The west’s progressive challenge
Now is the time for mainstream politicians to stand up against the nostalgists, not by defending the present but by offering a clearer, more convincing belief in the future
My subject today is the future of Europe – but it could as easily be the future of the United States, so closely are our futures dependent on one another. America and Europe succeed best when the other is doing well. We are currently in a time of high risk, with threats from outside, but perhaps too with greater challenges driven by divisions at home.
Why? We are still seeing the political aftershocks of the 2008 financial sector crisis. Growth remains less than robust. Public spending is squeezed. But it is wider than low growth numbers. We are living through an era of great change. China has risen. Gender roles change. Some industries decline, others rise. Once prosperous communities now struggle as new ones prosper. And on both sides of the Atlantic we are seeing the rise of a politics of pessimism and economic nationalism.
They are striking a chord with the economically “left behind” and those who feel their values are being “left out”. They play on a ubiquitous cynicism about politicians and politics.
These are certainly challenging times for someone like me, politically on the centre left, holding progressive values. A believer that globalisation is a “net positive”. A proud Brit, but one who believes pooling sovereignty holds the key to solving global challenges. A cosmopolitan, a liberal, a believer in the values of community and solidarity and a champion of extending opportunity.
I want to do two things today. First, challenge the pessimistic and nationalistic arguments while acknowledging that those who share my views have not got it right. Second, make the case for progress and hope.
There could not be two better places – Chicago and London – to exemplify optimism about globalisation. From Jakarta to Delhi, Cape Town to Dubai there are dozens of great cities that aspire to be the next London or Chicago.
When I travel to these cities as I do in my work for Lazard or in my role as chairman of Global Counsel I rarely hear complaints about competition from imported goods and services. People want to internationalise, grow and get on.
But when I think of my former constituency in northern England, once a great centre of coal mining, industry and trade – where more than 65 per cent of people voted to leave the European Union – and when I hear of counties in Ohio where 70 per cent of people voted for Donald Trump, it is a very different story.
Voters are giving up on the promises of a bigger pie because they do not see a slice reaching them or their families. Promises of manufacturing jobs being replaced by new industries broken. Their neighbourhoods changing character through migration or economic flux. Division between cities and smaller towns, between those who can take opportunities and those who are isolated from them.
Nine months on from Brexit, four months on from Trump and who knows may be three months before France’s Marine Le Pen, these observations are regrettable but not unique.
In the city that forms the backdrop for a book entitled “The Audacity of Hope”, now is the time for mainstream politicians to stand up against the nostalgists, not by defending the present but by offering a clearer, more convincing belief in the future.
Ten years ago in Springfield, Senator Barack Obama’s campaign inspired people around the world, even as they questioned whether the system was working for them in the depths of the financial crisis. The sources of this hope and its demand for change challenge current policy assumptions and are therefore also sources of risk for business which I will come back to.
But I cannot emphasise enough that renewal is necessary and that the price will be worth paying. We have seen in history how popular revolts become too powerful to ignore. The centre has to react and business too.
When I was trade secretary after Tony Blair came to power in 1997, globalisation was mostly an intellectual concept of “free movement” about which the political mainstream spoke approvingly and confidently. We underplayed the impact on people and their neighbourhoods, how the gains would be distributed and who was carrying the burden of adjustment.
Yes, we introduced a national minimum wage and in-work income supplements, and boosted investment in cities, infrastructure, education, training and health services. But the modern global economy was changing at breakneck speed. By the time I was Europe’s trade commissioner in the 2000s I saw resistance growing from the other side of the trade equation: producer interests in advanced economies less able to compete and workers seeing the playing field tilt against them.
George W. Bush talked to me in the White House at the time of how rising protectionism, nationalism and “nativism” in America were eating into mainstream politics. We have seen how this playbook has ended.
So what do we in the west – in the US, Europe and Britain – do about it? How do we adapt our economic model so as to restore faith in it? We need a reset. For too long the centre ground has been paralysed in its thinking and action. We cannot allow those who shout loudest to have it all their own way.
Some growth and modest redistribution will not suffice. Recent elections in the US and Europe have shown that tweaking the policy dial does not work against the impact of insurgent political forces. Bluntly, we need to go a lot further in order to achieve a realignment of politics that will reclaim the swing voters the centre ground has lost to the extremists.
We have reinvented ourselves in the past when our system of liberal democracy has been under pressure. In the 1930s, after the fall, when the US economy was being buffeted by depression, Franklin Roosevelt established the radical idea – now widely accepted – that the state has a significant role in managing the economic cycle and coming to the rescue of those whose jobs and livelihoods are being destroyed.
The creation of the Bretton Woods system of global institutions and the application of Keynesian social democracy in Europe, supported by the Marshall Plan, made it impossible for the populism of that time – Red Communism – to gain a meaningful hold in the US or western Europe.
We saw a further reset of liberalism led by Lyndon Johnson in the 1960s – the Great Society and the establishment of civil rights and racial equality that could no longer be deferred. It was not easy to bring the southern states round but the centre ground was strong enough to do so.
We saw a different sort of reset in the 1980s, when Ronald Reagan and Margaret Thatcher argued that a system managed by “corporatist insiders” and vested interests was hampering enterprise and failing to offer opportunity to those with aspiration. This was controversial because it emphasised faster growth at the expense of cohesion in society.
A response to this in Europe at the time, incidentally, was the creation of the highly ambitious single regulated market for goods and services, still growing today, which promoted high labour market standards and protections against social dumping in exchange for liberalising trade.
We saw a further reset in the 1990s, when the New Democrats and New Labour, responding to deepening divisions in society, again realigned the centre ground of politics to balance economic dynamism more explicitly with social justice. In each case politicians of the centre listened to concerns of voters, recognised that the status quo was unsustainable, and offered realistic and practical alternatives. In doing so marginalised the more extreme voices who could ultimately only offer anger and criticism.
We have to do this again. But it is not simple. It requires radical rethinking of how to achieve our goals and to build a new base of support, modernising our use of communications to do so. We should draw inspiration from that most radical of rethinks, the New Deal and the “American dream” it gave rise to.
But we should not underestimate the challenge we face. The public are being fed easy answers based on identity politics rather than ideology and a technological revolution is further expanding the pool of footloose and uncertain voters whose allegiance we are competing for.
Slogans like “take back control” for Brexit, or “in the name of the people” for the Front National in France, or even “America First” are designed to avoid hard policy choices and will ultimately fail.
But waiting for that to happen is not good enough; we must also offer a positive alternative.
And there is some encouragement. In Britain, it is true that the prime minister, Theresa May, in lockdown over Brexit, is pursuing a series of strategic misjudgements which could result in Britain crashing out of the EU without a deal on trade, investment, cross border policing or defence. This would be calamitous for the UK’s future prosperity and security.
But Mrs May, recognising that our model relies too heavily on insecurity for individuals to deliver profits, says she wants to build a new centre ground that “improves the security and rights of ordinary working people … in a country and an economy that works for everyone, not just the privileged few”. And she has definitively buried Margaret Thatcher’s approach towards manufacturing by launching an explicit “industrial strategy”.
In France, presidential candidate Emmanuel Macron has gone further, arguing traditional party politics is dead and that a more flexible “movement” between centre left and centre right is needed to overhaul France. His policy programme is still under development, but it promises “protection” – for example cracking down on antisocial behaviour, taking a robust approach to trade defence – and “opportunity”, with a state investment programme and more equal treatment of workers outside traditional bargaining structures.
In the EU institutions, commission president Jean Claude Juncker has recognised that “irreversible” momentum towards integration has stalled and has started a debate about how the EU can be strengthened through reform. The purpose of the EU as a source of power to protect European interests and project our values is as valid now as it was to create peace, reunify east and west and to generate unprecedented prosperity in the past.
The Eurozone and its currency are not threatened. But nonetheless profound questions of political identity, solidarity and legitimacy need to be addressed in Europe and no amount of institutional redesign will substitute for tangible policy evidence of the EU’s value in the years to come.
Inevitably this will include examination of the contribution and responsibilities of businesses. There is still a consensus on the centre left and centre right that politics must harness the energy and disciplines of the market, and the technology that comes from business innovation.
But this consensus is more fragile than at any time in the last 40 years. Business has to either become part of the solution to the problems I have talked about, or it will be in the line of fire. So what does this necessary rethink of policy mean for business?
It will mean new challenges for companies, particularly those operating across borders. It will lead to higher expectations of how they treat workers, a questioning of models based on “self-employment”, without a fair balance of rights and responsibilities for workers. It will mean fewer opportunities to “optimise” or avoid tax, with calculations of liabilities based on the sources of revenue as well as the nominal location of profits.
Technological disruption will continue, but for many this translates poorly outside Silicon Valley and its impact needs to be managed in far-seeing ways.
Honesty and transparency are needed about how customer and employee data is used – including where control of data creates unfair market power, and where there is already dangerous pressure for the state to micromanage the market in this area. And we already see examples of how these pressures can translate into poorly designed policy, such as border adjustment taxes or forced data localisation.
But the largest challenges will be for countries to continue to work together to align regulation, to reduce friction at borders and allow skilled people to move around to provide services, as the EU and to a lesser extent the World Trade Organisation do presently.
The biggest risk in the current political debate is that we move from the undeniable truth that globalisation could work better to the false conclusion that we are better off without it. In the case of Brexit, if the UK and the EU can find the right ways to secure trade between them, designing and enforcing new rules and winning public support for significant compromises to do so, this will generate confidence internationally.
Perhaps the costs of abject failure have to be brought home to the UK and EU before this happens, including the huge economic burden of having to duplicate functions and activities in the UK and in the EU27 and to comply with different market rules.
This will limit the ability of European and British firms to grow and innovate, passing opportunities to global competitors, American as well as Asian ones, to eat our lunch. Indeed many speculate that the greatest beneficiaries of cutting off London’s financial sector from mainland Europe will not be any European financial centre but rather New York, Singapore and Shanghai.
Tony Blair argued here in Chicago in 1999 that global cooperation and global institutions such as Nato were necessary and indeed had a duty to protect human rights, adapting to new threats and new opponents.
We face a similar challenge today to adapt and renew the case for our economic cooperation and the international institutions that promote this.
Is the west capable of such resolve or are we inevitably in decline?
My answer is no, we are not entering a post-western world, because our people, our companies, our rule of law and our capacity for innovation continue to succeed and shape the world. But will we experience continued political risk without significant reform? Absolutely, and this applies across the waterfront of public policy whether in respect of tax and social security, education and skills and healthcare.
That is why we need to act with equal amounts of humility and determination, offering hope instead of cynicism and progress instead of fracture. We need a competition of ideas between centre left and centre right. But first we must deal with this nonsense that what matters most is bringing back an idealised past.
As someone who has been through dark days for progressives before, I know the importance of first understanding why we are where we are. Why voters are where they are. And to draw inspiration for the hard work ahead.
We in the west can only move forward, as economies and societies, but we must also make sure we travel together, with no one left behind.
This article is based on a speech first made to the Chicago Council on Global Affairs on the 7 March 2017
Image credit: Juli Hansen / Shutterstock.com