Post-Davos Depression


February 4, 2018

Post-Davos Depression

by Dr. Joseph E. Stiglitz@www.project-syndicate. org

The CEOs of Davos were euphoric this year about the return to growth, strong profits, and soaring executive compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive; but in a world where greed is always good, such arguments have little impact

..,the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have..–Joseph E. Stigltz

DAVOS – I’ve been attending the World Economic Forum’s annual conference in Davos, Switzerland – where the so-called global elite convenes to discuss the world’s problems – since 1995. Never have I come away more dispirited than I have this year.

Image result for The Economic Elites at Davos 2018Demonstrators in Zurich this week. While many are poised to recoil at President Trump’s arrival in Davos this week, much of the moneyed elite there are willing to overlook what they portray as the president’s rhetorical foibles in favor of the additional wealth he has delivered to their coffers. Credit Ennio Leanza/European Pressphoto Agency.

 

The world is plagued by almost intractable problems. Inequality is surging, especially in the advanced economies. The digital revolution, despite its potential, also carries serious risks for privacy, security, jobs, and democracy – challenges that are compounded by the rising monopoly power of a few American and Chinese data giants, including Facebook and Google. Climate change amounts to an existential threat to the entire global economy as we know it.

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Perhaps more disheartening than such problems, however, are the responses. To be sure, here at Davos, CEOs from around the world begin most of their speeches by affirming the importance of values. Their activities, they proclaim, are aimed not just at maximizing profits for shareholders, but also at creating a better future for their workers, the communities in which they work, and the world more generally. They may even pay lip service to the risks posed by climate change and inequality.

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But, by the end of their speeches this year, any remaining illusion about the values motivating Davos CEOs was shattered. The risk that these CEOs seemed most concerned about is the populist backlash against the kind of globalization that they have shaped – and from which they have benefited immensely.

Not surprisingly, these economic elites barely grasp the extent to which this system has failed large swaths of the population in Europe and the United States, leaving most households’ real incomes stagnant and causing labor’s share of income to decline substantially. In the US, life expectancy has declined for the second year in a row; among those with only a high school education, the decline has been underway for much longer.

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Justin Trudeau of Canada and Narendra Modi of India–The Globaists at Davos 2018 who together with Germany’s Angela Merkel, Emmanuel Macton of France and China’s Xi Jinping will make America First’s Donald Trump irrelevant.

Not one of the US CEOs whose speech I heard (or heard about) mentioned the bigotry, misogyny, or racism of US President Donald Trump, who was present at the event. Not one mentioned the relentless stream of ignorant statements, outright lies, and impetuous actions that have eroded the standing of the US president – and thus of the US – in the world. None mentioned the abandonment of systems for ascertaining truth, and of truth itself.

Indeed, none of America’s corporate titans mentioned the administration’s reductions in funding for science, so important for strengthening the US economy’s comparative advantage and supporting gains in Americans’ standard of living. None mentioned the Trump administration’s rejection of international institutions, either, or the attacks on the domestic media and judiciary – which amounts to an assault on the system of checks and balances that underpins US democracy.

No, the CEOs at Davos were licking their lips at the tax legislation that Trump and congressional Republicans recently pushed through, which will deliver hundreds of billions of dollars to large corporations and the wealthy people who own and run them – people like Trump himself. They are unperturbed by the fact that the same legislation will, when it is fully implemented, lead to an increase in taxes for the majority of the middle class – a group whose fortunes have been in decline for the last 30 years or so.

Even in their narrowly materialistic world, where growth matters above all else, the Trump tax legislation should not be celebrated. After all, it lowers taxes on real-estate speculation – an activity that has produced sustainable prosperity nowhere, but has contributed to rising inequality everywhere.

The legislation also imposes a tax on universities like Harvard and Princeton – sources of numerous important ideas and innovations – and will lead to lower local-level public expenditure in parts of the country that have thrived, precisely because they have made public investments in education and infrastructure. The Trump administration is clearly willing to ignore the obvious fact that, in the twenty-first century, success actually demands more investment in education

For the CEOs of Davos, it seems that tax cuts for the rich and their corporations, along with deregulation, is the answer to every country’s problems. Trickle-down economics, they claim, will ensure that, ultimately, the entire population benefits economically. And the CEOs’ good hearts are apparently all that is needed to ensure that the environment is protected, even without relevant regulations.

Yet the lessons of history are clear. Trickle-down economics doesn’t work. And one of the key reasons why our environment is in such a precarious condition is that corporations have not, on their own, lived up to their social responsibilities. Without effective regulations and a real price to pay for polluting, there is no reason whatsoever to believe that they will behave differently than they have.

The Davos CEOs were euphoric about the return to growth, about their soaring profits and compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive. But such arguments have little impact in a world where materialism is king.

So forget the platitudes about values that CEOs recite in the opening paragraphs of their speeches. They may lack the candor of Michael Douglas’s character in the 1987 movie Wall Street, but the message hasn’t changed: “Greed is good.” What depresses me is that, though the message is obviously false, so many in power believe it to be true.

Brexit: Britain’s nervous breakdown, and Theresa May’s Waterloo


February 2, 2018

Opinion Brexit

Brexit:  Britain’s nervous breakdown, and Theresa May’s Waterloo

https://www.ft.com/content/3687f1b0-067d-11e8-9650-9c0ad2d7c5b5

The country is upending the policies that have set its national course for 50 years

by Philip Stephens@www.ft.com

Familiarity is a distorting prism. All too easily the extraordinary becomes the unremarkable, the aberrant the commonplace. This is what has happened in Britain following the referendum  decision to leave the EU. The attempt to wrench the nation out of its own continent has triggered a national nervous breakdown. Only the British cannot see it.

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Open plotting against an enfeebled Prime Minister, civil war in the cabinet, a ruling Conservative party riven by faction, a Labour opposition led by a life-long admirer of Fidel Castro, parliament imprisoned by the referendum result, paralysis at the heart of government — all have become the stuff of everyday politics. Britain was once a sturdy, stable democracy. Anger and acrimony are the new normal, as likely to elicit a weary shrug as incredulity.

Historians will scratch their heads in wonder. These are truly extraordinary times. Britain is upending the economic and foreign policies that have set its national course for half a century. Nothing in modern peacetime matches the upheaval. The impact on the nation’s prosperity, security and role in international affairs will be felt for a generation and beyond. Unwrapping decades of integration is a task of huge complexity.

And yet Theresa May, the Prime Minister, dare not set out her preferred course for a post-Brexit settlement lest she be toppled by her own Tory MPs. Instead she pleads with Germany’s Angela Merkel to tell her what Berlin might offer in terms of a future relationship. The humiliation is excruciating.

With each step back from the melee, the picture becomes all the more incredible. Most MPs in the House of Commons consider Brexit an act of folly. They will vote against their judgment because the referendum, with its narrow majority for leave, has been invested with an absurd, almost mystical status. Let no one dare question “the will of the people”. With the odd, honourable exception, Tory and Labour pro-Europeans seem inclined to let Britain sink rather than make common cause across party lines. A nation that calls itself the mother of parliaments has somehow mislaid the meaning of representative democracy.

Brexit is an act of protectionism promulgated by English nationalists who inexplicably style themselves free-marketeers. Every study produced in Whitehall suggests departure from the single market will leave Britain poorer and less able to promote its interests overseas. Throwing up barriers across the Channel will weaken its voice across the Atlantic.

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Michael Gove
“Baffled historians will search in vain to find a single official in the high echelons of Whitehall — from the cabinet stary down — who thinks Brexit is anything less than a catastrophe…[T]he vision amounted to no more than rhetorical flatulence on the part of Boris Johnson…The foreign secretary has no project or purpose in mind. He wants to be prime minister because, well, he wants to be prime minister. Parallels with US president Donald Trump are not far-fetched”.–Philip Stephens

 

Only this week Mrs May sought unsuccessfully to suppress an official analysis showing the alternatives to EU membership will reduce growth and cut living standards. Tory Brexiters are unmoved. The cabinet Brexiter Michael Gove sets the intellectual tone when he pours scorn on the insights of experts.

Baffled historians But what of “global Britain”, the bold Elizabethan future imagined by the Brexiters? Alas, the historians will discover, the vision amounted to no more than rhetorical flatulence on the part of Boris Johnson, the foreign secretary…Mr Johnson, whose calculated mendacity is matched only by inflated self-regard, is determined Mrs May should be ousted.

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Boris Johnson–What he wouldn’t to be British Prime Minister

Where all this leads, it is impossible to say. Mr Johnson, whose calculated mendacity is matched only by inflated self-regard, is determined Mrs May should be ousted. Personal ambition burns more brightly here than any convictions. The foreign secretary has no project or purpose in mind. He wants to be prime minister because, well, he wants to be prime minister. Parallels with US president Donald Trump are not far-fetched.

Mrs May could survive. But to what end? Without the confidence of her cabinet and deprived of a majority in the House of Commons by an ill-judged general election, Mrs May has neither the wit nor the authority to reach a sensible agreement with the EU27. Most MPs would back a “soft” Brexit, leaving Britain’s economy closely connected to Europe. Mrs May feels threatened by the English nationalists. Her strategy, if you could call it that, is to leave all the serious decisions until after Britain’s departure from the EU in March 2019.

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Labour’s Jeremy Corbyn

Jeremy Corbyn is a 1970s hardline socialist who sees the EU as a capitalist conspiracy. Mr Corbyn may launch opportunistic strikes against the government but shows no enthusiasm for a close relationship with the EU27.

In other circumstances Her Majesty’s loyal opposition might offer a counterpoint of stability. Instead Labour is led by Jeremy Corbyn, a 1970s hardline socialist who sees the EU as a capitalist conspiracy. Mr Corbyn may launch opportunistic strikes against the government but shows no enthusiasm for a close relationship with the EU27.

As for the voters, some may have changed their minds. Polls suggest the 52:48 per cent tally in favour of Leave would be reversed in a second referendum. Maybe. But these numbers are well within the margin for error. Why anyway should people take a different view before they have seen the deal on offer from Britain’s erstwhile partners and, pace Mr Gove, have weighed the evidence as to the likely effect on living standards?

If there is a slim hope that Britain can emerge wounded rather than broken, it lies in the possibility that things will get still worse in the short term. Mendacity, chaos and division could end in complete paralysis — with parliament failing to agree on any form of Brexit. If Britain does remain part of the EU after all this, it will be because, in its present state, it is simply incapable of leaving.

philip.stephens@ft.com

 

 

Fareed Zakaria looks back at President Trump in Davos 2018


January 2, 2018

Fareed Zakaria looks back at President Trump in Davos 2018

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“I don’t seek to normalize Trump. But I do believe that, given the stakes, the United States and the world are better off for these moments when he behaves more like a normal President.”–Fareed Zakaria

by Dr.Fareed Zakaria

https://www.washingtonpost.com/opinions/trump-acted-like-a-normal-president-in-davos-thats-good-for-all-of-us/2018/01/27/57c879ca-0395-11e8-bb03-722769454f82_story.html?utm_term=.6d5058f0c8f2

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Ever since Donald Trump was elected President, I have said that when he did something right, I would say so. That’s gotten me into trouble with some readers, but I’m going to do it again. On Friday at the World Economic Forum, Trump gave a good speech that was forthright, intelligent and conciliatory, embracing the world rather than condemning it. The address was extremely well received here at the World Economic Forum by both American business leaders and even non-American attendees, who are overwhelmingly skeptical of Trump overall.

If the speech represents a new approach for the President, it will be a huge step forward. But of course, the problem with Trump is that, by tomorrow morning, he might veer off in an entirely different direction.

The Trump Presidency has been composed of three parts. Trump I is the circus — the tweets, the outlandish claims, the reality-TV-like show. Trump II is the dark populism and the demagogic assaults on minorities, the press and the judiciary. Trump III is the conventional Republican president, following a fairly standard GOP agenda — tax cuts, deregulation and a hawkish foreign policy, guided by mainstream advisers such as National Economic Council Director Gary Cohn and Defense Secretary Jim Mattis.

We could be entertained by the circus, and we should be appalled by the demagogue, but we have to be encouraged by Trump the Republican. That’s not because I agree with all the ideas he has put forth in his agenda. I continue to think the tax cut is fiscally irresponsible, blowing a huge hole in the deficit that will starve public investment and effectively transfer government resources from the poor to the rich. On the other hand, his deregulatory push could be an important reform of an administrative state that has grown burdensome and overly complex. Trump’s policies and cheerleading rhetoric have undoubtedly boosted business confidence, which, as former Obama economic adviser Lawrence Summers has often noted, is the cheapest economic stimulus.

But whatever you think of the policies, the larger point is that Trump the conventional Republican is working within the American system rather than trying to destroy it.

It’s possible that the weight of the Presidency and the challenges of the job have pushed Trump toward a more sober and responsible path. But it is also possible that Trump simply decided, for now, to side with his moderate advisers. He often seems to be an unstable compound of Trumps I, II and III, in a single day tweeting out juvenile absurdities and lashing out at democratic institutions but then also promoting some sensible policy. Even at Davos, he couldn’t stop himself from attacking the news media and repeatedly making false or misleading claims.

The mood at the World Economic Forum is often an interesting indicator because, while it is an elite gathering of business leaders, it also involves lots of people from nonprofits, social enterprises, politics and the media. The forum is also genuinely global, drawing people from around the world, far more than any other conference I have attended.

The mood this year in Davos was upbeat. The world is experiencing synchronous global growth, something very rare. The U.S. economy is humming, Europe is having a solid recovery and Japan has (utterly unexpectedly) had seven consecutive quarters of growth. China continues to power along, India is rising, and Latin America has many success stories, as does Africa. Markets reflect this. They are almost all up at the same time — stocks, bonds, real estate, oil.

But underneath this good cheer, there is disquiet. Partly this is because people remember the optimistic mood just before the global recession hit. But there is also unease that while global economies look reasonably stable, global politics are in turmoil. The old world order created and led by the United States is eroding, and new great powers are entering the stage, most of them illiberal, mercantilist and narrow-minded. What will the world look like when China, Russia, Turkey and India have much more weight in global affairs?

 

Kant Goes to Berlin


January 7, 2018

Kant Goes to Berlin

https://www.project-syndicate.org/blog/kant-goes-to-berlin

by Michael G. Heller

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I can slip into this unique meeting of a group of European policymakers with Immanuel Kant only because I am an intern with training in stenography who is discreet and presentable and good at making tea and arranging chairs.

My boss at the Ministry (who is not allowed entry and will be so jealous of me!!) was asked at short notice to organize the reunion which will explore in the broadest possible terms an outline of the country’s philosophical stance on Fiscal Union. Someone at the European Commission is insisting we find a historical defence of the institutions and procedures of the new macro surveillance mechanism to deploy against “cheap criticism” of the democratic legitimacy of EU institutions.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

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Mario Draghi is here. So is Jens Weidmann. Guido Westerwelle has at the last minute invited Radoslaw Sikorsky who happens to be visiting Berlin today.

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Chancellor of Germany–Angela Merkel–An Intellectual in her own right

Schäuble is in a hurry. He whispered to Chancellor Merkel that time is short, they should push on. Merkel would have liked to wait for an agreeable atmosphere to settle upon the room. She changed her mind, however, when she overheard Immanuel Kant muttering that “progress in time determines everything and is not itself determined, and every transition in perception to something that follows in time is a determination of time”. Kant arrived punctually, and has finished his tea. It would be advisable to begin discussion while the caffeine still circulates through whatever remains of his veins.

Merkel:  Ladies and Gentleman…

Wow! She is talking directly to *me*. I am the only other lady in the room! Wow!

Merkel:  The German government has always made it clear that the European debt crisis is not to be solved with a single blow. There is no such single blow…

Schäuble:  All quick solutions, like printing money or collectivizing our liabilities without a common finance policy, are the wrong solution…

Merkel:  Thank you Wolfgang. As I was saying, I hope our partners understand we are not willing to trade concessions such as bond-buying, joint debt-issuance and sovereign bail outs. This is not about give and take. The precondition of continuation with the single currency is that sovereignty in fiscal policy be delegated to European institutions. So, where today we have only loose agreements we need in future to have legally binding regulations.

Schäuble:  It does not make any economic sense to start endlessly pumping money into stability funds, nor starting up the ECB printing press. This would create disincentives for countries to carry on consolidating and reforming. Piling on more debt now will stunt rather than stimulate growth. We need to take big steps to get Fiscal Union done. It was not possible politically in the 1990s but the crisis shows we need it now. That is why crises are also opportunities. We can get things done that we could not do without the crisis. Do you agree Prof Kant?

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Immanuel Kant

Kant:  The only way for the philosopher, since he cannot assume that mankind follows a rational purpose of its own in its collective actions, is for him to attempt to discover a purpose in nature behind this senseless course of human events. An organ which is not meant for use or an arrangement which does not fulfill its purpose is a contradiction in the teleological theory of nature. This purpose of nature can be fulfilled only in a society which has not only the greatest freedom, and therefore a continual *antagonism* among its members, but also the most precise specification and preservation of the limits of this freedom. The highest task which nature has set for mankind must therefore be that of establishing a society in which freedom under external laws would be combined to the greatest possible extent with irresistible force. It requires a perfectly just civil constitution. Man is forced to enter this state of restriction by sheer necessity.

Draghi:  Yes. And the sequencing matters… For example, it is first and foremost important to get a commonly shared fiscal compact right. Confidence works backwards. If there is an anchor in the long term, it is easier to maintain trust in the short term… It is time to adapt the euro area design with a set of institutions, rules and processes that is commensurate with the requirements of monetary union.

Kant:  Europe’s citizens should be informed, so that they may comprehend the flow of history, that the fiscal union is but the most immediate feasible step in the direction of a federation of peoples in which every state, even the smallest, could expect to derive its security and rights not from its own power or its own legal judgement, but solely from this Great Federation. However wild and fanciful this idea may appear, it has been ridiculed as such only because they thought that its realization was presented as imminent. It is the crisis, not the Germans, that have made it imminent and feasible. This crisis is the signal that nature sends to man about the current dysfunction of his institutional organs.

Sikorski:  But it is a crisis of apocalyptic proportions!!! I demand of Germany that, for your own sake and for ours, you help the eurozone survive and prosper. You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation.

Merkel:  Radoslaw, let me assure you that is exactly why we are meeting today. I fear we are not winning the philosophical argument. It is bizarre that some people think we wish to dominate Europe. In order to win back trust, we need to do more. What is the fundamental historical argument we must make for Fiscal Union?

Westerwelle:  Sound budgeting is not a German idée fixe based on our historical experience of hyperinflation. It is in the interest of Europe as a whole. There is no time to lose. It is vital to send a clear message to markets that the eurozone is determined to end the policies of debt-making.

Schäuble:  When things get really difficult, suddenly solutions which seemed impossible become possible. The crisis represents an opportunity. I’m not saying that I enjoy being in a crisis, but I’m not worried. Europe always moved forward in times of crisis. Sometimes you need a little pressure for certain decisions to be taken. We can only achieve a political union if we have a crisis.

Kant:  This crisis opportunity is not a lucky accident arrived at by random collisions but rather reveals that nature is purposive in its parts. As in war or any systemic catastrophe, the aftermath is felt by the state in the shape of a constantly increasing *national debt* whose repayment becomes interminable. And in addition, the effects which an upheaval in any state produces upon all the others in our continent, where all are so closely linked by trade, are so perceptible that these other states — Germany and France — are forced by their own insecurity to offer themselves as arbiters, albeit without legal authority, so that they indirectly prepare the way for a great political body of the future, without precedent in the past.

Schäuble:  This is true. We achieved monetary union, in the short term we want fiscal union, and in a larger context naturally we need a political union… Yet the Mediterranean countries will not become German, and Europe will not be speaking German.

Kant:  Although this political body exists for the present only in the roughest of outlines, it nonetheless seems as if a feeling is beginning to stir in all its members, each of which has an interest in maintaining the whole. And this encourages the hope that the highest purpose of nature, a universal *cosmopolitan* existence, will at last be realized. If we trace the influence of the Greeks upon the shaping and mis-shaping of the body politic… we shall discover a regular process of improvement in the political constitutions of our continent. We must always concentrate our attention on civil constitutions, their laws, and the mutual relations among states, and will then notice that a germ of enlightenment always survived, developing further with each revolution.

Weidmann:  I’m with you Prof Kant. Right now we’re talking about the EU treaty and I don’t see how you can build trust in a system that violates laws. I am president of an institution which is bound by a legal framework. We should respect the division of labour in a democracy. This has nothing to do with pragmatism or dogmatism. You won’t solve the crisis by reducing incentives for the debtor governments to act. It’s really an absurd debate in which we are telling institutions: ‘don’t care about the law’. In any model you must penalize rule violations. In the Maastricht model, the rules would be the stability and growth pact, with automatic sanctions for violations and the no bail-out clause. In the fiscal union model you also need strict rules for deficit and debt. If you breached those rules you would need to delegate your national sovereignty on fiscal policy to a supranational level. I think the true question at the heart of this is: are governments, parliaments, and *people* ready to accept a supranational level, a European level that assumes the ultimate responsibility for fiscal policy, at least in case of a breach of the rules?

Kant:  If the law is such that a *whole people* could not possibly agree to it (for example if it stated that a certain class of subjects must be privileged as a ruling class) it is unjust; but if it is at least possible that a people could agree to it, it is our duty to consider the law as just, even if the people is at present in such a position or attitude of mind that it would probably refuse its consent if it were consulted… in a referendum, for example.

Weidmann:  And, furthermore, it’s not about being more German or not being German. Fiscal solidity is not only a German issue, and the crisis has clearly revealed its importance as the basis of financial stability and political stability.

Draghi:  I agree. On my appointment as ECB president a British newspaper worried “the euro could be felled by an Italian trying too hard to be a German.” I mean it’s just absurd…

Kant:  Take no notice, Mario. They probably meant another country whose name begins with ‘G’. Germany is a successful country. All this fuss about budget sovereignty! In times past we lost our cities not just our deficits. Because I’m forced to live in Russia I can see things as an outsider. I see that, after wisely moving away from corporatism, Germany and like-minded northern European countries have consolidated as the world’s sustainably strongest and most competitive economies. The BRICS will at some stage inevitably crash against or only slowly clamber over internal institutional roadblocks. Germany already has good institutions *and* the right economy. If the Great Federation is modeled on impersonal non-discriminatory legal-procedural process then it can also be sold to the German people as their victory to be proud of. The voters are bound to like it.

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Max Weber

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Jurgen Habermas

Merkel:  Since we’ve drifted to the question of democracy I would like to mention that we are planning another meeting, this time with Max Weber and Jurgen Habermas, who have opposing views on the present democracy debate in Europe.

Weidmann:  I think Habermas disagrees with our idea for taking away the budgetary privileges of national parliaments.

Kant:  It sounds like the makings of a first-rate quarrel. Can I come too?

The meeting finishes. As intern, I busy myself helping everyone to find their way out of the room without mishap. I give them each my card — discreetly — and tell them what a pleasure it has been. Angela says to me “see you at the next meeting then”, which means I can truthfully tell my boss I will be expected to attend. The Chancellor expects it.

Italic Credits:  Kant: Political Writings, The Guardian, New York Times, Der Spiegel, Financial Times, The Economist, Reuters, Google

The Sovereignty that Really Matters


October 23, 2017

The Sovereignty that Really Matters

by Javier Solana

The preference of some countries to isolate themselves within their borders is anachronistic and self-defeating, but it would be a serious mistake for others, fearing contagion, to respond by imposing strict isolation. Even in states that have succumbed to reductionist discourses, much of the population has not.

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MADRID – In his famous “political trilemma of the world economy,” Harvard economist Dani Rodrik boldly claims that global economic integration, the nation-state, and democracy cannot coexist. At best, we can combine two of the three, but always at the expense of one.

Until recently, the so-called Washington Consensus, with its emphasis on liberalization, deregulation, and privatization, shaped economic policy worldwide. While the 2008 global financial crisis eroded its credibility, the G20 countries quickly agreed to avoid the protectionist policies against which the consensus stood.

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Meanwhile, the European Union remained (and remains) the only democratic experiment on a supranational level, taking pride in its promising advances, despite being burdened by multiple defects. In other words, economic integration, anchored in the nation-state, remained in favor globally, while democracy was made secondary to international market dynamics.

But 2016 marked a turning point, though we still do not know toward what. A “Beijing Consensus” has emerged, which some view as an alternative model of development based on greater government intervention. But it was the Brexit vote and the election of Donald Trump as US president that really reflected the move to upend the long-established balance among globalization, the nation-state, and democracy.

“Let’s take back control” was the Brexiteers’ winning slogan, expressing a sentiment that clearly resonated with the slim majority of British voters who supported withdrawal from the EU. Likewise, many Trump voters were convinced that the accumulated powers of Wall Street, transnational players, and even other countries had to be reined in to “make America great again.”

It would not be wise to scorn this diagnosis, to which Rodrik himself subscribes (at least in part), just because one dislikes the proposals put forward by Trump and some of the Conservative proponents of Brexit. Their approach consists in hindering globalization – while maintaining or even enhancing other aspects of the Washington Consensus, such as financial deregulation – and strengthening democracy through the nation-state.

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In his first appearance before the United Nations General Assembly, Trump delivered a 42-minute speech in which he used the words “sovereignty” or “sovereign” 21 times –an average of once every two minutes. And in Europe, the United Kingdom is not the only country to be carried away by a neo-Westphalian current: Poland and Hungary are in its grip as well. Even the Catalan pro-independence movement, headed by various parties, most of which would not feel comfortable being labeled “anti-globalization,” follows a similar logic of retreat into nationalism.

All of these forces overestimate their capacity to dilute or circumvent existing economic integration, which has been strengthened in recent decades by the rapid development of cross-border value chains. Unless these forces reverse course, they are more likely to dilute the influence that their nation-states (or the states they seek to create) might be able to wield over globalization. In short, an increase in formal sovereignty could paradoxically result in a loss of effective sovereignty, which is the kind that really matters.

Consider Britain: by exiting the EU, the British will have no say over what is, far and away, their most important export market. As for Catalonia, a supposedly pro-independence and pro-sovereignty movement could end up creating a polity that is less sovereign and more at the mercy of international events.

Just a week after Trump’s UN speech, French President Emmanuel Macron presented his vision of Europe’s future in an address at the Sorbonne. Macron also mentioned the word “sovereign” repeatedly, making it clear that it forms the basis of his vision for Europe. But, unlike populists, he favors an effective and inclusive sovereignty, European in scope and supported by two more key pillars: unity and democracy.

Relations between states are driven by cooperation, competition, and confrontation. There is little doubt that a certain degree of confrontation will always be present internationally. But the EU has clearly demonstrated that its incidence can be reduced by exponentially increasing the opportunity cost of conflictive dynamics. Unfortunately, the movements that understand sovereignty in isolationist terms usually revert to extreme nationalism, which is not given to promoting the common spaces that allow international society to prosper.

The preference of some countries to isolate themselves within their borders is anachronistic and self-defeating, but it would be a serious mistake for others, fearing contagion, to respond by avoiding engagement with these states. The spirit of cooperation, along with constructive competition, should structure relations between all players that possess international legitimacy. Even in states that have succumbed to reductionist discourses, much of the population has not. Such is the case of the 48% of British voters who opposed Brexit, or the 49% of Turks who voted “no” to expanding the Turkish presidency’s powers, implicitly rejecting a narrative that used the EU as a scapegoat. Many of these voters would surely be disappointed if the EU turned its back on them.

The vitality of international society depends on dialogue. And, to avoid perpetuating the deficiencies of the Washington Consensus, which were revealed with such clarity in 2016, this dialogue must occur within the framework of a common and democratic public sphere. If we cultivate this common public sphere, reducing the pre-eminence of the nation-state, we could advance step by step toward the least explored side of the triad described by Rodrik: global democracy.

Of course, a universal democracy would be a very difficult objective to achieve (Rodrik himself rules it out). But, with technological development and the multiplication of economic and cultural synapses, it is not a chimera. In this sense, the EU has already forged a new path, one that aims to expand democracy beyond the realm of the nation-state. For Europe, as well as for other regions, it is a path worth following.

*Javier Solana was EU High Representative for Foreign and Security Policy, Secretary-General of NATO, and Foreign Minister of Spain. He is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.

 

From Merkel to Macron–The Future of Europe


October 1, 2017

THE ECONOMIST

Running Europe

The spotlight shifts from Germany to France

A dynamic Emmanuel Macron and a diminished Angela Merkel point to a new order in Europe

Print edition | Leaders

Sep 30th 2017

WHO leads Europe? At the start of this year, the answer was obvious. Angela Merkel was trundling unstoppably towards a fourth election win, while Britain was out, Italy down and stagnating France gripped by the fear that Marine Le Pen might become the Gallic Donald Trump.

Image result for Macron Mr. Europe

 

39 year old President Emmanuel Macron–The new Mr. Europe. Can he revitalise an anaemic Europe?

This week, it all looks very different. Mrs Merkel won her election on September 24th, but with such a reduced tally of votes and seats that she is a diminished figure. Germany faces months of tricky three-way coalition talks. Some 6m voters backed a xenophobic right-wing party, many of them in protest at Mrs Merkel’s refugee policies. Having had no seats, Alternative for Germany, a disruptive and polarising force, is now the Bundestag’s third largest party.

Yet west of the Rhine, with a parliament dominated by his own new-minted and devoted party, France’s President Emmanuel Macron is bursting with ambition . This week he used a speech about the European Union to stake his claim to the limelight. Whether Mr Macron can restore France to centre-stage in the EU after a decade in the chorus depends not just on his plans for Europe, but also on his success at home, reforming a country long seen as unreformable.

Angela’s leading man

Image result for A weakened Angela Merkel of Germany

Start with Europe. This week’s speech was brimming over with ideas, including a shared military budget and an agency for “radical innovation”, as well as the desire to strengthen the euro zone. At one level, Mr Macron’s bid for the role of intellectual innovator in Europe fits a long French tradition. Moreover, elements of his speech—a new carbon-tax on the EU’s frontiers, a proposal to tax foreign tech firms where they make money rather than where they are registered, a crusade against “social dumping” with harmonised corporate tax rates—were in keeping with long-standing French attempts to stop member states competing “disloyally” against each other.

Yet Mr Macron has a more subtle and radical goal than old-style dirigisme; as if to prove it, he agreed this week that Alstom, which makes high-speed trains, could drift from state influence by merging with its private-sector German rival. His aim is to see off populism by striking a balance between providing job security for citizens, on the one hand, and encouraging them to embrace innovation, which many fear will cost them their jobs, on the other (see Charlemagne). In his speech Mr Macron also made the case for digital disruption and the completion of the digital single market. Euro-zone reform would make Europe less vulnerable to the next financial crisis.

The merit of these ideas depends on whether they lead to a more enterprising, open and confident Europe or to a protectionist fortress. But they may not be tried out at all unless Mr Macron can make a success of his policies at home. For, if France remains a threat to the EU’s economic stability rather than a source of its strength, its president can never be more than a bit player next to Germany’s chancellor.

Mr Macron’s domestic policy might seem to have made a poor start. He has grabbed headlines thanks to the size of his make-up bill, the collapse of his popularity and the whiff of arrogance about his “Jupiterian” approach to power. Predictably, the grouchy French are already contesting the legitimacy of the plans they elected Mr Macron to carry out. Reform in France, it seems, follows a pattern. The street objects; the government backs down; immobilisme sets in.

Yet take a closer look, and Mr Macron may be about to break the pattern. Something extraordinary, if little-noticed, took place this summer. While most of the French were on the beach, Mr Macron negotiated and agreed with unions a far-reaching, liberalising labour reform which he signed into law on September 22nd—all with minimal fuss. Neither France’s militant unions, nor its fiery far left, have so far drawn the mass support they had hoped for onto the streets. Fully 59% of the French say that they back labour reform. More protests will follow. Harder battles, over pensions, taxation, public spending and education, lie ahead. Mr Macron needs to keep his nerve, but, astonishingly, he has already passed his first big test.

In many ways, the 39-year-old Mr Macron is not yet well understood. Behind the haughty exterior, a leader is emerging who seems to be at once brave, disciplined and thoughtful. Brave, because labour reforms, as Germany and Spain know, take time to translate into job creation, and usually hand political rewards to the successors of those who do the thankless work of getting them through. Disciplined, because he laid out clearly before his election what he planned to do, and has stuck to his word. The unions were fully consulted, and two of the three biggest accepted the reform. Compare that with his predecessor, François Hollande, who tried reform by stealth and encountered only accusations of bad faith. Last, thoughtful: Mr Macron does not approach policy as an à la carte menu. He has grasped how digital technology is dislocating the world of work. His governing philosophy is to adapt France’s outdated system of rules and protections accordingly.

Drumroll

Over the past few years, an enfeebled France has been a chronically weak partner for Germany, pushing Mrs Merkel into a solo role that she neither sought nor relished. If he is to change that dynamic, Mr Macron needs to move swiftly to match his labour law with an overhaul of France’s inefficient training budget, increase the number of apprenticeships and renovate the state’s sleepy employment services. He also needs to explain with a less contemptuous tone why his plans for tax cuts, including to France’s wealth tax and corporate tax, are not designed simply to benefit business and the better-off. In Europe he needs to reassure the northern, more open economies that he is not trying to put up walls.

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Of course, Mr Macron’s first steps in the spotlight may falter. The odds on any leader reforming France are never high. He will struggle to convince Germany to embrace his vision of euro-zone reform. But, if this year has shown anything, it is that it is a mistake to bet against the formidable Mr Macron.

This article appeared in the Leaders section of the print edition under the headline “Europe’s new order”