Niall`s Presentation - Stanford Institute for Economic Policy Research

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