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The Great Degeneration

How Institutions Decay and Economies Die

By Niall Ferguson
15-minute read
The Great Degeneration: How Institutions Decay and Economies Die by Niall Ferguson

The Western world seems to be in crisis. It is faced with huge levels of public and private debt, and the economies of the rest of the world are fast catching up. After 500 years of total global dominance, the era of Western powers could be coming to an end.

The Great Degeneration (2014) aims to tackle why this is the case. It suggests that a decline in Western institutions is partly to blame. Only by arresting this decline through radical reform can the West recover.

  • Students of political and economic history
  • Anyone who wants to know why Western nations are in so much debt
  • Anyone who is interested in the future of democracy

Niall Ferguson is one of the United Kingdom’s most famous and distinguished historians. He is the Laurence A. Tisch Professor of History at Harvard University.

Ferguson has written numerous bestsellers including The Ascent of Money, The War of the World and Civilization. He is also well known for his many television series based on his books, and is a regular commentator for publications and networks in the United Kingdom and the United States.

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The Great Degeneration

How Institutions Decay and Economies Die

By Niall Ferguson
  • Read in 15 minutes
  • Contains 10 key ideas
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The Great Degeneration: How Institutions Decay and Economies Die by Niall Ferguson
Synopsis

The Western world seems to be in crisis. It is faced with huge levels of public and private debt, and the economies of the rest of the world are fast catching up. After 500 years of total global dominance, the era of Western powers could be coming to an end.

The Great Degeneration (2014) aims to tackle why this is the case. It suggests that a decline in Western institutions is partly to blame. Only by arresting this decline through radical reform can the West recover.

Key idea 1 of 10

The key to a society’s power and prosperity lies in the strength of its institutions.

What makes a society successful? For a long time, intellectuals have debated this point, wondering why some nations prosper and succeed while others dwindle and suffer. Is it down to some kind of superior racial biology of the more prosperous society? Or perhaps sheer luck? In fact, the true answer is more subtle: A society is made great by its institutions.

Why? Because humans tend to be selfish, so without some kind of rules to force them to think about the common good – the good of their society as a whole – they tend to simply look after their own interests. Institutions provide such rules and boundaries.

For example, consider the institutions of the law, like the judiciary and the police. They provide certain rules and boundaries that the rest of society abides by.

The importance of institutions means that the nations with better institutions are more likely to prosper. And what makes institutions good or bad?

Quite simply, the things they incentivize people to do with the rules and boundaries they set. Good institutions will encourage the population of the nation to strive harder for worthwhile goals, like economic growth or a fair legal system. Bad institutions do the opposite; for example, they may encourage crime.

A good example of the importance of institutions can be seen when comparing the economies of former East and West Germany. Both countries were essentially populated with the same people, but the difference in their institutions was immense: In West Germany, the political and economic institutions encouraged people to work hard, innovate and take risks (for example, by starting their own businesses). In East Germany, this kind of entrepreneurship was discouraged.

The result? West Germany became a vibrant economic state while East Germany stagnated.

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