In the opening contests of the 2016 race for the White House, Ted Cruz, a Republican candidate described as a "mountebank", has upstaged Donald Trump, a "narcissist". Meanwhile, Bernie Sanders, a self-proclaimed Democratic socialist, more or less tied with establishment favourite Hillary Clinton. So the rebellion against the elites is in full swing. The vital question is whether (and how) western elites can be brought closer to the people.
We are not Chinese. Maybe even the Chinese will not remain content to hand responsibility for public affairs to a self-selecting elite. In the west, however, the idea of citizenship – that the public realm is the property of all – is not only of ancient standing; it has also been the object of an ultimately successful struggle in recent centuries. An essential attribute of the good life is that people enjoy not just a range of personal freedoms, but a voice in public affairs.
The outcome of individual economic freedom can be great inequality, which hollows out realistic notions of democracy. The governance of complex modern societies requires technical knowledge – and we already face the danger that the gulf between economic and technocratic elites on the one hand, and the mass of the people on the other, becomes too vast to be bridged. At the limit, trust might break down altogether. Thereupon, the electorate will turn to outsiders to clean up the system. We are seeing such a shift towards trust in outsiders not only in the US but also in many European countries.
A complacent view is that the disaffected may let off steam but the centre will hold. This is quite possible. But it is a risky strategy. If the disaffection grew worse, the centre might not hold. Even if it did, a democratic society in which a large minority is disaffected while a majority is full of distrust would not be a happy one. Yet such a gap has emerged between the attitudes of informed elites towards established institutions and those of the wider public.
Rising inequality
So what are the root causes of this divide in attitudes? One is cultural change. Another is distaste over changes in the ethnic composition of nations. Then there is anxiety over rising inequality and economic insecurity. Perhaps the most fundamental cause is a growing sense that elites are corrupt, complacent and incompetent. Demagogues play on such sources of anxiety and anger. That is what they do.
As a recent OECD note points out, inequality has risen substantially in most of its members in recent decades. The top 1 per cent have enjoyed particularly large increases in shares of total pre-tax income. This divergence between the success of the economic elite and the relative lack of success of the rest has been particularly striking in the US. Thus, notes the OECD: “Between 1975 and 2012 around 47 per cent of total growth in [US]pre-tax incomes went to the top 1 per cent.” As the US has developed a Latin American-style income distribution, its politics have grown infested with Latin American-style populists, of both the left and the right.
How should those in the centre respond? Successful politicians understand that the people need to feel their concerns will be taken into account, that they and their children enjoy the prospect of a better life and that they will continue to have a measure of economic security. Above all, they need once again to trust the competence and decency of economic and political elites.
Here are a few elements of what needs to be done. First, of all aspects of globalisation, mass immigration is the most disruptive. Movement across borders needs to be brought under control. The presence of 11 million undocumented immigrants in the US should never have been permitted. In the case of Europe, regaining control of the borders is an overwhelming priority if the union is even to survive. Refugees must now be the priority. This demands creation of a significant European capacity to promote order beyond the bloc's borders.
Second, the euro zone needs to embark on a fundamental questioning of its austerity-oriented macroeconomic doctrines. It is appalling that real aggregate demand is substantially lower than in early 2008.
Fair taxation
Third, the financial sector needs to be curbed. It is ever clearer that the vast expansion of financial activity has not brought commensurate improvements in economic performance. But it has facilitated an immense transfer of wealth.
Next, capitalism must be kept competitive. We are in a new gilded age in which business exerts great political power. One response is to promote competition ruthlessly. This will require determined action.
Then, taxation must be made fairer. Owners of capital, the most successful managers of capital and some dominant companies enjoy remarkably lightly taxed gains. It is not good enough for business leaders to insist that they are sticking to the law. This is not an adequate definition of ethical behaviour. This view is particularly disingenuous when commercial interests play such a powerful role in shaping those laws.
In addition, the doctrine of shareholder primacy needs to be challenged. Shareholders enjoy the great privilege of limited liability. With their risks capped, their control rights should be practically curbed in favour of those more exposed to the risks in the company, such as long-serving employees. And, finally, the role of money in politics needs to be securely contained.
Western polities are subject to increasing stresses. Large numbers of the people feel disrespected and dispossessed. This can no longer be ignored. - (Copyright The Financial Times Ltd 2016)
