working just right…. Still, by 2010 the world’s deployed technological capability stood at more than twenty times what it had been in 1870, and more than twice what it had been in 1975.”
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