Is Failure Built into the System?

Not a law of nature, but built into the system. The difference decides whether anything can be done.

I. The Emperor Who Ruled from the Book

In the year 9 AD, Wang Mang took the throne from the Han dynasty. He was no ordinary usurper. He was a devout scholar who wanted to reorder the world on the model of the ancient Zhou classics, texts that were already almost a thousand years old at the time.

What he decreed reads like a modern reform programme. All land was declared “the king’s fields”, the sale of land was forbidden, and the great estates were to be distributed to the peasants. The trade in slaves was banned. Salt, iron and alcohol became state monopolies. State offices were to stabilise prices by buying in times of plenty and selling in times of shortage. The needy received loans at low interest. And the currency was reorganised, not once but several times.

After three years he withdrew the land reform, because the landowners undermined it. The coinage reforms had destroyed trust in money. Around the year 11 the Yellow River changed its course; hundreds of thousands lost their land, and famine and flight followed. Peasant armies who dyed their eyebrows red rose in the east, while other rebels marched on the capital. In the year 23 they broke into the palace and killed Wang Mang. The Han returned, and with them the old order.

II. The Repetition

Wang Mang is not an isolated case. He is a pattern that runs through history.

The Gracchi. In 133 BC Tiberius Gracchus wanted to distribute the public land in Rome, which the rich had appropriated, to landless citizens. Senators beat him to death on the Capitol. Twelve years later his brother Gaius tried again and met the same end.

Diocletian. In the year 301 the emperor fixed maximum prices for more than a thousand goods and wages, on pain of death. The goods disappeared from the market, and whoever had something sold it secretly. The edict was never formally repealed. It was simply forgotten.

Wang Anshi. A thousand years after Wang Mang, a chancellor under the Song dynasty attempted almost the same: seed loans for peasants, state trading, a reform of the examinations. He had the emperor on his side and a large part of the officialdom against him. When the emperor died, most of it was reversed.

Joseph II. The emperor wanted to enlighten Austria from above within ten years: tolerance for the confessions, the abolition of serfdom, the dissolution of monasteries, a uniform administration, German as the official language as far as Hungary. On his deathbed he withdrew a large part of it himself. He allegedly wanted his grave to say that here lay a ruler who failed in everything he undertook.

Gorbachev. He wanted to save the Soviet Union, not abolish it. His first major measure, in 1985, was a campaign against alcohol, ordered from above, with vineyards uprooted and queues outside the shops. It cost the state budget one of its most important sources of revenue and turned the people against the reformer. Six years later the Soviet Union no longer existed.

None of these men was a cynic. They wanted to improve the lot of the many and had the power to do so. They failed all the same.

III. The Exceptions

But there are also the others.

Solon. Around 594 BC he was charged in Athens with pacifying a society in which indebted peasants were sold as slaves. He cancelled the debts, abolished debt bondage and gave the citizens new rights. Then he had the Athenians swear not to change his laws for ten years, and left the city. He knew that everyone would press him to make an exception here and a change there.

Prussia after 1806. The defeat by Napoleon at Jena and Auerstedt had made the state collapse within a few weeks. Afterwards Stein and Hardenberg pushed through what had previously been unthinkable: the emancipation of the peasants, self-government for the towns, freedom of trade, and, with Scharnhorst, a reform of the army.

Japan after 1868. In 1871 the Meiji reformers sent almost half the government on a study tour of America and Europe lasting nearly two years. They looked at what worked there and adopted it piece by piece: the army on one model, the navy on another, the constitution on a third.

China after 1978. In the village of Xiaogang, peasants secretly divided the commune’s land among themselves, an offence that could be harshly punished at the time. The harvest rose. Deng Xiaoping allowed it, then had it extended. Shenzhen became a trial zone for what no one yet dared across the whole country. The formula for it was: cross the river by feeling for the stones.

West Germany 1948. In June, together with the currency reform, Ludwig Erhard freed most prices, against the advice of many and under the protection of the American occupying power. The shop windows filled within a few days.

IV. Not a Law of Nature, but Built into the System

Failure would be a law of nature if it followed from the nature of the matter, like a falling stone. Then every reform from above would be futile, and one could spare oneself the thinking. The exceptions show that this is not so.

Failure is built into the system when it follows from the way the undertaking is constructed. Then it is not inevitable, but it occurs with great certainty as long as the construction stays the same. Whoever wants to prevent it does not need to find a better ruler, but to build the undertaking differently.

Comparing the two groups reveals four conditions under which failure is almost certain. Those who failed usually met all four, those who succeeded hardly any.

First: from the book instead of from trial. Wang Mang ruled according to the Zhou classics, Joseph II according to the reason of the Enlightenment. Both had a finished picture of the right world and put it into force without testing it on a small scale. Deng let a village and a city go first; the Meiji reformers first watched for two years.

Second: everything at once. Whoever rebuilds land, money, trade and prices in the same year no longer knows what works and what does harm. Every disturbance is blamed on the whole reform, and the whole reform falls.

Third: carried out by those it harms. Wang Mang’s land reform was to be implemented by the officials and landowners whose land it took. Wang Anshi’s reforms were to be carried out by an officialdom that rejected them. A decree is only worth as much as the will of those who carry it out. Mancur Olson described how, in stable societies, interest groups accumulate that slow down every change. The failed reformer attacks these accumulations and then leaves the implementation to them.

Fourth: no shock beforehand. Prussia had Jena, Japan the American warships, China the Cultural Revolution, West Germany the end of the war. The shock had already cleared away the accumulations before the reform began. Wang Mang and Joseph II met an intact order that could defend itself.

Almost always, those who failed also lacked what the successful had: feedback. News of what the reform actually achieved did not reach the court, or reached it embellished. Whoever does not learn that he is wrong does not correct himself.

Solon’s departure belongs here too. He protected his reform not from its opponents but from himself, from the temptation to water it down piece by piece under pressure.

V. And Today

What follows for a present that would like to manage without a collapse?

If the fourth condition is the strongest, the answer would be grim: renewal then comes only after catastrophe. The other three, however, can be built, and with them perhaps part of what otherwise only a shock achieves. Trial zones instead of a grand design. One step after another, each with a condition declared in advance under which it is stopped. Implementation by people who have an interest in success. And feedback that reports a failure before it becomes expensive.

Whoever today calls for a planned market economy with price controls and nationalisation, as we described in “Market, Plan, Tournament”, should know Wang Mang. Not because the aims are wrong, but because the programme meets all four conditions: it comes from the book, it wants everything at once, it is to be carried out by an apparatus that has lost its competence, as we showed in “The Hollowed State”, and it relies not on a shock but on persuasion.

Failure is not a law of nature. But whoever wants to avoid it must build the reform so that it does not carry failure within itself.