History has featured several societies defined by
openness. From Ancient Greece, to the Abbasid Caliphate, to China’s Song
Dynasty, many cultures embraced trade and innovation for a time. But these
societies eventually all turned inward, closing themselves off to new ideas and
technologies and holding themselves back by their own aversion to change. All
of these societies, except one: ours. The Great Enrichment, which began in
Western Europe and has since spread throughout the world, has been a glorious
exception for more than two centuries. But we have no guarantee that this will
last forever. Increasingly, many in the West are against the things that have
made the world so prosperous and dynamic: among them trade, immigration, and
innovation. So I spoke last week with Johan Norberg, who makes the argument
that a dynamic, open world is still worth fighting for.

Johan is a senior fellow at the Cato Institute, where he focuses on globalization, entrepreneurship, and individual liberty. He is the author of several books, the most recent of which is Open: The Story of Human Progress — published in November of last year.

What follows is a lightly edited transcript of our conversation, including brief portions that were cut from the original podcast. You can download the episode here, and don’t forget to subscribe to my podcast on Apple Podcasts or Stitcher. Tell your friends, leave a review.

Pethokoukis: You’ve
devoted an entire book to the political economy of “openness.” Why
would you do such a thing?

Norberg: Because I’ve been quite obsessed, I must say,
with the idea of progress and the amazing fact that we live lives with long
lifespans and with most of us not in extreme poverty. That’s a brand new
phenomenon: 200 years ago, the global life expectancy was 30 years, and almost
90 percent lived in extreme poverty. Now, we live to be more than 70, and fewer
than 10 percent live in extreme poverty.

Why was that? That progress has got to be explained,
because if we take it for granted, there’s a risk that we’ll lose it. I think
my explanation for that progress is openness in various dimensions: open
societies, open markets, and openness for surprises.

What do you
mean when you say “openness to surprises”?

Well, I find it so interesting. When you look at most
things that make our lives longer, better, and more comfortable, the technologies
— the goods and services that we all take for granted now — usually started out
as things that most people thought were stupid or impossible.

It always started with a tiny minority. A few innovators
and entrepreneurs who thought that you could have something like a personal
computer, even though nobody understood why they would want a computer back
home. Or even such a thing as an umbrella — the first person who carried an
umbrella in London in the early 1750’s was met with public ridicule because
people thought it looked silly and feminine, protecting yourself against the
rain. The angriest, obviously, were the coach drivers, who feared the umbrella
would take their jobs because you needed the coach when it was raining. So they
hurled abuse at him.

All these things were originally met with ridicule, the
belief that they were stupid, or the idea that they would ruin society for one
reason or another. It took a lot of persistence, and, most importantly, it took
an open society so that even the minorities — even the eccentrics, even the
innovators in a garage —were allowed to tinker with their new ideas. There were
decentralized financing sources, so the few individuals who believed in it
meant they could fund it. And they could go on to prove the worth of these new
inventions, business models, technologies, and other strange new goods and
services.

In the end, we all loved the results. But if we’d had a
committee making all the decisions, I think we would have stopped the umbrella,
the personal computer, vaccines, and even things like the internet. Because you
couldn’t have understood the benefits these innovations would bring to the
world from a committee table.

I think that
being open to innovation, to trade, and to immigrants really means being open
to change and disruption. It means being confident that change will lead to a
better situation for you, your family, and your country down the line. I worry
— and I think you also worry — that we’re not as open to change as we used to
be, because we don’t think it’s going to make us better off in the long run
anymore.

Yes, quite right. Historians often talk about something
called Cardwell’s Law, after a technology historian. It was economic historian
Joel Mokyr who coined the phrase. Caldwell’s Law is about societies throughout
history. They had progress because they were relatively open, but innovations
and changes faced resistance from the groups that thought that they would stand
to lose from it. Some of these beliefs are mistaken, but there tend to be
incumbents in business or technology — or perhaps religious or political elites
— who think change will threaten their power. Caldwell’s Law says that periods
of rapid growth of scientific knowledge and technological innovation eventually
peter out because those incumbents win in the end, and change and innovation is
undermined.

That’s my fear, as societies grow older and wealthier.
Those are great developments on their own, but they often mean that we become
fearful. We think more about what we stand to lose than what we could possibly
gain. So we adopt a new mindset, becoming less open-minded to change.

Do people
sometimes assume that you don’t believe in nation states, and that beneath the
lovely talk of openness is an agenda for a borderless world, and maybe
one-world government?

Yes, that’s often what people think when I talk about
globalization and openness. That’s not what I think. Being open to other
individuals, ideas, and businesses does not mean that we’ll end up with
one-world government. On the contrary, we need different systems of rules in
order to have institutional competition. I think that’s, in fact, incredibly
important. Because if we were to have one world government setting the rules,
well, what happens when they end up undermining progress in certain areas or
they make some major mistake? We need the competition between different
political entities — between different countries, but also different local
states and cities — so that we see what works and what doesn’t.

However, those political entities should be as open as
possible to what comes from other places. Not because openness is some sort of
warm, fuzzy generosity where we’re all being nice to everybody — even though
that would be nice, too — but because that’s in our long-term self-interest.
Being open to other people and their ideas just means that you get access to
their brains and their skills. In fact, when you look at world history, you
notice that the most impressive and longest-lasting empires could only function
because they were open to innovation and disruption coming from ethnic and
religious minorities, often from the conquered. Even the most vicious and
brutal warlords that we’ve had in history, like Genghis Khan, could only be so
successful because within the empire, he had lots of free trade and religious
freedom so that even those without impressive family trees could make a rapid
career — and therefore also breathe new life and energy into old ways of doing
things.

We talk about
the Industrial Revolution coming out of Western Europe. Why didn’t the rise of
progress happen somewhere else, like China? China was an organized, relatively
advanced society. So why isn’t the story of progress a story about the rise of China
a thousand years ago?

Yeah, this should have been a Chinese story, because they
got there first in many ways. Imagine a Martian had come to Earth a thousand
years ago and was then asked, “So, where do you think we’ll see a
Renaissance, the Enlightenment, and Industrial Revolution?” He would for
sure not have picked Western Europe. He would probably have said, “China,
under the Song Dynasty,” because that was a culture where they already
navigated with a nautical compass, read books printed with a printing press,
and fought with gunpowder. Those are the three inventions that Karl Marx
credited with having ushered in Western capitalism. So China really got there
first.

This was because Song China was relatively open. They had
a system of rule of law, fairly strong property rights in land, and they were
open to innovations and ideas from other places. Many historians say that they
were close to getting to an Industrial Revolution a long time before we got
there, but that was stopped. The Mongol invasions were an initial stumbling
block, although even the Mongols realized that they had to revive those open
traditions to make the conquered China great. Eventually, however, the Ming
Dynasty just ended it all because they were fearful of that openness. They
erected barriers against the rest of the world, blocked all the ocean traffic,
banned trade with other nations, and burned the boats that were still there.
That started a 500-year history of stagnation in China, where foreigners began
to think that they had been stagnant for thousands of years, even, and that
nothing really came from China anymore.

There’s been lots of debate among historians on why they
suddenly turned inward, but the most important reason is that they just could,
because it was such a centralized empire. Whenever the emperor decided,
“Enough is enough — we don’t want more openness,” he could impose
that as a policy throughout the empire. The result was not to make China great.
Rather, it was the end of the story of Chinese progress.

Is the United
States about to make a similar mistake? There are a lot of arguments about how
America could be a self-sustaining nation without relying on trade or
immigration. Certainly, it would be easier for America to turn inward than it
would be for a country like Sweden. So to what extent does your pro-openness
argument work for the United States today?

Yes, it would be more difficult for Sweden to isolate
itself with 10 million inhabitants and try to rely on just the ideas and
technologies that we have back home. But America wouldn’t be able to do it
either, and you can see that in almost any sphere of rapid progress. For
example, right now, this amazingly rapid progress in developing vaccines
against COVID-19. That has been dependent on fresh blood from other places.
Pfizer’s vaccine depended on cooperation with the descendants of Turkish
immigrants to Germany. As for Moderna, that company was built by immigrants.

The same thing goes for Silicon Valley — you can see that
there’s a disproportionate amount of immigrants who have started these tech
companies. And beyond starting big multinational companies, they’ve also
contributed to science and won Nobel Prizes.

Yes, it’s been possible to start a trade war and to reduce
trade with China, but that came at a cost — not just in trade and to the
economy generally, but also with a loss of manufacturing jobs. That’s because
so many more people work in, for example, companies that use steel than produce
steel in the US. So even though a given set of tariffs might have protected
some 40 thousand manufacturing jobs, it probably lost some 250 thousand
manufacturing jobs.

That effect was small, compared to the kind of isolation
that might happen if you were to shut yourself off completely to the rest of
the world. I think you’d see that more rapidly now than you did during the Ming
Dynasty in China, because now all the goods — every technology that we’re using
— is dependent on global supply chains. You’d see an economic disaster quite
rapidly, if you were to go protectionist big time.

In fact, this would hurt people who have less education
and have lower income much more than those who have it made, and this is a
point that most people don’t comprehend. We have this strange narrative about
how free trade is an elitist plot against workers, but when you actually look
at the goods and services that people consume, people on low incomes — and more
often with manufacturing jobs — consume more goods that are traded
internationally, relatively speaking. That includes clothes, food, and home
electronics. Meanwhile, people on high incomes consume more local services:
restaurants, healthcare, legal services, and things like that. If the US were
to stop all international trade, the top 10 percent would probably not lose
more than around 10 percent of their purchasing power, whereas the 10 percent
who have the lowest incomes would lose some 60 percent of their purchasing
power. So it would be incredibly costly for the US to go it alone, but most of
the horror would be people with low incomes.

The book is
really an exploration of the core tension of human nature between our
“trader” side — which loves openness, innovation, and new things —
and what you call our “tribalist” side — which is closed and
conformist and makes us see the world in us-versus-them, zero-sum terms. Why do
you think the tribalist part of our human nature seems to be ascendent at the
moment? Do you agree it’s ascendent?

Yes, that’s one of the reasons why I wrote the book,
because I think it’s ascendant. And it’s dangerous, because that might threaten
our progress. It’s always there. It’s a part of our double nature. We are traders,
but we are also tribalists.

As I point out in the book, if we were to condense
mankind’s 300-thousand-year history into just one 24-hour day, then the 200
years when almost everything happened — when it comes to our well-being, when
we reduced poverty from 90 percent to 9 percent, and so on — almost all of that
would have happened in the last 60 seconds of that day. The problem is that
those final 60 seconds are not where our instincts, attitudes, and belief
systems come from. They come from the previous 86,400 seconds. And so they are
always there, making us suspicious about the world and making us suspicious
about change.

That’s because, historically, we lived close to the risk
to our survival, so we always had to be cautious about outsiders and about
innovation, because a mistake could threaten us all. If someone during that
long history was considerably better off, it was probably because he stole it
from us. It made sense to be suspicious, because very few people had lived with
economic growth to such an extent that most groups could be better off
simultaneously. It’s a brand new phenomena in world history that the world is
not a zero sum game. But we tend to retreat to those prior instincts, thinking
that it’s all a zero-sum game. Now, the “outsiders” could be the 1 percent,
wealthy capitalists, immigrants, or another country that benefits from trade.
If they are better off, we think that they took it from us somehow. We tend to
retreat to that instinct specifically when we feel threatened.

I think this is an era when we are a bit afraid of the
world. We’ve had the financial crisis and the Great Recession. We live in the
era of 9/11 and large-scale terrorist attacks. And now the pandemic. So there
are many things to be afraid of, and we have a media (and social media)
situation where we instantly share everything that’s dangerous to everybody
else.

When we get afraid like that, it triggers some sort of
societal fight-or-flight instinct. We want protection. We want the strong man
or the big government to protect us against all of these horrible things. We
tend to look for scapegoats as well. That’s one of the reasons why I think that
this closed-mindedness and this fear of change is ascendant: We are afraid.
There is more political tension now than since end of the Cold War, at least.
And we tend to make strange decisions when we’re afraid and when we panic. We
trust our instincts and our gut feeling, rather than economics and historical
lessons. That’s why we have to be reminded of them.

When you make
this argument, how often do people respond with that zero-sum argument? How
often do they say, “This wonderful story of openness and progress is
really a story of theft. It is really the old story: one of slavery,
colonialism, and the exploitation of workers. That’s where the wealth has come
from. The wealth was taken by Western societies, and that wealth has then been
hoarded by a sliver of that society.” So why isn’t the story of progress
really just the story of theft?

Yes, I do get that argument quite often. It’s based on the
zero-sum idea: “If we suddenly got so wealthy in a small part of the world
— Western Europe and North America — it’s got to be because of the colonialism
and all the awful theft that took place in our early history.”

The problem with that argument is that there wasn’t much
wealth to go around to begin with. Had we redistributed everything that we had
across the planet just 150 years ago, each of us would live on the average
income level of the poorest countries in Sub-Saharan Africa right now. So it
couldn’t be explained by theft, because there wasn’t much wealth to begin with.
There is definitely a correlation between wealth, the Industrial Revolution,
and colonialism and slavery and all of the awful things of our history. But it’s
actually a correlation in reverse. Every empire, every successful country on
the planet has unfortunately tried to start empires, build colonies, and
enslave other peoples. It was the fact that certain countries in Western Europe
got so wealthy and got access to more science and technology that made it
possible for them to do that on a larger, global scale than had hitherto been
done before.

So that’s not where the wealth comes from. In fact, when
we look at these histories, we can actually see that those colonies and empires
made a few individuals incredibly rich — that’s why we think of it as theft
creating wealth — but for these societies as a whole, it was an incredibly
costly endeavor. For the British, it was costly. The kind of navies and the
structures that they had to build to subject people on the other side of the
planet to their empire was costly to those nations, even though it enriched a
few robbers, thieves, and colonial lords.

And after the end of this story of empire, that’s when we
really saw the increase in wealth in Europe, in the United States, and all
around the world, in fact. If you really thought that the world was a zero-sum
game, it would be difficult to explain that GDP per capita in Europe and the US
is roughly seven times higher than it was 100 years ago. In Asia, it’s actually
eight times higher. In Latin America, six times higher. In Africa, around four
times higher.

So if it’s theft, who did we take it from?

Does China’s
rise show how a society can be prosperous without fully embracing openness? If
China can get rich without democratizing or giving up full economic control,
should this give other countries reason to rethink being open themselves?

I think that China is a strong argument for this thesis of
how openness and progress are related. For 500 years, they stagnated as long as
they were closed, and it was even worse during Mao’s communist regime. Only in
the early 1980’s — when Deng Xiaoping began to open the country’s economy and
science — did China start to grow again. This growth did not — and this is an
important mistake that’s being made by the West and also by the Chinese
Communist Party — happen because their leaders were suddenly more enlightened
and planned the return to rapid economic growth. That’s not what happened.

If you look at the sequence of events, it started with
individuals, families, and entrepreneurs on the local level who were just fed
up with how the Communist system created poverty and undernourishment. In the
1970’s, they began to secretly privatize their land, so that people would have
incentives to get away from collective farming and improve on their own land,
get better crops, and work harder. That’s what got it started: the village
markets that they created, and the small local shops and businesses that were
in the informal sector.

The only problem was that it was so successful that it was
difficult to keep it a secret. The Communist Party found out about this success
and then luckily they didn’t have insane Mao Tse-tung as a leader anymore.
Instead, Deng Xiaoping said, “Look, this seems to be more successful than
our ways. Let’s give it an official stamp of approval.” That was the start
of the return of China and their rapid success.

Then, when your economy grows by around 10 percent a year,
you can carry along some old bad ideas like state-owned enterprises and some of
the planned economy. But those holdovers are not what created this wealth and
this success — they’re actually dragging it down constantly. So if the
Communist Party thinks that this kind of command economy creates results, I
think they’re bound for a nasty surprise in the long run. Because obviously,
you can imitate some things. You can steal intellectual property from other
places while putting farmers into factories and get rapid growth. But after a
while, you’ve exhausted that growth opportunity and you have to look at
something else.

It’s the surprises and innovations — that’s where you can
have sustainable growth in the longer run. And that’s the problem with
authoritarian governments: They don’t like surprises. We see that tension right
now with successful entrepreneurs and innovators in China who are suddenly
stopped and blocked. They’re not allowed to use a certain technology or proceed
with their IPO. As long as that’s the case, there’s a limit to what China can
do.

I think there are other problems as well. They are very
aggressive in some of the theft of intellectual property, of investments in
other places, surveillance of communication technologies, and so on. That’s
where we need some policy in the West as well, to counter that. I think we will
do that better if we engage with them, trade with them, and are open to
multilateral trade negotiations where we set the rules, so that the Chinese are
tempted to agree with those rules rather than trying to build an entirely
different Sinosphere on the other side of the planet. Because that’s a battle
that none of us will win in the end.

Is socialism
an inherently closed political philosophy?

I think it is. I mean, it depends on what kind of
socialist you are. You might be very open-minded when it comes to culture and
other ideals, but as an attempt to govern and organize a society and an
economy, it’s really based on this kind of the “designer” intuition that I
think is part of our heritage and our instinct. It’s difficult for us to
understand how something big and important is not created by something big and
important. If we want justice, or if we want wealth for everybody, it’s so easy
to think that we need someone to just “fix” it. Whereas the real story of the
last 200 years is that it’s only when millions of people use their local
knowledge to come up with new solutions and new surprises that we can create
this wealth and spread it through markets and voluntary market negotiations.

Socialism is the idea that “somebody’s got to fix
this, somebody’s got to plan this.” The problem with that politburo
approach is that you lose most of the knowledge that you need to do anything.
Because this knowledge is always local — it’s always individuals,
entrepreneurs, businesses, workers — they are the ones who possess it. And they
need constantly changing price signals to immediately change what they’re
doing, so that they can satisfy our needs better. At a politburo table, you
can’t do that. You lose all that information, and you also lose this ability to
be open to surprises.

I mean, if you and I had been there at the planning table
trying to command and control the economy in the 1960s, and somebody approached
us and said, “Look, now I’ve got this personal computer. Would you be
interested in funding this?” We’d ask, “What can it do?” And
they’d probably say, “Yeah, you can use this to sort library cards
perhaps, or recipes for a kitchen computer.”

Why would we accept that? We would probably say, “No,
we need important stuff, like wheat and steel!” And that’s actually
exactly what happened in the Soviet Union. They had all their industrial spies
who looked at what was going on in Silicon Valley and other places. They knew
about the personal computer. They just didn’t think that they would have any
use for it. It would be worthless, or just stupid.

The interesting thing to recognize is that we would
probably have made the same decision. In fact, most businesses and experts in
the West thought the same thing about the personal computer as well. It was
only because we did not have socialism or any kind of planned economy that
those strange eccentrics in their garages were allowed to meet with other
eccentrics. There were decentralized funds of financing, and eccentric
retailers who were willing to give it a shot and find strange markets that
nobody would have thought about at this politburo table. It could be a rich man
who just wanted the computer as a status symbol, or it could be gamers who
wanted it for something that weren’t seen as especially dignified by those who
came up with the solution, or maybe a couple of businesses who just wanted to
experiment and tinker with it.

So it was only because we had that strange, weird
decentralization that we went ahead with the personal computer in the US rather
than in the Soviet Union — and we did it for such a long time that more
consumers could experiment with it and come up with new ways of using it that
actually made it useful for more people, and then it changed the world.

What would
you want American politicians to know about Sweden and whether it is the
socialist paradise that some of them make it out to be?

Well, I would give them a brief history lesson of the last
150 years. Sweden got rich — got to be the fourth richest country on the planet
— between 1850 and 1950. And in 1950, Sweden still had lower taxes than other
European countries — lower taxes than the United States, actually — as well as
a smaller government and a very open economy. So it was actually a generation
of laissez-faire classical liberal politicians who opened Sweden up and made us
into the rich country that we were.

This was followed a brief interlude when politics changed
completely, because Swedish politicians realized we were already one of the
richest countries on the planet, so perhaps we could start to tax, spend, and
just use all this wealth for the purposes that we found particularly useful. So
they started to expand the government in Sweden. Between around 1970 and the
early 1990’s, the Swedish government doubled in size as the percentage of GDP,
increased all the taxes, and regulated the labor market. This is what everybody
remembers. This is what the socialist politicians of the world still remember
about Sweden. That, for this brief period of time, Sweden experimented with
socialist ideas.

We seemed to be, at least if not successful, at least we
were a wealthy country. But that’s just like the old joke: “How do you end up
with a small fortune? Start with a large fortune and then waste most of it. You
still have that small fortune left.” That’s what we had in Sweden, because that
25-year period is when we lagged behind other countries. We grew more slowly. We
actually didn’t create a single net job in the private sector in Sweden. Lots
of great entrepreneurs and businesses left Sweden. IKEA left Sweden. Tetra Pak
left Sweden. Many of our most talented people left, and it all ended in a
terrible economic financial crisis in the early 1990’s.

Then came the third phase of Swedish economic history,
when a very insightful spectator said that this whole experiment with
democratic socialism was unsustainable and even absurd. That spectator was the
social democratic minister of finance, Kjell-Olof Feldt. So from the left to
the right, there was a consensus that we had to go back to the earlier
successful model of a very open economy with a smaller government. We
deregulated the economy and opened up product markets, and we lowered taxes and
the size of the government. Only then did Sweden begin to grow faster than
other countries, create new jobs, and increase the wages of the Swedish
workforce again.

That’s the summary of Swedish history, and the problem
with those 150 years is that Americans seem to remember only those 25 years of
spectacular failure, but they have some sort of nostalgic idea of what it was
all like. It’s not really what happened.

Last
question: How do you think liberal democratic capitalist countries will react
to this pandemic in the aftermath? Will it be a catalyst for more openness,
because we credit these amazing vaccines to innovation and globalization? Or
will we close ourselves off because we conclude that openness just brings in
more problems, like diseases? Which way do you think we’re going to go?

I think we’ll see both things.

Hopefully one
more than the other.

I hope, but I’m not certain about this. Because
historically, great pandemics usually result in a retreat from globalization
and openness. People become fearful of outsiders — of foreigners — because
diseases tend to come from somewhere. So we blame somebody else. We also become
a bit more afraid of global supply chains and international trade, because you
suddenly realize that you’re dependent on them, and they can fall apart during
pandemics. Oftentimes, backlashes against openness have started with pandemics.
I certainly think that’s a strong trend and we’ll feel that sentiment for a
long time.

On the other hand, we have also seen a global real-life
test of what de-globalization means. Because we shut down the global economy
for six months. It was not at all as nice as people said it would be. On the
contrary, without trade, migration, and openness, we saw a global depression.
We will probably see poverty increasing by around 100 million globally, at
least for the short term, because of this pandemic. So I think it’ll be more
difficult to talk about how great it would be with more isolated national
economies after all of this.

And in the end, what saves us is openness. It’s the fact
that Chinese researchers could use technology developed on the other side of
the globe to read the genome of the virus in six days and publish it online for
the world to see, so that German researchers could come up with a test to see
who’s got the disease and who doesn’t in just a week. That is just amazing, if
you look at historical timelines when it comes to dealing with diseases. Then,
when we have that information available online, the whole world — researchers,
hospitals, and drug companies — can poke the virus and find its weak points and
come up with new drugs and new vaccines in this record time — just a couple of
months! We’ve never had this rapid response to a disease in world history, and
it’s only because of open communication, open trade, and new technology.

People have even said that we don’t need airplanes, and we
can stay at home. Well, the only reason why Pfizer was able to cooperate with
BioNTech in Germany to come up with the first vaccine against this disease was
that they had corporate jets, so they could constantly bring genetic material
across the Atlantic while Europe and America had shut down all the other
regular air traffic.

So even though we’ll see a strengthening of protectionist,
isolationist, and nationalist sentiments because of the pandemic, I also think
that we have stronger arguments than ever for openness. Because in the long
run, that’s what saves lives.

My guest today has been Johan Norberg, author of one of the best books I have read in a long time: Open: The Story of Human Progress. Johan, thanks for coming on the podcast.

Thank you so much for having me on.

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