Carl Bildt was Sweden’s foreign minister from 2006 to October 2014 and Prime Minister from 1991 to 1994, when he negotiated Sweden’s EU accession. A renowned international diplomat, he served as EU Special Envoy to the Former Yugoslavia, High Representative for Bosnia and Herzegovina, UN Special Envoy to the Balkans, and Co-Chairman of the Dayton Peace Conference. He is Chair of the Global Commission on Internet Governance and a member of the World Economic Forum’s Global Agenda Council on Europe.
After a series of foreign-policy U-turns, there is now talk of a “new” Donald Trump who is far more inclined to use military power than the Trump we saw during the 2016 US presidential campaign. That earlier Trump seemed to regard any use of US military force in Syria as pointless and dangerous, and called for the United States to ensconce itself behind new walls.
Now, suddenly, the Trump administration has launched a missile attack on one of Syrian President Bashar al-Assad’s air bases, hinted at taking military action against North Korea, and dropped the “mother of all bombs” on an Islamic State redoubt in Eastern Afghanistan. All of this was accompanied by tweets from the president himself, declaring that the US will pursue its own solutions to key issues if other countries do not offer to help.
The international community – including China – seemed to understand why the US would strike the Syrian air base from which a hideous chemical-weapons attack was launched. But the Trump administration is still following an “America first” agenda. Having awoken to global realities, the administration is now adjusting its policies, sometimes so abruptly that one might reasonably worry that diplomacy is taking a backseat to bombs and tweets.
That concern is reinforced by the dramatic cuts to the US State Department budget, and to US funding for the United Nations, that Trump has proposed. At the same time, many key positions in the US diplomatic apparatus remain unfilled. Even America’s friends recognize that this is a dangerous trajectory. Bombs can only destroy. To build lasting peace requires compromise and coalition building – in a word, diplomacy.
Is Henry Kissinger doing deals with Donald Trump now that Hillary Clinton out of the picture? The Butcher of Cambodia, Laos and Vietnam is a much sought after Foreign Policy advisor. Trump is a danger to America and the rest of the world. –Din Merican
Another issue that demands diplomacy is North Korea, which is developing nuclear weapons and the intercontinental ballistic weapons needed to deliver them. So far, Trump has tried to pressure China to find a solution, by threatening to take dramatic unilateral action if the Chinese fail to rein in their client. But whether the Trump administration actually has any specific strategy with respect to North Korea, or the means to realize it, remains unclear.
Beyond North Korea, the UN recently warned that the ongoing conflict in Yemen, which rarely makes headlines, is “rapidly pushing the country toward social, economic, and institutional collapse.” The humanitarian situation is already dire for 60% of Yemen’s 30 million inhabitants: an estimated seven million people could be close to famine; and almost 500,000 children are at risk of severe malnutrition.
The war between Yemeni President Abdrabbuh Mansour Hadi’s Saudi-backed government and former Yemeni President Ali Abdullah Saleh’s rebel Houthi coalition has been raging for years, with no military breakthrough in sight. Former US President Barack Obama’s administration made repeated but futile efforts to broker a ceasefire; but it also reluctantly supported Saudi Arabia’s air campaign by supplying bombs. Trump appears set to provide such support far more eagerly.
One simplistic explanation for the Yemen conflict is that it was engineered by Iran. According to this view, US and Saudi intervention is meant to stymie the Islamic Republic’s geopolitical ambitions. And now that Trump has tacitly accepted the Iran nuclear deal, some of his advisers believe that it is necessary to apply pressure on Iran from elsewhere. As a result, US raids and sorties in Yemen have become more frequent in recent months.
But, in reality, Iran’s support for the Houthis is often exaggerated. And Iran, for its part, probably welcomes a scenario in which the US and Saudi Arabia are bogged down in the Yemen quagmire.
After al-Qaeda in Yemen?
Another possible justification for US engagement in Yemen is that al-Qaeda in the Arabian Peninsula has found a foothold there. But AQAP thrives in an environment of destruction and despair, so there is little that can be done about the group so long as Yemen is being ripped apart by war.
Even as the UN issues stark warnings about an impending catastrophe in Yemen, the Saudi-led coalition is preparing an offensive to capture the coastline around the port of Hodeida – a move that the International Crisis Group has warned would aggravate Yemen’s humanitarian crisis.
Rather than stepping up the fight, the US should be pursuing further diplomacy and humanitarian-aid efforts. Indeed, the latter go hand in hand with the former. And, after all, it was Hadi and the Saudis who rejected the UN’s last attempt to broker a ceasefire.
To resolve the conflict, the rebels and the government need to re-engage immediately with the UN Special Envoy for Yemen, who has furnished a roadmap for talks. In addition, the UN Security Council should do its part to support a political solution, by adopting a long-overdue resolution demanding that both sides agree to an immediate ceasefire, grant access to humanitarian aid, and return to the negotiating table.
A Yemeni Shite Rebel
Diplomacy will require that all parties compromise. No one – except, perhaps, Iran – has anything to gain from further escalation. If Yemen’s humanitarian catastrophe leads to a total collapse, millions of desperate people might flee the country, enabling AQAP and other extremist organizations to profit from disorder and despair.
America’s re-engagement with the world should be welcomed, but not if the Trump administration continues to view conflicts solely through a military lens. Yes, fighting is sometimes necessary; but diplomacy always is. Nowhere is this more obvious than in places like Yemen. The complete collapse of yet another country is the last thing the world – including Trump – needs.
Thank You, King, for the Donation. but not enough that is why I have to sell 1MDB Energy Assets to China. The financial hole is too big. Sorry bro, no more from me since my Kingdom needs money for our own needs.
The signing of the power purchase agreement (PPA) last week between national power utility Tenaga Nasional Bhd and Edra Energy Sdn Bhd, formerly owned by Malaysia’s infamous 1MDB and now owned by China company CGN Group, puts Edra under public scrutiny yet again.
This is a good time to note the enormous, potentially adverse implications that Edra has on our energy industry.
First, ever since independent power producers (IPPs) were introduced in the 90s, this is the first time that Tenaga is signing a deal with a 100 percent foreign-owned entity – all previous PPAs were signed with locally owned companies which have at least 30 percent bumiputera participation.
Second, the deal clearly shows that future development of IPPs were included in the sale price of RM9.83 billion paid by CGN to 1MDB, as pointed out by an article in The Sun newspaper.
This has major implications and may indicate that not sufficient account was taken of this in the sale price.
According to the article, at the time of the announcement of the sale in 2015, 1MDB held two project awards that were yet to the developed, a 2,000MW combined cycle gas turbine venture and a 10x50MW utility scale solar power plant, which are also in the list of assets sold. At the time, no confirmation was made on whether the rights had been transferred to CGN.
1MDB agreed to sell Edra Global Energy to CGN Group for RM9.83 billion cash in November 2015 with the sale completed March 2016.
1MDB had paid a total of just over RM12 billion for the power assets earlier, all owned by Malaysian entities – RM8.5 billion from Ananda Krishnan’s Tanjong Energy Ventures renamed Powertek Energy Group, RM2.3 billion from the Genting group and RM1.23 billion for Jimah Energy Ventures.
Even so, analysts felt that CGN overpaid for the assets by about RM1 billion. However, with future power development ventures included, it looks like overpayment, if any, may have been a lot smaller.
But consider the implications of this – prime power assets, not just in Malaysia but in other countries as well, were sold off to a foreign company from China, basically switching ownership of these assets out of the country. 1MDB is fond of saying that it is a strategic development company owned by the government – how strategic is that?
Despite the overpayment, 1MDB’s only earning assets within its rather dubious acquisitions were the power assets under Edra.
It is telling that despite loans at one stage of RM42 billion in its books and few assets to show, it had to sell Edra to quash bank debts which were becoming fast due – clear evidence of major problems at 1MDB.
Some of the bond issues were taken to buy the energy assets but were diverted elsewhere.
Najib Razak and his Kaki Bodeks
There is legitimate concern that this rescue of 1MDB by CGN is a quid pro quo for other China deals such as the RM55 billion East Coast Rail Line project and the RM40-80 billion KL-Singapore high-speed rail.
Under the latest PPA, Edra will construct, own, operate and maintain a gas-fired combined cycle electricity generating facility with a total nominal capacity of 2,242 megawatts to be located at Alor Gajah, Malacca.
It will consist of three generating blocks, and an expected commercial operation date of Jan 1, 2021 for the first generating block, March 1, 2021 for the second generating block and May 1, 2021 for the third generating block.
The PPA governs the obligations of the parties to sell and purchase the generating capacity and, to the extent dispatched, the electrical energy generated by the facility. The PPA will be for a period of 21 years from the commercial operation date of the first generating block.
However, the purchase price for electricity is not disclosed by Tenaga and it was not possible to obtain any figures from the Energy Commission website as well.
Scarcity of info on IPPs
From the time former Prime Minister Dr Mahathir Mohamad introduced IPPs in the 90s, there has been a scarcity of good information on IPPs and their deals – however one thing is clear, billions have been made by people who were essentially cronies of the PM and the ruling party then.
Over the years, the deals for IPPs have gotten progressively more in favour of Tenaga but Edra may jettison the progress made – there needs to be transparency to ensure that deals that are too favourable to IPPs are not signed as it was in the past.
For that, two quantities need to be disclosed – the purchase price for the electricity and the internal rate of return (IRR – the financially correct way of measuring returns) for the project.
The second needs to be audited by qualified people and their significance properly explained.Otherwise we are going to see a second round of masking of benefits, this time to foreigners.
Remember that Edra is no longer Malaysian but foreign owned – all 100 percent of it. And therefore it should no longer be entitled to the benefits that Malaysian companies get.
‘Malaysia first’ should be our slogan too. A Bernamaarticle in April last year quotes Edra President and Executive Director Mark Ling who said the recent RM9.83 billion acquisition of Edra by CGN puts Malaysia in a strong position to develop ASEAN’s power sector. He of course got it wrong – it does not put Malaysia in that strong position but China.
He further said that Edra, backed by CGN’s capitalisation of US$60 billion, was now able to link through the Trans-ASEAN grids from the Philippines to Sabah, down to Sarawak and Sumatra.
“We are now able to immediately further enhance opportunities and commitments, opportunities which have been knocking at our door previously but which we were unable to entertain,” he said.
“And to actually have a Sarawakian lead Edra, it’s a great honour for us Sarawakians. We have to understand that we have got no barriers in convincing the rest of the world that we can do it. And I will be looking seriously into avenues of new energy businesses in Sarawak.”
Rather propaganda-ish! Well, if that’s the case, this means that this China-owned company is all set to get even more projects and that is extremely worrisome when you consider that Malaysian companies have the ability and the know-how to do the same – we never needed any help from China before.
Think Tenaga for instance. Why are we passing the baton on to a China company after spending so much effort to nurture and develop an indigenous power generation industry with international capability?
Is this yet another mysterious strategic development initiative followed upon by an earlier one by 1MDB? How much will we end up eventually paying for 1MDB’s transgressions in addition to the tens of billions of ringgit already lost and stolen?
P GUNASEGARAM says desperation and corruption are a potent combination for bad business. E-mail: firstname.lastname@example.org.
“…any suggestion that the renminbi may one day rival the dollar and seriously threaten the greenback’s dominance within the international monetary system remains wishful thinking. The renminbi is moving in the right direction, but much more needs to be done to make it into a pillar of this multi-currency system.”–Paola Subacchi
At times of big turmoil, currencies take the hit, but economic transformation can also create currency winners. Nowhere is this more apparent than when we compare the prospects of British sterling and China’s renminbi.
Between February 2016 — when the referendum on the UK’s membership of the European Union (EU) was announced — and the end of January 2017, the sterling fell by 14 per cent against the US dollar. Then, at the beginning of October, when the UK government appeared to signal a preference for a clear break with the EU — a ‘hard Brexit’ — the sterling dropped again by 6 per cent.
As the British government is serving notice on the membership of the EU, it is not yet clear what the future relationship will look like. Will Britain remain a member of Europe’s single market? Or will it embrace a totally independent trade policy to maintain control at its borders?
Currencies not only reflect geopolitical dynamics, but also patterns of trade and debt. A weak currency is not much help for an economy that imports more than it exports. The UK has a significant deficit in its current account — roughly, it consumes more than it produces — at almost 6 per cent of GDP. Of course, a weak currency would lower the prices of exports, but only if these goods are produced with limited inputs from imports.
In a world of global supply chains this is questionable. Even assuming that a weak sterling would help shift the UK model of growth from domestic demand to exports, this adjustment will take time and is unlikely to cushion the adverse impact of Brexit on real GDP growth in the next few years.
The ‘hard Brexit’ option, by reducing market openness, will affect investors’ confidence, have an adverse impact on capital inflows and undermine growth. If the UK becomes less attractive as an investment destination, and stricter immigration policies cause the labour force to shrink, then Britain may find it difficult to attract the quantity of foreign capital and labour necessary to sustain a domestic demand-driven economy.
The sterling remains in the IMF’s Special Drawing Rights (SDR) basket of international reserve currencies. To some extent the sterling has been a proxy of British global influence: on the way down, but still ‘punching above its weight’. But the sterling’s protracted weakness coupled with the inclusion of the Chinese renminbi in the SDR basket — in effect from the beginning of October 2017 — may result in downgrading the pound when the composition of the basket is reassessed in 2020.
If currencies are an expression of national sovereignty, they also epitomise the limits of such sovereignty in an open economy. Exchange rate dynamics tend to reflect divergences between domestic politics and global markets. Thinking that domestic policy making can be insulated from the rest of the world, so that no coordination or cooperation is needed, is deeply fallacious. The sterling’s troubles are a reminder that foreign investors have an indirect say — and interest — in how a country is managed.
The inclusion of the renminbi among the currencies that compose the SDRs — the US dollar, the euro, the yen and the sterling — is a ‘milestone’ for China, as International Monetary Fund Managing Director Christine Lagarde said when she presented the IMF executive board’s decision on 30 November 2016.
The renminbi’s inclusion recognises the work that China’s monetary authorities have done in the last five years to push the renminbi’s transformation into an international currency — a currency that can be used to invoice and settle international trade and that is traded in international capital markets. The outcome of this process has been remarkable: approximately 25 per cent of China’s trade is now settled in renminbi — it was less than 1 per cent in 2009.
In addition, the inclusion somehow addresses the contradiction that China has faced for years: being the world’s second largest economy and the largest exporter without a currency that reflects that role. For years the dollar has been the currency used in China’s trade and investments, and this is still largely the case. This has suited China well throughout its transformation from a poor and isolated nation into an industrial powerhouse that is well integrated in regional and international supply chains.
But China’s dollar dependence no longer reflects Beijing’s ambitions for playing a more engaging and assertive role in international economic and financial affairs and governance. If ‘great nations have great currencies’, to paraphrase Nobel laureate Robert Mundell, then it is understandable that the Chinese leadership would push to turn the renminbi into a ‘great currency’.
Finally, and even more critically, being part of the SDR basket implicitly recognises the role that the renminbi, going forward, can play in the international monetary system. The hype that has surrounded the IMF decision — the SDR made headlines beyond the financial press, perhaps for the first time since its creation in 1969 — should not obscure the fact that the development of the renminbi is not a linear process, even if it is heavily policy-driven, and there is no guarantee that progress will continue at the same remarkable pace. The renminbi remains a currency with limited international circulation because of obstacles that are still in place to constrain capital flows into and from China’s domestic market.
This is not the case for trade transactions, where the renminbi has been fully convertible since 2001 when China joined the World Trade Organisation. But what is the incentive for foreign businesses to hold renminbi if liquidity is constrained and therefore so are investment opportunities?
To make the renminbi into an international currency that foreigners want to hold as a store of value the Chinese leadership needs to continue the pace of reforms. Top of the list is the exchange rate and the abandonment of the system where the central bank intervenes every time the value of the renminbi moves outside a pre-determined range. Until foreign investors believe that the renminbi is liquid and trustworthy, any suggestion that the renminbi may one day rival the dollar and seriously threaten the greenback’s dominance within the international monetary system remains wishful thinking. The renminbi is moving in the right direction, but much more needs to be done to make it into a pillar of this multi-currency system.
Paola Subacchi is Director of Economic Research at Chatham House, London, and the author of The People’s Money: How China Is Building a Global Currency (Columbia University Press, 2017).
Affordable Care Act- A Disaster or Trump’s Politics?
Kevin McCarthy, the Republican House Majority Leader, went on Sean Hannity’s show on Thursday night and tried to talk up the awful health-care bill that his party had just rushed through two committees. His message was aimed at the ultra-conservative groups, such as the Freedom Caucus and Heritage Action for America, that have come out strongly against the proposed legislation. McCarthy didn’t try to claim that the bill would make health care more affordable or widely available. Instead, he defended its conservative bona fides, twice pointing out that it would repeal all the taxes that were introduced under the Affordable Care Act—taxes that mainly hit the one per cent.
Hannity, who is one of President Trump’s biggest boosters, didn’t hide his loyalties or his concern about the political firestorm that the bill has set off. “This has to work: there is no option here,” he said at one point. Later, he warned, “As soon as it passes, you own it.”
Message to Mr. Trump and the Republicans– It is not Obamacare, but Affordable Care Act
Intentionally or not, Hannity summed up the political dilemma facing Trump and his Administration. The White House has embraced Paul Ryan’s handiwork—the House Speaker is the bill’s top backer—and they are now trying together to persuade the full House and the Senate to vote for at least some version of it. But if the bill does pass and Trump signs it into law, what happens then? The health-care industry will be thrown into turmoil; many millions of Americans will lose their coverage; many others, including a lot of Trump voters (particularly elderly ones), will see their premiums rise sharply; and Trump will risk being just as closely associated with “Trumpcare” as Barack Obama was with Obamacare.
Two questions arise: Why did Ryan and his colleagues propose such a lemon? And why did Trump agree to throw his backing behind it?
House Speaker Paul Ryan–A Healthcare Reformer or just another Politician
The first question is easier to answer. For seven years, promising to get rid of Obamacare has been a rallying cry for Republicans on Capitol Hill—one supported by both Party leaders and activists, as well as by big donors, such as the Koch brothers. It was inevitable that, if the G.O.P. ever took power, it would move to fulfill this pledge, despite the human costs of doing so.
What wasn’t anticipated was that the Republican leadership would run into hostility from the right. But that, too, is explainable. After November’s election, Ryan and his colleagues were forced to face the reality that fully repealing the A.C.A. would require sixty votes in the Senate, which wasn’t achievable. Many of the things that ultra-conservatives see as shortcomings in the bill now being considered—such as the retention of rules dictating what sorts of policies insurers can offer—are in there to make sure that the Senate can pass the bill as part of the budget-reconciliation process, which requires just fifty-one votes. As McCarthy explained to Hannity, “The challenge is the process of how we have to do this.”
The more interesting question is why Trump would stake his credibility on such a deeply regressive, and potentially unpopular, proposal. During the campaign, he frequently promised to repeal Obamacare—but it wasn’t one of his main issues. Clamping down on immigration, embracing economic protectionism, rebuilding infrastructure, and blowing a raspberry at the Washington establishment were much more central to his platform.
Early in the campaign, in fact, Trump praised socialized medicine, and promised to provide everybody with health care. “As far as single-payer, it works in Canada. It works incredibly well in Scotland,” he said in August, 2015, during the first Republican debate. A month later, he told “60 Minutes,” “I am going to take care of everybody. I don’t care if it costs me votes or not. Everybody’s going to be taken care of much better than they’re taken care of now.”
Part of what is going on is that Trump needs a quick legislative success. He is keenly aware that, by this stage in his Presidency, Obama had signed a number of important bills, including a big stimulus package. Trump also badly needs to change the subject from Russia. It might sound crazy to suggest that a President would embrace a bill that could do him great harm in the long term just for a few days’ respite, but these are crazy times. If nothing else, the political furor surrounding the House G.O.P. proposal has eclipsed the headlines about Trump claiming that Obama wiretapped him. For much of this week, Trump has ducked out of sight, letting Ryan and his bill take the spotlight.
That’s not the only way the Russian story may have played into this. As the pressure grows for a proper independent probe of Trump’s ties to Moscow, he must retain the support of the G.O.P. leadership, which has the power to block such an investigation. It has long been clear that the relationship between the Republican Party and Trump is based on a quid pro quo, at least tacitly: in return for dismissing concerns about his authoritarianism, self-dealing, and Russophilia, the Party gets to enact some of the soak-the-poor policies it has long been promoting. For a time, it seemed like Trump was the senior partner in this arrangement. But now Republicans like Ryan have more leverage, and Trump has more of an incentive to go along with them.>
Still, even if he had more leeway to speak out against the House G.O.P. bill, is there any reason to think he would? The thing always to remember about Trump—and this week has merely confirmed it—is that he is a sham populist. A sham authoritarian populist, even.
Going back to late-nineteenth-century Germany, many of the most successful authoritarian populists have expanded the social safety net. Otto von Bismarck, the first Chancellor, introduced health insurance, accident insurance, and old-age pensions. “The actual complaint of the worker is the insecurity of his existence,” he said in 1884. “He is unsure if he will always have work, he is unsure if he will always be healthy, and he can predict that he will reach old age and be unable to work.”
During the twentieth century, Argentina’s Juan Perón, Malaysia’s Tunku Abdul Rahman, and Singapore’s Lee Kuan Yew were among the authoritarian leaders who followed Bismarck’s example. Today, if you look at the election platform of Marine Le Pen, the leader of the French National Front, you see something similar. Like Trump, Le Pen is a nativist, a protectionist, and an Islamophobe. But she is not proposing to dismantle any of the many social benefits that the French state provides. Rather, she says she will expand child-support payments and reduce the retirement age to sixty.
Trump, on the other hand, has little to offer ordinary Americans except protectionist rhetoric and anti-immigrant measures. Before moving to gut Obamacare, he at least could have tried to bolster his populist credentials by passing a job-creating infrastructure bill or a middle-class tax cut. Instead, he’s staked his Presidency on a proposal that would hurt many of his supporters, slash Medicaid, undermine the finances of Medicare, and benefit the donor class. That’s not populism: it’s the reverse of it. And it might be a political disaster in the making.
Can a new magazine launched to defend Trump take ideas seriously? Our former colleague Eliana Johnson has a short profile of the guy launching American Affairs, the forthcoming intellectual journal of Trumpism, rising Phoenix-like from the ashes of the Journal of American Greatness.
A 30-year-old conservative wunderkind is out to intellectualize Trumpism, the amorphous ideology that lifted its namesake to the presidency in November. Until recently, the idea itself was an oxymoron, since Trumpism has consisted in large part of the President-elect’s ruthless evisceration of the country’s intellectual elite. But next month, Julius Krein, a 2008 Harvard graduate who has spent most of his admittedly short career in finance, is launching a journal of public policy and political philosophy with an eye toward laying the intellectual foundation for the Trump movement. If his nerdy swagger is any indication, he has big ambitions: He noted wryly that he is — “coincidentally” — the same age that William F. Buckley Jr. was six decades ago when he founded National Review, the magazine that became the flagship of the conservative movement. No offense to Krein, but he should keep the comparisons to Bill Buckley to a minimum. No one wins from such comparisons (except Buckley), and raising expectations you can’t meet strikes me as a bad idea. But other than that, I’m glad someone is doing this.
The conservative movement needs more idea-development, not less. I agree with Yuval Levin, who tells Johnson, “Not nearly enough of that is happening around the changes we’ve seen in this election.” Also, a thing like “Trumpism” deserves an intellectual effort to define it in non-pejorative terms. That said, I’m skeptical of some of Krein’s larger ambitions. Johnson reports that American Affairs will “launch in both a print and digital version, and a substantial portion of the funding will come from Krein himself. He said donors to traditional conservative institutions have been ’surprisingly’ receptive to his pitch, though he declined to name the additional contributors.” How receptive could the donors be if the editor is largely self-funding?
But that’s nitpicking. Krein also said, “We hope not only to encourage a rethinking of the theoretical foundations of ‘conservatism’ but also to promote a broader realignment of American politics.” That’s a pretty tall order for a hedge-fund guy in his spare time. It’s even harder when Donald Trump is your lodestar. I’m quoted in the piece: “It will take a good deal of time for even Trump’s most gifted apologists to craft an intellectually or ideologically coherent theme or narrative to his program,” said Jonah Goldberg, a senior editor of National Review.
“Trump boasts that he wants to be unpredictable and insists that he will make all decisions on a case-by-case basis. That’s a hard approach for an intellectual journal to defend in every particular.” My point there is you beat ideas with ideas. You can challenge the “theoretical foundations of ‘conservatism’” (perhaps starting with an explanation for why you put it in scare quotes) or you can defend a theoretical program. Unless you’re just going to defend Pragmatism and/or the instinctual, infallible, wisdom of Donald Trump in all cases, you’ll either need your own theory of the case or you’ll need to allow for writers willing to criticize Trump outright.
There’s nothing wrong with that, except American Affairs is being launched to defend Trump and Trumpism. If Krein isn’t willing to tolerate serious criticism of Trump in furtherance of Trumpism, then he should skip the journal and go work directly for Sean Spicer. If he does allow criticism, (a) good for him and (b) he should be prepared for his pro-Trump journal to be denounced by Trump himself. While I am perfectly comfortable saying that Krein is no William F. Buckley — because no one is — I would note that great magazines and journals are often born out of such chaos and internal contradictions.
Irving Kristol and Daniel Bell founded The Public Interest (which was more of an inspiration for neoconservatives than was The National Interest, contrary to what Eliana wrote). But they had some pretty profound disagreements, causing Bell to walk away early on. Irving Kristol solved these, and similar, problems by making the PI a magazine for writers, not editors.
At National Review we had an even more stormy beginning, with libertarians, Machiavellians, Ultramontane Catholics, Straussian philosophers, social conservatives of every flavor, and a wide variety of ex-Communists squabbling and debating everything under the sun. The creative tension was invaluable in forming the foundation of modern conservatism. Bill Buckley made it work through sheer force of personality. We didn’t have a fan in the Oval Office until Ronald Reagan. Great magazines and journals are often born out of chaos and internal contradictions.
The New Republic (now a pale shadow of its former self) was always at its best when it was at war with itself. I grew up on it in the 1980s, when many of the editors hated one another’s guts and fought over Reagan, the Contras, etc. The magazine’s early years were even more chaotic. The New Republic was founded, according to Walter Lippmann (a one-time New Republic staffer as well as an aide to Woodrow Wilson), “to explore and develop and apply the ideas which had been advertised by Theodore Roosevelt when he was the leader of the Progressive party.”
Pretty much TR was to The New Republic as Trump is to American Affairs. But when Wilson was elected, and started leading us to war, The New Republic was all over the map because of disagreements among the editors. Eventually, their old ideological hero Teddy Roosevelt charged into the offices of The New Republic like a Bull Moose to chew them out for their disloyalty. Realizing he couldn’t set them straight, TR shouted that the magazine was “a negligible sheet, run by two anemic Gentiles and two uncircumcised Jews.” If Trump tweets something like that at Krein & Co., he’ll know he’s on his way to “greatness.”
— Jonah Goldberg is a senior editor of National Review.
Today’s populist movements are all following a similar economic prescription, and governments in Hungary, Poland, and the US are giving the world an early dose of what the future may hold. Will voters swallow the medicine, or will they soon start seeking a second opinion
For at least the past year, populism has been wreaking havoc on Western democracies. Populist forces – parties, leaders, and ideas – underpinned the “Leave” campaign’s victory in the United Kingdom’s Brexit referendum and Donald Trump’s election as President of the United States. Now, populism lurks ominously in the background of the Netherlands’ general election in March and the French presidential election in April and May.
But, despite populism’s seeming ubiquity, it is a hard concept to pin down. Populists are often intolerant of outsiders and those who are different; and yet Geert Wilders, the far-right Dutch populist leader, is a firm believer in gay rights. In the US, Trump’s presidential campaign was described as an anti-elite movement; and yet his administration is already practically a subsidiary of Goldman Sachs.
While today’s populist resurgence comes from the nationalist right, some of the leading populist exponents in recent decades – such as Venezuela’s late president, Hugo Chávez – were firmly on the left. What they share is a zero-sum view of the world, which necessitates the creation of scapegoats who can be blamed for all problems. Moreover, because populist leaders claim to embody the uniform will of a mythical “people,” they consider democracy to be a means to power, rather than a desirable end in itself.
But populists have more in common than an obsession with cultural boundaries and political borders. They also share a recipe for economic governance, one that Project Syndicate commentators have been tracking since long before today’s brand of populism began dominating the world’s headlines. Guided by their insights, we can begin to understand the origins of today’s populist resurgence, and what is in store for Western countries where its avatars come to power.
Diagnosing the Problem
Given populism’s many faces, is it really possible to identify a root cause? For Warwick University’s Robert Skidelsky, it is no coincidence that the two major political upheavals of 2016 – the Brexiteers’ success in last June’s referendum and Trump’s election victory – occurred in “the two countries that most fervently embraced neoliberal economics.” The US and the UK’s economic model over the past few decades, Skidelsky observes, has allowed for “obscenely lavish rewards for a few, high levels of unemployment and underemployment, and curtailment of the state’s role in welfare provision.” And this widening inequality, he writes, “strips away the democratic veil that hides from the majority of citizens the true workings of power.”
But Gavekal Dragonomics Chief Economist Anatole Kaletsky sees another dynamic at work, and offers “several reasons to question the link between populist politics and economic distress.” For starters, he points out that “most populist voters are neither poor nor unemployed; they are not victims of globalization, immigration, and free trade.” Having analyzed Brexit exit polls and voter-survey responses, Kaletsky concludes that “cultural and ethnic attitudes, not direct economic motivations, are the real distinguishing features of anti-globalization voting.”
At first blush, these arguments may seem incompatible; but their disagreement is really only between ultimate and proximate causes. For Skidelsky, “It is when the rewards of economic progress accrue mainly to the already wealthy that the disjunction between minority and majority cultural values becomes seriously destabilizing.” Likewise, for Kaletsky, “The main relevance of economics is that the 2008 financial crisis created conditions for a political backlash by older, more conservative voters, who have been losing the cultural battles over race, gender, and social identity.”
Harvard political philosopher Michael Sandel warns against focusing exclusively on “the bigotry in populist protest” or viewing it “only in economic terms.” The fundamental issue, he argues, is “that the upheavals of 2016 stemmed from the establishment’s inability to address – or even adequately recognize – genuine grievances.” And, because these grievances “are about social esteem, not only about wages and jobs,” they are difficult to disentangle “from the intolerant aspects of populist protest” – namely, anti-immigrant sentiments.
Nobel laureate economist Edmund Phelps also links populist voters’ anger to their loss of dignity in the larger political economy. As the share of US employment in manufacturing has steadily declined, blue-collar workers, Phelps notes. “have lost the opportunity to do meaningful work, and to feel a sense of agency.” In other words, “losing their ‘good jobs’” meant losing “the central source of meaning in their lives.” And while many of the lost manufacturing jobs were replaced with new jobs in new sectors, as Oxford University historian Margaret MacMillan cautions, nuanced economic arguments “cannot counter the unhappiness of people who feel marginalized, undervalued, and scorned.”
A Democratic Disease
Princeton University’s Jan-Werner Mueller, who published a highly regarded book about populism last year, has identified such “feelings of dispossession and disenfranchisement” as “fertile ground” in which populist politicians can sow seeds of resentment. And, in an earlier commentary that long predated the current news cycle, Mueller explained that, “Populism cannot be understood at the level of policies; rather, it is a particular way of imagining politics.” Above all, he observes, the populist imagination is inherently divisive: “It pits the innocent, always hard-working people against both a corrupt elite (who do not really work, other than to further their own interests) and those on the very bottom of society (who also do not work and live off others).”
In its more virulent forms, populism can be thought of as being akin to an autoimmune disease, whereby democracy gives rise to forces that attack it. Andrés Velasco, a former finance minister of Chile, laments that the nature of representative democracy can create an impression that politicians are “distant and untrustworthy.” The “rhetoric of modern democracy,” he writes, “emphasizes closeness to voters and their concerns.” But elected representatives cannot spend all of their time interacting with constituents when they have a duty to govern. When this dissonance between rhetoric and reality becomes “too glaring,” Velasco notes, “political leaders’ credibility suffers.”
This loss of trust leads disaffected citizens to put a premium on perceived authenticity. So, “although populist policies reduce overall economic welfare,” Velasco notes, “rational voters choose them because they are the price of distinguishing between different types of politicians.” In fact, such a willingness to suffer further economic pain in order to avenge elite betrayals and strike back at scapegoats may be a defining element of today’s populist resurgence.
Populist leaders in Hungary and Poland, who are currently advancing their own brand of “illiberal democracy,” seem to have staked their governments’ future on this presumption. As Central European University’s Maciej Kisilowski points out, it may not even matter that “the high economic costs of illiberal democracy are already apparent.” These countries’ electorates, Kisilowski surmises, “may regard economic stagnation as an acceptable price to pay for what they want most: a more familiar world where the state guarantees the dominant in-group’s sense of belonging and dignity, at the expense of ‘others.’”
Sławomir Sierakowski of the Institute for Advanced Study in Warsaw provides further support for this point. When Jarosław Kaczyński’s Law and Justice Party (PiS) returned to power in Poland a year ago, many assumed that it would quickly fail. Instead, it has succeeded, because Kaczyński mastered the politics of “two issues near and dear to voters: social transfers and immigration,” Sierakowski explains. “As long as he controls these two bastions of voter sentiment, he is safe.” Of course, given the PiS government’s politicization of the courts, the civil service, and the press, the same cannot be said for Poland’s democratic institutions.
A Populist Placebo
But how long can populist governments sustain generous transfers in the absence of strong economic growth? The answer will depend on how long their supporters remain convinced that they can have their cake and eat it – which is precisely what former Brexit leader and current British Foreign Minister Boris Johnson promised to Leave voters. Indeed, as Columbia University’s Jeffrey Sachs observed just after the Brexit vote, “Working-class ‘Leave’ voters reasoned that most or all of the income losses would in any event be borne by the rich, and especially the despised bankers of the City of London.”
Given the UK economy’s unexpected resilience last year, the populists probably feel vindicated. But, though most economists misjudged “the immediate impact that the United Kingdom’s [vote] would have on its economy,” writes Chatham House’s Paola Subacchi, “a gloomy long-term prognosis is probably correct,” given British leaders’ desire for a complete break from the European Union’s single market and customs union.
Such delayed effects can create an alibi for unsustainable policies, which, according to Velasco, is precisely “how economic populism works.” For example, the approach that Trump seems likely to take – tax cuts, growth-stimulating measures, and protectionism, with little thought given to inflation or public debt – is untenable, and will ultimately fail. But, as Velasco puts it, “‘Ultimately’ can be a very long time.” And that can give populist governments more staying power than many observers assume. “Populist policies are called that because they are popular,” he notes. “And they are popular because they work – at least for a while.”
In the meantime, populist leaders can pursue policies favored not only by their base, but also by many of their opponents. In the whirlwind of his first days in office, for example, Trump fulfilled his campaign promise to abandon the 12-country Trans-Pacific Partnership (TPP). This, Princeton University’s Ashoka Mody believes, was actually a welcome move, given that “international trade agreements, propped up by powerful interests, have become increasingly intrusive.” Similarly, before Trump’s election, Harvard University economist Dani Rodrik called for a rebalancing “between national autonomy and globalization.” In Rodrik’s view, it should go without saying that “the requirements of liberal democracy” must come before “those of international trade and investment.”
Trump’s promise of corporate tax reform has also wide appeal beyond his electoral base. For Harvard’s Martin Feldstein, who chaired President Ronald Reagan’s Council of Economic Advisers, current legislative proposals to overhaul the US’s outdated tax system could “have a highly favorable impact on business investment, raising productivity and overall economic growth.” Assuming that Trump, working with congressional Republicans, can strike the right policy balance, he will have bought himself some time with the business community.
Princeton University economic historian Harold James makes a related point, arguing that “the economics of US populism will not necessarily fail, at least not immediately,” owing to the US’s “uniquely resilient” position in the global economy. “Because [the US] has historically been the global safe haven in times of economic uncertainty,” James notes, “it may be less affected than other countries by political unpredictability.”
A Turn for the Worse
But even if Trump can extend his honeymoon, James does not discount the possibility that “today’s contagious populism will create the conditions for its own destruction.” One way that could happen, argues Benjamin Cohen of the University of California, Santa Barbara, is if the US loses its “exorbitant privilege” as the issuer of the dominant international reserve currency. If Trump “pursues his protectionist promise to put ‘America first,’” Cohen writes, “investors and central banks could gradually be impelled to find alternative reserves for their spare billions.”
Trump’s version of economic populism could also face a reckoning if it results in a new boom-bust cycle – one that could end in a period of stagflation around the 2018 US congressional elections. Just before the election, Feldstein warned that “overpriced assets are fostering an increasingly risky environment.” Given that the US economy is already at full employment, with an inflation rate near 2%, Trump’s planned fiscal stimulus could push it into overdrive, and force the Federal Reserve to raise the federal funds rate.
Such a scenario would certainly worsen the plight of Trump’s constituency of white working-class voters in America’s former manufacturing heartland. But so, too, would his trade proposals, which could easily precipitate trade wars with China, Mexico, and other trading partners. Trump has told displaced blue-collar workers to blame trade deals and competition from imports for the loss of their jobs. But, “with productivity gains exceeding demand growth” worldwide, Nobel laureate economist Joseph Stiglitz points out, America “would have faced deindustrialization even without freer trade.”
Given this, Trump’s prescription of trade protectionism, Stiglitz says, will only “make all Americans poorer.” One reason, explains former World Bank Chief Economist Anne Krueger, is that imports create and sustain jobs, too. The irony of Trump’s proposed import tariffs is that they threaten American exporters. Many export-industry jobs, Krueger points out, exist because inexpensive imports enable American manufactures to compete domestically and abroad; and “exporting to the US gives foreigners more income with which to buy imports from the US and other countries.”
Simon Johnson of MIT also fears such a lose-lose scenario. If Trump starts taxing imports, Johnson argues, “the cost per job will be high: all imports will become more expensive, and this increase in the price level will filter through to the cost of everything Americans buy.”
Botching the Operation
Other Project Syndicate commentators have pinpointed a deeper flaw in populist economics, apart from any specific policy proposal: recklessness. Populists often overplay their hand by flouting legal, economic, or political conventions, or by exerting inappropriate influence in markets to try to funnel benefits to their supporters. In fact, according to a classic study of economic populism in Latin America by Sebastián Edwards of UCLA and the late Rüdiger Dornbusch of MIT, it is standard populist practice to show “no concern for the existence of fiscal and foreign exchange constraints” in the pursuit of faster growth and redistribution.
New York University’s Nouriel Roubini suspects that Trump may be similarly tempted to interfere inappropriately in currency markets. As his stimulus measures push up the value of the dollar, Roubini says, “Trump could unilaterally intervene to weaken the dollar, or impose capital controls to limit dollar-strengthening capital inflows.” But if Trump is too reckless with his “damage-control methods,” already-wary markets will succumb to “full-blown panic.”
Mody, for his part, sees serious risks in Trump’s interference in corporations’ practices and business decisions. By bullying companies over Twitter to keep jobs based in the US (or to punish them for dropping his daughter Ivanka’s clothing line), Trump has already begun to undermine “the norms and institutions that govern markets.” And in Phelps’s view, Trump’s Twitter interventions, combined with his deregulation agenda, risk entrenching corporatism at the expense of the innovation and competition necessary to sustain economic dynamism and income growth.
The Search for a Cure
With populist movements leaving political establishments reeling, could a positive counter-populist economic policy agenda soon emerge? The Nobel laureate economist Michael Spence sees an opportunity in disaffected voters’ rejection of an insufficiently inclusive economic-growth model. “With previous presumptions, biases, and taboos having been erased,” he writes, “it may be possible to create something better.” Likewise, for Stiglitz, Trumpism’s silver lining is that its opponents are experiencing “a new sense of solidarity over core values such as tolerance and equality, sustained by awareness of the bigotry and misogyny, whether hidden or open, that Trump and his team embody.”
An implicit argument running through many Project Syndicate commentaries is that the only prophylactic against economist populism is more aggressive redistribution. As Rodrik puts it, populism – and poor governance generally – emerges when elites prove unwilling to “make adjustments to ensure that everyone does indeed benefit” from the existing economic model.
Behind recent, large-scale rejections of the “system” is a widely shared sense among certain groups of voters that the “establishment” has subordinated citizens’ interests to cosmopolitan goals such as globalization, immigration, and cultural diversity. Most commentators agree that economic shocks such as the Great Recession or the eurozone sovereign-debt crisis are neither necessary nor sufficient to explain the rise of populism. Rather, populism is more a response to prolonged economic malaise, deteriorating living standards, declining trust in established institutions, and a common perception that incumbent leaders have feathered their nests at the people’s expense.
These are complex economic and political problems for which populism offers fancifully simple solutions. Efforts by the media to move the populist mind have proved counter-productive, and will likely continue to do so.Those opposed to the populist cure will have to come up with an equally powerful alternative, or look on helplessly as economic uncertainty and despair overwhelm the patient.