An Institutional Approach to the
End of Western Ascendancy
SIEPR, March 9, 2012
23 years ago it all seemed so simple
“An unabashed victory
of economic and
political liberalism … the
Triumph of the West.”
“The end point of
mankind’s ideological
evolution and the
universalization of
Western liberal
democracy as the final
form of human
government” – Francis
Fukuyama, “The End of
History”
But now …
Source: IMF
China is catching up
Source: IMF
Emerging markets have outperformed
Source: MSCI
And Western public finance is in crisis
Source: IMF
With the U.S. on a clearly unsustainable path
Source: CBO
Innovation seems to be moving East
Source: WIPO
It’s now an Oriental work ethic
Source: Conference Board
A gap has opened up in education too
Source: OECD
Not to mention healthcare
Source: World Bank
So what exactly is going wrong in the West?
Occupy Wall Street, 2011
http://img.ibtimes.com/www/data/images/full/2011/10/14/174091-occupy-wall-street-march.jpg
Let’s remind ourselves what went right
Source: Angus Maddison
It wasn’t just economic ...
Source: Angus Maddison
... it was also political
Source: Angus Maddison; Statesman’s Yearbook
But you can’t just blame imperialism
or geography
http://commons.wikimedia.org/wiki/File:Trabant_a_Mercedes.jpg
or national character
http://www.telegraph.co.uk/news/worldnews/asia/northkorea/8031761/
It was about institutions
http://www.edinphoto.org.uk/0_buildings_s/0_buildings_-_statue_adam_smith_037745.htm
Adam Smith on China
– Adam Smith, Wealth of Nations (1776)
Laws and institutions today
Source: WEF
Where is the rule of law secure?
Note: Hong Kong beats the U.S. in 15 out of 15 categories, Taiwan
in 9, PRC in 2.
Source: WEF
And where in the West is it lacking?
Source: WEF
Where is economic freedom greatest?
Source: Heritage Foundation
And where in the West is it weakest?
Source: Heritage Foundation
Where is it easiest to do business?
Source: IFC
And where in the West is it hardest?
Source: IFC
And where in the West is it hardest?
Source: IFC
So the Great Re-convergence has deep roots
Source: Angus Maddison
But don’t kowtow just yet …
1989 has finally come to the Arab world
Libyan graffiti: “Constitutional rule, elected president, four-year non-renewable
term limits”
http://blog.lgiu.org.uk/2011/09/on-libya-and-institutions/
And it may yet come to China too
Protesters in Wukan, Guangdong province
BBC
Remember Churchill’s words
“Civilization … means that
violence, the rule of
warriors and despotic chiefs,
the conditions of
camps and warfare, of riot
and tyranny, give place to
parliaments
where laws are made, and
independent courts of
justice in which over
long periods those laws are
maintained.”
© Niall Ferguson 2012