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Fantasy Populism

Rising inequality: the real significance of the recession

The word’s out: people still hate the bankers. The archvillains of the 2008 recession have not escaped the public ire yet, and the cacophony of the 2011 protests has blared into the new year.

The standard assumption is that people are furious that those who precipitated the recession continue to dream big and fly high – their executives collecting seven-figure bonuses even as they largely remain, like 82% of RBS’s I-banking arm, under taxpayer ownership. Meanwhile, the honest folk who have worked hard and played by the rules are bearing the brunt of a crisis for which they are not responsible.

There is truth in this analysis on both sides of the Atlantic. Lax regulations in derivatives markets, coupled with old-fashioned human nature, conspired to produce a greed-driven calamity in the global economy whose effects continue to shake us. Nor has the money-lust that fuelled that calamity dried up; hedge funds are reportedly betting that the euro will fail, priming to cash in on a fresh economic meltdown that threatens the livelihoods of millions.

Unfortunately, there is no “normal” to go back to anymore.

There is reason indeed to blame people for co-opting unfair rules for their own material benefit. Nevertheless there is a disturbing tendency in the populist discourse on bankers today. That is the tendency to assume that all that needs to happen to restore our domestic economies back to the glory days of fairness and prosperity is to rectify injustices in City and Wall Street compensation practices.

Whether by symbolic rectification – by pressuring Stephen Hester to disavow his million-pound bonus or rescinding Fred Goodwin’s knighthood in the UK – or actual rectification – by moving to put to a vote the Buffett Rule in the U.S. Senate that would ensure actual progressive tax rates – the prevailing sense is that all we need to do is re-instil a sense of justice and wait out the storm, and things will go back to normal.

Unfortunately, there is no “normal” to go back to anymore, and thinking that there is obfuscates the challenges that lie ahead for post-industrial liberal democracies in the twenty-first century.

To see why, consider a dinner last February between Barack Obama and a group of Silicon Valley bosses including Facebook’s Mark Zuckerberg, Google’s Eric Schmidt, Twitter’s Dick Costolo, and Apple’s Steve Jobs. During the evening, Obama pressed Jobs on why more iPhones were not made in America. The question was motivated, presumably, by the staggering fact that nearly all of the 70 million iPhones, 30 million iPads, and 59 million Apple products sold last year were manufactured outside of the United States. Jobs’s reported response to the president was sobering: “Those jobs aren’t coming back.”

That globalisation is transforming economies across the globe is, of course, not news. For at least two decades, economists and pundits have been well aware of the game-changing ramifications of burgeoning free markets across the global south and east, generating cheap labour with which western workforces cannot hope to compete.

But the citizens of post-industrial liberal democracies (PLDs) have not yet properly reckoned with the implications of this ongoing transformation, and the current recession is continuing to distract us from that crucial task. That is a mistake. It is globalisation, not the recession,  that is driving socioeconomic inequality in our societies. And what that means is that even when bankers’ bonuses are put in check and smarter regulations are enacted – even when the state does all that people are rallying for it to do – the inequality that is fuelling populist outrage will remain.

Today’s inequalities are only the tip of the iceberg.

Here’s why. As the global playing field becomes flatter, the PLDs will continue to perform economically poorer than they did in the second half of the twentieth century.  And as countries with market economies become poorer, they become less internally egalitarian.

While this not a foregone conclusion – state policy can make a difference – it is the likely trajectory of an economy regulated mostly by laissez faire economic policies whose workers are outcompeted by foreigners. And it’s happening: inequality is on the rise across the PLDs. This inequality between rich and poor has been exacerbated by the recession, but it has not been caused by it.

Rather, what the recession has done is to worsen – and thereby call our attention to – the trends that were already underway.  That is the core lesson of the recession: that the citizenries of the PLDs have failed to appreciate the impact of globalisation. Warren Buffett had it right: “You only find out who is swimming naked when the tide goes out.”

And there’s no evidence we’ll be able to find our swimming trunks anytime soon. Consider, again, the case of Apple. Weeks before a new version of the iPhone was set to hit stores, Apple redesigned the screen, requiring an installation of fresh glass panels on every individual unit in a crucial factory in Shenzhen, China. As reported by the New York Times in January, after a midnight arrival of the screens “[a] foreman immediately roused 8,000 workers inside the company’s [Foxconn Technologies’] dormitories…Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.”

In a world where that kind of labour power exists – usually devoid of minimum wage laws and safety standards that increase costs – how can the workforces of the PLDs compete?

We can’t. But the permanence of that fact is only beginning to hit us, again thanks to the recession. The U.S. Federal Reserve has predicted at least three more years of devastating unemployment rates. Britain’s economy unexpectedly shrunk in the final fiscal quarter of 2011. We are tempted to believe that the long slog of suffering is simply what is needed to pay the piper, either for years of financial under-regulation or for living above our means. Cook up some restrictions on derivatives trading, throw in some slashes on bankers’ bonuses, and (depending on your macroeconomic tastes) add either austerity or stimulus and we’ll get through this yet.

Employment may not return to pre-recession levels for a long time.

But while some of these strategies will likely work to reduce unemployment and spur growth to some degree, it is crucial to reckon with another possibility: that employment may not return to pre-recession levels for a long time; that historians will not look at the decades to come as ones of prosperity for the PLDs; and – most terrifyingly – that the children of our societies today will live materially worse lives than their parents did.

Appreciating this possibility is what it means to reckon, finally, with globalisation, and this is the watershed decade in which to do it.

The watershed decade: fantasy populism vs. liberal constructivism

Why is this decade a “watershed” decade? Because it will be the decade in which the citizens of post-industrial liberal democracies will reckon, finally, with what globalisation means for them and the people they care about.

It will be the decade in which people confront the undeniable reality that their children are not likely to have as good of a life as they have had, and reckon with the implications of that reality for what PLDs morally ought to do with their powers. It is the decade when we come to terms with the fact that the crucial reason our economies rode high over the past century was because of the paucity of genuine global competition, making foreign markets dependent on us for a wide host of goods.

But the tables have turned. Britain, America, and Germany are out; China, India, and Brazil are in.

There are two ways to come to grips with this fact. The first is to continue to believe that we have full control over our society and how well it will fare materially – to think that we can, after all, have everything we want. This perspective – call it “fantasy populism” – finds its fuel in the pathological debate about bankers’ bonuses, but more generally in an unwillingness to recognise the weakness of PLDs to control the world’s economic trajectory.

On this view, declining standards of living in the West are thus necessarily conceived not as a sign of our own weakness, but as somebody’s fault; we need only blame or punish the right people, and national decline can be averted. This combination of fantastical ideas – firstly, that it is possible to regain our economic might in the era of globalisation, and secondly, that if we don’t regain it right away, we can simply blame the right people and all will improve – paves the path to populist nationalism.

As people perceive the material good slipping away from them while fat cats continue to rake in the dough from their stock in multinational corporations, they blame external foreigners – through advocating protectionist economic policies – and domestic elites – through organising protests and campaigns. These are the familiar elements of left-wing populism.

But often the anger will be focused against internal foreigners, in the form of an all-too-familiar right-wing animosity toward immigrants – or, more accurately, a pair of mutually contradictory caricatures of immigrants: one who sits at home all day without working while sapping resources from taxpayer funded benefit schemes, another who steals the jobs of “real” Britons, Italians, or Danes.

On the second view – call it “liberal constructivism” – this decade presents a watershed moment in which citizens will orient themselves to the future. The public consciousness will finally catch up to the economic facts. We will recognize the dynamic and transformational character of the world today, and acknowledge the unpredictabilities generated by that character. And we will thus understand that keeping faith with old values will require new ways of thinking.

We will, in short, need to construct new ways of imagining the world and seeing ourselves in relation to it.

We will, in short, need to construct new ways of imagining the world and seeing ourselves in relation to it. Part of what that will involve is reckoning with the presence of others unlike ourselves, with a degree of influence over us that we have never known. And that will involve a rejection of the idea, held by fantasy populists, that everyone who is like us can have everything they want.

David Hume taught modern political thought that principles of justice are principles for the distribution of benefits and burdens that apply precisely when not everyone can have everything they want; it is only in such “circumstances of justice” – characterised foremost by the fact of scarcity – that it makes sense to talk about justice at all.

So we will need to ask: How will we relate to the citizens of other nations in the decades ahead? Is it fair to place our own countries’ economic interests ahead of others’, and if so, why? What forms of supranational political and economic governance will be required to alleviate the problems generated by globalisation in a manner consonant with our values? What reforms to the World Bank, International Monetary Fund, and United Nations will be necessary?

In tackling these deep and difficult questions, the liberal constructivists will acknowledge that Europe and America will be different places in the twenty-first century than they were in the twentieth. We will need to interact with each other in new and diverse ways, constructing institutional arrangements that empower citizens of different nations together to solve crucial new challenges.

And we will recognise that while the flattening of playing fields can sometimes be cause for despair when nations do not come together, for example, to keep vulnerable workers safe through labour standards, it can also serve to help developing societies manufacture their way out of poverty – just as we long ago manufactured our way out of poverty. In this way, through the tempest of globalisation, we can launch an international effort to imagine new principles for realising the core aspirations of liberal democracy: for every human being to be empowered to live a free life.

What future will we choose?

Unfortunately, there is only too much evidence that the answer is the former. As far right parties are on the rise across Europe, more and more people are tempted to join the ranks of the populists. That they do so is understandable, and their choices to join these parties need not imply that they harbour any genuine malice toward foreigners.

Rather, they find themselves confronted with a concatenation of disturbing trends – an economic crisis that betrays their nation’s defining principles of fairness; an influx of immigrants who transform the national character unpredictably; declining standards of living – and they realise that continuing the path ahead appears incongruent with the realisation of their own good. Xenophobic nationalists claim they can restore the nation to greatness, and people want to believe it. So people do.

Likewise, left-wing populists, justifiably outraged by the unfairnesses revealed by recession politics, rant at the establishment for greater equality, but in a manner that assumes an easy fix. They, like their right-wing brethren, fail to reckon with the globalised nature of contemporary politics and economics, and the challenges it brings.

One crucial objection to populist politics is its illiberal character: it tends, too easily, to marginalise or underplay the moral claims of those outside of the majority, of “the people”. But cosmopolitan morality aside, it is not clear that the policies left-wing and right-wing nationalists pursue remotely accomplish what they say they are going to. The 1930s demonstrated clearly how protectionism can harm the very countries that pursue it.

 Much of the impetus for xenophobic nationalism is predicated on false empirical information.

As for immigration, there is considerable evidence of the economic good immigrants can do for the countries they go to, pace populist arguments to the contrary. It is unfortunate, then, that so much of the impetus for xenophobic nationalism – not among the die-hard radicals who believe their fellow countrymen are morally superior to foreigners, but among the reluctant pragmatists who are reacting to uncertain circumstances – is predicated on false empirical information.

As countries enact protectionist policies and adopt illiberal attitudes toward immigrants, they are likely to slide even further into economic despair, reinforcing the beliefs that generated those protectionist policies and illiberal attitudes in the first place. Moreover, as the effects of the recession weaken over time, and we realise that economic conditions are not restoring to what they once were, the prospects for increasing resentment are high. In other words, populism is not going away. And to be able to solve the problems it presents, we must be prepared to set fantasies aside and reckon, finally, with the future.

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