The Levelling

by Michael O'sullivan

  Under this biopolitics framework, political candidates would attest that they have not been active members of a political party for, say, much of the preceding ten to fifteen years, and they would outline a series of occupations and accomplishments that they believe have formed them as decision makers and as people who understand how specific facets of society work. There are already some similar though more specific initiatives. The 314 Action campaign seeks to get scientists more actively involved in politics in the United States; in Congress, lawmakers with science backgrounds are vastly outnumbered by those with legal backgrounds.

  It may also be unrealistic to expect this, but a biopolitician may also sign up to a code of conduct guiding how they campaign, communicate through the media, and behave in office. Then, under the framework, they may be accorded different rules for funding campaigns (potentially with more public money), airtime on media and social media, access to a database of voter addresses, and the availability of public or state-owned media (TV and radio) as campaign points. If this sounds naive, consider the case of Brazil. The country is mired in political turmoil, and in particular its political system is rife with corruption. In the many public rallies and protests against corruption, one of the demands has been for a slate of candidates who have no background in politics. In general, and especially in countries like the United States, the United Kingdom, and across Europe, there are many good, experienced politicians who, in different countries, are trying to reenter the political fray. However, given the great appetite among the public for new political faces and ideas, it is better in my view for older political generations to support and coach new candidates instead.

  Other factors that would support a move toward biopoliticians include placing a ten-year embargo on a politician’s running for a seat that has been held by a family member and not allowing family members to stand for seats in proximity to each other. If applied at local as well as national level, such rules would vastly reduce the blockages to new entrants to the political scene. This has been attempted in the Philippines, but arguably the law was not crafted well enough to prevent some families (the Romualdo family in Camiguin Province) from gaming the system. More recently, in 2015, Indonesia has passed a law to prevent anyone with one degree of separation from an incumbent (by either marriage or blood) from running for office until a five year gap term has passed.

  Term limits, at both national and local levels, are a similar measure, supported by the Leveller Party, that might have the effect of clearing the path for new candidates to come through national and local politics. This is perhaps more important at local and regional levels where entrenchment can be pronounced.

  There are probably other formulas that can be applied here. The primary objective is to learn from the Levellers, to avoid having new ideas and potentially new political blood being outmaneuvered by today’s Grandees. One lesson we can learn from more recent episodes of change is that, more often than not, successful new entrants to a political system co-opt it rather than destroy it. At the same time, there is much that needs to be replaced. A new code or creed, new party structures, and new channels through which outsiders can become involved in policy decision making are vital. Political system change is only one part of the challenge of the levelling. What to do with power is the next test.

  * In contrast to the epistocratic school, which holds that only those who are educated and well informed can vote.

  SIX

  GREAT COUNTRIES OR STRONG COUNTRIES?

  Katherine Chidley’s Dilemma

  IN THE 1980S, MARGARET THATCHER, BRITISH PRIME MINISTER FROM 1979 to 1990, would, together with much of the House of Commons, tune into a political satire called Yes, Minister. The series, which was Thatcher’s favorite television show, ran from 1980 to 1984 and was then reincarnated as Yes, Prime Minister from 1986 to 1988. It was set in the office of a British cabinet minister, Jim Hacker, in the fictional Department of Administrative Affairs. Hacker’s efforts to introduce change to his department and to enact legislation are skillfully thwarted by his chief civil servant (permanent secretary), Sir Humphrey Appleby. The aim of the series, delivered superbly by such actors as Nigel Hawthorne, is to show how in reality politicians are powerless in the face of bureaucracy and masterful civil servants.

  Throughout the series, Hacker is skillfully guided into policy dead ends by his “mandarin,” Sir Humphrey, whose role is to ensure that none of the politician’s new ideas and initiatives ever become policy. The series itself is highly amusing, but it illustrates the bigger point that new politicians are often faced with a system and a way of doing things, or a technocracy, that is hard to change.

  In the United States, top mandarins are less permanent than Sir Humphrey because the upper echelons of the civil service change as the government changes, but beneath the very top levels there is a sufficiently large mass of civil servants that bureaucracies in the Treasury Department and State Department have their own identity. If anything, in recent years, a lack of investment in these institutions has meant that they do not have enough top-quality staff (for example, in the first year of the Trump administration, the number of foreign affairs professionals at the State Department fell by 12 percent).

  In the context, then, of the previous two chapters, where I discussed the need for new ideas, new parties, and new people in politics, what might a new, idealistic politician face when confronted with a formidable bureaucracy like that described in Yes, Minister?

  To bring this to life, let’s imagine someone politically committed but new to politics, elected (for the Leveller Party) and thrown into the position of finance minister. We will call this new politician Katherine Chidley—well educated, a successful businesswoman, author of a well-received book on politics, and a mother.1 Chidley’s aim is to find a formula for sustainable economic growth that will also lead to a balanced society. This sounds idealistic, but she is determined, and equally so to avoid creating imbalances in debt levels, asset prices, and trade. Minister Chidley has many obstacles ahead; the first is coming to grips with her department and with the nuances of economics and finance.

  Chidley is undoubtedly an intelligent woman, even an intellectual, but she is not an expert in economics and finance. As the new finance minister she might, if not careful, find herself being quickly carried along in the jargon of economics, speaking in terms of deficits and the code of GDP forecasts. Like most professions, finance and economics have their own codes, rituals, and language. To the outsider, most of this is dull and hard to comprehend. And, again as with most professions, the fact that economics and finance are hard to comprehend is intentional, a barrier to entry to exclude the many from decisions about their future. In many cases, bureaucracies use these rituals and jargon to maintain the status quo. In the coming weeks Chidley will see economics and policy making from the inside and will make a journey of discovery, learning to distinguish cosmetic drivers of growth from longer-term, more meaningful factors. These meaningful factors—such as a focus on investment in human development—take time to show dividends but are ultimately the ingredients that make countries strong and resilient.

  In her first few days on the job, she asks her “Sir Humphrey” to give her an honest view of the lay of the land: What is the outlook for economic growth, where does economic growth come from, and, optimistically, how can she improve her country’s level of growth? An honest mandarin might point out that economic growth, as we have come to know it, is getting scarcer and more constrained. In order to soften that blow the mandarin might heave a great pile of research and policy papers from institutions like the IMF, the World Bank, and OECD onto the desk of Minister Chidley.

  The End of the Road

  The mandarin might add to the pile the reports of the many G20 and G7 meetings that dot the international political economic landscape. Ahead of these meetings, “sherpas” busily prepare serious statements that are then ordained by political leaders. In recent years, these statements say something like, �
�Economic growth is our priority, we are committed to growth, and we are ready to take action to achieve it.” A search of the G20 website reveals all-encompassing statements such as “We will strengthen the G20 growth agenda to catalyse new drivers of growth, and open up new horizons for development.”2 What these statements mean in reality is that the G20 is worried about the lack of decent economic growth and can do little to speed it up or is not prepared to take the measures necessary to do so. G20 members should worry more about the consequences of a very low or no-growth world.

  The point of the mandarin’s lumping all these reports on Katherine’s desk is to subtly warn her that the level of economic growth across the world is lower than it has been, is of generally poor quality (boosted by one-off factors such as tax cuts), and is likely to be persistently low. Since the global financial crisis, the trend, or long-term average growth rate, in the developed and developing countries of the world has slowed and is now at its weakest since the 1980s.3 Recent publications from the World Bank and the Bank for International Settlements (BIS) confirm this and hold that global growth has peaked.4 They cite a number of factors here: rising interest rates and central bank normalization, a maturing business cycle, and structural factors such as demographics. There is also a recognition in the work of bodies like the BIS that growth levels over the past thirty years have been very high, thanks to globalization and financial market liberalization, and that such boons for growth may not be repeated.

  Already, Minister Chidley will see that a troubling pattern is emerging. At one level, we see the slowing and transformation of globalization. At another, the end of a very long economic cycle is in sight. There is also a sense of exhaustion, not merely on the part of households and businesses but also on the part of policy makers, especially central banks, who have gone to extraordinary lengths to sustain growth and prevent a deep recession. This exhaustion may be attributable to the fact that at no point since the late 1990s has there been a full-scale reckoning or clearing out of the imbalances in the world economic system. A clearing or reckoning involves the restructuring of debt and businesses, together with an assumption of financial risks by those who instigated them. Many of those risks have simply been swept under the policy carpet and still exist. As a result, policy makers continue to treat symptoms rather than underlying problems.

  The view that the world economy has reached the end of a long period of globalization becomes clearer when considering the phases that drove the world economy after the Second World War. Starting in the 1950s, international growth rates were modest. This was a time when North Korea still had a higher average growth rate than South Korea and when the United States worried that Russia might overtake it economically (in the late 1960s, Russia made up close to 14 percent of world GDP, not far off that of Japan in the early 1990s, when it contributed 17 percent of the world’s output). Russia soon discovered that without advances in productivity, growth was limited.

  In Europe, the 1960s was a period when economies thrived, with the French and German economies in particular driven by large state enterprises, infrastructure building, helpful demographics, and greater cross-border trade in Europe. In the 1980s, Europe’s model of success was supplanted by success in the Anglo-Saxon countries, where economic reforms in the United States and Britain—principally in the areas of tax, deregulation, and financial services—spurred economic and social change.

  The momentum of many of these forces carried through to the 1990s despite an international recession in 1990–1991. The beginnings of speedy growth in the emerging world, notably China, and the onset of full globalization following the fall of communism then further elevated world growth. With brief interruptions by the slowdown in the German economy in the early 1990s following reunification and the dot-com crisis in 2001–2002, global growth remained high up to the middle of the first decade of the twenty-first century. Yet much of this growth was financialized, in the sense that growth was created by the issuance of rising amounts of debt and the creation of financial market products on the back of that debt (the 2015 film The Big Short provides a good illustration).

  As a result, instead of earnings growth coming from more organic and tangible sectors of the economy (e.g., manufacturing of aerospace equipment, recruitment agencies, luxury goods, or technology and telecom providers), it came from the use of financial products and services to leverage underlying economic activity. Formally, in national accounts, financial products are treated as activity, though in reality they simply involve the purchase and reallocation of risk, and by 2007, this risk was not well allocated. The housing crisis was a great case in point. Cheap money boosted house prices, high house prices boosted transaction leverages, and exotic and ultimately dangerous derivative instruments magnified the impact of the housing sector on the economy. All the while, banks made money at each of these turns, and by 2006 nearly 40 percent of all the earnings of corporate America came from finance (as an aside, technology now occupies this role, and potentially, from a regulatory point of view, technology may be the new banking sector).

  Financialized growth ultimately came undone and led to the global financial crisis, whose stresses later triggered the eurozone crisis. For much of the postcrisis period, the world economy has been driven by risk and liquidity cycles in which sentiment and eventually economic activity have been driven by monetary infusions from central banks. The fluctuations that arose from these liquidity cycles have periodically upset markets, terrified central bankers, and made companies cautious enough that corporate investment has been slow to recover. These risk and liquidity cycles have distorted the economic cycle in grotesque ways, so that we now have what appears to be a recovery in GDP and in the stock market but no meaningful recovery in wage growth, investment, productivity, or equality. Compared to most other business cycles through history, this one has been odd and ugly.

  How Long Is a Cycle?

  The business cycle is a straightforward but boring economic concept. From the point of view of a politician, however, it lurks beneath many career successes and failures. Politicians elected at the beginning of a recovery can claim all the credit for it, and those elected at the start of a contraction struggle to distance themselves from its negative consequences. George H. W. Bush, for example, was elected president at the top of a long economic boom. As this gave way to recession in 1990, his 1988 pledge of “Read my lips, no new taxes” left him struggling politically, and he failed to win reelection. At times policy makers will feel they are masters of the business cycle, but most of the time they are simply its passengers. The good ones, at least, will adapt their rhetoric to it: upturns will be carefully managed to channel animal spirits, whereas downturns are caused by wild speculators who need to be reined in.

  In seeking to understand business cycles, Minister Chidley might be interested to know that the NBER of the United States has a dedicated business cycle website.5 To noneconomists, this may seem like a very quirky, specialized undertaking, but the business cycle can govern our lives and can make or break political careers.

  The NBER has collected business cycle data going back to the 1850s and breaks business cycles into phases of expansion and contraction. Cycles have lasted for about five years on average (fifty-six months). Globalization has changed all that. The two business cycles that characterized this era of globalization (July 1990 to March 2000 and November 2001 to December 2007) are by a decent stretch two of the longest in economic history. (Those cycles spent 92 and 120 months in expansion compared to an average of about 30 months. The 1960s are the only other period to come close in terms of duration of economic expansion.)

  The current expansion phase (the NBER has declared that the start of the business cycle came in June 2009) is so far closing in on the record length of expansion, with 120 months now under its belt, making it the second-longest expansion on record, though, importantly, the average level of growth during this expansion phase has been lower than the historic average. In the global setting, it is
also worth noting that the length of the current Chinese expansion phase is an especially ripe 210 months, which raises the question of how long this miracle can continue.

  The lengthening and, it must be said, enrichment of the business cycle by globalization has led to pondering on new economic models. In the later part of Bill Clinton’s second term, the notion of the “Goldilocks” economy was invoked to mean an economy that was “neither too hot nor too cold” in terms of its mixture of growth and inflation. Then, famously, in September 2008 Prime Minister Gordon Brown talked of the idea of a “no boom, no bust” economy, only weeks before the onset of the global financial crisis.

  When politicians and policy makers begin to marvel at economic miracles, it is often a sign that a long economic expansion is coming to an end. Economic expansions accumulate risks and imbalances as they mature, partly because long periods of expansion permit the layering of leverage and overinvestment. What can often happen is that toward the later part of a long expansion, expectations rise that high levels of growth will persist for even longer. Bank managers, investors, and companies can become overconfident and can overinvest (often taking on debt to do so). Historically, shorter business cycles had the opposite effect: indebtedness was lower and more frequent, and recessions had the habit of clearing out imbalances, by which I mean, for instance, uneconomic loans, zombie companies (a company—state owned or private—that needs bailouts in order to survive), and asset bubbles. Business cycles, as the saying goes, don’t die of old age but, rather, are usually brought to an end by the consequences of imbalances, most often ignited by rising interest rates.