Even the best bureaucracy in the world won't stop Germany from making bad decisions

Francis Fukuyama recently published Political Order and Political Decay, the second half of what will surely be his magnum opus. It's a staggeringly ambitious work, attempting to synthesize evolutionary biology, political science, history, and economics to outline a theory of political development.

It's very good. But Fukuyama makes a few jarring mistakes and omissions that undercut his overall case, particularly with regard to modern Germany and economic policy.

In the first volume, The Origins of Political Order, Fukuyama argues that successful nations have three elements: the rule of law, political accountability, and a strong, competent state. He roots through history to find examples of these elements coming together in various combinations. He starts with China, which had a modern state hundreds of years before anywhere else, and ends with the French Revolution, an important marker in the birth of liberal democracy.

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According to Fukuyama, democracy provides the political accountability, and the rule of law keeps the process honest. But he convincingly argues that there is simply no alternative to a strong and effective — but restrained — modern state. This is, in essence, a competent bureaucracy balanced between excessive weakness, where the state is corrupted by politics, and excessive strength, where the state overrides democratic accountability.

In this second volume, Fukuyama picks up the story where he left off, and charges around the world collecting evidence for this theory. The discussion is particularly interesting when it focuses on countries and eras outside the current politics of the Western world. At least from my nonspecialist perspective, the parts about Africa, Latin America, and East Asia were well done. Unlike far too many analysts, he treats those regions with the respect and seriousness they deserve, arguing powerfully that whatever problems or disasters they experienced were not the result of inherent defects in those peoples, but of the normal course of historical development or being pillaged by colonial powers. His case studies of Costa Rica, Tanzania, and Argentina are very good.

Fukuyama's historical examples are too diverse to accommodate any simple theoretical scheme, and so every aspect of the argument is hedged and inevitable counterexamples are thoroughly explored. He finds, for example, that a period of authoritarian government can be useful in facilitating the construction of a competent state, as in Prussia. But elsewhere, as in Latin America during the 19th century, dictatorship typically provided no impetus towards the construction of a strong and effective state. There is no formula for "getting to Denmark," and he always stresses the role of human agency in choosing one's own destiny.

It would be impossible to convey the full texture of the resulting discussion, but suffice to say it's richly nuanced and often striking, if not always convincing in every particular.

However, whenever the discussion moves into current debates over macroeconomic policy, Fukuyama repeatedly loses his footing. His comparison between Germany on one hand as a paragon of effective governance, and Italy and Greece on the other as ineffective and corrupt is badly flawed for this reason.

Let's focus on Greece for simplicity's sake, and grant up front that it is quite corrupt and has been for decades, with high rates of tax avoidance, a bloated and ineffective state, bribery-ridden politics, and other problems. But like the United States during the Gilded Age, which was similarly corrupt, Greece was growing strongly up until the financial crisis of 2008. It now suffers mass unemployment far worse than other states that are poorer and at least as corrupt.

The reasons for that are technical problems with the eurozone as a currency union, dramatically exacerbated by German hard-money paranoia. By Fukuyama's lights, putting a good portion of eurozone economic policy in the hands of an institution basically run by the efficient German bureaucracy ought to have helped the region out, economically speaking. Instead it's been an epic disaster, one of the greatest economic catastrophes in world history — and not just in Greece, but throughout the whole Eurozone.

Economic policy can be very hard. Efficient taxation is tricky. Gathering high-quality statistics can be very tough. Nobody really understands how productivity works. And so on.

But preventing mass unemployment is generally quite easy, and even very weak states can generally manage it. You just "fling resources in the general vicinity of the problem," and stop if inflation starts to spike. Greece can't do that, of course, because Germany has all the power and has chosen to wreck Greece (and Spain, and Portugal, etc.) with austerity and hard money instead.

The root of the problem is that Fukuyama never thoroughly investigates economic policy in detail. His judgment of a good macro policy is never clearly stated, but it appears to be a blandly neoliberal mix of free market policies. He largely assumes throughout the book that if one has the big three ingredients of a high-quality nation, good policy pops out more or less automatically.

But as Germany shows, this is not always the case. The vaunted German bureaucracy might be top-notch by efficiency standards, but it is also thoroughly committed to a crackpot economic dogma that has not only left the country totally indifferent to a mortal threat to its beloved European project, but also letting its own infrastructure fall into ruin for no reason.

In other words, it not enough for nations to be competent on a management level — they also must choose good policies. And when it comes to macroeconomic matters, this appears to be particularly difficult. Even a relative liberal like President Obama bungled his economic policy badly with the pivot to austerity in 2010, just like FDR did in 1937.

Strong states must also understand how recessions work. They need to understand John Maynard Keynes (perhaps with a dose of Milton Friedman when it comes to the eurozone). Every nation will be confronted with collapses in aggregate demand at some point, which can destroy it if not countered strongly. Every successful nation must have an intellectual culture that understands and promulgates effective anti-recession policy — a fourth prong I would add to Fukuyama's otherwise revelatory thesis.