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February 04, 2013

Alternatives to Capitalism: When Dream Turned to Nightmare

Writing about web page http://cpasswarwick.wordpress.com/overview-2/peking-conference/proposed-topics/

On Friday evening I found myself debating "Socialism vs Capitalism: The future of economic systems" at the Peking Conference of the Warwick China Public Affairs and Social Service Society. The organizers also invited my colleagues Sayantan Ghosal, Omer Moav, and Michael McMahon, who spoke eloquently. The element of debate was not too prominent because we all said similar things in different ways. I'm an economic historian and the great advantage of history is that it gives you hindsight. Anyway, here is what I said:

Let’s start from some history. There was a time between the two world wars when the capitalist democracies, like America, Britain, France, and Germany, were in a lot of trouble. In 1929 a huge financial crisis began in the United States and went global. There was a Great Depression. Around the world, many tens of millions of farmers were ruined. Tens of millions of workers lost their jobs.

As today, people asked: What was the cause of the problem? One answer they came up with was: Capitalism is the problem. Lots of people decided: the problem is the free market economy! The government should step in to take over resources and direct them! The government should get us all back to work! The government should get us building new cities, power stations, and motorways!

Another answer many of the same people came up with was: Democracy is the problem. Lots of people decided: the problem is too much politics! We need a strong ruler to stop the squabbling! Someone who can make decisions for the nation! Someone who can organize us to build a common future together!

So there was a search for alternatives to capitalism. Different countries tried different alternatives. The alternatives they tried included national socialism (or fascism) and communism under various dictators, like Hitler and Stalin.

What happened next? On average the dictators’ economies did recover from the Depression faster than the capitalist democracies.

(Here's a chart I made earlier to illustrate the point, but I did not have the opportunity to use it in my talk. Reading from the bottom, the democracies are the USA, France, and the UK; the dictatorships are Italy, Germany, Japan, and the USSR. You can see that Italy does not conform to the rule that the dictators' economies recovered faster. Without Italy, the average economic performance of the dictatorships would have looked even better.)

Seven major economies in the Great Depression

But solving one problem led to another. Before the 1930s were over the dictators’ policies had already caused millions of deaths. A Japanese invasion killed millions in China (I'm not sure how many). An Italian invasion killed 300,000 in North Africa. Soviet economic policies caused 5 to 6 million hunger deaths in their own country and Stalin had a million more executed.

And another problem: As political scientists have shown, democracies don’t go to war (with each other). Dictators go to war with democracies (and the other way round). And dictators go to war with each other. The result of this was that in the 1940s there was World War II. Hitler, Mussolini, Tojo, and Stalin went to war -- with the democracies and with each other. Sixty million more people died.

After the war, capitalism recovered. In fact, far from being a problem, it became the solution. By the 1960s all the lost growth had been made up. Think of the economic losses from two World Wars and the Great Depression. If all you knew about capitalist growth was 1870 to 1914 and 1960 onwards, you’d never know two World Wars and the Great Depression happened in between.

(To illustrate that point, here's another chart I made earlier, but did not use. It averages the economic performance of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, New Zealand, Norway, Sweden, Switzerland, the UK, and the USA.)

great_depression_ver_3.jpg

After World War II fascism and national socialism fell into disrepute, but communism carried on. In China, Mao Zedong’s economic policies caused more deaths. In 1958 to 1962, 15 to 40 million people starved. Communist rule led China into thirty years of stagnation and turmoil. After that Deng Xiaoping made the communist party get its act together. And the communists forgave themselves for their past and agreed to forget about it.

Here's the takeaway.

Liberal capitalism isn’t perfect, but it has done far more for human welfare than communism. It has been the solution more often than the problem. Last time capitalism experienced some difficulties, many countries went off on a search for alternatives. That search for alternatives led nowhere. It wasn’t just unproductive. It was a terrible mistake that cost many tens of millions of lives. Lots of people have forgotten this history. Now is a good time to remember it.

Postscript. At one point I thought of calling this blog "Alternatives to capitalism: the search for a red herring" (a "red herring" is something that doesn't exist but people look for it anyway.) But I realized that would have been wrong, because alternatives to capitalism have actually existed. The problem with the alternatives is not that we cannot find them. It is that the people who went searching for them fell into a dream and woke up to a nightmare.


October 15, 2012

Markets versus Government Regulation: What are the Tail Risks?

Writing about web page http://ideas.repec.org/a/aea/jeclit/v45y2007i1p5-38.html

Tail risks are the risks of worst-case scenarios. The risks at the far left tail of the probability distribution are typically small: they are very unlikely, but not impossible, and once or twice a century they will come about. When they do happen, they are disastrous. They are risks we would very much like to avoid.

How can we compare the tail risks of government intervention with the tail risks of leaving things to the market? Put differently, what is the very worst that can happen in either case? Precisely because these worst cases are very infrequent, you have to look to history to find the evidence that answers the question.

To make the case for government intervention as strong as possible, I will focus on markets for long-term assets. Why? Because these are the markets that are most likely to fail disastrously. In 2005 house prices began to collapse across North America and Western Europe, followed in 2007 by a collapse in equity markets. By implication, these markets had got prices wrong; they had become far too high. The correction of this failure, involving large write-downs of important long term assets, led us into the credit crunch and the global recession.

Because financial markets are most likely to fail disastrously, they are also the markets where many people now think someone else is more likely to do a better job.

What's special about finance? Finance looks into the future, and the future is unexplored territory. Only when that future comes about will we know the true value of the long-term investments we are making today in housing, infrastructure, education, and human and social capital. But we actually have no knowledge what the world will be like in forty or even twenty years' time. Instead, we guess. What happens in financial markets is that everyone makes their guess and the market equilibrium comes out of these guesses. But these guesses have the potential to be wildly wrong. So, it is long-term assets that markets are most likely to misprice: houses and equities. When houses and equities are priced very wrongly, chaos results. (And in the chaos, there is much scope for legal and illegal wrongdoing.)

When housing is overvalued, too many houses are built and bought at the high price and households assume too much mortgage debt. When equities are overvalued, companies build too much capacity and borrow too much from lenders. To make things worse, when the correction comes it comes suddenly; markets in long term assets don't do gradual adjustment but go to extremes. In the correction, nearly everyone suffers; the only ones that benefit are the smart lenders that pull out their own money in time and the dishonest borrowers that pull out with other people’s money. It's hard to tell which we resent more.

If markets find it hard to price long term assets correctly, and tend to flip from one extreme to another, a most important question then arises: Who is there that will do a better job?

It's implicit in current criticisms of free-market economics that many people think like this. Financial markets did not do a very good job. It follows, they believe, that someone else could have done better. That being the case, some tend to favour more government regulation to steer investment into favoured sectors. Others prefer more bank regulation to prick asset price bubbles in a boom and underpin prices in a slump. The latter is exactly what the Fed and the Bank of England are doing currently through quantitative easing.

Does this evaluation stand up to an historical perspective?

We’re coming through the worst global financial crisis since 1929. Twice in a century we've seen the worst mess that long-term asset markets can make -- and it's pretty bad. A recent estimate of the cumulative past and future output lost to the U.S. economy from the current recession, by David H. Papell and Ruxandra Prodan of the Boston Fed, is nearly $6 trillion dollars, or two fifths of U.S. output for a year. A global total in dollars would be greater by an order of magnitude. What could be worse?

For the answer, we should ask a parallel question about governments: What is the worst that government regulation of long term investment can do? We'll start with the second worst case in history, which coincided with the last Great Depression.

Beginning in the late 1920s, the Soviet dictator Stalin increasingly overdid long term investment in the industrialization and rearmament of the Soviet Union. Things got so far out of hand that, in Russia, Ukraine, and Kazakhstan in 1932/33, as a direct consequence, 5 to 6 million people lost their lives.

How did Stalin's miscalculation kill people? Stalin began with a model that placed a high value (or “priority”) on building new industrial capacity. Prices are relative, so this implied a low valuation of consumer goods. The market told him he was wrong, but he knew better. He substituted one person’s judgement (his own) for the judgement of the market, where millions of judgements interact. He based his policies on that judgement.

Stalin’s policies poured resources into industrial investment and infrastructure. Stalin intended those resources to come from consumption, which he did not value highly. His agents stripped the countryside of food to feed the growing towns and the new workforce in industry and construction. When the farmers told him they did not have enough to eat, he ridiculed this as disloyal complaining. By the time he understood they were telling the truth, it was too late to prevent millions of people from starving to death.

This case was only the second worst in the last century. The worst episode came about in China in 1958, when Mao Zedong launched the Great Leap Forward. A famine resulted. The causal chain was pretty much the same as in the Soviet Union a quarter century before. Between 1958 and 1962, at least 15 and up to 40 million Chinese people lost their lives. (We don’t know exactly because the underlying data are not that good, and scholars have made varying assumptions about underlying trends; the most difficult thing is always to work out the balance between babies not born and babies that were born and starved.)

This was the worst communist famine but it was not the last. In Ethiopia, a much smaller country, up to a million people died for similar reasons between 1982 and 1985. If you want to read more, the place to start is “Making Famine History” by Cormac Ó Gráda in the Journal of Economic Literature 45/1 (2007), pp. 5-38. The RePEc handle of this paper is http://ideas.repec.org/a/aea/jeclit/v45y2007i1p5-38.html.

Note that I do not claim these deaths were intentional. They were a by-product of government regulation; no one planned them (although some people do argue this). At best, however, those in charge at the time were guilty of manslaughter on a vast scale. In fact, I sometimes wonder why Chinese people still get so mad at Japan. Japanese policies in China between 1931 and 1945 were certainly atrocious and many of the deaths that resulted were intended. Still, if you were minded to ask who killed more Chinese people in the twentieth century, the Japanese imperialists might well have to cede first place to China's communists. However, I guess there is less national humiliation in it when the killers are your fellow countrymen than when they are foreigners.

To conclude, no one has the secret of correctly valuing long term assets like housing and equities. Markets are not very good at it. Governments are not very good at it either.

But the tail risks of government miscalculation are far worse than those of market errors. In historical worst-case scenarios, market errors have lost us trillions of dollars. Government errors have cost us tens of millions of lives.

The reason for this disparity is very simple. Markets are eventually self-correcting. "Eventually" is a slippery word here. Nonetheless, five years after the credit crunch, worldwide stock prices have fallen, house prices have fallen, hundreds of thousands of bankers have lost their jobs, and democratic governments have changed hands. That's correction.

Governments, in contrast, hate to admit mistakes and will do all in their power to persist in them and then cover up the consequences. The truth about the Soviet and Chinese famines was suppressed for decades. The party responsible for the Soviet famine remained in power for 60 more years. In China the party responsible for the worst famine in history is still in charge. School textbooks are silent about the facts, which live on only in the memories of old people and the libraries of scholars.


April 24, 2012

Political Costs of the Great Recession

Writing about web page http://www.ft.com/cms/s/0/5b1b5556-8d1d-11e1-9798-00144feab49a.html#axzz1styV0LMT

Monday's Financial Times recorded the dismal showing of Nicolas Sarkozy in the French Presidential first-round election, the record vote for France's far-right National Front, and the openings to the right of Sarkozy and François Hollande, who remain in the contest, as they compete to sweep up the votes of the eliminated candidates.

It reminded me of a recent NBER working paper by Alan de Bromhead, Barry Eichengreen, and Kevin O'Rourke on Right-wing Political Extremism in the Great Depression. (There's a non-technical summary on VOXeu.) What these authors show is that the rise of right wing extremism in the Great Depression was not just a German phenomenon. They define extremist parties as those that campaigned to change not just policy but the system of government. They look at 171 elections in 28 countries spread across Europe, the Americas, and Australasia between 1919 and 1939. They find that a swing to right-wing "anti-system" parties was more likely where the depression was more prolonged, where there was a shorter history of democracy, and where fascist parties were already represented in the national parliament. In short, de Bromhead and co-authors conclude, the Depression was "good for fascists."

I don't mean to imply that either Sarkozy or Hollande are fascists. They aren't. Neither of them wants to replace electoral democracy by authoritarian rule. But they are responding to the protest vote in their own country by proposing "solutions" to the problems of the already weakened French market economy that will weaken it further by increasing government entitlement spending, government regulation, and tax rates.

Where does the protest vote come from? There is anger and pessimism. There is a search for alternatives to free-market capitalism and representative democracy. The problem is that all the alternatives are worse. But none of the candidates (perhaps with the exception of François Bayrou, who did badly) has been willing to say this.

How do we know that all the alternatives are worse? We know it from history.

The chart below shows the total real GDPs of twelve major market economies from 1870 to 2008 (the countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, New Zealand, Norway, Sweden, Switzerland, United Kingdom, and United States; data are by the late Angus Maddison at http://www.ggdc.net/maddison/). The vertical scale is logarithmic, so the slope of the line measures its rate of growth.


140 years of economic growth


You can see two things. One is the steadiness of economic growth in the West over 140 years up to the recent financial crisis. The other is that two World Wars and the Great Depression were no more than temporary deviations. They are just blips in the data. For many people they were hell to live through (and sometimes these were the lucky ones), but in the long run the economic consequences went away. In fact, recent work by the economic historian Alexander J. Field has shown that the depressed 1930s were technologically the most dynamic period of American history.

One conclusion might be that the economic consequences of the current recession are not the ones that we should fear most. I don't mean that the economic losses arising from reduced incomes and unemployment are trivial; life today is unexpectedly hard for millions of people, young and old. Young people, even if they will not be a "lost" generation, will suffer and be scarred by the experience. If you're old enough, you could be dead before better times come round again. At the same time, the kind of pessimism that says that our children will be never be as well off as we were is groundless. The economic losses associated with the recession will eventually evaporate, just as the economic losses of the Great Depression went away in the long run.

We should be more afraid of the lasting political consequences. The effects of the Great Depression on politics were very deep and very persistent. World War I ended with the breakup of the German, Austro-Hungarian, Romanov, and Ottoman Empires. In the 1920s, most of the new countries that were formed became democracies. Then, we had the Great Depression. Across Europe there was anger, pessimism, and a search for alternatives to free-market capitalism and representative democracy. By the end of the 1930s Europe had recovered economically from the depression but most of the new democracies had fallen under dictators. That led to World War II, in which as many as 60 million people were killed. Fascism was defeated, but then Europe was divided by communism and that led to the Cold War.

It took until 1989 for the average of democracy scores of European countries (measured from the Polity IV database) to return to the previous high point, which was in 1919.

In short, the Great Depression stimulated a search for alternatives to liberal capitalism. This search was extremely costly and completely pointless. For a while in various quarters there was admiration for Hitler, Mussolini, or Stalin, their great public works, their capacity to inspire and to mobilize, and their rebuilding of the nation. But both fascism and communism turned out to be terrible mistakes.

Memories are short. Today's politicians want your vote. And many voters want to hear that some radical politician or authority figure has a quick fix for capitalism. It seems like we may have to learn from our mistakes all over again. Let's hope that the lesson is less costly this time round.


April 02, 2012

Russia's Great War, Civil War, and Recovery

Writing about web page http://www2.warwick.ac.uk/fac/soc/economics/news/?newsItem=094d43a2365e99f001366436ff461cde

Tomorrow I'm flying to Moscow to collect a prize, which I will share with my coauthor Andrei Markevich. This is the Russian national prize for applied economics, which was announced last week. The prize, sponsored by a consortium of Russian universities, research institutes, and business media, is awarded every second year. The award is for our paper "Great War, Civil War, and Recovery: Russia’s National Income, 1913 to 1928," published in the Journal of Economic History 71:3 (2011), pp. 672-703. A postprint is available here.

The spirit of the paper is as follows. In 1914 Russia joined in World War I. In 1917 there was a revolution, and Russia’s part in that war came to an end. A civil war began, that petered out in 1920. It was followed immediately by a famine in 1921. We calculate that by the end of all this Russia had suffered 13 million premature deaths, nearly one in ten of the population living within future Soviet borders in 1913. After that, the Russian economy recovered, but was soon swept up in Stalin's five-year plans to "catch up and overtake" the West.

We calculate Russia’s real national income year by year from 1913 to 1928; this has never been done before on a consistent GDP basis. National income can be measured three ways, which ought to give the same answer (but rarely do): income (wages, profits, ...), expenditure (consumption, investment, ...), and output (of industry, agriculture, ...). We measure output. Data are plentiful, but of uneven quality and coverage. The whole thing is complicated by boundary changes. Between 1913 and 1922 Russia gave up three per cent of its territory, mainly in the densely settled western borderlands; this meant the departure of one fifth of its prewar population. The demographic accounting is complicated not only by border changes but also by prewar and wartime migrations, war deaths, and statistical double counting.

Our paper looks first at the impact of World War I, in which Russia went to war with Germany and Austria-Hungary. Initially the war went went well for Russia, because Germany found itself unexpectedly tied down on the western front. Even so, Germany quickly turned back the Russian offensive and would have defeated Russia altogether but for its inability to concentrate forces there.

During the war nearly all the major European economies declined (Britain was an exception). The main reason was that the strains of mobilization began to pull them apart, with the industrialized cities going in one direction and the countryside going in another. In that context, we find that Russia’s economic performance up to 1917 was better than has been thought. Our study shows that until the year of the 1917 revolution Russia’s economy was declining, but by no more than any other continental power. While wartime economic trends shed some light on the causes of the Russian revolution, they certainly do not support an economically deterministic story; if anything, our account leaves more room for political agency than previous studies.

In the two years following the Russian revolution, there was an economic catastrophe. By 1919 average incomes in Soviet Russia had fallen to less than half the level of 1913. This level is seen today only in the very poorest countries of the world, and had not been seen in eastern Europe since the seventeenth century. Worse was to come. After a run of disastrous harvests, famine conditions began to appear in the summer of 1920 (in some regions perhaps as early as 1919). In Petrograd in the spring of 1919 an average worker’s daily intake was below 1,600 calories, about half the level before the war. Spreading hunger coincided with a wave of deaths from typhus, typhoid, dysentery and cholera. In 1921 the grain harvest collapsed further, particularly in the southern and eastern grain-farming regions. More than five million people may have died in Russia at this time from the combination of hunger and disease.

Because we have shown that the level of the Russian economy in 1917 was higher than previously thought, we find that the subsequent collapse was correspondingly deeper. What explains this collapse? The obvious cause was the Russian civil war, which is conventionally dated from 1918 to 1920. However, we doubt that this is a sufficient explanation. First, the timing is awkward, because the economic decline was most rapid in 1918 and this was before the most widespread fighting. Second, there are signs that Bolshevik policies of economic mobilization and class warfare were an independent factor spreading chaos and decline. These policies were continued and even intensified for a year after the civil war ended and clearly contributed to the disastrous famine of 1921.

Because of the famine, economic recovery did not begin until 1922. At first recovery was very rapid, promoted by pro-market reforms, but it slowed markedly as the Soviet government began to revert to mobilization policies of the civil-war type. We show that as of 1928 the Russian recovery was delayed by international standards. The result was that, when Stalin launched the first five year plan for rapid forced ndustrialization, the Soviet economy's recovery from the Civil War was not complete. By implication, some of the economic growth achieved under the five-year plans should be attributed to delayed restoration of pre-revolutionary economic capacity.

In concluding the paper, we reflect on the state in the history of modern Russia. It seems important for economic development that the state has the right amount of "capacity," not too little and not too much. When the state has the right amount of capacity there is honest administration within the law; the state regulates and also protects private property and the freedom of contract. When the state has too little capacity it cannot prevent outbreaks of deadly violence, and security ends up being privatized by gangs and warlords. When the state has too much capacity it can starve and kill without restraint. In Russian history the state has usually had too little capacity or too much. In World War I the state had too little capacity to regulate the war economy and it was eventually pulled apart by competing factions. Millions died. In the Civil War, the state acquired too much capacity; more millions died.

Andrei Markevich and I have many debts. Our first thanks go, of course, to the sponsors of the prize. After that, we are conscious of owing a huge amount to our predecessors, many of whom should be better known than they are, but I'm going to leave the history of the subject to those interested enough to consult the paper. A number of people helped us generously, especially Paul Gregory, Andrei Poletaev, Stephen Wheatcroft, and the journal editors and referees. Of course, I'm personally grateful to Andrei. It’s hard to say which of us did what (between May 2009 and January 2011 our paper went through exactly 50 revisions), but you’ll see that Andrei is named as first author.

Beyond any personal feelings, I'm thrilled by the recognition of economic history. When he announced the award, the jury chairman Professor Andrei Yakovlev was asked if this wasn't an "unexpected" outcome for an award in applied economics. Yakovlev described it as an "important precedent," recognizing that "explanations of many of the processes that we have seen in Russia in the last twenty years lie in history." He pointed out that most western countries have historical national accounts going back through the nineteenth century (and England's now go back through the thirteenth). Such data help us to understand the here and now, by showing how we got here.


December 07, 2011

Russians, Be Careful What You Wish For

Writing about web page http://www.themoscowtimes.com/news/article/5000-protest-duma-election-results/449327.html

The Russian parliamentary elections show that, whichever party Russians voted for, whether they voted under free and fair conditions or not, they voted overwhelmingly for a strongman. United Russia (one half of the vote) is for Putin. The Communist Party (one fifth) is for Ziuganov. The Liberal Democrats (one tenth) are for Zhirinovskii.

Neither liberal nor democratic, the Liberal Democrats' favourite term of abuse for advocates of a free and competitive political system is der'mokraty, "shittocrats." The Communists have called for Russia to undergo "re-Stalinization." United Russia follows the hazy notion of "sovereign democracy," implying a non-competitive dialogue between rulers and ruled.

On the face of it, the outlook for democracy in Russia is hopeless. Apparently, nearly all Russians espouse one or another form of authoritarianism.

All the more surprising and encouraging that 5,000 Muscovites have taken the risky course of public demonstration against vote rigging and electoral fraud. But what do 5,000 demonstrators count, out of 65 million voters?

More than would appear at first sight, perhaps. A new article by Henry Hale(2011) of George Washington University suggests how much may be going on below the surface. Hale argues that we often misinterpret Russian opinion polls and election outcomes. When we find that many Russians take a dim view of "democracy," we fail to check that we and they understand democracy the same way; it turns out we don't. When we find that Russians frequently favour a strong leader, we assume that this is in conflict with the idea of competitive elections and we fail to check whether Russians see the same conflict. This too turns out not to be true.

On the evidence, Hale argues, most Russians do favour a strong leader, but the same Russians, even those who rail against der'mokratiia, also favour competitive elections. They want a strong leader that they have chosen, a strong leader who will govern according to the law, treat the people fairly, and then submit himself to competitive re-election as the constitution requires.

Such attitudes set up an obvious paradox, Hale observes. Russians know what they want, but they cannot have it for long. Any leader strong enough to rule as Russians want to be ruled is also strong enough to bend the law, pressure the courts, and stuff the ballot boxes. This seems like an electoral equivalent to the Weingast (1995) paradox: "A government strong enough to protect property rights and enforce contracts is also strong enough to confiscate the wealth of its citizens."

Hale has two conclusions. First, "Russia’s leaders, including even the highly popular Putin, are desired not as dictators but as powerful delegates with an expansive—but still limited—mandate to ‘get things done’. Limits include: that the basic rights of the opposition not be violated; that the leader not have a right to remain in complete power for life; and that the people retain the right to select a successor in a free, fair and competitive process when that leader’s constitutional term limits are up." It is logical therefore that, as Putin has increasingly overstepped these limits, he should gradually be losing his earlier support and legitimacy.

Second, Hale confirms that Russians are "the enablers of their own autocracy—but for reasons different from those usually given." The underlying problem is "not any kind of culturally embedded or historically developed support for autocracy, but the preference for a kind of democracy that nevertheless relies on electing a strong leader as a way of concentrating national efforts on the resolution of major national challenges."

Or, in the words of W. W. Jacobs: "Be careful what you wish for."

References

  • Hale, Henry E. 2011. The Myth of Mass Russian Support for Autocracy: The Public Opinion Foundations of a Hybrid Regime, Europe-Asia Studies 63:8, pp. 1357-1375.
  • Weingast, Barry R. 1995. The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development. Journal of Law, Economics, and Organization 11:1, pp. 1-31.

September 17, 2009

Who are the Friends of the Poor? Or, With Friends Like These …

Writing about web page http://www.guardian.co.uk/commentisfree/2009/aug/24/revolution-1989-1979

Recently David Edgar (In the new revolution, progressives fight against, not with the poor, The Guardian, August 25) told a story in which one stage character, the “neoliberal urban middle class,” takes sides against another, “the economically egalitarian, socially traditionalist, rural poor.”

As his story unfolds, it turns out that a century ago the middle class was a friend of the rural poor, but became a victim of unintended consequences. The Russian revolution, Edgar writes,

grew out of an alliance between the progressive intelligentsia and the poor. That alliance was betrayed when Stalin turned on the intelligentsia in the Great Purge of the 1930s, as Mao did in the Cultural Revolution of the late 1960s.

In part because of this betrayal, Edgar narrates, the middle class then turned on its former friend the rural poor or became, at best, indifferent to its plight.

The latest chapter in Edgar's unfinished story continues this story in the world since the end of the Cold War. Progressive thinkers in many countries, we read, from the Middle East through the former Soviet bloc to the UK of "New Labour," have narrowed down their focus to rights and liberties that are real only for themselves -- property rights, freedom of expression and movement -- and have lost interest in affirmative action to raise up the victims of poverty and discrimination.

How will the story end? Time to turn the clock back, Edgar concludes:

Those of us who fervently believe in liberty, secularism, free speech, gay rights, civil liberties, enlightenment values and feminism, but also in social diversity, religious tolerance and economic equality, need to set about dismantling the barriers that people who believe in only some of those things want to erect.

At the heart of this story is a problem. My problem is not the ideals that Edgar promotes, which are laudable, but with what he thinks happened in history. What truly happened in the mid-twentieth century? What really broke the old, altruistic alliance of progressive thinkers with the poor? Where, in fact, do the poor stand today?

The unintended consequences of Edgar's story are right, but the history is “not even wrong.” The events that mattered most involved betrayal not of the middle class but of the poor. These events came years before Stalin's Great Terror or Mao's Cultural Revolution.

To achieve their goals, both Stalin and Mao imposed famine on the rural poor. Neither Stalin nor Mao particularly intended to do this; but it happened -- twice. In 1932 to 1934,  Stalin's policies of forced industrialization and food redistribution killed between five and eight million people -- in far larger numbers than he would ever kill the middle class. Mao repeated this achievement in the aftermath of the Great Leap Forward of 1956 to 1958 on a still larger scale: twenty million or more are thought to have died as a result. Both Stalin and Mao did this with the enthusiastic support of some (but not, of course, most) progressive thinkers, East and West.

For the progressively minded middle class, what happened in history should be far more disturbing than Edgar's fictional plot. The truth is that, in the peacetime years of the last century, educated intellectuals committed to the service of “pro-poor,” affirmative-action politicians helped to kill off as many of the rural poor as a global war.

With friends like these, who needs enemies? The rural poor might be forgiven for thinking twice before renewing such an alliance.


September 03, 2009

World War II: Hitler and Stalin, Guilt and Responsibility

Writing about web page http://www.reuters.com/article/latestCrisis/idUSL1655337

For Britain, World War II began 70 years ago today. On a personal note, today would also be the 71st wedding anniversary of my mother and father. They married on September 3, 1938; one year later, they heard Neville Chamberlain declare war on Germany. The war didn't stop them from believing in the future; by 1945 they had two baby girls, my older sisters. I'm thinking of them all as I write.

Who was to blame for World War II? This question is not the same as "What was to blame?" World War II had many deep causes. Ultimately, however, the decision for war is a political act, taken by human beings whom we can hold to account for their actions.

So, who was to blame:

  • Germany?

In Europe, the guilty men were the leaders of Nazi Germany. Hitler's plan was to build a German Empire in the East, making Germany self-sufficient in food. Hitler intended to conquer, depopulate, and then resettle Russia and Ukraine. This plan, not yet worked in detail, was soon elaborated in parallel with, but somewhat in advance of the much better known plan to exterminate Europe's Jews. Like the "final solution," the Hungerplan was genocidal: it envisaged starving up to 30 million people of the European part of the Soviet Union to death. 

Between Germany and the Soviet Union lay Poland and Czechoslovakia; these states had to be destroyed to clear the path into Russia. The attack on Poland on September 1, 1939, in response to which Britain declared war on September 3, was a necessary step towards Hitler's wider goal. Others contributed to the timing of Hitler's decision and played into his hands in various ways. This is the context in which the behaviour of the British, French, Polish, and Soviet governments should be judged.

  • Britain and France?

The worst thing for which the British and French were to blame was the Munich agreement of September 1938. By this agreement Chamberlain and Édouard Daladier, the French prime minister, betrayed Czechoslovakia, their ally, by giving part of it away to Germany. They made themselves accessories before the fact of Hitler's crime. Correctly interpreting this as weakness, in March 1939 Hitler broke the agreement and took the rest of Czechoslovakia.

  • Poland?

Although not signatories to the Munich agreement, the Poles also played a small role. First, they refused Soviet offers to send troops to defend Czechoslovakia. They suspected Soviet motives; it was less than twenty years since the Red Army's last invasion. (And history after 1945 strongly suggests that their suspicions would have been correct.) Second, when it became clear that Czechoslovakia was up for grabs they grabbed their own slice, a Polish speaking region on their border. In this small way they became accessories after (not before) the fact of the crime. On the scale of guilt, however, it was very minor. Like the British and French, they acted out of weakness. The best way to understand the Polish leaders at this time is that they were both overplaying and trying vainly to improve their hand in a game they hadn't chosen to enter and couldn't win; it is also true that they were willing to do so at the expense of others.

  • The Soviet Union?

The responsibility of the Soviet Union is more complex and wide-ranging. The Soviet government -- in other words Stalin who, by this time, was an unquestioned dictator --did several things, the sum of which was far worse than the Anglo-French collusion with Hitler at Munich. It is important that they all came after the Munich agreement. Until Munich, Stalin hoped to deter Hitler through "collective security" -- an agreement with Britain, France, and their allies Poland and Czechoslovakia, to contain Germany. The Munich agreement told Stalin that this was no longer an option. As his least bad remaining option, Stalin decided to collude with Hitler himself.

To the public, the Molotov-Ribbentrop pact (named after the Soviet and German foreign ministers) of August 1939 was simply an agreement between two countries not to attack each other. This in itself was no crime; Moscow had a similar pact with Tokyo that both sides upheld until August 1945. The crime of the pact was its secret clauses. Infamously, it dismembered Poland, which the Soviet Union had previously offered to defend, carving up that country with Germany, and creating the common Soviet-German border across which Hitler would attack less than two years later.

The pact was Hitler's green light to attack Poland, and determined the timing of today's anniversary. By agreeing to it, Stalin became a co-conspirator in Hitler's decision for war. At the same time it is clear that, even without any secret clauses, Hitler was ready to attack Poland anyway. Thus, Stalin made the Soviet Union an accessory to the crime before and after the fact, but he was not the prime mover in the major crime.

Stalin is directly to blame for many other crimes that followed directly from the Soviet occupation of eastern Poland. The very worst of these was his decision to approve the mass shooting of some twenty thousand Polish officers whom the Red Army had taken prisoner. The officers killed in the Katyn woods were not just professional soldiers; they were the elite of Polish society, politics, and business. The only possible reason for the massacre was that Stalin had determined to prevent the reemergence of an independent Poland.

Just as Stalin gave Hitler permission to attack Poland, other clauses, with some later amendment, gave Stalin Hitler's permission to do what he liked around the Baltic. Thus the Molotov-Ribbentrop pact led directly to the destruction of the independent states of Estonia, Latvia, and Lithuania, and to the "winter war" in which Stalin tried, at huge cost, to adjust the Soviet border with Finland. Like Poland, the three small Baltic republics suffered political and social decapitation through the imprisonment and deportation of their former elites.

The official Soviet justification of these measures -- at least, of those that were admitted -- was that Stalin was manoeuvring defensively from a position of weakness and was therefore, like the British, French, and Poles, not primarily to blame; through the Molotov-Ribbentrop pact, he bought the Soviet Union time to prepare for an eventual war with Germany. On first hearing, this justification sounds a little like what I said about Poland: Stalin was trying to improve his hand in a game he had not chosen to play. I take it half seriously. Stalin feared Hitler, realized that war was almost inevitable, and played for time, although he went on to develop many illusions about the likely timing of war and the margin for avoiding it. The Molotov-Ribbentrop pact did buy time, and he did use the time to prepare.

There are big differences from Poland, however. One is that the Soviet Union was militarily much stronger than Poland and had much more freedom of action. This must undermine Stalin's excuses for behaving badly. Yet Stalin behaved far, far worse than Poland ever did. The annexations, deportations, and mass killings that he authorized did not buy time or friends, and had little or no justification as preparations for war. On the contrary they caused or intensified anti-Russian feeling in the borderlands that persists to this day. The Katyn massacre had nothing to do with defendng against Germany and everything to do with completing the destruction of Polish independence. One thing to remember about Stalin is that it suited him to have tension on his borders, because this played well with the narrative of encirclement that he used to justify his own rule and the repressions that secured it. 

Stalin's decisions had profound effects on the timing of World War II and the course that it followed. But they did not cause the war. The war's trajectory was determined first and foremost by the character and aims of the nationalist socialist dictatorship in Berlin. If Germany had been governed by liberals, socialists, or traditional conservatives in the 1930s, there would not have been a war in the heart of Europe. Without Germany at war, there would still have been an Italian war in North Africa and a Japanese war in China, but neither the Japanese nor the Italians would have been brave enough on their own to start wars against Britain or America in the Mediterranean and the Pacific.

It is true that in 1941 Nazi propagandists tried to justify the German attack on the Soviet Union as a defensive reaction to Soviet preparations for an attack on Germany. This explanation. built on speculation at a time when all the Soviet documents were secret, continues to find traction today in some quarters, but the opening of the Soviet archives has found no more hard evidence for it than there was before.

  • Italy? Japan?

Italy was also involved, not only as a signatory at Munich but as an empire-builder around the Mediterrranean. And Japan; don't forget that World War II began in Asia in July 1937 when Japan opened full-scale hostilities against China. Mussolini and the Japanese leaders share the guilt for the war.

  • Deeper causes?

When we see several countries bent on the same course, we have to suppose that there might be common factors at work, and these factors might go deeper than any one person's calculations. These deeper factors must include the tensions and imbalances left over from World War I, and the devastating impact of the Great Depression. I've written elsewherethat in the long run the main cost of the Great Depresson was not economic but political, in the way it opened up European politics to dictatorships and aggressive warfare.

Does this reduce the guilt of the individual leaders? I don't think so. A criminal gang that exploits the devastation of a natural disaster to loot and kill is still a gang of criminals.

The idea that World War II had underlying causes is sometimes used to shift the focus away from Germany to Russia. Above, I suggested, "No Nazis -- no World War II." A counter-argument is "No Bolsheviks -- no Nazis." The Soviet Union was a frightening neighbour for both Poland and Germany. Before Hitler came to power, the Bolshevik record of government already included class warfare, mass killings, and concentration camps. Between 1918 and 1924 the Bolsheviks had incited several armed insurrections in Germany. The Red Army had invaded Poland as recently as 1920. This record certainly helped Hitler's racial politics and plans for expansion to play well with the German public. It also undermined any Polish inclination to a common front with the Soviet Union against Germany. 

At the same time, Germany did not attack the Soviet Union to restore democratic government or property rights to the Russians or anyone else. Hitler did not target only communist countries, nor did he spare Poland and Czechoslovakia on the grounds that they did not have Bolshevik regimes. His war in the East was a grab for land and food, regardless of who would be displaced. Saying that Bolshevism was responsible for this has more than a whiff of blaming the victim for the crime. The Bolsheviks should have been held to account for many crimes of their own, but not this one.

  • How does Russia see Stalin today?

The major crime was the world war itself. The primary guilt for it belonged to leaders in Berlin, Tokyo, and Rome. The war unfolded through many stages; at various times Hitler won cooperation from London, Paris, Warsaw, and Moscow. Those who colluded with him did so sometimes under duress, sometimes to play for time. In retrospect this might look weak or foolish, but those who did it did so to avoid war, not to cause it.

Sometimes it was worse than that. On occasion, Hitler's allies of convenience worked with him opportunistically, because it suited their other goals. This applied more than anyone to Stalin, who exploited his temporary truce with Hitler between 1939 and 1941 not only to build up defenses but also to weaken or destroy the previously independent states on his borders. In the course of this the Soviet Union committed crimes on its own account, that did not flow from Germany's crimes.

In spirit, my apportioning of responsibilities for World War II may not be that different from the account offered by Vladimir Putin to the Polesat ceremonies marking the anniversary of the German invasion on September 1. For example, Putin condemned the Molotov-Ribbentrop pact -- although only as a "mistake." He also offered a joint Russian-Polish commission to establish the facts of what happened at Katyn, although the facts are already well documented. Apart from that, what Putin said in Poland is not the problem.

The problem with Russia's present-day administration is not what it says abroad, but what it says at home. To the Russian public President Medevev has declared, in remarks that were notably anti-Polish and anti-European, there can be no debate over

who started the war, which country killed people, and which country saved people, millions of people, and which country, ultimately, saved Europe.

And for professional historians in Russia the message of the Presidential decree of May 15 this year, directed against "attempts to falsify history to the detriment of the interests of Russia," is again that on certain matters debate is to be ruled out -- by law if necessary.

The Soviet Union, led by Stalin, did not cause the war, but everything else in Medvedev's formulation is highly debatable. The Soviet Union certainly killed people in very large numbers for purposes that ought to be condemned. For Poland, Katyn was a national tragedy. It is true that the Soviet Union "saved Europe" from German domination, and "saved people, millions of people" from destruction. But Stalin did this primarily to save himself; it is not clear that he deserves their thanks for that.

As for the people that the Soviet Union saved most directly, its own people and the citizens of the countries that the Red Army "liberated," it saved them in order to subjugate them, and it subsequently killed more than a few of them in repressing their freedom and independence.

Stalin's legacy is complex. It is in Russia itself that well-informed debate, free of government pressure and "patriotic" restraints, is most needed. When polled, for example, most Russians approve of the Molotov-Ribbentrop pact but do not know that the Soviet Union invaded eastern Poland under its provisions.

Meanwhile, I'll stop to think for a moment about Roger and Betty Harrison, married under the gathering stormclouds of September 3, 1938, and their war babies.


May 31, 2009

Comrade Frumkin Was Right

This is about a forgotten prophet of the twentieth century. In 1951, the case of party member M. S. Frumkin came for investigation to the party control commission in Moscow. Frumkin was accused of adopting "a Trotskyist standpoint on matters of building socialism." 

The scandal arose in the context of a lecture that Frumkin gave on April 11, 1951, to teachers of the USSR transport ministry college for commanders of its armed security forces. The unpromising subject of Frumkin's lecture was "The conditions of material life of society." In the course of the lecture Frumkin remarked:

Transitional forms of production relations can exist not only during the transition from capitalism to socialism but also, conversely, during the transition from socialism to capitalism.

This opaque remark caused uproar. As the investigator commented afterwards, Frumkin had contradicted Stalin's "entirely clear" teaching on the transition from capitalism to socialism; according to Stalin, transitional production relations arose only in the context of movement from a lower form of society to a higher form -- not the other way around. The listeners protested. What was this "transition from socialism to capitalism"? One commented:

Comrade Frumkin's statement contradicts the laws of historical development of society ... it would follow from this formulation that the socialist system should be replaced by the capitalist [system].

Another asked:

Why was so much blood spilt in the struggle for socialism, if a return to capitalism is inevitable?

Instead of recognizing his mistake, however, Frumkin went on to defend it to the listeners, giving three historical examples of transition from socialism to capitalism:

  • The fall of the Paris Commune (1871)
  • The crushing of the Hungarian Soviet Republic (1919)
  • And the defection of Yugoslavia to the camp of imperialism (1948)

As I read the report (in the Hoover Institution's Archives of the Soviet Communist Party and State collection, RGANI, fond 6, opis 6, file 1643, folios 26 to 28), my interest mounted. These seemed like good examples to me. How would the listeners respond? But they objected: "These examples are incorrect!" Frumkin took a step back: the issue had "not been worked through and was for discussion."

Over the next few weeks Frumkin maintained this position. During this time he was first criticized at a party committee meeting in the college, and then reprimanded by the township party committee "for the political error that he committed and for reluctance to correct it at the proper time."

When the matter came finally to the party control commission, Frumkin accepted his mistake, putting it down to a "slip of the tongue." He claimed that he had confused it with the possibility of a violent capitalist restoration from outside, of the sort that Stalin himself had admitted in a letter "On the Final Victory of Socialism in the USSR," published in Pravda on February 14, 1938. Since Frumkin now accepted his mistake, and had been penalized within the party, the party control reporter proposed no further action.

Who was Frumkin? We are given only a few details. We know his initials but not his given name or patronymic. He was born in Russia in 1903; his family background was working-class. He joined the communist party in 1925. In 1935 he graduated from the Lenin Military-Political Academy in Leningrad. From there he was sent to teach in military schools in Briansk, then Gor'kii.

In 1943 Frumkin was taken into the Red Army where he served until 1946 as deputy chief of the political department of the 153 rifle division. On demobilization he was appointed deputy chief of administration of educational establishments for the RSFSR ministry of trade, and then section chief of the ministry of transport college where the incident took place. By the time of the investigation he had been moved on -- or down -- to be a political instructor in the security establishment of the Moscow-Riazan railway.

In short, Frumkin was a functionary of his time; there were millions like him in everything but that instinct that led him, for a few weeks in 1951, to defend the idea that history could go in reverse. Frumkin would have turned 88 in 1991, so he is unlikely to have lived to see his prophesy come true.


May 02, 2009

Truth in Humour; No Humour in Truth

In The Gulag Archipelago, Alexander Solzhenitsyn recounted the Stalin-era joke of the labour camp guard who asked a newly arrived convict about the length of his sentence.

The man says 25 years, but proclaims he is innocent!

The guard retorts that he must have done something because the innocent are only given 10 years.

There can be a grain of truth in humour; that's what makes it funny. In this case, it's a matter of historical record that millions of people suffered unjust imprisonment or execution in Stalin's time. It isn't funny when the victim says it; the joke is when it is said by the perpetrator.

This next bit isn't a joke.

On January 31, 1938, the Politburo of the party Central Committee in Moscow considered the problem of foreign refugees. (The document is in the Soviet archives collection of the Hoover Institution: RGANI, f. 89, op. 73, d. 11, folio 53). The minutes of the meeting record:

It has been established that foreign intelligence services are casting their mass espionage and sabotage network of agents into the USSR, mainly under the guise of refugees and those apparently seeking a political safe haven, better economic conditions in consequence of unemployment, deserters from military units and border security, and returning migrants and emigrants.

The Central Committee of the All-Union Communist Party (Bolsheviks) resolves:

  1. To propose to the USSR NKVD [interior ministry in charge of state security] to arrest immediately and subject to meticulous interrogation all refugees detained at the border, regardless of their motives for entering the territory of the USSR.
  2. All refugees for whom it is established directly or indirectly that they entered the territory of the USSR with espionage, sabotage, or other anti-Soviet intentions -- to hand them over to the court of the Military Tribunal, with mandatory application of [death by] shooting. 
  3. Cases of all refugees for whom it is established that they entered the territory of the USSR without ill intentions -- to hand them over for consideration by the USSR NKVD Special Asssembly, with application of the penalty of 10 years' imprisonment ... [emphasis added]

So: Guilty, death. Innocent, ten years. It didn't make me laugh.


January 26, 2009

Quiet Flows the Don: The Radice Critique of Higher Education in the UK

Writing about web page http://inderscience.metapress.com/link.asp?id=xj92884n72203v41

Hugo Radice has written a fine critique of the management of higher education in the United Kingdom ("Life After Death? The Soviet System in British Higher Education," in The International Journal of Management Concepts and Philosophy 3:2 (2008), pp. 99-120). Radice's case is that British universities work under the same centralized command-and-control regulation as the old Soviet economy, and are subject to the same perverse incentives and the same dysfunctional behaviours that arose as a result: "plan bargaining, endemic shortages, sectoral autarky, and the battle for political control of decision."

I have shared this view since I first came across Radice's paper (and another on similar lines: Ronald Amann "A Sovietological View of Modern Britain," in The Political Quarterly 74:4 (2003), pp. 468-480). Now that Radice's paper has been rightly published in a refereed journal, I find I have somewhat less sympathy for its conclusions than I expected. It hits the right buttons on many core issues. And yet ...

Radice took six years to write and revise his paper. For three of those years, I chaired my department. From my first days in that role, I found that I had an accidental advantage – one of inestimable worth – over other novice chairs: a lifetime of studying Soviet bureaucracy. The aspects of university administration that baffled others seemed natural and obvious to me: the plan bargaining that Radice describes, soft budget constraints, the importance of networks and coalitions, and so on. I felt like a fish in water.

I reminded myself of the things that Stalin thought of as critical to power. At one time Stalin said: "Politics decides everything," so I became a political animal. At another time Stalin said: "Organization decides everything," so I tried to ensure that my department was clearly and well constituted, and then to respect that constitution. On yet another occasion Stalin said: "Cadres decide everything," so I gave almost all of my time to "cadres" – the identification, recruitment, promotion, and retention of academic talent. Stalin never said: "Money decides everything," so I limited  the attention I gave to money. I didn't ignore it, but I tried to ensure that money followed academic priorities, not the other way around.

I recalled what Soviet managers said consistently when asked what was the the most important condition for them to do their jobs: "To have good relations with everyone." No Soviet manager could do their job without cultivating networks of loyalty and influence. They never knew when they would need a friend, or regret having made an unnecessary enemy. I observed how fellow chairs that gave offense or picked gratuitous quarrels with peers and superiors paid a heavy price in their ability to bargain resources for their departments.

I knew Stalin appreciated loyalty, but as a signal of loyalty he also valued the ability to speak truth to power. Showing loyalty to a university that had already employed me for three decades was not a difficulty, but I also tried to tell the truth to my leaders. I cultivated their trust, partly so that my own recommendations would be heard and my own decisions would be respected. I knew that, like Stalin, the vice chancellor could change any decision I made if he wanted to. I also knew that, like Stalin, he had limited attention; he didn't have time to manage my department himself. I wanted him not to want to manage my department; I wanted him to want me to do it, and to leave me to do it. I needed him to trust me, and I carefully monitored the signals of that trust.

I observed the continual battle for resources inside my university. It was a game instantly recognizeable to students of the Soviet economy. There was a centre, hungry for discretionary power over departmental resources; departments were continually working to pool risks and insure themselves against the grabbing hand of the centre. In this context budget constraints were continually negotiated, varied, and renegotiated, so were never hard. Conservatism and short-termism were rife, and intertemporal smoothing nearly impossible. Like the Soviet economy, our system's dysfunctions could be mitigated by intervention from time to time, but fundamental reform was out of the question. Despite the problems, feasible solutions emerged.

There were many times when I didn't know what to do. Sometimes I put myself in the shoes of a party secretary governing an important region of the USSR, or perhaps the director of a big weapons factory in the Urals. What would they do? I did the same; usually, it worked.

Collective responsibility is one of the aspects of the Soviet command system against which its leaders fought a lifelong battle. The excess of collective responsibility in British higher education for teaching and assessment is something that drove me crazy and no doubt will continue to do so. The teaching quality people always go on about collective responsibility as though it is a good thing, a moral value in itself. To me, a little collective responsibility is a necessary evil, required to give some protection to students against sloppy teaching and arbitrary assessment and to shield academics against undue student pressure. But too much of it and no one is responsible; along with responsibility, blame is pooled, and we all end up carrying the can for a few bad citizens that few have the courage to identify and no one can manage because no one person is responsible.

And yet ...

There were some things I knew about the Soviet system, that I found I could not use. I thought of the fear that Stalin inculcated and exploited in those around him. I hoped that my colleagues respected me, but they did not fear me. I did not classify them into enemies and potential enemies (those who were my friends today but might turn against me in future). I did not order them arrested, tortured, and shot, nor did I hold their partners hostage in my Northumbrian Gulag to ensure their loyalty. When they voted me down, I served up my revenge neither hot nor cold but smiled and acknowledged the preference of the majority.

My university did not feel like the Soviet Union! I knew the Soviet Union. I had lived, worked, and breathed in it; my first visit was in 1964; I studied there in the 1970s, and have visited Moscow many times since. After 30 years, I also knew my university. It wasn't the same. But how did it differ?

The big difference was this: I had no barbed wire. With a few coils around the campus, I could have blocked off the exits. I'd have had to give guns and spotlights to the security staff. If I could have stopped my professors from leaving, I would have been able to do things to them that would lower their welfare, and they would have had to accept it. They would have grumbled, and then conspired against me, and I would have needed a political police within the department to listen, detect, and report it to me. I'd soon put a stop to that. Forced labour would be next. But I had no barbed wire. If they didn't like the pay or conditions on offer, and could do better elsewhere, my colleagues would leave. Other universities that could use their talents more productively would make them a better offer, and I would have to match it or lose them. Without barbed wire, I could not accumulate personal power by treating others badly; I could get my way only through reliance on positive motivations. 

What motivations? Here I had another revelation: if my department was like anything in the Soviet economy, it was like the parts that worked best! There were parts of the Soviet economy that didn't work; there, enterprises padded their costs and met the plan through false accounting and other manipulations. But in other branches, a relatively poor country could set talent to work and achieve great things: the best tank, the first satellite, and so on.

In those branches, what motivated people to put in effort was not cash but an inner drive to achieve something great and thereby win a prize. I had studied Soviet military engineering. The Soviet designers were motivated partly from within (they wanted to get into space) and partly by reputation (they wanted to be first into space). This motivation was extremely powerful; one finding in my work was that these designers implicitly priced the immortal reputation of being the first in the world to invent something at thousands of times their annual salary.

I saw that this also described my colleagues pretty well: each new idea they had, each new finding they reached, each new paper they wrote was like a ticket in a lottery where first prize was immortality. This motivation was also the thing that made them so hard to manage, since a manager could not easily manipulate it. As for cash, it was important mainly that cash did not de-motivate them by making them feel disrespected or undervalued. 

Putting these things together, I saw that what made my department work was competition. There were two markets in which we competed, the market for talent and the market for reputation. In the market for talent, we had to compete to hire great scholars and pay them their worth. To afford that, we had to care about costs and use all our resources productively. In the market for reputation, we were all competing for immortality. My department was competing with other departments in national and international rankings by research quality (approximated, with some error, by the quality of journal acceptances), research influence (approximated, with a variable and unpredictable lag, by citations), research inputs (QR income and competitive grants), teaching quality (approximated, with a wide error, by student evaluations and, with less error but a greater lag, by our graduates' incomes and academic placements), and (in the student market) fee income; but the income side was mainly important to my department in that it would allow us to compete more effectively in the market for talent. And, as individual scholars, we were all competing with each other for immortality (approximated by citations).

It was this competition that aligned everybody's interests. It was't perfect competition; there were clear signs of rent seeking and overinvestment. But we couldn't achieve our plan through false accounting, because we had to meet objective, externally verified criteria of our product quality. We couldn't push up costs all the time, because if we did we would lose competitive advantage to leaner departments. For these reasons, I decided, my university was most certainly not going to repeat the sad history of the Soviet economy.

We were better than that, because we had no choice but to be better.

Radice's model of UK higher education is nearly but not quite mine. In his framework, HEFCE is the funding ministry, the universities are the spending ministries, and departments are enterprises. The targets are set by the RAE and the QAA. The research councils administer the special innovation funds for which ministries and enterprises compete. Some differences are unimportant. The most important one is that university departments are not like the typical Soviet enterprise, but are more like Soviet research institutes and design bureaux. Like their Soviet equivalents they employ a mix of talented people, people that look talented but are not, and people that looked talented once and maybe still have something in them -- or maybe not. Like their Soviet equivalents, they all have a capacity to surprise the world.

Another difference between us might be over the RAE. To Radice, the RAE has us all playing a bureaucratic game. I agree there is an element of that, primarily in deciding whom to submit or exclude. But in three years of trying to recruit world-class scholars from countries that do not have an RAE, my complaints about it have met with little sympathy. Generally, scholars trying to leave Germany, Italy, and Israel, for example, wish that their country had an RAE, and expect it would be easier to stay home if it did. They would tell me that, if the RAE was bad, to have no RAE was worse. The fact is that, beyond deciding participation, there is far less to manipulate in the RAE than in teaching quality, say. And the evidence is that the RAE has been instrumental in a substantial improvement in the international standing of UK research.

Beyond criticism of the RAE, Radice claims that "ultimately teaching quality really is important" but has been bureaucratized without giving it priority. I agree about the bureaucratization; the QAA is a rent-seeking monopolist, not a true regulator. Worse, it has seeded itself into the teaching quality sections of university administrations across the country.

I don't agree about that teaching quality merits higher priority than research. The most important contribution of universities to teaching may be not to what is taught today, nor to how it is taught, but to what will be taught in thirty years' time. What comes out of the best research today will decide how textbooks will be written for the next generation of students. The most important of today's new concepts will be featured in those textbooks, named after their inventors, as the Edgeworth box, the Phillips curve, and Granger causality were in their time.

That's immortality.

Radice took time off from teaching his students to write "Life After Death." Good for him; this paper is important for both scholarship and public policy. If that is right, the education textbooks will soon feature added sections on:

The "Radice Critique" of Higher Education in the UK


I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).



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