December, 2010 Archives


The Fall of the West

by Riaan Nel in Global Economy

There are those predicting the West is in the process of decline after 500 years of predominance.  Well known Harvard financial historian Niall Ferguson recently penned an article arguing that the world is tilting back to the East.  According to him, and others, the balance of power is shifting away from an overleveraged and sluggish West to a dynamic Asia (remember this ad from the election campaign?  In my graduate research I continually come across the narrative of a declining West and America, and that we are on a downward spiral.  Let us look at some of the main arguments and the concomitant investment implications. 

 Ferguson identifies 6 so-called “killer applications” that explain the dominance of the West over half a millennium.

  •  Competition:  Europe was politically fragmented, and within each monarchy or republic there were multiple competing corporate entities. 
  • The Scientific Revolution:  All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry and biology happened in Western Europe. 
  • The 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.
  • Modern Medicine:  All the major 19th– and 20th-century advances in health care, including the control of tropical diseases, were made by Western Europeans and North Americans.
  • The 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.
  • The 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.

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