The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait and Adrian Wooldridge is an attempt to explain the current economic and political impasse governments of the Western world now find themselves in. By taking examples of state action from around the world the authors attempt to chart an alternative path Western governments might yet follow.
The title refers to the three and a half revolutions the nations states of the West have seen and the envisioned fourth revolution. The first revolution was the rise of the nation state itself during the seventeenth century. The second was the minimal state of classical liberalism of the nineteenth century. This was followed by the third revolution giving rise to the twentieth century welfare state. The half revolution is said to have occurred in the 1980s when a partial rollback of the state occurred. The authors see this as unfinished business which will be completed in a fourth revolution. This is a broad sweep of history and a daring attempt to sketch what lies ahead.
The work continues by pointing out why the Western model of the state is in crisis and why it has to change. That should be fairly obvious but it can be summed up quite simply: the state is trying to do too much and it is more than we can afford. It would be worth noting too that the state has wrecked the economy in this attempt by overburdening society with taxation and borrowing. As a result Western economies face stagnation and its governments face insolvency. The message of the authors rings loud and clear: shrink the state by making it more efficient, allowing for a relative decrease in the size of the public sector.
Examples of how to make public services more efficient abound throughout the world. One of particular interest is Devi Shetty’s mass production medical techniques pioneered in India. Shetty’s flagship heart hospital in Bangalore has one thousand beds where he and his team of forty cardiologists perform six hundred operations a week on a veritable medical production line. The economies of scale allow the surgeons to specialise and provide high quality services at a lower cost. Shetty’s hospital can perform open heart surgery for around $2000 compared to $100,000 at an American hospital but most importantly with the same success rate. How is it possible that Shetty can do this at all; surely it must be the relative absence of regulation and medical licensure in India?
Shetty is also opening up a hospital for Americans to take advantage of his cheap and effective surgeries, not though as one might think in the United States, but in the Cayman Islands. The authors do allude to this. They note that medical costs in the West are inflated by restrictive practices. Nurses can carry out a lot of routine work which only physicians are permitted to do and 85% of a GP’s role can be done by a physician’s assistant. Interestingly though they describe how the idea of establishing a National Health Service is becoming popular in India. However, they do not say who is promoting the idea. Could it perhaps be the physicians of India who feel threatened by competition from the likes of Shetty?
Another point of the book though is that globalisation is making protective policies harder and harder to implement. People are able to travel more now than they ever have done in the past and compare what they see in other countries with what they have at home. So attempting to stop or even ignore innovators like Shetty is probably an exercise in futility.
Pertinently, the authors point to the Far East for lessons on how the West can climb out of its current rut. The country they cite as a model is Singapore where the state consumes only 17 percent of GDP. In contrast to the bloated welfare states of the West, Singapore possess a Central Provident Fund where 90 percent of what the individual pays into the fund they can get back out. Interestingly this sounds somewhat similar to the insurance based model which Britain, amongst other European countries, started in the first half of the twentieth century. This contrasts sharply with the by and large free and universal benefit system in place nowadays. The father of Singapore, Lee Kuan Yew, is particularly scathing of the Western welfare states and it is worth quoting his words here:
Once you have a subsidy, he says, it is always hard to withdraw it. If you want to give people a helping hand, he argues, it is better to give them cash than to provide a service, whose value nobody understands. In his view,
“Westerners have abandoned an ethical basis for society… In the East, we start with self reliance. In the West today, it is the opposite.”
By allowing their people to blame everything on society, rather than accept that they are responsible, Western leaders have allowed charity to become an entitlement ‘and the stigma of living on charity disappeared’. Democracy is a big part of the West’s problem:
“When you have a popular democracy, to win votes you have to give more. And to beat your opponent in the next election, you have to promise to give more. So it is a never ending process of auctions – and the cost, the debt being paid for by the next generation.”
Here we have an extremely succinct description of why the Western model of the state is in crisis. Demagogic politicians are bribing voters with promises of free stuff, to soak the rich and tell people that it is not they who are responsible for their lives but the oppressive social structures around them. The simple effect of this type of politics is a spiralling national debt resulting in the hollowing out of the economy’s capital stock and the mortgaging off of the next generation’s prosperity. Thus if we were to heed Lee’s advice, reducing state spending to the levels of Singapore (or Hong Kong) would be a significant improvement over the present situation where e.g. in Britain the state is consuming close to 50 percent of GDP and median living standards have been stagnant for the best part of a decade now. Nevertheless, the welfare states of the Asian Tigers too are growing in size as politicians promise more of other people’s money, many of whom are unborn, to win votes. It beggars the question is this fourth revolution that the authors hope to see just pie in the sky? Will the rot still set in inevitably sooner or later?
[Part II will be published tomorrow]