What’s Missing from Noah Smith’s Analysis of the Alt-Right?

1 05 2017

A Trump supporter holding up a sign reading “Deplorables and Alt-Right Unite”. 4 March 2017, 13:28

Image source:  Wikimedia Image Commons Donald_Trump_alt-right_supporter_(32452974604)

The economist and Bloomberg columnist Noah Smith has published a thoughtful, erudite, and nevertheless frustrating piece about ethnic heterogeneity and the Alt-Right. What’s missing from Noah Smith’s analysis of the Alt-Right? A recognition of the important role of business in promoting harmony in divided societies!

For those who don’t know him, Noah (no relation to me) is a rising force in economics more generally and the economic blogosphere more generally. His worldview is centre-left, which is near the centre of gravity in the economics profession nowadays, but he differs from most of his fellow economists and indeed most academics in that he is sympathetic to nationalism and efforts to promote stronger national identities. (He recently advocated the re-introduction of universal military service in the United States on the grounds that the common experience of service in uniform would create a greater sense of social cohesion). My reading of the situation is that Noah is an old-fashioned liberal nationalist of the FDR and JFK school. That makes him stand out, since most economists (and social scientists more generally) are socialised into a very different way of thinking about nations that corresponds to Angus Deaton’s term cosmopolitan prioritarianism. Another ways in which  Noah’s perspective on social and political issues is distinctive in that it is informed by the time he lived in Japan, which gave him a perspective on European and US politics that is quite rare in the academic blogosphere.

Anyway, his recent blog post on diversity is fascinating because Noah, who is a card-carrying social scientist, engages with the arguments of the more intellectual wing of the Alt-Right, the cluster of anti-immigration, anti-liberal movements that contributed to the electoral success of Donald Trump and which is allied with xenophobic, anti-immigrant political parties in Europe. As Noah notes in his post, while many on the Alt-Right are stupid, others construct semi-intellectual arguments to support their content that the United States would be a better society if it were a more racially and religious homogenous society (i.e., a society in which non-whites were a much smaller percentage of the population than they are right now). The Alt-Right have been able to cite some academic studies that purport to show that increased ethnic and racial diversity in a country can create social problems by reducing levels of social trust.


The meta-historical narrative that informs such studies holds that the countries of north-western Europe were able to construct generous welfare-states in the first half of the twentieth century because they then were homogenous. In other words, wealthy taxpayers in Sweden didn’t resent fiscal transfers because the recipients looked and sounded like them, at least in 1950. This reading of history suggests that political support for such welfare states has recently been undermined by immigration, which made these societies more ethnically diverse and thus more like the US, a country with a far weaker welfare state. Some people attribute the low levels of social spending in the US to its diversity and the unwillingness of wealthy people, who are mainly white, to pay for recipients who are disproportionately non-white. (Concerns that too much diversity was incompatible with the welfare state convinced David Goodhart, an erstwhile British social democrat, to embrace the cause of restricting immigration).  Some alt-right people speak of turning the United States into a “white Japan” by which they mean an ethnically and racially homogenous society that is characterized by high rates of trust and social cohesion. This particular variant of the alt-right philosophy doesn’t say that one race is superior to another, merely that the world is a better place when communities are homogenous.  Noah reports that a section of the alt-right

want to live in a place where only white people are allowed. They want the dream of a half-remembered, half-imagined 1950s Southern California – the clean streets, the nice lawns, the dependable white neighbors who tip their hat and say hi to you as they stroll down the lane.

The Alt-Right has latched on to the research that stresses the costs of diversity. Noah methodologically deconstructs this line of argumentation by drawing on a range of social scientific research that seeks to measure the costs and benefits of diversity in terms of social trust and social cohesion indicators. To his credit, Noah looks at research produced by non-economists, including

  1. Arecent study in Southern Californiafound that ethnic diversity is associated with decreased crime and higher home values2. A

    study in Britain showed no relationship between ethnic diversity and trust.3. A

    study in Europe found a positive long-term effect of diversity on trust.4. A

    2014 literature survey finds that “ethnic diversity is not related to less interethnic social cohesion.”5. A

    2008 study in Europe found that ethnic diversity didn’t decrease social capital.6. A

    2007 study in Britain found that the negative effect of diversity on social cohesion disappears after controlling for economic variables.7. There’s also a big literature on

    diversity and group decision-making, most (but not all) of which concludes that ethnic diversity makes groups smarter.

Noah blows the Alt-Right out of the water here, in my view. Noah concedes that while, yes, in certain cases a rapid and poorly-managed increase in diversity can indeed result in falling levels of generalised trust, high levels of ethno-racial diversity in a community can, in fact, be consistent with high trust.  In his view, the key variable is how well diversity is managed and the nature of the institutions in newly diverse societies. (I totally agree with this viewpoint). He then begins to discuss what these institutions might be.

It’s at this point that I start to disagree with what Noah is saying since it he appears to be ignoring the research in many disciplines, including IR, politics, and now management, on how capitalism can allow different groups to cooperate and live in in peace. There is a vast literature on the capitalist peace or commercial peace. Some of this literature is on inter-state conflict, while others papers are on intrastate conflict. I’ve contributed to this literature in a modest way (see here). I’ve also blogged about new research, especially in management, that has documented ways in which capitalism helps to promote peace and inter-ethnic cohesion. (see here, here, and here). I’m currently working on a paper on this subject that uses data from Canadian business history. I’ll be presenting this paper at a conference in Toronto in September that will mark the 150th anniversary of the Canadian Confederation.

Noah writes:

as time goes on, the previous inhabitants and the newcomers get used to each other. This process is accelerated by integrating institutions like public schools, colleges, and the military, and is complete once intermarriage is widespread. 


Notice what is missing from Noah’s list—business corporations and the other institutions associated with the market economy! Noah’s list is about public-sector and non-profit institutions. Of course, these institutions do promote cohesion (think of the role of the IDF in integrating Ashkenazi and Sephardic Jews), but public-sector organizations can’t be the whole story. The old Soviet Union had public schools, colleges, and army units where people of different ethnicities mixed, and were indoctrinated with rhetoric about the unity of the world’s workers, but ethnic animosities nevertheless persisted. Noah’s list of integrating, pacifying institutions is sadly incomplete. I’m inclined to think that Noah’s decision to omit business institutions from this list of integrating factors may be related to his centre-left political views. There were certainly many US economists, particularly those of the generation taught by Milton Friedman, who went to great lengths to note the benefits of all things related to the market and to denigrate the state.  I suspect that Noah Smith, who is reacting the excesses of libertarian market-worship, may be committing the opposite error in failing to note in this paragraph the very important role that commercial activity and a vibrant private sector play in promoting peace.

I would call on Noah Smith and other progressives to reflect more about the positive role of business in promoting ethnic harmony. Thinking about the potential role of business in combating xenophobia and ethnic animosity is the first step towards having a conversation about the social responsibilities of business leaders in the face of the Alt-Right.



Capitalism, Peace, and the First World War

4 08 2014


Today marks the centenary of Britain’s decision to enter the First World War. For historians of international business, this milestone offers us a chance to pause and reflect on both the origins of this particular conflict and the role of different forms of capitalism in generating peace and war.

The role of business in the origins of the First World War has been debated since, well, 1914. During the conflict, Marxists such as Lenin published books arguing that business or rather homogenous “capitalist classes” in each of the Great Powers were behind the conflict.  Such a view was, of course, laughably simplistic, since lumped all business interests into the same category, which effectively  equated steelmakers like Krupp, which did stand to profit from a (short) war from, say, perfume companies, who did not.  Writing in the immediate aftermath of the First World War, Schumpeter adapted class analysis to explain the interest-group politics that had led to the outbreak of the war. Schumpeter identified two branches of the bourgeoisie. One element was cosmopolitan and largely pacific in its outlook. Schumpeter associated this sub-class with the ideology of classical liberalism. The other element of the bourgeoisie, according to Schumpeter, were the business interests associated with militarism, economic nationalism, and imperialism. Schumpeter argues that the acquisition of political power by the wrong element of the bourgeoisie, which included armament makers, endangers peace and therefore the interests of the ordinary bourgeoisie.[1]


In the United States, many isolationists came to blame the decisions that brought the US into the conflict not on the business class as a whole but on a few bad apples on Wall Street (e.g., anglophile bankers like Jack Morgan) and, of course, the “merchants of death” who made a killing from, er, the business of killing. The term merchant of death came into common currency in the middle of the 1930s thanks to a Republican Congressman.

In recent years, the role of business interests in political life has been debated extensively in many democratic countries.  In the United States, this debate has centred on the Supreme Court’s 2010 controversial ruling in the case of Citizens United v. Federal Election Commission. In this case, the US Supreme Court ruled that laws restricting the rights of companies to try to influence elections were unconstitutional as they violated the First Amendment. In the minds of many, particularly but not exclusively those on the left, this ruling has opened the floodgates and has made it even easier for business interests to use lobbying to subvert the democratic will.

On the 100th anniversary of the decision of great trading nation (Britain) to plunge into the vortex of European militarism , it is worthwhile considering whether greater business influence over politics can sometimes be a good thing. One of the striking things about the decision-making processes that led to the First World War is that the crucial decisions were made by a handful of individuals.  Christopher Clark’s Sleepwalkers, which is an excellent work of diplomatic history, makes it clear that the key decisions were made by about 20 individuals.  Another striking thing about the crucial days between the assassination in Sarajevo and the outbreak of the war is that the business communities in the major European countries were relatively quiet, even though the vast majority of businessmen, particularly bankers, dreaded the prospect of war. These business groups failed to mobilize for peace.  Yes, it is true that German banker Max Warburg pleaded with the Kaiser to de-escalate the situation and work for peace. It’s also true that the Rothschilds, an international banking family, resisted, at first, the financial mobilization that made the mobilization of actual troops possible. But for a variety of reasons, business leaders did not undertake serious resistance to the war in the form of tax strikes or other robust mechanisms of displaying discontent. I  recently stumbled upon an article that appeared in in the South China Morning Post in the middle of August 1914 that reported that hundreds of thousands of German businessmen were resisting the war and were calling on the Kaiser to declare a unilateral ceasefire.  The article was based on an erroneous rumour,  but it raises the interesting hypothetical question of what would have happened had businessmen been more robust in expressing their preference for peace. Of course, this is a pretty difficult hypothetical to think about, given the nature of the political cultures of most European countries as this time, which expected businessmen to be somewhat deferential to monarchs and other social superiors. (Obviously the cultures of the Western democracies are today very different and encourage all social groups, including businessmen, to be much more outspoken in voicing their opinions).

I understand that many Americans are upset about the Citizens United decision. I know that some British people are annoyed that the City of London has been able to use its influence over David Cameron to water down the sanctions on Russian business imposed after the downing of the Malaysian airliner.  However, I would urge these people to consider whether the events of the summer of 1914 prove that increasing the role of business in shaping public policy can sometimes be a positive force in society.

I have one closing thought about the First World War I would like to share. International trade and globalization cannot guarantee world peace, but they can reduce the frequency, intensity, and duration of war.  It is true that the outbreak of the First World War disproves the crude version of the trade=peace theory that is sometimes articulated by journalists such as Tom Friedman of the New York Times.[2]  Friedman famously argues that since no two countries with McDonald’s restaurants have ever gone to war with each other, capitalism produces peace. The simple rejoinder to this idea is that Germany was Britain’s number one trading partner in 1914 and vice versa, and that this didn’t prevent a drift to war.   However, this is some evidence to suggest that the theory of the commercial peace has some validity, or at least enough validity to guide our thinking about public policy. Since the 1990s, many scholars of International Relations have been persuaded that the mutual economic interdependence characteristic of global capitalism reduces the likelihood of war.[3] This is a theory that can be traced back to Adam Smith’s Theory of Moral Sentiments or even Montesquieu, actually. Although this theory is still controversial in IR departments, it has been bolstered by impressive empirical research and has diffused into other academic disciplines. For instance, the psychologist Steve Pinker incorporates this insight into his well-respected book on why the world has become less, rather than more, violent, over time. Countering the conventional wisdom, Pinker shows that rates of violent death have been falling for centuries, that the 20th century was actually a pretty peaceful century by some metrics, and that things are getting better. He then searches for explanations for why people are becoming less violent. Capitalism and international trade are part of his explanation.[4]


I’m not a big fan of the inefficient little regulations the European Union imposes on firms and consumers in its member states. There are lot of problems with the EU as it is currently constituted. On balance, however, the EU is damn good thing, since it had helped to integrate the economies of nations in Europe that were once enemies, making warfare within the EU virtually unthinkable. Despite its recent problems, the European Union has been a very successful post-conflict initiative. [5] That’s why I’m proud to be a citizen of the EU. I’m also proud to put the flag of the European Union on this blog post.

In the post-1945 period, European economic integration was promoted by a former businessman Jean Monnet, who wanted to make war between Germany and France as unthinkable as warfare within North America. Monnet had travelled to North America before the First World War, when he had been a cognac merchant, and was impressed by the ways in which economic interconnected promoted peace there.[6]

The Western world is now at peace with itself, thanks, in part, to commerce. I would say that Japan is also part of this moral universe of capitalist peace: war between Japan and the US is now unthinkable, which will doubtless assure Toyota owners everywhere.  I suppose that we now face the challenge of building a global economy that fosters peace between countries from very different civilizations and religious traditions (think Gaza, think India-Pakistan, think China-Japan).  How we go about doing that is, of course, a question well above my pay grade.






[1] Joseph A. Schumpeter, The sociology of imperialism (New York: Meridian Books, 1951).

[2] Thomas L. Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus, Giroux, 1999), 249-276.

[3] John R. Oneal and Bruce M. Russet, “The Classical Liberals Were Right: Democracy, Interdependence, and Conflict, 1950-1985” International Studies Quarterly 41 (1997): 267-95; Patrick J. McDonald, The Invisible Hand of Peace: Capitalism, the War Machine, and International Relations Theory (Cambridge University Press, 2009); Erik Gartzke and J. Joseph Hewitt, “International Crises and the Capitalist Peace,” International Interactions 36, no. 2 (2010): 115-145.

[4] Steven Pinker, The Better Angels of Our Nature: Why Violence Has Declined (New York: Viking, 2011).

[5] Brigid Laffan, “The European Union: a Distinctive Model of Internationalization,” Journal of European Public Policy 5, no. 2 (1998): 235-253.

[6] Trygve Ugland, Jean Monnet and Canada: Early Travels and the Idea of European Unity (Toronto: University of Toronto Press, 2011); James J. Sheehan, Where Have All the Soldiers Gone?: The Transformation of Modern Europe (Houghton Mifflin Harcourt, 2009).

Doug Saunders on Trade, Peace, and the Crimea

16 03 2014

Doug Saunders of the Globe and Mail appears to be channelling Norman Angell. Saunders has just published an article in which he assures us that the diplomatic standoff between the West and Russia over Crimea will not escalate into a serious military confrontation because the economies of Russia and the EU are so interdependent nowadays.

As loyal readers of this blog will know, Norman Angell argued in 1909 that a general European war would be virtually impossible because the economies of the Great Powers were so interconnected. He reasoned that since Germany and the UK were each other’s best trading partners, war between them would be economic suicide. After reviewing the aggregate trade data, Angell concluded that since the Great Powers were led by rational individuals who cared about the economic wellbeing of their subjects, they would refrain from fighting wars with each other.

In his discussion of the Crimea, Saunders writes:

..this is nothing like a Cold War.

The USSR was a closed economy: At its 1985 peak, foreign exports and imports accounted for just 4 per cent of the Soviet economy, almost all of it with satellite states and de facto colonies. This attempt at state-run self-sufficiency failed, and led to the out-of-control foreign borrowing that contributed to the collapse of communism. But it meant that Moscow’s pre-1991 leaders saw the non-communist world only as an ideological rival and a territorial threat.

Mr. Putin may see the outside world this way, but he also has to see it as something much larger: a client and a partner, and the sole source of his regime’s sustenance.

 This is not the dark days of the 20th century, and countries such as Ukraine have no reason to be caught in a zero-sum game between powers. This crisis can be resolved, using economic and diplomatic persuasion, if we can all stop living in the past.

I’m inclined to believe in the theory of the commercial peace. (In fact, this theory informs my historical research in Canadian-American peace in the 1860s and HSBC’s relationship with German companies during the First World War). I’m also inclined to think that the dispute over Crimea will be solved with minimal bloodshed. However, I think that Saunders’s reassurance that Russia won’t fight the West because it has McDonald’s nowadays would be more convincing if he demonstrated that the similar arguments were used in the past and were then falsified by the course of events.

Norman Angell’s theory lacked predictive accuracy because he overlooked the fact that peace-or-war decisions in early twentieth century Europe were in the hands of privileged individuals, generally landed aristocrats and monarchs, who didn’t have to worry too much about grocery bills. I have no doubt that the leaders of the Western democracies care about the economic wellbeing of their citizens, since they are all seeking re-election. Their concern with preserving affluence doubtless makes them more reluctant to escalate the situation. Whether or not Putin really cares that much about the living standards of his people is a very different matter forever. A dictator like Putin may well decide to sacrifice the economic welfare of his population.

I read in the Weekend version of the Financial Times that Russian companies are pulling billions out of Western banks in anticipation of sanctions. What the impact of these withdrawals on the banks remains to be seen.

Data released by the New York Federal Reserve suggests that the Russian government also appears to be selling much of the $138.6 billion in US government debt it held just a few weeks ago. In the week ended 12 March, an astonishing $104.5 billion of Treasurys were dumped.

Peace on Earth and Goodwill to All Mankind

23 12 2013

goodwill to all men

At the risk of sounding trite, I will point out that Christmas is when we think about “goodwill towards all men.”

At the risk of stating the obvious, I’ll point out that postal services play a big role in the lead up to Christmas, especially in the Age of Amazon.

At the risk of killing the festive mood with an ideologically-charged political statement, I’m going to say something about the history of globalization in this blog post.

amazon package

As readers of this blog will know, I’m currently organizing a conference on the impact of the First World War on international business. (See details here). The conference will feature papers dealing with a wide range of industries and countries. The presenters are from a wide range of countries and disciplinary backgrounds. What they have in common is an interest in what happened to the world economy, which was highly globalized and interconnected in 1914, when politicians suddenly took decisions that prevented people of different nationalities from engaging in economic exchange.

The complex set of theoretical and historical questions related to the capitalist theory of peace has long fascinated me. Since the time of Montesquieu, social theorists have thought about the relationship between commerce and war. Montesquieu famously argued that commerce made people peaceful and more moral in other areas of their lives as well.   Although there are clearly some problems with the simplistic idea that free-market capitalism will, by itself, ensure perpetual world peace, there is also abundant evidence to support that international trade and other forms of cross-border economic exchange help to “soften” people, make them less warlike, and reduce the frequency, duration, and severity of warfare. (For a gateway into the social-scientific literature on this topic, see here, here, and here).

We are blessed to live to live at a time when the levels of globalization approach those last seen on the eve of the First World War. The descent of Europe into madness in 1914 makes once cautious about predicting future peace, especially when one reads about recent sabre-rattling by the nations of East Asia.  However, I feel that we in the West have put in place institutions designed to ensure that the capitalist peace will continue in our part of the world.

My optimism was recently reinforced by something I saw in my neighbourhood. Over the last few days, the streets around here have been filled with vans from courier companies and our (recently privatised) Post Office rushing to deliver parcels for Christmas.

Traditionally, nationalised post offices such as Britain’s Royal Mail were closely identified with the state. By their very nature, nationalized post offices help to entrench nationalism, to make the nation-state and its associated identities (and national antipathies) seem natural.  Nationalized post offices are part of what scholars of nationalism call “banal nationalism.” In wartime, post offices were used by the state to distribute propaganda: one read the state’s propaganda on the walls while one waited in line at the counter. In 1916, visitors to post offices in the UK saw the following notice.

wwi enlistment

The fact that national post offices in European Union are now allowed to compete for business in other EU member states is a healthy development, as it blurs national identities. I would also say that privatization and the introduction of competition in the postal business has had the same effect.

In the UK, firms that supply particular goods to the royal family are given royal warrants, which allows the manufacturer to slap the royal coat of arms on the labels of their products. For instance, Colman’s Mustard is the official supplier of mustard to Buckingham Palace. I suppose the royal warrant on their mustard jars makes the product seem more desirable to consumers. It’s a celebrity endorsement, essentially.

DHL truck

Anyway, to return to my point about post office, commerce, and nationalism, I noticed that the German-owned courier company DHL is now the official supplier of courier services to Queen Elizabeth. (See picture of a DHL van above). That’s right. The head of state of the United Kingdom no longer uses the Royal Mail for courier services and instead entrusts her packages to a German-owned company!

As we approach the centenary of the First World War, the complex historical developments represented by the DHL van I saw a few days ago are something worth celebrating.

Merry Christmas Everybody!