Capitalism Made Us All Richer. So Why Are We Unhappy?

A Q&A with Johan Norberg, author of the book Elon Musk calls "an excellent explanation of why capitalism is not just successful, but morally right."


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Swedish historian Johan Norberg is author of The Capitalist Manifesto: Why the Global Free Market Will Save the World, which caught the eye of Elon Musk, who tweeted, "This book is an excellent explanation of why capitalism is not just successful, but morally right."

Norberg wrote the book to combat a growing belief on the right and the left that libertarian values of individual autonomy, property rights, limited government, and free enterprise are failing to raise living standards and need to be ditched in favor of more centralized power and control over virtually all aspects of our lives.

A senior fellow at the Cato Institute, Norberg shows that life is actually getting better for all of us—especially the world's poor—and that economic globalization, political liberalization, and cultural freedom are the main drivers of that improvement. He talks about how liberals and conservatives get the past wrong, why he's not worried about China's supposedly unstoppable economic growth, and why the cases for free trade, free expression, and more immigration need to be constantly updated and renewed. He also explains why he's a libertarian and not an anarchist. Reason's Nick Gillespie spoke to Norberg in Washington, D.C., in late September. 

Watch the full video here and find a condensed transcript below. 

Reason: Many Americans are saying, "Well, you know what? Since China joined the World Trade Organization in the 21st century, we have just seen massive deindustrialization. The Midwest is beyond the Rust Belt. Everything has gone to hell in the United States." That's not really true, right? 

Johan Norberg: The middle class is shrinking, but that's because it's moving up. If you look at those indicators, and specifically, if you look at not just dollars and cents. We should do that too because it is important to lay to rest the whole idea of wage stagnation, which was really a period in the 1970s and the 1980s when many sectors had increased wages much faster than productivity. They had to scale that back or they would've been destroyed completely.

After 1990, we've seen rapid wage increases in the U.S., 30 to 60 percent depending on whether you're taking full compensation, including nonmonetary like health insurance and stuff. Also, it's important to mention goods and services. It's not dollars and cents. We want to be able to buy something—most amenities that were considered luxuries just decades ago are now getting close to 100 percent distribution in the United States. People under the poverty threshold in the U.S. now have more amenities like T.V. sets, washing machines, dryers, and of course, computers and cellphones than the average American had in 1970.

It seems like not everything was destroyed. Why is that? Well, one reason is that we did deindustrialize, meaning fewer people have to work in factories to create the goods we want. We haven't deindustrialized in an absolute sense. We produce more now than probably at any other station in America's history, but it's been a success story. It's a rise in productivity, which means that we can make the goods with automation, make the goods more competitive and affordable to most people. That's what successful countries do.

There is a great section in The Capitalist Manifesto where you talk about the myth of working in Detroit in the 1950s and how the peak of industrial workers in the United States as a share of the labor force was actually in the 1940s. It was already declining in the 1950s. Can you talk a bit about that?

Yeah, it looked good compared to the rest of the economy because it was awful working in agriculture and in domestic traditional industry. Comparatively it was better than in many other places. Now we have this kind of nostalgic, gross, tinted image of what it was like. It's important to go back, and there are some historical projects interviewing the workers who really did the job and they're telling us, first of all, I do this so that my son will not have to stand and work in a factory like this because it is awful. It's dangerous, it's dirty, and you can lose an arm or two if you're not careful. 

Also, very insecure jobs, very rapid turnover. When I look at different cohorts, it turns out that there was one cohort in Detroit in 1953. They had fairly secure jobs, got a good decent wage, unionized, and so the whole myth of Western manufacturing is based on one city in one year. What did they get, the ones who got those best jobs? Well, adjusted for inflation, they get what you would get as a starting wage in an Amazon warehouse today. 

Is it a good thing or a bad thing that fewer men between the ages of 25 and 54 are actively in the labor force?

If people are able to work and want to work, it's a good thing, they should. They shouldn't be doing other things. That has been declining, but it has been declining for a very long time. That's important to point out. This is not something that happened when China entered the World Trade Organization, and it did not happen with NAFTA. It started after the Second World War basically, and it was actually much faster. The increase in men outside of the labor force was at a much higher rate in the 1950s, '60s, and '70s than in this era of globalization. It tells you that there's something else going on other than just competition. It seems like we are pretty bad at retraining and having the kind of mobility in the work force that we would want, but most of these people are then counted as disabled and they're in various programs rather than standing in the work force.

You actually went around the United States and talked to people who were on welfare. What did you find?

Well, I learned that you have to be very smart and hardworking to be poor and unemployed in the U.S., because the systems are so incredibly complex and they come from a wide variety of sources and they're based on different metrics. They then are also discounted and lost at various points when you make more of an income than you used to. What they told me is that it feels hopeless. It feels like there's nothing they can do to change their situation. One of them told me that, doing the calculations from four different benefits systems, if she increases her wage from $29,000 to $30,000, many of the benefits she receives would disappear, leaving her actual take-home income cut in half, so that she just makes $15,000.  t. In a way, the marginal tax rate for the poor and unemployed is much higher than for the rich.

They know that it's hopeless, basically, to go out there and sacrifice time, energy, and transportation costs to get a job because they notice that they don't make money.

Is there an easy solution to that problem?

Well, I wish. Welfare's complicated—there is no perfect social benefit system. The moment you start paying people when they are unemployed and disabled, you also subsidize it. You also buy more of it and it's difficult to get out of it, but there are versions of a negative income tax that would at least make sure that you always keep more of what you earn. So that you don't have to do all these calculations and feel like it seems impossible. 

Is that an argument for a universal basic income or a negative income tax? 

It seems like a UBI would be incredibly expensive if everybody's supposed to have it or it wouldn't help the poorest as much. Perhaps some sort of negative income tax ensures or supports wages for the poorest. It seems like a better way to go about it.

Can you quickly define what "deaths of despair" are, and what did you find when you started looking into what's going on with that?

Well, it's a famous and depressing concept coined by Angus Deaton and his wife Anne Case Deaton, "deaths of despair." And they're including various sorts of self-harm, broadly speaking. Could be drug overdoses, alcoholism, or suicide. I think when we look at it, this is kind of controversial among scholars because when you look at it might be that we're just talking about a drug overdose epidemic, but that's the real thing that sets this apart. What they mean and what many take away from it is that there's something related to how people live, a sense of despair that makes them live in this kind of self-destructive way. This has increased dramatically. Why is that? Many say it's strange as the society gets richer and more open, some blame it then on ruthless capitalism and free markets. 

As Angus Deaton points out himself, you can hear it in the very word of globalization. It's global. It happens everywhere. All these forces, but it seems like it's specifically happening in the U.S. rather than in other places. More economically free countries in the West have not had the same increase in deaths of despair to this extent.

Inequality is flat in the United States or declining globally. So how do you explain the "deaths of despair"? 

Well, I mean, one thing is this might be very much a drug overdose epidemic rather than anything else. Perhaps there are things related to drug laws and the unsafe drugs that are being used. So this is one angle. 

The other thing is that we know that it's bad for your health and you shorten your life if you feel like you're worthless; it's impossible to change your situation. You're not needed anywhere. This is, I think, one of the greatest challenges to modern welfare states like America's, because it seems like economically, I mean, it's all right. We can probably afford to have a larger group of people outside of the work force. We can pay for it all and hand them benefits and they stay at home. This sense of being rejected, not needed anywhere, and not being able to change your life circumstances.

Another accelerator supposedly in the decline of lifestyle or standards of living in the United States has to do with China. Could you talk about your view of China? 

Right. There is one unifying narrative about China that I get a lot from both the left and the right and the center, and it's that they're so incredibly smart. They have a plan for everything, how to invade our markets and take our jobs with the very clever industrial policy and picking certain companies, subsidizing them, and dumping their goods here and buying.

I must say the worrying implication is that so many Americans say we have to imitate them. We have to be like that in order to beat them. That's one reason why we get the support for protectionism and industrial policy right now. They do have industrial policy. They are trying to pick winners. They're trying to get the heavy hand of the government back into the economy. That's a fairly new phenomenon. This started to happen around the global financial crisis and especially after Xi Jinping took power. This is not what's making China rich. This is what risks making it poor. It's a terrible destruction of resources that is going on. You can see that they're handing the subsidies, the cheap credits to the least productive companies, and they become less productive once they do this. It's very important, I think, to get the history of China's economic rise right.

Is China still on the rise?

Oh, I think so. For sure. China had a good run. It was an impressive rise, and it happened precisely in the areas where they began to liberalize and open up big time. It was a success of market forces in China. Now that's over. They've begun to retreat. The government is back in business, and that's really undermining business, and it comes at a very bad time. 

China is still a very poor country. I mean, it's just that it's big, but it's as far as the Dominican Republic or Gabon, so they would need, if they wanted to go on the trajectory of Taiwan, South Korea, Japan, under their good years, they would have to grow 5, 7 percent per capita for a couple more decades. That is not happening. 

How has widespread pessimism about the environment affected how people view their future? 

Actually, what we've seen again over the past two decades is one of the greatest achievements when it comes to the environment ever. I mean, it's fairly recently we started to care about nature and about the future. Now in the past decades, we've reduced most of the pollutants, emissions. We are beginning to see growth of forests again in rich countries, in most countries actually around the world. We're beginning to see rewilding going on, cleaner water in all those areas—tremendous achievements. 

Where does this happen? If you go to the Environmental Performance Index, looking at 40 different indicators of environmental conditions around the world, they point out that GDP per capita is a pretty strong explainer for what's going on. The richer you are, the more you can also afford to care about the planet. 

We get richer and then we demand a cleaner environment, does that limit what happens in the marketplace? 

Quite right. It does. It's not always the case. Some of this is driven by consumers and by businesses just wanting something better and cleaner, but quite often it's also some sort of mandates or taxes.

You engage with Patrick Deneen, an American academic who's an illiberal right-winger who says, "Liberalism has been tried and it fails and it fails partly because it generates loose connections and we don't know how to live our lives." Is he onto something?

I don't think he is. He makes a very strong case rhetorically. He explains that we're becoming increasingly separate, autonomous, nonrelational selves, replete with rights and defined by our liberty but insecure, powerless, afraid, and alone. Of course, we can all understand what he's getting at because life is tough. 

There's an epidemic of headlines saying that there's a loneliness epidemic, but when researchers look at it, it's very difficult to find something like that. Yes, we spend more time alone than we used to. There are more single households than before, but it seems like we enjoy that. It seems like actually single households and people who spend less time with others also, often say that they're less lonely than others. It might be that we're also choosing our relationships in ways that make them more fruitful and important to us, and we adapt them to our individual lives. 

Overall, when you really look at the data, it doesn't seem like we are seeing a rise globally when it comes to mental illness or loneliness or anything like that. What we have been seeing is that many conditions that we saw before, we've started to use other terminology to describe them, often a mental illness terminology.

You were saddened, you had to lay down for two weeks. That's what we used to say about parents when mom was feeling bad. Now it's depression, now it's a clinical condition, and that's something else. For good and ill, I think we're overdiagnosing some of these things. We might have turned too often to doctors when we should talk to a friend, but I also think this is a way in which we take some of these problems seriously for the first time. 

In my parents' generation, they would never talk about how they felt and their mental conditions. You'd go to a doctor if you lost a leg, but you would never do it if you broke your heart or anything like that. In some ways the stigma is gone, even though it might result in over-diagnosis, it's also a sign that we actually care and we're trying to do something, and then we get the right therapy. Cognitive behavior therapy, it has excellent results. Doing that is not a sign of a sick society. I think it's a sign of a healthy society.

Why are people so pessimistic about living in the time that we live in now?

Yeah, that is exactly the reason why I wrote this book, because it's an uphill battle right now, and I've noticed that you tend to ruin good dinner parties by explaining that we're not going to die, and I understand we should care about global warming. Look, 40 countries have been able to reduce carbon dioxide emissions in absolute terms while growing their economies in the past decade.

People are often invested in their problems and in the problems of the world, and it's part of their identity and the fact that they care about it, it's important to them. Telling them that, "Look, it's actually better than you think," might be threatening ironically. When you look at every single data point, if you're talking about extinction of mammals or if you're talking about carbon dioxide separately, if you're talking about poverty in Bangladesh, people pay attention to those things and they listen to the data and they're interested in the story.

Do your children seem optimistic about the future?

Well, they do come home from school and tell me that we're going to die suffocating in plastics from the oceans as well. There is that, and I noticed that among the generation. However, I don't know why, if it's genetics or something else, but they tend to be on the more optimistic side than their classmates and think about solutions to things. 

For example, my oldest son is sort of always trying to make school projects about nuclear power and how we can make it cheap and safe, and this will give us unlimited energy for the future.

Do you think nuclear power is going to make a resurgence?

I think so, but we're going to need something better. I think actually we ruined it the last time around by having the government pick nuclear power as the winner. That's what we thought in the 1960s. Let's just build them right now, big, expensive, because the technology wasn't right there. It became too expensive and difficult to continue with it. Let's hope we don't repeat that mistake because at least on paper, there are some kind of promising, smaller-scale, cheaper solutions.

We have to be the masters of our own destinies. And I took for granted how incredible and liberating that is. Has everyone forgotten that idea? 

Yeah, I'm fond of this old Eastern European proverb: If you don't have food, you have one problem. If you have food, you have a thousand problems. Obviously, you start to think about your life and every aspect of it, how you're going to make sure that things work out for the best. Obviously, that's anxiety-inducing. 

If you don't have those options, if you don't have those freedoms, those who say that they have the least chance to change their lives and decide what to do when it comes to education, career, and so on, then it shows up in clinical diagnosis, then it turns into mental illness. There are different versions of anxiety, and some are better than others, but I do understand the temptation. 

We come from a long prehistory of living in bands and tribes and someone telling us what to do, and sometimes it feels liberating just having that strong man telling you, "I know the answer to the question," and it takes some novels and some research to really find out that the way in which we really create more decent societies and more fulfilled lives is not to just follow that one rule, but to find the way within us.

It's important to point out that there are many different versions of meaning, and I think we can pick that up by looking at polls, because all these claims from Deneen and others, they're very rarely backed up by any kind of empirical data. They just point out that you should all be miserable because how could you vulgar people ever find meaning and tackle Tuesday and bad TV shows? That's why intellectuals shouldn't run our lives, because they have another set of preferences than we do in another meaning of life. We can pick up in polls how people are doing in individualist societies compared to collectivist ones, rich societies compared to poor ones. No matter what intellectuals say, it shows up again and again, a very clear pattern: People say that they're happier in rich, free societies, individualist societies. They feel less lonely than they do in poorer and less free societies, and they also think that they have more friends they can rely upon. They also say that they're more willing to help others when they are in need. All these indicators, once you stop being so myopic and just looking at one year in the U.S. but look around the world, comparing different systems, different populations, then you see that we're actually not in the best of possible worlds, but the best one so far.

This interview has been condensed and edited for style and clarity.