Deidre McCloskey, the eminent economic historian whom some of you may know as Donald, before her illustrious transition in the 1990s, recently gave a talk to the Legatum Institute on her ideas of Bourgeoisie Capitalism.

When asked to summarise her thesis into a few words, she said “let people have a go”. She believes that economic growth doesn’t stem from institutions or capital accumulation – although these may be necessary – but the real reason arises from market power embetterment: if people believe that hard work can improve their situation then they will do so. This counters the Weber theory: that protestant virtue of savings and hard work allowed for a pool of investable money to expand the capital stock, along with a pool of hard workers and entrepreneurs which created unparalleled economic growth. McCloskey retorts “poor people work hard too”, as do those who aren’t protestant. If anything, she argues that poor people work harder than those with money – after all these people are working to ensure that they can get their next meal – not so they can buy the newest flat screen TV. Poor people also tend to have circumstances working against them – they live in countries with turbulent political situations, poor infrastructure, lack of finance and little education – yet we still see them coming up with innovative new ideas to improve their situations. Central to McCloskey’s theory is that if we let people “have a go”, then they will put these efforts to good use and this will result in economic growth – which fundamentally means an improvement of their plight.

So what do we mean by letting people “have a go”? McCloskey believes that this means we need a functioning legal system, which treats people as equal, a government which gives opportunities – or at least doesn’t inhibit them – and a culture which encourages people to be hard-working and law abiding.

McCloskey is pro-poor people and wants them to be able to improve their lot, but doesn’t think this can be achieved through government or trade unions; despite her socialist background and her Pentecostal christian beliefs. “The government should rule the courts… and not much else” was her response to how large should the government be. This is not because she wants a small government to minimise taxes for the rich – although presumably she wouldn’t think this a bad thing – but because she doesn’t believe that wealth transfers help anybody. Yes, they improve the situation of the poor slightly but they don’t encourage economic growth from the bottom: low-income earners won’t have an incentive to push for economic growth if they are content on small wealth transfers. McCloskey sees this as damaging because economic growth is the central method to increase the well-being of the poor. Their living standards will rise faster from economic growth than it will from measly wealth transfers. Pointing to China and India, she highlights that neoliberalism and the pursuit of economic growth has done vast amounts of improvement to growth – and living standards of the poorest – than any socialist attempts achieved. Millions of people have been dragged out of poverty as a result of economic growth which these vast countries have seen. This wasn’t due to socialist policies but because these two nations became pro-business and altered their structure to have a more inclusive legal and cultural system which promoted “having a go”. That is not to say that these two countries are perfect, and when we say “inclusive legal” system, we don’t mean a ‘fair’ system; just that it has helped promote economic growth which has reduced poverty.

In conclusion the fundamental take-away points from her talk was that she believes ideas are more important than capital and institutions: we need both capital and institutions but it is only when we have ideas that we have growth; these ideas include cultural aspects which promote people having a go and striving for improvements; law abiding citizens who follow rules; and finally that the poor can only be taken out of poverty through rapid economic growth and not through wealth transfers.