Niall Ferguson: The six "killer apps" of western civilization

An oldie but a real goodie, in the regular rotation for my management classes, highlighting the importance of innovation in prosperity as well as the role of science in combatting the negative aspects of Mother Nature's diseases, viruses and natural disasters.

Niall Ferguson: The six killer apps of Western economic culture (2011; 20:20)

Economic, political and cultural factors drove economic development in the Anglo-European West over the past five hundred years, providing faster economic growth than what the rest of the world experienced. In 1500, the West trailed Asia in terms of economic power. Western progress accelerated after 1815 with the Industrial Revolution.

In 1500, the average Chinese was richer than the average North American. When you get to the 1970s, which is where this chart ends, the average Briton is more than 10 times richer than the average Indian. And that's allowing for differences in the cost of living. It's based on purchasing power parity. The average American is nearly 20 times richerthan the average Chinese by the 1970s. Western empires, in 1500 they were really quite tiny -- five percent of the world's land surface, 16 percent of its population, maybe 20 percent of its income. By 1913, these 10 countries, plus the United States, controlled vast global empires -- 58 percent of the world's territory, about the same percentage of its population, and a really huge, nearly three-quarters share of global economic output.

E Ferguson’s killer apps

2 Competition and choice: Europe was politically fragmented, and within each monarchy or republic there were multiple, competing corporate entities offering people choices. NOTE: Competition is not about beating your competitor, it is about offering alternatives, choices to what the competitor is offering. The market is not a zero-sum, win-lose proposition. It is the “grow the pie,” not “how do we carve this pie into pieces.”

5 Scientific Revolution: All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry and biology happened in Western Europe.

8 Property rights: It's not the democracy, folks; it's having the rule of law based on private property rights. That's what makes the difference between North America and South America. You could turn up in North America having signed a deed of indenture saying, "I'll work for nothing for five years. You just have to feed me." But at the end of it, you've got a hundred acres of land. Rule of law and representative government: This optimal system of social and political order emerged in the English-speaking world, based on property rights and the representation of property owners in elected legislatures.

10 Modern medicine: Western Europeans and North Americans made all the major 19th- and 20th-century advances in health care, including the control of tropical diseases.

11 Consumer society: The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better and cheaper goods, beginning with cotton garments.

13: Work ethic: Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation.

Max Weber thought that was peculiarly Protestant. He was wrong. Any culture can get the work ethic if the institutions are there to create the incentive to work. We know this because today the work ethic is no longer a Protestant, Western phenomenon. In fact, the West has lost its work ethic. Today, the average Korean works a thousand hours more a yearthan the average German.

I want to end with three questions for the future billions, … 2016, when the United States will lose its place as number one economy to China. The first is, can you delete these apps, and are we in the process of doing so in the Western world? The second question is, does the sequencing of the download matter? And could Africa get that sequencing wrong? One obvious implication of modern economic history is that it's quite hard to transition to democracy before you've established secure private property rights. Warning: that may not work. And third, can China do without killer app number three? That's the one that John Locke systematized when he said that freedom was rooted in private property rights and the protection of law. That's the basis for the Western model of representative government.

Winston Churchill once defined civilization: "It means a society based upon the opinion of civilians. It means that violence, the rule of warriors and despotic chiefs, the conditions of camps and warfare, of riot and tyranny, give place to parliaments where laws are made, and independent courts of justice in which over long periods those laws are maintained. In civilization’s soil grows freedom, comfort and culture. When civilization reigns in any country, a wider and less harassed life is afforded to the masses of the people."

Analysis

1. With globalization and economic freedom, the Rest has been able to ‘downloaded’ some of the killer apps. The “great divergence” has given way to a “great convergence.”

2. Property rights and the consumer society empowered the Industrial Revolution, primarily by enhancing trade through innovation, choice and task specialization.

3. The work ethic – frugality, savings, deferred pleasure – can conflict with the consumer society. In a ‘welfare state,’ there are disincentives to work when benefits, prosperity and progress are unlinked from work. The combination only works if the money earned from work exceeds the money spent on consumption.

4. Capitalism requires right to own (i.e., private) property and the right to trade. These are the killer apps of property rights and the consumer society, respectively. A productive, sustainable economic requires consumption, savings, and profits. An excess of any of the three damage the economy. Balance is generally facilitated by Adam Smith’s “invisible hand.”

5. People can engage in prosocial or antisocial behavior. They can collaborate or compete. Choice must be balanced by discernment and moderation, i.e., this shows the value of the self-regulating aspect of the work ethic.

6. Prosocial management goals and prosocial leadership are the management side or version of the consumer work ethic. Prosocial management is a positive ethic, i.e., doing good, rather than simply being ‘socially responsible’ or avoiding evil.