Ninety degrees

Traditional parties are faltering. Centre-right Christian Democrats witness slow but steady decline. Centre-left Social Democrats are collapsing dramatically.

Explanations have been put forward for the phenomenon that include the erosion of traditional voter segments such as churchgoers or blue-collar workers. And yet, demographics are only a part of the story–they take decades to unfold.

The decline of the traditional left-right axis can’t be explained by immigration either. Europe always had waves of refugees arriving on its shores, from dictatorial Turkey in the 1960s to war-torn Yugoslavia in the 1990s and ultimately, war-torn “Arabian Spring” states in the 2010s.

Thus the drivers of political realignment must originate from somewhere else. What we are witnessing, in fact, is the political system turning by ninety degrees. The classical left vs right debate is being replaced by a different set of fundamentally opposed camps: open vs closed.

Before we dive into those, let’s take a look at the evolution of the political left vs right over the last few decades. Then we will examine how this debate was transformed under the pressure of globalisation and digitisation, triggering the ninety-degree shift.

The Western political system is rooted in a battle of seemingly contradictory positions. Those inconsistencies originated from the sequence in which conservative and socialist movements became dominant forces in politics.

Conservative parties were founded to maintain (ie ‘conserve’) the economic privileges of the upper class, ie feudal lords. After a while those were replaced by industrialists, whom conservatives courted with low taxes and free-market principles that didn’t restrict capital accumulation. Open markets allowed capital owners to capture economies of scale, extending their reach from a national to a global scale.

However, conservatism couldn’t win elections based on the votes of the wealthy alone. A second voter segment appeared in right-wing crosshairs: social conservatives. The common denominator between economic and social conservatism was its foundation on authority: bosses and factory owners had to be obeyed in the economic sphere, and priests and politicians in the social sphere. The result was a liberal economic model and a restrictive social model.

In social conservatism, “ordinary” people could still feel “special” despite their lack of wealth, if only they were part of the “right” nation, prayed to the “right” god, sang the “right” (traditional) songs, wore the “right” (traditional) clothes and voted for the “right” party. Conservative identity politics relied on closed national borders since the “purity” of national identity had to be upheld.

As a result, conservative submission to authority brought free markets but unfree societies.

The founding principle of socialism, on the other hand, was defiance. Originally, it was based on  labour organising against capital owners. Only together could workers defy their bosses to achieve a fairer distribution of economic gains. Socialists pressed for higher wages through strong unions. They introduced state-sponsored social benefits for the working class, funded by taxes on companies and wealthy individuals. Trade barriers were erected to protect workers from foreign rivals that achieved “unfair” advantages through lower wages and laxer regulation.

Socialists soon found out that they also needed support among well-educated layers of society in order to govern effectively. Thus social liberalism was born. Intellectuals who travelled the world realised that no nation was really ‘better’ than any other, rejecting conservative claims of national superiority. Exposed to various faiths, they concluded that every religion was equally fictitious. Free from material concerns, they were unconcerned by economic redistribution. Most importantly, they rejected social conservatism in favour of an open-minded approach to questions of society. Sex and drugs and rock’n’roll did the rest.

Consequently, the politics of the left led to unfree markets but a free society.

A wave-like pattern materialised in many countries, mostly driven by variations in productivity growth. It started with capital owners investing in new machinery and landlords building new houses. Freshly injected capital boosted productivity and revenues, benefiting capital owners disproportionally. After a while, the working masses felt cheated. Socialists were voted into office, securing higher wages and generous social benefits. Higher taxes, however, provided a disincentive for capital owners to invest. Productivity sagged when factories and houses were left to rot. Countries descended into malaise and workers got laid off. As a result, the right was voted back into power to “fix” things. Lower taxes and economic deregulation laid the foundation for the next wave of investment and productivity growth. The cycle started anew.

But then came globalisation and digitisation, disrupting the unnatural alliances at the foundations of both the conservative as well as the socialist camp.

How exactly did that happen?

During the 1990s, globalisation reshuffled value chains by shifting mass production to China and office services to India (among others). The wages of Western factory and office workers came under pressure, angering the core clientele both of the left and the right.

Western economies didn’t crash, however. They supplanted lost manufacturing value-add with high-tech products and complex services that could be provided by fewer, but more qualified staff. Since many native workers had not been trained to provide those, immigration laws were relaxed with the aim to attract highly skilled foreigners. However, this was often done in a manner that also allowed lower skilled foreigners to enter, putting additional pressure on the wages of cleaners, waiters, bartenders etc. Productivity rose, solely benefiting capital owners.

This allowed populists to sweep the low-income voter segment, which lost faith in socialists’ ability to protect wages and in conservative efforts to protect national identity. Similar to 1930s national socialism, populists ran a programme that combined conservative and socialist elements: closed national borders to ward off immigration and an erosion of traditional values; closed economic borders to protect from free trade and wage depression. Its philosophical simplicity proved popular mainly with older, less educated voters.

On the other hand, open borders were 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 as well as friendships  that would never have been available to them without open markets and open borders.

The arrival of digitisation escalated this trend, adding a crucial twist. Suddenly, skill meant a lot and capital meant little. 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).

The dominance of Silicon Valley bred a new “upper class”, which has little patience for the conservative values of traditional capitalists. 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 digital attackers at bay.

On a societal level, a new generation of well-educated, younger workers, appreciate digitisation not only as consumers but proactively shape it with a skill set lacked by older 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 student movement of the 1960s.

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

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

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.

The latter contains displaced factory and office workers deploring their loss of national identity as well as 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 (orange model) versus a restricted society and a restricted economy (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 grew up with. 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 capitalist innovation.

Politicians like Merkel, Macron, Rutte and Rivera have confused mentally rigid voters by refusing to adhere to the left-right dichotomy. And yet, their political philosophy is more consistent than either the left or the right. They are advocates of the open model, and their success (or lack thereof) is based on implementing it effectively.

Who will ultimately 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 since 2008 was marked by the worst depression of productivity growth since the 1800s. Stagnant wages 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 the less well connected areas in the Midwestern USA, Eastern Germany, Eastern France or Northern England like. The situation was exacerbated 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 question is how quickly it will allow a broader population partake in the upswing. Once a country is stuck with the closed model (such as Brexit Britain), it will take decades to undo the damage from severed trade ties and revoked multinational agreements.

Thus 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 who fail to adopt it in the dust of oblivion.

Hw long will it take for the violet interregnum to fade and orange to take over? Optimists point to the 2020 U.S. presidential election as the moment to defeat the closed model at the ballots, ousting a disgraced President Trump and potentially even rolling 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 out of enclosed spaces.