Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

29 June 2016

Brexit in World-Historical Perspective


[In two recent short essays, I tried to analyze the real popular angst behind Brexit and caution against overreaction. Like most analysts, I didn’t expect Brexit and had argued against it.

But it's never a good idea to ignore the pain and angst of a whole class of people just because it contravenes your nice, neat theories, your worldview, or your self-righteousness. That’s true even when you think that demagoguery and lies helped create the angst. To dismiss any popular uprising is to ignore reality and human striving—a dangerous thing for scientists, democrats and leaders of any stripe to do.

That’s what Britain, France, and Russia did in punishing the German people collectively after winning World War I. The result was World War II. (Our Yankee leader then, Woodrow Wilson, urged a more moderate, empathetic and sensible approach, to no avail.)

The best thing to do is to stop, think, and try to make lemonade out of the lemons, as wise leaders like Angela Merkel, Barack Obama, and John Kerry already appear to be advising. Even David Cameron, whose faulty political manipulation helped cause Brexit, appears to be doing the same thing—setting up a committee of experts to decide how to make the best out of a bad situation.

This essay takes a much broader, world-historical perspective. Oddly, I had been working on the ideas in it for months, completely independently of the risk of Brexit. Brexit just fell into its schema, seemingly fortuitously. Like the tasks ahead of Western leaders after the Brexit vote, this essay is all about taking the long view and staying flexible. For a follow-up on consequences for free trade, click here.
]

Introduction
Recent nation splitting
The failure of individual perspective
Bias toward nation-states
Economics: centrifugal forces win
Politics and culture: “solutions” so far Conclusion

    “All politics is local.” — Thomas P. (“Tip”) O’Neill, Speaker, US House of Representatives (1977-1986)
Introduction

The Brits have voted to make their “Brexit.” As a result, markets crashed, the pound plummeted, and handwringing among economic and political pundits reached orgiastic proportions.

Proponents of staying, including British Prime Minister David Cameron, predict an economic apocalypse. They note, perhaps rightly, that Britain is too small an economic bloc to have much global clout without the rest of Europe. And they assert, also rightly, that the mere fact of Brexit will create considerable economic and political uncertainty for a considerable period of time. Brexit is unprecedented, and negotiating its terms and denouement will occupy European and British leaders and diplomats for years.

The immediate impetus for Brexit was glaringly obvious. The free movement of people, goods and money across what used to be international boundaries is a core principle of the EU. Yet in recent years, the free movement of desperate refugees and economic migrants seeking a better life in Britain’s stable democracy—not to mention its free and relatively plentiful job markets—has stressed Britain’s social services and strained its social fabric.

As I have written, the EU is a political miracle. You can sit on a train and ride easily over borders, without stopping, where once armed guards and customs officials ruled, and where once bloody battles raged. This makes the EU a holy project, worthy not just of support, but of veneration.

Yet as a single economic entity, let alone a government for the most populous “nation” save China and India, the EU leaves a few things to be desired. The “austerity” that Northern Europe has imposed on Greece and other Southern members simply has not worked. It’s made Northern leaders and their people feel good (and self-righteous), but it has imposed great suffering on the South, without appreciably reducing the risk of default. Austerity has just kicked the economic can down the road, while the subject peoples suffer.

So it’s ironic, to say the least, the Britain, which is doing fairly well, is the first to leave. The camel’s back of British popular tolerance for the poor, tired, huddled masses from less fortunate and less-well-governed places has broken. Massive Syrian immigration, along with the threat of terrorism, was apparently the last straw.

A big class divide infects the Brits’ attitude toward Brexit, as it does most of the right-wing resurgences across Europe. Well-educated people with good jobs and homes in safe, exclusive zones relish the abstract attractions of porous borders, assistance to desperate refugees, and the EU’s founding principles of free movement of people and goods. They also look back at Europe’s history of endless wars—leading up to the most horrible one of all—and shudder at what nationalism and religious discord have caused.

For less well-situated and well-educated people, the abstractions don’t shine as brightly. The working class sees jobs getting scarce and more menial, and strangely coiffed and attired people—often strong, single young men—filling public squares near where they live, speaking languages they can’t understand, and generally looking menacing and dangerous. They want the influx to stop and, if possible, to reverse.

While this class war plays out in the world’s oldest democracy, it may be helpful to broaden the focus a bit. It may be helpful to note how centrifugal forces are replacing the centripetal forces that once formed the nation-states we know today, and not just within the EU.

Maybe a more global perspective will help us see the EU’s prospects more clearly. Let’s take a look.

Recent nation splitting

During the last seventy years we have seen vivid examples of centrifugal force. Pakistan left India, and Bangladesh left Pakistan. The Soviet Union dissolved. So did Yugoslavia. These events alone made major changes in the international order, resulting in twenty-five nation-states where there had been only three.

The nation splitting didn’t stop there. Today centrifugal forces are at work in Iraq and Syria, and likewise in the Kurdish parts of Turkey, Syria and Iraq. Although it voted to stay, much of Scotland wants to leave Britain. Many Basques and Catalonians want to leave Spain. Northern Ireland has stopped (for now) its gruesome sectarian wars by achieving a degree of autonomy from England. Now that the slavery question has long been settled, many Southerners want to leave the United States—a proposal that has some historic, cultural and practical merit.

So it’s worth asking generally, and not just in relation to Brexit, what’s going on. What’s the “natural state” of human affairs? Is it a steady growth of larger nation-states, with bigger populations and stronger common rules, until all coalesce in some sort of loose global EU? Will the United Nations become a real global government? Will all the nations and tribes of Man some day become a gigantic super-state, with “Kumbaya” as its anthem? Or will the postwar trend of dissolution and spinoffs continue, perhaps with greater attention to making and enforcing fairer common rules of trade, migration and human rights?

The failure of individual perspective

As we contemplate these very real phenomena, our tiny temporal perspectives as individuals cripple our thinking. Our whole recorded history as a species—about ten thousand years—is much too short for biological evolution. So neither the recent rise of centrifugal forces nor the long formation of nation-states that preceded it has much to do with biological evolution.

How could it, when we evolved in tribal clans of thirty or fewer members, and cities, let alone big nation states, have tens of millions today? The way we live now has little or nothing to do with how we evolved as primates on the African savannah, or as tribes in the colder, more inhospitable climes of Europe and Asia.

So what we are dealing with here is a matter of social evolution. It’s step-by-step evolution of the culture of cooperation, empathy and social activity that is our species’ primary biological-evolutionary advantage.

Social evolution works infinitely faster than biological evolution. It doesn’t depend on random genetic mutations and the survival of “improving” mutations over many generations. Instead, it depends on our ability to learn from our mistakes and successes and to vary our collective behavior accordingly. It depends, in short, on our collective ability to learn from history and current events.

Yet even social evolution works much more slowly than quotidian human affairs. Consider the social evolution of us Yanks since our Civil War. This April marked 151 years since the guns fell silent. But our related social evolution is still a work in progress. Barack Obama’s presidency and Donald Trump’s candidacy are both part of it. And yet more than two nominal lifetimes, and more than seven nominal generations, have passed in the meantime.

So it’s hard to see even relatively speedy social evolution from an individual perspective. It’s much more common, and more comforting, to think of the way things are during our own individual lifetimes as the natural state of affairs. That’s why so many of us believe that the way things have been during most of our lives is the way they always were and always will be. That is also why Britain’s youth were so astonished and upset at Brexit: they have grown up with the EU and before the pressures of the Euro and the Syrian diaspora.

And so it is with nation-states. Nearly everyone my age (just 71) thinks of gigantic nation-states like the US, Russia and China as the pinnacle of social evolution. Yet are they? Are they the end point, or a mere intermediate point in a larger process? Are they a consummation, or one of the frequent overshoots and excesses that appear so often in our species’ history?

To us short-lived humans, “always” is a relative term. Where’s the Austro-Hungarian Empire today? The Soviet Union? Czechoslovakia? Yugoslavia? the Ottoman Empire? Is their present state of dissolution and disappearance an unnatural deviation from the course of human history, or a sign of things to come?

Will the Kurds forever be chained and subject to the Turks and Arabs because of empires now vanished for a century or more? When the Syrian war ends and reconstruction begins (as they will, some day!), will it be the same country as before the civil war started? Will the United States forever be what it is today, gridlocked between left and right, North and South? Or will the South—with its self-evidently unique culture, so far thwarted in its repeated and increasingly radical attempts to control the rest of us and our own culture—go its separate way?

Bias toward nation-states

People of my generation, born at or just after World War II, seem to assume that nation-building is the Natural State of Man. We all learned how it took several centuries for medium-sized modern nations like Britain, Italy and Germany to come into being. So we assume that the present big-three giants China, Russia and the US—let alone the EU—are even more “advanced.”

It took a lot of pain and terror to forge modern nation-states. Recently I had the chance to read Niccolò Machiavelli’s “The Prince,” which I somehow had escaped reading in college. Two things struck me about it. The first was (apart from the flowery obeisances to nobles and patrons) how modern, direct and straightforward were its prose and tone. The second was the extreme fragmentation of the Italy in which Machiavelli lived.

It really wasn’t “Italy” at all, at least not as we know it today. It was an apparently infinite series of walled, inimical city-states, steeped in an apparently infinite series of small wars and intrigues. Every duke, city leader or prominent official, it seemed, had the desire and duty to expand his realm by war, intrigue, or treachery. Machiavelli’s small book has reports of at least two instances of substantial diplomatic delegations being massacred in whole after being lured to supposed “peace talks.”

It was a dangerous time to be alive. Britain had a similar bloody history, with its ceaseless wars among Protestants and Catholics—not to mention earlier wars among its various pre-Roman ethnic groups.

A long, agonizing churning of war and conflict formed the nation-states, like Italy, that we know today. With so much conflict, pain and suffering in their birth, one could be led to think that they must be the apex of human social evolution. Based on that model, our behemoths of today seem even more “advanced.”

But are they? The answer is a matter of social, not biological, evolution. So the choice is ours, as a species. It therefore matters how we think about the nation-building of the last four centuries and today’s centrifugal forces that are slowly turning big nations into smaller bits. We need a theory or a plan. Should we support and reinforce centripetal force, or should we give centrifugal force a chance?

Economics: centrifugal forces win

We must begin with biology. Our species is the self-evident master of our small planet because of three things: our abilities to empathize, communicate and cooperate. Individually, we are small, slow, weak and rather stupid. Collectively, we can make ourselves big, fast, powerful and smart. It takes thousands of people to make aircraft and run an airline, but with them, we can travel farther and faster than any other species, and infinitely farther and faster than we can as individuals.

So what really matters is how we work together. The particular institutions and rules that we make to govern our cooperation don’t matter nearly as much as how well the rules work, how pragmatic and flexible they are, how widely they are observed, and how few unnecessary conflicts they create.

Insofar as size goes, our experiences of the last two centuries suggest that smaller is better, at least for economic activity. Over several centuries, decentralizing “free markets” have worked infinitely better than Royal enterprise or “central command” economies. The rise of corporations was motivated, in large part, by the desires to perform economic activity in smaller, more flexible and manageable organizations than nation-states, and to shield productive activity from politics.

The most salient examples of the failure of big, command economies were the experiments in Russian and Chinese Communism. The Russian experiment lasted over seven decades, the Chinese nearly three. Both failed, and both countries voluntarily abandoned their “Communist” systems, although China still uses the name.

The lesson here is not, as many pols wrongly conclude, a failure of “left-wing” or “collectivist” government. It’s a general failure of central planning and central control of an economy, i.e., of centripetal economic forces. The very same thing happened to “right-wing” fascism in Germany, Italy and Spain during and after World War II. Their centrally-planned fascist economies failed, and they converted voluntarily to non-centrally-planned free-market economies, albeit under some foreign pressure.

Another salient example is postwar Germany. Postwar destiny created two Germanys—East and West—one centrally planned (albeit by conquerors) and the other based on decentralized free-market principles.

The postwar history of these two parts of the same nation provides a good “experiment.” It was a controlled experiment—controlled for both culture and history— because both East and West were German.

Not only did the decentralized part vastly outdo the other in progress and prosperity. When the two merged under decentralized economic governance, the once-centralized and lagging part advanced to match the happy one (and international standards) in an astonishingly short time. That rapid transformation—insufficiently remarked perhaps because expected of Germany—was one of the most convincing demonstrations of the value of centrifugal forces in economic affairs.

Venezuela provides another example, if one were needed. Its government under Hugo Chavez and Nicolas Maduro has been freely elected. The nation is hardly a totalitarian state. In fact, it’s one of the more democratic nations in Latin America.

Yet its economy has suffered from centralized political planning every bit as much as the economies of Soviet Russia and “Red” China under Stalin’s and Mao’s respective tyrannies. Inflation is rampant, economic growth is in reverse, and store shelves have nothing for consumers to buy.

What Venezuela needs most today is not a right-wing dictatorship or yet more central planning by the elite. It need centrifugal forces that liberate international trade and private business—preferably business smaller than the elite-controlled oil giant—and lets them go free like stones from a sling.

Although there are still a few outliers, this lesson is well learned. No well-educated leader today believes that central planning and central control will advance a national economy. A bit of careful central banking and capital controls—to avoid crashes and build a stable currency—is as far as wise modern leaders go. Some still try central command, reflexively, as old habits die hard. Tyrants like Mugabe and Kim just can’t help themselves. But the poorly educated Venezuelan paratrooper and his successor may be the last leaders of a modern, relatively democratic nation-state who think that centripetal forces can cure or improve an ailing economy. Free markets work.

Politics and culture: “solutions” so far

So far, so good, for centrifugal forces. But economics hardly exhausts the tasks of nation-states’ government. Perhaps even more than promoting economic prosperity, the biggest task of a modern nation-state is to make sure its people are safe and secure. That means protecting them both from foreign invaders and terrorists and from each other. It means both “national security” and human rights.

Virtually every big nation-state today has a mix of peoples of different races, languages, cultures and religions. The three great empires—the US, China and Russa—certainly do. Even the relatively isolated and homogeneous cultures of Germany and Scandinavia are developing diverse populations under the pressure of refugees from Syria and the Middle East.

So isn’t this the most pressing political problem of our age? How does a nation-state survive and prosper when it has to accommodate different people and cultures? How does it protect all equally when some fear and even hate others, sometimes with plausible reason? Does it push everyone toward the center, toward assimilation and conformity? Does it consider itself a “melting pot” and require only the most essential conformities—to law and an ability to use the dominant language? Or does it do something else?

    The three great empires
The three great empires and smaller nation-states have answered these questions in very different ways. The most centripetal, by far, is China. There are some sixty native dialects of the Chinese language, most or all of which use the same hantsu writing system. But China is forcing all its people to learn and use the official spoken lanquage, Mandarin. (By contrast, my ex-wife’s relatives, all ethnic Chinese living in Malaysia, spoke Cantonese, Hakka, and Hokkien, but no Mandarin.)

In religion and culture also, China is forcing all its residents to conform to the dominant variety, that of the Han Chinese. It tries to minimize violence, and it usually succeeds. But with relentless political and social pressure, liberal use of political trials and jailing (especially for violent resistance) and massive, planned in-migration, China is trying hard not just to suppress, but to submerge, native cultures in Tibet and its Islamic Uigur region. Its policy is pure and simple: imposing national values and a uniform national culture on its diverse people.

America’s “melting pot” is quite different, and far more centrifugal. The Yankee notion of diversity requires only that non-dominant cultures obey general laws and cope with the dominant language, English. Otherwise, they can practice whatever religion they choose, speak whatever language they want, wear and eat whatever and however they want, and follow whatever culture they inherited. Most can even use whatever language they speak in official acts, such as voting. California, for example, publishes ballots and ballot-explanatory pamphlets in thirteen languages, including Spanish, Mandarin, Vietnamese and Tagalog.

Among the three big empires, Russia occupies an intermediate place. During its Soviet phase, it was highly centripetal. Stalin deported whole ethnic minorities thousands of miles like pieces on a political chessboard. But all that stopped cold with the Soviet Union’s dissolution, when once-conquered nations and some ethnic minorities in autonomous republics split off. Today’s Russia is like the US in some respects, with a smaller number of autonomous republics than US states, in a loose federal arrangement governed from Moscow, but with more tolerance since Soviet days. So Russia has made some moves toward local governance, or “federalism,” but it makes no special official accommodation, at least in its official acts, to languages other than Russian.

    Federalism
The most salient example of federalism in a traditional nation-state is of course the United States. That’s not surprising. The United States is the only modern nation forged out of distinct political entities by negotiation and agreement, rather than through war or gradual social evolution. (Britain’s federalism, including four states, arose mainly out of war and intrigue.)

The US is a manufactured state. It arose by agreement among the thirteen original Colonies. Thirty-seven other states joined later, agreeing to the plan in the Constitution that the Original Thirteen had crafted.

At the time of Formation, all the original thirteen Colonies had their own democratic self-government. But they also had strong common interests. At first they had to secure independence from England in our Revolutionary War, at a time when England was, by far, the Western World’s dominant power. Doing that required cooperation and unity.

Later, the Original Thirteen had to secure themselves in a dangerous world and to begin expanding and occupying a whole continent. That, too, required cooperation.

But all of the Original Thirteen had different origins and cultures. And their pols, like pols everywhere, were jealous of their power and wanted to maintain it. So the nation that resulted from this necessary cooperation was an uneven wall of differently-shaped stones, each with its own culture, history, and local traditions.

In theory, federalism is a simple but powerful idea. If you can find enough common ground among distinct states or cultures, you can merge them into one nation by allowing each to make and enforce its own, peculiar local laws, in accordance with its own local culture. At the same time, you can impose general laws that knit the society together, keep the peace, and provide for defense and foreign relations.

That’s the notion on the back of every dollar bill: e pluribus, unum, Latin for “from many, one.” It’s the motto of federalism.

But as with every simple and elegant idea, putting federalism into practice can be a challenge. The original Thirteen Colonies included two strikingly different cultures, North and South, each of which each claimed several states. Northern culture was communitarian, collective, industrial and enthusiastically democratic. Southern culture was agrarian, aristocratic and slave-holding. (Today, Southern culture is also far more militaristic and far fonder of guns among civilians.) As I’ve written in analyzing the modern movement for Southern secession, it would be hard to imagine two more different cultures sharing the same language, origins and (except for slavery) general history.

The clash between those two cultures produced the United States’ most horrible single war: our Civil War. That single internecine war killed about as many of us Yanks as died in combat in all of the United States’ foreign wars, including our Revolution. The same clash of cultures today is largely responsible for our political gridlock and polarization and, indirectly, for the bizarre presidential candidacy of Donald Trump.

So federalism is no panacea for severe culture clashes. It’s possible, although unlikely, that the United States will have to resort to the Chinese solution (suppression) or the Soviet solution (breakup). More likely, the United States will continue to drift as a nation while demographic changes and in-migration to the South, with its pleasant weather, make its culture more compatible with those of the non-Southern states. (The South is only about one-third of us, in population and in GDP, so presumably it will have to do the accommodating, and not the two-thirds majority.).

    The homogeneous states
Before leaving the subject of solutions to cultural differences that modern nation-states employ, we should briefly cover a final alternative: cultural homogeneity. The two modern nations best known for this “solution” are Sweden and Japan.

In population, Sweden is a tiny nation-state, less than 25% larger than New York City. Japan, in contrast, is a large and mighty nation, with the world’s third-largest economy (after the US and China). Yet both are renowned for maintaining cultural and ethnic homogeneity.

Today both nations are cosmopolitan and fully comfortable with globalized culture. Both trade, travel and engage in diplomacy around the world. Both have had a big impact globally: Sweden (despite its small size) with its Nobel Prizes and diplomatic corps, and Japan with its massive manufacturing productivity, its concomitantly massive global trade, and its products’ reputation for quality.

But there are signs that the paths of the two nations in cultural accommodation may begin to diverge. Despite its small size, Sweden has always been cosmopolitan and accepting of foreigners. It has just accepted over half a million desperate refugees from the Middle East, most Islamic and most from war-torn Syria. Although Japan is an economic powerhouse and economic mecca, its in-migration of people below the level of corporate executives has been minuscule, on a per-capita basis, compared to Sweden’s. Apparently Japan still has a policy and culture that value the homogeneity born of its origins as an island nation with a unique spoken language. (For writing, Japan relies on simplified Chinese characters, plus its own two much simpler syllabaries.)

These two nations—Sweden and Japan—are rare in their approach to cultural accommodation. Theirs are not the models that many other nations have adopted. For that reason alone, it will be interesting to see how their respective approaches work, as Sweden tries to accommodate masses of refugees from wildly different cultures, and as Japan approaches the questions of re-militarization and cementing alliances to contain China’s influence in the South China Sea.

    The European Union
After this extensive background, we can return to the opening theme of this essay: Brexit and its significance. Like the United States, the EU is a prime exemplar of federalism.

Not only is it the lastest exemplar. It’s by far the most ambitious. It’s trying to do what the original Thirteen US Colonies did over two centuries ago: knit the fabric of different cultures and local governments into a greater whole. It’s trying to do that in about the same way, by building a superstructure of government over the individual national sovereignties and differing cultures.

In this respect, the analogy between the US and EU is a close one. But there are at least two salient differences. First, the nations the EU is trying to meld have much larger differences in history, culture and language than the original Thirteen Colonies. Second, a large part of the impetus for forming the EU was to end the seemingly infinite succession of religious and imperial wars among European powers. The Thirteen had never warred among themselves; instead, they had cooperated in the war to gain general independence from England.

Perhaps for these reasons, they EU has taken a lot longer to complete its formation than the Original Thirteen did. The Thirteen took fourteen years to forge the Articles of Confederation, see that they weren’t working, and replace them with our Constitution. The EU, in contrast, has spent about half a century working on its structure and governance, with no end in sight. A third point of difference is the infinitely greater complexity of life and governance in the twenty-first century, as distinguished from the eighteenth.

But in both cases the enterprise is essentially the same. The accommodating states must figure out what is local and what is general and how to accommodate the two. The fact that we Yanks took two tries at it—in a much simpler age when the elite had no serious competition from ordinary people and from demagogues—shows how difficult the project is.

Any such project is a work in progress, inevitably and perpetually. Why? Because cultures and peoples grow and change with time. As moral and legal norms develop and become common, an agile federalism should take them from the “local” column and put them in the “general” column. When and if significant local differences arise, an agile federalism should accommodate them, by allowing local variations and (in extreme cases only) by moving them back to the “local” column. Leaders and people can also become smarter with time and experience, as our Founders did in discovering that Thirteen Colonies, each with its own trade and foreign policy and lack of a standing army, were a recipe for weakness and collective disaster.

Europe, now at peace for seven decades (if you don’t count the Cold War), may make a similar discovery. Perhaps Putin’s adventurous Russia will motivate it.

The point is not to give up, but to keep trying. Social evolution, like biological evolution, has no end. It will keep going, and we hope keep improving, as long as our species survives.

That’s what our Founders understood when they put the words “in order to form a more perfect Union” in the preamble to our Constitution, after our Articles of Confederation had failed. That’s what Europe’s most enlightened leaders have understood as they took Europe’s unification from the European Coal and Steel Community of 1951 to the (economically) mighty and revered EU of today.

Conclusion

Despite attempts by our South to obfuscate the point, we know now that slavery was the primary cause of the United States’ most horrible war. War was unavoidable; mere federalism simply couldn’t accommodate slavery. Morally, politically, economically and socially, the gap between free states and slave states was too big to bridge. Pols couldn’t paper over the difference just by calling the issue “local,” let alone after Southern States, by diabolical manipulation of Congress, enlisted the North to hunt down, capture and return fleeing slaves.

Now slavery as a public institution (unfortunately, still not as a despicable crime) is gone, not only from America, but from all the developed world. There may never be another issue so difficult to accommodate in a federal system. The travails of the Euro and the desire to regulate the immigration of extraordinary streams of desperate refugees seem trivial in comparison.

For us Yanks, the problem now is legal. Our Constitution has no provision to let states leave. Not only that. Every state, perpetually trapped in its embrace, must have its two senators, and impliedly must suffer minority rule in both houses of Congress, perhaps forever. This is our sad Yankee fate. No matter how much things change and grow, we are stuck with this defective, frozen governmental structure, unless and until pols evolve enough to give up counterproductive power while still alive. Don’t hold your breath.

The Founders of the EU were wise enough to let states leave. They were also wise enough not to specify exactly how. They foresaw that, if any nation or nations wanted to leave, they would have to sit down and negotiate with the states remaining, just as our Founders sat down and negotiated a new Constitution after the Articles of Confederation had failed.

There are those who want to “punish” Britain for wanting to leave, if only to discourage others from leaving. That’s precisely the wrong approach. Already Europe has had dismal experience with collective punishment. It applied it to Germany after World War I, and the result was World War II. A Europe that formed its Union precisely to avoid another such horror cannot possibly be so stupid as to repeat the disastrous blunder that caused it.

Instead, the remaining members of the EU should take Brexit as an opportunity to sit down and “form a more perfect Union,” not just for Britain, but for every member and for every European citizen.

Surely today’s big problems are not insuperable. Already some members have the Euro and others have their own currency. What’s wrong with some generously taking a big stream of refugees, and some few or none at all? Should the world’s grandest and most recent project in peace, prosperity and federalism founder simply because not all nations are as generous, well-ordered, or prosperous as Sweden and Germany? Similarly, could the economic problems of Greece—and maybe Ireland, Italy and Spain—be solved by allowing a temporary reversion to local currency, while keeping the rest of Eurozone—and the EU—intact?

The central problem of federalism is to determine what’s local and what’s general. That may change with time and cultural evolution.

It may also change with circumstances, especially extraordinary ones like the Crash of 2008 and the devastation and emptying of Syria. The Syrian Civil War can’t last forever. It will end, if only when there is no one left alive in Syria but Alawites, Assad’s soldiers and Russian and Iranian “advisors.” Then the flood of desperate refugees to Europe will slow or halt. How silly would EU leaders have been, and the Brits, if they had abandoned a worthy and even holy project just for failure to stay flexible in a transient emergency?

Like any living organism, federalism survives and succeeds better when it’s flexible and adaptable. There is no bright line between the local and the general, and there never will be. Where to draw the line depends on time and circumstance, and on social evolution.

Our big Yankee mistake was to draft our Constitution as if graven in stone, and to limit amendments to those approved by two-thirds of each House of Congress and three-fourths of our states.

That’s much too high a bar to change in a fluid and evolving world. We Yanks are now paying the price in stagnation, polarization and gridlock, with no end in sight. The “popularity” of the least qualified candidate for president ever is just one unintended consequence of that gridlock.

Europe should not make the same mistake; it should stay flexible. It should do its best to keep Britain in and, at the same time, make the EU attractive enough to avoid other members leaving. Enticement, not punishment, is the most effective and most modern approach—one that’s much less likely to lead to popular and economic discontent, let alone to war.

The same goes for other centrifugal forces. If Scotland wants to leave Britain, let it. Yet Scotland would do better to await the outcome of the negotiations than to bolt out the door now. Among other reasons, Scotland could use its internal leverage as a subunit of Britain to push Britain to stay, as well as to reform Britain’s internal politics.

Similar reasoning applies to the Basques and the Catalonians. Getting them to stay in Spain may just be a matter of adjusting what’s local and what’s general. But if federalism can’t or won’t accommodate them, let them leave.

It’s not as if the two groups are barbarians or slaveholders. They have been parts of Spain for centuries and part of a united Europe for as long as the EU has existed. They share most, if not all, of the common culture, common values, and basic legal principles of the Continent on which they live. If they think that minor differences in culture, laws, or economics are harming them, and that Spain won’t accommodate their local needs, then let them go. They can always come back, with incentives, not coercion. And in the cases of a Basque nation and Catalonia, just as in Scotland’s case, they can also be part of the EU and governed by a still-higher level of federalism.

Britain is the world’s oldest democracy and a paragon of democratic rule. The EU should do what it must to keep it in. That includes bending—not abandoning—its sacred principle for freedom of movement. Maybe a temporary halt on immigration of recent refugees would do the job. Maybe EU citizens now living in Britain could have permanent status, but there could be stricter requirements for newcomers. Maybe there could be a reciprocal arrangement: one new Continental permanently residing in Britain for each new Brit permanently residing on the Continent. Any such expedient, of course, would last only as long as the current refugee crisis. And it bears remembering that other EU members, such as Hungary, also have a keen interest in resolving these issues.

Good lawyers and diplomats can iron out these differences by making small adjustments. There is no insuperable reason to abandon the EU project, nor for Britain to leave it.

And if Britain must leave, both sides of the split must recognize the vast domain of morality, laws, mutual prosperity and security that Britain and the Continent will still have in common. The instrument of separation should recognize common principles by treaty, enforceable between Britain and the EU, even as separate entities. Similar principles should apply if Scotland leaves Britain, the Basques or Catalonians leave Spain, or some or all of the South leaves the US.

The important point is to recognize what is general in human progress. Since humanity’s most horrible war, our species has made significant, albeit halting, progress. We have universal declarations of human rights. We have prohibitions against genocide and ethnic cleansing. We have economic systems that try to pick a down country up, rather than stomp on it as the victorious Allies did loser Germany after World War I. And we have stable international institutions, such as central banks and nascent central regulators. There is no reason these fine institutions could not consult, coordinate and even work with their separate British counterparts, even (indeed, especially) when divergent views suggest divergent policies.

Sometimes political ideologies get in the way of pragmatic cooperation. “Austerity” is one. It’s condescension, selfishness and hubris masquerading as economic policy. It lacks the empathy, understanding and cooperation that are our species’ hallmarks. And as Nobel-Prize-winning economists like Paul Krugman and Joe Stiglitz repeatedly remind us, it makes little quantitative or historical sense. Keynesian economics has worked (in the Great Depression, and somewhat in the Great Recession) and will work again: government must provide jobs when broken private markets won’t or can’t, even at the cost of big deficits, which later prosperity should cure.

Perhaps we can measure some progress of human social evolution by how many good things move from the “local” to the “general” column. But a world without differences would be a flat, bland and lifeless thing. There will always be elements of joy and beauty—inconsequential to our species’ survival—that distinguish one culture from another. As empathetic and curious humans, we should celebrate them, not supress them.

Federalism does that by putting such things in the “local” column. The EU, like the US, should never forget that vital point.

The trick is to weed out ugliness in both the “local” and “general” columns while adjusting the two in a changing world. It’s better to do that within the context of a federal system, like the US and the EU. But it’s better to do it outside such a system than not at all.

That’s the tradeoff to be made in the next phase of the EU’s long struggle to improve itself. And the very same type of tradeoff faces the Scots, Basques, Catalonians and our Southerners as they weigh continued membership in larger societies versus secession.

Whether inside or outside a federal system, and whether in big or small nation-states, if we humans treat each other with respect and seek mutual benefit in cooperating, there’s no telling how far and how fast our social evolution can go. We don’t have to wait for random genetic mutations to evolve socially; we just have to think and stay flexible.

Endnote 1. The British discovered federalism the hard way. Long after England had annexed Northern Ireland, Scotland, and Wales by force, diplomacy and intrigue, it gave them each separate parliaments in an act of “devolution.” It’s ironic that a nation that has used federalism to keep itself united is breaking from a federal Europe. But that irony suggests a more felicitous outcome: accommodation by the EU to keep Britain in, just as England has accommodated its three other federal states to keep them in the United Kingdom. (England itself has no separate parliament of its own.)

Endnote 2. I cannot leave this essay without paying homage to Angela Merkel. Her measured, moderate and sensible response to the Brexit vote was exemplary. As one of the most intelligent leaders on the world stage, she knows that a vote to leave is not leaving. She warns that long, hard and delicate negotiations beckon. And she foresees that, with care and good will, some change for the better can come out of either outcome. Another British referendum would be ridiculous now but might be entirely appropriate in a year or two, under different circumstances and different terms. Brava! (Merkel has taken a more cautious tone recently, apparently under pressure from the self-righteous “kick the Brits out now!” crowd. But her initial, more salubrious reaction was both right and telling.)

The Big Lie about Free Trade

As we look at Brexit and search for solutions to what’s causing it, we must think clearly about those causes. “Free trade” is not at fault in destroying the middle classes in Britain, the US and other advanced nations. It’s the thoughtless exploitation of free trade by the elite, the 0.1%, to enrich themselves at the expense of their advanced-nation societies.

What does “free trade” mean? Does it mean shipping jobs overseas? Does it mean shipping out whole factories (60,000 in our Yankee case)? Does it mean hollowing out whole nations’ manufacturing capacity? Does it mean reducing healthy middle classes to workers in a so-called “service” economy where the elite provide big-buck services like law, accounting and banking, while the erstwhile “middle class” does menial work for them? Does it mean a return to a sophisticated, modern form of feudalism?

No, no, no, no, no and no!

Show me where, in any trade deal, the words on paper encourage or even explicitly permit any of these things. The closest you can come is the “pay for rules” provisions, which allow multinational corporations to sue governments for money when those governments enact rules to protect their people from unsafe workplaces, unhealthy environments and unfair labor practices, and those rules also incidentally reduce profits. “Pay for rules” allows corporations to recover those profits not in national or supranational courts, such as the EU’s, but in private—and secret—arbitration tribunals. (See 1 and 2.)

“Pay for rules” provisions are social and political abominations. They should be stricken from every trade pact, present and proposed, including the proposed TPP, the so-called “Trans-Pacific Partnership.” If they are not stricken, the TPP should be rejected, not just by the US, but by every prospective party to it that cares about economic equality, social justice and having a middle class. We cannot allow multinational corporations—as fine as may be the products and services they provide—to subvert governments worldwide by making expensive the rules that governments enact to protect their people from injury, health and environmental hazards and from economic exploitation. That way lies a new feudalism.

But “pay for rules” and shipping whole factories abroad are not “free trade.” They are perversions and misuses of free trade.

“Free trade” means one thing only. It means that Country A cannot stop or slow the stream of products (and now some services) coming from Country B by prohibitions on imports, tariffs, quotas, or “regulations” that make no sense except as pretexts for stopping or slowing imports.

“Free trade” means no protectionism, and nothing more. So how did we go from allowing the unfettered shipment of products and services to shipping whole factories and industries overseas?

We went there because the 0.1% saw an opportunity to get rich quick. If they could combine their nation’s know-how, technology and management expertise with the low wages of developing-nation workers, they could undercut their competition—including their own domestic factories—and make bundles of cash.

So they did so, eagerly and enthusiastically. The result, as Bernie oft has said, was sending almost 60,000 US factories abroad, to places like China, Mexico, Vietnam and Bangladesh. US manufacturing became a specter, a shadow of its former self.

The US is not alone. I use a Braun electric razor to shave. It’s made in China, not Germany. I’ve had it for over two years, and it works like a charm. It’s durable and flexible and well made, and its battery seems to last forever, with no degradation in charge.

Do you think the Chinese could have made such a product on their own? Hardly. The Germans, apparently, taught the Chinese everything. The Chinese now know how to make the flexible cutting screen that is the razor’s “cutting edge.” They also know how to organize and supervise manufacturing to maintain consistent quality.

Somehow, Germany has managed to survive as a manufacturing nation despite its shipping some factories like this one abroad. It has done so primarily by staying ahead of the manufacturing curve—by creating new, more sophisticated manufacturing industries to replace those it has shipped overseas.

The German “solution” deserves study and emulation. But it may not be easily transferable to other, larger, less homogeneous nations. And in any event, it’s beside the point here. The point is that what Braun did, what the US has done, and what Britain and every other advanced nation has done, is not a necessary consequence of “free trade.” It was a choice, choice that should have been made by the entire societies but actually was made by the elite, in its own self-interest.

Free trade is just a tool. It’s a tool by which advanced nations have reduced the economic imbalances that helped cause World War II, regularized international economic relations, and brought over a billion people out of extreme poverty in the last twenty years.

But tools can be misused. A hammer can become a murder weapon. Or it can negligently strike your thumb. That’s what’s happened with “free trade.” The elite have used it, apparently unconsciously, to destroy the middle classes of advanced nations and, in the process, to create a modern Luddite rebellion.

That rebellion is responsible for the bizarre candidacy of Donald Trump. It’s responsible for Brexit. And you can be sure it will have further consequences unless the underlying causes are resolved.

The solution is not to stamp out free trade with tariffs or other forms of protectionism. Doing that would only cause chaos, a global recession and perhaps a Second Great Depression. The solution is to stamp out free trade’s misuse.

The 60,000 US factories are gone. They are not coming back. Nor are the equivalents in Britain, France, Germany, Italy and other EU nations. It’s just a matter of time before Japan’s middle class also starts to feel the pinch. Maybe it already has, in the form of Japan’s extraordinary economic stagnation.

But all these countries are able innovators. Therefore, the solution is to keep the next generation of factories from going offshore. Nations can do that by direct prohibitions, by tax and other incentive and disincentives, and by taking control of intellectual property developed onshore. The “solution” is not to kill or main “free trade,” but to manage it to avoid political and social revolutions in the world’s most advanced societies.

François Hollande may be a socialist, but he’s apparently not very bright. He says that negotiation over Brexit is about keeping Britain from getting the goodies while avoiding the burdens. That’s not it at all. The negotiation over Brexit is about making sure that Britain, France and all the other EU nations can continue to have a middle class that feels secure enough not to revolt. Britain’s working class is the canary in the coal mine.

It’s extraordinary that a leader whose nation was recently crippled by massive labor strikes can’t seem to understand this point. If he and other EU leaders can’t study up, maybe it’s time for a change of national leadership, in order to save the EU’s middle classes. The choice that Britain, in particular, makes for its next prime minister will be one of the most consequential in its history.

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25 June 2016

Brexit: A Letter from the “Lower Classes”


[For a recent post on how to save the global middle class, click here . For a brief note on Brexit’s financial impact, click here.]

Our Dear, Right Honorable Elite,

Most of you can’t ken why we, the British working people, voted to leave the EU. So we thought we’d write you a little note to explain.

It’s not that we don’t want peace and prosperity. We do. We’re the blokes who fight and die in the wars you start. We died, by the millions, in the most misguided war ever—you know, the one we Brits call the “Great War.” Many of us died in the trenches from shelling and shooting and (horribly) from mustard gas.

You had the nerve to call the policies that caused that terrible, useless war “the Great Game.” And we went along. We went along because of “duty, honour, country.”

Those were the values then, and you shared them. You were right there in the trenches with us, suffering and dying by our side. All of you were there: dukes, earls, marquises and their sons and cousins. The Great War was a Great Mistake, as was the collective punishment of Germany that motivated the next one. But you shared the consequences of your mistakes. We died in the Charge of the Light Brigade, but you led us and died, too.

Loyalty, duty, and sacrifice. That was the deal then. We “lower classes” bought it. The Queen still follows it: even in her old age, she works as hard as any man alive. She never complains.

But below her level, that’s all gone now. In its place, you’ve got your little theories. You give us “free trade,” “globalization,” “economic efficiency” and “shareholder value.”

These things make may sense to you, in the abstract, plush world where you live. But for us their results have not been good. The great manufacturers where we used to work hard and well are gone. They’ve been broken up, like Imperial Chemicals Industries. Or they’re parts of Yankee or other foreign firms, like Land Rover and Jaguar. The good jobs have gone offshore with the headquarters.

And the immigrants? Well, they’ve come, by the millions.

They don’t seem to bother you. You’ve got the education, the connections, the wealth and the power to avoid the bad ones. The few immigrants who make it to your rich communities share your education, wealth and values. They speak the Queen’s English well. You don’t get many of the misfits, malcontents, criminals and drifters who live where we live. Immigrants don’t take your jobs. And ISIS recruits don’t live in your gated communities.

We, not you, are the cutting edge of immigration. You get the benefits of a bigger labour force, lower wages and a more docile population (albeit with occasional outbursts of terrorism). We bear the discontents.

And then there’s London, with its City. It no longer governs a nation of factories where middle-class people like us make worthy things for good money. Instead, its elite sit in front of computer screens, shuffle money, gamble at high stakes, and prepare the next financial panic.

A couple of years ago, your house organ—the “Economist”—went so far as to brag—brag!—that London’s “greatness” comes in part from bankers and rich refugees seeking good government, including exiled Russian oligarchs. In an excess of humility, that rag called London “Europe’s greatest city.” But London is not where most of us live. Nor is Europe.

The Yanks, we hear, have a theory, too. We “developed” nations are all going to do “services.” Lawyers will get rich when we sue each other. Bankers will get rich gambling on an uncertain global economy.

What will we working blokes do? Open pubs? And where will the ale come from? Germany?

What’s in that for us?

So, yes, we bought your little theories when you shared the pain they caused. We fought the Great War for the glory of God, Saint George and the Empire. We fought the Big War, which also followed from your bad foreign policy, because we had to: it was a matter of survival. We helped build British industry, working under appalling conditions, for industrial progress, for the glory of King and Crown, and also because we had to.

But now we’re getting a little tired of your theories. We’re people, not tokens in some great economic game. Our lives, happiness and families matter.

We did our parts, and we always will, as long as the game is fair and someone, somewhere takes our humanity into account.

But we want good jobs with a bit of self-respect, preferably in manufacturing and construction. We don’t want to live in a nation of pubs. We don’t want to go to war again with Germany or Serbia or anyone on the Continent. But we also don’t want to live lives of quiet desperation, serving bitter or summonses to our fellow Brits, and dwelling in neighborhoods with all the wretched refuse of communities even more desperate than ours.

A united Europe and global capitalism are working fine for you. A smaller and smaller slice of you are getting richer and richer, and more and more powerful. But they aren’t working for us.

So get back to your drawing boards and gin up a better theory, one which includes us as more than lifeless commodities of labour, to be played off against an endless stream of desperate foreigners and asked to live with them. Once you do, we’ll be back at your side, as we always have been, whenever the burdens and benefits have been shared.

With respect and hope for a better future,

The British Working Class

Life After Brexit

There are only two things you can be sure of about Brexit: (1) analysts will overanalyze it, and (2) markets will overreact. The latter appears to have been the case Friday (yesterday).

This is not war, folks. It’s not economic Armageddon. It’s not even a replay of the Crash of 2008, which we seem to have survived. Britain and all the EU nations will still be members of the WTO. Most will be members of NATO. Smoot and Hawley will not rise from the dead to stalk the Earth as zombies.

Think every business in the UK and EU will suddenly change its prices? Some might, for example, if automatic tariffs arise, but are there any? Who knows? Other scoundrels may gouge, just for greed, like Valeant. But most will do business as usual, wait and see.

The real problem is for analysts. To tell our post-Brexit future with any accuracy, you would have to know all the details in: GATT, the WTO, all the various versions of EU treaties, and all the dozens of bilateral trade treaties involving the UK and EU nations separately. Then you would have to sit down and analyze how they interact. Proper analysis probably would require a stack of paper a foot high, filled with excruciating detail, and computer models approaching those that project global warming in complexity. If anyone has assembled either, my take on our species’ general laxity and penchant for shooting from the hip is misinformed.

If anyone has a general handle on this, it's the USTR, foreign counterparts, and a few trade lawyers earning $1,000 an hour (who aren't giving their advice for free). Some companies may have detailed knowledge for particular products or product lines. For the rest of us, it’s wait and see.

Waiting and seeing is a good idea in any event. Why? Because no nation has ever left the EU before. So there’s going to be some negotiation and a lot of uncertainty, for up two years after Britain submits its notice, which it hasn’t done yet.

Some in the EU are going to try to punish Britain for wanting to leave, and to discourage other members from leaving. But in the end, the negotiators will probably wax reasonable and make the best compromise in their separate interests, as most diplomats do. It’s even conceivable that, after long negotiation, Britain will decide to stay under conditions that will assuage other nations’ fears, too.

The EU has been a wonderful peacemaker. But as an economic amalgamation of entirely different economies and societies, let alone as a super-government, it has self-evidently been far from perfect. Eventually, the diplomats may sit down to “form a more perfect Union,” just as we Yanks did in transitioning from our Articles of Confederation to our Constitution—a process that took seven years, or fourteen including the negotiations over both compacts.

The sole prediction that now seems safe is that those making facile predictions—especially apocalyptic ones—will prove wrong. What is true is that the same financial “experts” who gave us the Subprime Crisis and the Crash of 2008 will treat Brexit as an opportunity to do a lot of gambling and a little swindling. Some gamblers will win, and some will lose. The winners will claim it was all brains and skill, and necessary for a well-functioning economy; the losers will say it was all government’s and central bankers’ fault. Over-financialization of the developed world will continue.

If there's any risk of an economic apocalypse, it’s from all the inevitable speculation on Brexit, not Brexit itself. Brexit is a political earthquake, not an economic one. It’s the revolt of a particular nation’s middle class (in this case the Brits’) against the notion that fuzzy abstractions like “free trade,” “economic efficiency,” “shareholder value,” “freedom of migration,” and “austerity” are invariable paths to the general welfare. It’s a revolt against elitist dogma, which often seems self-serving, and for flexible, practical, event-responsive and data-based governance, based on the popular will. It might hurt the bankers and the ideologues, but it will probably strengthen democracy.

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22 June 2016

Saving the Global Middle Class


[For a popular recent post on the death of so-called “conservatism” in the United States, click here.]

The problem
The non-solution consequence
A real solution: keeping future industries onshore
How to do it
Conclusion

The problem

The developed nations’ middle class is in an uproar. Here in the US, we have The Donald demagoguing, and Bernie still pushing Hillary to the left. In the UK, we have London Mayor Boris Johnson pushing hard for Brexit. On the Continent, we have otherwise good leaders putting up razor-wire fences to halt the free flow of humanity that is the EU’s founding principle.

There are several causes for this widespread uproar, but immigration ranks high among them. Why else would millions of Yanks vote for a man who promises to wall out Mexico and make Mexicans buy the wall? Why else would Hungary and the Serbia, one generation away from living for two behind the Iron Curtain, wall themselves off from hapless immigrants? Why else would Britons, once renowned for their tolerance and openness, yearn to make the English Channel a barrier again, rather than rely on the wisdom of their laws and leaders?

Throughout the developed world, the middle class is terrified of immigrants. Some of their terror comes from terrorism, abetted by cultural and linguistic chauvinism and outright xenophobia. But a lot has to do with fear of losing jobs. Rightly or wrongly, the middle class fears that immigrants will take jobs and steal a middle-class lifestyle from them and their kids.

Practically every time you see a refugee from Syria interviewed, he (most are males) says he wants to study. That drives fear into middle-class parents on two levels. They fear that an immigrant will steal their kid’s place in a great university. Even if he doesn’t, they fear he will steal a job that doesn’t require a university education. The middle class views life as a zero-sum game in which immigrants are unwanted and unfairly privileged new players.

If jobs were plentiful and their growth self-evident, this terror might abate. Nineteenth-century America, for example, had such a vast need for workers in its exploding steel mills, railroads, farms and mines that it opened the floodgates to immigration from everywhere.

But those days are over. Even in America, the heady days of populating a whole continent and building a brand-new infrastructure are more than a century behind us. The populations of the US and Europe (including Britain) are now stable or declining. Therefore so is the demand for things that depend on a headcount: housing, home appliances, cars, and even smart phones. Innovations and upgrades provide some chance for new sales, but at a rate nothing like that during past market openings or population booms.

How many times in the last ten years have you bought a new TV? With a stable population, the developed-country market for things like that is saturated, except for a trickle of new sales for upgrades and replacements for worn out and obsolete stuff. Add to that the low cost of transportation to and from, and labor in, not-yet-so-developed nations, and you have a huge magnet drawing jobs offshore and a global middle-class crisis.

The non-solution consequence

Economists like to present a consequence of this crisis as a “solution.” They say that we Yanks and others are moving toward a “service economy.” And yes, they are right: 70% or so of our Yankee GDP now comes from services. But their point is descriptive, not prescriptive. At least it should not be.

There are three reasons why a service economy is undesirable, at least from the perspective of a middle class. First, most service jobs pay little and involve little prestige and self-respect. Think of the personal-service roles that many immigrants perform: waiter, barkeeper, barber, hairdresser, housekeeper, maid, babysitter, cleaner, gardener, nanny, and tailor (an almost vanished profession today). It’s hard to earn a middle-class living in these jobs, let alone in big, expensive cities like Berlin, LA, London, New York, Paris or San Francisco.

Second, a service economy exacerbates inequality. There are service jobs that earn big bucks, but they aren’t the ones that most servers perform. Think of lawyers, accountants, wealth managers and bankers. In a service economy these well-paid servers literally lord it over the lesser-paid, who are much more numerous and have trouble maintaining middle-class status. In a country like ours, which outlaws nobility and titles in our Constitution, this smacks of teachery. (Mid-level service professionals like plumbers, handymen, and landscapers can support a middle-class lifestyle, but they are under siege by a booming do-it-yourself industry and the proliferation of free, accurate and helpful online instructions for fixing anything.)

Finally, by and large, service occupations don’t create wealth; they just maintain it or move it around. In four weeks you need another haircut. In one or two, your lawn and trees need trimming again. When a doctor heals you with drugs or surgery, you only revert to your pre-disease state. When a lawyer wins a suit on your behalf, money changes hands and the lawyer often takes a cut, but no wealth is created. Bankers and wealth-management folks don’t create wealth except when they serve as investment bankers and fund new ventures, which they do less frequently. (Buying stock also doesn’t create anything new, although it may motivate management to work harder if it raises the price.)

So a service economy is a recipe for stagnation. If made egalitarian and cohesive, it might feel good. It might even be idyllic. But it wouldn’t be going anywhere.

When population-growth stalls, as it has throughout the developed world, real economic growth requires more than just more and better services. Feudalism provided a full-service economy, but no rational person would trade it for our modern one.

A real solution: keeping future industries onshore

So if we’re going to grow as a species, we’re going to have to invent new things and new services, which have never been made or done before. We can’t progress as a species by doing old things for each other over and over again. Our ape ancestors did that when they sat grooming each other in trees or on the beach. Civilization didn’t start until Homo sapiens began inventing new things and new ways to use old ones, starting with raising cattle and growing crops.

If this analysis is correct, then there are only two ways to save the developed world’s middle class. We must invent new things to manufacture. Or we must use new things, or old things in new ways, to invent services that have never been performed before. (Making old things will pass to less-developed countries with lower labor costs, as it has been doing for a generation.)

One new technology promises to do both: the new gene-editing technology called CRISPR-Cas9. Here’s how it might change developed-nation economies for the better.

Let’s think ten or twenty years ahead. Let’s suppose that CRISPR-Cas9 has made possible truly personalized medicine, plus designer farming and animal husbandry. (We’ll leave aside for the moment the most controversial application—designer babies—because the immediate economic consequences would be similar.) What new jobs might this brave new world create?

First of all, gene editing is not magic. It’s science and technology. So it will need gene sequencers and the reagents and supplies they use, in order to read the existing genome to be modified. When gene editing gets going, it will probably become automated also, at least in part. So machines that automate the process, which may include sequencers, will have to be invented, perfected, distributed, serviced, and upgraded.

The editing machines will likely be more complex and more various than gene sequencers. Why? Because sequencers use a single (Nobel-Prize-Winning) technology, polymerase chain reaction (PCR), to cut apart the stands of DNA and amplify them. Editing the gene sequence will likely require a series of different and mutually distinct technologies, especially if performed in vivo, i.e., in living cells. So there may be separate machines, or separate modules, to perform various types of editing.

Making, selling, distributing and servicing these complex systems will create whole new manufacturing and service empires. But that’s not all. One key object of gene editing is personalized medicine, which will be, well, personalized. That means that medical complexes will have means and trained staff to “read” the genome of each patient and to modify it to the heart’s desire, using all the equipment and supplies just described. In other works, every large medical practice will have to become, in part, a microbiological laboratory and workshop. There might have to be half a dozen trained technicians for every physician.

Good jobs in the medical professions and related manufacturing, sales and service will explode accordingly. The same thing will happen in designer farming and animal husbandry. In addition, those fields will require a phalanx of monitors and testers to prevent modified animals or their genes from straying prematurely from field to field or pen to pen.

CRISPR-Cas9 is not the only technology that promises to require new things and new uses for old things, thereby creating good middle-class jobs. The future of manufacturing lies not so much in single things, such as cars, TVs and iPhones, but in the making, integration and use of complex systems.

One example is the reusable spacecraft that Paul Allen’s, Robert Branson’s and Elon Musk’s companies are working on. If they ever succeed, let alone to the point when they can support human colonization of the Moon and Mars, they will begin to look a lot like current aircraft companies, with all the tens of thousands of good jobs they offer. Not only will they have to assemble spacecraft and perform launches; they will also have to recover spent stages, refurbish and refuel them, and perform all the service and public-contact functions of a general shipping or transportation company.

A second example of systems integration is what Elon Musk is apparently trying to do in buying SolarCity. With a Tesla factory, his Gigafactory for batteries in Reno, and SolarCity under his belt, he could offer customers complex systems to drive on the Sun. Solar arrays on their roofs or their land could charge storage battery arrays during day, which could recharge one or more Tesla cars’ batteries at night. The customer might never have to pay a dime for gasoline or electricity and (with Tesla’s current offer of free “supercharger” power for customers) could drive as far as he or she wanted for free, with zero carbon footprint.

How to do it

How do developed countries keep these technologies and related good jobs at home, and stop their drift to low-wage nations and regions? Isn’t that the key question of economic policy for the twenty-first century?

There are three possible answers. The first is to note that some of these new technologies may be intrinsically resistant to offshoring, at least to some degree.

For example, the conversion to clean energy will create local jobs in installing, maintaining and servicing solar arrays and windmills, regardless of where the solar panels and windmill components are made. And just as infrastructure repair and improvement must be done where the infrastructure is, namely onshore, personalized medicine must be done where the patients are. So the vast bulk of the service industries that CRISPR-Cas9 develops will probably be onshore.

You can imagine doctors sending cells to a factory in China or India to be re-engineered. But difficulties of preservation in vivo and viability, not to mention trust on the part of patients and doctors, make that outcome unlikely. Manufacture of sequencing and editing machines and supplies might migrate offshore over time, but the process might take years or even decades.

Similar analysis applies to reusable spacecraft, as least as long as the launching pads are onshore. The weight of the reusable shell of the first stage, plus the risk of damage in transit, makes long-distance transport unlikely. And the steady improvement of launch vehicles and platforms probably requires engineers to be onsite for visual inspection and close consultation. Remote electronic communication would be possible, of course, but it probably would be be too expensive, awkward and inconvenient for engineers working at the peak of creativity and time pressure.

A second possible means of keeping these industries onshore would be legally prohibiting them from going offshore. In a separate essay, I debunked the notion that “free trade” requires factories to move where labor is cheapest. There is even room to doubt that the bulk of postwar trade treaties (GATT, NAFTA, and WTO), had as a goal even permitting whole factories to move, as distinguished from freeing their products from tariffs and other trade barriers.

Whatever the truth of this latter point, there is absolutely no doubt that nothing in our trade treaties required Americans to send 60,000 American factories offshore, let alone using American capital and American technology, to compete with American workers at home. That was a conceit of the 0.1%, who believed the process would help maximize some abstract measure of economic “efficiency” and, not coincidentally, increase their income and personal wealth astronomically.

So there may be nothing to prevent Congress by law, or the President by executive order, from prohibiting the offshoring of factories using new American technology or American capital. Such a prohibition, of course, would be quite different from ordering any of the 60,000 already-offshored factories to come back. That would constitute a clear political interference with existing business. The catastrophic “plan” of Herr Drumpf would be even worse. It would try to force the 60,000 factories to come back by imposing huge tariffs on their products in contravention of existing trade treaties.

The notion of keeping certain leading-edge American technologies at home by fiat is likely to be controversial whether the fiat is legislative or executive. But it deserves exploration, if only because the agonies of the developed-nation middle class are probably the most socially destabilizing force acting globally, now and for the foreseeable future. Yet there is another expedient, one which relies only on existing law; to that we now turn.

There are those who seem to think—fuzzily in my view—that our existing trade treaties give Yankee business people carte blanche to transfer our factories, technology and jobs abroad to enrich themselves and ostensibly serve some abstract goal of “economic efficiency.” I think they are wrong.

Anyway, no one will resolve that issue in a short essay like this one. But it is indisputable that some aspects of those selfsame trade treaties rigorously protect intellectual property globally. The so-called TRIPs Agreement, which is an Annex to the WTO agreement, forces treaty partners to protect intellectual property abroad much as we do at home. The Agreement protects patents, copyrights, trademarks, trade secrets and semiconductor chips (“mask works”), and it requires our trading partners to have injunctive and temporary relief.

This grand international legal edifice, which our trade negotiators spent almost a generation building, could keep jobs in new industries onshore in two ways. First, governments could provide innovators with tax or direct incentives to assert their intellectual property to keep innovative industries onshore, at least until they had developed an insuperable lead or dominant customer base worldwide. (One non-tax incentive might be an extension of the duration, or strengthening of the effect, of the relevant intellectual property.) Particular items of intellectual property, such as dominant and pioneering patents or copyrights on key complex software, would the become the business “levers” to avoid offshoring factories.

If incentives were deemed insufficient, the United States could “condemn” (acquire by condemnation proceedings) the key patents and other intellectual property and assert them to keep factories from going offshore. Its doing so would raise issues under the Fith Amendment to the Constitution, which requires just compensation for public use of private property. But saving numerous domestic jobs and industries would likely serve a public purpose. Then the only legal issue would be how to compensate for a prohibition on hypothetical foreign use of American-invented IP. That would be a highly speculative enterprise whose resolution would likely give the American branch of the industry time to develop full strength.

Conclusion

As I have written, the world’s liberal, free-market economies, led by Britain and the United States, have done the rest of the world a great favor. Over the postwar generations, they have transferred an astronomical amount of capital and technology to the developing world. In the process, according to The Economist, they have raised a billion people out of extreme property.

Doing so was not a gift. It was an exercise of enlightened self interest. But as the process has continued, the interest has become less enlightened and more focused on the self-enrichment of a tiny class of plutocrats, and on fuzzy and disputed abstractions like economic “efficiency” and “shareholder value.” If kept on its current course, the process is highly likely to reverse itself, but only after a troubled time of extraordinary economic and political instability worldwide.

In an age of terrorism and the proliferation of nuclear weapons, economic and political instability are things to avoid. It’s far too late for us Yanks to bring back the 60,000 factories that our own capitalists have already sent or built offshore. And any attempt to disadvantage those factories by imposing tariffs or similar disabilities would only maim a postwar economic system that has now taken three generations to erect, and that has helped avoid major wars among major powers during all that time.

So it appears that the best way to quell the growing instability without destroying what the world has built (including GATT, NAFTA, WTO and maybe TPP) is to keep future innovative industries onshore. Western governments have the power to do that, perhaps directly but most certainly by exploiting the global structure of intellectual property protection that these very same trade treaties have set up.

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17 June 2016

The Death of “Conservatism”?


It’s amazing, sometimes, how our long species can believe things that make absolutely no sense.

So it was with Russian and Chinese Communism. Marx and others told us that its essence was a “dictatorship of the proletariat.”

But isn’t that an oxymoron, an intrinsic contradiction in terms? Ever since ancient Rome (which invented the term) a “dictator” has been a single man. The “proletariat” is a whole class of people, roughly what we Yanks call “working stiffs.” How can one be the other?

The problem is not just semantic. It’s substantive. If a whole class of people must govern as one, how do they do it? Is there any other means but the imperfect and messy process of “democracy”? How can they make collective decisions as smartly, expeditiously and often as ruthlessly as a single man?

As twentieth-century history tells us, they can’t. The Russians and Chinese wrestled with that question, respectively, for over seven and nearly three decades. In the end, they both despaired of squaring the circle.

So both gave up trying and abandoned “Communism.” The Russians turned their brand of Communism into rule by a single man, an autocrat, recalling the Russian tsar with whom they were quite familiar. The Chinese turned their brand into a single-party tyranny, replacing the Emperor with a small committee backed up by an expanded class of Mandarins inconrguously called the “Communist Party.”

Both nations reverted pretty much to their historical norms. Putin is a kinder, gentler and much smarter tsar. Xi is a skilled politician using his considerable intelligence, the force of his strong personality, and various non-deadly methods of purging his enemies to restore the Emperor as the first among supposed equals. He controls the Plenum of the Central Committee (once nine members, now seven) as Steve Jobs did Apple’s board.

But lest we Yanks jeer, we ought take a closer look at that what passes for “conservatism” in America today. Semantically and substantively, it doesn’t make much more sense than a “dictatorship of the proletariat.” Let’s see why.

Modern American “conservatism” does have one jump over “dictatorship of the proletariat.” It can’t be an oxymoron because it’s only one word. But once you unpack what that word used to mean, and compare that with what Republicans think it means today, you can see that it makes as little sense as a “dictatorship of the proletariat.”

Here, verbatim (omitting a clause about style in clothing), is the very first definition of “conservative” from the The American Heritage Dictionary, Second College Edition at 312 (Houghton Mifflin Co., 1986):
1.a. “Tending to oppose change; favoring traditional views and values. . . . 2. Moderate, cautious, restrained: a conservative estimate.”
How, pray tell, do you get from that to lower taxes, less regulation, a lower federal budget, and fewer rules—let alone vastly expanding foreign wars and drowning government in a bathtub?

Ever since Alexander Hamilton won the battle to establish a national bank, our nation has been slowly and incrementally centralizing. Government has been growing stronger and more ubiquitous every year. It’s a natural and inevitable process, reflecting the increasing complexity of science, technology, business, society, law and human interaction in an exponentially more crowded and complex world.

The process accelerated dramatically during the last century, when we needed big government to stave off the Great Depression, fight the Nazis and Imperial Japan, manage the Cold War, and maintain the world’s greatest technical and scientific research establishment. That establishment in turn brought us (among other things) atomic weapons, atomic energy, routine global air travel, high-altitude flight, travel to the Moon, knowledge of DNA, the Internet and modern medicine.

So if American “conservatism” is a “tending to oppose change,” let alone drastically reduce the size of government, it’s a little late, by at least a century. You might even say since our Founding. “Reactionary” would be a much more accurate description.

No, so-called American “conservatives” don’t oppose change. They want to make change. Indeed, they want to make radical, fundamental, drastic change. A party opposed to change would want to keep the government and its rules just about the same size that they are, with maybe small incremental increases or decreases. It wouldn’t, like the official Texas Republican party platform early in our new century, want to abolish the Environmental Protection Agency, the Department of Education, the Internal Revenue Service, and the income, estate, payroll, capital gains, and gift taxes, as well as state and local property taxes. That would be radical.

So how, pray tell, have Republicans managed to convince large portions of the American public that they are the “conservative” party? By so-called “public relations,” i.e., the most daring and yet effective propaganda in human history.

They have managed to create an enduring and attractive myth—that America was and still is an agrarian society of small towns in which people live on large farms, separated by miles, and are largely self-reliant in everything. The grow or make and maintain their own food, water supplies, houses, barns, equipment and arms, and they fight off natives, crocodiles, foreign invaders, terrorists, and other assailants with their ubiquitous and no-longer-so-small arms.

To some extent, our professional and most experienced myth-makers (Hollywood and the TV industries) have supported this comforting myth. But it’s absolutely astounding (albeit true!) that large portions of Americans believe it although it has virtually nothing to do with their actual daily lives. They would rather put faith in a fairy tale than look around them, use their eyes and ears, and think. That’s pretty powerful myth making!

In fact, modern Republicans are very far from “conservatives” in any sense of that word understood before Saint Reagan. They don’t want to keep things as they are or even change them incrementally. They want to dismantle or destroy our existing governmental structures and return to a state that never existed—except perhaps in the Thirteen Colonies before they ratified our Constitution and began to grow. Isn’t that radical, and not conservative?

Then think of war. Our first real conservative, General and President George Washington, warned us against foreign entanglements. And the man who may have been our last real conservative, General and President Dwight Eisenhower, warned us against our “military-industrial complex” (a term he coined) as perpetually seeking conflict to justify its own existence and ceaseless growth.

Yet who has consistently advocated more and more military action and foreign entanglement? From two gratuitous wars to invade and occupy Afghanistan and Iraq (to accomplish what President Obama did with two helicopters and some Navy Seals), through the current push to mix it up in Syria, it’s the so-called “conservatives.” Let’s be modest, restrained and incremental and go to war!

So when modern Republicans scratch their heads and wonder what Donald Trump has done to their party, many are rightly confused.

Trump is not a true “conservative,” they say. But in fact Trump is more conservative in many respects than establishment and orthodox Republicans, let alone the Tea Party.

They want to destroy Social Security and our other safety nets, which have existed for nearly a century. Trump wants to modify and fix them, including “Obamacare.” They want to push hard on Syria and Iran and risk war with Iran and Russia. Trump wants to make deals. The GOP wants to emasculate or eliminate government (at least at the federal level); Trump wants to make it great again, and with it our nation.

There are two respects in which so-called “mainstream” Republicans actually may be more conservative than Trump. First, they want to continue the “carte blanche” or “open door” policy on trade, while Trump wants to restrict and curtail it in order to keep and provide more jobs at home.

But even here it’s not quite clear who the real “conservative” is. The “open door” approach is a postwar phenomenon, beginning with the General Agreement on Tariffs and Trade in 1948 and culminating (so far) with the NAFTA in 1994 and the WTO in 1996. (TPP or now TPIP would take it farther, if ever ratified.) On the other hand, before World War II, we, like our manufacturing patron Britain, severely restricted trade for our own advantage. In fact, our Smoot-Hawley trade tariffs against Japan were a major motivation for its sneak attack on us at Pearl Harbor.

So who’s more “conservative” on trade? It depends on how far back you want to go, and what you consider to be our Yankee “tradition.” In a field in which our own and global practice has changed radically over the last fifty years, it’s hard to tell what approach is “traditional.” Might it be better to think about which approach is more beneficial to our people and more consistent with our national interest?

Immigration is the second field in which the GOP establishment may be more conservative than Trump. The establishment wants to continue exploiting eleven million undocumented immigrants as cheap labor, while keeping them cowed and helpless with uncertain status. Trump wants to get rid of the immigration “problem” by getting rid of undocumented immigrants—all eleven million of them.

It’s hard to conceive of anything more radical and less conservative than deporting eleven million otherwise law-abiding undocumented immigrants living and working peacefully among us. The disruption to families and labor markets would be stupendous. Who would find and train the millions of gardeners, nannies, hotel maids, waiters, bus boys, meat packers and construction workers needed to replace the deported? It’s hard to believe that Trump is serious about these campaign proposals, or that even a wholly Republican Congress would approve them in anything like their campaign-promise forms.

But here again, as in the case of trade, what’s “conservative” depends on your temporal point of reference. Before Reagan’s immigration “reforms” in 1986, walling out more immigrants (with a human wall of massively increased immigration agents, not an easily overcome passive physical wall) might have seemed a plausible means of continuing then-existing policy, as might have deporting the then much fewer undocumented immigrants living here. But today, building a wall (whether human or passive) and deporting eleven million people seems far more radical.

There is only a single major respect in which who’s the “conservative” (between the GOP establishment and Trump) is hard to tell: racism and xenophobia. Trump yields to no one in racism, misogyny, and bashing Mexicans and Muslims. But he adopted a party that has made racist and ethnic bashing a centerpiece of its electoral appeal since Nixon’s disgraceful “Southern Strategy” in 1968. That’s almost half a century. You’d have to go back closer to World War II to find a semblance of the Party of Lincoln in modern Republicanism.

The truth is that today’s Republican brand of “conservatism” has little to do with avoiding change, preserving tradition, and imposing moderation and restraint. Its wellsprings of ideology—lower taxes, less regulation, and smaller government—are the program of the rich and powerful, who support and fund the party. Unlike most of us (and the nation), they don’t need government—or don’t think they need it—because they think they can protect themselves. They certainly don’t need social security or (because they do the employing) unemployment insurance. They don’t need food stamps or subsidized medical insurance. And they don’t need protection of worker safety or curbs on pollution because they don’t work in factories or mines and don’t live in polluted areas. Even if pollution comes to them, they can move. If they want, they can even change the location of their workplaces and offices, as they are doing now to avoid taxes, because they call the shots.

So, unacknowledged by most GOP pols, the Republican party has become the party of the rich and powerful. Its core ideology is “trickle down”—the notion that coddling and pandering to the rich and powerful (who incidentally support GOP campaigns and propaganda) will induce them to create jobs for the plebes. That ideology has failed, as repeatedly and self-evidently as the “dictatorship of the proletariat.” Yet its brilliant propaganda organs, especially Fox, have somehow managed to convince a large fraction of working people that making their bosses even more rich and powerful will improve their own lives.

Until Trump. With his scatterbrained, off-the-cuff, impulsive approach to everything, Trump has begun to strip off the naked emperor’s “new clothes.” Call it “populism” if you like; I call it debunking a crazy lie promoted and believed for far too long. Trump has tapped into the natural skepticism of ordinary people and their slow but steady recognition that the GOP’s “trickle down” ideology has not helped them and never will.

The only thing that Trump has stolen directly from the GOP’s very odd brand of “conservatism” is racism and xenophobia. His ranting against Mexicans, Muslims, Chinese and immigrants generally harnesses our species’ most dangerous fault, tribalism, and our most powerful emotion, fear. And it falls right into the mainstream of GOP propaganda over the last half-century, from the “Red Scares” of the sixties, through the “domino theory” of the Vietnam War, to the “Willie Horton” ad of Daddy Bush and the (obligatorily black) “welfare” queen of persistent GOP economic myth.

In short, Trump has taken only the worst of GOP “conservatism”—the part that feeds our reptile brains and makes us do terrible things. The rest of it, in one way or another, he has dumped into the dust bin, and rightly so.

This leaves GOP regulars with two unpleasant prospects. If Trump wins the presidency, he will move toward a strange, erratic kind of pragmatism and force the abandonment of the last two generations’ radical “conservative” ideology. If Hillary wins, that ideology will capsize in a tidal wave of political change. In either case, the kind of so-called “conservatism” that the GOP has peddled for two generations will likely go the way of Russian and Chinese Communism, leaving a thin residue of incongruous semantics and self-evident lies on a largely new society.

The GOP establishment and pundits, of course, are apoplectic. In their eyes, Trump has deviated from orthodoxy and is an apostate. But without ever explaining his doing so as such, Trump has begun to open people’s eyes, while playing on the same old fears. He has parted the curtain concealing how far the GOP has deviated from any rational definition of “conservatism.”

So who’s the real apostate? There’s the question that people who style themselves Republicans and independents are beginning to ponder seriously for the first time in nearly three generations. Once their thinking reaches a conclusion, the politics and ideology of the United States will not likely ever be the same again.

Footnote: See Rebecca Smith, "As Emission Restrictions Loom, Texas Utility Bets Big on Coal," Wall St. J. (July 21, 2006). My 2013 analysis of House Tea Party members showed nearly 20% from Texas alone, and about two-thirds of the total from Deep South and border states. So it’s hardly inappropriate to consider Texans’ radical extremism in characterizing the Tea Party’s so-called “conservatism.” The term “conservatism” is about as accurate in describing the Tea Party’s ideology as is the term “Tea Party” itself, which conjures up images of Boston and our Founding, in describing a “movement” of predominantly Southern origin.

Erratum: A previous version of this post included Trump’s immigration proposals among the respects in which he seems more conservative than the GOP establishment. That was error. The better analysis is that Trump’s proposed wall and mass deportations are radical proposals today but might have been considered conservative thirty years ago, before Reagan’s humane and practical immigration reform helped open the immigration floodgates. On both immigration and trade, Trump’s proposals seem much like trying to close the barn door long after the horse has bolted.



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