Kwarteng's anarchic individualism

 Back in 2011, our current Chancellor published a book titled 'Ghosts of Empire' which blamed many of the problems of Britain's ex-colonies on the "anarchic individualism" of its pro-consuls. A Labor MP reviewing the book summarized Kwarteng's thesis as follows- 'In essence, there was too much autonomy given to imperial agents on the ground. "Officials often developed one line of policy only for successors to overturn it and pursue a completely different approach. This was a source of chronic instability in the Empire."'

Was Kwarteng right? Not really. Countries which were previously horribly governed quickly reverted to being horribly governed once the British left.  'Settler' colonies did fine provided the indigenous people were massacred. The French tended to do a poorer job than the Brits while the Germans were simply awful. 

The six examples that Kwarteng choses are idiosyncratic. The first was Iraq- which was a mandated territory, not a colony and which Britain protected from a Wahabbi invasion. Feisal I was an okay king who did try to conciliate the Shias. Iraq became independent while he was still on the throne. British advisers and administrators did invest in Iraqi agriculture and education. Some oil money was spent on this but, sooner or later, the Iraqis were bound to take back their country which did actually enjoy growing affluence even into the Eighties.  Kwarteng's second example is Burma, whose annexation was good for India- a much bigger land mass which can't be called the product of any type of anarchy or individualism. Had Burma managed to stay democratic, it might be quite affluent.

 Kwarteng mentions the sale of Kashmir to Gulab Singh but that dynasty actually became a little better than what had gone before- indeed, it still exists. But, in 1931, there was a tribal invasion- just as there was in 1948- and British soldiers had to defend the Kingdom. Still, whatever problems the Kashmiri have, they are as nothing compared to, their neighbors, the Tibetans. 

In an interview Kwarteng said 'Kashmir is a fascinating instance where the Hindu royal family was - sold Kashmir in 1846.'

Gulab Singh already controlled it. He paid tribute and entered into a Treaty as was the custom of the time. 

RAZ: Even though the majority of the population was Muslim.

This was irrelevant. There were plenty of Muslim kings ruling over mainly non-Muslim subjects at the time. 

KWARTENG: Exactly, because this man, a man called Gulab Singh, had managed to ingratiate himself with the British.

Gulab Singh was a successful soldier of fortune with a strong base in Jammu. He had the foresight to bet on John Company and profited by it. So did many other princes and taluqdars of the time. 

 He managed to do well in the Sikh empire which controlled Kashmir previously. And the British didn't really want to rule Kashmir directly at that time, so they sold it to him. As a consequence of that, his family ruled Kashmir for 100 years. But when it came to independence, the maharaja had the sole choice, and he decided as a Hindu to go with India. And of course, that had massive consequences, which we still feel today.

This is ignorant. Hari Singh would have preferred to be independent like the King of Nepal or Bhutan. It was the invasion which forced his hand. But it was Sheikh Abdullah's support for the Indians that was crucial in determining the outcome. There are no 'massive consequences' we feel today other than those arising from militant Islam. The underlying problem of poverty was tackled by Abdullah's land reforms. 

I suppose, Nigeria- where the impoverished Islamic North was soldered to the affluent, Christian, South- might look like a better example for Kwarteng's thesis. But Nigerians were able to overcome the Biafran tragedy. It enjoyed affluence and though it has its problems, one can't say it is a failed state. North Sudan did well under the Brits but the South was neglected. Is it governable? Time will tell. Overall, the examples Kwarteng picks on don't really illustrate his thesis. The fact is there were benefits to British rule even in 'Zomias'- shatter-zones of Empires- but it was always obvious that if revenues collapsed then there would have to be a withdrawal. But that had always been the case for thousands of years!

If Kwarteng was wrong about the ghosts of Empire, his term 'anarchic individualism' is an excellent fit for his own policies as Chancellor. This economic historian seems determined to replay two of the worst episodes in our financial history- the 'Barber boom' which coincided with the OPEC oil embargo and which lead to stagflation and deep industrial strife- Heath had to declare a state of Emergency- and the less important, but significant, mistake made by Norman Lamont in 1992 when the financial markets forced the Chancellor to exit the ERM after interest rates soared over the space of a single day. Today, Britain is faced with rising real interest rates- which could destroy the property market and raise mortgage payments for millions of new Tory voters by much more than they could hope to gain through lower taxes. More fundamentally, Kwarteng has dented confidence in sterling. We look like a pack of jokers being scolded by the IMF. 

How did things go so horribly wrong? I suppose the answer is that Truss and Kwarteng felt they had to give the shires strong red meat to compensate for BoJo's departure. What they forgot was 'Ricardian equivalence' or the 'Barro neutrality theorem' both of which militate to the conclusion that you can't just spend your way to growth. If no genuine growth seems feasible, there is mere 'crowding out' of useful investment or consumption activity. The market penalizes what they see as improvidence and so National Wealth- governed by the exchange rate- shrinks which in turn dampens spending.

One reason the British Empire wasn't really 'anarchic' or 'individualistic' was because there were genuine economies of scope and scale and other beneficial 'externalities' associated with joining a big trading and military block. Governance tended to improve because the 'individualists' were replaced by bead-counters and, over time, the bead-counters created state capacity of a minimal but effective sort.

 The Tory party- which is now on its fourth Prime Minister- has gone in the opposite direction. It has gotten Britain out of the EU's basic 'risk pooling' structure without replacing it with anything at all. Meanwhile, uncertainty has increased because of supply shocks like COVID and Ukraine. As with the Barber boom, there is currently a risk of escalation by Putin or further sabotage of oil pipelines. This is not the time to 'bet the farm' on 'Voodoo economics'. Ideology can be a very good thing- but there is a 'kairotic' or timely element to it. It is no good saying it is a glorious morning while yet we hear the chimes of midnight.

I suppose, Truss- not Kwarteng- must have pulled the trigger on this gamble. Other leaders have walked back similar schemes in the face of unruly markets and there would be no shame in her doing so. After all, markets might still fear a Labor government more than the current bunch of anarchists.