There is a tension I have noticed between stability, instability, growth, and political movements. Basically, there is a cycle where stability leads to desire for less control, less control leads to growth, justifying further reduction in control, which eventually leads to instability.
It’s certainly not original, but I wanted to write it down so I could get ideas about who explained it already — or who explained where it does or does not apply, and why.
A basic and well discussed example is modern financial markets. Regulation strangles growth, so in good times there is a constant push to reduce regulation. Reduced regulation allows new approaches which are exciting and profitable. The reduction in regulation also allows developments that reduce stability, eventually leading to a moderate or large collapse — which leads to a push for more regulation — as we saw in 2008 and onward.
But let’s start with a slightly less obvious example of this; the 1970s London real estate bubble. From that case study, we have a simple timeline.
External shocks led a slightly under-regulated bubble to collapse. They were lucky the external shocks came when they did to pop the bubble — without them, bubbles inflate until they burst under their own pressure. And that’s what happened in 2007–8; the US housing market started to climb above trend around 2000, when the dot-com bubble popped, and people sought a “less risky” place to put their money. This continued until it spurred a housing-backed derivatives industry that accelerated the process until the financial bubble was large enough that upon popping, the housing price collapse was almost unimportant.
This is worse for governments as a whole. There is a tension between chaos and stability, and between growth and collapse — and it’s possible to reach any point in that space, with sufficient cleverness and/or mismanagement.
Looking at Russia, we saw a relatively rapid (20-year) shift from the top right in the 1980s, to the bottom left now. China’s cultural revolution managed to move from the bottom right to the top left. The transition from top to bottom is usually more sudden; the Arab Spring has numerous examples. The United States has been moving steadily from the bottom left to the top middle over the past century, sacrificing growth for stability.
I think that’s the missing dimension; wealth creates a desire to push upward, towards more stability. Poverty creates the need to move rightward, towards higher growth. These are not directly in conflict — but the pursuit of stability is easiest at the cost of growth, and the pursuit of growth is easiest at the cost of reducing or eliminating structures that enforce stability. Fukuyama’s end of history is democratic liberal capitalism, which marries political stability with market chaos, and allows growth alongside stability. China’s alternative, capitalism with Chinese characteristics, is similar, without the ability for the populace to control the government.
The Chinese model and democracies have common failures; poverty undermines the stability, and if growth is insufficient, or insufficiently widespread, then the populace revolts — either via election, or via Tienanmen. Increasing authoritarianism is the short term “solution” in both cases, leading to a vicious cycle of decreased growth and increasing rigidity. If increased stability occurs alongside poverty, there is a push for revolution. If increased stability maintains widespread wealth, it is stable.
There are two ways which historically undermine widespread growth in stable systems; corruption, regulatory capture, and monopolistic wealth extraction, or economic instability and collapse.
I have more to write on this, but I should probably find out where I’m wrong or covering well-covered ground first.