The Great Degeneration

I wonder what people are saying about America in the face of our politics and calls to dramatically repair America.    This is a difficult time for America’s cultural identity calling for lots of examination of “making America great again.”  The political mantra calls into question whether America needs dramatic work to increase or maintain its competitiveness.  This is an odd time since by all measures, America is one of the world’s most attractive places for investment, one of the most compelling places to live, and one of the most innovative nations.  I think we have a great country – we have a wonderful place in the world.  Yet, we do have certain areas that need repair which Niall Ferguson’s addresses in his book The Great Degeneration.  This book contains a focus on four institutions that impact America’s competitiveness and probably need some work.

Many commentaries are focused on comparing America’s competitiveness to other countries. China, Brazil, Singapore and Sweden are often cited examples of countries that portend best economic outcomes in the near future with America’s competitive position declining rapidly

Commentaries about what is wrong with America’s competitiveness point to the cost of healthcare, disparity of rich and poor, poor infrastructure, real wage stagnation, increasing national debt, environmental degradation and lack of an educated population. Counter arguments point to America’s innovativeness, sound investment environment, excellent higher education system, and its overall competitiveness ranking 3rd on the World Economic Forum’s global Competitiveness Index.

Ferguson states that “Competitiveness is defined as the set of institutions, policies and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy.”  

Ferguson takes the view that America is an awkward situation he labels “stationary state.” He borrows this term from Adam Smith’s The Wealth of Nations  Smith suggests that countries take on a socially regressive character when:

  • wages for the majority of people are miserably low
  • the ability of a corrupt and monopolistic elite can exploit the systems of law and administration to their own advantage. 

Ferguson suggests that America is taking on this regressive character and explains four Western institutions that have degenerated and hurt America’s competitiveness:

  • democracy
  • capitalism
  • rule of law
  • civil society

Ferguson asks if we are witnessing the fundamental breakdown of the partnership between the generations. He and I agree that this partnership needs lots of work.  Ferguson then explores the relationship between the democratic state and the market economy. He believes that “complex regulation has become the disease of which it purports to cure, distorting and corrupting both the political and the economic process.”

The rule of law is an important institutional monitor on political and economic actors. Is common law superior to other legal systems? We seem to be a nation of lawyers and have forgotten the importance of law and its role in society. And is civil society broken, especially the realm of voluntary associations established by citizens with an objective other than private profit? Ferguson believes that our civil society has diminished, especially in local communities for citizens helping neighbors.  Ferguson detects deterioration of all four institutions.

He is not alone in this view. For example, one contemporary view of institutional deterioration is Why Nations Fail.  Both approaches try to answer why rich nations revert to poverty, a direction the authors see for America.

Others have offered explanations for societal decline that emphasize geography, climate, disease or natural-resource endowments. Yet, scientific knowledge, technological innovation and market integration have greatly reduced the significance of these factors. Religion, culture and national character do not explain the dramatic differences and changes in poverty levels among nations. Financial forces such as deleveraging, globalization, and offshoring and outsourcing are also unsatisfying as explanations. Jared Diamond’s ideas about decline do have some efficacy where he points to hubris and environmental degradation.  Combined with Ferguson’s ideas, these are powerful wake up calls that call for a response to the broken institutions we are experiencing and the immense environmental issues that are degrading our world.

Ferguson makes a statement in the conclusion to his book that is worth pondering:

“Where there is effective representative government, where there is a dynamic market economy, where the rule of law is upheld and where civil society is independent from the state, the benefits of a dense population overwhelm the costs.   This nod to urbanization and the trend toward bigger cities is important to our world and America’s competitiveness.

So, while America is strong in the face of other nations, we are seeing some worrisome trends that need to be addressed. My focus is on environmental challenges and the restoration of the democracy to the people. We must separate corporate America from the democracy, allowing corporations to return as high returns as possible to shareholders. We must allow the democracy to function to set the playing field for corporations. For example, we must take corporations out of politics and not allow them to contribute to political campaigns. We need to stop thinking of corporations as individuals. When something goes wrong as a result of corporate activity, it is people who committed the act, not corporations. At the same time, we cannot allow our government to hamper innovation and quality work.

I agree with Ferguson where he calls for a return to the original intent of the four institutions (capitalism, law, democracy, and civil society). Restoring the original intents will go a long way to regenerate the four target institutions and strengthening America’s competitiveness.

Daniel S. Fogel, CEO, SP3,; 1-704-604-0085. 


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