Ninety degrees

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Ninety degrees

RESIGNATION

At the end, the Tory Prime Minister had no choice but to resign in disgrace. The government’s humiliating defeats in parliament were the result of a rift between its traditional clientele in the agrarian countryside whose interests stood against those of the burgeoning cities. In the end, party members advocating openness to foreign trade could no longer support the government’s closed model.

The year was 1846, and Robert Peel left 10 Downing Street. With the Tory government fallen, parliament repealed the Corn Laws, removing agricultural tariffs that had protected the landed gentry. As a result, Peel’s party would be stuck on opposition benches for a generation, marginalised by the Liberal surge led by William Gladstone.

DECLINE AND FALL

Once again, the Tories are tearing themselves apart in their battle between an open outlook and a closed worldview–this time on the EU.

And they are not alone.

The European Parliamentary elections of May 2019 proved once again that traditional “left” and “right” parties are faltering. The Christian Democratic EPP group lost more than five percent of their seats in Strasbourg and so did the Social Democratic S&D alliance.

The speed of the left/right collapse makes it difficult to blame the phenomenon on the erosion of traditional voter segments such as Christian churchgoers and blue-collar workers.

We are witnessing a once-in-a-century political realignment, a shift by ninety degrees. The “left” vs “right” debate is being replaced by a different debate: “open” vs “closed”.

Like a widening Pacman mouth, “open” and “closed” parties are eating their way into parliaments previously dominated by “left” and “right” political forces. This is particularly impressive when looking at the gains and losses of the factions of the EU Parliament.

What is “open” and “closed”, exactly, and how are they different from “left” vs “right”?

WHAT CONSERVATIVES “CONSERVE”

Conservative parties were founded to maintain (ie ‘conserve’) the economic privileges of the upper class. Low taxes and free-market principles put no restrictions on capital accumulation. Open markets, such as those enabled by the repeal of the Corn Laws that brought down Robert Peel, allowed capitalists to capture economies of scale.

The problem was that conservatism couldn’t win on upper class votes alone. This led to a second segment of voters: social conservatives. The common denominator between economic and social conservatism is reliance on authority: bosses and factory owners had to be obeyed in the economic sphere in the same way that priests and politicians had to be followed in the social sphere.

In return, social conservatism allows  ordinary people to feel “special” despite a lack of wealth, as long as they are born in the “right” nation, pray to the “right” god, and vote for the “right” (ie conservative) party.  Conservative identity politics rely on closed national borders since the “purity” of national identity and its traditions must be upheld.

As a result, conservatism and its preaching of subservience to authorities brought free markets but an unfree society.

PUTTING THE SOCIAL INTO SOCIETY

The founding principle of socialism, on the other hand, is defiance. Its origins were labour movements that organised against capital owners. Only together could workers defy their masters to achieve fairer distribution of economic gains. Socialists pressed for higher wages through unions and introduced state-sponsored benefits for the working class, funded by taxes on corporations and the wealthy. Trade barriers were erected to ward off foreign competitors that achieved “unfair” advantages by paying lower wages.

The most interesting twist of socialism was to think from a global perspective. Marx and Engels found that the UK labourers they studied were being exploited in the same manner as the German ones they had met while growing up. Only a global alliance of the so-called proletariat was deemed powerful enough to stand up to national capitalists, regardless of the labourers’ creed, colour or country of origin.

From today’s perspective, one may argue that socialism lost the plot when capitalists globalised but unions remained stuck in national silos.

LEFT VS RIGHT: THE BATTLEFIELD

In summary, the political “right” prefers an “open” (ie non-restrictive) approach on economic issues, while advocating “closed” (ie restrictive) positions on political and social issues. The common thread is authority: strengthening the economic authority of capital owners, the political authority of the state and the social authority of the church. By reinforcing established authorities, conservatives aim to conserve the status quo.

It is vice versa for the “left”: the goal is to defy the authority of capital owners by deploying the regulatory and redistributive power of the state, while keeping the state’s political power in check and freeing society from the grip of the church’s authority. This is the reason that socialism advocates “closed” (ie restrictive) positions on economic issues while putting forward an “open” (ie liberal) agenda on political and social issues.

BREAKING THE WALL

Distinctions between “left” and “right” began to blur in the 1990s, when communism had collapsed and a string of electoral defeats had convinced a critical mass of politicians on the left that socialism was neither feasible nor sufficient to win votes.

The root cause of this realisation was globalisation–the ability of entreprises to deploy capital across the globe. Global value chains reshuffled, shifting mass production to China and office services to India. The wages of Western factory and office workers came under pressure, angering the core clientele of the left.

Western economies didn’t crash, however. Lost manufacturing value-add was supplanted by services–both simple (such as fast-food chains) and complex (eg finance), leading to a 1990s boom of the 1990s during which the “left” (Clinton, Blair et al) embraced the “third way”–a combination of open positions on economic as well as social issues.

It was the birth of the “open model” in its purest form.

DETOXIFICATION

The early 2000s was a time when the penny dropped on the traditional “right”. Its economic policies of lower taxes, fewer regulations and free trade had been successfully co-opted by the “left,” leaving conservative with a host of archaic social policies as its sole distinctive feature.

On their road back to power, the UK Tories, French Gaullists and German Christian Democrats attempted to shed their backwards image by embracing environmental protection, disarmament, gay marriage and, crucially, immigration.

While highly qualified foreign workers boosted city economies in London, Paris, Berlin and elsewhere, both urban and rural areas saw an influx of lower skilled immigrants, putting pressure on the wages of cleaners, waiters and bartenders.

Once again, it was mostly capital owners that benefited from both the “left” and the “right” adopting essentially the same (open) model.

POPULISM

The relative decline of the traditional working-class clientele allowed populists to sweep the low-income segment, which was losing faith in the left to protect wages and in the right to protect national identities.

Similar to 1930s national socialism, populists adopted a programme that combined conservative and socialist elements: conservative on closed borders to protect from immigration as well as from an erosion of traditional values; socialist on its rejection of globalisation and free trade to prevent wages from going down further. Its philosophical simplicity proved increasingly popular with older, less educated voters.

For the first time, the open model had serious competition–not from a resurgent traditional “left” or resurrected “right” but from its fundamental opposite–the “closed” model.

NEW FAULTLINES

On the other hand, the open model remained vastly appreciated by a new generation of voters, such as those who had enjoyed higher education and seen various countries such as during the Erasmus programme. It offered them access to a global network of opportunities that would never have been available to them without open borders and open markets.

The arrival of digitisation escalated this trend but with a crucial twist. Suddenly, skill meant everything and capital meant nothing. Fully globalised by nature, digitisation allowed Silicon Valley garage firms to devour entire categories: retail (amazon), TV (netflix), advertising (google), phones (apple), transport (uber), hospitality (airbnb), news (facebook). Next will be banks (revolut) and health (calico)

The dominance of Silicon Valley bred a new upper class, which wants no part of the conservative values of the traditional capitalists it swept away. The economic battle turned from “the haves vs the have-nots” to “the know-hows vs the no-clues”. Suddenly, avowed free market capitalists in retail and publishing clamoured for state intervention to keep out digital attackers. Not all of them are as determined as Siemens, for example, which is selling nearly all of its business units but the “digital factory” or SAP, which has cloudified most of its traditional enterprise software business.

On a societal level, it’s a new generation of well-educated, younger workers, who appreciate digitisation not only as consumers but also proactively shape the trend with a skill set that is lacked by older, less savvy voters. Not only do the youngsters want a liberal society but also open borders across which to travel, trade, and even settle. They are today’s equivalent of the 1960s student movement.

NINETY DEGREE SHIFT

As a result, conservative and socialist voter camps have completely realigned in a ninety-degree shift of the entire political spectrum.

It is no longer the “blue corner” (conservatives and christian democrats) vs the “red corner” (socialists and social democrats).

It is now the “orange corner” (open model) vs the “violet corner” (closed model).

The former unites socially progressive intellectuals with skilled entrepreneurs and plucky immigrants aiming to disrupt the status quo in business and society. The latter contains displaced factory and office workers deploring their loss of national identity together with fallen titans of industry that have waited too long to transform. Orange stands for open borders, open markets, innovation, individual responsibility, free trade, tolerance and an international outlook. Violet stands for closed borders, closed minds, trade wars, collectivism, nativism, religious zealousness, intolerance and bigotry.

It’s a free society and a free economy (the orange model) versus a restricted society and a restricted economy (the violet model)

Times may be confusing for voters that are mentally stuck in the left-right rigidities of the past. For avowed conservatives it’s hard to imagine how free-market economics mix with open borders for immigrants, although this is a much more consistent philosophy from the one they hold. For old-line socialists, it’s difficult to accept that a more tolerant society is not ushered in by a redistributive nanny state, but by digital innovation.

Politicians like Merkel, Macron, Rutte and Rivera have confused mentally rigid voters by refusing to adhere to traditional left-right dichotomy, when in fact their political philosophy is much more consistent than either the left or the right. They are simply living the open model, and their success is based on implementing it effectively.

ENDGAME

Who will win the epic battle that saw the 2016 populist victories of Trump and Brexit but also the 2017 counter-revolution of Macron and Rutte? The answer, again, lies in the crucial factor of productivity.

The post-financial crisis period from 2008 to 2016 was marked by the worst productivity growth since the 1800s with stagnant wages that allowed populists to prosper. Gross fixed capital formation fell to all time lows, putting a brake on economic development. A sentiment of stagnation—even decay—gripped some of the less well connected areas in Eastern Germany, Eastern France or Northern England, especially when the remaining economic spoils had to be divided with immigrants.

However, productivity growth picked up again in 2017 driven by digital innovation and a renewed propensity to invest. The remaining question is how quickly this will pick up to let a broader population partake in the upswing. Because once a country is stuck with the closed model (such as Britain’s Brexit), it will take decades to undo the damage from severed trade ties and revoked multinational agreements.

But it’s only a question of time for the orange corner to prevail. Its victory is assured by its exclusive grasp of the twin engines of today’s prosperity: globalisation and digitisation. Just as capitalism swept the world after the onset of the industrial revolution, the open model will conquer region after region, leaving those covered by the dust of oblivion who fail to adopt it.

 

THE FUTURE IS ORANGE

The only question is how long it will take for the violet interregnum to fade and orange to take over. Optimists point to the 2020 as the moment to defeat the closed model at U.S. ballots by ousting a disgraced President Trump and potentially even roll back Brexit. 

2020 also happens to be the Chinese Year of the Rat—a plucky, nimble animal that has a knack for finding its way into enclosed spaces.

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