My review of Deepak Lal book

In: Uncategorized

11 Sep 2006

My review of Deepak Lal’s Reviving the Invisible Hand from the 4 September issue of Fund Strategy magazine:

Deepak Lal, professor of international development studies at the University of California, Los Angeles, is an intellectual rarity nowadays. He understands society according to consistent principles – in his case adherence to what he calls “classical liberalism” – rather than examining each question on pragmatic grounds. This approach is both his strength and his weakness.

By classical liberalism he means that he supports both laissez faire and unilateral free trade. Laissez faire refers to a society in which the state provides essential public goods – for example, armed services, police, property rights, transport infrastructure – at the least cost from taxes. Lal rejects the idea that this conception necessarily means a minimal state as a caricature.

Unilateral free trade means not only that open trade is seen as beneficial but countries should welcome it even if other nations do not. Even if a country allows free trade while its competitors reject it the trading nation should, in Lal’s view, gain. His model is 19th century Britain, a unilateral free trader, whereas contemporary America will only trade freely with countries that accept reciprocal arrangements.

Lal mentions as an aside that he is in favour of empires – a subject on which he has written another book. He says they provide the public good of order from which everyone can benefit.

From these premises he launches an attack on what he calls the “dirigiste dogma”. He sees the state as being essentially predatory and rejects the view that it should play an extensive role in the economy. Lal also makes a useful distinction between traditional dirigisme – old-style socialism – and new dirigisme – new forms of state regulation. Advocates of the second form of dirigisme include cultural nationalists, environmentalists and non-governmental organisations (NGOs).

Lal is at his strongest when he shows how the more recent form of dirigisme involve new forms of regulation. For example, he shows those who support “capitalism with a human face” can hurt the poor. Even campaigns against child labour – which have an obvious emotional appeal – tend to be counter-productive. It is usually the most impoverished who send their children to work. Depriving them of their income is likely to worsen their plight. The real solution to child labour is economic development. Studies show it tends to disappear when GDP per head exceeds $5,000 (£2,600).

Another of Lal’s strong points is his attack on environmentalism. He quite rightly portrays it as a misanthropic ideology with a hostility to development that condemns the mass of the world’s population to poverty.

The fundamental flaw in Lal’s argument is his lack of sufficient historical perspective. His hatred of dirigisme is so great he underestimates the significance of key differences between the two forms he identifies.
Old-style dirigisme was based on the idea, however flawed, that state intervention could help create a better society. Its forms varied enormously from radical socialism to the New Deal in 1930s America. The state was seen as a benign institution that could improve the lives of its citizens. It may not have lived up to its promise, but there was a positive impetus to state intervention.

Contemporary state intervention, in contrast, is entirely misanthropic. It is rooted in Margaret Thatcher’s idea that “There is No Alternative” to the way contemporary society is organised. Instead, its main aim is to restrain human activity – whether by business or individuals. For example, the enormous emphasis on regulating individual behaviour in contemporary politics. Behaviour previously seen as in the private domain – such as drinking, smoking or eating fatty foods – has become seen as a fit area for state regulation. Although the days of old-style nationalisation have gone, the state is far more extensively involved in our everyday lives than ever before.

Lal also fails to see the fundamental change in what is considered radical. The traditional left-wing critique of society attacked capitalism on the grounds that it did not provide sufficient wealth for the mass of the population. Typically it was conservatives who were suspicious of mass affluence. Today, in contrast, it is environmentalism, with its hostility to mass consumption, that tends to be seen as radical. Yesterday’s conservative ideas have become embodied in today’s radicalism.

Lal misses this key distinction as he simply sees dirigiste ideas as part of a romantic reaction to the 18th century Enlightenment. For him there is little substantial difference between 19th century Marxism, America’s New Deal of the 1930s and contemporary ecofundamentalism. He exaggerates the similarities between these outlooks and downplays the differences.

He also fails to explain convincingly why it is that new dirigisme has taken hold. For example, he is right to argue that environmentalism is more like a religion than a political outlook in that it is based on faith rather than reason. But he fails to explain why it is that the environmentalist dogma has attracted so many followers, including national governments.

Similarly, he describes well the growing power of NGOs, but not how they have come to play such a prominent role in international organisations.
Ultimately, then, Reviving the Invisible Hand fails as a critique of the new dirigisme. It is generally good at describing the main shifts that have taken place in relation to international economics and the role of the state over the past two centuries. But it does not provide an adequate explanation of why such changes have taken place.

Nevertheless, it would be wrong to be too harsh on Lal. His work embodies immense intellectual ambition – a quality that is rare today. Equally importantly, he tries to examine key questions from a rational perspective rather than rely on superficial impressions of events. His book is a useful start for those trying to understand the modern world, particularly third world development, but it should not be its end point.

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