The Levelling

by Michael O'sullivan

  This kind of conference, though not unprecedented in history (think of the 1924 and 1953 debt conferences that allowed Germany debt relief), would be highly unusual and would be both a sign and an acknowledgment of how bloated debt levels have become. Such a conference would be part of the laying down of the initial rules of the game for a multipolar world. Like the system put in place by the historic Peace of Westphalia (1648), it could be one where nation-states bear greater responsibility, in this case for their financial health. The overriding aim would be to encourage risk bearing rather than risk sharing of debt, in much the same way that Westphalia encouraged individual states and statelets to bear political and identity risk.

  This world treaty on financial risk could be crafted along the lines of existing large-scale environmental or nuclear weapons deals. Under this agreement, the world’s major central banks would agree—or rather, their political masters would agree for them—to use extraordinary measures like quantitative easing only in truly exceptional preset conditions of great market and economic stress. The effects would be that markets would properly price economic and political risks, politicians would therefore act to address those risks and fault lines, and, when extraordinary monetary policy needed to be launched, it would be more effective.

  By prohibiting quantitative easing or such extraordinary uses of the monetary toolbox (central banker speak for the many options they have invented to express their power), such a treaty would attune political leaders to the fact that the monetary comfort blanket could not be deployed against every threat and that governments would thus have to adopt a more proactive approach to avoiding and curing economic crises.

  Multipolar World

  The final idea in The Levelling relates to geopolitics. Many people remain attached to a world that has been globalized by the United States. The debate over America’s place in the world under President Trump is testament to this. The same is also true of debates in the United Kingdom and Europe. As these debates are raging, my own experience is that US and British citizens are still in denial about the way their countries’ international influence is slipping. Europeans do not yet recognize the urgency with which their community needs to better align and organize itself. Similarly, the almost exclusively Western commentariat does not countenance the possibility that globalization as we know it is over and is giving way to a multipolar world dominated by three to four specific regions that increasingly do things in a distinctive way.

  Geopolitics will be dominated by three significant players: Chinacentric Asia, the Americas, and Europe. India may constitute a fourth pole, but its time has not yet arrived. These will be the players in the Great Game of the twenty-first century. (Peter Hopkirk’s book The Great Game: On Secret Service in High Asia, on the strategic battle between Britain and Russia in the nineteenth century, is a must-read as background.) For example, China’s One Belt, One Road infrastructure and trade project is a definitive Great Game–like maneuver. Each of these blocs, poles, or great powers will take a distinct approach to economics, society, the military, and the internet, to name a few areas. As regards the internet, for instance, the United States owns the companies that have built it, Europe will regulate it, and China has already erected a cordon sanitaire around its internet space.

  If the world comes to be dominated by three great intercontinental powers, several things may happen. Countries that fall between the cracks of these great power blocs, such as the United Kingdom, Japan, Russia, and Australia, will be forced to redefine their place in the world. Countries that lack the economic power to match the military might of the big three, such as Russia, may have to rethink their national development models. Countries with vast economic potential, such as India, may have to remake other facets of their power base, such as India’s military. And new coalitions may form.

  One potential new coalition could be made up of the small developed countries of the world (e.g., Switzerland, Sweden, Ireland, Singapore, and New Zealand), which in many cases represent the canaries in the coal mine of globalization and which increasingly suffer similar policy challenges and seek to compare notes with each other. In general, these countries represent enlightened democracies that in many cases demonstrate best practice in policy making. As all this happens, some regions may be increasingly left behind. More importantly, many of the institutions set up in the twentieth century—the World Bank, IMF, World Trade Organization (WTO), and North Atlantic Treaty Organization (NATO)—may become defunct. In many cases they may be replaced by great-power diplomacy.

  The relevance of geopolitical change to the notion of levelling is twofold. First, it will involve a decades-long process of changing power distribution, or levelling out of power and wealth between countries. Second, it will provoke a swell of nationalism, regionalism, and friction and, in turn, a great swirling competition of ideas. Consider China and India. India is behind China militarily and economically but arguably ahead of it in terms of its democracy.

  What Would Hamilton Say?

  Finally, one of the fascinating trends of the next decade or so will be watching how regions and countries change and evolve and how this drives political change within them. In the spirit of the Levellers, it is to be hoped that this happens in a progressive, constructive way. One figure in history who, in terms of intellectual outlook, is relevant to the idea of this levelling is Alexander Hamilton. I single him out because, like the Levellers, he was interested in both democracy and the idea of the classical republic (i.e., its institutions and laws) and was keenly aware that they served different purposes. Hamilton was an architect and implementer of intangible infrastructure to such an extent and level of excellence that few historical figures can match him.

  So I use “Hamilton” as shorthand for the establishment of institutions, laws, and skill sets needed for countries—or here, regions—to be able to enjoy durable economic growth, high human development, and a stable public life. In the last part of the book, I use Hamilton to tell the story of what needs to be done in institution building and diplomacy so that the “levelling” may become reality.

  The levelling will happen in many ways: The levelling of political accountability and responsibility between political leaders and “the people” (Grandees versus Levellers, insiders versus outsiders, elites versus masses). The levelling of institutional power—away from central banks and defunct twentieth-century institutions such as the WTO and IMF and toward new treaties (on risk and monetary policy) and new institutions (e.g., a truly effective and powerful climate body and an institution or agreement that oversees cybersecurity). The levelling out of wealth—between rich and poor countries and between the very rich and “the rest,” preferably with “the rest” enjoying both better organic growth and a greater share of this growth. Then the levelling out of power between nations and regions is what the concept of the multipolar world is about, and within it, different regions will have different reserves of power.

  There is so much change and challenge ahead. It is important that we, and notably the media, move beyond the symptoms of a changing world and focus on the tectonic shifts happening under our feet. My objective with The Levelling is to try to set the world we live in in some context and to draw out reference points that people may find useful in addressing the many changes that face us. I propose new ideas—from new political parties to new rules for the way finance functions—that are essential in moving on from the sense of disorder today.

  * We can define globalization as the increasing interdependence and integration of economies, markets, nations, and cultures.

  TWO

  THE TIDE GOES OUT

  Running Out of Breath Economically, Losing Patience Politically

  I SPEND QUITE A BIT OF TIME IN FRANCE, AND ON A RECENT TRIP OUT OF Paris to Versailles I unexpectedly came across a stand selling evangelical books, which carried the following sign: “The World Is Out of Control.” Two thoughts came to mind. One is that doomsaying is always a good advertising strategy, and
various religious organizations have been guilty of using this ploy through the ages. That the stand was in Versailles underlined this history, since the town has seen quite a few “out of control” periods. Versailles is an echo from history that serves to remind us that absolute power, and absolute inequality, can have violent and unpredictable consequences.

  My second thought was to ask whether the world is really “out of control.” In absolute terms, world GDP and wealth are at all-time highs, unemployment is at a decade low in many large countries, technological advances are spellbinding, and there has been a sharp fall in poverty at a global level in the past twenty years. So it seems that things are really not so bad.

  However, if we scratch beneath the surface, it all looks very different.1 The world economy has so strained and contorted itself to arrive at a postcrisis recovery that debt levels and intervention by central banks are at record highs. Though growth through 2018 has been positive despite trade tensions, forecasts from bodies like the IMF and the US Federal Reserve show that trend growth—long-run average rate of growth—in the next five to ten years will be considerably lower than the average of the past thirty years. It seems that households already sense this, and the stock and bond markets have become more nervous. More importantly, the sources of growth we have come to rely on are reversing. Productivity, the world’s ability to generate growth, is pallid, and most notably, globalization and open trade are under attack and retreating. President Trump’s trade dispute or trade crusade has begun to cleave apart the world order and to decouple trade flows between large economies. One memorable image of 2018 comes from the June G7 meeting, where Trump is surrounded by disapproving counterparts. Beyond the G7, America’s role in the world is also being reconsidered. Historically the United States has resolved emerging-market crises, but in the summer and fall of 2018, trade tariffs deployed against China and Turkey risked causing one. The long-term effect of such trade disputes will, I believe, make investment by other countries into the United States less rather than more likely.

  In another echo of Versailles, a deepening fault line is the distribution of the spoils of economic growth and wealth within and between countries. At one end of the spectrum, the share of the economy that companies have—corporate profits relative to GDP—is at an all-time high. But at the other end, the share that workers have—wages relative to GDP—is at a low. Reflecting this, in the United States the ratio of the average wage to the value of the stock market is at a multidecade low. In practical terms, this shows why many people face greater financial difficulty in building up their pensions. At a grander level, this contrast between Wall Street and Main Street sets out a stark conflict between capital and labor. With wealth inequality worldwide at a high, this tension will begin to play on people’s expectations.

  In developed markets, expectations of income, life expectancy, and social mobility are flattening out and in some areas falling. This creates generationally rooted disappointment, which in turn drives political attitudes and leads to a poverty of expectations. In contrast, emerging countries face a dilemma of expectations—in emerging markets people expect more: higher incomes, better consumption choices, and more interesting lifestyles. The 2018 film Crazy Rich Asians is an extreme illustration of this. The film captures the rise of the new wealthy in Asia and shows how that rise has conditioned lavish consumption habits and attitudes to the West. I am tempted to say that, like the 1987 film Wall Street, Crazy Rich Asians has a dangerously totemic air to it. Though wealth creation across Asia is on an upward trend, any falloff in this growth will translate into political volatility. Globally, wealth inequality between countries is also shifting, though it is improving as emerging countries catch up on the wealth levels. For example, from 2002 to 2016, wealth per adult increased by three times in India but by only 50 percent in the United Kingdom.

  In general, the more one interrogates the way the world has developed under the steam of globalization, the more we see that extremes are emerging, that new stress factors and risks are touching the lives of ordinary people, and that these contribute to a sense of a “world turned upside down.” To make matters more complicated, the tide of easy prosperity is going out. The further it retreats, the more it exposes fault lines that were hidden by the onward march of globalization.

  In this context, the aim of this chapter is to set the scene for the rest of the book by sketching the consequences of the tide’s going out: showing that the world has run out of breath economically and run out of patience politically, and that in places the long-term expectations of wealth and income are tapering downward and the established rules of the road for our world are being undercut.

  “The Pace of Change Has Never Been This Fast”

  The reader might respond by asking, Won’t technology solve all of these problems? Today, there is such a dazzling array of new problem-solving technologies—from gene editing and digital health care to sleep masks to cryptocurrencies to lifestyle apps—that we might consider most of our material problems to be solvable. For instance, French author Nicolas Santolaria has written a book, Comment j’ai sous-traité ma vie (How I outsourced my life), in which he describes his attempt to outsource as many chores and lifestyle tasks as possible to apps, including dating apps that let him pay to have someone “pre–chat up,” if that’s the right phrase, partners he is interested in dating.

  My rejoinder is that technology, when gushingly described by flashy futurologists, seems breathtaking, but for the majority of ordinary people it can prove confusing, intimidating, and vexing. For example, at the 2018 World Economic Forum, Canadian prime minister Justin Trudeau said, “The pace of change has never been this fast, and yet it will never be this slow again.”2 This will have delighted “Davosians,” but it is also the kind of statement that strikes fear into most ordinary people. My feeling—supported by the way people vote and by the rise, for instance, of new mental-health disorders such as video game addiction and acute attention deficit disorder—is that the majority of people are experiencing more change than they are comfortable with and would rather slow down than accelerate the pace of change. For example, many executives will testify that there is an enormous gap between the promise of technology for corporations and the willingness of workforces to adopt new technologies.

  I do not want to sound too old-fashioned, but the reality is that many people will increasingly feel that things are not the way they used to be. This sense of dislocation seems to be pervasive in the political debates across Europe and the United States and may be the result of economic angst having reached the bounds of people’s patience for change and of the perceived side effects of globalization.

  This feeling of anomie comes from different sources, though there are a few common threads. One is a widely expressed sense that political processes are not working well in Western countries. Another, to parse much of the media, is a growing impression of existential threat: terrorism, the fate of the euro, climate change, and disease. For instance, in 2014 the onset of the Ebola crisis in western Africa led to a surge of mentions on social media, reaching six thousand mentions per minute, which in turn in the United States led to a wave of people being tested for the disease, even though the number of positive cases in the United States was ultimately miniscule.3 In many countries people feel they are losing touch with the values and behaviors that shaped their societies, a sort of loss of heimat. (Heimat, very simply and I hope uncontroversially, refers to a place or society that a group of people find familiar, trustworthy, and consistent with their culture, a place where people feel at home and at ease.) In certain cases, loss of heimat is not a bad thing—consider how Western societies have become more tolerant and open, or how the place of women is changing. However, in other cases, a loss of heimat leads people to lose their bearings and then to instinctively act against the forces they perceive to have disturbed them, such as technology and immigration.

  Let me give a personal example: for much of my life I have been a passi
onate supporter of Manchester United, a football club with a unique history and with what used to be a distinctive attitude and a squad of players with cultural roots in Britain and Ireland. The club’s history is marked by both poignant moments (such as the 1958 Munich air disaster, in which over half the team died in an airplane crash on takeoff from Munich Airport) and dramatic moments, and for a long time the club had a never-give-up attitude. Following the retirement of longtime manager Sir Alex Ferguson, all of this has now changed, and, like many other football clubs who used to express the ethos of their local regions, Manchester United has now largely become a consumer brand, with a global base of supporters and a set of players disparate in background and spirit. It has lost touch with its roots, its culture, and its winning ways. What is most galling is that the old United was much better than the current, made-for-TV version: under Ferguson they won two European Champions Cups, five Football Association (FA) Cups, and thirteen UK Premiership Leagues, while under his successors (up to José Mourinho) they have a total haul of one FA Cup and a Europa Cup.

  I have titled this chapter “The Tide Goes Out” because there is a sense that, as with Manchester United’s form, more and more negatives—social, economic, and politic—are coming to the surface. As the saying goes, it’s only when the tide goes out that we can see who’s swimming naked. So as globalization ebbs, its discontents become more obvious. For the rest of the chapter, I want to emphasize three things: First, globalization has been a force for good but is now receding. Second, as it retreats we become more aware of its perceived side effects, such as inequality, the changes in our lifestyles and our diets, and generally “the way we live now,” to borrow Anthony Trollope’s words. Relatedly, the aftermath of the global financial crisis and the responses to it have left a range of imbalances in place. Third, people are now reacting to these imbalances and side effects. This is manifest in growing political volatility, which in my view will bring about a revolution in politics as people search for more accountable and responsible forms of governance.