What West could have learned from history (and maybe still could)

AT THE end of another troubled week in western credit markets, it felt almost like light relief to catch up with Professor Niall Ferguson on his visit to Edinburgh. Scotland’s iconoclastic historian – hailed by Time magazine as one of the world’s 100 most-influential people – was here to introduce a series of debates continuing this week at the Edinburgh International Book Festival on “continental shift”.

What perspective could he bring to the latest convulsions across western markets and the prospect of a loss of economic momentum that could stretch for years ahead?

Ferguson, the Laurence A Tisch professor of history at Harvard University and author of The Ascent of Money and The Rise and Fall of the American Empire among other works, has set out a world view of western decline well developed before the onset of the 2008-9 financial crash and its deepening aftermath.

His starting point for the interview set the frame: “The most impressive and important geo-political event of our time is the ascent of China and anyone wanting to understand the 21st century needs to understand China.

“But it is not just China. There is an element of the tortoise and the hare in this, and India is the tortoise in this story up until this point. But the demographics mean that we will see the tortoise win the race, as in the fable.

“The shift from West to East is part of our genuine internal problem. It’s not just relative decline and Chinese competition that is making it hard for us. We are in grave difficulties of our own making. There is an internal crisis of modern welfare states, which many have been warning about for some time. These two stories are entirely connected. They add up to a radical and very rapid shift of power, both economic and otherwise from us to them.”

How does Japan fit into this picture of Asian ascendancy? Japan, he argues, is a country that downloaded his six “killer applications” behind economic success – competition, science, democracy, medicine, consumerism and the work ethic. “Japan is ahead of the curve… its experience shows you the force of demographics. It can generate rapid growth when it is employing manufacturing technology but it has a finite life. It may be that Japan is giving China a glimpse of its longer term future. It’s not an outlier. It has run its course and ultimately they will all run their course.”

And Europe’s experiment with monetary union seems to have run its course. “My argument has been that there is no historical precedent for this. It could not last – it would come apart. It’s a slow and painful death.”

He has also been a trenchant critic of today’s Keynesians, faced with super-sized deficits who have learnt nothing from history. The remedy for the fears afflicting business and consumer confidence, he argues in a posting on his website, is the kind of regime change US economist Thomas Sargent identified 30 years ago. “Then, as today, the choice was not between stimulus and austerity. It was between policies that boost private-sector confidence and those that kill it.”

In contrast to fellow historian Ian Morris – author of Why the West Rules For Now, who explains the changing fortunes of nations and regions in terms of geography and resources – Ferguson places strong emphasis on the role of institutions. “Institutional changes have a compelling influence. It cannot all be about topography and rivers and lakes. Look at the experience of Germany and Korea in the second half of the 20th century, where institutional changes produced dramatically different outcomes.

“Institutions can spread ideas and transmit them to future generations. One of the things we have got very bad at is communicating our ideas from generation to generation – and the evidence of really poor education in Western society is very powerful.”

He sees no problem with proposals here for a compulsory Scottish history and culture module in the curriculum – “Children are able to understand local history. But I am absolutely clear that at secondary level there needs to be in the teenage years an over-arching history of the world.” This is something he has developed in a 13-week course at Harvard.

And how might a small, independent country such as Scotland fare in this global shift? “I seem to remember Alex Salmond before 2007 telling us how wonderful it is to be a small independent country like Latvia, Estonia, Ireland. You hear much less about that now for some strange reason. In a globally-interconnected world, it can appear attractive to be a small state. But when you sail out of the Firth of Clyde and find yourself in a storm, you will wish you were in the Queen Mary.” It is the safety option he believes Scots will opt for in the end.