What role does technology play in creating prosperity? Recently, I was involved in a heated e-mail debate on this question.
Although technology is unquestionably important, it is not the key to prosperity. Much more fundamental and vital is the institution of private property fashioned and enforced by a genuine rule of law.
Those who disagree — those who insist that our prosperity comes principally from advances in technology — point to the obvious fact modern man relies heavily on science and its many amazing fruits. In our homes we have electrically powered machines that wash our clothes, refrigerate our food, and enable us to listen to music ranging from that of Elgar to Elvis to Eminem. These marvels are themselves produced by other machines made possible because of countless, relatively recent advances in scientific knowledge. Even agriculture is today immensely dependent on science. Clearly, we live in a world suffused with technology.
But a moment of reflection makes plain that technology is no root cause of material prosperity. If it were, living standards around the world would equal those of Americans. The people of North Korea, Cuba, and Mozambique would live as well as the people of North Carolina, California, and Montana. After all, technology is a complex of useful knowledge about physical reality; and such knowledge, once created, is quite easy to transmit and to copy.
But Americans (even those of us who are ignorant of even elementary scientific facts) are wealthier than Canadians who are wealthier than Greeks who are wealthier than Rwandans. Why? Why does the technology allegedly responsible for making Americans extraordinarily wealthy not do exactly the same for peoples in other parts of the world? Without question, something else besides technology is at work in determining the wealth of nations.
That “something else” is freedom. Studies of the relationship between freedom and prosperity show time and again that the freer the people the more prosperous the people. James Gwartney and Robert Lawson, in a massive scholarly study sponsored by the Cato Institute, find unambiguous evidence that the freest nations are home to the world’s most prosperous peoples. (See www.cato.org/economicfreedom.) A similar study, reaching the same conclusion, was done by Gerald O’Driscoll, Kim Holmes, and Mary Anastasia O’Grady and sponsored by the Heritage Foundation (www.heritage.org/research/features/index/2002/world.html). Indeed, even across the different states of the United States, the evidence shows that greater freedom — lower taxes and less regulation — corresponds with greater prosperity. (See www.ncpa.org/pd/state/pd041499g.html.)
It is true, of course, that freedom creates prosperity in large part by generating technological advance, which in turn is further promoted by the prosperity that it helps to bring about. But technological advance requires freedom; freedom is its most vital prerequisite.
How does this process work?
First, scientific research and technological progress require human creativity. And creativity, by its nature, cannot be commanded or planned. The slave cannot create. Creation is possible only by those who are free. Freedom gives to each person the incentive and breathing room to create—to discover new knowledge and to use it in ways that promote the welfare of millions.
Second, the wealth made possible by freedom makes available the sustenance and the leisure necessary for speculative inquiry. Had Edison and Einstein been hounded throughout their lives by starvation and disease, or if they had had to work every waking hour just to stay alive, neither man would have created anything. We would never have heard of them. Neither man would have contributed anything to humanity.
The Market Test
Third, a free market provides the only means of determining which creative insights are worthwhile to society and which are not. Each creative insight, when it bursts into being, is original. It hasn’t been tested for usefulness, feasibility, or value. Precisely because no one has ever before thought of it — because humans have no experience with it — no one can say at the moment of its creation if a new insight is worthwhile or not.
We know now that Fred Smith’s creative insight on how packages can be delivered overnight in an economically feasible manneris viable. But no one knew this when Smith first developed his idea. Even Smith couldn’t be sure of its validity. The only way to tell if it was truly a sound idea was to test it, really test it — to let private investors voluntarily put their own money at risk to start the business and to let consumers voluntarily choose to use the service or not.
Only if entrepreneurs, suppliers, and consumers are free can we get an accurate reading of the soundness of entrepreneurial insights. Had taxpayers been forced to finance Federal Express, had consumers been forced to use it, or had competitors been outlawed (as they are outlawed from competing with the U.S. Postal Service for the delivery of first-class mail), FedEx’s success or failure would not have been a true test of Smith’s idea. The same, of course, would be true had the government prevented FedEx from going into business in the first place.
To argue, as some people do, that technology is the ultimate source of wealth is akin to arguing that steel girders are the ultimate source of skyscrapers. It is undeniable that buildings could not scrape the sky without steel girders, but steel girders themselves do not create skyscrapers. Entrepreneurial vision, creativity, risk-taking, and gumption are much more fundamental to the creation of not only skyscrapers themselves, but also of each of their millions of components.
And freedom is utterly necessary for such vision, creativity, and gumption — and the technology they bring about.