Page 16 - Griffenomics

GRIFFENOMICS ISSUE 1
16
ECONOMICDECLINE
FACT: THE ROMAN ECONOMY PRODUCED 82500 TONNES OF IRON PER YEAR, WHICH IS EQUAL TO THE CURRENT DAY OUTPUT OF INDONESIA
Throughout history, many great
powers and empires have risen
and fallen. When we visualise the
decline of the Roman Empire, scenes of
invading Germanic barbarians appear.
Similar mental images of military defeat
are painted in consideration of the col-
lapse of the Ottoman Empire following
World War II, the demise of the Ming
dynasty in China, or the fall of the Span-
ish Empire. The reality, however, behind
the glossy front cover of climactic battles
and juicy internal feuds, is all too often
economic decline. More surprising is the
fact that these downfalls follow a com-
mon template, and worse, is the fact that
politicians, inmodern America today, are
making the samemistakes as RomanEm-
perors did in the 3rd century AD.
STEP 1:
INSTITUTIONAL STAGNATION
The first step in the common pattern,
Glenn Hubbard and Tim Kane argue in
their book Balance: The Economics of
Great Powers, is internal stagnation. The
authors believe that the key to economic
growth is the establishment of institu-
tions. Though this may sound like amun-
dane piece of economic jargon, the reali-
ty is far from it. Institutions provide the
basis for a legal system that protects in-
tellectual property, a stable currency, and
an educational system that allows the in-
novative minds of the next generation to
blossom. However, with the stagnation of
institutional development, economic de-
mise is sure to follow.
Let us first turn to some historic ex-
amples of great empires, starting with
the Roman Empire’s success. It was Au-
gustus, the first Roman emperor, who
quite literally paved the way for eco-
nomic dominance, turning the corrupt
and ine¢cient republic into a dictatorial
powerhouse. His streamlining of the bu-
reaucratic powers enabled labour spe-
cialisation and urbanisation. The Ming
dynasty of the 14th century yielded vast
riches. The imperial Chinese govern-
ment’s decisions were based on Confu-
cianism, the idea that benevolence and
morality should be the guiding principle
behind policy. Encouraging meritocracy
while discouraging corruption, this ide-
ology enabled bureaucrats to strive for
the true interests of its people. At its peak
in about 1600, China was the leading in-
ventor of the world, producing paper,
gunpowder and the wheelbarrow. They
traded with the Persians and the Turks,
while voyagers such as Zheng He in 1405
returnedwith a giraƒe and vast treasures.
The expeditions, however, imposed a de-
bilitating burden on the empire’s pock-
ets. The Spanish Empire of 1469-1898
funded a powerful army and navy with
excesses of silver after its discovery and
exploitation of the New World. Con-
sequently, Spain was able to extend its
empire, becoming known as the ‘empire
on which the sun never sets’ long before
the British. The Ottoman Empire, which
survived for six centuries, was known as
the ‘sick man of Europe’ before its fall in
1923, after the First World War. The rich
cultural and political history that pre-
ceded its downfall is often forgotten. In
1699, the Turkish Empire spanned from
Greece to Iraq to Morocco. Its culture
flourished, with universities, libraries,
and ornatemosques, combined with con-
siderable advances in mathematics, sci-
ence and industry.
Hubbard and Kane’s analysis focus-
es on America. Cherishing civil liberties
and free-market capitalism, the USA rose
to great heights in the 20th century. It
was arguably its institutions, founded
on its enshrined constitution, which has
allowed the USA to dominate the world
economy. The initial turning point, how-
ever, for all of the great powers above,
was the moment when their institutions
failed to develop. Time and again, seem-
ingly invincible powers have been sucked
into the black hole of institutional stub-
bornness. Could the stagnation of Ameri-
ca’s establishments not only help to bring
about China’s dominance, but the fall of
the great power itself?
STEP 2:
CENTRALISATION OF POWER
The second fatal error that politicians
are inclined to make, Hubbard and Kane
suggest, is the centralisation of power.
When Rome’s institutions were incapa-
ble of adaptation and Roman emperors,
such as Hadrian, shied away from border
expansion and conquest, state socialism
was a desperate attempt to salvage the
economy from fiscal catastrophe. Dio-
cletian doubled the size of the army, de-
clared price controls, and even banned
the free movement of rural Romans. All
this was paid for with corrupt fiscal poli-
cy. Eventually, with no money to pay the
army or to protect the frontier, barbarian
invasions were a symptom, rather than
a cause, of the fall of the Roman Em-
pire. In China, the relentless pursuit of
Confucianism ultimately hindered their
economic development. Trade was sup-
pressed by the over-centralized state, al-
most to the point of disappearance. Profit
came to be scorned upon and no corpo-
rate bodies independent from the state
HISTORICAL DECLINE
The three steps to economic demise.
PUBLIC DISTRACTION Gladiator fights, held in amphitheaters like the Colosseum, were used to draw attention from the decreasing standard of living in Rome
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