International Affairs
I had this on Labour Uncut recently.
Francis Fukuyama is best known for confusing the period between the falls of the Berlin Wall and Lehman Brothers with the end of history. This was to be defined by the global triumph of liberal democracy and market economies. He recently conceded:
“The most important strength of the Chinese political system is its ability to make large, complex decisions quickly, and to make them relatively well, at least in economic policy”.
China is neither liberal nor democratic, but its state-directed model of capitalism is reshaping markets across the globe. Nonetheless, everyone from George W. Bush to Will Hutton is confident of the model’s limitations. It is thought that history hasn’t ended yet, but that it will, and on the lines that Fukuyama proclaimed.
“Trade freely with China and time is on our side”, said Bush. These economic freedoms will, ultimately, it is argued, require political freedoms. This is because per capita western incomes depend upon what Hutton calls the “enlightenment infrastructure” – pluralism (multiple centres of political and economic power), capabilities (rights, education, private ownership) and justification (accountability, scrutiny, free expression).
Hutton made this argument in a debate with Meghnad Desai in Prospect just before the credit crunch. Desai scoffed: “For you, there is only one road to capitalism – the Western one – and only one political system – ours”. The crunch must place at least a question mark next to Hutton’s Whiggish confidence.
Perhaps the most important way in which 11 September 2001 changed the world was in making more apparent what few had already perceived: the ambition of Al-Qaeda’s threat to the west. Similarly, the significance of China’s rise wasn’t widely understood before the financial crisis. Now it is more obvious.
Zhu Min, special advisor to the international monetary fund, coined the phrase “three-speed” recovery in the opening debate at Davos this year. This involves emerging economies growing at more than 6 per cent in 2011, the US by 3 per cent and Europe by less than 2 per cent. Negative growth in the fourth quarter of 2010 puts the UK in the slowest of the slow. China is among the quickest of quick. It isn’t a global crisis anymore. It’s a European crisis.
While Fukuyama applauds the efficient rapidity of Chinese decision making, the Eurozone is sluggish to confront its big choices. Not that the UK should be smug. We’ve allowed banks “too big to fail” to morph into banks that increasingly seem “too big to save” – without correcting the causes of these banks becoming too big to fail. We’re also guilty of failing to match lofty rhetoric on climate change with effective policy and of drifting towards dependence on Gazprom in an ever more resource-stretched world. To say nothing of our geriatric-paced policy response to demographic change.
Yes, a plan for growth is essential. But for this to be meaningful it needs to chart a trajectory for the state to stop being a featherbed for bankers and start being a catalyst to a more energy-efficient and innovative economy.
All of this is painfully clear, as is the inability of David Cameron to offer anything like an adequate response. All politicians are in the gutter, but Cameron isn’t staring at the stars. Hu Jintao is. Mark Leonard in Renewal credits him with leading a campaign of “asymmetric warfare” against the west: “finding and exploiting the enemy’s soft spots”.
After international financers, like George Soros, humbled the “Asian tigers” in 1997, Chinese intellectuals, Leonard notes, pondered: “If a lone individual like Soros could unleash so much destruction simply for profit, how much damage could a proud nation like China inflict on the USA with its trillion dollars of foreign reserves”?
China and America’s condition of mutually assured economic destruction means this theoretical proposition is unlikely to be soon tested. It does, however, expose the vulnerability of the west, particularly if the uber-pragmatists of Jintao’s generation are succeeded by a more assertive cadre. That the question is even asked shows that Chinese leaders are capable of doing what our leaders struggle to: coldly assessing strengths and weakness and, given these strengths and weaknesses, ruthlessly pursuing objectives.
Al-Qaeda are world leaders in asymmetric warfare as it is conventionally understood. Guantanamo Bay and Bagram are the weakest parts of the west’s response, because they compromise our defining values. Privatising the upside of banking, while socialising the downside, also rejects the fundamentals of capitalism. Chinese-style, forensic assessment of the West’s strengths and weaknesses would rank our values – the “enlightenment infrastructure” – as our greatest strength and anything that belittles them as corrosive weakness.
Leadership is required for this betrayal to be averted – most pressingly in relation to Egypt. True leadership would also see it as analytically inadequate and careless with the hopes of millions simply to presume that Hutton is right and Desai is wrong. Hutton is right insofar as the “enlightenment infrastructure” is the richest inheritance and the seed of the innovation that can allow the West to prosper in a century in which China will be much more globally consequential than before.
However, in addition to this infrastructure, leadership will be necessary for the west to so prosper. Real leadership isn’t just about rhetoric or grand promises to be fulfilled years hence, but about the policies that will concretely advance these promises: the prose as well as the poetry. In respect of the key challenges that confront them – banking, energy, climate change and ageing – western leaders provide little of either. In particular, they struggle with the prose, which comes so easily to the Chinese. This needs to change if history is, after all, to end.
I wrote this for Labour Uncut a few weeks ago.
Labour modernisers have been largely pro-European since Neil Kinnock made them so. The role of the EU in advancing Labour’s goals has often, however, been vaguely defined. As UK relations with the EU head towards various crunches, this seems likely to be inadequate.
The issues that are most important to people will determine the next general election: the economy, jobs and public services. Nonetheless, debate about the EU is going to get hotter. As this happens, the connections between EU policy and the things that people care most about are likely to become more apparent.
Most immediately, the European Union bill, over the short to medium term the euro-zone crisis and the longer term need for the UK to adapt to the rise of Asia could all bring UK/EU relations to the boil. The first of these pressure-points diminishes UK influence in the EU at the same time as the second poses not only an existential crisis to a currency to which we don’t belong, but a union to which we do and our largest trading partners.
Either disintegration of the euro/EU or consolidation of the euro as both a fiscal and monetary union seem more likely outcomes of this crisis than perpetuation of the status quo. Either way, British business has only just begun the adaptation that it must undergo to prosper in a world whose centre of gravity lies ever more firmly to the east.
Liberal Democrat MEP, Andrew Duff writes of the European Union bill, which is being taken through Parliament by the government of which his party is a part: “The blunt truth is that if this bill becomes law, no future EU treaty revision will be possible if the UK remains a full member of the Union.” This could yet create serious splits within and between the two parties of government, which Labour should encourage by robustly opposing the bill and reaching out to pro-European Lib Dems and Tories (who may have died off in the Commons but still exist in the Lords).
At some stage in the management of the euro-zone crisis, irrespective of what finance ministers may insist, haircuts for bondholders and state debt restructuring seem virtually inevitable. Because some euro-zone members are too over extended; the bailout facilities available to them too finite (the largesse of even the IMF must know some limits); and the austerity that follows these bailouts too terrible (the wretchedness of all of Ireland is increased for the sake of sparing bondholders any pain, as Fine Gael, the likely winners of the national election expected in March, argue).
While she may be concerned with German interests, rather than troubled by the austerity misery that seems set to extend beyond Greece and Ireland, Angela Merkel appears to understand this. It was market recognition of this understanding, and fears of Germany imposing haircuts on Irish bondholders, that weakened the Irish such that they had to accept a bailout and austerity. An attempt will have to be made to confront the necessity for haircuts while minimising the fever of market reactions to this confrontation.
If German politicians wish to minimise their fiscal transfers to the rest of the euro-zone, their officials may be discretely working on the details of such an attempt. French leaders appear increasingly sanguine about the consummation of such a fiscal union and much greater co-ordination of economic policy by members of the euro. To Germans this may seem like France trying use German money to pick French “winners”, which could make any fireworks between the Tories and the Liberal Democrats appear relatively tame.
Undoubtedly, economic turbulence will persist in the euro-zone until some massive political choices are faced. The UK must act responsibly and avoid gloating. The short to medium term interest of the UK is minimisation of this turbulence and our longer term interest is in whatever kind of Europe best enables us to adapt to our Asian age. This means, if Germany is as determined to keep the euro together as it claims, encouraging Germany to face the full consequences of this, which probably requires both a convincing plan for haircuts and an enduring framework of some kind for fiscal transfers within the euro-zone.
It is easy for George Osborne to say that Ireland will be the only euro-zone member to be bailed out by the UK – a position that will come under considerable pressure as the turbulence endures and which won’t be strictly true once the IMF are in Portugal. But it is harder for him to engage with Germany on the steps that ought to be taken, as they would probably necessitate treaty change and, under the European Union bill, according to Duff, an end of full EU membership for the UK.
While defending UK membership of the EU, Labour should demand an EU best equipped to enable us to adapt to Asia’s rise. As Asia gets more serious about curbing carbon emissions, for example, we should be selling them the green manufacture that enables this. However, innovation in green manufacture will be undermined so long the EU-ETS remains as ineffective as it is in establishing a carbon price. Labour should seek to provide the leadership to change this and have the EU focus more intently upon areas such as this where it really can add value. Rather than devoting its energies to less controversial policy areas in which the added value of the EU is much less clear.
I had this on Labour Uncut last week.
Tony Blair made adaptation to globalisation a Labour leitmotif. Yet the existence of the “squeezed middle” is a symptom that he did not finish the job. Today’s globalisation is more about the rise of Asia than was the case when Blair became party leader. Easing the squeezing requires better adaptation to this Asian age.
It will take more than David Cameron hawking UK PLC from one rising Asian power to the next. The prime minister is listless in the face of power seeping from the over-indebted West to the resource-rich East, so neatly encapsulated by FIFA’s world cup decisions. His PR smoothness is no substitute for leadership in urgent debates about the architecture of globalisation. It seems that his only reason for attending the G20 was, unsuccessfully, to press the flesh for England’s world cup bid.
Perhaps Cameron confused diary entries, and we lost the world cup after he confronted FIFA president, Sepp Blatter, on macro-prudential regulation. After all, the Tory-Lib Dems’ bail-out of the Irish demonstrates that we live in an interconnected age. It exposes their myth: that our economic predicament is solely Labour’s fault.
While Cameron cannot afford himself a robust response to Asia’s rise, leading centre left thinkers are looking at the bargain Labour struck with globalisation. On the one hand, it was relaxed about the filthy rich. On the other, it recycled tax revenues into public services and redistributions, like tax credits, at unprecedented levels. But the most striking feature of this economic model is its dependence upon secondary redistribution. The middle is squeezed because we have not got to a more equitable distribution of market rewards.
John Humphrys may find it bizarrely incomprehensible, but the squeezed middle is not just a British phenomenon. In the US, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973. It used to be middle-class aspiration that Labour needed to tap into. Now the middling sort across the whole of the West is anxious. It is even possible to understand the tea party movement when you realise that at its core is anxiety, not guns and bibles.
Tea partiers, like Essex men, are more focused on keeping what they have than wanting more. They want to take their country back, not look for answers from the great beyond. They are resentful of any perceived threat. Whether that is losing their health insurance to Obamacare or their jobs to the oilfields and factories of the East.
Politicians across Europe are increasingly willing to bemoan minorities and immigrants, other governments and Brussels. There are many corners of foreign fields that seem forever Mrs. Duffy. Tackling the squeeze is a precondition of curbing this.
Globalisation will only go into reverse if an open currency war follows banks and states defaulting. Almost any amount of squeeze for the middle and anxiety for Mrs Duffys is worth it to avoid this 1930s scenario. And the more squeezed the middle becomes, the more politicians will struggle to resist protectionism and competitive currency devaluations. These would be the seeds of a cataclysm of 1930s proportions. We cannot sustain globalisation without improving social justice both domestically and internationally.
In the UK, we must recognise that income distributions that are skewed towards the rich minority are a practical menace, as well as morally questionable. Countries with lower Gini-coefficients (a measure of the inequality of a distribution – the higher the score, the more unequal) are more likely to increase consumer demand in sustainable ways. This means that median workers will not find their wages squeezed, and their maxed-out credit cards will not create booms and busts. Labour must find ways of achieving this while scaling back government to control the deficit. Here – after the public spending largesse of the Blair/Brown years – we start with a blank piece of paper.
Even if social democracy means that the state consumes an ever-larger slice of GDP, it cannot mean it now, in such fiscally straitened times. That states, as well as markets, fail should not leave social democrats bereft of hope. It should inspire a radical pragmatism for whatever truly works. A pragmatism never abashed by cross dressing or reformers and one unafraid to deploy state or market wherever it is best suited.
Advancing social justice internationally won’t be achieved by Cameron’s glad handing. His G20 failure, which Brown would have avoided, was far more of a dereliction of duty than his failure to deliver, in contrast to Blair, a global sporting event. Not least thanks to Brown, world leaders were quick to come together effectively in the early stages of the global crisis.
The extent to which the fundamental causes of this crisis have been addressed is debatable. Global leaders must maintain their engagement in order to tackle these causes. Not just applaud what good chaps Prince William and David Beckham are. Cameron offers vapid PR stunts instead of leadership. Whereas Labour must find practical ways of advancing social justice here and internationally. Only then can the globalised middle end up slightly more eased than squeezed.
I noticed a trend flicking through the FT last month. I think the particular copy of the FT that I flicked through was published on 19 September. I noticed the following:
Emerging market targeted M&A volume is up by more than two-thirds to $575.7bn this year, while European volume has risen by barely 20 percent to $550.2bn. The latest Global Financial Centres Index (GFCI) not only finds that New York has closed in on London as the world’s leading financial centre but that Hong Kong has markedly closed in on both cities since March 2009. Beijing’s attempts to internationalise the use of the renminbi and rival the US dollar (to say nothing of the euro or pound) have taken a significant step forward through the purchase by Malaysia’s central bank of renminbi-denominated bonds for its reserves.
Perhaps, it is no surprise, therefore, that Wolfgang Münchau commented, “we are observing a loss in Europe’s global influence … Wherever you look in the EU, politicians have become more assertive in blaming minorities and immigrants, other governments and, of course, ‘Brussels’ … The problem is not so much that Europe might become irrelevant, but that Europe’s relative decline is going to both noisy and nasty.”
The world is changing. But it never helps anyone to be noisy and nasty, least of all Europe in a changing world.
Who is Blessing-Miles Tendi? He’s a DPhil student at Oxford and he writes for various publications, including the Guardian. He reviewed the film Mugabe and the White African for the Guardian and I commented on my blog upon his review. Apparently, I “wholly misunderstood” this review, according to a response to my blog made by Blessing-Miles. This sparked a debate between us, which you can read below my original blog. I’m not sure I have ever been so publicly and strongly put down by a budding public intellectual. But, then again, I’m not sure I’ve ever come across a public intellectual with whom I disagree as much as Blessing-Miles. While I feel I have contributed as much to our debate as I feel inclined to, it has been quite an experience to lock horns with him.
