Fear, greed and sloth the making of Emerging Europe

(Business New Europe – bne.eu – Ben Aris in Moscow – July 12, 2013) Fear, greed and sloth are the driving forces of history. It is not a flattering view of human nature, but Professor Ian Morris of Stanford University makes a convincing argument that all of human history since the time of the troglodyte through to the 21st century can be understood in these terms in his book: “Why the West Rules – For Now.”

And the idea is perhaps useful in trying to understand why countries as vastly different as Brazil, Bulgaria, Romania, Russia and Turkey ­ to name a few ­ are all being wracked by huge and dramatic protests simultaneously. Little seems to unite these countries, yet in all of them ­ and many others ­ the people have taken to the streets in vast numbers in the last year or two to take issue with their governments and call for change. Protests, demonstrations and revolutions seem to be sweeping through the world.

What is driving these protests? Several of the countries are Islamic, but clearly that is not the defining factor because India and Brazil are about as un-Islamic as you can get. Many are former socialist countries now democracies, while many also still have despotic governments. You can’t even blame rampant corruption, because while this is a big problem in most emerging countries, protests in India and Indonesia at least were sparked by cuts to fuel subsidies.

There has been a tendency to pass off the underlying causes of these protests with glib analysis, but there have been few serious attempts to answer the question of why all these protests seem to be coming to a head now. The world has been going through an unprecedented transformation that Morris would argue is a function of shrinking geography caused by globalisation.

Location, location, location

The process began with the rapid catch-up of the periphery countries that entered the EU in the 1970s and 1980s, and was mirrored by the transformation of the Asian Tigers in Southeast Asia at the same time.

The process continued, but became more violent following the collapse of the Soviet Union at the end of the 1980s, which was followed by coloured revolutions and a wholesale abandonment of the socialist ideology as a model for government in both the former Soviet Union and in Asia. What unites all these countries? On the face of it, not a lot, but clearly something profound is happening.

Morris went back to the caveman in his book to try to discern what stands behind the development of eastern and western societies. He concluded that while biology and sociology determine the path of history of each region, it is geography that determines where things happen first and shape the manifestation of that. The west, in the Fertile Crescent along the banks of the Euphrates, had a two-millennium head start over the east on the edge of the Yangzi because it had more than twice as many plants that were edible and animals that could be domesticated.

Ever since, the interplay of sociology and geography – the effect of which changes as social development advances – has determined the course of history. Trimaranes on the Mediterranean was the foundation of the trade that drove the rapid development of the Roman Empire. But dependent on rivers, the Chinese regions were slower to catch up until they started building canals. The invention of frigates and the spring-wound watch coupled with the Atlantic trade winds later created the ocean-based economy that underpinned Great Britain’s rapid rise. And the industrial revolution gave this region a massive boost again in the 19th century, the benefits of which we are still enjoying.

However, in just the last couple of decades globalisation has begun to radically transform everything, and for the first time in history geography is becoming irrelevant. Humanity is entering new and uncharted waters, argues Morris.

Advantages of backwardness

In the past, it was the periphery that was always the undoing of the various historical “cores.” As the core became powerful, it also became ossified, bogged down in bureaucracy and vested interests. Taking advantage of their relative freedom to innovate, the nomads and Mongols of the steppe brought the various Chinese empires down, as did the Germanic Visigoth, Vandal, Vikings and other tribes on the periphery in Europe. At some point, the periphery states usually made use of the “advantages of backwardness” to overthrow the increasingly sedentary cores, says Morris.

It could be argued that a similar process is going on today. Since the days of Elizabeth I, a trans-Atlantic empire, “the West”, has dominated the globe. But since the fall of the Berlin wall in 1989, the periphery states in the socialist bloc that stretched across Asia to the Pacific Ocean have been making use of the advantages of their backwardness ­ primarily cheap labour and material costs ­ to rapidly effect a catch-up with the West.

Morris articulates a mechanism in his eponymous Morris Theorem: “Change is caused by lazy, greedy, frightened people (who are mostly the same wherever you are) looking for easier, more profitable and safer ways to do things. And they rarely know what they’re doing.”

This quite neatly encapsulates the experience of most of the emerging markets. Take Russia, for example. The fall of the Soviet Union in 1991 was a disaster for most Russians. bne’s despair index (the sum of inflation, unemployment and poverty) soared to over 2,500 points against the approximately 20-30 points enjoyed by developed nations. The scared residents of Russia now cling to the promise of stability offered by incumbent Russian President Vladimir Putin in a way the western democracies find hard to accept, simply because they believe anything is better than going through the early 1990s again.

Greed has also marred the transition of all the emerging markets; if it is possible to steal and enrich yourself, those in power have always done so. Ancient Rome was not a democracy but a plutocracy dominated by super-rich individuals like Crassus, Ptolemy the Great and Julius Caesar (once he returned from his lucrative campaigns in France). Even the US’ young democracy was plagued by snollygosters, politicians who sought office purely to enrich themselves, in the early days, before the necessary checks and balances were put in place. None of the emerging markets have had time to build these sorts of institutions yet.

And these countries are lazy if they can get away with it. Russia’s natural mineral wealth means the Kremlin has ignored deep and painful structural reforms simply because it could afford to. Notably, countries with no natural advantages whatsoever, like the Baltic states or Georgia, are the leading reformers. But this doesn’t apply to everyone, as there are plenty of poor but still dysfunctional countries like Kyrgyzstan and Albania.

In 1989, half the world’s population live in a free market, but that year the size of the global market was doubled when the other 3bn people living in socialist countries abruptly joined the capitalist world. Since then, the per-capita income in many of these countries has risen to the range of $12,000 and $18,000, which puts them on the cusp of being on a par with the poorer developed markets. The catch-up phase is not over, but the easy gains have mostly been made. A new phase of more difficult reforms lie ahead.

Most of the last two decades have been spent hammering out new systems to cope with this change, but the governments that put their countries on the road to improvement are now losing their relevancy.

In 2002, only a handful of governments had been in power for more than two years, but now the majority of ruling parties and presidents have been there for a decade or more. The advantages of backwardness has led to a rapid rise in living standards and the emerging markets seem to have reached a point where the newly minted middle classes are not as scared or as lazy as they once were. Now they are prepared to give up more improvements in the standard of living in exchange for a greater say in the political process of running their respective countries.

The calls for change in each country are very different and depend on the sociology of that country, as Morris points out. In Russia and Ukraine, the opposition wants a greater say in politics. In Turkey, the people are worried by the creeping Islamization of the state. And Brazilians are protesting against poor social services and wasteful government spending on things like football competitions. However, underpinning all these demands is the unifying idea of creating a more representative and inclusive government that respects and protects all its citizens, irrespective of their status.