The success of everything depends on intuition, the capacity of seeing things in a way which afterwards proves to be true, even though it cannot be established at the moment, and of grasping the essential fact, discarding the inessential, even though one can give no account of the principles by which this is done.
The difficulty lies not so much in developing new ideas as in escaping from old ones.
It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics, because discrimination, poverty, and ignorance restrict growth, while investments in education, infrastructure, and scientific and technological research increase it, creating more good jobs and new wealth for all of us.
There is a growing global anti-establishment revolt against the permanent political class at home and the global elites that influence them, which impacts everyone from Lubbock, Texas, to London, England.
The next crisis is coming. There is little time left to avoid a political meltdown of proportions unseen in our lifetimes. We are reaching the end of the road, where we can no longer kick the can further. We have run out of fiscal policy and monetary policy. Even QE, if it was to be restarted, would trigger a breakdown in the social contract, leading to widespread contestations of the legitimacy of property, wealth, and money. The bases of our economic systems are shaking and the pain has become intolerable even before an inevitable recession has even started.
What can we do? The first step is to give us some space to breath, to muddle through the coming crisis. One step in particular can do more than any other to firm up the system in one fell swoop: We need to turn QE on its head and nationalize its profits, which are held by the central banks. This would mean either cancelling the debt owned by the central banks, or transferring it into a sovereign fund that focuses on long-term investment. This would not be a silver bullet. But it would buy us time.
We need to use that time to rethink the super-structural changes that have allowed a few rent extractors to become ever wealthier while the vast majority became poorer. And for this we need governments that are refocused on their primary mission, and less susceptible to special interests. This, of course, is easier said than done. When they were opposition figures, populists could content themselves with provocative slogans. Once in office, they must produce concrete policies.
The challenge, be it for the populist parties or for those incumbents trying to hold onto office and reform from within, is to preserve the real gains of globalization while addressing the pressing concerns of the new radical majority. They must formulate a new social contract that would make the system fairer and make sure the “losers” of the new order have a sufficient stake, making the outcomes of economic adjustments win-win rather than creating a few big winners and a lot of losers.
Consider the case of Singapore. By almost all accounts, Singapore is the best run state on Earth, which has led to an enormous, multi-decade gain in wealth for its people. It has not only multiplied real estate supply but insured special access to the less well-off. It has made sure education, including higher education, is accessible to all, and encouraged the import of talent. It has set up a public health system for all. It has maintained balanced budgets and invested heavily in infrastructure. Its government is efficient and corruption-free. That’s why I recently moved there, to work and to observe from within what good governance can do. And yet, even in my new home, I see the unmistakable signs of a rising populism. As the city has grown, so has the size of the foreign-born population, myself included. Unlike in the West, where low skill migration is posing the greatest dilemma, Singapore’s immigrants tend to be, thanks to government policies, educated and employed. But this creates problems of its own, and local people, who have worked hard to create this country have understandably felt marginalized at times by these swarms of well-off foreigners.
The increasingly global identity of the city has threatened local identity, and along with the visible wealth gap between middle-class locals and high-flying foreigners, has set resentments on the rise. Foreigners have bought up scarce, expensive housing in the city center and let it sit empty while conspicuously displaying their wealth. This dynamic was symbolized by a recent incident in which a Chinese mainlander driving recklessly in a Ferrari crashed into and killed a Singaporean taxi driver. It is difficult to think of a place that has gained more from globalization than Singapore, or has more to lose if it is curbed. But even here, the government, carefully listening to this social dissent, has been forced to impose limits on immigration, and rightly so.
This underlines the limit of what can be done. The logic of populism may be deeply rooted in the rational economic grievances of the over-burdened members of society who have now become the dissenting majority. But it also incorporates emotional and cultural components that cannot be wished away. What can and should be done, with all urgency, is to dial down the economic pressure on the dissenting majority and to restore the capacity of the state to play its role, not in place of the markets, but as the steel skeleton, the provider of structure and infrastructure, within which markets operate. This will buy time for politics to address these cultural grievances without jeopardizing our economies and the gains we have collectively achieved through global economic cooperation.
To start, we have to redefine our analytical tools, and indeed data, so as to capture important phenomena that have been disregarded and play a critical role in our societies. We have to discard politically correct codes in the process, not in order to offend people, but to understand on a deeper level the sources of social dissent. We have to redefine the very objectives of our societies after decades of overly fixating on top-line economic figures – like GDP growth, employment, and inflation – without bothering to truly understand the much more complex realities they purport to represent.
Should we aim to expand the economic production in a given territory, or the wealth of the inhabitants in this territory (GDP growth, or GDP per inhabitant growth)? Should we maximize ‘productive’ employment or should we ease the transition of society to a more automated future by subsiding ‘non-merchant’ community jobs? If jobs are going to be increasingly automated, how should we invest in human capital to ensure long term employment? How can we restore confidence in government and restore to states their means of action, including workable budgets and top-flight leaders? How can we root out soft corruption? How do we finance a health care system for the whole of society, knowing that providing premium quality care for all is simply not an economically sustainable model? Should we limit open trade to be only between countries of similar wealth per inhabitant? If we don’t, how can we help those left in the lurch by the whirlwinds of global trade? How can we ensure that anti-competitive models that limit supply and competition, be they in real estate or new technology, are broken up, even if they appear to create wealth (at least for some)?
It is easier to raise these questions than it is to formulate good answers. But raising these issues and triggering debate is an important first step. In that light, a list of proposals for consideration follows below. Some are provocative in nature, designed to be thought provoking and to generate new ideas. The challenge to our societies is imminent and the current model is politically unsustainable, requiring new solutions. They may not all end up being the right answers, but they are designed to force an honest reassessment of the prevailing system and in the process prepare us intellectually, whatever our political opinions may be, to confront the choices we will soon have to make, to reassess the balance between the benefits of globalization and social cohesion.
Ultimately, the real question is whether our societies still have the capacity to evolve, if they can rise to the challenge of transforming themselves. Perhaps our societies have reached a point where they can no longer evolve sufficiently to adapt to changing circumstances. In that case, history teaches us that the majority of dissenters will make erratic decisions – sometimes positive, but all too often not – until our political-economic system collapses and a new one emerges sometime in the distant future, following an intervening “medieval” period marked by chaos.