0:00:08 > 0:00:11Welcome to HARDtalk.
0:00:11 > 0:00:17Is rising inequality a sickness that could yet kill capitalism?
0:00:17 > 0:00:21The debate is currently raging in politics as well as economics.
0:00:21 > 0:00:24President Obama says income inequality is
0:00:24 > 0:00:27the defining challenge of our time.
0:00:27 > 0:00:31My guest today thinks that is to misunderstand 300 years
0:00:31 > 0:00:34of global growth and enrichment.
0:00:34 > 0:00:37Influential economist Deirdre McCloskey focuses
0:00:37 > 0:00:44on the enduring power of innovation rather than wealth distribution.
0:00:44 > 0:00:47Is it OK for the rich to enjoy a party to
0:00:47 > 0:00:52which no-one else is invited?
0:01:18 > 0:01:22Deirdre McCloskey, welcome to HARDtalk.
0:01:22 > 0:01:24Thank you.
0:01:24 > 0:01:26Let's start with the sort of mammoth undertaking you are
0:01:26 > 0:01:29involved in to sort of chart the massive rise in material
0:01:29 > 0:01:34prosperity in the industrialised West over 300 years or so.
0:01:34 > 0:01:36What do you believe is the base cause
0:01:36 > 0:01:40of that massive rise in prosperity?
0:01:40 > 0:01:45Innovation, smart ideas, and then, behind that,
0:01:45 > 0:01:56the freedom and personal respect that became a movement in England
0:01:56 > 0:02:04and Scotland and what became the United States in the 18th century.
0:02:04 > 0:02:07I suppose the immediate question from that is, why the sudden burst
0:02:07 > 0:02:11of innovative economic activity?
0:02:11 > 0:02:13Why the new generation of ideas people coming around
0:02:13 > 0:02:16in the 18th century, 19th century?
0:02:16 > 0:02:20That is volume 3.
0:02:20 > 0:02:24You have got to make your early orders for.
0:02:24 > 0:02:28It is almost finished.
0:02:28 > 0:02:32More or less by accident, in Europe in the 16th, 17th,
0:02:32 > 0:02:3818th century, there was prepared this new equality, this new equality
0:02:38 > 0:02:45of freedom and respect for people.
0:02:45 > 0:02:48They had a go.
0:02:48 > 0:02:50So the word equality has already appeared in your thesis.
0:02:50 > 0:02:56What we see today is this raging debate about the corrosive impact
0:02:56 > 0:02:57of inequality.
0:02:57 > 0:03:01The idea that the inequality that is rising in income and wealth
0:03:01 > 0:03:04accumulation in the industrialised West is actually threatening to
0:03:04 > 0:03:09undermine capitalism itself.
0:03:09 > 0:03:12You have talked about inequality already so should I
0:03:12 > 0:03:16take it that you worry about that?
0:03:16 > 0:03:19I am concerned about the condition of the working class.
0:03:19 > 0:03:25I am not concerned about how many yachts some heiress has.
0:03:25 > 0:03:28Although, I am finding it annoying that I do
0:03:28 > 0:03:33not have a 100 foot yacht and crew!
0:03:33 > 0:03:40It is not the expenditure at the high end that cause poverty
0:03:40 > 0:03:43at the low end.
0:03:43 > 0:03:48As long as that is not the case, let them have their party.
0:03:48 > 0:03:53It is foolish but it is not the real problem.
0:03:53 > 0:03:58The real problem is poverty and the solution to that is not
0:03:58 > 0:04:01going after the rich.
0:04:01 > 0:04:03We will get to solutions in a second.
0:04:03 > 0:04:06I just want to make sure that I have understood
0:04:06 > 0:04:08your economic philosophy correctly.
0:04:08 > 0:04:14If one pictures an economic pie and slices it up, the argument right now
0:04:14 > 0:04:21is whether more and more of the pie, even if it is growing, is going to
0:04:21 > 0:04:26the rich so that, in absolute terms, the poor and even the middle class
0:04:26 > 0:04:34as well are actually getting a smaller piece of pie. I do not
0:04:34 > 0:04:39think that is actually true.
0:04:39 > 0:04:43It is asserted all over the place but I don't think it is true.
0:04:43 > 0:04:45This is where data comes into it.
0:04:45 > 0:04:48Thomas Piketty, the French economic historian, and many others, too, can
0:04:48 > 0:04:53cite figures that show that while there has been significant GDP
0:04:53 > 0:05:04growth, the middle class and, still more, the poor, have not benefited.
0:05:04 > 0:05:05Indeed, they are are no more better off
0:05:05 > 0:05:08today than they were 30 years ago.
0:05:08 > 0:05:11That is false.
0:05:11 > 0:05:14Even his own figures do not show that.
0:05:14 > 0:05:18He has done a fine book.
0:05:18 > 0:05:22He is an honest man but he is predisposed to see this
0:05:22 > 0:05:27absence of growth.
0:05:27 > 0:05:30In real terms, that is in terms that allow for the improvement of the
0:05:30 > 0:05:35quality of goods, ordinary people, ordinary, very poor people and the
0:05:35 > 0:05:37middle class have gotten better.
0:05:37 > 0:05:40Let me quote you Barack Obama himself who, in the last year,
0:05:40 > 0:05:43has said that income inequality represents the greatest challenge
0:05:43 > 0:05:45of our time.
0:05:45 > 0:05:47He said, looking at America today and seeing
0:05:47 > 0:05:52how the poor find it so very difficult to lift their children out
0:05:52 > 0:06:01of poverty, Americans have to accept that they can and must do better.
0:06:01 > 0:06:06It is not the material condition of the poor that is the main problem
0:06:06 > 0:06:09in a modern economy.
0:06:09 > 0:06:18In a rich economy like the United States or Britain, ordinary goods
0:06:18 > 0:06:29and services are, in historical terms, cheap and available.
0:06:31 > 0:06:45The problem is education, attitudes that need to be changed.
0:06:45 > 0:06:51For instance, in this country, ordinary, working class people do
0:06:51 > 0:06:56not feel welcome at university.
0:06:56 > 0:06:59That has to be changed.
0:06:59 > 0:07:02I am concerned about the poor.
0:07:02 > 0:07:04I am not concerned about the rich.
0:07:04 > 0:07:07I want to focus on the poor and how the state and interventions
0:07:07 > 0:07:10can best help the poor.
0:07:10 > 0:07:12I want to stick with the rich one time.
0:07:12 > 0:07:16It is a topical issue, thanks to Mr Piketty and others.
0:07:16 > 0:07:22Here is one more piece of data that I want to put to you.
0:07:22 > 0:07:24It is from Paul Krugman, who has coined this phrase about
0:07:24 > 0:07:31the new gilded age, which he thinks is corrosive to economic wellbeing.
0:07:33 > 0:07:35The share of national wealth enjoyed by the top 1%
0:07:35 > 0:07:40in America halved after 1900.
0:07:40 > 0:07:44It has gone all the way back up in recent times to where it was
0:07:44 > 0:07:47in 1900.
0:07:47 > 0:07:50We have got this U-shaped curve and he says that is one
0:07:50 > 0:07:53of America's biggest problems.
0:07:53 > 0:07:59I agree with Paul about 50% of the time.
0:07:59 > 0:08:05The other 50% is the problem.
0:08:05 > 0:08:10One very serious problem is that those calculations don't account
0:08:10 > 0:08:13for human capital.
0:08:13 > 0:08:20It is an immensely important part of the modern economy.
0:08:20 > 0:08:25All these are concerned with physical and financial capital.
0:08:25 > 0:08:32Most people earn their income from their brains, not their backs.
0:08:32 > 0:08:39It is very wrong to say that capital has become more concentrated
0:08:39 > 0:08:43since 1900.
0:08:43 > 0:08:47It has gotten much less concentrated.
0:08:47 > 0:08:52The fundamental standard of comfort, equality and the standard
0:08:52 > 0:09:01of comfort has improved since 1800, 1900, not gotten worse.
0:09:01 > 0:09:05One of the reasons why there is a lot of contention and dispute about
0:09:05 > 0:09:08the data and the meaning of the data is because it is becoming more
0:09:08 > 0:09:13and more apparent that a lot of the wealth owned by the wealthiest in
0:09:13 > 0:09:18Western society is actually off the radar. It is part of a globalised,
0:09:18 > 0:09:23offshoring, financial, sophisticated economy which means it does not
0:09:23 > 0:09:27necessarily get taken into account for tax purposes in the nation state
0:09:27 > 0:09:30and all that sort of thing.
0:09:30 > 0:09:33The argument of Krugman, Piketty and others is that this has
0:09:33 > 0:09:35to be addressed.
0:09:35 > 0:09:38One of the fundamental problems is that the rich have dominated
0:09:38 > 0:09:42the political system to a point where the tax system, the political
0:09:42 > 0:09:49game itself is dominated by the interest of the most wealthy.
0:09:49 > 0:09:52I don't think that is true.
0:09:52 > 0:09:56US politics is money politics.
0:09:56 > 0:10:00In the last presidential election, there was an attempt to buy
0:10:00 > 0:10:03the election by the very rich and it failed.
0:10:03 > 0:10:07They did not succeed.
0:10:07 > 0:10:10They were certain that they were going to be able to throw
0:10:10 > 0:10:13Barack Obama out of office.
0:10:13 > 0:10:18Surely the message is that the big-money backs both sides.
0:10:18 > 0:10:20Neither Democrats nor Republicans represent anything
0:10:20 > 0:10:25but the interests of big money.
0:10:25 > 0:10:27It has always been so.
0:10:27 > 0:10:32It is the golden rule.
0:10:32 > 0:10:35Those who have the gold rule.
0:10:35 > 0:10:42In journalism and academic life, we must lean against that.
0:10:42 > 0:10:46So you would argue that capitalism today is as vigorous, dynamic
0:10:46 > 0:10:49and destructive - creative and destructive - as it has ever been.
0:10:49 > 0:10:53Yes.
0:10:53 > 0:10:57It is crucial to include the rest of the world.
0:10:57 > 0:11:01If we focus only on old Europe and the United States,
0:11:01 > 0:11:06as these calculations do, we will miss that in China
0:11:06 > 0:11:16and India, economic growth is going at 7-10% per year in real terms.
0:11:16 > 0:11:19I would say that is another argument against your...if
0:11:19 > 0:11:24I can put it this way, your economically liberal, University
0:11:24 > 0:11:26of Chicago, economic philosophy.
0:11:26 > 0:11:30You cannot tell me that the success of Chinese capitalism is based on a
0:11:30 > 0:11:37pure adherence to market philosophy.
0:11:37 > 0:11:40Purity is not attainable.
0:11:40 > 0:11:43Pure capitalism, pure socialism.
0:11:43 > 0:11:45China is state-managed capitalism.
0:11:45 > 0:11:47It works.
0:11:47 > 0:11:50We must not be comparing perfect capitalism and perfect socialism.
0:11:50 > 0:11:53We must not be comparing outcomes.
0:11:53 > 0:12:00What has happened in China and India is massive doses of the market.
0:12:00 > 0:12:03In both countries, the state is still powerful.
0:12:03 > 0:12:05Managed by the state and with massive interventions
0:12:05 > 0:12:09from the state.
0:12:09 > 0:12:17Yes, interventions and different forms of capitalism but the outcome
0:12:17 > 0:12:27is, with the introduction of more market freedom, both of these
0:12:27 > 0:12:32countries have grown astoundingly.
0:12:32 > 0:12:36That is available to countries I know and love well.
0:12:36 > 0:12:40It includes South Africa and Brazil.
0:12:40 > 0:12:45When they see it as well, the world will become as rich
0:12:45 > 0:12:50as the United States.
0:12:50 > 0:12:52You were talking about the way that the focus needs
0:12:52 > 0:12:56to be not on the distribution of wealth and inequality but
0:12:56 > 0:13:04on the baseline prosperity or otherwise of the poorest.
0:13:04 > 0:13:06If I may continue the thought, the argument is that what is
0:13:06 > 0:13:10happening to the poor and the rise in inequality is directly and
0:13:10 > 0:13:15relevantly corrosive of economic efficiency because we are not
0:13:15 > 0:13:20maximising in Western economies the education, the social
0:13:20 > 0:13:22and economic care of our poorest and, therefore, the potential that
0:13:22 > 0:13:26they represent is being lost.
0:13:26 > 0:13:28I agree.
0:13:28 > 0:13:31I think that it is scandalous how bad the schools are
0:13:31 > 0:13:35in large urban areas in the United States and Britain and,
0:13:35 > 0:13:40for that matter, France.
0:13:40 > 0:13:44The solution is not more socialism.
0:13:44 > 0:13:48Surely the solution, they would say, is to use redistributive tax to
0:13:48 > 0:13:57spend more on educating the poor, on giving them fair opportunities.
0:13:57 > 0:14:08I am very willing to be taxed to pay for superior education.
0:14:08 > 0:14:11I am all for it.
0:14:11 > 0:14:14I am not prepared to be taxed for a state-provided education.
0:14:14 > 0:14:17That is the distinction.
0:14:17 > 0:14:21In Sweden, in the 1990s, they introduced private academies.
0:14:21 > 0:14:26A substantial number of children go through them.
0:14:26 > 0:14:30It has been very successful.
0:14:30 > 0:14:36I am willing to pay through the market to make schools work.
0:14:36 > 0:14:43They do work, in fact, in large parts of Britain
0:14:43 > 0:14:46and the United States.
0:14:46 > 0:14:50I think it is wrong to say that schools and the provision for
0:14:50 > 0:14:54the poor are worse than they were.
0:14:54 > 0:14:57They are not.
0:14:57 > 0:15:06They have improved.
0:15:06 > 0:15:11If you look at Sweden, they looked at precisely the
0:15:11 > 0:15:13difference between the economies of Scandinavia, and parts of Western
0:15:13 > 0:15:19Europe and the United States.
0:15:19 > 0:15:22They concluded that more unequal societies are unhealthy societies,
0:15:22 > 0:15:25and a whole array of different measurements, from the number
0:15:25 > 0:15:29of people in prison, suffering from stress and anxiety disorders,
0:15:29 > 0:15:44those failing in their education...
0:15:44 > 0:15:48I don't think that has anything to do with inequality,
0:15:48 > 0:15:51in my own country, it has to do with these awful laws against
0:15:51 > 0:15:54recreational drugs that we have, and an attitude that you find on the
0:15:54 > 0:15:56conservative side of all countries.
0:15:56 > 0:16:02Jail them, that will solve things.
0:16:02 > 0:16:05It is not as a result of capitalism, but a result of the power
0:16:05 > 0:16:08of the state.
0:16:08 > 0:16:11Used inappropriately.
0:16:11 > 0:16:12A monopoly of violence...
0:16:12 > 0:16:17With respect, the power of the state is higher
0:16:17 > 0:16:22in Finland or Sweden or Norway, than it is in the United States.
0:16:22 > 0:16:25Wilkinson and Pickett, the academics who wrote this book, they concluded
0:16:25 > 0:16:28that on so many different socio- economic measures, they were better
0:16:28 > 0:16:31and healthier places to live.
0:16:31 > 0:16:37I am not against social democracy, in places like Scandinavia, I am
0:16:37 > 0:16:44quite familiar with Sweden, I have lived a long time further south in
0:16:44 > 0:16:48Holland, and they work quite well.
0:16:48 > 0:16:55But the problem is, most states are not competent to do
0:16:55 > 0:17:00social democracy well.
0:17:00 > 0:17:04Italy, no Italian would suggest that it would be a good idea to give the
0:17:04 > 0:17:07Italian state more money or power.
0:17:07 > 0:17:11Although some states of the United States are capable, others, like
0:17:11 > 0:17:16my own, Illinois, they are not.
0:17:16 > 0:17:19So, I think it depends where you are.
0:17:19 > 0:17:24It is not a universal feature of social democracy,
0:17:24 > 0:17:33on the one hand, for every market.
0:17:33 > 0:17:36-- a free market. On the other, it depends on the culture.
0:17:36 > 0:17:38It is interesting, you have nuanced it in that way.
0:17:38 > 0:17:41If I may, I want to turn this conversation to be more personal.
0:17:41 > 0:17:44I want to stay with economics and history but reflect
0:17:44 > 0:17:49on your own life journey as well.
0:17:49 > 0:17:59As my mother says, do not do anything more interesting!
0:17:59 > 0:18:02Well, there have been a few people who have had a more interesting
0:18:02 > 0:18:03back story than yourself!
0:18:03 > 0:18:05You have been a highly-respected economist for a long time.
0:18:05 > 0:18:12For a lot of your career, you were Donald McCloskey, a male
0:18:12 > 0:18:19economist, and now you are Deirdre McCloskey, a female columnist.
0:18:19 > 0:18:21-- economist. You have said some interesting things.
0:18:21 > 0:18:23You said, as a young man, I learned to be
0:18:23 > 0:18:25a standard issue male academic.
0:18:25 > 0:18:27Now, I am much more female in my approach to economics.
0:18:27 > 0:18:32Can you explain that for me?
0:18:32 > 0:18:38I am more concerned about the poor, and the condition of the world
0:18:38 > 0:18:43on children.
0:18:43 > 0:18:47And, a great future depends on the spread of market,
0:18:47 > 0:18:55and not corrupt governments.
0:18:55 > 0:19:02And, I am more clear, I got a lot clearer about love, that L-word that
0:19:02 > 0:19:05makes a lot of men uncomfortable.
0:19:05 > 0:19:08I do not read a lot of economic textbooks
0:19:08 > 0:19:11where the love word comes up!
0:19:11 > 0:19:24You have to read my books!
0:19:24 > 0:19:27Why should the love word come up?
0:19:27 > 0:19:41You have to read my books!
0:19:41 > 0:19:43Why should blog someone like you, I go back to
0:19:43 > 0:19:46your university background, and it is the primacy of the markets,
0:19:46 > 0:19:47markets do not factor in love.
0:19:47 > 0:19:50They do, they work through love, as does your studio.
0:19:50 > 0:19:53Every enterprise in a capitalist economy works
0:19:53 > 0:19:58through solidarity, love, simply...
0:19:58 > 0:20:03Common courtesy.
0:20:03 > 0:20:05Greed is part of it, self-interest as part of it.
0:20:05 > 0:20:07My point is that any economy, socialist, capitalist, however you
0:20:07 > 0:20:11wish, that is a mixture of the virtues of love and hope and faith.
0:20:11 > 0:20:13On the one hand.
0:20:13 > 0:20:15And, the virtues of prudence, which it is.
0:20:15 > 0:20:18Prudence, which, by itself, is called greed.
0:20:18 > 0:20:20When it is in tune with justice, courage, temperance, and love,
0:20:20 > 0:20:24it works pretty well.
0:20:24 > 0:20:27It is not as if there is a greed is good, I do not believe
0:20:27 > 0:20:30that greed is good, I agree, that was the theme of the University
0:20:30 > 0:20:36of Chicago when I was there.
0:20:36 > 0:20:40A long time ago, I have to say.
0:20:40 > 0:20:42That is a foolish and boyish view of the world.
0:20:42 > 0:20:48Do you believe, reflecting on your own life and
0:20:48 > 0:20:54intellectual experiences, that that was very much a male-driven agenda?
0:20:54 > 0:20:59Absolutely, it is the soccer playing and ice hockey playing view
0:20:59 > 0:21:02of the world, we are out there to compete, and to get a good soccer
0:21:02 > 0:21:09team or an ice hockey team, you need an immense amount of cooperation.
0:21:09 > 0:21:12Any enterprise, they have to have both.
0:21:12 > 0:21:16And, in fact, you can think of capitalism
0:21:16 > 0:21:25and free markets that I admire.
0:21:29 > 0:21:31You can think of them as huge systems of cooperation.
0:21:31 > 0:21:33Cooperation is often used by socialists and Democrats,
0:21:33 > 0:21:38to counterpoint the competition word, that dominates capitalism.
0:21:38 > 0:21:43They make a mistake.
0:21:43 > 0:21:49The market itself, that is a way of persuading sweet talk.
0:21:49 > 0:21:56Some remote person, to supply the material that makes this glass.
0:21:56 > 0:21:59And, it is cooperation, what more would you call it?
0:21:59 > 0:22:12We finish and reflect both new ideas and your personal story.
0:22:12 > 0:22:15Do you believe, when you look around economic management on politics
0:22:15 > 0:22:20and the world today, that it is still way too male orientated?
0:22:20 > 0:22:23That the sort of economics approach you are bringing to the table are
0:22:23 > 0:22:27not reflected in policy-making?
0:22:27 > 0:22:35They aren't, and the problem is the economists.
0:22:35 > 0:22:38The economists and the calculators, as it was famously said.
0:22:38 > 0:22:41They say that greed is good, and all that matters is the bottom line.
0:22:41 > 0:22:43But, in actual functioning, real enterprise, all of these
0:22:43 > 0:22:47virtues have to be in play.
0:22:47 > 0:22:50So that it does not turn into vice.
0:22:50 > 0:22:56So, I think that we need a rethink.
0:22:56 > 0:22:59A rethink of market economies.
0:22:59 > 0:23:06We do not want to throw them away, they are fantastically valuable to
0:23:06 > 0:23:13help the poor.
0:23:13 > 0:23:16They are so much larger, in effect, then any redistribution that we can
0:23:16 > 0:23:20do.
0:23:20 > 0:23:23Since 1800, incomes per head, in places like Britain and the United
0:23:23 > 0:23:27States, they have not increased by a factor of 20 or 30, that helps
0:23:27 > 0:23:32poor people a lot more than five, ten, 15% redistributions.
0:23:32 > 0:23:36It is 2900%, versus 15%.
0:23:36 > 0:23:40Your contention is that it can have a market-based, market driven
0:23:40 > 0:23:45capitalism with a human face?
0:23:45 > 0:23:47Yes, I call it humanomics.
0:23:47 > 0:23:50We will leave it with that word!
0:23:50 > 0:23:58Thank you, Deirdre McCloskey, for being on HARDtalk.
0:24:32 > 0:24:33Guess who's... back.
0:24:33 > 0:24:36Back... again.
0:24:36 > 0:24:38Dara's... back.
0:24:38 > 0:24:39Tell... a... friend.
0:24:39 > 0:24:42Now... this looks... like... a job... to me...
0:24:42 > 0:24:44so... everybody... just... follow... me...