The Fourth Revolution

Description

From the bestselling authors of The Right Nation, a visionary argument that our current crisis in government is nothing less than the fourth radical transition in the history of the nation-state

Dysfunctional government: It’s become a cliché, and most of us are resigned to the fact that nothing is ever going to change. As John Micklethwait and Adrian Wooldridge show us, that is a seriously limited view of things. In fact, there have been three great revolutions in government in the history of the modern world. The West has led these revolutions, but now we are in the midst of a fourth revolution, and it is Western government that is in danger of being left behind.

Now, things really are different. The West’s debt load is unsustainable. The developing world has harvested the low-hanging fruits. Industrialization has transformed all the peasant economies it had left to transform, and the toxic side effects of rapid developing world growth are adding to the bill. From Washington to Detroit, from Brasilia to New Delhi, there is a dual crisis of political legitimacy and political effectiveness.

The Fourth Revolution crystallizes the scope of the crisis and points forward to our future. The authors enjoy extraordinary access to influential figures and forces the world over, and the book is a global tour of the innovators in how power is to be wielded. The age of big government is over; the age of smart government has begun. Many of the ideas the authors discuss seem outlandish now, but the center of gravity is moving quickly.

This tour drives home a powerful argument: that countries’ success depends overwhelmingly on their ability to reinvent the state. And that much of the West—and particularly the United States—is failing badly in its task. China is making rapid progress with government reform at the same time as America is falling badly behind. Washington is gridlocked, and America is in danger of squandering its huge advantages from its powerful economy because of failing government. And flailing democracies like India look enviously at China’s state-of-the-art airports and expanding universities.

The race to get government right is not just a race of efficiency. It is a race to see which political values will triumph in the twenty-first century—the liberal values of democracy and liberty or the authoritarian values of command and control. The stakes could not be higher.Joe Scarborough, “Morning Joe”:
“This is an important book. This book changes everything.”

Tyler Cowan, Marginal Revolution:
“It is probably the best current manifesto on the proper roles for market and state….  This book is also the single best statement of the thesis that these days government simply is not working very well, and that such an insight is recognized by many voters better than by many intellectuals. Definitely recommended.”

The Daily Mail (UK):
“Splendid.”

The Telegraph:
“Superb…. Micklethwait and Wooldridge’s must-read manifesto is a plea for more reform, inspired this time by successful reforms in other countries and the harnessing of the digital revolution.”

Seattle Times:
“[The authors] offer thoughtful proposals…. a useful look at America from the outside in.”

Times of London:
“The basic argument of this well-written, intelligent book is twofold. First reform [of the state] is essential. Second, reform is possible because it is happening all over the world and because new technology is available. By the end of reading The Fourth Revolution it is hard to deny either of these points.”

Kirkus Reviews:
“A different, provocative view of the challenge emerging in Asia.”

Fareed Zakaria, author of The Post American World:
“This is a book with an important message. It is also one that brims with intelligence, erudition, and—best of all—common sense. I found myself nodding in agreement on almost every page.”

Walter Russell Mead:
“This brilliant and courageous book is also a gripping read. At a time when most politicians and pundits on the left and the right look back to past golden ages, the Economist’s John Micklethwait and Adrian Wooldridge dare to ask what must be done to make democracy work again. Their answers point beyond the dull nostrums of conventional politics toward new ideas and reforms that could renew the democratic systems in both the US and Europe. This is a landmark study of a vital subject, told with great verve and dash, and it is a book that no one who cares about the future of politics can afford to miss.”

Financial Times
“[The Fourth Revolution’s] case is elegantly made, with big-picture philosophy and political economy punctuated by colourful detours into the world’s rising economies.”

David Brooks, The New York Times
“Micklethwait and Wooldridge do an outstanding job of describing Asia’s modernizing autocracies. In some ways, these governments look more progressive than the Western model; in some ways, more conservative.”

Michael Ignatieff, The New York Review of Books
“The Fourth Revolution has.…an insatiable curiosity and an enthusiasm for reform.”

The Wall Street Journal
“This book’s message is simple but severe: If the state promises too much to too many, cynicism grows, and democracy is damaged.”John Micklethwait is the editor in chief of Bloomberg News. After studying history at Magdalen College, Oxford, he worked as a banker at Chase Manhattan before joining The Economist as a finance correspondent in 1987. He served as The Economist’s editor in chief from 2006 to 2015 and was named an Editors’ Editor by the British Society of Magazine Editors in 2010.

Adrian Wooldridge is The Economist’s management editor and writes the Schumpeter column. He was previously based in Washington, D.C., as the Washington bureau chief, where he also wrote the Lexington column. Together they are the authors of five books: The Witch Doctors, A Future Perfect, The Company, The Right Nation, and God Is Back.

Praise for The Fourth Revolution

“This is an important book. This book changes everything.”

—Joe Scarborough

“This is a book with an important message. It is also one that brims with intelligence, erudition, and—best of all—common sense. I found myself nodding in agreement on almost every page.”

—Fareed Zakaria, author of The Post American World

“This brilliant and courageous book is also a gripping read. At a time when most politicians and pundits on the left and the right look back to past golden ages, the Economist’s John Micklethwait and Adrian Wooldridge dare to ask what must be done to make democracy work again. Their answers point beyond the dull nostrums of conventional politics, toward new ideas and reforms that could renew the democratic systems in both the U.S. and Europe. This is a landmark study of a vital subject, told with great verve and dash, and it is a book that no one who cares about the future of politics can afford to miss.”

—Walter Russell Mead, James Clarke Chace Professor of Foreign Affairs and Humanities at Bard College

“[The Fourth Revolution’s] case is elegantly made, with big-picture philosophy and political economy punctuated by colorful detours into the world’s rising economies.”

—Financial Times

“Clever and sharply argued.”

—G. John Ikenberry, Foreign Affairs

“The Fourth Revolution is a lively book.”

—The New York Times Book Review

“Micklethwait and Wooldridge do an outstanding job of describing Asia’s modernizing autocracies. In some ways, these governments look more progressive than the Western model; in some ways, more conservative.”

—David Brooks, The New York Times

“This book’s message is simple but severe: if the state promises too much to too many, cynicism grows, and democracy is damaged.”

—The Wall Street Journal

“The Fourth Revolution has . . . an insatiable curiosity and an enthusiasm for reform.”

—Michael Ignatieff, The New York Review of Books

“A different, provocative view of the challenge emerging in Asia.”

—Kirkus Reviews

“There is much to praise in Micklethwait and Wooldridge’s account, and it has been lauded widely. The bloat they take aim at is undeniable. Also the need for technological and managerial innovation. Truly government has overreached in a way that is deeply intrusive in our lives. What is more, Micklethwait and Wooldridge are deeply right to insist that beyond technological innovation, we need to think about ideas: namely, the idea of what we want our government to be.”

—Roger Berkowitz, Hannah Arendt Center for Politics and Humanities blog

“Superb . . . Micklethwait and Wooldridge’s must-read manifesto is a plea for more reform, inspired this time by successful reforms in other countries and the harnessing of the digital revolution.”

—The Telegraph (UK)

“The basic argument of this well-written, intelligent book is twofold. First reform [of the state] is essential. Second, reform is possible because it is happening all over the world and because new technology is available. By the end of reading The Fourth Revolution it is hard to deny either of these points.”

—The Times (London)

“This book’s success is rooted in its case studies that prove something beyond doubt: government can be made slimmer and better. Facing aging populations and an entitlement-born disaster, this book offers an alternative to ­partisan ‘theaterocracy’ and a call to much-needed revolution.”

—The Washington Times

“[The authors] offer thoughtful proposals. . . . It is a useful look at America from the outside in.”

—The Seattle Times

“It is . . . refreshing to read a contemporary analysis that advocates for the importance of ideas—and which understands that, in the case of how to improve governance, the ideas that matter are not just found in developed countries. The ability to make comparisons—to share ideas for smarter governance across borders—is a key aspect of the ongoing fourth revolution.”

—Formar Hub

“This is a big and important idea whose time has come. The great failing of American politics is not that the Tea Party wants to shrink the government or that the Democrats want to keep every single entitlement in place. The great failing is that the country’s leaders can’t seem to have a real debate on what kinds of things a twenty-first-century American government should or should not do. Instead they argue about cutting the whole thing down or they argue about protecting every last nickel. And in the interstices of that non-debate, rent seekers of all sorts from Medicare scammers to Wall Street gamblers are sucking the legitimacy out of the government. We should heed the call of The Fourth Revolution.”

—Elaine Kamarck, Brookings Institution

INTRODUCTION

BURIED IN A SHANGHAI SUBURB, close to the city’s smoggy Inner Ring Road, the China Executive Leadership Academy in Pudong appears to have a military purpose. There is razor wire on the fences around the huge compound and guards at the gate. But drive into the campus from the curiously named Future Expectations Street and you enter Harvard, as redesigned by Dr. No. In the middle stands a huge bright red building in the shape of a desk, with an equally monumental scarlet inkwell beside it. Around this, spread across some forty-two hectares, are lakes and trees, libraries, tennis courts, a sports center (with a gym, a swimming pool, and table-tennis tables), and a series of low brown dormitory buildings, all designed to look like open books. CELAP calls all this a “campus” but the organization is too disciplined, hierarchical, and businesslike to be a university. The locals are closer to the mark when they call it a “cadre training school”: This is an organization bent on world domination.

The students at the leadership academy are China’s future rulers. The egalitarian-looking sleeping quarters mask a strict pecking order, with suites for the more senior visitors from Beijing. And as with other attempts at global supremacy, there is an element of revenge. Thirteen hundred years ago, CELAP’s staff remind you, China set up an imperial exam system to find the best young people to become civil servants. For centuries these “mandarins” ran the world’s most advanced government, but in the nineteenth century the British and the French (and eventually the Americans) stole their system—and improved it. Since then better government has been one of the West’s great advantages. Now the Chinese want that advantage back.

When the leadership academy was established in 2005, President Hu Jintao spelled out its purpose: “To build China into a modern and prosperous society in an all-round way and to develop socialism with Chinese characteristics, it is urgent for us to launch large-scale training programs to significantly improve the quality of our leaders.” Rather than focus on indoctrination like the party schools, CELAP and its two smaller sisters in Jinggangshan (CELAJ) and Yan’an (CELAY) have been designed to be practical places. The talk is of leveraging your skills, strengthening your global mind-set, and improving your presentation abilities. It is all meant to complement what goes on in the party schools. But the fact that CELAP is based in Shanghai while the central party school is in Beijing adds a competitive frisson. When one trainee in Pudong explains that the party school focuses on “why,” while CELAP looks at “how,” there is no mistaking which question he thinks is more important to China’s future. If CELAP had a motto, it might be Alexander Pope’s couplet, “For forms of government let fools contest/What’er is best administer’d is best.”

Driven by the desire to “best administer,” about ten thousand people a year attend courses at the school, nine hundred for the first time. Some arrive ex officio: If you are a bureaucrat who has just been put in charge of a state-owned company, a governor who has been given a province to run, or an ambassador en route to a new posting, you are sent to Pudong for a refresher course. (As a thank-you, the ambassadors are supposed to send the library a book to symbolize their new posting. The man who sent The Rough Guide to Nepal has some explaining to do.) More generally, a course at the leadership academy has become a prize to be pocketed by any ambitious bureaucrat. Every Chinese civil servant is expected to have clocked three months of training every five years, or about 133 hours a year. Courses at CELAP are oversubscribed by a factor of three, with most of the candidates drawn from the ranks of deputy director generals, the fourth-highest rung in the Chinese system.

The two most common questions, says one teacher, are “What works best?” and “Can it be applied here?” A typical course is divided into three parts, with lectures soon giving way first to fieldwork, with the mandarins sent out to study something that could be useful, and then to discussion about how to apply it. The subjects vary from the relatively small, such as the most convenient way to demolish houses for infrastructure projects, to the monumental, such as designing the most equitable pension system. The appetite for ideas is rapacious: ideas from local businesses (there are two hundred field-study centers in the Yangtze River delta, including a mini CELAP campus in Kunshan city); ideas from various national universities; ideas from Western management thinkers.

When the Chinese modernized their economy, they turned to the West for inspiration, and the leadership academy still sends people to Silicon Valley to look at innovation. Government is a different story. There is talk of CELAP being “China’s Kennedy School,” and Joseph Nye, the former dean of Harvard’s Kennedy School of Government, has given a talk there. But there are also hints that Harvard is a little too theoretical for what China needs now. Historical examples are not what is called for, let alone historical examples that celebrate the ­virtues of democracy or soft power. CELAP is about delivering ­efficient government in the here and now, about providing cheap health care and disciplined schools. And from that point of view there are better places to look than gridlocked America—most notably ­Singapore.

The city-state may be tiny, but it has delivered most of the things that the Chinese want from government—world-class schools, ­efficient hospitals, law and order, industrial planning—with a public sector that is proportionately half the size of America’s. For the Chinese, it is the Silicon Valley of government. Even the idea at the heart of CELAP—training an elite civil-service cadre—is based on a Singaporean model, though the Chinese boast that their requirements are more onerous. So it is not surprising that the leadership academy proudly features pictures of its senior figures attending meetings in Singapore and of Singapore’s creator, Lee Kuan Yew, visiting the campus.

The leadership academy can sometimes look a bit comical. ­Officials tie themselves in knots trying to explain why some governmental ideas that work well abroad, like democracy and free speech, will not work in China for “cultural reasons.” A teacher quotes a proverb about some orange trees tasting sweet “only on the south bank of the river.” Corruption in Washington is denounced in ringing terms regardless of the fact that the published wealth of the fifty richest members of ­Beijing’s National People’s Congress is $95 billion—sixty times the combined wealth of the fifty richest members of America’s rather more strictly monitored Congress.1 The local Web sites in Shanghai are full of tales of inefficiency and graft. Indeed, the reason CELAP exists is that the Chinese know they have to do better.

Yet taken as a whole, the correct response of any Western politician visiting CELAP is similar to that of a Western manufacturer visiting a Shanghai factory two decades ago: awe, and perhaps a degree of fear. Just as China deliberately set out to remaster the art of capitalism a couple of decades ago, it is now trying to remaster the art of government. The main difference is that the Chinese believe that nowadays there is far less to be gained from studying Western government than they did from studying Western capitalism.

LEVIATHAN AND ITS DISCONTENTS

CELAP may be extraordinary, but it is hardly unique. Around the world, from Santiago to Stockholm, the cleverer politicians and bureaucrats are also scouring the world for ideas. The reason is simple: The main political challenge of the next decade will be fixing gov­ernment. In The Federalist Papers Alexander Hamilton urged his fellow Americans to decide “whether societies of men are really ­capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force.”2 His words are just as true today. Countries that can establish “good government” will stand a fair chance of providing their citizens with a decent standard of life. Countries that cannot will be condemned to decline and dysfunction, in much the same way the Chinese once were.

For the state is about to change. A revolution is in the air, driven partly by the necessity of diminishing resources, partly by the logic of renewed competition among nation-states, and partly by the opportunity to do things better. This Fourth Revolution in government will change the world.

Why call it a fourth revolution? Not least as a reminder that the state can change dramatically. Most of us in the West only know one model—the ever-expanding democratic state that has dominated our lives since the Second World War. However, history before then tells a different story. Indeed, Europe and America surged ahead precisely because they kept changing: Government was engaged in a continual process of improvement. Looking back, others might identify dozens of small revolutions, such as Thomas Cromwell’s “revolution in government” in Tudor England or Otto von Bismarck’s pension reforms in nineteenth-century Germany. In this book we simplify and argue that the Western state has been through three and a half great revolutions in modern times.

The first took place in the seventeenth century, when Europe’s princes constructed centralized states that began to pull ahead of the rest of the world. In the 1640s, when a middle-aged royalist on the run called Thomas Hobbes produced his anatomy of the state against the background of the English Civil War there were good reasons to believe that the future lay with China or Turkey. Hobbes decided to name the state, which he regarded as the only answer to the nastiness, brutality, and brevity of human life, after a biblical monster, Leviathan. But what a successful monster it proved to be! Europe’s network of competing monsters threw up a system of ever-improving government: Nation-states became trading empires, then entrepreneurial liberal democracies. The struggle for political and economic prowess was often bloody and messy—Britain has waged war on virtually every Western European country—but that contest has also ensured that the West left other regions of the world behind.

The second revolution took place in the late eighteenth and nineteenth centuries. It began with the American and French revolutions and eventually spread across Europe, as liberal reformers replaced regal patronage systems—“Old Corruption,” as it was known in ­England—with more meritocratic and accountable government. We focus on the British manifestation of this revolution partly because its better-known twins have more distractions—the French Revolution degenerated into a bloodbath while the American one had the peculiar virtue of having a continent-sized country to work on—and partly because it is the Victorian one that seems to be most relevant today. English liberals took a decrepit old system and reformed it from within by stressing efficiency and freedom. They “stole” China’s idea of a professional civil service selected by exam, attacked cronyism, opened up markets, and restricted the state’s rights to subvert liberty. The “night-watchman state,” advanced by the likes of John Stuart Mill, was both smaller and more competent. Even though the size of the British population rose by nearly 50 percent from 1816 to 1846 and the Victorians improved plenty of services (including setting up the first modern police force), the state’s tax revenues fell from £80 million to £60 ­million.3 And later reformers like William Gladstone kept on looking for ways to “save candle-ends and cheese-parings in the cause of the country.”

However, as often happens, one revolution set up another. Throughout the second half of the nineteenth century, liberalism began to question its small-government roots: What good, wondered Mill and his followers, was liberty for a workingman who had no schooling or health care? And if that man (and eventually woman) deserved the right to vote, and it would be illiberal to think otherwise, then that schooling needed to be broad and ambitious. And if governments were in competition with one another—and that was increasingly the view as Bismarck welded Prussia into a Great Power—then surely those who educated their workers best would triumph.

Thus an improved life for every citizen became part of the contract with Leviathan. That paved the way for the aberration of communism but also for the third great revolution: the invention of the modern welfare state. That too has changed a great deal from what its founders, like Beatrice and Sidney Webb, imagined; but it is what we in the West live with today. In Western Europe and America it has ruled unchallenged since the Second World War—except for during the 1980s, when Margaret Thatcher and Ronald Reagan, inspired by classical liberal thinkers like Milton Friedman, temporarily halted the expansion of the state and privatized the commanding heights of the economy. We dub this a half revolution because, although it harked back to some of the founding ideas of the second “liberal” revolution, it failed in the end to do anything to reverse the size of the state.

The twists and turns of each revolution, as we shall see, have been significant. What is clear, however, is that for the past five hundred years Europe and America have been the font of new ideas about government. Not all of them worked, but even in its more grotesque deviations of fascism and communism, the West was still striving, at least in theory, to forge the future. The rest of the world followed. The Chinese and the Russians followed Marxism. India, when it became independent in 1947, embraced British Fabianism even as it put a torch to British imperialism. In Latin America, despite their citizens’ love-hate relationship with the gringos in el norte, the region’s economies lurched forward two decades ago when most of them embraced “the Washington consensus” (a phrase invented by John Williamson to mean a combination of open markets and prudent economic management). Even in Pudong there is a recognition that, until recently, the Western model represented the gold standard of modernity.

Freedom and democracy have been central to that. The rise of the Western state was not just a matter of setting up a competent civil service. Even Hobbes’s monster, as we shall see, was a dangerously liberal one for a royalist to propose, because Leviathan relied on the notion of a social contract between the ruler and the ruled. The Victorian liberals saw a well-run state as a prerequisite for individual emancipation. Their Fabian successors saw a welfare state as a prerequisite for individual fulfillment. As it has expanded, the Western state has tended to give people more rights—the right to vote, the right to education and health care and welfare. Things like a university education that a century ago were regarded as a white, male, wealthy privilege are now seen as a public service, in some cases a free entitlement, for everybody.

Yet the Western state is now associated with another trait: bloat. The statistics tell part of the story. In America government spending increased from 7.5 percent of GDP in 1913 to 19.7 percent in 1937, to 27 percent in 1960, to 34 percent in 2000, and to 41 percent in 2011. In Britain it rose from 13 percent in 1913 to 48 percent in 2011, and the average share in thirteen rich countries has climbed from 10 percent to around 47 percent.4 But these figures do not fully capture the way that government has become part of the fabric of our lives. America’s Leviathan claims the right to tell you how long you need to study to become a hairdresser in Florida (two years) and the right to monitor your e-mails. It also obliges American hospitals to follow 140,000 codes for ailments they treat, including one for injuries from being hit by a turtle. Government used to be an occasional partner in life, the contractor on the other side of Hobbes’s deal, the night watchman looking over us in Mill’s. Today it is an omnipresent nanny. Back in 1914 “a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman,” the historian A.J.P. Taylor once observed. “He could live where he liked and as he liked. . . . Broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.” Today the sensible, law-abiding Englishman cannot pass through an hour, let alone a lifetime, without noticing the existence of the state.

There have been periodic attempts to stop the supersizing of the state. In 1944 Friedrich Hayek warned that the state was in danger of crushing the society that gave it life in The Road to Serfdom. This provided an important theme for conservative politicians from then onward. In 1975 California’s current governor, Jerry Brown, in an earlier incarnation, declared an “era of limits.” This worry about “limits” profoundly reshaped thinking about the state for the next decade and a half. In the 1990s people on both the Left and the Right assumed that globalization would trim the state: Bill Clinton professed the age of big government to be over. In fact, Leviathan had merely paused for breath. Government quickly resumed its growth. George W. Bush increased the size of the U.S. government by more than any president since Lyndon Johnson, while globalization only increased people’s desire for a safety net. Even allowing for its recent setbacks, the modern Western state is mightier than any state in history and mightier, by far, than any private company. Walmart may have the world’s most efficient supply chain, but it does not have the power to imprison or tax people—or to listen to their phone calls. The modern state can kill people on the other side of the world at the touch of a button—and watch it in real time.

There are powerful demographic and economic reasons why many people think that the state will continue to grow. Entitlements grow as populations age. Governments dominate areas of the economy, like health and education, that are resistant to productivity improvements. But the other reason for the state’s sprawl has been political. Both the Left and the Right have indulged its appetites, the former singing the praises of hospitals and schools, the latter serenading prisons, armies, and police forces, and both creating regulations like confetti. The call that “something must be done,” i.e., that yet another rule or department must be created, comes as often from Fox News or the Daily Mail as it does from the BBC or the New York Times. For all the ­worries about “benefit scroungers” and “welfare queens,” most state spending is sucked up by the middle classes, many of them conservatives. Voters have always voted for more services; some people just resent having to pay for them more than others. The apocryphal sign at a Tea Party rally warning “big government” to “keep its hands off my Medicare” sums up many Americans’ hypocrisy about the state.

For better or worse, democracy and elephantiasis have gone hand in hand. Our politicians have been in the business of giving us more of what we want—more education, more health care, more prisons, more pensions, more security, more entitlements. And yet—here is the ­paradox—we are not happy.

Having overloaded the state with their demands, voters are furious that it works so badly. From Seattle to Salzburg the worry is that the system that has served the West so well has become dysfunctional, that, to borrow a phrase from polling organizations, things are “on the wrong track,” that our children will live more cramped lives than we have. In America the federal government has less support than George III did at the time of the American Revolution: Just 17 percent of Americans say that they have confidence in the federal government, less than half of the 36 percent found in 1990 and a quarter of the 70 percent found in the 1960s.5 Congress regularly scores an approval ­rating of 10 percent. Membership in political parties has collapsed. In Britain less than 1 percent of the population is a member of a political party. The number of card-carrying Tories has declined from 3,000,000 in the 1950s to 134,000 today, a performance that would have put a private company into receivership. In America more people now identify themselves as independents than they do as Republicans or Democrats. The only politicians with fire in their bellies seem to be on the extremes—people who either want no state at all, refuse to countenance reform, or blame the whole thing on immigrants or bankers or the European Union.

The drift to the extremes is not surprising given the center’s inability to face up to reality. Take the two biggest crises in Western government, America’s fiscal mess and the euro debacle, and you find mainstream politicians behaving like ostriches. With the first, most economists agree that the solution requires a combination of spending cuts and tax rises. The economists might disagree about the proportion. In most successful “fiscal adjustments” in other countries spending cuts have done most of the work, but never all of it. Yet in the last presidential election every single Republican candidate rejected the idea of any tax rises whatsoever. “Not a penny more” was the universal refrain. The Democrats were only a little less deranged in their adamant refusal to consider reducing entitlements.

Perhaps, you might argue, Americans have a little time to avoid fiscal reality; the euro crisis, by contrast, is already graphically real. Yet look at the elections in the eurozone’s three biggest economies. France’s contest in 2012 was an exercise in denial, with neither Nicolas Sarkozy nor François Hollande entertaining the idea of cuts to what has become the continent’s most bloated government. In 2013, despite their country enduring its worst crisis since the war, one in four Italians could not be bothered to vote—and over half of those who did chose either Beppe Grillo, a former comedian, or Silvio Berlusconi, a congenital clown. Nobody would accuse Angela Merkel of clownishness, but even her easy victory in Germany in 2013 was a national refusal to face reality, where the euro crisis was a southern European problem, with the thrifty Germans having to save the day. Nobody discussed the fact that Germany’s banks were still standing only because their borrowers in the south had been bailed out.

There are some mechanical reasons for this lurch to the edges of reason. In America gerrymandering has left many congressional districts in the hands of hard-liners, while the European Union’s governance system is a maze of unaccountability. But the plain fact is that voters—be they Bavarians furious at lazy Italians living la dolce vita on their euros or Greeks furious at Mrs. Merkel’s austerity—are frustrated with the system. They are mad as hell. They cannot take it anymore. The West has lost confidence in the way that it is governed.

The same can be said of the emerging world. After a decade of spectacular growth in the emerging markets, many now have their own debate about government. China’s princelings realize that further progress now relies on improving the state, not just opening up markets. And, like their peers in India, they are confronted by the consequence of those freer markets—an educated middle class, increasingly fed up with an outdated, often corrupt state.6 In Brazil protesters have focused on corruption: One in four Brazilians say that they have paid bribes. In Turkey the complaint is high-handedness on the part of a prime minister, Recep Tayyip Erdogan, who acts more like a sultan than a democrat. Gurcharan Das, an astute Indian commentator, points out that, not that long ago, his countrymen were willing to argue that “India grows at night while the government sleeps”: Now they realize that India cannot continue to grow so long as its schools are substandard and its roads are full of holes.7 Even China has not been immune: You can feel the frustration with lousy schools in Guangzhou as surely as you can in Tahrir Square or the favelas of São Paulo.

So in both the West and the emerging world the state is in trouble. The mystery is why so many people assume that radical change is unlikely. The status quo in fact is the least likely option. As an American ­economist, Herbert Stein, once drily observed, “If something cannot go on for ever, it will stop.” Government will have to change shape ­dramatically over the coming decades. In the emerging world the era of growing by night is over. In the West the era of more is coming to an end. It is time for the Fourth Revolution.

WHY IT HAS TO CHANGE

Why should this time be different? Bringing Leviathan under control will be the heart of global politics because of a confluence of three forces: failure, competition, and opportunity. The West has to change because it is going broke. The emerging world needs to reform to keep forging ahead. There is a global contest, but one based on promise as much as fear: Government can be done better.

Debt and demography mean that government in the rich world has to change. Even before Lehman Brothers collapsed, Western governments were spending more than they raised. The U.S. government has run a surplus only five times since 1960; France has not had one since 1974–75. The crunch has only increased the debt, as governments rightly have borrowed. By March 2012 there were some $43 trillion of government bonds in issue,8 compared with only $11 trillion at the end of 2001. That is only a fraction of Western governments’ true liabilities, once you factor in pensions and health care. The numbers for many cities are even worse: San Bernardino in California and Detroit in Michigan both filed for bankruptcy because of these off-balance sheet obligations.

And who will pay for all this? In “old Europe,” for instance, the working-age population peaked in 2012 at 308 million—and is set to decline to 265 million by 2060. These will have to support ever more old people: The old-age dependency ratio (the number of over-sixty-fives as a proportion of the number of twenty-to-sixty-four-year-olds) will rise from 28 percent to 58 percent—and that is assuming that the EU lets in more than a million young immigrants a year.9 Across the Atlantic, America continues to tax itself like a small-government country and spend like a big-government one while hiding its true liabilities by using tactics that would have made Bernie Madoff blush. With the baby boomers aging, the Congressional Budget Office reckons the bill for medical benefits alone will rise by 60 percent over the next decade—its deficit may be manageable now, but the United States faces a choice: Rein in those entitlements, raise taxes to extraordinary levels, or stagger from crisis to crisis.

Every six months the International Monetary Fund publishes its fiscal monitor, in which Statistical Table 13a has the exciting title “Advanced Economies: Illustrative Adjustment Needs Based on Long-Term Debt Targets”; its final column makes a guess, once age-related spending has been factored in, about how much governments need to cut costs or raise revenues in order to bring down their debt to reasonable levels by 2030. In America the figure is 11.7 percent of GDP, in Japan it is 16.8 percent, and across the G20 advanced countries as a whole it averages out at 9.3 percent. You can quibble about some of the IMF’s requirements for particular countries. Some economists think it is much too hard on America, for example: They argue that the Fund sets an unnecessarily ambitious target for reducing government debt (60 percent of GDP) and they point out that a small change in either growth numbers or tax revenues would make a big difference to America’s prospects.10 But the past two decades of America’s political history suggest that it would be foolish to bet on the country’s ability to raise its taxes. And even if the numbers can somehow be made to balance, without serious reforms of its public sector America will turn into “an insurance conglomerate protected by a large, standing army,”11 with all the money going to entitlements and defense and none left for education or anything else.

For the foreseeable future the Western state will be in the business of taking things away—far more things than most people realize. In some places, where governments have managed their finances spectacularly badly, such as Greece and some American cities, that taking away has already been dramatic: In San Bernardino the city attorney advised people “to lock their doors and load their guns” because the city could no longer afford police. Even Europe’s most consensus-minded politicians recognize that something has got to change: Angela Merkel’s favorite statistic is that the European Union accounts for 7 percent of the world’s population, 25 percent of its GDP, and 50 percent of its social spending.12 But the politics of introducing change will be bloody, pitting cash-strapped governments that have to trim services against disgruntled voters who want to maintain their social rights, and taxpayers who want more value for their money against powerful public-sector unions that want to preserve their privileges. If millions of French people took to the streets when President Nicolas Sarkozy raised the pension age from sixty to sixty-two, heaven knows what will happen when François Hollande or his successor is eventually forced to push it up to seventy.

This battle will go straight to the heart of democracy. Western politicians love to boast about the virtues of democracy and urge errant countries, from Egypt to Pakistan, to embrace it. They argue that one person, one vote holds the cure to everything from poverty to terrorism. But the practice of democracy in the West is diverging ever more from the ideal, with the U.S. Congress polluted by money and partisanship, European parliaments plagued by drift, and the general public increasingly disgruntled. The unedifying truth is that Western democracy got rather flabby and shabby when it was mostly giving things away. Interest groups (including many people who work for the state) have proved remarkably successful at hijacking government. The example of Japan is a frightening one: For decades it failed to fix its sclerotic political system, even as its economy withered. The European Union seems to be following a similar trajectory.

If failure is the first prompt for change in the West, competition is the second. For all its frustrations with government, the emerging world is beginning to produce some striking new ideas, eroding the West’s competitive advantage in the process. If you are looking for the future of health care, then India’s attempt to apply mass-production techniques to hospitals is part of the answer, just as Brazil’s system of conditional cash transfers is part of the future of welfare. But it goes deeper than that. Chinese-oriented Asia offers a new model of government that challenges two of the West’s most cherished values: universal suffrage and top-down generosity. This “Asian alternative” is an odd mixture of authoritarianism and small government, best symbolized by Singapore’s long-term ruler, Lee Kuan Yew. He has been a stern critic of the West’s unfettered democracy but also of the West’s welfare state, which he compares to an all-you-can-eat buffet: Things that should have been targeted at the poor, such as free university tuition and health care for the elderly, have become middle-class rights, bloated and unaffordable. And China is trying to follow Singapore rather than the West when it comes to welfare as well as democracy: It has extended pension coverage to an additional 240 million rural people in the past two years, far more than the total number of people covered by America’s public-pension system, but it also plainly wants to avoid America’s excesses.

It is easy to poke holes in the Asian model—and we poke a lot of them in this book. Singapore is very small. China’s governmental efficiency falls apart at the local level. So far the emerging world has not seized the opportunity to leapfrog ahead that technology has presented it with. Brazil is heading toward a pension crisis that could dwarf even those in Greece and Detroit. India may have a few of the most innovative hospitals in the world, but it has some of the lousiest roads and laziest politicians. But do not be fooled into thinking that the emerging world is miles behind. The bureaucrats at CELAP are right: The days when the West had a monopoly on clever government are long gone.

This points to the third force: the opportunity to “do government” better. The crisis of the Western state and the expansion of the emerging state are both coming at an auspicious time: New technologies offer a chance to improve government dramatically, but so does asking old questions such as the most basic question of all: “What is the state for?” As with the previous revolutions, the threat is plain: bankruptcy, extremism, drift. But so is the opportunity: the chance to modernize an institution that we have overloaded with responsibilities.

WHY IDEAS MATTER

How should the state be changed? We think that any answer has to involve two things—one rooted in pragmatism and the other in political principles.

The pragmatic answer, which people of all persuasions should seize upon, relies on improving management and harnessing technology, particularly information technology. Fifty years ago, companies suffered from the same bloat that government now does. Business has changed shape dramatically since then, slimming, focusing, and delayering. So can government. The state is still stuck in the era of vertical integration, when Henry Ford thought it made sense to own the sheep whose wool went into the seat covers of his cars. Government is lousy at spreading successful ideas. There is no good reason why California schools should be so much worse than Finnish or Singaporean ones, particularly given that California spends more per pupil. If all America’s high schools were as good as those in Massachusetts, America would have finished fourth in the 2012 PISA rankings for reading and tenth for mathematics, rather than seventeenth and twenty-sixth. In Italy, Trento had one of the highest scores in the world for maths, but Calabria was two years behind. Government is also lousy at keeping itself under control: Think of the thousands of pages of the Dodd-Frank financial reforms. Or just look at the numbers. Britain’s Office for National Statistics calculates that productivity in the private-­service sector increased by 14 percent between 1999 and 2013. By contrast, productivity in the public sector fell by 1 percent between 1999 and 2010. Governments need to learn from best practice in much the same way that once-sprawling companies learned from the Toyota method of production in the 1980s.

Technology has even bigger potential than management. The Internet has revolutionized everything that it has touched, from the newspaper business to retail. It would be odd if it did not also revolutionize the state. The IT revolution is robbing the state of what was one of its great sources of power—the fact that it possessed so much more information than anybody else. The revolution is also part of a possible cure to “Baumol’s cost disease.” William Baumol, an American economist, argued that it was impossible to reduce the size of the state because it is concentrated in labor-intensive areas, such as health care and education, where spending will continue to rise faster than inflation. Productivity in the public sector has indeed been dire. But computers and the Internet are beginning to do for services what machines did for agriculture and industry. You can now watch the world’s best lecturers for free on your iPad instead of having to pay good money to watch time-servers in smelly lecture halls.

Championing the cause of better management should be completely apolitical. Who doesn’t believe in providing young children with a good start in life? Or old people with a decent retirement? It is unlikely to be that way, because the prime obstacles to modernization are often public-sector unions, be they America’s teachers or France’s railway workers, which are closely allied with parties of the Left. In fact, the Left has more to gain than the Right from improving the management of government for the simple reason that the Left invests more hope in the capacity of government to improve people’s lives, especially the lives of the poor. It cannot make sense for people who believe in the benevolence of government to prevent government from hiring the best people (or firing the worst), or to allow the government machine to be run by vested interests. Consider a startling fact that emerged during America’s fevered national discussion over the botched rollout of Obamacare: 94 percent of federal IT projects over the past ten years have failed—more than half were delayed or over budget and 41.4 percent failed completely. The Pentagon spent over $3 billion on two health-care systems that never worked properly. They failed partly because the government’s rigid employment rules prevent it from hiring IT experts and partly because its even more rigid rules about contracting out mean that it is a captive of the few suppliers who have the resources to navigate the eighteen hundred pages of legalese in the Federal Acquisition Regulation. If the Left is serious about defending government, it needs to start by trying to make it as efficient as ­possible.

There is more to the future of government than just better management, however. At some point a bigger decision has to be made. No matter how well you make the existing state work, you are confronted with the question of whether that is the right sort of state to have. What is the state for? That question is at the heart of an old debate—a debate that disappeared during the “all you can eat” phase of modern democracy. For Hobbes, Leviathan existed to provide security. For Mill and the radical Thomas Paine, the answer was liberty. For the Fabians it was the welfare of mankind. But all these thinkers thought that you needed to address the big question before moving on to the practical details. Now these questions are discussed only in piecemeal form. Modern politicians are like architects arguing about the condition of individual rooms in a crumbling house, rushing to fix a window here or slap on a new coat of paint there, without ever considering the design of the whole building. We need to look at the design of the whole structure—and also to think hard about the proper role of the state in a fast-changing society, just as the Victorians did at the dawn of the modern democratic age.

In this great argument we should admit that we have a marked prejudice: We come from a newspaper rooted in classical liberalism, which generally places a high premium on the freedom of the individual (and which, incidentally, was founded at the time of that Victorian reinvention). In general we favor a smaller state. We think that part of understanding what’s gone wrong is recognizing that government has to be kept in check; that it is often a blunt tool; that, left to its own devices, it will expand inexorably. But that is a prejudice to be tested against the facts, not an article of blind faith.

Thus we do not accept the libertarian idea that government is at best a necessary evil. Too little government is more dangerous than too much: You would have to be crazy to prefer to live in a failed state like the Congo, where the absence of Leviathan makes life truly “nasty, brutish, and short,” than in a well-run big state like Denmark. By paying for public goods like education and health care, governments can improve efficiency as well as welfare. America’s supposedly “private” health-care system costs its inhabitants more in taxes and delivers worse health than the Swedes’ public one. One reason why Germany is so much more successful than Greece is that it has a successful state that is capable of gathering taxes, providing services, and commanding respect. The same could be said of Singapore versus Malaysia, China versus Russia, or Chile versus Argentina.

So government can be an instrument of civilization. But we don’t accept the progressive idea that there is nothing wrong with the state that yet “more state” cannot solve. There may be a pragmatic case for using public spending in the short term to prevent an economy from sinking into recession. But there is no escaping the need to tame Leviathan in the medium term. The modern overloaded state is a threat to democracy: The more responsibilities Leviathan assumes, the worse it performs them and the angrier people get—which only makes them demand still more help. That is the vicious circle of progressive politics. More fundamentally, the modern state is also a threat to liberty: When the state takes half of everything that you produce, when it prevents people from earning a living braiding hair without an expensive license, when it dictates the race and gender of people whom you can employ, when it summons up draconian powers to fight “wars” on terror, speeding motorists, and marijuana, then it has begun to become a master rather than a servant. Leviathan has to be tamed. It has to be brought under control.

“We do not dance even yet to a new tune,” John Maynard Keynes once said of another great shift. “But a change is in the air.”13 That is true today too. Western democracies stand the best chance of responding to change: Democracy provides governments with more flexibility, a way of listening to people. The change should be toward greater liberty, and democracy is also the freest form of government. But the West also runs the biggest risk: Listening to people is one reason why the West has become so overloaded, and politicians are tempted to burden the state with ever more obligations. At the moment democracy sometimes looks as if it were digging its own grave. Whether the West will now listen to its best or worst instincts is the question that will determine the Fourth Revolution’s outcome.

PART ONE

THE THREE AND A HALF REVOLUTIONS

CHAPTER ONE

THOMAS HOBBES AND THE RISE OF THE NATION-STATE

WHY HAS THE WEST PULLED ahead of the rest of the world over the past three hundred years? And why has Western Europe, a mere proboscis of land on the far end of the Eurasian landmass, pioneered so much that is distinctive about the modern world? Historians have looked for the answer to this question in all sorts of places from Roman law, which entrenched property rights, to the Christian religion, which fostered moral universalism. But a large part of the answer lies in the machinery of government.

A comprehensive history of how the West established its lead in state making would be a monumental undertaking: Samuel Finer’s great history of government, which he left unfinished when he died, runs to 1,701 pages.1 Here we have decided to eschew any attempt to be comprehensive: We plan to focus on the three great reinventions that have redefined Western government and to view those reinventions through the prism of three great thinkers: Thomas Hobbes (an anatomist of the Nation-State who also paved the way for the Liberal State), John Stuart Mill (the philosopher of the Liberal State, who also foreshadowed the Welfare State), and Beatrice Webb (the godmother of the Welfare State, who also personified its excesses). In chapter 7 we examine the half revolution against government through Milton Friedman, whose ideas had such an impact on Ronald Reagan and Margaret Thatcher. These thinkers occupied different positions in the spectrum from theory to practice. Hobbes wanted to produce a philosophy of politics. The Webbs wanted to change the world. Mill and Friedman occupied a position halfway between the two—they produced profound works of political economy but also played an active role in politics, Mill as a member of Parliament and Friedman as an adviser to presidents and prime ministers. But Hobbes’s philosophical theory eventually had a profound impact on the nature of the state while the Webbs’ relentless activism rested on firm philosophical foundations. And all four of them (or four and a half if we count ­Sidney as a half) gave strikingly different answers to the question at the heart of this book: What is the state for?

So we make no apology for the fact that we concentrate on people of ideas. We make a small apology for the fact that the first three of these thinkers are British and the fourth is closely identified with a British prime minister. Britain provides a spine for this part of our story, and it was a pioneer for many of the ideas, good and bad. No other country provides a better example of the gyrations of the Western state over the past four hundred years.

THE BIRTH OF “LEVIATHAN”

Dating the start of any great change is hard. Virginia Woolf made this point memorably in her essay on the advent of modernism:

On or about December 1910 human character changed. I am not saying that one went out, as one might into a garden, and there saw that a rose had flowered, or that a hen had laid an egg. The change was not sudden and definite like that. But a change there was, nevertheless; and, since one must be arbitrary, let us date it about the year 1910.2

By the same token, let us date May 1651 as the moment that ­political thought changed.3 For it was then that Thomas Hobbes published his Leviathan—and it was with the publication of Leviathan that the modern concept of the nation-state was born.

Hobbes was not the first to base his political theory on a ­hardheaded view of human nature: That honor belongs to Niccolò Machiavelli. Nor was he the first to base his theory on deductive reasoning: Grant that to Thomas Aquinas. Nor was he the first to focus on the nation-state rather than the city-state or Christendom: That goes to Jean Bodin. But Hobbes was the first to bring all these three things together into a single volume. And he was the first to add the explosive idea of a social contract between ruler and ruled. If the modern state is one of the great products of human ingenuity, then it has an appropriate founding document in Leviathan.

The core idea in Leviathan is that the first duty of the state is to provide law and order. This is the ultimate public good—the one that rescues man from misery and makes human civilization possible. Hobbes reached his conclusion by remorseless logic. He deconstructed society into its component parts in much the same way that a mechanic might deconstruct a car in order to discover how it works. He did this by asking himself what life would be like in the “state of nature.” Hobbes had no time for Aristotle’s idea that man was by nature a social animal. On the contrary, he thought that man was by nature a little atom of ego, pushed this way by fear and that way by greed. Nor did he have any truck with the feudal notion that men were the inhabitants of preordained social roles, designed by nature to issue orders, if they were born lucky, or hew wood and draw water, if they were not. Men, he argued, are motivated to associate with one another neither by their affections nor by their class affiliations, only by their fear for their safety. In Hobbes’s state of nature, men are constantly trying to get the better of one another, trapped in a “war of every man against every man” and condemned to a “nasty, brutish, and short” life. “This was not a portrait of man ‘warts and all,’ ” George Will, a modern American conservative, once observed. “It was all wart.”4

The only way to escape from perpetual civil war, Hobbes argued, is to give up your natural rights to do as you please and construct an artificial sovereign: a state whose function is to wield power, whose legitimacy lies in its effectiveness, whose opinions are truth, and whose orders are justice—Big Brother in philosopher’s robes. There is no room for opposition to this “Leviathan”: That would threaten to return man to the “miseries of life without government.” The only right that the individual preserves is the right to save his life in extreme circumstances: Given that the state’s purpose is to protect life, you cannot allow the state to snuff you out.

For all its logical rigor, Hobbes’s argument was also emotional, shaped by his personal experiences. He had every reason to understand how easily an ordered life could dissolve into barbarism and chaos. Hobbes was born prematurely in 1588 when his mother was terrified out of her wits by the combination of a violent storm and a wild rumor that the Spanish Armada had landed. (Hobbes wrote in his autobiography that “at that point my mother was filled with such fear that she bore twins, me and together with me fear.”5) His father was a poorly educated clergyman who occupied one of the poorest livings in Wiltshire, spent more time in the local alehouse than in his church, and was eventually obliged to “fly for it.”6 Elizabethan England was always under threat: Witness Philip II’s armada. And the paranoia, fanned by religious conflict, continued under James I: Witness the Gunpowder Plot in 1605. In 1640 the Stuarts’ autocratic but cash-strapped regime broke down. The resulting civil war between Charles I and his Puritan foes in Parliament ended in regicide and dictatorship and claimed the lives of a higher proportion of the British population than did the First World War. Among the fallen was Sidney Godolphin, one of Hobbes’s closest friends and the brother of the man to whom he dedicated his book.

US

Additional information

Dimensions	0.7400 × 5.4700 × 8.3600 in
Imprint	Penguin Books
ISBN-13	09780143127604
ISBN-10	0143127608
Author	Adrian Wooldridge, John Micklethwait
Audience	General / adult
BISAC	BUS069010, POL023000
Subjects	business books, government, biographies, geopolitics, strategy, money, essays, theatre, corruption, economics books, political science books, capital, international politics, political books, BUS069010, POL023000, investment, political philosophy, world politics, business history, economic history, economic development, wealth, philosophy, politics, management, culture, business, american history, work, technology, society, Sociology, history, economics, finance, investing, financial, political science, capitalism, economy, history books, world history