The Great Degeneration: How Institutions Decay and Economies Die

by Niall Ferguson

  Above these an immense tutelary power is elevated, which alone takes charge of assuring their enjoyments and watching over their fate. It is absolute, detailed, regular, far-seeing, and mild. It would resemble paternal power if, like that, it had for its object to prepare men for manhood; but on the contrary, it seeks only to keep them fixed irrevocably in childhood . . .

  Thus, after taking each individual by turns in its powerful hands and kneading him as it likes, the sovereign extends its arms over society as a whole; it covers its surface with a network of small, complicated, painstaking, uniform rules through which the most original minds and the most vigorous souls cannot clear a way to surpass the crowd; it does not break wills, but it softens them, bends them, and directs them; it rarely forces one to act, but it constantly opposes itself to one’s acting; it does not destroy, it prevents things from being born; it does not tyrannize, it hinders, compromises, enervates, extinguishes, dazes, and finally reduces each nation to being nothing more than a herd of timid and industrious animals of which the government is the shepherd.22

  Tocqueville was surely right. Not technology, but the state – with its seductive promise of ‘security from the cradle to the grave’ – was the real enemy of civil society. Even as he wrote, he recorded and condemned the first attempts to have ‘a government . . . take the place of some of the greatest American associations’.

  But what political power would ever be in a state to suffice for the innumerable multitude of small undertakings that American citizens execute every day with the aid of an association? . . . The more it puts itself in place of associations, the more particular persons, losing the idea of associating with each other, will need it to come to their aid . . .

  The morality and intelligence of a democratic people would risk no fewer dangers than its business and its industry if the government came to take the place of associations everywhere.

  Sentiments and ideas renew themselves, the heart is enlarged, and the human mind is developed only by the reciprocal action of men upon one another.23

  Amen to that.

  Privatizing Schools

  To see just how right that wise old Frenchman was, ask yourself: how many clubs do you belong to? For my part, I count three London clubs, one in Oxford, one in New York and one in Cambridge, Massachusetts. I am a deplorably inactive member, but I pay my dues and use the sports facilities, the dining facilities and the guest rooms several times a year. I give regularly, though not enough, to two charities. I belong to one gymnasium. I support a soccer club.

  I am probably most active as an alumnus of the principal educational institutions I attended in my youth: the Glasgow Academy and Magdalen College, Oxford. I also regularly give time to the schools my children attend, as well as to the university where I teach. Let me explain why I am so partial to these independent* educational institutions.

  The view I am about to state is highly unfashionable. At a lunch held by the Guardian newspaper, I elicited gasps of horror when I uttered the following words: in my opinion, the best institutions in the British Isles today are the independent schools. (Needless to say, those who gasped loudest had all attended such schools.) If there is one educational policy I would like to see adopted throughout the United Kingdom, it would be a policy that aimed to increase significantly the number of private educational institutions – and, at the same time, to establish programmes of vouchers, bursaries and scholarships to allow a substantial number of children from lower-income families to attend them.

  Of course, this is the kind of thing that the left reflexively denounces as ‘elitist’. Even some Conservatives, like George Walden, regard private schools as a cause of inequality, institutions so pernicious that they should be abolished. Let me explain why such views are utterly wrong.

  For about a hundred years, no doubt, the expansion of public education was a good thing. As Peter Lindert has pointed out, schools were the exception that proved Tocqueville’s rule, for it was the American states that led the way in setting up local taxes to fund universal and indeed compulsory schooling after 1852. With few exceptions, widening the franchise elsewhere in the world led swiftly to the adoption of similar systems. This was economically important, because the returns to universal education were high: literate and numerate people are much more productive workers.24 But we need to recognize the limits of public monopolies in education, especially for societies that have long ago achieved mass literacy. The problem is that public monopoly providers of education suffer from the same problems that afflict monopoly providers of anything: quality declines because of lack of competition and the creeping power of vested ‘producer’ interests. We also need to acknowledge, no matter what our ideological prejudices, that there is a good reason why private educational institutions play a crucial role in setting and raising educational standards all over the world.

  I am not arguing for private schools against state schools. I am arguing for both, because ‘biodiversity’ is preferable to monopoly. A mix of public and private institutions with meaningful competition favours excellence. That is why American universities (which operate within an increasingly global competitive system) are the best in the world – twenty-two out of the world’s top thirty according to rankings by Shanghai Jiao Tong University – while American high schools (in a localized monopoly system) are generally rather bad – witness the 2009 results of the Programme for International Student Assessment for mathematical attainment at age fifteen. Would Harvard be Harvard if it had at some point been nationalized by either the State of Massachusetts or the federal government? You know the answer.

  In the United Kingdom, we have the opposite system: it is the universities that have essentially been reduced to agencies of a government-financed National Higher Education Service – despite the advent in England and Wales of top-up fees that are still below what the best institutions should be charging – whereas there is a lively and financially unconstrained independent sector in secondary education. The results? Apart from the elite, which retain their own resources and/or reputations, most UK universities are in a state of crisis. Only seven made it into The Times Higher Education Supplement’s latest global top fifty. Yet we boast some of the finest secondary schools on the planet.

  The apologists of traditional state education need to grasp a simple point: by providing ‘free’ state schooling that is generally of mediocre quality, you incentivize the emergence of a really good private system (since nobody is going to pay between £10,000 and £30,000 a year for an education that is just a wee bit better than the free option).25

  It is rather ironic that, at the time of writing, the policies being introduced to address the problem of low-quality public education in England are the responsibility of a Scotsman. Michael Gove picked up the idea from an Old Fettesian named Tony Blair: turning failing schools into self-governing academies. Between 2010 and 2012, the number of academies went from just 200 to approaching half of all secondary schools. Schools like Mossbourne Academy in Hackney or Durand Academy, a primary in Stockwell, show what can be achieved even in impoverished neighbourhoods when the dead hand of local authority control is removed.26 Even more promising are the new ‘free schools’ being set up by parents, teachers and others, like Toby Young, who has finally worked out the real way to win friends and influence people.27 Notice that these schools are not selective. They remain state funded. But their increased autonomy has swiftly led to much higher standards of both discipline and learning.

  There are many on the left who deplore these developments. (Many Labour MPs would happily disown the very idea of academies.) Yet they are part of a global trend. All over the world, smart countries are moving away from the outdated model of state education monopolies and allowing civil society back into education, where it belongs.

  Many people erroneously believe that Scandinavia is a place where the old-fashioned welfare state is alive and well. In fact, only Finland has maintained a st
rict state monopoly on education, the success of which makes that country the exception that proves my rule. By contrast, Sweden and Denmark have been pioneers of educational reform. Thanks to a bold scheme of decentralization and vouchers, the number of independent schools has soared in Sweden. Denmark’s ‘free’ schools are independently run and receive a government grant per pupil, but are able to charge fees and raise funds in other ways if they can justify doing so in terms of results. (Similar reforms have meant that around two-thirds of Dutch students are now in independent schools.)28

  Today in the United States, there are more than 2,000 charter schools – like English academies, publicly funded but independently run – bringing choice in education to around 2 million families in some of the country’s poorest urban areas. Organizations like Success Academy have to endure vilification and intimidation from the US teachers’ unions precisely because the higher standards at their charter schools pose such a threat to the status quo of under-performance and under-achievement. In New York City’s public schools, 62 per cent of third, fourth and fifth graders passed their maths exams last year. The latest figure at Harlem Success Academy was 99 per cent. For science it was 100 per cent.29 And this is not because the charter schools cherry-pick the best students or attract the most motivated parents. Students are admitted to Harlem Success by lottery. They do better because the school is both accountable and autonomous.

  There is, however, a further step that still needs to be taken. That step is to increase the number of schools that are truly independent, in the sense of being privately funded; and truly free, in the sense of being free to select pupils. Significantly, six out of ten UK academy heads said in a March 2012 survey that the national agreement on pay and conditions prevents them from paying effective teachers more money, or extending the school day to give weaker pupils extra tuition.30 There are no such inhibitions about private education elsewhere. In Sweden companies like Kunskapsskolan (‘The Knowledge School’) are educating tens of thousands of pupils. In Brazil, private school chains like Objetivo, COC and Pitágoras are teaching literally hundreds of thousands of students. Perhaps the most remarkable case, however, is India. There, as James Tooley has shown, the best hope of a decent education in the slums of cities like Hyderabad comes from private schools like the imaginatively named Royal Grammar School, Little Nightingale’s High School or Firdaus Flowers Convent School.31 Tooley and his researchers have found similar private schools in parts of Africa too. Invariably, they are a response to atrociously bad public schools, where class sizes are absurdly large and teachers are frequently asleep or absent.

  The problem in Britain is not that there are too many private schools. The problem is that there are too few – and if their charitable status is ultimately revoked, there will be even fewer. Only around 7 per cent of British teenagers are in private schools, about the same proportion as in the United States. If you want to know one of the reasons why Asian teenagers do so much better than their British and American peers in standardized tests, it is this: private schools educate more than a quarter of pupils in Macao, Hong Kong, South Korea, Taiwan and Japan. The average PISA maths score for those places is 10 per cent higher than for the UK and the US. The gap between them and us is as large as the gap between us and Turkey. It is no coincidence that the share of Turkish students in private schools is below 4 per cent.

  Private education benefits more people than just the elite. In a 2010 article, Martin West and Ludger Woessmann demonstrated that ‘a 10 per cent increase in enrolment in private schools improves a country’s mathematics test scores . . . by almost half a year’s worth of learning. A 10 per cent increase in private school enrolment also reduces the total educational spending per student by over 5 per cent of the OECD average.’32 In other words, more private education means higher-quality and more efficient education for everyone. A perfect illustration is the way Wellington College is now sponsoring a publicly funded academy. Another is the way schools like Rugby and Glasgow Academy are expanding their bursary schemes, aiming to increase the proportion of pupils whose fees are covered from the school’s own resources.

  The education revolution of the twentieth century was that basic education became available to most people in democracies. The education revolution of the twenty-first century will be that good education will become available to an increasing proportion of children. If you are against that, then you are the true elitist: you are the one who wants to keep poor kids in lousy schools.

  A Bigger Society

  The larger story I am telling, using education as the example, is that over the past fifty years governments encroached too far on the realm of civil society. That had its benefits where (as in the case of primary education) there was insufficient private provision. But there were real costs, too.

  Like Tocqueville, I believe that spontaneous local activism by citizens is better than central state action not just in terms of its results, but more importantly in terms of its effect on us as citizens. For 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’ – the wider group beyond our families – which is precisely where we learn how to develop and enforce rules of conduct: in short, to govern ourselves. To educate our children. To care for the helpless. To fight crime. To keep the streets clean.

  Since the phrase ‘big society’ entered the British political lexicon, abuse has been heaped upon it. In the same month that I delivered the lectures on which this book is based (June 2012), the Archbishop of Canterbury called it ‘aspirational waffle designed to conceal a deeply damaging withdrawal of the state from its responsibilities to the most vulnerable’.33 Even Martin Sime, the chief executive of the Scottish Council of Voluntary Organizations – who claims to believe in ‘self-help’ – has described the big society as a ‘toxic brand . . . a Tory con trick and a cover for cuts’.34 It will be clear by now that I am much more sympathetic than these gentlemen to the idea that our society – and indeed most societies – would benefit from more private initiative and less dependence on the state. If that is now a conservative position, so be it. Once, it was considered the essence of true liberalism.

  In the preceding pages, I have tried to argue that we are living through a profound crisis of the institutions that were the keys to our previous success – not only economic, but also political and cultural – as a civilization. I have represented the crisis of public debt, the single biggest problem facing Western politics, as a symptom of the betrayal of future generations: a breach of Edmund Burke’s social contract between the present and the future.

  I have suggested that the attempt to use complex regulation to avert future financial crises is based on a profound misunderstanding of the way the market economy works: a misunderstanding into which Walter Bagehot never fell.

  I have warned that the rule of law, so crucial to the operation of both democracy and capitalism, is in danger of degenerating into the rule of lawyers: a danger Charles Dickens well knew.

  And, finally, I have proposed that our once vibrant civil society is in a state of decay, not so much because of technology, but because of the excessive pretensions of the state: a threat that Tocqueville presciently warned Europeans and Americans against.

  We humans live in a complex matrix of institutions. There is government. There is the market. There is the law. And then there is civil society. Once – I’m tempted to date it from the time of the Scottish Enlightenment – this matrix worked astonishingly well, with each set of institutions complementing and reinforcing the rest. That, I believe, was the key to Western success in the eighteenth, nineteenth and twentieth centuries. But the institutions in our times are out of joint.

  It is our challenge, in the years that lie ahead, to restore them – to reverse the Great Degeneration – and to return to those first principles of a truly free society which I have tried to affirm, with a little help from some of the great t
hinkers of the past.

  It is time, in short, to clear up the beach.

  Conclusion

  Inequalities Explained

  Why are some countries so much richer than others? To be precise, why are real wages – wages adjusted for the cost of living – higher in some countries than in others? Real wages in London were more than seven times higher than in Canton on the eve of the First World War, whereas they had been roughly comparable (allowing for differences in patterns of consumption) 200 years before.1 This was despite the fact that between 1700 and 1900 the world economy became far more integrated, with unprecedented flows of capital, goods and labour. Today, in another age of globalization, we encounter similar differentials. Manufacturing wages in China are no longer one-twentieth of the US level, as they were in 2005; indeed, they are projected to rise from one-tenth to one-fifth of American wages between 2012 and 2015. In purchasing-power parity terms, the gap is already even narrower. The number of Big Macs an employee of McDonald’s can buy with an hour of work is just four times higher in the United States than in China.2 Yet that is still a significant gap.

  While there is a consensus that such differentials are related to differences in ‘total factor productivity’, there is little agreement as to what is responsible for such differences. Explanations that emphasize the role of geography, climate, disease or natural-resource endowments are less convincing today than they seemed in the eighteenth century. Scientific knowledge, technological innovation and market integration have greatly reduced the significance of distance, weather and germs, while mineral wealth has been revealed to be as much a curse as a blessing. Explanations that assert racial differences in intelligence or industriousness are no longer taken seriously. There are pronounced differences in IQ between genetically indistinguishable populations, such as West and East Germans before 1991, or the Irish and Irish-Americans in around 1970. We can also trace far more rapid changes in average IQ over time than can be explained in terms of biology.3 The roles of religion, culture or ‘national character’ have also long intrigued sociologists. But the evidence of economic history is that shifts from poverty to prosperity generally happen too suddenly and in too many different cultural milieus to be explained in such terms.