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The Fourth Revolution: The Global Race to Reinvent the State.

The Fourth Revolution: The Global Race to Reinvent the State, by John Micklethwait and Adrian Wooldridge, New York, NY: The Penguin Press, 2014.

In the recent race for the Republican nomination for the upcoming Congressional Election in November, Eric Cantor, the House Majority Leader, was upset by a politically little-known Tea Party economics professor, David Brat of Randolph-Macon College, located just outside Virginia's capital city, Richmond, 90 miles south of Washington, D.C.

Political analysts and pundits suggested that, among other things, Cantor's stunning loss was due to the leadership role he played in facilitating the Republican party to reach the budget deal with the Obama administration. The deal resulted in the passage of the 2014 budget legislation that allowed the federal government to reopen after the infamous two and a half weeks of government shutdown in October 2013.

The fact that the most powerful democracy in the world had to shut down the government because its legislature could not agree to a budget, was a prime example of political paralysis and dysfunctional government, and in a broader sense the image of made-in-USA democracy. A large segment of the American public has resigned themselves to the fact that nothing about government is ever going to change at the national level in the foreseeable future.

A new book. The Fourth Revolution: The Global Race to Reinvent the State, by John Micklethwait and Adrian Wooldridge, both of The Economist magazine (London), challenges this view of hopelessness and discordant apathy. They argue that the 21st century is turning out to be a challenging one to Western-style democracy and government. However, they see hope and argue that reform to reinvent government is happening. They believe that we are now in the midst of the "Fourth Revolution," following three-and-a-half previous revolutions.

Micklethwait and Wooldridge see the Western model of democratic government losing ground in a global race to reinvent government. They are concerned because, in their view, the form of government adopted by the East, to date, is not the ideal way forward for Western-style democracy: a liberal state that values individual liberty, limited, efficient, accountable government. They would prefer the West to accelerate reforms and to take a leadership role in the competition of ideas to reinvent government. They write:

"This slow progress would be dangerous enough if the West were still the only game in town. It is not. The East is not only advancing economically. It is also in the business of state building, trying to cram what took hundreds of years in the West into a few decades. In the world of economics 'the periphery' (as it used to be called) is reemerging as the core. The great question is whether this will happen in the world of politics as well."

The book is organized into three parts. In the first part, the authors take us through the historical evolution of what they describe as three great revolutions and a counter-revolution--a half revolution. Thomas Hobbes' Leviathan, an influential work analyzing the view of human nature and the idea of sovereign nation-state, inspired the first revolution. It gave rise to the nation state as a means to escape never ending civil wars in Europe at the time. Hobbes' core idea of the state or government, Leviathan--a power-hungry sea monster--is to provide security and maintain law and order. This was followed by the second revolution--a reaction to the corrupt, patronage and cronyism that developed following Leviathan. This is the classical liberalism of the 18th and 19th century based on John Stuart Mill's influential work, On Liberty. Mill argues for individual liberty, freedom from interference from the state and others, and a small and limited government--a "night watchman state." Though in his later years, having witnessed the harsh consequences of the Industrial Revolution under laissez-faire capitalism and the British Poor Law in practice at the time, Mill was willing to compromise freedom in the interests of other values that include justice, equality of opportunity, and women's political right. Mill saw this as a way to save the good part of capitalism and, above all, to preserve individual freedom.

Classical liberalism was followed by what the authors consider as the third revolution in the early 20th century: the rise of the welfare state. The

authors focus on the work of Beatrice and Sidney Webb who argue for an activist government. They believe that the state has the responsibility to deliver a "basic minimum" of social welfare to those who have been left out. They gained political support both in Britain and the US. Anti-trust, anti-monopoly legislation, measures to protect consumers from rogue corporations, food safety regulations, and war against crony capitalism were adopted. Social insurance and safety net programs were created.

The welfare state over time grew into big government and soon big government overextended itself beyond the core minimum. By the early 1970s the welfare state was failing: the Vietnam War, stagflation in the economy, rising crime, drug epidemics, breakdown of the family, and cultural wars, induced perverse incentives in welfare programs undermining individual responsibility; poverty and inequality got worse. By the time Thatcher, in Britain, and Reagan, in the U.S., came to power, the state was bloated and failed in delivering the basic minimum social welfare efficiently. The time was right for a counter-revolution of reducing the size and scope of government. The counter-revolution implemented measures to support privatization, particularly Thatcher, market liberalization, and deregulation including the roles of labor union. According to the authors, the Reagan-Thatcher reform was only a "half-successful revolution." By the time Thatcher left office, social expenditure was marginally reduced from 22.9 percent of GDP in 1979 to 22.2 percent in 1990. In the U.S., Reagan succeeded in cutting taxes but actually raised spending and contributed to increased deficit and national debt significantly.

The intellectual hero behind the Reagan-Thatcher half-revolution was Nobel Laureate economist, and one of the godfathers of the Libertarian Right, Milton Friedman, whom Micklethwait met in San Francisco when he was 18 years old during his "gap year" (between high school and university). Friedman discussed some of his ideas that he popularized in his Capitalism and Freedom and in his newspaper column and public lectures. They include ideas such as school vouchers, liberalization of marijuana, rule-based monetary policy, and privatization including abolishing military draft in favor of a volunteer army and replacing existing welfare programs with a negative income tax or basic minimum income for the poor. Many of his ideas were eventually adopted. Micklethwait's account of the conversation and about Friedman makes an interesting read. For example, we learn that Friedman had a deep distrust of government and bureaucrats. He did not believe that they can do anything right. The authors note that Friedman's intellectual aggressiveness combined with his evangelism and cynicism led him to the point of oversimplification. Micklethwait quoted one of Friedman's one-liners: "If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand." Did Friedman really believe that?

In the second part of the book, the authors provide two chapters of interesting and cogent empirical evidence of the revival of government reforms in recent years. In the U.S., amidst high-profile political gridlocks and dysfunctional government in Washington, the authors point out the change that has been taking place at the state and local government levels. They use California, famous for its dire fiscal situation, money politics, gerrymandering, and extreme partisanship, as an example of reform that has begun to turn around the state's fiscal situation. It has a budget surplus, as conventionally measured, in recent years.

At the international level, the authors provide evidence of reform from countries that do not quite fit the image of U.S. or Western European democracy. They range from socialist democratic countries like Sweden and Denmark, to state capitalistic and communist China, to free-market but less democratic and authoritarian Singapore. Reforms in Sweden reduced government spending from 67 percent of GDP to about 49 percent today and national debt fell from 70 percent in 1993 to 37 percent in 2010.

In the third part of the book, the authors discuss successful and promising cases of governmental reform taking places in various countries around the world (Sweden, India, Singapore, and China) and in state and city governments in the U.S. (California and New York city, for example). These cases demonstrate both the roles of technological change, globalization, and process innovations leading to new policies and programs. In Asia, for example, India is exploiting and exploring digital and information technology to improve effectiveness in public health care delivery and hospital management. In Sweden, the government rethought their approach to the welfare state. It reformed its tax and expenditure policies. It changed the delivery of social services by adopting a more market-oriented approach, with private-public partnerships. It made use of independent expert commissions for advice as a way to constrain influence from vested interests and to build consensus.

In addition to globalization and technological revolution, there are four important takeaways from the book. First, the authors prod us to rethink the broader question of "What is the state or government for?" And we might add a related question, "Who is the government?" Government is all of us. If "government is not the solution, it is the problem" as President Reagan said. All of us politicians including presidents, voters, and individual citizens--are, or contribute to, the problem. Micklethwait and Wooldridge remind us that voters were happy to embrace Milton Friedman's small government revolution when it meant lower taxes, deregulation, and shredding red tape, but not when it means getting fewer public services. Ironically, they note, "... even Friedman himself spent his golden years living in liberal San Francisco rather than Friemanite Laredo in Texas." Politicians respond to what voters want. Former Prime Minister of Luxembourg and current President of the European Commission, Jean-Claude Juncker, acknowledged: "We all know what to do, but we don't know how to get reelected once we have done it."

Second, in the authors' view, the government has overreached. They compare the modern government to Augustus Gloop, the greedy boy in Charlie and the Chocolate Factory. The government is being given of what it craves--too much power by taking on too many obligations. It has become an all-you-can-eat government and has drunk too much from the chocolate river. The overfeeding and bloated government in Western democracies is the work of both of the political Left and the Right. A short illustrative list include: California teachers' unions; California's "prison-industrial complex" formed by lawmakers, prison builders, and tough sentencing for criminals; back-loaded generous pension schemes in the public sector in Europe and the U.S.; farm subsidy programs in the European Union, the U.S., and others; tax expenditures and other corporate welfare in the form of lower taxes on capital gains; and subsidized interest on housing mortgage largely benefit the haves in the U.S.

Third, the authors provide an explanation of how the overfeeding of government came about. It is based on what they called the Olson's Law, named after the late economist Mancur Olson of University of Maryland. In, The Logic of Collective Action, Olson pointed out that in democracies small (and interest) groups have a big advantage over larger groups. Interest groups have motives to organize into narrow constituencies to pursue their specific, often narrow goals that deeply matter to them because the benefits tend to be concentrated and huge, rather than broad constituencies pursuing general goals whose benefits tend to spread over more beneficiaries and often undermined by free riders who want the benefits or political actions but do not want to incur the costs. According to Olson's Law, "The larger the group, the less it will further its common interests." A small, determined, and well-financed lobby can defeat reforms for a wide public interest.

Finally, Micklethwait and Wooldridge show us that the U.S. and Europe no longer have a monopoly of ideas in the global race to reinvent the state. Western-style democracy has a credible challenge from the "Asian Alternative" exemplified by China and especially Singapore. They emphasize meritocracy, efficiency, and accountability. Singapore is consistently ranked as one of the freest in economics and partially free in political rights by Freedom House. Historical context, values, culture, stability and social order do matter for the "Asian Alternative," sometimes at the expense of individual liberty.

Together, Part II and III of the book make a case for the authors' optimism that government reform is possible. History and reality is on their side. I was reminded of the chairman of President Nixon's Council of Economic Advisers, Herbert Stein's observation: "If something cannot go on forever, it will stop." Micklethwait and Wooldridge believe that large public expenditure with no increase in taxes and rising national debt cannot go on forever. In their view, the Fourth Revolution has already begun; and it is about many things. They write:

"[It] is about harnessing the power of technology to provide better services. It is about finding clever ideas from every corner of the world. It is about getting rid of outdated labor practices. But at its heart it is about reviving the power of two liberal ideas ... reviving the spirit of liberty by putting more emphasis on individual rights and less social rights ... (and) reviving the spirit of democracy by lightening the burden of the state."

The authors made it clear that they are not of the Libertarian-Right ideologues; rather, they believe in the "liberal state" of Mill's benevolent "night watchman state"--a limited, efficient, transparent, and accountable government. In one of their book tours to a U.S. conservative think-tank, they told the audience that the book was for "intelligent conservatives." Indeed, the book has an important message that is filled with insights, ideas, and erudition from the authors' real world, glob-trotting experience interviewing and interacting with political and business leaders, academics, intellectuals, government officials, civil society, and ordinary citizens around the world. It makes a gripping read.

Kiertisak Toh

Senior Fellow, Duke Center for International Development, Duke University and Assistant Professor of Economics Radford University
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Author:Toh, Kiertisak
Publication:American Economist
Date:Mar 22, 2015
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