Tactics over textbooks
The wealth of nations isn’t determined by economic theorists, but by practical politicians seeking quick fixes, Vince Cable tells Pádraig Belton
Politicians are usually slaves of some defunct economist, sniffed John Maynard Keynes, himself a practitioner of ‘the dismal science’.
But, says Sir Vince Cable, real economic history is the story of influential politicians – Deng Xiaoping is his prime case in point – in thrall to no particular economist or economic theory, defunct or not.
Before becoming Liberal Democrat politician and coalition-era Business Secretary, Cable was an economics lecturer and an economist for Shell. According to him: “Economic policy is made by politicians” – Reagan not Ricardo in other words. The textbooks may go all in for Adam Smith, Alfred Marshall and indeed Keynes, but, Cable contends, policymakers rarely consult the textbooks.
“I wanted to look at the people who shifted the landscape, and see where they got their ideas from, and how they took them forward,” he explains.
The result is Money and Power: The World Leaders Who Changed Economics, examining how jobbing politicians, such as Robert Peel, Otto von Bismarck, Lee Kuan Yew, Shinzo Abe and Donald Trump, each recast economic policy while seizing and retaining power.
Writing it was a catalogue of surprises. Franklin Roosevelt, whom “everyone claims as a champion of Keynesian economics and big spending,” believed passionately in balanced budgets and denounced his Republican opponents as dangerous free spenders.
Bismarck fashioned a welfare state and unleashed an industrial titan, but only incidentally to his aim of unifying Germany.
Meanwhile, by pushing free trade and repealing the Corn Laws, which had helped enrich domestic farmers, “it’s Peel who changes the face of Britain, but probably because he split the Tory party, he hasn’t been idolised like Disraeli and Gladstone.”
Even Trump starts to look transformational, mainly since Biden “hasn’t lifted a single tariff affecting Europe and China. It’s pure Trump policy.”
The Trumpian emphasis on balanced trade reaches back before Adam Smith, right to the mercantilists (from the 16th to 18th century), observes Cable. We may remember the 45th president for shifting the US from the post war consensus around global integration through trade, back to pre-modern economic nationalism and protectionism. Not to mention coaxing a traditionally right-wing party to embark on free spending and massive deficit financing.
Telling economic history from the politicians’ perspective was “in the back of my mind for a long time,” he tells me.
So why isn’t good economics also good politics? Cable’s profiles include a smattering of politicians who’ve done the right thing without getting credit for it.
On the one hand, there’s Peronism’s regular triumph in Argentine post-war presidential elections, showing that people “like being told more will be spent on them, and taxes will be cut.” On the other, there’s Poland’s liberalising finance minister in 1989, Leszek Balcerowicz, a trained economist who “developed a good understanding of what needed to happen and made himself very unpopular in a very short period.” Magic money trees flourish in many soils, he concludes.
But for Cable “the really important things are happening in Asia, driven by Asian politicians.” The global economy’s centre of gravity has shifted there, says Cable, but “because it’s happening relatively slowly we in the west tend not to be too conscious of it.” Or to understand it, he suggests.
“The more I worked on the book, the more I felt its most important character was Deng Xiaoping,” he admits.
The soldier revolutionary, a “complete non-economist” steered China away from Maoist disaster, picking up enough understanding of the role of markets to produce “this economic superpower nobody knows quite what to do with.”
Now, three decades years later, President Xi Jinping is motivated to “produce order in the more chaotic aspects of the market economy by cracking down on corruption.” His China, not unlike Deng’s, is authoritarian but economically liberal.
Sir Vince sees three scenarios for China. In one, China is Sparta, aggressive, nasty and brutal, confronting the western Athens; “that leads to war I'm afraid.” A second is “Davos China”, a country you may not like but which is trying to play a role as a global citizen, in climate change, nuclear proliferation and African development. The third is “Ming China”, where belligerence leads to overreach, retreat and introversion, as happened in the medieval Ming dynasty.
Is it actually politicians who matter today in economic history, or is it central bankers and bureaucrats? Cable admits he “didn’t really do justice to” the European Union – mainly a creature of unelected bureaucrats such as Jean Monnet.
Likewise, after 2008 “you could argue for Gordon Brown to some extent, but the real heavy lifting was done by Federal Reserve chairman Ben Bernanke.” More recently, until 2019 it was chiefly European Central Bank president Mario Draghi fending off the Eurozone crisis.
Cable’s book carries two morals. First, the politicians structuring the world economy today are mainly in Asia. Second, in the west, to tell the contemporary economic story, be it of the EU, or the 2008 or eurozone crisis, it is central bankers who matter, not politicians after all.
Money and Power: The World Leaders Who Changed Economics by Sir Vince Cable is published by Atlantic Books, £20.00.
Pádraig Belton writes on a range of topics for the BBC, while completing a doctorate in politics at the University of Oxford. He’s a volunteer driver for St John Ambulance.
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