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book reviews

61Policy Vol. 28 No. 4 Summer 2012-13

The GreatDegeneration:How Institutions Decayand Economies FailBy Niall Ferguson

Allen Lane, London, 201216.99, 174 pages

ISBN 9781846147326

The Great Degenerationis a development of the BBCs Reith Lecturesor 2012. it dsusses the omplty and

decline of institutions in English-speaking countries,though whether the degeneraton s thought tobe relative, absolute or both is not always clear. Evenso, the thesis, rendered here with too few cautionary

ifs or buts, will strike a chord. Conrmation biashelps: People seem to want to believe the worst,and many wll nd t easy to nod n agreement

whle Ferguson pugnaously lghts nto threadbaredemocracy; the over-regulation of markets; theswth rom rule o law towards rule by (and or)lawyersand the decay of civil society. Piling up debtand making sure it is our descendants who have topay it o denitely gives one pause. e geographicaltargets are the United Kingdom and the UnitedStates; the book shifts uneasily between them and

no other part of the Western world gets a look-in.Ferguson s proud to be a hstoran and begnswith the Rise of the West, setting it up for its fall.He attributes both growth and decline to thechanging quality of institutions, disregardinganythng as subtle as ther nteraton wth othervariables and ignoring the possibility that they maybe n part the seondary eets o deeper hanges.

A reference to 1500 is not pursued; the startingpoint is really the Glorious Revolution of 1688. Apassage is quoted from Daron Acemoglu and JamesRobinson, Why Nations Fail(2012), which derives

English freedoms and liberties, and ultimatelyindustrialisation, from this supposed GreatTransformation. Inclusive institutions prevailed andrent-seeking fell off. Among the innovations, andthe one depicted as fundamental, was the security ofproperty rights. Ferguson thinks property rights weremore sgnfant than human rghts.

Most historians probably do not see 1688 as quiteso formative. Investment was rising before 1688, and

although Ferguson speaks of the establishment ofscience clubs thereafter, the crownpiece, to coina phrase, was the Royal Society, founded almost30 years earlier. Even leaving chronological mattersaside, and focusing, as Ferguson does, mostly on

property rights, leaves gaps in the analysis. e quirkso Englsh hstory are essental to understandngthis and the problems simply have to be rehearsed.They include no real comparison with previousperiods; too ready an acceptance that threats fromthe crown mattered more than those rom onesneighbours; too ready an acceptance that civil orderhas to be supplied top-down by the state; no extendedcomparisons with other European countries; nodemonstration that the events of 1688 led directlyto the Industrial Revolution; and no recognition thatolder institutional practices took a very, very long time

to deay.Ferguson is, however, not a common historian.

He sees, as surprisingly few do, that controls areneeded. hus he ontrasts Englands superorperformance with that of Qing China, and occasionally

with Ottoman Turkey. No faddish ranting againstEuro-centrism here! Since industrialisation cameso late to China, the comparison in that respect isnot especially informative. On the other hand,Chinas centuries of economic expansion arecertainly pertinent. e point is in China, millions

of transactions took place without independentlaw or legal guarantees by the state. Ferguson alsotesn support o the entral role o seurtythefamous work by Hernando de Soto on property rightsamong the Latin American poor. De Sotos insistenceon secure rights seems exaggerated. The poor oftenhave property, even though it is held conditionally,as if in a lottery, bound by little more than thefragile bonds of bribery. is may be inecient andmpede eonom growth but t s not totally atal tothe workings of the economy. In short, despite mypersonal inclinations, this book does not convince

me that secure property rights are indispensable,or that it is right to derive economic and politicalfreedoms from any single juncture, even in Englandin 1688. Such assertions are nowadays repeatedfrom one author to the next but that does not makethem orret.

e next section deals with more modern aspectsof the economy. It shudders at the debt load;ondemns the ssung o mortgages to people whose

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62 Policy Vol. 28 No. 4 Summer 2012-13

back to the United Kingdom, Ferguson arguesvehemently for privatising schools and rescuing themfrom the dead hand of public control. But he admitsthe stellar perormane o state-run eduaton nFinland, which completely contradicts his thesis

and shows how ontngent eduatonal hange reallyis. Ferguson himself is relentlessly dogmatic, andthe concluding section tacked on to his book is rathera jumble. He asserts in it that there was greattechnological progress before World War I, whichsits ill with the ranking authority, Rick Szostak, inTechnological Innovation and the Great Depression.

This book is the proverbial curates egg, good inparts. Surprisingly, given Fergusons insistence on thevalue of history, the historical parts are the weakest.Economies are delicate mechanisms, not clankingmachinery, and economic history is too complicated

to be comprehended via simple propositions. Theparlous condition of our own world, obvious as thisseems, is not greatly illuminated by stereotypes, eventhose wth whh one wants to agree. Readers oPolicyare likely to assent to much that Fergusonsays; yet, to repeat a warning, we should all bewareo onfrmaton bas.

If one seeks a gross generalisation, The GreatDegeneration does not shake my opinion thatnsttutonal hanges n England were sluggsh untlthe second half of the nineteenth century, say, until

after the Northcote-Trevelyan reforms of the civilservice from 1855. By that time, the most strikinggrowth lay in the past and, anyhow, had not dependedundenably on seure rghts or ready juste. headmirable elements of the system, now sadly returningto endemic rent-seeking, tended to cohere later.hey depended on the subtle emergene o an eltecaste willing to behave as Bagehot would haveapproved. For a time, the elite were substantiallyontent wth the non-peunary rewards o thehonours system and evaded

the njunton n theRubaiyatof Omar Khayyamto take the cash andlet the redt go.

Reviewed byEric Jones

incomes were too low for them to be likely to repay;and indicts overcomplicated regulation of thenanal setor. Ferguson s on hs own ground

with the history of banking, but he wanders offinto underdeveloped analogies between the economy

and evolutionary theory. It is never clear what theunit of evolutionary selection is in social science orwhether it is stable. He then rushes equally obscurelythrough an alternative: network analysis. What issalutary here s hs endorsement oLombard Street:A Description of the Money Market, in which WalterBagehot lays out the need for mutual trust, discretionand other social virtues. As Ferguson says, studentsof finance should be taught financial history,as Bagehot taught his readers. Unfortunately, thenance students I have known have been maths jocksand as ontemptuous o hstory as they are gnorant

of it, with results (for other people) that are nowagonsngly lear.

From the failings of economic life, the book movesto those of the legal system. It is extremely interestingon dsretonary aspets o the ommon law andhow judges reason, contrasting these features withtop-down systems. A dulty about attrbutngeconomic growth to such arrangements, as admirersof the common law are wont to do, is countries suchas France did well without it. Neither, as mentionedabove, Chinas historical expansion nor its recent

perormane rests on ndependent law. he usualrejonder that chnas growth annot last sspeculation. Moreover, Ferguson demonstrates

just how lmted was the reah o the ommon laweven in England before the 1880s: So much, he

writes, for the benets of common law for nancialdevelopment. He tries to rescue it, unconvincingly,by sayng that t adapted well to rumstanes. Fromthis point, he hops to the current defects of legalprate n the Unted States and the delnng qualtyof governance there. It is a scarifying account. Theirony is that, while the West falters, poorer countries

are reormng ther legal systems n the ormerWestern template, which has the common lawbeomng a sort o ghost n the great mahneo hstory.

e nal substantive section discusses civil society.The thrust is the bowling alone thesis, whichcomplains of shrinkage in voluntary associations.Tere s no reognton o ompensatng ators andnothng but hostlty or the role o the state. Swthng