Niall Ferguson at the Chicago Council on Global Affairs

Wednesday night I attended a lecture by Niall Ferguson for the Chicago Council on Global Affairs at the Fairmont Hotel. The name of his presentation was “America: An Empire on the Cusp of Collapse.”

I was a fan of Niall based on his book “The Pity of War” about World War One, which I thought was an interesting approach to the topic, although I did not share all of his conclusions.

Mr. Ferguson’s presentation was not as depressing as the title sounds. In his articles he is prodding governments for better policies to tackle debt and working with lawmakers in the US and overseas that want to consider solutions. In a recent visit to Washington DC, however, Mr. Ferguson said that only three leaders wanted to meet with him.

His largest point was that the US and Western Europe had a giant advantage in economic power vs. their population when compared with Asia and the rest of the world in the period from the 1800’s through the middle of the twentieth century. It appears that this advantage is eroding and the Asian economies (predominantly China) are closing that gap.

He stated that we needed to consider why Western Europe was able to take such as commanding lead in the first place, and by understanding this we would be able to think about how we might be able to “reboot” our economies to compete more effectively. Here are the six “killer applications” (and a link to an FT article by Niall) that Niall Ferguson said enabled Europe to lead Asia for so long:

1) Modern medicine
2) A science-based culture
3) A representative political system
4) Consumer society
5) Market capitalism
6) Work ethic

Mr. Ferguson said that China did embrace these concepts, with the exception of #3, a representative political system, although it was only recently that they began looking to their own consumers to fuel their economic growth rather than just exports. He said that it was interesting to see how successful that they had been with this selective view of the list and there is an open question of how sustainable their overall economy would be with their current political system. However, the current Chinese government is actually very popular with their people, as opposed to many of the Western governments that are incapable of implementing an effective response to the debt crisis.

As far as the debt crisis goes, he felt that the response to the Greek debt crisis was insufficient. He said he spoke with someone in Ireland who worked in a school who said his income had been cut 15% as Ireland responded to the debt crisis. He indicated that this sort of impact to the standard of living may be necessary to achieve the kinds of cuts needed to make the debt crisis manageable.

For the US, our debt load is in the same range as many of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) that are currently feeling the pain of this debt crisis. While the US has advantages over these countries (a higher rate of growth and our own currency which gives us the ability to devalue) we also have further to fall since we are also a military power across the globe, and soon our payments on interest (not reduction of debt) will cross our military spending level.

At the end of his talk, there were questions, and someone asked him one that gave him the ability to end the talk on something other than a bleak note. He compared the US to other European countries also facing a debt crisis and he said that the average American he talked to understood that we do have an issue and we need to do something about it, and that our culture and economics enable us to stand up and grab a hold of this issue if we were properly led by politicians who also took up the challenge. He said that he felt that some of the European countries had essentially passed the point of no return on these items.

In general, if you get a chance to see Niall speak, I would recommend attending. He is a good speaker, very intelligent and humorous, and it is an hour that goes by quickly. He also attempts to bring solutions and new thinking to these issues, he isn’t just a “doom and gloom” guy who would revel in the fall of Western civilization (which distinguishes him from most of the professors at a typical US based liberal arts college).

Cross posted at LITGM

15 thoughts on “Niall Ferguson at the Chicago Council on Global Affairs”

  1. 6)work ethic…

    I’ve heard it argued that Christianity contributed to this by making work with one’s hands more respected than it had been in, say, Ancient Greece or Rome. (Jesus Christ was a carpenter, after all)

    Not sure I believe this, but it’s an interesting theory.

  2. There is an excellent book on the influence of Christianity on science and industry. It is called “For the Glory of God” and my review is here. He makes the point that the Christian God is a “rational God” who invites men to try to understand Him better. A weakness of Islam is that Allah does not invite the same scrutiny, as illustrated by the commotion over the Mohammed cartoons. Western Europe benefited from this characteristic although the later intolerance of the Catholic Church had a less than helpful affect.

    Another factor that Mokyr emphasizes in his discussion of China is that the division of Europe into smaller political entities, a bit like the Greek city states, allowed a diversity of cultures that could not happen in China under an efficient mandarin class.

  3. China has a ways to go before #4 is even remotely a reality. As recently as last week Yale economists Chen Zhiwu was ranting about how China has got to stop its gross subsidization of exports and begin to develop a consumer economy. The problem is that the entire Chinese economy is propped up by cheap labor manufacturing for export. A consumer economy, by definition, means the end of cheap labor, which means the big multi-nationals pack up and move on to places like Malaysia, Viet Nam, and Laos where there are no such aspirations of a consumer economy.

    China has a serious internal economic conflict that those who have staked their companies and carreers on the myth of the Chinese miracle refuse to acknolwedge. They have to develop a consumer economy to survive and grow. A consumer econmoy requires high wages, and high wages can only be sustained through high productivity … as in Henry Ford doubling wages to the $5 day simultaneuous with the advent of the assembly line which quadrupled productivity. People made twice as much money, while the labor cost of the product was cut in half. It is only through that simultaneous goosing of wages and productivity that a consumer economy can develop.

    … but the Chinese have a huge unemployment problem. The unemployment levels they officially cite are inflated, and they ignore perhaps as many as 300 million people in the western provinces who are living in the most dire poverty. The objective of the huge subsidies the Chinese government makes to manufacturing exports is job creation. They have to keep creating jobs to keep the lid on an increasingly frustrated populace.

    In the long term, high productivity and high wages lead to more jobs, but there is a substantial lead/lag problem. If Chinese productivity (which is incredibly poor compared to western countries) were to improve by 10% overnight and the wages of the remainig 90% were to increase by 10%, then 10% of the manufacturing jobs would be lost for as many years as it would take for the 90% to spend that exra income in a meaningful way to have it create more jobs. Already simmering social unrest cannot be contained for years while the transition takes place.

    But it gets worse. Inflation in China was rampant right up to the global econmic collapse. The typical Chinese worker was spending as much as 25-30% of his paycheck on food in the Spring/Summer of 2008. That same inflation is bottled up, ready to boom again as soon as the government stops its currency maniuplation (which even they and the Obama economists say they must do). Chinese wages have to go up a lot just to get back to break even – let alone generate consumer spending.

    Finally, the greater looming economic crisis for China is the inevitable consequence of the one child policy. As a Chinese friend told me, the big problem in China is that the family trees are ‘upside down’. While in the USA great-grandma and great-grandpa can look out over a bumper crop of great grandchildren, in China one kid looks at a porch full of old folks all looking back at him. The baby boomers hitting retirement age in the USA is nothing compared to the wave of old folks soon to hit their rocking chairs in China with far too few working people to pick up the tab for them. A big part of working people’s paychecks will have to go to paying for non-productive old folks.

    Within China there are a lot of people who think the bigger issue is with point #6 in the post above – the work ethic. They are concerned with the fact that the work ethic of an only child is notoriously bad in any culture. The joke within China is that Chinese kids don’t learn to walk until they are five because their feet never touch the ground during their first five years of life, as the one kid is passed from one doting parent/grandparent/great-grandparent to the other.

    Who is to say where it will all end up, but the theory that China is a wonderful economic miracle that will eclipse the west and be the economy of the future is very, vey naive.

  4. China will hit the wall in a few years. George Freidman’s The Next 100 Years goes into this in some detail, especially the problem of the western provinces. A lot of ignorant people ridiculed his book but I think it is interesting and subscribe to his service, My review of his book is here.

    If we have a threat in our future, it is probably India which has the English language, technology as a serious national goal and the good sense to reject socialism after 50 years of stagnation.

    China will suffer severely for the one child policy. One of my students was a Chinese woman who had married a man from Chile. A friend of my daughter’s lived in China for four years and just married his Chinese girlfriend who was one of his students when he taught English. It was funny to see her making pointed comments about marriage when they attended my daughter’s wedding last summer. Sure enough, six months later they married. He is now in grad school in the US. It was very rare for Chinese to marry a non-Chinese. There was a racial superiority thing about it. No more. All the Chinese young women I know have married non-Chinese men. I wonder how much it has to do with the devaluation of girls in China as these are all well educated women.

  5. Mr Ferguson’s first problem is that we are not an empire. I would not meet with him either as the perception of the US as an empire is an international politics goal of our enemies and I would not contribute to the furtherance of that goal.

  6. Secretary of Defense Robert Gates gave a speech yesterday (5/8/2010) at the Dwight Eisenhower Library lamenting the inability of those in Washington to understand what they’re spending, at the depth and bloat in the defense bureaucracy, at the insistence of Congress to fund unwanted and unneeded defense programs, etc. He knows there are economic and strategic costs.

    Some quotes:
    “…during his presidency, Eisenhower resisted pressure to intervene militarily in Vietnam and in the Middle East. This restraint wasn’t just a true soldier’s hatred of war, and all of its attendant costs and horrors. It came in no small part from an understanding that even a superpower such as the United States – then near the zenith of its strength and prosperity relative to the rest of the world – did not have unlimited political, economic and military resources. Expending them in one area – say a protracted war in the developing world – would sap the strength available to do anything else. Furthermore, Eisenhower strongly believed that the United States – indeed, any nation – could only be as militarily strong as it was economically dynamic and fiscally sound.”

    “Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state – militarily strong, but economically stagnant and strategically insolvent. He once warned that “we must not destroy from within what we are trying to defend from without.”

    “Almost a decade ago, Secretary Rumsfeld lamented that there were 17 levels of staff between him and a line officer. The Defense Business Board recently estimated that in some cases the gap between me and an action officer may be as high as 30 layers.”

    “Consider that a request for a dog-handling team in Afghanistan – or for any other unit – has to go through no fewer than five four-star headquarters in order to be processed, validated, and eventually dealt with. This during an era when more and more responsibility – including decisions with strategic consequences – is being exercised by young captains and colonels on the battlefield.
    A telling example of how difficult it is to make even modest adjustments. The Department commissioned a study a few years ago to assess the flag-officer requirements of the services. The study identified 37 positions – out of more than 1,300 active and reserve billets – that could be reasonably converted to a lower rank. None were downgraded.
    …we have to be mindful of the iron law of bureaucracies – that the definition of essential work expands proportionally with the seniority of the person in charge and the quantity of time and staff available – with 50-page power point briefings being one result.”

    He went on the complain about Congress funding C-17’s that the USAF didn’t want or need, about the USN building destroyers that cost $3 billion a piece – spending that cannot be sustained. The theme of his entire speech was of spending that was out of control, about bureaucracy building and the disconnect between the economic realities of the world as it is and the attitudes of the those in DC. Gates gets it. I could vote for him for president.

    [China, I don’t worry about. The fact that so many human beings have risen out of poverty there since they abandoned communism and embraced capitalism should be seen as a good thing. I worry about the one party state, of course, but I suspect (I hope, really) that will change over time.]

    It’s also interesting how many people outside of the USA describe it as an empire – this has been a theme of Niall Ferguson’s for some time (and is also the theme of Amy Chua’s book “Day of Empire”). I think they’re right, but we’re a different sort of empire than the world has ever seen before. Instead of pulling resources out of the empire to enrich ourselves, we push money out of the USA into the world, carrying security costs for most of the developed world, stabilizing economies through the IMF and World Bank and investing in developing countries like China.

    The political class in the United States, Democrats and Republicans alike, are not simply out of touch, they’re concerned only with their own enrichment and power, and to hell with what it does to us all in the long run. Of course, we get the government we vote for, so there you have it.

  7. Michael,

    “The fact that so many human beings have risen out of poverty there since they abandoned communism and embraced capitalism should be seen as a good thing”

    I hope you said this with tongue in cheek. Anyone who thinks that China has “abandoned communism and embraced capitalism” needs to find some new reading material. This is not even remotely true. Same with the wishful thinking that “so many human beings have risen out of poverty.” The families and friends of the ruling party have done very, very well. The garden variety Chinaman is still pretty far up the creek. A Chinese citizen can’t even move from one province to another without central government approval, let alone open a business.

  8. I wasn’t implying that India would be a military threat but they are a much more serious threat in high technology than China would ever be. There are no high tech inventions coming out of China but look at the number of Indians who have developed serious technology. Of course, they are doing it here as are the Chinese scientists who do serious work. I worry about Obama alienating India but I think the Anglosphere will lure them back once he is gone.

    On the DoD issue, there have been many comments over the years about the difference in the number of officers in an American battalion, for example, versus the German army in WWII which had about one fourth the number. The German army was run by its noncoms who did all the small unit commanding. I think we have consciously copied this since the war, or at least since Vietnam.

  9. Bill, you must be joking. Ten years ago I remember reading estimates that approximately 300 million people (300,000,000) had risen from poverty into what could roughly be described as the middle class since Deng Xiaoping had embraced capitalism in 1980’s. Economic development has done nothing but accelerate in China since then.

    Take a look at this gallery and compare it to images from the mid sixties that you must remember. These photos resemble something from North America or Hong Kong more than the impoverished third world country I remember from then:

  10. I think that one key element of his speech was that the massive gap in terms of ratio population to GNP for the West vs. the non-West that crested in the mid 20th century is reverting back to more of a historic normalized level. In other words, the West can’t plan for China to be flat on its back destroying itself with civil war and the “Great Leap Forward” forever.

    This is not a judgment for or against China in the long term; I am not an expert on that – but I am an expert on power and I can tell you with 100% certainty that China is kicking our rear end in terms of investment in electrical infrastructure. We need to face up to that, at least, and if access to reliable and plentiful power ever becomes a significant strategic element at some point China is going to be in a better place than the West.

    I will say that the West is really flailing trying to respond to debt and our politicians are extremely craven and short term. This goes for the UK and Europe and the USA. By contrast the Chinese are at least trying to deal with their situation and taking constructive steps to move forward. In some lights to me at least it looks like France & UK when democracy was paralyzed and weak when compared with their focused and organized enemies.

  11. Michael – You quite obviously have a solid theoretical understanding of China – one derived from pictures of tall buildings in a couple of big eastern cities. Having been to China 13 times in the last few years, I understand it in reality. I can’t imagine where your 300 million in the middle cass figure came from. The Chinese are notorious liars with virtually every economic statistic, and they claim 100 million ‘middle class’ people. The population of China is 1.3 billion. That means even the Chinese acknowledge that 92% of their population has yet to attain middle class status 32 years into the ‘economic liberalization’. At that rate of ‘progress’ by the year 2100 70% of the Chinese people will still be below ‘middle class’.

    China is a communist country – period. There is no economic or personal freedom in China – EVERYTHING is controlled by the government, from where you live to where you work to if and where your kids can go to school. There is a very good reason why exit visas are almost impossible for the typical Chinese to get – the government knows very well that no one who is allowed to leave will come back, which says quite a bit about their ‘capitalist’ society.

    If the centrally controlled economy of China is really booming, then everything we believe about capitalism, free enterprise and democracy is a sham and the sooner Obabm can socialize us the better.

  12. Bill, if there’s a chain of reasoning you’re building, I’m failing to see it. The post is about the possible coming end of American predominance and its economic, social and political causes. I commented that I’d just heard SecDef Gates make a speech in which he criticized those inside DC with control over money, both within the Defense Department and within Congress, living in a different reality – a reality disconnected from hard choices about what we can and cannot afford, and about what is actually in the national interest as opposed to their parochial or even their personal interest.

    I went on to comment that I do not feel threatened by China’s development, and that to the degree that large numbers of people are living with better housing, cleaner water, better medical care, etc, that those were good things. Anytime large sections of humanity advance, that’s generally a good thing for us all (see Tom Barnett on the Core and the Gap). I believe, and I think with good cause, that those advances in China are primarily due to their adoption of a capitalist economic model, although they continue as a one party state. This, I gather, is where we disagree. You see this as communism, I see as it as one party capitalism. To my mind those are two different models. There is nothing in the ECONOMIC model China is using that resembles, even remotely, the forced agricultural collectivism and state owned and operated industries of Marxism. China in 2010 is so far removed from the Cultural Revolution of 1965 it could be a different planet. The ONLY thing that it has in common with classical communism is one party rule. Are all one party states, henceforth, and by your definition, communist states and shall be referred to as such?

    Regarding whether 300 million or 100 million people have risen to the middle class, 300 million is a figure I read years ago, I remember it because it astounded me. You claim it’s more like 100 million, which you say is the official figure but then say these figures are lies anyway, so I don’t know where we’re going with that either. Is your argument that your ‘made up by China’ statistic is more accurate than my ‘made up by China’ statistic?

    Finally, the visa question. I’m not up on visa policy in China, you have me there. I do have an acquaintance who left China around 1990, brought her mother over to the USA in 2000, returned her mother to China several years later at her mother’s request, and travels to China regularly. To the best of my knowledge, she has no political connections, though her family is well educated. That is strictly one-off and anecdotal, so I don’t claim is has wide application. Interesting exception to your claim though.

  13. “There is nothing in the ECONOMIC model China is using that resembles, even remotely, the forced agricultural collectivism and state owned and operated industries of Marxism.”


  14. As for (#3) in general, I think “limited government” is far more important than “representative political system”. It turns out that in the USA, and Switzerland, democracy has helped to limit gov’t over the long term. But places where gov’t is too big, even elected gov’t, seem much worse.

    And the problems of Greece and California are precisely because of too much gov’t, not whether it’s representative or not.

    How much of the “National Communist” economy of China is market oriented, or gov’t controlled, or commie-child crony capitalist controlled — I don’t have much good info. But I *do* believe the Chinese are building lots and lots of roads (perhaps the historical best gov’t construction for economic Return on Investment), and other infrastructure, including coal, nuclear, solar, and wind power (energy? all of the above!).

    Even if these investments are less than optimal, they will likely have more benefit on future productivity than higher SS or medicaid gov’t health spending, especially on those over 70 and those who are in the last years of their lives.

    The Chinese pollution is terrible, really horrific and riot inspiring. Their one-child (mostly boys) problem is terrible, and going to get worse before it gets better (but India is also terrible, with worse caste system issues yet unsolved).

    I suspect when the Chinese gov’t supports gov’t guaranteed credit cards for those who are poor in the West, they will rapidly discover how to stimulate an extremely effective consumer society, effective at buying whatever they can afford.

    But the net progress for China versus the USA doesn’t seem likely to close the gap at even 10% per year, so they are big and getting bigger, but that’s more good (for its people) then bad (for us and the rest of the world).

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