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Liberal democracy has taken a body blow

Europa United is delighted to welcome Frances Cowell to our team of contributors. Frances specialises in investment risk and governance, financial market stability and business ethics in financial markets – and the implications for the wider political economy. Frances recently attended the The Economist Open Future Festival and gives us her insights into the event and how liberal democracy is being used or abused in our modern society.

The end is democracy in name only

Messy and noisy, democracy, and liberal democracy in particular, holds the all-time record for delivering peace and prosperity to a large number of people. Its currency is the freedom of individuals to disagree, debate and dissent, to innovate and adapt as the world changes within and around it. The European success story is a shining example of this: the contrast with the devastation left by totalitarian government and the unparalleled peace, freedom and prosperity that Europe now stands for cannot be exaggerated. Yet this winning system is now being challenged – and not just by China and Russia. With American support less certain than ever, falls to Europe to lead.

Populism is the big challenge. As global as it gets because it can be copied and endlessly adapted around the world; as local as it gets too because it feeds on the fears and grievances of ordinary people. To meet this challenge, liberal, democratic Europe must address current grievances and anticipate future sources of malaise without compromising its core principles.

In London on 15 September, The Economist Open Future Festival yielded some valuable insights about how this might be achieved in practice. It opened with a lesson on how to make an unpopular, minority view popular and mainstream. Tiernan Brady, who directed the successful campaigns to legalise gay marriage in both Ireland and Australia, persuaded us of the value of engaging with the people who disagree with us to understand and calmly challenge their arguments. There followed debates about immigration, jobs and the failings of capitalism, regulation and taxation and fairness and inequality.

Has immigration gone too far?

Starting from different perspectives, Ian Goldin, Philippe Legrain and Emma Hogan re-stated that numerous studies show that the benefits of immigration to host countries outweigh the costs. They also drew the important distinction between humanitarian and economic migration.

Ian_Goldin1

Professor Ian Goldin

While Larry Summers, in a later session, pointed out that there is no inalienable right to immigration, countries do have legal and humanitarian obligations toward refugees. Yet better outcomes could be achieved: the number of people forced to leave their homes could probably be reduced by some simple measures, such as not to export weapons to conflict zones. This is of course bound to have limited effect, as other suppliers would surely fill the gap. But Europe can set an example. Another would be to process humanitarian visa applications at or near the country of origin rather than in host countries. Not always possible, but worth doing wherever it is.

Leaving your home country is not an easy decision to make. If they have to, people generally prefer somewhere that is nearby and/or culturally familiar. In 2016, Germany, with 83 million locals, only just bore a million or so Syrians refugees; while Lebanon, with six million locals, quietly hosts over four million. Despite its size, wealth and goodwill, cultural differences between locals and refugees made the German experience more challenging. Where there are big cultural differences, emphasising common values, such as family and charity, can assuage popular doubts and fears, but governments must ensure that their guests understand and respect the rules, their rights and responsibilities.

Whether they are escaping war or poverty, people migrate to the most dynamic countries, often bringing sought-after skills. Despite perceptions to the contrary, migrants tend to pay more taxes and draw less on public resources than locals do, benefiting the economy as a whole. But the pressure they place on public services, such as schools, hospitals and transport, are borne by local communities, who may not see the wider benefits. Governments must ease the burden by investing in local services so locals do not lose out. Another problem, that immigrants can put downward pressure on low-skill wages, could be eased by getting newcomers’ skills recognised so they can contribute more to the economy. This might also fill unmet demand for those skills.

For Europe, migration is likely to increase before it subsides, as the population of Africa continues to grow rapidly and more and more Africans seek to share the benefits Europe’s liberal democracy provides. Climate change will exacerbate both economic disruption and conflicts in poor countries, further increasing the flow of refugees. Now is the time to get immigration policies right. Setting clear rules governing who can live and work in the country is a good start to winning local hearts and minds.

Never far from immigration is the perception that there are not enough jobs, especially for young people and those without tertiary education or training. It can often seem that migrants are the cause, yet on balance migrants create more jobs than they “take”. Technological change and changing trade patterns are more likely causes, even as they expand opportunities for skilled people.

Is the capitalist-free-trade model broken?

Jesse Norman, Dambisa Moyo and Patrick Foulis remind us that the answer is not to go around smashing computers with sledge-hammers or to cut off trade – which serve only to make the economy less efficient and so lose even more jobs to international competition. Rather, it is to address the problem directly, with good quality primary education for everybody, regardless of their means; and support displaced workers with income support and accessible and responsive retraining programmes.

Dambisa_Moyo3_Fotor

Economist and author Dambisa Moyo

Capitalism has plenty wrong with it, but that’s a bad reason to discard it for something much worse. A better approach is to deal directly with its many short-comings. When working properly, market economies have built-in checks and balances that ensure more-or-less fair competition and prices. But asymmetries of information can lead to concentrations of market power and stifle innovation and competition. This happened famously in the US in the first half of the twentieth century, as the rules had not kept up with the changes brought by the industrial revolutions, and wealth concentrated in the hands of the robber barons. The answer was to break up their empires and establish oversight mechanisms to ensure fair competition and ongoing innovation, and to protect consumer and workers’ rights. This model worked passably well until recently, as the internet economy is challenging it in the same way that the industrial evolution did a century earlier.

How do you regulate tech giants?

Because of the dominance of network effects, the checks and balances that ensure competition in the physical economy work less well in the online economy. Winners seem to take all and abuse their positions of dominance to squeeze out potential threats from innovators ad competitors. Governments have started to address the problem, but unlike with the earlier robber barons, the currency of the internet giants is global network effects. Individual governments can have limited influence on the most powerful global firms: a global problem demands a global response. With 500 million people, Europe can – and does – achieve what individual countries cannot, for example with the General Data Protection Regulation (GDPR), which protects our privacy and restricts the export of our personal data outside Europe and may even have helped prompt the deployment of advanced technology techniques such as block-chain as a means of restoring consumers’ control access to their personal data. Tim Berners-Lee, the father of the internet, recently announced a new start-up, Inrupt, to address this problem.

Mustafa Suleyman, Kenneth Cukier, Lord Richard Allen and William Perrin propose that a first step to regulate global tech firms is to agree common rules on governance, oversight and accountability, in the same way that we now have generally-agreed accounting principles that are recognised across borders, and a mostly-effective system of global trade rules.

Liberal democracy must be seen to be fair.

People feel they have a stake in the status quo only when they see that, by working hard, they can improve their lot. But many people see less and less scope to improve their current circumstances and provide a better future for their children, while wealth and power becomes ever more concentrated in the hands of giant corporations and the very wealthy. If they feel that opportunities open to others are denied them, they will, quite reasonably, conclude that they system is rigged against them. People are understandably cross when they see big firms getting away with not paying reasonable taxes and under-paying their employees.

Abuses of commercial power and influence, and tax abuses by big global firms can be addressed successfully only with concerted effort across countries. Europe is now taking the lead on this with the BEPS among other initiatives. It needs to do more to show itself as being on the side of the 500 million, and engage their support. BEPS also one reason why some would like to see Europe stumble.

Can liberal democracy be saved?

Yes, but it needs to build a new agenda to be the agent of change rather than the status quo. It needs to recover its confidence and engender optimism. Noisy and messy are the opposite of ossified and gagged. Liberal democracy is the solution.

Post-script: An Interview with Steve Bannon

Having learned about engaging and listening to people you disagree with to bring them around to your point of view (finger jabbing is out, calm reasoning is in), the interview, broadcast from NY, with Zanie Minton Bedddoes, the Editor-in-Chief of The Economist, and Steve Bannon, bogey-man of liberals, was instructive.

Bannon showed us how it was done. He entered the inner sanctum of liberalism before hundreds of people who had gathered in HK, London and NY to deplore him and all he stood for.

Inviting him in the first place had not been an easy decision. To many, it dignified him at the expense of other speakers. But the spirit of Napoleon Buonaparte prevailed: Know your enemy. Engage.

Bannon opened with the simple certitude that immigration is a Bad Trade Deal, inviting the question of what, exactly, made a trade deal bad. Had the invitation been taken up, the fallacy of his certitude would soon have become plain.

Unfortunately, the invitation wasn’t taken up and finger-jabbing soon took over. Bannon’s flat-earth economics went unchallenged.

If we’re smart, we’ll take a lesson from him.

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Categories: Authors, Frances Cowell

4 replies »

  1. I love your spelling ‘Buonaparte’ instead of the Francophone ‘Bonaparte’ but not using the Corsu ‘Napoleone’ with the e on the end. My first wife was Corsican, her family separatists who probably still are, that considered his family and him absolute traitors. It makes ‘Know thine enemy. Engage’ ironic because whilst one of the great dictators, which he indeed was, in European history, his original enmity with a sizeable part of his origins is forgotten – or deliberately overlooked. Such is politics. We appoint heroes of people whose actions are often minor but their words cleverly chosen. That is where liberal and social democratic parties have stumbled into a wasteland over recent decades. The right through the spectrum to reactionary has the rhetoric that makes the greatest impression, there is nobody to compete with them. It is precisely what Jair Bolsonaro is doing in Brazil, as leader of the Partido Social Liberal which is about as ironic as anything political can be. For liberal and social democracies to return to any kind of strength they urgently require orators with charisma, after which the democracy can be added by the usually far more committed political idealists. Populism depends on strong leaders who accumulate power around a kind of cult of personality, usually a good dose of charisma and the ability to talk the talk thrown in, but they are also only human beings, thus mortal. They have limited lives and history shows as all too well how their regimes diminish once they are gone. One may say that Mao in China has still a great deal of influence, but look at what the country really is – monopoly capitalist state with a totally non charismatic leadership and an ever growing wealthy hegemony who are more interested in maintaining the status quo than their version of ‘communism’. Our problem here in Europe is that we lack a new generation of people showing the potential for the leadership required and within those environments where they traditionally receive support and guidance, particularly the academic/intellectual world which embarasses me no end) too many people cower in fear of showing their faces with the present regimes. Thus those who speak out as the authors you cite are a minority who are far too easy to dismiss. How we find these ‘missing links’ to resolve this dilemma evades and frustrates me and so too should it affect others who should be speaking out and looking for the people we need.

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  2. Dear Brian, Thank you for your comments. They are very pertinent to an article I’m just starting work on, which hopefully you’ll see before too long. I will then look forward to your thoughts on what i have to say. I won’t say any more about it here, but keep it for the article.
    And thank you for the correction about Napoleon – or Napoleone’s – name. It takes me back to a couple of holidays I spent on that lovely island. I thought Bonifacio one of the most beautiful towns I’d ever seen. And ten years on my friends are still talking about the Corsican cheese i brought back….

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