Media Spotlight: The Rational Optimist

Much pessimism is peddled about the future of capitalism, climate change or the poverty in Africa.

But while fears may be heightened today, the reality is that humanity has never been so prosperous, healthy and safe. This is the argument espoused by Matt Ridley in his book The Rational Optimist.

If Ridley’s name rings a bell you may remember him in his previous role as non-executive chairman of Northern Rock from 2004 to 2007 when it imploded.

So he is not so good when it comes to corporate governance and recognising a highly leveraged business model or as the Treasury Select Committee put it, a high-risk, reckless business strategy.

But Ridley is the author of several books on evolution and humanity for which he has won several prizes.

In his latest book there are many familiar arguments about how globalisation has lifted millions out of poverty in Asia and Latin America.

Still, the book is a timely reminder in times of economic hardship that human advances have made this moment the best in our history and that things will continue to improve.

Ridley explains the financial crash and the credit-fuelled boom that preceded it as natural human behaviour and something that will be overcome.

To explain this Ridley expands on one theme in his book comparing human behaviour with that of other animals.

He says by the time chimpanzees are 15 years old they have consumed 40% of the calories they will need during their lifetime, having used 40% of what they will need. However, by the time humans are 15 they have consumed 40% of their lifetime calories but only used 4%.

“More than any other animal, human beings borrow against their future capabilities by depending on others in their early years,” Ridley writes.
“The difference today is that intergenerational transfers take a more collective form Income Tax on all productive people in their prime pays for education for all, for example.”

Ridley expands this to say that the banking system is the great facilitator of human nature in that it allows people to borrow and consume when young and to save and lend when they are older.

He believes the crash happened because there was insufficient capital spent on innovation, with much wasted on luxury lifestyles and asset acquisitions.

While such activity is the enemy of growth mis-allocation of resources has occurred before, such as Peruvian silver mines not creating economic growth in Charles V and Philip II’s Spain.

Autocratic and corrupt kleptocratic regimes, especially those in oil-rich nations such as Iraq, Russia, Venezuela and Nigeria, have also directed capital towards luxury rather than innovation and progress at the expense of growth.

It’s an interesting theory but when discussing the credit crunch and its implications, Ridley fails to mention his own role. Bizarrely, he writes about the financial crisis as a detached commentator when he was a pivotal player. It is a shame because much of the book is a sensible discussion on reasons to be optimistic about humanity’s future.

These sections offer fascinating insights into why we’ve never had it so good and are worth reading. The lectures on sensible lending, spending and the misallocation of resources are another matter.