The Great Degeneration | Niall Ferguson

Summary of: The Great Degeneration: How Institutions Decay and Economies Die
By: Niall Ferguson


Delve into ‘The Great Degeneration: How Institutions Decay and Economies Die’ by Niall Ferguson as we explore the factors leading to the decline of Western dominance. Uncover the weakening of Western institutions once responsible for economic and geopolitical power, and the effect of a broken cross-generational contract on societies. Learn about the consequences of reckless spending and unsound regulations set by governments, and a complex legal system that stifles enterprise. Finally, the transformation of civil society and the challenges of a growing world population upon megacities are also addressed.

The Great Divergence

500 years ago, a shift in geopolitics began as Western nations became the most dominant in global affairs due to their superior institutions. England’s successful political institution, especially the creation of a parliament that pledged to protect private property, spurred economic development, leading to the British Empire dominating the world through trade. Meanwhile, the rest of the world had poor institutions, with autocratic rulers who resisted development. For example, China’s corrupt political institution allowed the state to help themselves to citizens’ property, leading to little incentive for hard work, and ultimately, the nation’s stagnation and eventual succumb to Western imperialism.

The Decline of Western Institutions

The dominance of the West in economic and geopolitical matters seems to be coming to an end. Recent economic growth figures show that the rest of the world is catching up to the West. While some experts suggest that the world is just copying the successful Western economic model, the real reason lies in the decline of Western institutions. Financial institutions, which were once the backbone of the West’s economic power, are in complete turmoil and mired in scandal. In addition to that, the Western governments’ financial authorities stifle businesses with red tape and overly complex bureaucracy. As a result, these institutions are declining, and Western society is going down with them.

Burke’s Contract and Generational Family Distance

The 18th-century political philosopher Edmund Burke proposed that civilized society is a contract that should be honored between generations. It means that values held by dead generations cannot be trampled on while taking into consideration the well-being of the forthcoming generations. This notion of intergenerational ethics was believed to create a prosperous, stable society. However, the contract has been neglected and broken in modern Western society. Currently, older generations are selfishly consumed with reaping the rewards at the expense of future generations. Such conduct is manifested through government benefits in wages, health care plans, and pensions, accruing massive public debt. But the question remains, why do Western nations continue along this path? Mainly due to their democratic form of government and voters’ fear of losing their benefits or the true cost of debt hidden by Western governments. Subsequently, younger voters lack awareness of the enormous burden of debt waiting for them in the future, compelling them to maintain the status quo, even though it undermines their interests. The book’s message conveys that the neglect of intergenerational ethics will have severe consequences in the future.

The Illusion of Stronger Financial Regulation

Financial crises are not caused by lack of regulation but bad regulation. The financial system evolves organically and in constant flux, making it challenging to regulate effectively. Well-meaning regulations in the past have caused more harm than good. Effective regulation must be simple, flexible, and based on a careful study of financial history, avoiding past mistakes.

Common Law: A Double-Edged Sword

The legal systems of the UK and the US have been developed through the common law process, which allows judges to interpret and develop law. Common law protected citizens’ property, making these countries more entrepreneurial, and its flexibility allowed businesses to quickly adapt to new technologies. However, today, these legal systems are far from flexible, making it challenging for entrepreneurs to navigate complex regulations. The World Economic Forum ranks the US lower than Singapore and Hong Kong on the Global Competitiveness Index. The cost of navigating these regulations is a significant expense for businesses, reaching $1.75 trillion per year in the US alone. In short, common law is a double-edged sword: it helped these countries evolve into global economic powerhouses, but it is currently hurting entrepreneurs and businesses.

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