How Rich Countries Die
blogs.law.harvard.edu
blogs.law.harvard.edu
It's easier to grow fast if you're a country that has been blown to bits and is putting everything back together, rather than one that's already prosperous.
"Germany and Japan did well because their special interest groups were shattered by military defeat. When new labor unions formed in Germany and Japan, they tended to be very broad-based and therefore had an incentive in the overall welfare of their societies.
'Great Britain, the major nation with the longest immunity from dictatorship, invasion, and revolution, has had in this century a lower rate of growth than other large, developed democracies. Britain has [a] powerful network of special-interest organizations. The number and power of its trade unions need no description.' " (2nd quote written pre-Thatcher)
Britain also rebuilt but at a slower rate. The point is the longer a society remains (politically?) stable the more cruft it accumulates, like the dirty copper bottom of a long sailing ship.
Think of the amount that the UK and US spend on expensive weapons systems, compounded over that period of time.
It's not really surprising, given those additional funds that Germany was able to do so well. I can't speak at all to Japan, since they have had their own problems.
Yup. In 1949 the US had had something like 80% of the world's manufacturing capacity. From there, it had no place to go but down. Or more exactly, the others had no place to go but up.
Also, we think of the Euro-zone economies as being sclerotic because for the last 20 years most of them have been. The book was published in 1982, before the European regulatory and welfare spending onslaught. Averaged over the last ten years, Germany has had little growth.
Reunification should have been like the end of WWII but with less damage and more and better help.
A deep education according to Marxist principles that explain all economic growth as being the result of central planning, and all problems as being the result of competition is worse than no education at all.
For evidence of this, look at Eastern Europe.
...or the humanities department at any Ivy League college.
Yes, intellectuals are especially resistant to existence proofs, but East Germans weren't majority intellectual.
> For evidence of this, look at Eastern Europe.
Poland? Even Romania seems to have figured it out.
Yes, there are reactionary communists, but they're losing most places. (Yes, they are winning in some places.)
During the 80s and 90s unemployment fell in the US and UK with respect to Europe and growth rates increased.
US Unemployment: http://upload.wikimedia.org/wikipedia/commons/archive/c/c3/2...
French Unemployment: http://upload.wikimedia.org/wikipedia/commons/archive/9/9f/2...
Comparative growth rates of countries from 1988-2007 http://topforeignstocks.com/wp/wp-content/uploads/2008/12/1-...
Take a look at the current unemployment and growth rates here: http://www.heritage.org/Index/Ranking.aspx
Switzerland is like a hack of democracy, worth studying.
-- EDIT --
Great article, this quite stuck with also: Olson suggests that a rational voter should remain as ignorant as possible about politics and policies. Even if special interests manage to siphon off 80 percent of the voter’s income, the voter is better off devoting his or her energy to earning more rather than attempting to change the system (likely to require full-time effort, reducing income to $0, and be futile because the voter has no money compared to the special interests).
Sadly this is the absolute hard truth.
Some of the conclusions use a straw man when it comes to critiquing accepted economic theory. The economics are not quite as simple as their are being presented, never the less the vast majority of that article was excellent.
1000 Billion * federal, state, municipal government waste
-> 400 Billion * paper work costs (non-lobbying)
-> 300 Billion * actual costs
-> 100 Billion - Lobbying
-> 87 Billion - under the table bribe & political contributions
-> 70 Billion / (lobbying + bribing + contributions)
-> 230% ROI
One of these things is not like the others!
I took that to mean that false inefficiencies were being created to divert public money into private hands.
This is why economics is not yet a respectable science. I can't say that I disagree with the analysis presented in the article, but that says nothing at all about its truth value. Unfortunately, many of the arguments presented by economists, including theories that are diametrically opposed to one another, seem quite plausible and that is precisely the problem with economics as a discipline. The standard of proof is still stuck in the dark ages.
With the difficulty of isolating variables in social data, I doubt the objectivity of large-scale empirical economics ever improves.
Other social sciences are probably worse. That's why they are stuck with the modifier "social".
So your criticism is right. The best large-scale empirical economics can offer is plausible-sounding models and examples that back them up.
I think this is unlikely in the U.S. any time soon. Most people are not really outraged (any more) about the trillion+ bailout to Wall Street. Most people would say that we need to funnel even more money into health care and education than we already do--that is how successful those two interest groups are.
You can also hope for increased productivity and economic growth. Competent interest groups won't stop trying to shape the system to favor themselves and call it progress, but you can have real progress at the same time.
But I doubt there is a real, permanent solution to the basic problem of interest groups getting control over the systems of a society and eventually dragging it down. It is just the way the world works.
I've been thinking about the issue and it just seems that the only people who can make a change are the ones who benefit from keeping things the way they are.
I think it would be difficult to improve things gradually and you'd need something more urgent - maybe this crisis will lead to that, who knows.
In more general terms: the interesting suggestions require rethinking how governments are organized, not just passing some suite of legislation in our current democracies.
Of course, it may turn out that technological progress generates new wealth faster than government can waste it, and we all turn out alright in the end, just not as well-off as we could have been.
If individuals do not own their own seasteads, barriers to exit may be higher on some seasteads.
"Of course, it may turn out that technological progress generates new wealth faster than government can waste it"
This has been the case so far in most places. It remains to be seen whether it will continue that way. :)
Yes. Patri hopes for modularity, but there is no guarantee that a huge monolithic seastead won't be cheaper and more appealing to potential residents.
Still, I am in favor of trying new things. One of them might turn out to be a good idea. Having 95% of the world covered by liberal democracies nearly identical in governing structure does not appeal to me, as I am not sold on the optimality of liberal democracy.
The sad pattern is that because of special interests, inefficiencies grow to a point where you have something like a revolution.
Then there's revolutionary reform and the cycle starts again, I can think of Britain and Sweden off the top of my head. Two states that were big and bloated, slimmed down and then started bloating again.
"How Young Countries Age" fits better than "How Rich Countries Die".
The only thing that's stopping them is the fast progress of technology, and the inability to scale your production by hiring all the programmers you can get your hands on ... thank God it's still an industry that requires talent, making it very hard to beat a handful of talented engineers with 100 day-workers.
But I wouldn't bet against such groups in the future. DRM is failing because it's a poor technological solution applied to a social problem, but I'm waiting for the day when the Internet will be regulated ... it's already happening.
Quality programmers, on the other hand, are highly mobile, highly sought-after, and can quickly and easily upgrade and alter their skillset. They aren't married to a single company, or even a single industry.
I think unions can be can't be considered even marginally feasible unless available labor supply outstrips demand. In this case, the situation is reversed, and I can't imagine what benefit unionization could possibly bring to the programming industry.
You might have been able to blame labor unions for the economic problems of the 1970's, but capital has been ascendant everywhere since the 1980's. Power has become increasingly concentrated in the hands of the rich, and now there's only one part of society to blame for the economic crisis.
Yes, the UAW plays a role in the problems of the US auto industry. The financial services industry, which is at the epicenter of the current crisis, is not unionized. You can't blame unions for AIG, Lehman Brothers, Bank Of America, Merrill Lynch, CDOs or the housing bubble.
I'm sick and tired of the "Atlas Shrugged" fantasies that many people have. Most billionaires are billionaires because they own large blocks of stocks in public companies. These are worth billions because:
(i) People buy their stock in the (false) hope that they will grow in value faster than the GDP and finance a comfortable retirement () (ii) There's a large population of people who have money to spend on goods and services. Mass prosperity is the trunk of the tree that holds the rich up. (iii) People do work in their companies that creates a stream of revenue.
I'm no communist.
Capitalists play an important role in deciding where resources can be profitably used. The root of the financial crisis is that the financial system is no longer capable of performing this crucial role.
Capital and labor need to be in balance. The growth of capital's power over the past 30 years has destroyed the social infrastructure that it needs to create wealth: thus we've got a deflationary process that is making wealth disappear..
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() The stock market finances retirement on a pay-as-you-go basis, just as does social security. The number of dollars spent buying stocks has to equal the number of dollars made selling stocks. It's simple math.
The average return on investment across the economy equals the rate of growth of GDP in the long term: where can you get the returns from? from changing the way that wealth is partitioned in the economy. Some inequality of wealth creates an incentive for people to work and invest -- but the game ends when all of the money is in one person's pocket, just as it does in the game of monopoly.
We've managed to fool ourselves in the last decade by (i) taking on unsustainable debts, and (ii) stealing from ourselves as workers in the name of (imaginary) returns that we thought we'd benefit from when we're retired. Trouble is, the jig is up,
It seems that the secret for success in such an economy is to create a game in which nearly everyone's "wealth" increases, so no one gets pissed off because the game's being played in accordance with the comfortable and decadent lie that no one's standard of living can ever go down. Gradually this game drifts from reality, but aggregate psychology is such that the disparity isn't noticed until enormous, at which point a massive and painful correction occurs. This is when the maestros say "Sorry, we fucked up, but we can't help you now!" while chuckling all the way to the bank. Well... at least, that is what they do supposing there still are banks.
You want people who are called anarcho-capitalists.
These group of people litterally believe that everything should be run by the free market. IE. polycentric law system, private courts, and private defense agencies.
One interesting study of free market anarchism is midevial iceland. It managed to last for centuries.
Basically, the title and office of cheftain were litterally for sale and anybody can buy the title. However, those cheftains doesn't collect taxes. No, they compete for people to follow them. This creates virtual jurisdictions rather than physical. Cheftains's job is to appoint judge and keep the peace.
It work well too. In fact, abritation was so deeply embedded in their society, that they even tries a ghost for trespassing a house, making it haunted. They were confident that a good icelander ghost would respect the court.
Even murder was treated as a private matter too. The dude that murdered the other dude have to pay the family's such and such fines after settling. If the family is too poor, they can sell the claim to somebody who can persecute the murderer.
Otherwise, if the murderer refuse to pay his retribution fines. He will have no protection under the law and anybody can kill him with no consequences.
A murderer also can be punished even harsher if he tries to conceal his guilt. Upon the murder of a man, he have to announce the fact and not travel beyond a certain distance.
The eventual collapse of system is due to the fact that cheftains voted unanimously to convert to Christianity. So they got the first real tax in the form of a chruch tithe, which everybody is bound to support. The cheftains, no longer contrained by competition, can start misbehaving. Eventually it got so bad that the icelanders choose a Danish king over those warring cheftains.
I thought a clan society was by definition made up of organized special interest groups?
Just consider hiring someone at a company that wasn't from your clan, when your clan eldest/boss tell you that your idiot cousin needs a job. :-)
The article formalized things for me I've always wondered about. But it reminds me a bit of the laments during the dying of the Roman empire. Everyone saw the problems but couldn't solve them.
Is there any work on how to organize a society which avoids special interest groups? Or, at least, keeps the light on them?
However, I know little about them since I never travel there.(Iceland is historical so that's a different story) One has to travel to Somalia to decide for themsleves if anarchy actually work. Even then, you have to take into political situtation so you don't get a skewed view.(The UN is trying to establish a state I heard)
In as so much for special interest group. I thought such society will undobutly exists in a free market society but they probably will be kept in check by the free market. My big worry is more about the system collapsing into a centralized system, which become a big vector for corruption.
If you want the definte work on how a free market society might work, you might want to read the Machinery of Freedom, written by David Friedman.
However, I know no such works dealing only with organizing a society's incentive and disincentive structure to deal with corruption.
I'm not an expert but from what I've read, research implies that the "ting" was more regulating/discussing the clan quarrels/warfare than judging as we define it today. (No reference saved, sorry.)
Afaik, traditional societies before a central violence monopoly were generally, well, violent. Iceland was a hard place to survive, so the population might have had to work more and "play" less.
(You can make some form of analogy between the old times and present international interactions; there is no police force to stop violence -- and clans with mutual support agreements abound... Ask an expert.)
As a hard line atheist, it is not an easy thing for me to say that Christianity seemed to be an improvement. :-)
Anyway, there is an old joke that the problem with anarchy is that it is too unstable. The time before a central state wasn't fun. I believe the tribal areas of Pakistan is a good indication on how it worked in Scandinavia.