In a Malthusian economy where intensive growth is not possible, strong property rights simply reinforce the existing distribution of resources. The actual distribution of wealth is more likely to represent chance starting conditions or the property holder's access to political power than productivity or hard work. (Even in today's mobile, entrepreneurial capitalist economy, rigid defenders of property rights often forget that the existing distribution of wealth doesn't always reflect the superior virtue of the wealthy and that markets aren't always efficient).This comes in the context of discussing the development of a centralized state in ancient China, and the development of a bloated class of politically connected landowners in a preindustrial agrarian economy in which a lack of technological innovation led to a corresponding lack of gains through increased efficiency. Fukuyama argues that because of the lack of technological innovation, an increase in land owned did not create increased efficiency through economy of scale, as it does currently (industrial farms are more efficient because they can invest in capital like large-scale irrigation systems and fancy tractors that family farmers cannot afford).
In preindustrial agrarian societies (essentially all preindustrial societies), there is a cycle in which land ownership is expanded into large scale property holdings, renting portions of their property to individual families, who often became serfs or indentured servants as the result of a bad crop. Inevitably, these people became disenchanted with the system repressing them, and typically an uprising followed which results in regime change, etc. At a certain point, if the society has developed an extensive merchant class, the merchants use these sort of uprisings as leverage to gain a seat in government.
The question is, does technological innovation with an corresponding increase in gains through efficiency and a diverse economy derail this process of the disillusion, dissent, revolt, reset? This true Animal Farm of economic woe leading to revolt and reform? I would argue that it does not, but rather that gains in efficiency as well as a diverse economy delay these outbursts by providing outlet for frustration in new business, but don't fundamentally resolve the problem of a majority of societies resources aggregating at the top, with a decreased quality of life for the majority.
Take our transition into industrial farming as an example. The widespread implementation of expensive machines at the beginning of the 20th century led to the eradication of the family farm as a way to earn a living. Obviously there was a drought and a glut of other factors involved, but it cannot be ignored that agriculture, which employed the majority of Americans, ceased to be viable for most people. This represents an increase in efficiency, which is good, but the side effect was massive unemployment and the Great Depression. It should be noted that FDR's New Deal failed to spruce up the economy, and that only after WWII, with the corresponding massive increase in American manufacturing capability, did we return to prosperity. Moreover, post WWII America engaged in a significant program of wealth redistribution (in the form of exceptionally high tax rates on the wealthy) and education (in the form of the GI Bill). Essentially, the key to success was creating a new primary means of employment for America and broadening education significantly.
Now, let's look at today's economy. Manufacturing has ceased to be the major employer, partly because of the automation of factories and partly due to discount foreign labor. It was replaced relatively painlessly by the service sector, but increased efficiency allows service sector jobs to be outsourced or automated as well, and the current recession demonstrated that a significant number of jobs could be removed without ill-effects in overall productivity when the GDP returned to pre-crash levels.
Herein lies the problem: increased efficiency in a given industry, or even the sum of industries in the US, does not add up to increased efficiency for the US economy as a whole. Its side-effect is unemployment and decreased wages, which ultimately erode the tax base (increased economic efficiency corresponds to increasingly efficient tax lawyers). The increasingly efficient few become increasingly wealthy, while everyone else is left behind (not necessarily for any fault of their own, it might be added).
The role of the government should be to level this playing field to a certain extent, by providing opportunities for those left behind to be retrained into individuals capable of performing in the new job market, while also systematically supporting innovation to open up new frontiers in an increasingly diverse economy. The "pull yourself up by your bootstraps" mentality is a classic piece of Americana, but I don't think anyone has bootstraps anymore.
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