The Levelling

by Michael O'sullivan

On a similar basis, there is room for the United States to take the lead, perhaps with Europe, in crafting the legal and philosophical frameworks that will oversee the rise in the use of new technologies. Consider the potential for robots to disrupt many forms of employment or to bolster demographics by allowing older people to live more comfortably for longer (consider advances in home care or driverless cars), or consider the way in which algorithms entrench inequalities.

  Think also about advances in science in the realm of DNA and genetic experimentation, which may allow some people to enjoy long lives. As with many advances in medical technology, the benefits of advances in the areas of genetic editing (a leading area here is Clustered Regularly Interspaced Short Palindromic Repeats [CRISPR], which is effectively a DNA-based approach to managing bacteria and viruses), gene sequencing, and the manipulation of reproductive cells are going to be enjoyed by the better-off; more worryingly, they are not yet bound by internationally recognized laws. This creates an incentive for some states to position themselves as leaders in the field of gene manipulation, though there will be a very strong temptation for them to participate in forms of genetic engineering that are considered ethically unacceptable and that can conjure up thoughts of eugenics and natural selection.

  The introduction of binding global standards and legal frameworks in this area will help prevent a practice of ethical arbitrage by more opportunistic states that may look to create ethical paradises in the same way that others create fiscal paradises (e.g., tax havens like Bermuda and the Cayman Islands). A number of codes and standards already exist, but they largely rely on scientists’ willingness to follow them.23 In a context where privately funded research competes with government research institutes and universities, and where governments are competing with each other, observance of these codes may be scant. One aim would be to halt states that seek to provide terrain for experimentation in health technology, genomics, and eugenics, to name a few areas where advances in science could have profound social and ethical consequences. For example, China’s Institute of Neuroscience of the Chinese Academy of Sciences in Shanghai has cloned monkeys and pays large rewards to scientists who can advance it in the area of genetics. China has a policy of World Class 2.0, with a plan to boost its best universities into the top rankings of world academes. It is now close to matching the United States in terms of spending on science research and development. It may seem far-fetched that science can stretch and subvert existing legal frameworks, but science opens up many philosophically unanswered questions. Consider another example: space. There are projects ongoing (the Overview Institute, for instance) to craft the rules of a space-based society. Hamilton might well be impressed that the law would stretch so far and would probably also see the need for rules of the road in uncharted territory.

  Hamilton, if he were present today, might also have caught up on world history. He would realize that, like Germany in the early part of the twentieth century, the United States is the world leader in technology and the sciences (social sciences as well). He would emphasize that this leadership brings with it a responsibility to use science for the public good, as conceived in a global sense and within agreed ethical parameters. By taking the leadership in areas such as the ethics of genomics, the United States can, if it wishes, take the lead in setting the rules of the road of the evolving multipolar system. Hamilton would also recognize two dangers: first, the power that such leadership brings, and, again with the example of Germany of the 1910s in mind, the possibility that leadership will lead to hubris; and second, the dual risk that such powerful technologies are increasingly owned and accessed by elites and, concurrently, that people lower down the pyramid are deprived of their benefits. Consider the prices of new drugs and therapies for the treatment of cancer and hepatitis.

  To follow this line of argument even further, one development that Hamilton might find curious is that inequality has become a hallmark of American society and that this is manifest in many ways, such as treatment for mental health, the prevalence of obesity in people with low income, and inequalities in access to education. As an issue, inequality has few friends in the mainstream of American politics. Hamilton, as one of the intellectual founders of central banking in America and as someone from a very poor background, might feel that policy makers are remiss in ignoring this important issue. He would regard it as a failure that the only policy maker in recent times to speak to issues such as long-term unemployment and to try to address them was Janet Yellen, the previous chair of the Federal Reserve.

  In several policy speeches and policy moves, Yellen expressed the view that extremely accommodative monetary policy was required in order to ease long-term unemployment, and several Federal Reserve economists have also advocated very low interest rates as a means of pushing economic activity out to the furthest reaches of an economy still shocked by the Great Recession.24 Hamilton might be surprised by this in that a Hamiltonian view of economics would determine that institutions, clever fiscal policy, and human development were the ways to address long-term unemployment, as is often the prescription in Europe, rather than monetary policy. The reasoning here is that long-term unemployment is a complex socioeconomic issue whose remedy is found in the patient use of reskilling, education, proper incentivization, and other measures that are far more fine-tuned than the bazooka of monetary policy. To some extent, the fact that the Fed chair was (nobly) driven to consider using an overly accommodative form of monetary policy shows the failure of fiscal policy in the United States to address long-term unemployment. There is no sign that the current administration shares this view. Lowering corporate taxes and cutting education spending and benefits is not the prescribed way to approach such a problem, and measures such as protectionism and moral suasion (such as the threat to tax the Harley-Davidson Motor Company following its announcement that it would shift some production overseas) make the task of job creation even more challenging.

  There are alternatives, and Hamilton might make at least two suggestions, one in banking and the other in labor-related taxes. The first might be a Revival Bank, an idea that comes from the observation that banking systems will increasingly lend capital to those who don’t necessarily need it and will ration it to those who do require financing. The seven-year period from 2011 to 2018 in Europe is a case in point. In addition, in the case of development, or more particularly in the notion of “revival,” there is a need for coordination among economic actors by getting local government, businesses, and educational institutions to work together. A Revival Bank could fill this role and might also function as a sort of bottom-up policy specialist for microlevel economic policy, at the level of communities and cities.

  The most notable component of a Revival Bank would ensure adoption of a long-term approach to lending. Then lending conditions could be based on a combination of financial returns and social returns (i.e., those with an impact on poverty or the environment), and loan holders would be held stringently to those conditions. In this way it should combine making money and putting it to good use. Unlike in many other retail and mortgage banks, loan officers would be more specialized than “ordinary,” property-led loan officers in the way they appraise projects. Correspondingly, a body related to the Revival Bank would coach entrepreneurs and businesspeople in the sourcing of funding and in how to prepare funding proposals.

  In many revival-type projects, individual projects will only work where there is an upgrade of infrastructure. Thus, the Revival Bank might identify infrastructure needs, might coordinate the funding of these, and could formally involve local governments or entrepreneurs. Elsewhere, Hamilton might observe that in the context of low productivity, not enough capital is invested in human capabilities and that, in many industries, graduates are drawn to jobs that pay well but have no social value. He might propose two new approaches to reversing low productivity.

  The first would be focused on providing incentives for skill development for workers in small to medium enterprises (SMEs),
partly because large companies can avail themselves of other tax benefits, in start-ups business metrics like productivity and profitability are harder to measure, and SMEs are a crucial engine of economic activity. This could be done in the same way that companies can depreciate fixed investments: by allowing tax breaks for the fostering of medium-term to long-term development of skills in employees.

  So for measurable increases in an employee’s capability (measured by completion of training courses, education, and formal reskilling courses), a company would be allowed to offset part of the human value added. This has several advantages: it encourages longer-term employment relationships between companies and employees; rather than replacing people with technology, it should give companies an incentive to teach existing workforces to use technology better and so become more productive; and in aggregate it produces a smarter workforce.

  The second and probably controversial idea relates to income tax. One of the tensions between economic activity and society is that they diverge in their aims and outcomes, something underlined by the work of Karl Polyani. Polyani was an Austro-Hungarian economist whose book The Great Transformation, published in 1944, tracked the impact that the introduction of the market economy had on British society through the nineteenth century. His broad thesis is that the development of markets should occur in a harmonious way that balances social change. Today, many people earn vast amounts of money doing jobs that have little social impact, or in some cases, a negative social impact. This is not to say that all jobs should affect society in a positive way, but that channels should be found to balance rewards between, say, soldiers, police officers, and doctors, on the one hand, and derivative traders and people selling luxury goods, on the other. In addition, such channels might also help the labor market, where young people can feel rewarded for working as, say, a teacher rather than a management consultant. A Hamilton-type figure might ask a body like the OECD to draw up a broad, internationally recognized code of job roles, categorized by social impact. Then governments could add (or subtract) a tax depending on the social relevance of specific jobs. In such a system, a plastic surgeon might pay higher taxes, but more young doctors might be incentivized to work as accident and emergency surgeons.

  Stability and Capability

  Having done all this, Hamilton deserves a rest. Given what he did for the United States in the late eighteenth century, I have invoked him for a number of reasons. The first is to paint a road map of how, through the levelling, the large poles of the emerging multipolar order—the United States, Europe, and China—might develop. The second is to emphasize that the idea of a country or a region being “great” and strong does not necessarily have to be interpreted in a belligerent way; rather, it can be taken in the sense that the country should be stable and capable, with appropriate, functioning institutions and the people to run them. The third element is to point out that the more developed, robust, and institutionally complete the major regions are, the less prone they are to conflict, and the less likely they are to upset relatively smaller countries in their geopolitical hinterland. In this way, the evolving, levelling world order has a sounder basis.

  * Jobs “for life.”

  ELEVEN

  LOOKING AHEAD

  From Noise and Disruption to… What?

  IT’S AUGUST 2018 AND I AM JUST FINISHING THE FINAL EDITS TO THIS book, hoping dearly that nothing too dramatic happens in the world between now and publication date—though political, economic, and geopolitical volatility across the word is rising noticeably. I have lost count of the number of times people have told me, “We live in interesting times.”

  With some holiday to salvage and with the best part of one hundred thousand words trawled through, I am tempted to close my laptop, but a few things still bother me.

  The first is that, with the passing of the headline-grabbing events I mentioned in the book’s very first paragraph—the election of Donald Trump, Brexit, the advent of new governments in Mexico and Italy—sooner or later people will realize that the deep, persistent, underlying issues in our world are the need to reduce imbalances in indebtedness globally, the need to decommission the vast power of central banks, wealth inequality, the role of women in economies, the search for a new model for economic growth, and the rise of emerging countries (e.g., China) to rival incumbent powers (e.g., the United States).

  In that light, my aim in this final chapter is to briefly summarize and restate the aims and arguments of the book. The first is to bring readers, and hopefully others, to realize that the events we are observing are part of a process of paradigm shift: the passage from the globalization-driven world order of the last forty years to a new one. I call this process the levelling. We are simply at the early, first stage of the levelling, a stage that is noisy and disorderly.

  The passage to something more stable, and new, will entail several challenges. One is that geopolitics will change; the world will be less interconnected, more multipolar, and thus dominated by three large regions or poles: the US-led Americas, the European Union, and Chinacentric Asia. India has the capability to be a pole, but it is not there yet.

  As a result, middle powers like Russia, the United Kingdom, Australia, and Japan will struggle to find their places in this world. World institutions, built for the twentieth century—the IMF, the World Bank, the WTO, and to an extent the United Nations—will fade and lose their relevance. New formations of states will become more prominent; expect to hear more about the Quad and the SCO. Small advanced economies will form a policy body—let’s call it the “g20,” with a lowercase g—and will become the policy model for stable economic growth and democracy.

  Economically (and our world is dominated by economic forces) the trail through the levelling will be marked by several trials. The first is (with excuses for my forecasting) that political volatility within and between countries will be heightened by the probable onset of a recession by early 2020, driven by downturns in the United States and China.

  Second, radical action is needed to reduce the extremes across economies. Two in particular—the record levels of indebtedness globally and the dominant imprint of central banks on economies—can only be resolved by historic levels of coordination between countries. Such cooperation only happens when things get bad or when other, milder approaches have been exhausted. I propose a world debt conference, to take place in 2024, to pare back debt levels and a treaty on risk taking to curb the use of extraordinary monetary policy in all but the most extreme circumstances.

  The third and most important economic issue will revolve around the need to accept expectations that the trend level of growth worldwide will be lower in the next ten to twenty years than it has been over the past forty. Once these new expectations have been acknowledged, the search for a sustainable model of growth will start. I propose that a framework for this new model should be centered on the concepts of country strength (i.e., the stability and resilience of economies) and intangible infrastructure.

  Intangible infrastructure is based on the things that matter to human development: health care, education, laws, and institutions. I fundamentally believe that a very significant element of the political dislocation seen across the world results from a lack of focus on intangible infrastructure in particular, ranging from a lack of clear, fair laws to a lack of accessible, high-quality education. The United States is an example, spending enormous political energy on cutting corporate tax rates as spending on education falls and student debt balloons. The features of country strength and intangible infrastructure are manifest in small, advanced economies, but they may also provide a basis for other countries. Post-Brexit “global Britain” is one, a post–Vladimir Putin Russia (he is due to retire in 2024) is another, and a final example is the many smaller, emerging economies that are looking to make the next step forward in their development.

  To say that politicians should focus on human development is to state the obvious and is perhaps trite, but the reality is that it is n
ot done in practice. It is one component of the distance between politicians and their electorates. Ultimately this distance will produce a greater rupture, and hopefully a more positive political environment in which new parties will spring up to constructively represent the needs and aspirations of people in the twenty-first century. At the time of this writing, the Democrats and Republicans in the United States, as well as Tories and Labour in the United Kingdom, could feasibly split. My view is that new parties are part of the regeneration process in politics, and I have sketched out some possible examples.

  There are two other components of the revival of public life. The first is to attract new blood into politics, so that there is a greater focus on policy decision making. Part of the challenge here is to make the political game less unattractive to, say, mothers or people from non-politics-related walks of life. In the future, the great issues or fights in politics will address the environment to a greater extent, as well as new policy issues such as mental health and the interaction between humans and technology.

  A profound axis around which international politics will rotate is the tension between the leveller view of the world (democratic, open societies with a focus on rule of law and in which institutions and investment in humans are the central pillars of economic growth) and the Leviathan view (societies in which freedom is surrendered in exchange for social order and the prospect of greater national prosperity).

  The final element in the levelling is my challenge to voters. Today politics is discredited, debate around politics is contaminated, and political outcomes are increasingly hurtful and negative. The challenge is to ask people what, coherently, they want from politics and to express that in a constructive and positive way. It has been done before. The Levellers’ Agreements of the People are a hidden gem, and it is time to discover and recast them for the twenty-first century.