The Great Degeneration: How Institutions Decay and Economies Die

by Niall Ferguson

  24. Timothy Guinnane, Ron Harris, Naomi R. Lamoreaux and Jean-Laurent Rosenthal, ‘Putting the Corporation in its Place’, NBER Working Paper 13109 (May 2007); Aldo Musacchio, Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882–1950 (Cambridge, 2009).

  25. David Collison, Stuart Cross, John Ferguson, David Power and Lorna Stevenson, ‘Legal Determinants of External Finance Revisited: The Inverse Relationship between Investor Protection and Societal Well-Being’, Journal of Business Ethics, 108 (2012), pp. 393–410.

  26. Charles Dickens, Bleak House (1852–3), ch. 1.

  27. Michael Slater, Dickens: A Life Defined by Writing (New Haven, 2009), esp. pp. 340–58.

  28. Richard Danzig, ‘Hadley v. Baxendale: A Study in the Industrialization of the Law’, Journal of Legal Studies, 4, 2 (June 1975), pp. 267f.

  29. Rande W. Kostal, Law and English Railway Capitalism, 1825–1875 (Oxford, 1994).

  30. Danzig, ‘Hadley v. Baxendale’, p. 277.

  31. Ibid., p. 252n.

  32. Ibid., p. 254.

  33. Kleinwort Benson v. Lincoln City Council [1999] 2 AC 349, Lord Goff at pp. 377ff.

  34. Philip K. Howard, ‘It’s Time to Clean House’, Atlantic Monthly, 14 March 2012.

  35. Idem, ‘Results-Based Regulation: A Blueprint for Starting Over’, Common Good, 2 December 2011: http://www.commongood.org/blog/entry/philip-k.-howard-on-the-need-for-results-based-regulation.

  36. Calculated from data in Ida A. Brudnick, ‘Congressional Salaries and Allowances’, Congressional Research Service report, 4 January 2011; Office of Management and Budget, Fiscal Year 2013 Budget of the U.S. Government (Washington, DC, 2010); the 2013 Federal Judicial Budget. See also Susan Dudley and Melinda Warren, ‘Fiscal Stalemate Reflected in Regulators’ Budget: An Analysis of the U.S. Budget for Fiscal Years 2011 and 2012’, Regulators’ Budget Report 33, 11 May 2011.

  37. 2011 actual expenditure listed in Center for Responsive Politics Report: http://www.opensecrets.org/lobby/index.php.

  38. Nicole V. Crain and W. Mark Crain, ‘The Impact of Regulatory Costs on Small Firms’, Small Business Administration, Office of Advocacy (September 2010).

  39. Lawrence J. McQuillan, Hovannes Abramyan and Anthony P. Archie, Jackpot Justice: The True Cost of America’s Tort System (San Francisco, 2007), p. xii.

  40. Lawrence J. McQuillan and Hovannes Abramyan, U.S. Tort Liability Index: 2010 Report (San Francisco, 2010), p. 18. Cf. Towers Perrin, 2009 Update on U.S. Tort Cost Trends (n.p., 2009).

  41. Lawrence Chimerine and Ross Eisenbrey, ‘The Frivolous Case for Tort Law Change: Opponents of the Legal System Exaggerate its Costs, Ignore its Benefits’, Economic Policy Institute Briefing Paper (May 2005).

  42. David Kennedy and Joseph Stiglitz, Law and Economics with Chinese Characteristics: Institutions for Promoting Development in the Twenty-First Century (forthcoming).

  43. Michael E. Porter, Mercedes Delgado, Christian Ketels and Scott Stern, ‘Moving to a New Global Competitiveness Index’, in World Economic Forum, Global Competitiveness Report, 2008–2009 (Geneva, 2009).

  44. Michael E. Porter and Jan W. Rivkin, ‘The Looming Challenge to U.S. Competitiveness’, Harvard Business Review (March 2012), and the same authors’ ‘Choosing the United States’, ibid.

  45. World Economic Forum, Global Competitiveness Report, 2011–2012 (Geneva, 2011).

  46. Heritage Foundation, Index of Economic Freedom 2011 (Washington, DC, 2011): http://www.heritage.org/index/ranking.

  47. International Finance Corporation, Doing Business 2011 (Washington, DC, 2011).

  48. World Justice Project, Rule of Law Index 2011 (Washington, DC, 2011).

  49. World Bank, Worldwide Governance Index: www.gov indicators.org.

  50. International Financial Corporation, Doing Business dataset: http://www.doingbusiness.org/.

  51. Stephan Haggard and Lydia Tiede, ‘The Rule of Law and Economic Growth: Where Are We?’, World Development, 39, 5 (2011), pp. 673–85.

  52. For an excellent survey, see Michael Trebilcock and Jing Leng, ‘The Role of Formal Contract Law and Enforcement in Economic Development’, Virginia Law Review, 92 (2006), pp. 1517–80, esp. pp. 1554–75.

  53. Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York, 2012), pp. 445f.

  54. Donald C. Clarke, ‘Power and Politics in the Chinese Court System: The Enforcement of Civil Judgments’, Columbia Journal of Asian Law, 10, 1 (1996), pp. 1–125.

  55. See He Weifang, In the Name of Justice, passim.

  56. Ethan Michelson and Sida Lui, ‘What Do Chinese Lawyers Want? Political Values and Legal Practice’, in Cheng Li (ed.), China’s Emerging Middle Class: Beyond Economic Transformation (Washington, DC, 2010), pp. 310f., 316, 320, 328f.

  57. Lulu Chen, ‘Mainland’s Last Chance to Reform’, South China Morning Post, 3 June 2012.

  58. He Weifang, ‘Constitutionalism as a Global Trend and its Impact on China (2004)’, in idem, In the Name of Justice.

  59. Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities (New Haven/London, 1982).

  60. R. Eric Petersen, ‘Representatives and Senators: Trends in Member Characteristics since 1945’, Congressional Research Service, 17 February 2012; Jennifer E. Manning, ‘Membership of the 112th Congress: A Profile’, Congressional Research Service, 1 March 2011; Edmund Tetteh, ‘Election Statistics: UK 1918–2007’, House of Commons Library Research Paper 08/12, 1 February 2008.

  Chapter 4: Civil and Uncivil Societies

  1. Alexis de Tocqueville, Democracy in America, trans. Harvey C. Mansfield and Delba Winthrop (Chicago, 2000), book I, part 2, ch. 4.

  2. Ibid., book II, part 2, ch. 5.

  3. Ibid.

  4. Marvin Olasky, The Tragedy of American Compassion (Washington, DC, 1992).

  5. Edward C. Banfield, The Moral Basis of a Backward Society (Glencoe, IL, 1958).

  6. Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York, 2000).

  7. Theda Skocpol, Diminished Democracy: From Membership to Management in American Life (Norman, OK, 2003).

  8. Charles Murray, Coming Apart: The State of White America, 1960–2010 (New York, 2012).

  9. Peter Hall, ‘Social Capital in Britain’, British Journal of Politics, 29 (1999), p. 419.

  10. José Harris, ‘Society and the State in Twentieth Century Britain’, in F. M. L. Thompson (ed.), The Cambridge Social History of Britain 1750–1950, vol. III: Social Agencies and Institutions (Oxford, 1990), p. 68.

  11. Robert Humphreys, Poor Relief and Charity, 1869–1945 (London, 2001), tables 2.7, 3.2, 4.1 and 4.2, pp. 55, 68, 105, 109.

  12. Jane Lewis, The Voluntary Sector, the State, and Social Work in Britain: The Charity Organisation Society and the Family Welfare Association since 1869 (London, 1995).

  13. Peter A. Hall, ‘Social Capital in Britain’, British Journal of Political Science, 29 (1999), pp. 421f.

  14. Compare ‘Friendly Societies’, British Medical Journal, 25 December 1909, with Register of Friendly Societies, Report of the Chief Registrar, 2000–2001 (London, 2001).

  15. P. H. J. H. Gosden, Self-Help: Voluntary Associations in the Nineteenth Century (Leeds, 1973), tables 3.1 and 4.5, pp. 42, 104.

  16. Evan Schofer and Marion Fourcade-Gourinchas, ‘The Structural Contexts of Civic Engagement: Voluntary Association Membership in Comparative Perspective’, American Sociological Review, 66 (December 2001), p. 808.

  17. National Council for Voluntary Organizations, Participation: Trends, Facts and Figures (March 2011), p. 18.

  18. Edd Cowley, Tom McKenzie, Cathy Pharoah and Sarah Smith, ‘The New State of Donation: Three Decades of Household Giving to Charity, 1978–2008’, Centre for Market and Public Organisati
on, University of Bristol (February 2011).

  19. Robert Rutherfoord, Community Action in England: A Report on the 2009–10 Citizenship Survey (December 2011); idem, Community Spirit in England: A Report on the 2009–10 Citizenship Survey (December 2011).

  20. Eric Schmidt and Jared Cohen, ‘The Digital Disruption: Connectivity and the Diffusion of Power’, Foreign Affairs (November/December, 2010).

  21. Nicole B. Ellison, Charles Steinfield and Cliff Lampe, ‘The Benefits of Facebook “Friends”: Social Capital and College Students’ Use of Online Social Network Sites’, Journal of Computer-Mediated Communication, 12, 4 (2007): http://jcmc.indiana.edu/vol12/issue4/ellison.html. See also Nicole B. Ellison, Charles Steinfield and Cliff Lampe, ‘Connection Strategies: Social Capital Implications of Facebook-Enabled Communication Practices’, New Media Society, 13, 6 (2011), pp. 873–92.

  22. Tocqueville, Democracy in America, book II, part 4, ch. 6.

  23. Ibid., part 2, ch. 5.

  24. Peter H. Lindert, ‘Voice and Growth: Was Churchill Right?’, Journal of Economic History, 63, 2 (June 2003), pp. 315–50; idem, ‘Why the Welfare State Looks Like a Free Lunch’, NBER Working Paper 9869 (July 2003). See also Sun Go and Peter H. Lindert, ‘The Curious Dawn of American Public Schools’, NBER Working Paper 13335 (August 2007).

  25. Paul Collier, ‘Private v State: Here’s How to Bridge the Educational Divide’, Independent, 14 January 2010.

  26. ‘The Horse before the Cart’, Economist, 17 September 2011.

  27. ‘Education Reform: Back to School’, Economist, 9 September 2011.

  28. Mogens Kamp Justesen, ‘Learning from Europe: Parental Empowerment in the Dutch and Danish Education Systems’, Adam Smith Institute (2002).

  29. Results for 2010–11 at http://www.successacademies.org/page.cfm?p=11.

  30. ‘The Ties that Bind’, Economist, 28 March 2012.

  31. James Tooley, The Beautiful Tree: A Personal Journey into How the World’s Poorest People are Educating Themselves (Washington, DC, 2009).

  32. Martin West and Ludger Woessmann, ‘“Every Catholic in a Catholic School”: Historical Resistance to State Schooling, Contemporary School Competition, and Student Achievement across Countries’, Economic Journal, 120, 546 (2010), pp. 229–55.

  33. Toby Helm and Julian Coman, ‘Rowan Williams Pours Scorn on David Cameron’s “Big Society”’, Guardian, 24 June 2012.

  34. ‘Martin Sime Addresses the Big Society in Scotland Conference’, 28 October 2011: http://www.scvo.org.uk/scvo-news/martin-sime-addresses-the-big-society-in-scotland-conference/.

  Conclusion

  1. Robert C. Allen, Jean-Pascal Bassino, Debin Ma, Christine Moll-Murata and Jan Luiten van Zanden, ‘Wages, Prices, and Living Standards in China, 1739–1925: In Comparison with Europe, Japan, and India’, Economic History Review, 64 (2011), table 3, p. 36.

  2. Orley C. Ashenfelter, ‘Comparing Real Wages’, NBER Working Paper 18006 (April 2012).

  3. Ron Unz, ‘Race, IQ and Wealth’, American Conservative (August 2012), a devastating critique of Richard Lynn and Tatu Vanhanen, IQ and the Wealth of Nations (Westport, CT, 2002).

  4. Calculated from Emmanuel Saez’s file TabFig2010.xls, figure A1, available at http://emlab.berkeley.edu/users/saez/.

  5. Ibid., data-Fig A1, available at http://emlab.berkeley.edu/users/saez/.

  6. McKinsey Global Institute, Urban World: Cities and the Rise of the Consuming Class (June 2012), p. 20. See also McKinsey Global Institute, India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth (April 2010).

  7. Geoffrey West, ‘Why Cities Keep Growing, Corporations and People Always Die, and Life Gets Faster’, Edge, 17 July 2011. See also West’s dazzling TED lecture: http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html.

  8. Based on data in David Cohen, ‘Earth’s Natural Wealth: An Audit’, New Scientist, 23 May 2007, fossil-fuel statistics from BP and market prices in mid-2011.

  9. Michael Milken, ‘Where’s Sputnik? Summoning the Will to Create the Next American Century’, Milken Institute Review, 2nd Quarter (2011), pp. 1–20.

  10. Ernst & Young, The World is Bumpy: Globalization and New Strategies for Growth (2012), figure 4, p. 8.

  11. Steven Pinker, The Better Angels of our Nature: The Decline of Violence and its Psychological Roots (New York, 2011).

  12. Andrew Odlyzko, ‘Crushing National Debts, Economic Revolutions, and Extraordinary Popular Delusions’, University of Minnesota Working Paper (2012).

  13. Carmen M. Reinhart, Vincent R. Reinhart and Kenneth S. Rogoff, ‘Debt Overhangs: Past and Present’, NBER Working Paper 18015 (April 2012).

  14. Paul Krugman, ‘Money for Nothing’, New York Times, 26 July 2012.

  15. Peter Thiel, ‘Swift Blind Horseman’, National Review, 3 October 2011.

  16. Peter Turchin, ‘Dynamics of Political Instability in the United States, 1780–2010’, Journal of Peace Research.

  17. Remarks by the President at a Campaign Event in Roanoke, Virginia, 13 July 2012: http://www.whitehouse.gov/the-press-office/2012/07/13/remarks-president-campaign-event-roanoke-virginia.

  Acknowledgements

  This book began life as the BBC Radio 4 Reith Lectures 2012, so I must begin by thanking Gwyneth Williams, who invited me to give the lectures, Hugh Levinson, who edited them, Jane Beresford, who produced them, and Sue Lawley, who introduced them. Previous Reith lecturers constitute some of the hardest acts in the world to follow. The BBC team made the task less intimidating and more fun than I had anticipated.

  Thanks are also due to Leeann Saw, who acted as my research assistant for this project, Simon Winder and Ann Godoff, my editors in, respectively, London and New York, and Andrew Wylie, my agent.

  A number of expert friends generously read and commented on drafts of the lectures or chapters. In particular, I would like to thank Charles Béar, Harold Carter, Douglas Flint and Paul Tucker. Thanks are also due to my colleagues at Greenmantle: Pierpaolo Barbieri, Joshua Lachter, Hassan Malik and Jason Rockett, who contributed directly and indirectly to the completion of the manuscript.

  Those academics who have written on the subject of institutions and development are acknowledged in the text and notes. I cannot unfortunately do the same for all the audience members who asked insightful questions after I delivered the lectures, though I am grateful to them, too. I can and do thank the four institutions that hosted the lectures: the London School of Economics, the New York Historical Society, Gresham College and the Royal Society of Edinburgh.

  Finally, these lectures were devised, written, delivered and turned into a book during the first seven months of my youngest son’s life. This book is dedicated to him.

  * On a purchasing-power parity basis, adjusting for the fact that non-tradable goods and services are much cheaper in China than in the United States. In current dollar terms, the Chinese economy will still be 60 per cent the size of the American in 2016 – compared with just 8 per cent in 1989.

  * Moore’s Law, formulated by Intel co-founder George Moore in 1965, predicted a doubling of the number of transistors that can be packed on to a computer chip every two years.

  * Note that I leave aside the very large private debts that have been incurred by households and by financial and non-financial corporations. If one adds these together with the government debts, the burdens have no precedent in history: Japan 512 per cent of GDP, Britain 507 per cent, France 346 per cent, Italy 314 per cent, the United States 279 per cent, Germany 278 per cent.

  * A few months after the March 2012 coup in Mali, I was struck by the following observation by an American anthropologist in Bamako: ‘There is an inchoate notion among young people that the political class is taking away their futures.’ At some point this same inchoate notion will start playing a major role in US politics.

  * In the United States by (am
ong other measures) the International Lending Supervision Act of 1983, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991.

  * Those countries that make it harder for new entities to enter the market do not reap benefits in terms of product quality. They do exhibit sharply higher levels of corruption and larger black or grey economies.

  * In our ongoing work on ‘The Spirit of the Common Law’, Charles Béar QC and I seek to explore in detail how precisely this evolution has worked, looking at the changing meaning of legal concepts over time rather than approaching the law in the functionalist, present-minded spirit of Shleifer et al.

  * The appearance of Belarus on the list is a reminder, of course, that such datasets must be used with caution.

  * Strictly speaking, Magdalen is part of a state-funded university, the independence of which has intermittently been challenged by the government. But the college remains a self-governing entity with its own endowment.

  * In West’s words: ‘One of the bad things about open-ended growth, growing faster than exponentially, is that open-ended growth eventually leads to collapse. It leads to collapse mathematically because of something called finite times singularity. You hit something that’s called a singularity, which is a technical term, and it turns out as you approach this singularity, the system, if it reaches it, will collapse.’

  * The phrase was coined by the American hedge-fund manager Ray Dalio, whose hedge fund Bridgewater performed exceptionally well during the financial crisis.

  * The maximum length of a Twitter ‘tweet’.