Tuesday, 19 July 2016

The Great Degeneration: how Institutions decay and Economies die by Niall Ferguson - Summary of key points

Niall Ferguson is a prophet of our time. His great strength as an historian is that he applies the lessons of the past to comment on the present and to warn about the future.
In the The Great Degeneration Ferguson sets out to discuss the state of our political, economic, legal and social institutions by opening up what he calls four 'long-sealed black boxes': 'democracy', 'capitalism', 'the rule of law' and 'civil society' (p.11). Each of these four themes originally formed a Radio 4 Reith Lecture in 2011 and now form a chapter of the book (Links to the Reith Lectures can be found at the end of this article).

Chapter One: The Human Hive
Ferguson, revisiting some of the arguments in his excellent book Civilisation: the West and the Rest, sets out to explain the 'great divergence' after 1500 whereby Western civilisation fares so much better than other civilisations. His answer is that institutional evolution is the key to understanding Western ascendancy: it was Western institutions and in particular 'the rule of law' is what made the difference. He argues that the Glorious Revolution of 1688 and the 1689 Bill of Rights was a turning point that laid the foundations for the subsequent economic developments of agricultural improvement, imperial expansion and industrial revolution (p.32-3).
Turning to the present, Ferguson argues that excessive public debts are a symptom of the breakdown of what Edmund Burke called 'the partnership between the generations'. For Ferguson a great malaise of modern society is that Governments around the world have allowed public debt to grow out of control allowing 'the current generation of voters to live at the expense of those at yet too young to vote or as yet unborn' (p.41).

Chapter Two: The Darwinian Economy
Reflecting on the causes and lessons of the global financial crisis that began in 2007, Ferguson argues that over-complicated financial regulation was a key factor. Characteristically, he provides historical insights by reference to Walter Bagehot's Lombard Street published in 1873, which reflected on the financial crises and legislation of the nineteenth century. He concludes by arguing for a return to 'Bagehot's world where individual prudence - rather than mere compliance - precisely because the authorities were powerful and the crucial rules unwritten' (p.77); and that rogue bankers should be incarcerated pour encourager les autres. The chapter would be a useful addition to a reading list for anyone preparing for a university interview in Economics or Banking and Finance.

Chapter Three: The Landscape of Law
Ferguson argues that 'the Rule of Law' is fundamentally good because of the material consequences that it brings, particularly because it is conducive to economic growth. The key to this important aspect of the Rule of Law is the ability of societies to develop effective, low-cost enforcement on contracts; but history tells us that the problem is getting the enforcers (often the state) not to abuse their powers. Ferguson argues that, viewed historically, the English system of Common Law 'was superior in performing the twin roles of contract enforcement and coercion constraint to all other systems (French, German, Scandinavian and Chinese). This is because English common law systems offer greater protection for investors and creditors, and thus people in these systems are more willing to invest and lend money. It is the flexibility of common laws systems that make them superior. He cites two judicial appeal summations to make his point:
"Common law adapts itself by a perpetual process of growth to the perpetual roll of the tide of circumstances as society advances."  (Danzig, 'Hadley v Baxendale', p.277)
"In the course of deciding the case before him he [the judge] may, on occasion, develop the common law in the perceived interests of justice."  (Lord Goff in Kleinwort Benson v Lincoln City Council, 1999)
Ferguson then identifies four present threats to 'the Rule of Law':
  1. How far our civil liberties have been eroded by the national security state ("a choice between habeas corpus and hundreds of corpses"?! p.97);
  2. The intrusion of European Law, with its civil law character, into the English legal system;
  3. The growing complexity of statute law;
  4. The mounting cost of the law.
The consequence particularly of these complexities and cost is that societies become less competitive economically. Citing the Oxford Developmental Economist, Paul Collier, Ferguson argues that there are four steps which developing nations wishing to establish 'The Rule of Law' need to put in place:
  1. reduce violence
  2. protect property rights
  3. impose institutional checks on government
  4. prevent corruption.
Ferguson concludes the chapter by arguing that the present malaise in the West is because there has been a shift from 'The Rule of Law' to 'The Rule of Lawyers' -  where rather than using the law to make a better society, lawyers are using the law to their own ends.
The chapter would be a useful addition to a reading list for anyone preparing for a university interview in Law.

Chapter Four: Civil and Uncivil Societies
Ferguson here argues that reform of our society must come, not from public institutions, but from the the citizens of civil societies working independent of the state. He tracks the decline in membership of voluntary associations both in US and the UK and argues that it is these institutions that are the key to a civil society because they foster a sense of corporate responsibility among individual citizens, rather than relying on the state to solve society's ills. Indeed he goes so far as to argue that some of the finest institutions in the world are independent of governments, in particular, the Independent School sector and the top universities.
Ferguson's solution to the ills of the modern West, is that we all need to get more involved in society:
"True citizenship is not just about voting, earning and staying on the right side of the law. It is also about participating in the 'troop'." (p.132)
In the final chapter, Ferguson looks to a future of increased urbanization and mega-cities with a degree of optimism. His argument is that the net benefits of urbanization are conditioned by the institutional frameworks within which cities operate.
"Where there is effective representative government, where there is a dynamic market economy, where the rule of law is upheld and where civil society is independent of the state, the benefits of a dense population overwhelm the costs." (p.142)
This is an excellent little book (it is only 152 pages) and will take a couple of hours to read and many more to digest. It is very accessible - add it to the list of books your pupils should read before leaving school.

LINKS: The Reith Lectures 2012: The Rule of Law and Its Enemies
  1. The Human Hive - Ferguson argues that institutions determine the success or failure of nations.
  2. The Darwinian Economy - Ferguson reflects on the causes and lessons of the global financial crisis.
  3. The Landscape of the Law - Ferguson asks if different systems of law are key to economic success.
  4. Civil and Uncivil Societies - Ferguson asks what constitutes a vibrant and independent civil society.
These can be downloaded as MP3 podcasts from here.

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