Niall Ferguson in Barron’s: is the US becoming an anti risk welfare state, going down like Brittan in the 20st century?

Niall Ferguson, the husband of Ajaan Hirsi Ali, the Dutch fighter against islam from Somalia, had this week an interview in Barron’s (Is America Becoming an Anti-Risk Welfare State?). This excellent right wing economic historian was interviewed because of his book Civilization, The West and the Rest.

He is afraid that the US will go down like the Netherlands in the 18th century (the spirit of Jan Salie, who didn’t take any risk after the 17st century in which the Netherlands became the richest nation in the world) or like Brittan after 1913.

He sees two reasons for the coming decay of the US:

1.  1. The institutions no longer work as efficient as in the past. The judicial system is a buren. Litigation is everywhere at a high cost for companies. It has become too complicated (Dodd Frank legislation of 2000 pages etc.) . You create an army of lawyers.

2.2.  The culture in the US is shifting in the direction of no more risk taking. In the past risk taking was in high respect, nowadays it is moral hazard and welfare state thinking is winning. Entrepreneurial spirits are now higher in Hong Kong and Germany than in the US.  

The old powers will be replaced by the new. That is what happened with the UK in the 20st centrury. It became less flexible and the vested interests became a burden (labour unions asking too much, inflexible etc.).

The tremendous growth in the West of the past two centuries was caused by six killer applications according to Ferguson. The rest of the world could not follow. These six are: competition, science, judicial system, modern medicine, consumerism [ thanks to the unions that Ferguson so despises!] and  work ethics.

This is reasonably in line how Ter Veer and I explain in our book why the Industrial Revolution started in Brittan: because of the big flexibility, the powers in the society could shift (becoming stronger and weaker according to the spirit of the age). That compares with competition and the success of consumerism. This works when the domains of the spirit of the age (freedom, justice, care) are well managed.  You must have up to date institutions, a good judicial system, a social welfare system. Then freedom is possible and will work with bigger innovative powers (science of Ferguson) and profits of the invisible hand.

Now sees Ferguson a power shift to China at the cost of the West. The trends of the end of the 20st/ start 21^st century will continue, that more and more countries will get richer and close in on the West for income.

Latin America remains on the right path under the lead of Brazil. Institutions will improve further.

Europe will remain a disaster zone. They will keep the euro at a GDP cost of 5-8% per annum.

China is comparable with South Corea in the 70s. Like Korea it will get much richer and not collapse. They will keep a form of state capitalism. It is too dangerous for China to allow a powerful opposition in the coming decades. This system can and will work.