Table of Contents:
- a. The Arguments from Geography and Imperialism
i. The Argument from Geography
ii. The Argument from Imperialism
- b. The Arguments from Culture and Institutions
- a. The Contract between the Generations
- b. The Debt Problem
i. The Problem
ii. The Potential Solutions
iii. The Best Solution
- a. Tax Laws & Business Regulations
- b. File under Favoritism: Copyright Laws & the Lobbying Industry
- a. The Role of the Government and the Federal Reserve in the Latest Financial Crash
- b. Financial Regulation
- a. The Decline in Civic Participation
i. The Phenomenon
ii. The Causes and Consequences
- b. Towards a Solution: Education Reform
Over the past half-millennium the West has built up a substantial lead over other parts of the world when it comes to both economic power and material standard of living. Now, however, this lead is slipping away. Indeed, developing nations led by such powers as China and India are quickly closing the gap, as they are experiencing impressive economic growth, while the West is stagnating. Many argue that this is the natural result of globalization (and the fact that major corporations are taking advantage of cheaper labor in developing nations). For Harvard historian and writer Niall Ferguson, however, there is something deeper going on here. For Ferguson, the closing of the gap between the West and the Rest has less to do with the rise of the Rest, as the decline of the West.
Specifically, Ferguson argues that it is the West’s political, economic, legal and social institutions that have allowed it to gain the upper hand over the past 500 years or so, and that now these institutions are beginning to deteriorate (just as other nations increasingly copy what made the West successful in the first place). The result: Western stagnation, and the catching up of everyone else.
Ferguson identifies 4 primary institutions that account for the West’s success over the past half-millennium: 1. Democracy; 2. Capitalism; 3. The Rule of Law; and 4. Civil Society. Each of these, the author argues, has eroded in the recent past.
Beginning with democracy, Ferguson argues that the deterioration of democracy in our time has not so much to do with the break-down of the social contract between the individual and the state, as the break-down in the contract between the present generation and future generations. Specifically, by taking on the astronomical amount of public debt that many Western governments have taken on over the past half-century, we have undermined our own growth and unjustly put future generations in hock. We have lived well at the expense of our progeny, and have set them up for failure.
With respect to capitalism, where once Western institutions led the world in making it easy for businesses to start-up and operate efficiently, now heavy and overly-complex laws and regulations stifle new businesses and send domestic corporations overseas. Western banks and financial institutions, the author argues, are not under-regulated, but poorly regulated. And what’s more, they are not made to pay for their transgressions when they do breach the law (as witnessed, most recently, in the financial crash of 2008), thus they are invited to behave irresponsibly.
When it comes to the rule of law, where once the West did well to protect contracts and property rights, now tort law has allowed civil suits to run amok and choke the legal system. Meanwhile, copyright law now deeply favors the established over the up-and-coming, which has stifled innovation and progress. The Rule of Law has become the Rule of Lawyers.
When it comes to civil society, where once most Western citizens freely donated their time and money to worthy causes and charities, and flocked to join associations, clubs and organizations that promoted both civic-feeling and the public good, now citizens largely hide behind their televisions and computer screens and wait for the government to take care of the less fortunate and any and all public goods.
For Ferguson, unless we reverse the current deterioration of our institutions, we can expect our stagnation to continue (and we also run the risk of having our societies crash outright).
What follows is a full executive summary of The Great Degeneration: How Institutions Decay and Economies Die by Niall Ferguson.
PART I: WHY NATIONS SUCCEED AND FAIL: THE GREAT RECONVERGENCE, THE GREAT DIVERGENCE & THE RECENT RISE OF ASIA
1. The Great Reconvergence
It’s no secret that the economic gap between Western nations and the rest of the world is closing. There are two aspects to this phenomenon. One is that many developing nations are exploding economically; and two is that the West is stagnating. As evidence of this, consider that “in 2013 the World Bank expected the European economy to contract and the US to grow by just 2 per cent. China would grow four times faster than that, India three times faster” (loc. 48).
Nor is the explosion of the Rest and the stagnation of the West a recent and anomalous perturbation—or one that is tied entirely to the latest financial collapse of 2008. As the author explains, “those who invested in the West in 1989 have been punished (they have made nothing since 2000), while those who invested in the Rest have been richly rewarded” (loc. 48). Thus what has been termed the ‘great reconvergence’ (the closing of the gap between the West and the Rest) has been unfolding for roughly the past 20 to 25 years, or more.
As an indication of just how far the economic gap has closed, consider that, by 2017, the GDP of China (the champion of the Rest), is expected to overtake the GDP of the US (the champion of the West) (in terms of purchasing-power parity) (loc. 46 / loc. 2033).
The looming elimination of the economic gap between the US and China is particularly incredible when we consider just how far the US was ahead of China but a short while ago. As an indication of this, consider that in “1978, the average American was at least twenty-two times richer than the average Chinese” (loc. 274).
When it comes to the closing of the gap between the West and the Rest, the problem is not so much that the Rest is rising. Indeed, the fact that many parts of the developing world are exploding is without question an excellent thing. The problem is that the West is stagnating. So how can we make sense of this?
In order to truly resolve this question, we must explore just what it is that explains why nations succeed and fail. Fortunately, we have a grand body of historical evidence to draw from to help us out here. The most appropriate place to begin is way back when the West first began to pull away from the Rest (what has been termed the ‘great divergence’), and examine just how and why this occurred.
2. Explaining the Great Divergence, Part I: Examining the Theories
Unlike the great reconvergence (which has occurred entirely in the past half-century), the opening up of the gap between the West and the Rest—the great divergence—is something that unfolded over the past half-millennium—beginning around 1500 (loc. 274). What allowed for the great divergence? Many commentators have opened up with theories about this phenomenon—as well as the grander question of what explains the success and failure of nations. The leading candidates include geography (which comes down to agriculture and natural resources), imperialism, culture, and institutions. For Ferguson, only the last of these—institutions—can properly explain the great divergence. Let us see why.
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