By Nicola Robins (14 February 2012)

MoneyWeb posted a story yesterday on Niall Ferguson’s six “killer apps” for economic development. It’s well worth a watch. The apps refer to six broad ideas that emerged in Western culture and that promote innovation, stability and wealth. Ferguson uses them convincingly to explain the Great Divergence that set the West apart from the East. Now he sees them driving the rebalancing of economic power and the emergence of the developing world.

Here are a few random thoughts on the killer apps (the quotes summarise his key points and are from the MoneyWeb post):

1. Competition. Since the 1500s there has been massive political and economic competition in what was then today’s Western countries. This formed the basis of economic development. In other countries such as China no such competition existed.

Agreed – competition is important and especially the breaking of value-crunching monopolies. But on the rise is its sister (collaboration) with her ability to result in more intelligent value creation where competition is not getting it right. This app will soon be upgraded to take account of how these two play together.

2. Scientific revolution. The scientific revolution in the West was based on experiments, which (critically) gave man control over nature. Ferguson even highlights Benjamin Robins’ research and experiments that set the basis for accurate artillery.

Equally critical is the reality that man (sic) does not actually have control over nature. The reality is that unless people choose to live in accordance with nature’s laws (notably the available biocapacity per capita, taking into account the needs of several other species and natural systems), society collapses. Jared Diamond’s 2003 TED talk on the topic makes the point clearly. I don’t think nature necessarily cares how societies collapse, but I am quite sure that people do.

3. Property rights. There is a significant correlation between property rights and economic development. A clear example is North and South America. On the northern continent property rights were easily attainable, while in the South a conquistador monopoly of property prohibited the overwhelming majority of people to own land.

Agreed. If competition is the primary basis for our economic system, property rights are critical. The fact that property rights should not be allowed without concomitant property responsibilities should be a caveat.

4. Modern Medicine. The West saw many breakthroughs in the treatment of infectious disease which more than doubled life expectancy of their populations.

Agreed. There are a few bugs in this app – superbugs to be exact – but essentially modern medicine has an impressive track record.

5. Consumer society. A consumer society propels economic growth and is essential to make the industrial revolution make sense. It propels economic growth more than technological change itself. Ferguson controversially states that “the alternative, which was proposed by Mahatma Ghandi, was to institutionalise and makes poverty permanent. Very few Indians wish that India went down Mahatma Ghandi’s road”.

Not sure that institutionalization is the opposite to a consumer society. From a long-term value creation perspective, if consumption systematically undermines its resource base (in other words, the social and natural capital upon which all consumer goods and services depend), it will not be sustained. It is therefore useful to reflect on what sustainable consumption means. How humans decide to define this will inevitably drive innovation into the future.

6. Work ethic. Any country can forge a good work ethic if institutions provide an incentive for people to work. Ferguson notes that the Western countries have lost their superior work ethic. The average Korean works a thousand hours more a year than the average German. The difference is nearly three hours a day.

It would be good to talk about intelligent work here. But I’d agree (with MoneyWeb) that education / knowledge is the golden thread that runs through all the apps and critical for SA.

These apps are indeed all open source; but they should come with a warning: you are also likely to download a troublesome virus.  The virus is an addiction to rampant short-termism, pervasive mis-pricing of resources and a delusion about the possibility of infinite growth within a finite system.

As a wise economist, who Ferguson calls “the smartest man ever”, once said:

“Economies will eventually reach a stationary state when they have acquired that full complement of riches which the nature of its soil and climate… allowed it to acquire; which could therefore advance not further and which was not going backwards.” Adam Smith – An Inquiry into the Nature and Causes of the Wealth of Nations.