OTHER THAN BEING BORN WHITE, MALE AND SCOTTISH AND HAVING wonderful loving parents who did everything possible to stimulate my mind as a kid and who sent me to great schools and a super university, I have had two especially lucky breaks which have done much to influence me as an economist.
I was fortunate enough to get a job as Chief Economist of IBM UK in the mid-1980s. This gave me a chance to see how technology was changing the world at a pace that people outside the industry could hardly imagine. Even now, I find those outside the tech industries and especially those outside the commercial sphere can find it hard to keep up with the pace of change in the key technological sectors and see how they alter economic relationships.
What I learned about this helped me immensely with my last book, The Flat White Economy. This describes the cluster of companies that has resulted from the tech sector merging with the creative sector to develop a brand-new economy which now accounts for a whole tenth of UK GDP. It really is important to understand this new economy which works on slightly different rules and, as often happens with emerging (and also intangible) sectors, is badly described in economic measurements in most countries.
But even more important than learning about tech was my good luck in being brought up as an expatriate in both pre-independence Malaya and then emerging Malaysia. I can’t defend much that the British did as colonialists, though they did good as well as bad. Malaysians are remarkably tolerant of the former colonials, given what happened in the pre-independence era. But being brought up in a fast-developing economy meant that I was lucky enough to see how economic development takes place at firsthand.
When I went to university and started studying the subject, it seemed that the models most commonly taught in the West of how economic development took place were flawed. These models relied on government investment and state-run industrialisation. Sadly there was little evidence of this approach working well and when it did work at all it did so with great inefficiency.1
What actually worked in the Far East was a bit different. The state was heavily involved in providing basic services, sanitation, law and order, health, transport infrastructure and most especially education, but the business investment was carried out by the private sector, with external investors, attracted by tax-free zones and cheap labour, providing capital, expertise and access to export markets. (Chapter 5 describes this period in more detail.)
This mixed model of development worked dramatically well from the mid-1960s in Singapore, Hong Kong, Korea and Taiwan, followed by Thailand and Malaysia, and then about 15 years later in many other parts of the world, including of course China and India. It is important to note, however, that the world is changing and the next phase of development for many emerging economies is likely to be based on a different model, with proportionately more internal and public consumption and less reliance on external investment and exports.
Some have claimed that this success in economic development in the Far East was proof of the triumph of capitalism.2 My take is more nuanced. Capitalism was certainly involved but could never have succeeded on its own had governments not also helped. I would call the Asian success the triumph of a mixed model, neither exclusively capitalist nor exclusively state-driven. It is worth noting that there are different Asian models, though they tend (when compared with approaches in the West) to have substantial similarities. Hong Kong has been the most free market, China the most interventionist and state-driven. All depend on an entrepreneurialism that fortunately had not been stamped out by either colonialism or communism.
I also concluded that the development of the Asian economies was going to be the driving force behind the world economy in the latter part of the 20th century and much of the 21st. And so it has proved to be.
Some of the most heated debates I have had while writing this book have been with people who still think that the world remains driven by the West alone. The statistics would have supported them in 2000 when so-called ‘developing economies’ accounted for only 24% of the world economy.3 But by 2010 the share was up to 40%. On my latest estimates for 2017 (published in Cebr’s World Economic League Table 20184) the share is now 46% and set to rise to 56% by 2032.
Even while the share is below half, it is normally the case in any market that the most dynamic and disruptive forces tend to set the terms of trade. It is the East that is driving what happens in the West today and arguably has been doing so for the better part of half a century.
My impression is that this is well understood in Europe but that the rise of the Asian economies is often seen as more of a threat than an opportunity in the US. World economic development was essentially driven by the Western world for most of the past five centuries, whereas now the baton has been partly passed to the newly rapidly industrialising economies in the East. These Eastern economies are growing in real terms at 4-8% per annum while even the most buoyant Western economies are growing no faster than 3%.
And much of what happens in the West is a reaction to economic changes originating in the East. The one area where the West still seems to be leading is in the information- and software-driven technologies promoted by the likes of Apple, Microsoft, Alphabet (the holding company for Google and related ventures), Amazon and Facebook. But even there ten of the top 25 tech companies in the world in the Forbes list are now Asian, led by Ali Baba, Tencent and Samsung.5
For me, besides learning at firsthand what drove economic development, the other major advantage of being brought up in Malaysia was seeing intimately the anomaly that some of us, simply through the accident of being of Western ethnic background, had so much higher living standards than people of local extraction. This got me interested in inequality.
Some people with an essentially racist approach thought that it was natural that westerners should be wealthier because in some way we were ‘superior’. Fortunately I was not brought up to think that, and the economic evidence seemed to disprove it anyway. It really bothered me in my youth that we westerners lived so much better than the locals. As far as I could see we had few innate advantages of ability or knowledge. Ok, we may have been a bit less corrupt (at least on the surface). But on the other hand we worked only a fraction of the hours that most local people did. In few other areas did we seem to have any attributes that would cause us to deserve to live so much better than the Malays, Chinese and Indians who made up the bulk of the Malaysian population.
I have a theory that if there is no good economic reason for something to exist, eventually it will cease to exist. And much of my time as an economist has been spent trying to predict how soon the gap between the Eastern and Western living standards would narrow, which it has – Singapore and Hong Kong have now overtaken most of the West in GDP per capita measures – and trying to understand the consequences of this for both sides and for the world economy.
My good luck in having the twin and slightly unfair advantages of having worked at the centre of a leading tech company6 and having seen economic development in the Far East at firsthand has certainly helped my ability to interpret economic developments and thus make predictions. I hope these insights have illuminated this book.
I would like to thank various people who have helped me. As ever Diane Banks, who is expanding rapidly as befits the best literary agent in London, helped me a lot with choosing the subject on which to write and negotiating with my publishers, Duckworth. Diane is a person of great literary judgement and a really useful sounding board for someone like me who doesn’t understand the world of books. She also has an instinctive grasp of economics, which makes her possibly unique in the literary world. She was the person who suggested the title, ‘The Inequality Paradox’. Martin Redfern who works with her and handles her non-fiction clients, has been especially helpful in dealing with some of the inevitable problems that emerge when one is trying to persuade those who think rather traditionally that there is a new and better explanation of how the world works. Martin also came up with the subtitle, which explains the book perfectly: ‘Can capitalism work for everyone?’
The staff at Duckworth have consistently encouraged me, helping to correct my mistakes and showing considerable patience with my slowness in completing drafts. I am particularly grateful to the legendary Peter Mayer, who has helped me with his wisdom and experience. I doubt if we ever saw eye to eye on much but his constant challenge to the ways in which I have made my argument has certainly led to a better book than would otherwise have been the case. Sadly he passed away just after contributing to this book so I hope that wherever he is he will feel that I have benefited from his guidance. I am also grateful to Matt Casbourne who has taken on the role of editor since Peter Mayer’s death and who has always tried to encourage me, and Deborah Blake who has been a kindly but firm copy editor and Adam O’Brien who has handled the publishing in New York.
The person to whom this book owes most is my wife Ianthe. She has constantly encouraged and driven me to keep going even when I’ve been close to despair at the size of the task I’ve undertaken, has refreshed me with delicious meals while writing, and persistently acted as a sounding board. As I said in the foreword to my previous book, The Flat White Economy, ‘I owe my wife a disproportionate share of whatever minor success I have had in my own field and that this book might bring. She has done much more for me than any husband could possibly deserve.’ This remains true. She has continued to encourage me and gently critique me. As a former civil servant who worked hard to help improve the standard of teaching, particularly maths and science, in the UK’s schools, she also helped me a lot with Chapter 12 on education.
One can’t write a book while trying to work in an office without placing undue strain on the other staff there. Graham Brough, Cebr’s Chief Executive, has borne the brunt of the burden. But others in the office, particularly Oliver Hogan, Sarah Conkay, Nina Skero and Cristian Niculescu-Marcu, have also had to face an increased burden as a result of the time that I have spent on the book. I am very grateful to them.
Shivam Talukdar was an intern at Cebr recommended by my friend Giles Keating. Shivam was doing his first-year course at New York University when he came to work with Cebr. He helped me develop my thinking on the analysis of the persistence of wealth which is written up in Chapter 9. Most of the conclusions of that chapter result from his careful analysis.
I am especially grateful to Robert Watt, editor of the Sunday Times Rich List, for allowing me access to the Rich List data on the persistence of wealth. Although the data was already in the public domain, Robert managed to find old hard copies of the publication for Shivam to analyse and was extremely helpful in discussing our conclusions.
Two academics may not know it, but their work and research has influenced me and made the task of completing this book considerably easier. Max Roser, an Oxford academic, started OurWorldindata.org collecting data on a host of important factors, particularly in those areas affecting living standards. He and his work deserve to be much better known. I have used much of his data and I hope this book encourages more people to use it. Branko Milanovic is a Serbian American economist who has written by far the best academic book on inequality: Global Inequality: A New Approach for the Age of Globalization. Milanovic is very well known to the experts but less so to a wider world. I don’t always agree with him but have no doubt that he is an important economist. And he writes extremely readably for anyone, let alone an American academic, for whom English is not his first language – or possibly because English is not his first language.
Andrew Richardson was a City economist whom I knew before he became afflicted with multiple sclerosis and had to change career. He qualified as a Human Givens psychotherapist and is now a depression-recovery specialist and anti-addiction counsellor. Andrew has helped me refine this book. In the last months before I submitted the manuscript he and I met a dozen times to refine and improve the text. He has been particularly important in helping me understand the thinking of the Human Givens movement, which is a very useful approach to understanding how human beings work, though, like all approaches, it is important to understand when it works and when it doesn’t.
For his immense help with this and with other things I am extremely grateful and therefore delighted to dedicate this book to him. He is a special person.