We all know that the world became unipolar after end of cold war. It is also a fact that economically, militarily and intellectual property wise Russia, China and India are also powers which cant be ignored. So, world is becoming multipolar. We have always read books exploring reasons of poor countries staying poor despite being aware of the route to prosperity but this particular book analyse why the Western Civilization is decaying.
The author starts by quoting Francis Fukuyama who boldly predicted an unabashed victory of economic and political liberalism and the triumph of the West and proclaimed that the end point of mankind's ideological evolution was the universalization of western liberal democracy as the final form of human government in 1989.
How about today? we can see that the western economy is either stagnant or in decline, they are all highly indebted, the unemployment in these countries is on rise to the extent that it is being concealed.
Adam Smith in his book The Wealth of Nation points out what causes the stationary state. One is it's socially regressive character like wages for majority of people becomes miserably low and second ability of corrupt and monopolistic elite to exploit the system of law and administration to their own advantage.
Smiths insight that both stagnation and growth are in large measure the result of laws and institutions.
The author says that only by historical methods can we explain why over the past 30 years so many countries created forms of debt that by design cannot be inflated away and why as a result the next generation will be saddled for life with the liberties incurred by their parents and grandparents.
The Great Recession is merely a symptom of a more profound great degeneration.
To demonstrate that the western institutions have indeed generated the author discussed democracy, capitalism, rule of law and civil society of these countries.
Richard Taverner words some up what is fast becoming a compelling consensus that institutions in the broadest sense of the term determine modern historical outcomes more than natural forces like the weather geography or even the incidence of the disease.
The great divergence from 1500AD onwards till 1970s had 2 distinguished phases or pattern of human organization.
The first can be called the natural state or’ limited access pattern’ characterised by:
The second is ‘Open Access pattern’ characterised by:
The author then charts out historical Journey of England to prove above point which is- Between the conquest and the growth glorious revolution, England went from being a fragile natural state to begin a basic one and then a mature one characterised by an extensive set of institutions governing regulating and enforcing property rights in land capable of supporting impersonal exchange among elites. The rule of law for elites was one of the 3 doorstep conditions prior to the transition to an Open Access system was being the emergence of perpetually lived organizations in the public and private spheres and the consolidated control of the military. the decisive breakthrough to open excess gain with the American and French revolutions which show the spread of incorporation in various forms and legitimation of open competition in both economic and political spheres.
The glorious revolution of 1688 made in England the first country to move to having inclusive or pluralistic rather than extractive political institutions. So the sequence for rise of Britain is clear: first the glorious revolution then agricultural improvement then imperial expansion and then industrial revolution. However in China Ming and Qing dynasty power of emperor and his officials remained unrestrained buy semi-autonomous corporate bodies and representative assemblies Asia head merchants it did not have companies much less parliaments. Institutions as they evolved in Ottoman Empire were also significantly different in ways that hampered capital formation and economic development as the Moor Quran has argued. This was because Islamic law took fundamentally different approach to partnership inheritance questions of debt and corporate personalities from legal system that developed in Western Europe.
In some ways it is easy to explain non-western successful stop China has belatedly followed several other East Asian countries the first versus Japan in downloading most of what I have called the killer applications of western civilization: economic competition the scientific revolution modern medicine the consumer society and work ethic. Copying the western model of industrialization and urbanization 10 to work if you are entrepreneurs have the right incentives your labour force is basically healthy literate and numerate and your bureaucracy is reasonably efficient.
It was not biblical virtue that made 18th century England richer then almost anywhere in the world but rather secular wise is.
After the glorious revolution of 1688 have seen that the monarch was subordinated to parliament. From 1689 the parliament controlled and improved taxation audited royal expenditures protected private property rights and effectively prohibited debt default It is generally better for government to be in some way representative of the government then not.
The heart of the matter is the way public debt allows the current generation of voters to leave at the expense of those as yet too young to vote or yet unborn.
In his reflections on the revolution in France, Edmund Burke wrote about the real social contract is not Jean-Jacques Rousseau’s contract between the sovereign and the people or general will but the partnership between the generations. In his words:
One of the first and most leading principle on which the Commonwealth and the laws are consecrated is, less the temporary position and life renters in it unmindful of what they have received from their ancestors or of what is due their posterity should act as if they were the entire masters, that they should not think it among their rights to cut off the entail or commit waste on the inheritance by destroying at their pleasure the whole original fabric of their society hazarding to leave to those who come after them are rule instead of north habitation - and teaching these successors as little to respect their contrivances as they had themselves respected the institutions of their forefathers…. society is indeed a contract….. the state.. is.... a partnership not only between those who are leaving but between those who are leaving those who are dead, and those who are to be born.
One of the first and most leading principle on which the Commonwealth and the laws are consecrated is, less the temporary position and life renters in it unmindful of what they have received from their ancestors or of what is due their posterity should act as if they were the entire masters, that they should not think it among their rights to cut off the entail or commit waste on the inheritance by destroying at their pleasure the whole original fabric of their society hazarding to leave to those who come after them are rule instead of north habitation - and teaching these successors as little to respect their contrivances as they had themselves respected the institutions of their forefathers…. society is indeed a contract….. the state.. is.... a partnership not only between those who are leaving but between those who are leaving those who are dead, and those who are to be born.
The present system is to put it bluntly fraudulent. There are no regularly published and accurate official balance sheets will stop huge liabilities are simply hidden from you. Not even the current income and expenditure statements can be relied upon. No legitimate witness could possibly carry on in this fashion. The last corporation to public There is infect better way. Public sector balance sheets can and should be drawn up so that the liabilities of governments can be compared with their assets. That would help clarify the difference between deficient deficits 2 finance investment and deficits to finance current consumption. Government should also follow the lead of business and adopt the generally accepted accounting principles. And above all, generational accounts should be prepared on a regular basis to make absolutely clear the intergenerational implication of current policy.
Paul Krugman says that over all business productivity in America grow faster in the post virgin generation, an era in which banks were tightly regulated and private equity barely existed then it has since our political system decided that greed was good. So today the balance of opinion favours complexity over simplicity: rules over discretion: codes of compliance over individual and corporate responsibility. Doctor argues give a example of 2007 financial crisis and says it had its origin precisely in over complex regulation first the executives of large publicly owned banks were strongly incentivised to maximise shareholder value since their own wealth and income came to consider in large measures of shares and share options in their own institutions. To be precise, the Basel Committee on banking supervision ans 1988 accord allowed very large quantities of assets to be held by bank relative to their capital, provided these assets for classified as low risk will stop secondly from 1996 the Basel rules were modified to allow firms effectively to set their own capital requirements on the basis of their internal risk estimates. Thirdly central banks led by Federal Reserve evolved peculiarly lopsided doctrine of monetary policy, which thought that they should intervene by cutting interest rates if asset price is abruptly fell what should not intervene if they rose rapidly, so long as the rise did not affect public expectations of something called core inflation. Fourthly the US Congress passed legislation designed to increase the presence of lower income families specially minor minority families that owned their own houses. A final layer of market distortion was provided by the chinese government, which spent literally trillions of dollars worth of its own currency to prevent it from appreciating relative to dollar. The primary objective of this policy was to keep Chinese manufacturing exports ultra competitive investor markets. So the problem we are dealing with here is not inherent in financial innovation. It is inherent in financial regulation.
The author argues that the rule of law has many enemies and one of them is bad low he also raised the question about who regulates the regulator and has actually said that regulatory bodies can be captured by those whom they are supposed to be regulating, list by prospect of well paid jobs should be gain keeper turn poacher. They can also be captured in other ways for example by their reliance on entities they regulate for the very data they need to do their work. So he argued for simplicity in regulations over complexity and more discretionary power to people then more regulation women's individual prudence rather than mere compliance was the advisable course 3rd we should have more belief in individual and organizations 4th we should have facilitator codes then enforced codes and 5th or punishment mechanism must be robust. We must ensure that those whole foul of regulatory authority pay dearly for their transportations. There was a feeling for impunity that came not from deregulation but from non punishment. The failure to apply regulation is one of the most troubling aspect of the years since 2007.
Overcomplicated regulation can indeed be the disease of which it purports to be the cure.
Lord Chief Justice Tom Bingham specified 7 criteria by which we should assess a legal system:
Behind the operation of law lies 2 things: the integrity of judges and legislation…. flowing from communities present commitment to the background scheme of political morality.
according to Douglas north the inability of societies to develop effective komal low cost enforcement of contracts is the most important source of both historical stagnation and contemporary under development. Charles deccan in his book bleak house describes contemporary English court:
some score of members of the… bar...are... mistily engaged in one of the 10,000 stages of an endless cause, tripping one another up on slippery precedents, groping knee deep in technicalities running their goat hair and horse hair warded heads against walls of words and making a pretense of equity with serious faces, s players might… the various solicitors in the Causeway some 2 or 3 of home have inherited it from their fathers who made a fortune by it…. are…… ranged in a line, in a matted long well…. between the registrar's read table and the silk gowns with bills crossbills answers rejoinders injections affidavits issues references to the metal masters reports, mountains of costly nonsense, piled before them…. this is the court of chancery…. which so exhaust finances coma patients, courage hope solo overthrows the brain and breaks the heart there is not an honourable man among its practitioners who would not give-who does not often give-the warning,’ suffer any wrong that can be done to you rather than come here!
There are 4 distinct threat to the rule of law:
Mancur Oslon used to argue that, over time, all political systems are likely to come to the sclerosis, mainly because of the rent seeking activities by organised interested groups.
Rule of law has become role of lawyers.
The power of voluntary associations to come together spontaneously without any public sector involvement and without any profit motive and without any legal obligation or power to act in the interest of the society is immense. When the social capitals rise the nations rise and when it fall the nations fall. There is nothing the humans will despairs of attaining by the free action of the collective power of the individuals.
Tocqueville saw American associations who won political and was fascinated by them. He wrote-
Americans of all ages all conditions, all mind constantly unite. Not only do they have commercial and industrial association in which all takes part but they also have 1000 other kinds: religious, moral, grave, futile, very general and very particular, humans and very small American used associations to give fetes, to found seminaries to build ends to raise churches to distribute books, to send missionaries to the antipodes; in this manner they create hospitals top reasons, schools. Finally if it is the question of bringing to light a truth or developing a sentiment with the sport of great example, the associate.
However now attendance at the public meeting on town or school affairs, service as an officer of club organization service on committee for local organization membership of parent teacher association, the average membership rate for 32 national chapter based association and membership rate for men's bowling league are all historically down.
Tocqueville Powerful passage in democracy in America and he vividly imagines the future society in which association life has died:
I see an innumerable crowd of like and equal people who revolve on themselves without repose procuring the small and vulgar Blazers with which they fill their souls. Each of them, withdrawn and apart, is like a stranger to the destiny of all the others: his children and his particular friends form the whole human species for him; As for dwelling with his fellow citizens, he is beside them but he does not see them; he touches them and does not feel them; he exist only in himself and for himself alone…..
Above these an immense to tutelary power is elevated, Which alone takes charge of assuring their enjoyments and watching over their fate. It is absolute detailed regular facing, and mild. It it would resemble paternal power if like that it had 4 its object to prepare man for manhood; but on contrary it seeks only to keep them fixed irrevocably in childhood…..
thus after taking each individual by turn in its powerful hand and kneading him It likes, the sovereign extends its arm over the society as a whole; it covers its surface with the network of small, complicated painstaking, uniform rules through which the most original minds and the most vigorous souls cannot clear away to surpass the crowd; it does not break wells, but it softens them, bands them and directs them; it rarely forces one to act but it constantly opposes itself to one's acting; it does not destroy, it prevents things from being born; it does not tyrannise, it hinders, compromises, enervates, texting wishes disease and finally reduces each nation to being nothing more than a heard of timid and industries animals of which the government is the shepherd.
He was surely right. Not technology but the state-with its seductive promise of security from cradle to grave-was the real enemy of the civil society.
He had rightly pointed out-
But what political power would ever be in a state to suffice for the innumerable multitude of small undertakings that the American citizens execute everyday with the aid of an association? the more it puts itself in the place of associations, the more particular person's, losing the idea of associating with each other, will need it to come to their aid…
The mortality and intelligence of a democratic people would risk no fewer danger than its business and its industry if the government came to take the place of associations everywhere.
Sentiments and ideas renew themselves the heart is enlarged, and the human mind is developed only by the reciprocal action of men upon one another.
Take aways from Book-
