Stephen D King recommends the best books on


The Chief Economist at HSBC reflects on the hubris of the Western World and reminds us that history provides valuable lessons on financial crises and the constant changing shape of the world economy

  • 0691143277.01.LZ_


    Power and Plenty
    by Ronald Findlay and Kevin H O’Rourke

  • 0393318885.01.LZ_


    The Wealth and Poverty of Nations
    by David S Landes

  • 1420932063.01.LZ_


    The Wealth of Nations
    by Adam Smith

  • 0143039431.01.LZ_


    The Grapes of Wrath
    by John Steinbeck

  • 0300087152.01.LZ_


    by Jonathan Glover

Stephen D King

Stephen King is HSBC’s Group Chief Economist and the global head of economics and asset allocation research at the bank, where he has worked since 1988. He is the author of Losing Control: The Emerging Threats to Western Prosperity, and since 2001 has written a weekly column in The Independent. He is a member of the European Central Bank Shadow Council, and the Financial Times Economists’ Forum, and has given written and oral evidence on the economic effects of globalisation to the House of Commons Treasury and Civil Service Committee and the House of Lords Economic Affairs Committee.

Save for later

Stephen D King

Stephen King is HSBC’s Group Chief Economist and the global head of economics and asset allocation research at the bank, where he has worked since 1988. He is the author of Losing Control: The Emerging Threats to Western Prosperity, and since 2001 has written a weekly column in The Independent. He is a member of the European Central Bank Shadow Council, and the Financial Times Economists’ Forum, and has given written and oral evidence on the economic effects of globalisation to the House of Commons Treasury and Civil Service Committee and the House of Lords Economic Affairs Committee.

Save for later

What draws your five books together?

The theme that unifies all this, I suppose, is the history of globalisation: how the world has changed in often unexpected ways, and how economists in general are not sufficiently focused on their history. A big chunk of what has happened economically over hundreds of years is typically ignored. Things like crises have happened before, and history gives you a pretty good clue as to why they happen, and what goes wrong. But it’s also a story about how the world economy itself is changing shape. People are struggling to work out the importance of the rise of China, for example. What’s often forgotten is that China was the biggest economy in the world in 1820, and not that long ago was, not quite a superpower, but certainly a very important economic entity. And again, because we’ve come through this tradition in the West of liberal democracy, Enlightenment values, free markets, we sort of believe that somehow that’s how the world has always worked, and that is not particularly true.

So partly a story of the hubris of the Western world?

Yes, I think that’s true, and so my first book is Power and Plenty by Findlay and O’Rourke. What’s particularly good about this is the tremendous detail on the way in which different parts of the world used to trade with each other, and how it helps us to think about a world that wasn’t purely European, or European-plus-satellites focused. The huge amount of trade that took place between the east coast of Africa, India and China hundreds of years ago got forgotten with the rise of European empires, and these kinds of trading routes are now all being re-established. It’s almost like the new, modern-day Silk Road, and the great thing about this book is that it records all the ways in which these trade linkages were created and then destroyed over the last thousand years.

Why were they destroyed?

Part of it was very simple: politically, countries sometimes chose to withdraw. China is the classic case – it really withdrew from globalisation in the 1400s when the Ming dynasty destroyed its ocean-going fleet, then the most powerful in the world, due to the sense that its relationship with the rest of the world was a corrupting influence on traditional Chinese values. But also it was almost by accident, often associated with technologies that were extraordinarily disruptive.

A classic case is the overland spice trade, which made the Middle East very rich, made Islam powerful for hundreds of years, and created amazing European cities like Venice. Then Vasco da Gama sails around the Cape of Good Hope and finds a seagoing route to all the spices, and suddenly all the middle men who’ve made a fortune out of this overland trade were just cut out of the deal and went into decline. I think there’s a lesson here for today: with all this cheap information, it’s easier for countries that had forgotten how to trade with each other to be able to trade with each other again.

So it comes up to the present day?

More or less. It goes through a number of different periods from the world economy at the turn of the first millennium all the way up to what it calls the re-globalisation at the end of the 20th century. I think the other thing you forget is that for much of the 20th century there was a collapse in globalisation, which we now take for granted as being a feature of the world economy. Trade was suppressed, often by a lack of technology, but more importantly by a series of dogmatic political views. Anyway, it’s a wonderful book, full of amazing detail, and I can’t think of a better history of the world economy of the last thousand years. I think many economists have forgotten that economics ultimately is rooted in things like politics and geography and history: if you don’t focus on those sorts of things you often lose sight of what’s really going on.

Next book?

The Wealth and Poverty of Nations. Another huge historical sweep on economic development and, perhaps controversially, this time more a view of why the West has been particularly successful and why other countries have not. I think there’s a danger that recent events may begin to question some of those assumptions, but as a tentative exploration of the issue of economic progress and culture, it’s fascinating.

One of the stories here is about clocks, and how the Europeans would bring their clocks along when it came to trading with China. Europeans used clocks as a coordinating mechanism: what time you arrived for work, and what time you went home in the evening. Whereas the Chinese initially regarded clocks as being almost a decorative toy, so you’d end up with this weird situation throughout China with extremely long hours being worked in the summer and extremely short hours in the winter, which were all determined by the lack of understanding of this particular technology.

I think what’s clever about the book in one sense is that it points out that it’s not just the technology that’s important but how you use it. If you invest in lots of computers, unless you can do something with them and work out how you can become more productive, the computers in themselves are utterly useless. There are lots of examples of this in the world: you have to work out how best to use a technology before investing in it.

Landes believes the Western world has been well placed to exploit new technologies?

Yes, there’s a lot of Enlightenment thinking going on in this particular book. I’m not 100 per cent sure that this still stacks up, because one big challenge to the whole Enlightenment process is the rise of Asia over the last 50-60 years. It has proved to have been successful for a number of decades now, so it does raise some big questions as to whether it’s either the same model and we haven’t understood it, or a different model, in which case it’s a challenge to Western assumptions about liberal democracy, and so on.

New technology can cause tremendous upsets. I think often people forget that the technologies partly explain why it is that some countries have become rich or some others have remained poor or become poor. What of course we don’t know is whether countries that are currently wealthy might subsequently become poor in the future, and I think this is a big question for the West, actually. If China and Brazil and India trade increasingly with each other, and the demographics of the world’s population continue to change in a way that makes the West increasingly unimportant, there are some big questions as to whether the West itself, having unleashed this wonderful new information technology, will go the same way as, say, Islam in the 14th and 15th centuries: of having a technology that has been so disruptive that it makes life much more difficult for the West than it assumed 20 or 30 years ago.

Historically speaking, all empires lose it at some stage.

They do. The one thing you could say is that countries which have recently lost it, like say the UK, or maybe Austria, have remained relatively wealthy. But it may be like the demise of the Roman Empire: it took hundreds of years to fall flat on its face, and maybe we’re seeing the same kind of process in the West. Landes wouldn’t support that view: he’d say there’s a particular model that’s worked well and here are the reasons why. But the lessons from history seem to be that those who think they’re going to be powerful suddenly find that their power has gone. I’m not sure I agree with all of it but it’s a fascinating book, particularly for these examples of how technologies were used in different parts of the world with completely different conclusions.

Next book?

Adam Smith, The Wealth of Nations. It was an extraordinary insight into how society works, and I stress the idea of society, rather than the economy, because his attempt was really to think about not just the famous things like division of labour, or the efficiency with which resources were allocated, but also how they were distributed: whether it was done in a moral, ethical way. And therefore he was thinking about winners and losers. Much of modern day economics, and the modern day reinterpretation of Smith, is all about the idea that you can create only winners if you allocate resources efficiently, that ultimately you are making the cake bigger and therefore, in theory, everyone can be better off. Of course those beliefs fed into the way we walked into the financial crisis, and the problem with that was that with time – which is what capital markets deal with – comes uncertainty. What is amazing about Smith is that he tried to relate economics to morals and ethics, in the sense that economics is only a small part of what society should be thinking about. I think it’s rather unfortunate: he’s been hijacked to a degree by a sort of right-wing free-market view of the world, which has done him a disservice in terms of his contribution to economic thought.

Your next book is The Grapes of Wrath.

This was first published in 1939 while the US was still grappling with the Depression, and what is brilliant about it – it’s a very harrowing read, of course – is that it reveals that economic problems can’t just be dealt with through some wave of the free-market magic wand. The sufferings that the family in this book go through you wouldn’t wish upon anybody, but their sufferings in part come about through a mixture of misfortune, misjudgment and bad luck. I think that this sense of people finding themselves hugely disadvantaged is something that has a modern-day connotation – the whole debate about immigration today is tied up with this. In both cases it’s about migrant labour. In The Grapes of Wrath it’s migrant labour from within the US, and it’s those people who are often the most vulnerable. This is the human aspect of that story, and I think that Steinbeck summarised much of what happened in the Great Depression far better than many economists did, because he really dealt with the true losses that came through for people who just happened to be down on their luck. It may still be possible to argue that free markets are the best option, but it’s important to realise that even if they’re the best option, they may not give you a perfect result. The danger people fall into is thinking it does.

Your fifth book?

Jonathan Glover’s Humanity. What’s nice about this book is that it’s truly global in terms of the debates he tries to launch. What is really fantastic about it, and this has a modern-day echo in the whole debate about the war in Iraq, is that he takes a variety of different morally dubious events through the 20th century, and doesn’t ask the question was it right or wrong in terms of the consequence, but rather: did the actors involved in reaching the decision do so in a good moral sense or not? Did the protagonists involved go through the right moral discussion before getting to that particular point? So he uses lots of source material on things like life under Stalin or the dropping of the bomb on Hiroshima and Nagasaki, to try to ask some quite heavyweight philosophical questions. I think why I picked this book is because it’s actually individuals who make decisions, for good or bad, and we invest our hopes in those individuals and sometimes find that they’ve let us down in some way or another.

This ranges across a whole series of different events. You think about the financial crisis: was it purely the result of the market failing, or of decisions made by individual people that contributed to weaknesses within the system, which were glossed over for one reason or another? One example that comes through from this latest crisis, for example, is that it was clear under Clinton and Bush that there was a strong belief in a property-owning democracy. It was important that more and more people should be able to buy their properties, which on the face of it sounds like a perfectly reasonable thing to suggest. But of course credit systems work on the basis of being able to distinguish between good and bad credits. If you simply say: we’re not going to care about that any more and just encourage everyone to own their own property, then in effect you’re saying that the financial system will have to support people who may actually be bad credits.

So part of the issue here is that the political aims that people have, the choices that individuals make, don’t always fit with the economic stability you want to see coming through. But I think that in making judgments about our leaders and ourselves, it’s important to understand the framework within which we’re making the judgment, what it is that’s motivating people in what they’re trying to do. My point is that there is a moral and ethical dimension to what it is we do that is often forgotten about in the history books, and this is an attempt to try and tie together philosophy and history, which I think is an interesting idea.

September 8, 2010

Support Five Books

Five Books depends on donations to keep going. If you've enjoyed this interview, please consider giving a gift.