The Levelling

by Michael O'sullivan

  In this “levelling,” Brexit and Trump are the first catalysts. More signs will come, and we will be less and less able to ignore them. We are at a turning point similar to that of the late 1980s, when many people focused on the fall of communism itself and few saw that a bigger trend, globalization, was about to take hold. In today’s world, what initially appear as isolated events are beginning to form a pattern breaking down what we might call the old order.

  An Interconnected World

  It is important to understand how interlocked and connected the spheres of economics, politics, finance, and geopolitics shaping the changing world are today. The economic crises of the past ten years demonstrate that the world is not siloed and that actors in one area (e.g., politics) do not have the luxury of isolating themselves from the impact of other fields (such as finance).

  This interlocking and connection happens in many fascinating ways. Technology is a good example. For instance, it complicates diplomacy through the rise of cyberwarfare and what could be called diplomacy by tweet, and it accelerates economic change and changes the way central banks look at inflation (what could be called the Amazon effect of apparently driving retail prices lower). Then, the sheer size of technology companies like Facebook and the pervasiveness of technology in society is one of the new challenges to law and philosophy (biotechnology is another). In financial markets, new data and algorithmic trading are changing the ways in which markets operate.

  The Levelling will fully illustrate and synthesize the transition going on in world politics, economics, finance, and international relations. It will also show that as globalization falters and gives way to a more multipolar form of world order, the relative power between countries and regions will level out, and then new constellations will emerge.

  At this juncture, some readers might comment, This is all very interesting, but what has it got to do with me? Most people can be forgiven for thinking that terms like “globalization,” “quantitative easing,” “trade protectionism,” and “international diplomacy” have little to do with their everyday lives. In fact the opposite is true. Our mortgages and pensions, the stresses on our working environments, what we are pushed and pulled to view on the internet, the prices and quality of the goods and services we consume—all are driven by these factors. The trouble is that they are presented and discussed in technical and abstract ways, partly, I suspect, to hide their true impact.

  This also opens up the possibility for the misuse and abuse of these terms. Though a politician might fail to win many votes with a call for “more globalization,” he or she might do better with a demand for “China to give us back our jobs.” The distance between the technical aspects of some of the tectonic changes in our world and their impact on our lives is large. Climate change is an example. We feel it happening, but most of us do not understand the complex science behind it. That gap also helps explain why some people apparently tire of experts who don’t speak the language of everyday people. Equally, the tenor of public debate and of policy discussions on social media is at times appalling and, for many people, uninspiring and demoralizing. The divide between expert and layman is also a challenge for political leaders, who often struggle to bridge it. What we really need to ask is, Are the forces acting on our societies and economies good or bad? And what can constructively be done about them?

  In this sense, the goal of this book is to jump to the next stage in the debate and to set out some ideas and frameworks that will help tease out how public life will evolve in the next fifteen years, what kind of society people in developed and developing countries really want, and how their wishes can be better represented by their elected leaders.

  One of the most prominently discussed policy fault lines is inequality, together with a broader sense of a world divided between insiders and outsiders. The extent of income inequality and its social and economic implications are increasingly well understood, but wealth inequality is perhaps a more serious issue. Wealth inequality means that many people are cut off from the positive effects of rising property and asset prices, in a way that makes their social standing and the opportunities they enjoy (or not) permanent. Many other markers of the way we live now are also stretched. For example, sugar, artificial foodstuffs, and drugs have permeated our diets and have changed our behavior and health to such an extent that they have provoked a global crisis of obesity (eight of the twenty countries with the fastest-rising obesity rates are in Africa) and declining health.5 Furthermore, aging and demographics will have complex effects on growth and investment. Older populations consume less and work less, demonstrably lowering the rate of economic growth and placing a burden on younger generations. “Gray” generations also invest more conservatively.

  The World Turned Upside Down

  There are other elements of “the world turned upside down.” The West appears to be in decline and the rise of liberal democracy is slowing. The component parts of globalization—the flow of ideas, people, and money—are retreating, and the United States is now erecting barriers to trade with Europe and Asia. At a more sinister level, technology—which was once regarded as an outright positive—is breeding more-sinister threats in cyberspace and in new forms of warfare, such as cluster drones.

  Many of the extremes now evident across technology, economics, and politics mark the end of a period in history, or even bookend a period in history. The last thirty years have been kind in terms of growth and progress (advances in technology and human development are just two areas of development). The average level of economic growth has been much higher than the historical norm, poverty has been eradicated in many parts of the emerging world, and there have been no major wars. The next thirty years, however, will not be so kind and easy. There is great complacency about this, and many politicians, consumers, and investors seem to assume or internalize the prosperity of the last thirty years and expect it to be reproduced.

  There is plenty more. Imagine if political dislocation, extremism, and volatility become the norm. If racism becomes more overt and more accepted. If productivity plunges because of triple crises in obesity, poor education, and drug dependency. If wealth inequality grows and if, for many, unfunded pensions turn retirement into purgatory. If protectionism rises, not only in the realm of trade but also in the sense that the flow of ideas and internet access between countries becomes more bounded. If, in the emerging countries, governments become more authoritarian as growth slows, more dismissive of the West, and more dangerously innovative in the areas of internet censorship, military adventurism, and genetic engineering. This kind of nasty end to globalization has happened before, in 1913. It was followed by world war, depression, financial crashes, and political extremism. Although the probability of disasters of this magnitude is still low, very few consumers, investors, or politicians are attuned to the long-term implications of the changes facing the world.

  Four Challenges Ahead

  I would like to strike a different, more constructive note. There are at least four problems that need solutions if we are to avoid the darker scenarios that threaten the world we live in. Each represents a way of levelling out the many imbalances that face our world, and they provide new ideas that form the basis for future political-economic structures.

  The first problem relates to political discontent, expressed initially through Brexit and then in the US presidential election of 2016. It is now cropping up in Europe in the form, for example, of the rise of the right-wing party Alternative für Deutschland (AfD) in Germany (not to forget the rise of Aufstehen on the left); the Catalan independence movement; high political turnover in Australia (where the style of politics is especially brutal and which has now had six prime ministers in ten years); battles against corruption in African countries, including Kenya and South Africa; and the general rise in aspirations toward more political openness in emerging markets.

  There is a broader crisis of democracy in that voter turnout is dropping, voters are more fickle, and elections seem
to be less predictable. The rise of social media as a political tool and the accompanying voter polarization are among the underlying currents here, as is the reality that lower economic growth and the aftermath of the global financial crisis have had a delayed, disruptive impact on politics. Much of this is now well documented. What is less obvious is how positive, grassroots-based solutions can be found to overcome discontent and produce a better form of politics.

  This is where the Levellers come in. They were a key part of the Putney Debates, held in order to discuss what a new, modern British constitution might look like. Remarkably, ordinary men (and notably in some cases, women) were allowed the chance to express their views on what a new, less unequal political system might look like, which makes the debates one of the most important episodes in the history and development of democracy.

  The Agreement of the People

  The Levellers will strike a chord with many people who are disenchanted with politics and world affairs. For one thing, they were ordinary people, soldiers and tradespeople, men and, remarkably for the period, women. They were angry at a world where Parliament had lost touch with the people, where the law was applied differently to the rich (“Grandees”) and the poor, and where there was little sense of fairness in social and economic affairs. Unlike in much of the political debate on social media today, the aim of the Levellers was a tangible, constructive solution to a political problem. Their methods would also be recognized today. They canvassed opinions across society and used pamphleteering in the same way we use social media today.

  Their great contribution was the Agreements of the People. The agreements (three of them evolving from 1647 to 1649) set out the remedies proposed by the Levellers to the problem of what we might call political-democratic recession.6 The agreements are recognized as the first popular attempt to craft democratic constitutions. The agreements called for elected officials to be more responsive and responsible to those who elected them, the simplification of the law in plain English, an end to onerous indebtedness procedures, suffrage for most males, religious freedom, and political and electoral reform. They demanded an end to corruption in politics and within the judiciary.

  The Levellers wanted a political system that fostered responsibility to the people on the part of their leaders, a system where these leaders or representatives were accountable, and a political-legal environment where there was no uneven distribution of outcomes. Imagine then, if, using the Levellers as an example, an “Agreement of the People, Twenty-First Century” were to be struck across countries through social media. Imagine the way it could frame the responsibilities of political leaders. Imagine the ways it could make for a more positive, focused political debate that will be led by new parties and new political blood. Imagine the way it could help structure principles that could guide how societies and governments approach indebtedness, trade, diplomacy, and economic development.

  Running Out of Steam

  The second challenge is economic growth. Since the turn of the twenty-first century, economic growth worldwide has been running out of steam; only stimulants in the form of very high levels of debt and aggressive central-bank action have kept it going. This does not stop politicians, however, from promising a return to prosperity or, in more glorious terms, pledging to make their country great again. The Trump administration is a case in point, demanding, as the basis for its economic model, large tax cuts for corporations and high earners rather than reskilling and education for workers threatened by the rise of technology.

  My strong view is that countries (and companies too) should focus on stable, organic growth—growth that comes from factors such as the skill base of the labor market, innovation and technology, intangible infrastructure, and the system of laws and institutions that form the backbone of a nation. A truly great country is a resilient one that does not need to bully its neighbors in order for its economy to grow. Neither does organic growth come from accounting tricks, the ramping up of large levels of debt, or spurious tax breaks that cause economic imbalances. The next recession will lay this bare in a very bleak way.

  In truth, what governments need but often avoid is a framework for rediscovering long-term growth. This requires careful, long-term policy making that often doesn’t lend itself conveniently to rhetoric. This is a question not of probing economic theory or of coming up with new mathematical models but of setting out a coherent framework for growth and of providing politicians and those who vote for them with an understandable and tangible policy checklist. Success for a country comes not necessarily as a result of its military might or the size of its gross domestic product (GDP) but rather from its capacity to stimulate human development, to withstand economic shocks, and to have a stable society. One of the central ingredients in such an approach is a country’s “intangible infrastructure,” that is, “the set of factors that develop human capability and permit the easy and efficient growth of business activity.”7

  These factors can be essentially political, legal, or socioeconomic in nature. Political factors include the degree of political stability or the strength of a country’s institutional framework. The rule of law, tax policies, and the protection of intellectual and physical property rights are important legal factors. Examples of socioeconomic factors include research-and-development capabilities, business processes or employee training, and education. Stating that governments should focus more on education and should prosecute it in a clever and progressive manner is, to the ears of cynics, rehearsing the obvious. However, the reality is not so easy. Many countries get education wrong. Greece is an example. Many, if not all, of my Greek friends have had the privilege of a third-level education outside Greece, usually at universities in the south of England: the City University of London, the University of Essex, Oxford University, and the London School of Economics. There is an apparent aversion among Greeks to their own educational system. An extreme case in point: the two individuals who dueled over Greece’s future in the heat of the eurozone crisis—George Papandreou, leader of the Panhellenic Socialist Movement (PASOK), and Antonis Samaras, leader of New Democracy—were roommates together at Amherst College. The cause and the effect is a poor education system, which is, correspondingly, held in very low esteem among Greeks. The consequence is that many young Greeks, once educated abroad, stay abroad. They are not invested in their country. Other examples abound: Italy, for example, has no major university in the top two hundred universities in the world,8 whereas Germany has ten in the top one hundred.

  Conversely, one of the successes of some American cities (such as Pittsburgh) is that they have succeeded in keeping the graduates of good local universities (such as Carnegie Mellon University and the University of Pittsburgh). With Greece now finally emerging from the eurozone crisis, I can think of few better investments than an overhaul of the Greek secondary and tertiary educational system (with a very large helping hand from the European Union) so that promising Greek students feel they can have as good an education at home as abroad.

  Education is just one vital ingredient in the system of factors that produces organic economic growth. Yet before we can set off on an unencumbered path to steadier, organic growth, as I hope The Levelling will make clear, the obstacles and detritus of previous crises first need to be removed. I have two obstacles and two provocative solutions in mind. I conceive of them as “a Westphalia Treaty for Finance,” and they make up the third idea in this book.

  The two obstacles are debt and central banks. It seems the world has learned little from the 2009 global financial crisis or, indeed, the long history of financial crises going back to the tulip mania, the South Sea Bubble, and the Mississippi scheme. Debt levels (global debt to GDP) today are higher than at the beginning of the financial crisis. China, emerging-market governments, corporate America, and select European countries (that is, France) have taken on most new debt. Most of this debt is not productive, in that it doesn’t fuel growth; rather, it has been taken on to patch up economic holes, fue
l financial engineering, and buy time rather than to fund new investments. In China, for instance, the impact on the GDP of a dollar (or renminbi) spent on investment (mostly infrastructure) has fallen steadily in the last five years. If interest rates rise, as they are beginning to as of this writing, the burden of this debt will weigh down economic activity and fuel future crises.

  One cause of so much debt accumulation since the 2009 crisis is the monetary policy of “quantitative easing” (QE), that is, the buying of bonds and other securities by central banks, something that would have been unthinkable to earlier generations of central bankers. Quantitative easing is the financial equivalent of morphine, helping take pain away. Medicinal morphine is not supplied to patients on a continuous basis, and it is not known to cure cancer, heart disease, or other ailments. Central bankers, however, appear to have a different view of the uses of financial morphine.

  A Westphalia for Finance

  Since 2009 central banks have aggressively pursued quantitative easing (and “zero” interest rates) in the hope of lowering borrowing costs and pushing up investment by companies and households. This has helped forestall financial crises but has done little else. It has not cured underlying economic problems and at the same time has fostered an addiction to low interest rates and accommodative central banks. Even the start of QE decommissioning by the US Federal Reserve is proving difficult for markets to digest.

  My proposal for provoking change is a framework to level debt and risk taking through a global conference leading to a treaty on debt and risk. The assumption, unfortunately, is that the only way governments would agree to this is if they were in the midst of a nasty market crisis and were facing a deep recession.