Sunday, January 20, 2013

The Great Degeneration, by Niall Ferguson

Staff Review by Chris Saliba

In this stimulating and often contentious book, historian Niall Ferguson cites the main reason for the West’s current economic malaise as a degeneration in public institutions. He suggests a revival of the ‘civil society’ to restore those institutions to their former glory, which would in turn restore Western economies to full health.

The basic premise of this 2012 BBC Reith Lecture series, here worked into a short book, is pretty straight forward: Western economies, once the envy of the world, have at the start of the 21st century turned pear shaped. The reason is a degeneration in public institutions. The law has been hijacked by too many lawyers, financial regulation is too complex to function properly and government policy lacks intelligence and courage. All these institutions are essential to greasing the wheels of a nation’s economy. In short, where there is no trust between economic particpants, then there can be no growth. Economic stasis, even sclerosis, is the result.

Niall Ferguson, a distinguished historian, goes on to say that the common belief that the 2007–2008 financial crisis (still being played out) was caused by a lack of regulation is wrong. Poor regulation, not lack of it, was the problem. How did the great democracies of the West allow their institutions to degenerate? Ferguson’s answer is that government was allowed to become too big. It extended its reach into too many areas and sapped the ingenuity, resilience and self-reliance out of the people. The nanny state has made us all whinging dependents unwilling to take risks and accept responsibilities.

The Great Degeneration builds its argument up from a brief financial history, starting pretty much with Adam Smith (1723 – 1790), then onto  the heyday of the British industrial revolution and ending triumphantly in the twentieth century. Ferguson sees the British as the exemplars of strong public institutions that foster economic growth, starting with the Magna Carta of 1215 and further strengthened with the Cromwellian revolution of 1648 which accorded more powers to parliament at the expense of the crown. Good institutions are part of the British DNA, we are told.

How do we tackle this ‘great degeneration’? The answer is to create a more civil society. Ferguson tells us a story about a shoreline beautification project he initiated to help improve the view from a house he bought. Once he got the locals energised, he found the volunteers took great pride in their work and more people came to enjoy the clean shore. The benefits were no money had to be spent or local government involved. By increasing participation in a civil society, Ferguson believes that institutions across the board can be strengthened.

This whole notion of the ‘civil society’ and ‘social capital’ is very much similar to former Australian Labor Party leader Mark Latham’s political vision.  His whole idea was that it could replace big government. The only problem was that ‘social capital’ is something that is necessarily built from the grass roots up, not promoted by big government as a replacement for itself. How Ferguson’s civil society will take root is not really explained, and the feeling you get is that it’s just a hobby horse that he doesn’t really think has much of a hope. The Great Degeneration is certainly no activist’s call to arms. The title seems to suggest that the decline of Western civilisation will be some great game or spectacle. Indeed, Ferguson’s sense of humour can be quite glib.

The Great Degeneration perhaps suffers from easy generalisations and simplistic joining of the dots. These lectures are speculations on what has brought us to this point in our economic history. Ferguson tries to draw links between major points in history, not entirely convincingly. He says that a high civil society in 19th century England (that is, a high membership of clubs and societies) led to strong public institutions which led to a strong economy, one that was the envy of the world. Maybe, but one suspects that the story is a whole lot more complicated, with many other factors in play. As an economic historian, Ferguson looks mainly at dollars and cents as indicators of progress and well-being.

I found this an interesting and stimulating book. I have a lot of respect for Niall Ferguson as an historian and thinker, but felt myself keeping a fair bit of scepticism in reserve. Ferguson is right that we expect a lot of government now and get grumpy when it can’t deliver (see Laura Tingle’s Quarterly Essay Great Expectations), but his answers to these problems, while attractive, seem simplistic.

The Great Degeneration: How Institutions Decay and Economies Die, by Niall Ferguson. Published by Penguin. ISBN: 9781846147432   RRP: 29.99