Looking back at 2016 it is hard not to think that there were tectonic shifts in the western economic and political system, even allowing for the tendency of us all to overweight recent events. Ever since Cicero politicians have been complaining “o tempora, o mores” and we should have a healthy suspicion of those words “this time is different” but maybe, this time is in fact different.
We have seen, in Brexit and in Trump, the rise of populism. This is populism of a particular kind however. It is populism driven not by poverty, not by loss of a war, not by anything specific. It is populism grounded in an inchoate sense that things used to be, and could be better, populism in the rear view mirror, populism for a simpler and, in the populists memory, better time. It is populism whipped up in the most cynical terms by the most inner of elites portraying themselves as outsiders, modern Clodius’s who lead those at whom they laugh. It’s a curious populism, for the most part a phenomenon of the west. While in the west the lower middle classes remember fondly the days of their fathers (even if theu were not alive) and their salad days of the 70s, in the rest of the world the reality is that the majority of people have never had it so good. The old, and the late middle aged, vote and in doing so have driven the UK off the Brexit cliff and the USA into the hands of the nomenklatura, in both cases wilfully and cheerfully.
At the root of the discontent is the differential pace of gains from globalisation. There is a fantastic graph, from the World Bank in 2012, which to a great extent explains the last 30y of the world economy. What it shows in essence is the relative winners and losers, globally, Since the early 90s the world has undergone a dramatic change. Concurrent with globalization relative wealth has shifted. The global middle class now is dominated not by (relative) wealthy south americans and those in the west but by them plus the enormous Chinese and to a lesser extent Afro-indian middle classes. Crucially, this doesn’t imply, necessarily, that the 1990 middle classes have gotten poorer. They may have in some countries but in other countries they may not have. What they have become is just one part of the global middle class. At the bottom changes have been modest but in the middle – the global earners earning in the 30-60% of global income distribution, these have seen enormous rises in real income, as global poverty is reduced and globalization acts as an enormous “relative to the global income distribution” redistributive mechanism. The brexiteers and trumpeteers are mourning, at least in part, a loss of exclusivism, a loss of the world being their oyster, a loss of the ability to be the lords of economic creation.
A key element that should be of concern to us here in the liberal still wealthy democratic west is this – there is no evident linkage between global wealth and democracy. Liberal, western representative democracy in the long perspective is probably best seen as a mechanisim for the middle classes to ensure that the peasants stayed in their place, more or less, and that the upper crust didn’t loot the place bare. Doing so, with the concomitant superstructure of rules of law and procedure, enabled and enhanced entrepreneurship and economic growth. But other mechanisms exist. China is one such experiment – hyper capitalistic at one level and at another deeply dirigiste to a level that would make the graduates of ENA weep in envy, it is by no means democratic. Putin’s Russia is another – both more and less absolutist than China but a Potemkin democracy, yet (more or less) succeeding. While I and others might like to think that in the long term these will come round, due to the same pressures as led enlightenment Europe, towards democracy, that is not a given. Universal suffrage is a historical rarity in large states. The self perceived squeezed middle classes of the west have tried universal suffrage democracy and plainly find it lacking. But their woes are only starting, and with them the disillusionment will perhaps reach greater depths, opening the door for the right to rise again, if it has not already done so.
2016 also saw the arrival of a large number of automated processes and products that have the potential to eradicate swathes of previously humanised middle and lower middle class jobs. Take some examples. In finance we see the rise of robo-advisors, to counterpart the growth of algorithmic trading. Robo advisors are programs, virtual robots as it were, which suggest, with little human intervention, what and where to place any funds one might have. This has the potential to wipe out a large tranche of the investment advisor and fund advisor market. In motoring we have seen astonishing growth in the penetration and acceptance of self driving autos. Initially confined to cars this is now beginning to penetrate into the trucking business. That has the potential to disrupt a huge employer- in the USA for instance there are 3.5m truckers, mostly independent operators. In large stores we are now grindingly accepting of the robotic checkout. Banking is increasingly roboticised. A 2012 paper noted a potential immiseration cycle from robotics – as they penetrate the workforce they make it harder for the younger workers to get jobs and make it less feasible and rewarding for them to invest in human capital, depressing wages for several generations. The marginal productivity of lower skilled workers declines while that of higher skilled rises, exacerbating the income gap and social tensions. The older and richer get richer the younger and poorer get stagnation. We are seeing this happening now through the overhang of debt and the unwillingness of the boomer generation to countenance any reduction in their welfare through the events of the GFC
A final issue is the growth of extreme income inequality. As noted globalisation has brought about huge welfare increases in the lower reaches of the income distribution. But the biggest gains are in the 1%, the 0.1% and the 0.01%. The world has seen the rise of a plutocratic class unseen perhaps since the Tang or Roman empires. Although not yet complete the cabinet of curiosities that Donald Trump has proposed are already wealthier than the lowest earning 50m US households. Think of that for a second. A dozen vs 100m. 50% of the global wealth is in the hands of the 1%. The top 0.01% in the USA are as wealthy as the remaining 0.99% that make up the famed 1%. There is something wrong with this. As my wife’s aunt said when she first saw Versailles “no wonder they riz up”.
What of Ireland? Well, we have the most unequal pre-tax pre-welfare society of the entire OECD. This includes the USA. Perhaps for shame, or perhaps because we have a fairly vibrant democracy, we have a tax and welfare system that makes us middle ranking post distributions. But that is a function of a politics that is under strain. We have, mercifully, been spared the extremes of the right. But the virus is there. Left to our own devices we show all the instincts of the farther reaches of the right. We don’t, really, give much of a toss about homelessness. If we did, we would not tolerate 7000 people spending Xmas and New year in emergency accommodation (small, dingy hotel rooms). We think that there is no tax rate too low in the attraction of any number of brass plated jobs, and be damned to the begrudugers who class us as part of the global tax scandal that is the MNC taxation mess. We don’t really give a hoot about the undocumented , unless they are Irish in the states when we mutter “shure didn’t they BUILD America” while confining our domestic undocumented to direct provision for decades. We don’t much like paying tax, but love a good service. We have no meas on higher education, really, wanting a world class system but one that produces Lawyers and Doctors for the upper middle classes, accountants and teachers for the middle, and sure isn’t the RTC grand and cant they do computers and the like there for the rest. We don’t want to pay for it. We want cheap electricity but don’t want pylons, and so on. We have a system that left to its own devices produces inequality on a globally scandalous scale.
Presiding over this we have “new politics” which looks much like the old politics with a coat of paint. Painting over a damp rotten edifice makes it look good for a but, but the paint peels and reveals the reality. Right now we have the paint beginning to peel. In a world where President Donald Trump is not a simpsons episode, where the UK has decided to go back to 1957, where a populist right wing political party is showing spectacular growth in Germany through blaming the national woes on a small but visible minority (what could possibly go wrong..), who knows what will 2017 bring.
Column in the Irish Examiner, 24 December 2016