On Davos and the crisis of global leadership

27 01 2010

Even if economic issues are more central to politics than ever before, argument today is less about the nature of economic systems than about the relative abilities of different politicians to administer a system on whose basic structure all are in agreement. In both Europe and the US, party identities are not now principally defined by economic differences but by questions that always crossed class lines and economic interests – nationalism and cultural identity, social liberalism versus social authoritarianism, and religious affiliation – a list to which we might now add environmental awareness. John Kay

As the international political and business elites gather in Davos for their annual away day, John Kay neatly sums up the state of modern politics.  While politicians focus on social, cultural and environmental issues, their discussion of the economy is restricted to the management of the latest crisis.

Yet at the same time there is a palpable sense that something important is missing. The FT’s Davos feature, the World in 2010,  is full of references to the failures and weaknesses of leadership at both a global and a local level. Nearly two years after the onset of the recession the world is still grappling unsuccessfully with the problems which created the financial crisis. Just to recap, here are three key issues I identified nearly a year ago in The Three Interlocking Crises of Global Capitalism.

Firstly;

The recession is severe, but what makes it worse is that it is happening when the coherence and the credibility of the political elites is at an historical low ebb.  The coexistence of a political with an economic crisis is what makes this recession so dangerous.

This has been born out completely. Remember a year ago Obama was in the first flush of his popularity and there was a sense in some quarters that new leadership had appeared to set the world on a different and better course. One year on and while the leadership of most western countries has struggled on in the same way, the big hope that Obama brought has been dimmed. Global leaders are still squabbling about the best way to constrain banking activity if at all, accompanied by a concerted campaign to ‘punish’ bankers for their supposed role in causing the crisis.

In the UK we are faced with an election choice between three parties which have little discernable differences. The main point of contention is over how far and how fast to cut public spending and introduce austerity measures. It is no wonder that a record number of people see voting as irrelevant.

Secondly;

The imbalance between productive economies like China and the less productive economies in the west lies at the heart of the recession…changing the way the world is run will be a tricky process as there will be losers as well as winners.

Events since then have reinforced this point. China in particular has come to the fore and its economy has proved much more resilient to the recession than any in the west. The stagnation of western economies and the growth of  China, India and others have added weight to the global political crisis, as agreement over issues such as rebalancing the world economy or tackling global warming have proved so far impossible.

The Chinese have continued to finance US consumption throughout the recession and western debt levels at a governmental and personal level have continued to grow. With all of the world’s major economies hoping for export led recoveries from the recession, as Martin Wolf has pointed out, there is much more scope for conflict over trade than has been the case before.

Thirdly;

The absence of opposition of any kind to capitalism today has contributed to a sense of drift and general loss of impetus in society in general and has also affected the political elites.

The absence of any alternative has been a mixed blessing for the economic system. There is no doubt that in the UK and elsewhere the absence of any kind of alternative vision has worked to the benefit of the status quo. It has been possible for employers to introduce wage freezes or cuts and short time working with little or no resistance. This  widespread acceptance of cuts in living standards has minimised social conflict and helped to stabilise society through a period of economic uncertainty.

But the problem remains that in the absence  of  any sense of a different way of organising society, the western world has become more and more conservative. This conservatism is increasingly taking the form of an anti -growth sentiment. It is important that we see this for what it is, at heart an abdication of the necessity for human development and the forward march of science and technology. People look at the failure of the market to be able to deliver consistent growth and improvement in living standards, and draw the conclusion that not only is it impossible to do so but it is probably the wrong objective anyway. In other words we are becoming resigned to a world of low growth and stagnation, causing negativity which then spreads out from the economic into the cultural and social spheres of life.

One commentator on the Davos meetings makes the point,

If the Davos crowd cannot identify a workable way to rebuild and reinvigorate the international system, it is hard to think where else the ideas will come from.

This is a question that all of us with pretensions to political change need to consider.





Lost in space-the aliens are coming and they are as bad as us, apparently

25 01 2010

According to one prominent speaker at tomorrow’s conference at the Royal Society on alien life,

Governments should prepare for the worst if aliens visit Earth because beings from outer space are likely to be just like humans…Extra-terrestrials might not only ­resemble us but have our foibles, such as greed, violence and a tendency to exploit others’ resources.

One could not sum up the current misanthropism in society more concisely than this. Apparently, the worst thing that could happen is that aliens are like human beings. I wonder if the writer of these words has seen any of the films which imagine monsters from space, the huge carnivorous spiders from  Starship Troopers  or the truly nightmarish creatures from the Alien films.

It used to be the case that we feared these imagined horrors so much precisely because they were not human. That is why sci fi monsters so often appear as giant insects, the closest thing we have on earth to species which appear utterly alien to us in every way. Now the worst that some people can imagine is that they are like humans. We used to be afraid of monsters and now we are afraid of ourselves.

This attitude chimes with the anti-human approach of some environmentalists and population controllers who see humanity as not only a kind of pestilence on the face of the Earth, but also a danger to those beyond it. The new James Cameron film, Avatar, for example depicts humans as a threat to other, gentler, species in outer space.

The wish to explore space used to be at the heart of human endeavour. President John Kennedy put it at the heart of the United States’ aspirations in the 1960s. These days the urge to explore has been weakened and instead fears about the dangers of space exploration have come to the fore.  Now,it appears to be beyond us to repeat even what we managed 40 years ago by going to the Moon because of the difficulty and expense. In addition, we are warned of the dangers we bring to the Universe by simply existing.

There are many good, practical reasons to push ahead with the exploration of space, some of which I listed in this article on travel to Mars. But it is humanity’s endless curiosity and willingness to experiment and explore which has made us as unique in the universe as we currently appear to be. It is the triumph of human ingenuity and spirit over enormous difficulties which makes space travel so inspiring.

If it turns out that extraterrestrial life is like us then this would be a truly wonderful thing. It could mean creatures more technologically advanced from whom we could learn enormously. This is all in the field of speculation, although the massive increase in the number of inhabitable planets discovered in the recent past increases the likelihood that intelligent life exists elsewhere, at least on the statistical level.





The UK needs an industrial policy, and fast

21 01 2010

‘Industrial policy’ means in essence an activist approach by the state towards support for and development of the economy. In the UK, state activism in this area was discredited in the 1970s because extensive state financial support for the defunct UK car industry failed at huge expense. In France and elsewhere state support for industry has persisted and is seen as key to economic success.

The future of the UK economy is in a state of chronic uncertainty. Having depended for so long on the success primarily of the financial sector there is now grave doubt about where economic dynamism in the UK can spring from. There is also a growing sentiment that even were the financial sector to recover, over dependence on this one area is very dangerous. This has led to calls to ‘rebalance’ the economy.

Today’s Financial Times carries an analysis of why technology businesses in the UK are not able to offer the necessary dynamism. One key reason given is lack of the necessary support and investment to turn promising small companies into large successful ones. The article points out that Business Secretary Peter Mandelson is now keen on developing an industrial policy for the UK.

So what should an industrial policy look like were we to go down this road? Firstly, what it should not be. Propping up failing businesses in order to save jobs is a waste of money. For that reason the government ‘scrappage’ scheme to enable the buying of new cars was a mistake. Were it not for the fact that the UK no longer has an indigenous car industry no doubt the government would have done what the US did through the nationalisation of General Motors in 2008. Government money should not be used to keep failing industries going.

Nor should an industrial policy be about trying to preserve UK industry in the hands of UK owners as Mandelson has argued in relation to the proposed takeover of Cadbury by Kraft. Generally speaking any foreign buyer will want to keep good businesses going. If there are loss making parts of the business they would  be closed down eventually anyway. The key issue is what new businesses are emerging and growing and that is where the problems of the UK lie.

An industrial policy would first and foremost require a change in the nature of political leadership. The UK government has adopted a managerial approach to the economy for the past 13 years. This worked only because the technology and financial services bubbles kept the economy growing. Now that these bubbles have burst a different approach is required. We need a political leadership which is both entrepreneurial and strategic.

Government needs to be entrepreneurial initially by changing the nature of public debate away from risk avoidance and caution, at every level, towards one of measured risk taking. There is a growing unease  in the UK that we have become stifled by regulation, both state and self regulation, in every area of life. Politicians need to give a lead away from this towards a more self-reliant and entrepreneurial approach to life in general and to the economy in particular. This should then be backed up by specific tax breaks and other incentives to encourage new business and more research and development in older businesses.

Government needs to be more strategic by taking a longer term view of the infrastructural requirements of the UK and investing more where necessary. This is a huge discussion in itself and needs to be looked at in depth. Government should also be encouraging and incentivizing those sectors of the economy which are already successful to be more successful.

I wrote recently of the NASTI approach, No Alternative STagnation is Inevitable,  which dominates current thinking around the economy in this country. For this to be transformed requires a sea change in political leadership away from cautious managerialism  and towards dynamic entrepreneurialism. The upcoming general election campaign offers an opportunity to argue for this radically different way forward.





The lesson of Haiti is we need faster global economic growth

15 01 2010

The truly dreadful events in Haiti are the product of an unavoidable natural event. Earthquakes are not something that can be prevented. But what is preventable is the huge impact they can have on people who are affected by them.

The earthquake had a magnitude of 7 and the devastation and loss of life are enormous. However, two similar sized earthquakes in California within the past 30 years had the following effects;

The last major earthquake in the state occurred in the Northridge section of Los Angeles in 1994. The magnitude 6.7 earthquake damaged freeways, killed at least 70 people and did $20 billion in damage. On the evening of Oct. 17, 1989, a 6.9 magnitude quake hit the San Francisco and Monterey Bay regions. The 10-15 second tremor left 63 dead, more than 3,700 injured and thousands homeless.

Bad as these effects were, they is no comparison with the damage currently being inflicted on the Haitians. The reason for this differential impact is very simple. California is a wealthy, advanced state which has invested huge amounts in earthquake proofing buildings, bridges and public spaces. Haiti is a wretchedly impoverished country which has invested next to nothing.

Reaction to the earthquake in the west has focused on the need for aid, both as a short-term solution and a longer term one to the problems of Haitian society. However well-intentioned this may be, nothing short of a major transformation of the economy of poor countries such as Haiti can prevent natural disasters of this type creating disproportionate suffering.

The  depth of the  problems facing Haiti is fully revealed by the inability of aid donors to reach those who need help. Haiti has only one tiny airport which has meant that aid by air has had to be turned away. Its port, unprotected from the effects of earthquake, is blocked making shipping aid in impossible. Its infrastructure is primitive and its social services inadequate. Helping the injured and homeless can only have  a very temporary positive impact on the lives of the Haitians.

The plight of Haiti should be remembered by those who advocate slowing down global economic growth or making it more ‘sustainable’. Haitians can only ever look forward to relief from poverty when growth in the global economy has enebled poor countries to develop. Many of Haiti’s problems originated from its past as a French colony. Like many third world countries its economy has been distorted and exploited by more powerful western countries over the centuries. This imbalance of power can only ever be addressed through economic development, rising living standards and concomitant social and political progress.

The clear lesson of Haiti, and the many other poor regions unnecessarily afflicted by natural disasters, is that we should reject calls for limits on global economic growth. We in the west cannot in all conscience refuse the poor of the undeveloped world the same rights to a decent life that we enjoy.





2010-the year of living uncertainly

12 01 2010

Welcome to 2010, a year which is pregnant with doubt and uncertainty. The western world has moved from the certainty of recession to a fear and acceptance of stagnation, the ‘flat is the new up’ mentality derided by Martin Sorrell. In the UK we have a general election contested by three parties which is shaping up like a contest between weak boxers. Every time they land a punch on each other they weaken their opponent without strengthening themselves.

There is a general mood of cynicism and disgust towards the political process which means that whichever party or parties win the election then nothing can really change. Mick Hume has accurately summed up the state of modern politics as dominated by;

..the politics of fear, with many apocalyptic warnings, but little analysis of the underlying causes; the politics of behaviour, with attempts to blame the crisis of the system on the greed of individuals; and the politics of low expectations, with efforts to persuade us that the most we can hope for in the future is no/low growth in a stable/stagnant capitalism on a life-support machine of state intervention.

We  have reached the end of a political cycle which began with the collapse of communism in 1989. Just to remind ourselves, the collapse of the Soviet Union created an initial surge of optimism that history had ended with the triumph of western liberal democracy.  In the East new democracies arose. In the west the third way concensus politics of Bill Clinton, adopted by Blair and others, replaced class based politics. It is very hard now to remember the enthusiasm which accompanied the election of Blair’ s New Labour in 1997. Many people welcomed what they saw as a decisive break with the past and the opening of a new chapter in history. We can now see that the idea of a new era of peaceful and stable capitalism which dominated the twenty years since the end of communism has come to a political dead end.

The upcoming defeat of Gordon Brown in the general election here will mark the final eclipse of New Labourism in the UK. What we are left with is a severely confused and disoriented western elite which is struggling to tackle the major changes taking place in the world. During the credit fuelled  boom years of the noughties the absence of any clear economic and political blueprint for the future did not matter so much as it does now. The best that any politician can do now is to try to navigate the future without a map. On the economic front there is just as much confusion. While there are some commentators who wish to paint a rosy picture the general view is one of foreboding. The underlying problems facing western capitalism, which have been extensively debated in this blog over the past year, have not even begun to be addressed. The lack of a plan means they will fall back on restraint and cutbacks in public spending rather than bold policies for economic growth.

Elsewhere the triumph of liberal democracy is looking very hollow. The most dynamic economies in the world now pay lip service to democracy in general if at all. The recession has played its part in deepening the crisis of western politics by accelerating  both a shift in global power eastwards and by undermining the western model of (supposedly) free markets plus democracy.

All of this means that the stakes are even higher for anybody who can come up with a better idea of how to run things. The depths of cynicism amongst the elite and the general populace will prove a huge barrier to any ideas of change, but there are always some people who will not want to give in to these  widespread negative sentiments. Uncertainty can be a good thing if it leads to broader questioning and wider debate. There are those, such as Martin Wolf, who accept that we have reached a ‘hinge in history’. Whether this leads to a turn for the better or the worse is up to us.