Over the Christmas week, CapX is republishing its favourite pieces from the past year. You can find the full list here.
Throughout the West, patriotism is on the rise. Theresa May is a strong advocate. She took the opportunity in Birmingham to make the case that a passion for one’s country is not the threat some think it is. She’s right. But this attitude should go hand in hand with a vigorous global outlook. While internationalism and patriotism are often seen as being at odds with one another, and we are expected to choose one or the other, history shows that for an economy and a nation to thrive, the two should be combined.
The idea that patriotism can be economically beneficial should be apparent to any member of a successful organisation. Companies prosper when employees have faith in their managers, are united by a clear vision, and can pull together when the waters get rough.
Educational institutions also have their own identities in which people take pride and which helps motivate their members. Countries, like organisations, can benefit in a similar vein from a dose of patriotism.
To encourage economic growth, it does help to have a state that is able to coordinate and fund vital infrastructure. This requires a wide enough tax base of citizens who are happy to sacrifice some hard-earned cash, and politicians and civil servants who feel a responsibility to the wider country as much – or more – than they do to themselves.
Adam Smith makes this argument in The Theory of Moral Sentiments. We each have an “impartial spectator” sitting on our shoulder, judging our actions from the point of view of others. That explains why in a country that lacks the gel that binds people together, people don’t feel bad about evading taxes or taking bribes. The economy suffers.
To quote the economic historian Peer Vries:
“The big upheavals that are part and parcel of economic modernization and international competition can be weathered much better by people who feel they are unified in a nation than by a polity whose population lacks a clear sense of cohesion, identity and purpose.”
While they seem to have been forgotten by modern day growth theorists, both Walt Whitman Rostow’s Stages of Economic Growth and Alexander Gerschenkron’s Economic Backwardness in Historical Perspective also emphasised the positive role patriotism plays.
And, according to Liah Greenfield’s The Spirit of Capitalism, the economic success stories of Britain, the Netherlands, France, Germany, Japan and the US were brought about by the commitment of “masses of people to an endless race for national prestige” which, in turn, brought an emphasis on economic competitiveness.
But patriotism can turn nasty when countries use the sentiment to turn inwards. Not only is that politically disastrous, it is also economically very painful.
Success requires humility: even for a rich economy, there are always ways in which it can improve. This means keeping an eye on the policies and techniques being developed abroad, and welcoming those with ideas and skills that complement the domestic resource base.
In the marketplace, companies have little choice but to compete with one another, making it impossible for them to turn their backs on outside developments. While having a strong identity with their own college, academics frequently collaborate and are driven by curiosity about the world outside.
However, countries can lack the pressure and curiosity needed to resist turning inwards, and history shows just how quickly a leading economy can fall behind if it stops being outward looking.
For millenia, China led the world technologically and economically. In an active drive to catch up, Europeans sought connections eastwards. Unfortunately for China, the subsequent knowledge flow was very much in one direction, allowing Europe not only to catch-up but eventually to overtake.
As the richest economy in the world, one can understand why China felt it had little to learn. That was, however, a major mistake in the longer term. Distant Europeans made it to Chinese shores, not only with their silver but also with their gunboats. The Opium Wars followed and China was literally left addicted. As a nation, China learnt its lesson the hard way.
Vries makes one striking point between China and a country which did have a global outlook. In the 17th and 18th centuries, China allowed thousands of its foreign merchants to be massacred abroad, including in Manila in 1603, 1639-40 and 1763, and in Batavia in 1740. Britain, by contrast, went to war with Spain in 1739 after they cut off a single captain’s ear. Britain both valued and felt a duty to defend its foreign merchants. China clearly did not.
Despite having been a backwater to China’s ancient civilisation, Britain stumbled on the winning formula: one of patriotism combined with outward orientation. As a result, the state was able to raise the funds it needed to finance infrastructure, including the ever helpful Royal Navy.
Having come from behind, and buoyed by a national spirit, Britain recognised the importance of keeping an eye on economic developments elsewhere, and realised that by trading with the rest of the world and welcoming foreign workers, whether skilled or unskilled, the country could grow in strength. With this economic strength, the state would be in a better position to defend itself from foreign incursions and keep its citizens safe.
Of course, where “rules of the game” are lacking, patriotism and outward orientation can lead to international engagements that go too far: moving away from market exchange and towards force. Europe’s colonial past cannot be easily forgotten. However, that doesn’t mean ripping up the recipe. Instead, it requires international cooperation, as came in the 20th century with the United Nations, the International Declaration of Human Rights and bodies such as the European Union, all of which helped to ensure that international dealings were well-mannered.
There is an important lesson in this journey through economic history. To ensure continued economic prosperity, instead of sneering at patriotism, we should embrace it, along with a global outlook, along with the international rule of law that ensure these interactions are market-based.
The combination of patriotism and internationalism might seem impossible, more so today than ever. However, history shows how much can be achieved by bringing the two together. Just don’t force us to choose between them.