The concept of “cognitive capitalism” was used by Yann Boutang in 2008 (modern economies are becoming more knowledge based), but I first heard it used by Heiner Rindermann in a somewhat different sense: cognitive ability is the cause of wealth. Heiner’s earliest mention of it in the title of a paper is one which we did together in 2011. Now he has written a major book on the topic, 576 pages long, and published by Cambridge University Press, no less. In this way the argument that it is people, not natural resources, which build national wealth has moved from sedition to the foothills of orthodoxy.
Cognitive Capitalism: Human Capital and the Wellbeing of Nations. Paperback – 31 Jan 2018
by Heiner Rindermann
The range of the book is extraordinary. It begins by looking at large wealth differences across time and nations; then the well-being of nations; human capital, cognitive ability and intelligence; history, culture and the Burgher-civic world; the impact of cognitive-intellectual classes; causes of national differences in cognitive ability (a major section, this one); global models for education, cognitive capital, production, wealth and wellbeing; the challenges of future development and predictions as to what will happen; a detailed review of some notable theoretical positions and ends with a set of detailed suggestions. This book is a tour de force. I hope it will be read by economists and all those interested in international development. In fact, most of the economic indicators are showing very welcome positive changes, but improvements in other continents outstrip those so far achieved in Africa as a whole. Concentrating on human capital could be a sensible way forwards.
Deciding how to describe the book is an intellectual task in itself. One way of starting is with the first table 1.1 showing estimates of global and continental income since 1500. Five centuries ago Africa, America and Australia were on $400, Asia $550 and Europe $688. By 2010 North America led the pack with $47,094, Northern Europe $35,308, Australia $25,438 and then a big fall down to South America with $10,607, Asia (India) with $3,337 and Africa (Kenya) with $1,628. The good news is that all countries are very much richer. The interesting story is that some countries have shot well ahead, prompting a debate as to how this happened.
Rindermann takes great care to compare all the measures of economic activity, and to contrast their various characteristics. He is aware that dollar totals do not capture all of the real wealth of nations, so discusses both narrow and broad measures. He uses Gross National Income as his basic measure, but notices that quality of local services is not fully captured by this measure.
It is because of those shortcomings that he devotes a full chapter to the well-being of nations, looking first at height and then at longevity to provide more substance. The good news for the world is that longevity has shot up in the last six decades. Though far behind, Sub-Saharan Africa has made a gain of 17 years. The Human Development Index gets a thorough examination, and even the less successful Gross National Happiness gets a mention.
As to human capital, Adam Smith understood perfectly that it comprised “superior reasoning and understanding, by which we are capable of discerning the remote consequences of all our actions, and of foreseeing the advantage or detriment which is likely to result from them: and secondly self-command, by which we are enabled to obtain a greater pleasure or to avoid a greater pain in some future time. In the union of those two qualities consists the virtue of prudence, of all the virtues that which is most useful to the individual.”
To my mind, that wraps it up. However, Friedrich List spelt it out once again in his 1841 version: “Everywhere and at all times has the well-being of the nation been in equal proportion to the intelligence, morality, and industry of its citizens; according to these, wealth has accrued or been diminished”.
We know that cognitive abilities are the best predictors of job performance. Rindermann follows through, arguing that the intelligence of nations are the best predictors of national performance. He then turns to what he calls “contentious issues”. He points out that intelligence research is blithely ignored by PISA, PIRLS and TIMSS, who act as if cognitive ability does not vary from one student to another. This is an obtuse posture.
Another misunderstanding is the Nazi attitude to intelligence testing: in fact, the Nazis were opposed to intelligence research, which they saw as an instrument of “Jewry”. They specially opposed the concept of intelligence as a “one-dimensional dimension” and as “one common central factor”. They wanted measures of “realism” and “conscientiousness”, not what they regarded as “theoretical intelligence” and “intellectualism”. They favoured “practical intelligence”. In their view, general intelligence did not exist. Odd, isn’t it, that these views, a commonplace today among those who reject intelligence research, should be so similar to the Nazi position.
Rindermann reviews the literature on international ability differences. This is an important chapter, and well worth reading on its own. Rindermann adds a whole section of what he calls Everyday Life Evidence and Sediments. This section will probably make some people angrily accuse him of descending to anecdotes. Rindermann argues that if the intelligence tests scores are valid, then a visitor to each country should find evidence of how bright the people in that country really are. He discusses his own experiences as a traveller (and since he did research in many countries he has much to report). He reports on airport malfunctions, local variations in the standards of global companies, irrational beliefs, rates of innovation and crime possibly can be dismissed as isolated incidents, yet they are real life tests which, if supported by other travellers, are real data which ought to convince sceptics about country differences.
Rindermann has a look at the traditional explanations for national wealth: investments, economic freedom, rule of law, education, cultural and religious factors, geography, and politics. He evaluates each of these against the dataset. The effects of economic freedom with GNI seem to be strongly positive at r=.60 to .70. Countries which come out from the Communist yoke do better. However, cognitive ability seems to be even more powerful. Market economies favour rational actors who can assess their competences and the quality of their products in the market place and alter their plans accordingly. Quality of institutions is also relevant: rule of law, low corruption and government effectiveness correlate .7 with GNI. As regards the argument Jared Diamond famously put forwards in “Guns, Germs and Steel” that geography is the key determining factor (all this argued without data tables) Rindermann points out that, even if true, why would this be relevant to national wealth today, when every region in the world has access to knowledge, food and commodities? It could only be genetics or culture that would have the lasting imprint of adaptation to the original geographies. Paradoxically, nations with few natural resources have often prospered, since (as David Landes quipped) nothing so concentrates the mind as lack of money.
Rindermann lays more stock on culture, in the sense of the world view of the Burgher-Civic world, which one would usually describe as middle-class or bourgeois: appreciation of education, knowledge and rationality, diligence, order, meritocracy and thrift, rule of law, effective government, self-responsibility, realism and pragmatism. These virtues can be practiced in any geography, and lead to eventual success.
Further chapters in the book deal with the extra advantage conferred by the smart fraction in any country; with evolution and genes; predictions in research, models for wealth development and even a final section entitled “What can be done”.
It is hard to do justice to the full scope of this major work, so I can only suggest you look at it yourself. You will find much which is new, and entertaining, and much which is important supportive knowledge crucial for an informed debate on the wealth of nations.