Correspondence Chapter3 To Overcome the Crisis of Liberal Democracy

As a part of correspondence, Bill Emmott, a former editor of the Economist, and Masayuki Tadokoro, the Chair of Asteion Editorial Committee met and discussed how to overcome the crisis of liberal democracy.

TadokoroWe started this series of conversations exactly a year ago, soon after Brexit. Brexit and President Trump were two big surprises, but you can say the situation is not as catastrophic as many had feared. So, my first question is how you evaluate things a year after Brexit.

EmmottWe are in a time of great political volatility, where voters in many countries have become disloyal to their own parties. Actually, Brexit was a shock to me, but not a surprise. Anytime we had held a referendum, there would have been a chance we would have voted to leave. Rather, the big surprise was our general election almost one year later, when the government that is in charge of Brexit had a humiliation with no working majority. There is the possibility of a new election, in which we may elect a left-wing leader of the Labour Party. The cause of this great political volatility is the alienation of electorates, because of economic distress and loss of confidence in mainstream parties. This will continue until we have not just a greater economic performance but widespread rise in living standards: what connects Britain and America is the problem of inequality. And secondly, these two countries have the biggest financial sectors. Ordinary people feel that they have paid the price, while the bankers got subsidies and rescued.

TadokoroIn the UK’s case, however, can people vote for the Labour Party? I was struck by your high opinion in your latest book about Margaret Thatcher for her radical liberalization. But it is often said that, after Thatcher’s revolution and Tony Blair’s shift of the Labour Party to a more market-oriented direction, many Labour supporters have no party to turn to. Even if Theresa May’s government is not popular, is there another viable alternative?

EmmottI think the viable alternative is Labour now, as the more left-wing, anti-Blair party. The second point is a possibility that a new party will be formed. In the early years of Thatcher, a new party called the Social Democratic Party (SDP) was formed. For a while it looked like they were going to have a big breakthrough. Now there is a chance a new party will be formed. Brexit and the radicalisation of the Labour Party open a possibility. The first thing they have to do is to satisfy young voters, such as to do with public services. The second is to do everything to soften the impact of Brexit, even though they cannot reverse the result of the referendum. Since what British voters care about is their daily lives, the new party has to target those issues, saying that what we do with Europe does not damage those issues.

TadokoroAt first, I thought that the May government might try to have a soft Brexit. But I was surprised how tough her position was. Perhaps I was completely misguided, given her record as Home Secretary, her toughness against immigrants, and her original inclination.

EmmottThe Conservative Party had a kind of coup d’état within it, by the Eurosceptic fundamentalists. They think of themselves as the only ones who are qualified to interpret the will of the people. I call them the “high priests of Brexit.”

TadokoroOur journal ΑΣΤΕΙΟΝ started shortly before the end of the Cold War, and one of the first articles was on Thatcher by Daniel Bell. I still remember what he said: the argument of Karl Marx on the 19th century bourgeois revolution in the UK was wrong, and what Thatcher was doing with an enormous effort to convert Britain into a real modern market economy was the very “bourgeois revolution.” For better or worse, what she did was revolutionary, and her heritage was practically inherited by Tony Blair. I think they will be remembered as the most important postwar politicians by future historians.

EmmottThat’s right, definitely. Strangely enough, they produced a kind of increase of equality. This “Big Bang” was an attack on privilege, in exactly the way Bell argued, and it was said to be a popular capitalism. But it had more divisive effects in some other parts of the country, in the old manufacturing areas. And then there was the 2008 financial crisis and the crisis of neoliberalism.

TadokoroIt is always enjoyable to talk about history, but back to my original question, how about your assessment about the six months of the Trump administration?

EmmottAt this moment, the assessment is that Trump and the people around him are incompetent, which has produced a complete failure to achieve any legislative progress in Congress. But in assessing Trump we should remember the history of the early period of Margaret Thatcher. She was chaotic, incoherent, and incompetent in her early period, too. So, it might be possible for the Trump administration to turn it around and achieve some coherence. However, it is noteworthy that they have been operating through executive orders, and deregulating. So, they have been actually doing more kind of quietly on their agenda than we understand. But still, it doesn’t look impressive from any point of view. But Trump voters, at least the core voters, don’t care. Because they basically voted for Trump with very low expectations but rather as a rude gesture to the political establishment.

TadokoroTo express their frustration and resentment against the establishment in Washington, DC.

EmmottYes, exactly.

TadokoroI agree with you for two reasons. One, under the American constitution even the president cannot decide everything by himself. For budget and spending the president has to convince the Congress. The institutional restraints built in the American political system are fortunately at work. Secondly, Trump has not appointed many political appointees yet. How can you run the country without those professionals? Because of these two factors, I see the possibility that his administration will hit some very practical difficulties, like getting the congressional endorsement to get the ceiling of the borrowing. This leads to my next question, what kind of scenarios can we draw about his future presidency?

EmmottI think he is going to choose one area for a major confrontation with the establishment and the outside world. And that is trade. He has already withdrawn from TPP, and appointed the US trade representative, Robert Lighthizer, who was a fierce negotiator with Japan over trade friction under the Reagan administration. These kinds of his actions will put a big test on the World Trade Organization. So, if there was a chance he could do something of historical significance, it will be a destruction of the World Trade Organization.

TadokoroObviously his attitude has been transactional. He always keeps saying, “I can get a better deal.” But this is a minor problem. New trade deals take a long time.

EmmottThat’s why I emphasize the WTO. If all he says is I am renegotiating NAFTA or I want a negotiation about steel, I agree it is not of historical importance. We have had some reversals in trade before.

TadokoroInstitutions. If he changes the basic institutions, that is an impact.

EmmottExactly. And then we will have a kind of beggar-my-neighbour era.

TadokoroThat is kind of ironic because American macroeconomic performance is impressive. It is running near full employment. And that tells something.

EmmottIt does. But what has been happening in America is that people have been leaving the labour force. Those people are dying of drug overdoses. Their life expectancy is falling. That is the Hillbilly Elegy phenomenon. I was surprised that Trump pointed out there was a forgotten America even though, so far, he has done nothing about it.

TadokoroBut one thing which he did rightly is that he responded to the sentiment of those people in the Rust Belt that nobody in Washington, DC, cares about us. They don't believe there is a quick fix for their problems. But they need more attention, care, or some compassion. A significant number of Trump supporters are neither crazy, stupid, nor racist. But they have legitimate concerns that the establishment does not care. So he played the game very well. But when it comes to solutions, that is a very different business.

EmmottExactly. And in historical terms many of those people voted for Barack Obama and hoped he would help their problems. He would have probably done more for them, if it had not been for the 2008 financial crisis. He did do Obamacare, but it is kind of expensive for those people.

TadokoroSo it is a kind of reverse Falkland War. He was very unlucky. Another area where Trump can do lasting harm to the existing liberal international order is foreign policy. It is well known that Trump addressed the NATO summit in May and said, “You have to pay more money on your defense.” Actually, to be fair to him, NATO allies did not do what they should do. Americans have a legitimate reason to complain. Don’t you think?

EmmottYes. European countries do not spend enough money on their own defense. Previous administrations in the US have complained. But Europeans would say, “No, we are not free riding. We supported Afghanistan, whereas we opposed Iraq, except Tony Blair.”

TadokoroThe story is very familiar in our years in the 1970s. But, how do you assess the current status of the Transatlantic Alliance?

EmmottI think the Transatlantic Alliance has been in difficulty before. But as far as Angela Merkel and Macron are concerned, the Transatlantic Alliance is necessary; they try to do their best to maintain it. They do not wish to be confrontational with the US, because they hope that the US after Trump will return to be more cooperative. But they have to have more independence and do their own initiatives to try to defend the open international order. We feel the tension inside the White House about what policy is towards NATO. But we think for the moment that the good guys in Washington are kind of hanging on; America’s interest in those institutions remains solid. So, I would say Europeans are much less worried today about Russia and the US than they were six months ago.

TadokoroThat is a kind of parallel between our relationship with China. Anyway, the relationship between the US and China is a big mystery. I had thought that the current situation is a strategic opportunity for the Chinese. But I do not think they are trying to take advantage of opportunities as actively as I had thought. If I were them, I would start a peace offensive to Japan to weaken the US-Japan relationship by playing friends. There must be some psychology at work in the Chinese leadership.

EmmottIt is a bit surprising that China has not moved more actively. Maybe they are waiting to see where the Trump administration really plays their cards. And also, it is a surprisingly weak sort of policy to be hostile to Japan rather than gradually seducing you. It may relate to the insecurity of the Chinese leadership in terms of domestic nationalism.

TadokoroTalking again about Europe. Don’t you see any possibility for Germany to strengthen its relationship with Russia?

EmmottGermany is very reluctant to do anything kind of high profile and overtly pro-Russian, partly because the whole Ukraine issue is too sensitive for Merkel. But meanwhile German business with Russia, as in the Nord Stream gas pipeline, continues, and that relationship is strong now. The question is whether or not this will eventually break up the unity between the EU member states over Russia. Because the Italians, for example, would like to be doing some of the same deals. If they go too far, it could undermine some of the unity of the EU.

TadokoroObviously Merkel would not do anything to voluntarily disrupt the unity of the EU. If Germany feels very insecure without any reliable support from the US and UK, and also if France and the Macron administration is reliable enough, she would do everything to maintain the EU. But even Germany cannot control everything with the EU. Even now, the Eurozone crisis is still there, such as the Greece problem. What is the risk scenario for the EU?

EmmottWhile there is some gentle economic recovery in Europe, the fundamental issue that the economic and political crisis related is not over. The number one risk is Italy, where there is to be an election in the first half of next year. The anti-Euro party, the Italian Five Star Movement, may have an impact on Italy. They are ahead in the opinion polls. So, Italy could be a kind of ticking time bomb. The number two risk is Turkey. Turkey is a sensitive one because we have done a deal with Turkey which has stopped the flow of refugees coming up through the Balkans into Germany. We have paid a lot of money to Turkey to be able to house these refugees. If President Erdogan decides to scrap this deal, we have a new flow of refugees, and that could really re-open the tensions among the EU.

TadokoroDoes Turkey have the ability to disturb the EU?

EmmottThey do through the migrant issue. They are troublesome and probably do not have a lever that really hurts Europe, but that is where something unexpected could happen.

TadokoroOtherwise what I am very much interested in is how the Macron government will perform in France. His economic policy, liberalizing and breaking the existing practice of the employment system, may be a good policy. But admittedly it is very politically challenging and nobody is sure if he gets French economic performance significantly better. What kind of likely scenarios can we think about for the future course of the economic performance of France?

EmmottHis major challenge is with the left, with the labor unions, and with his attempts to introduce a kind of a Scandinavian-style labor reform. He needs to persuade the labor unions, but all the experience in France tells us that is going to be very difficult. I would, though, suggest that he might be successful this time, partly because the economy is on a cyclical improvement. He has the chance to offer to people the prospect of a kind of long sight, there is a kind of European collaborative public investment program, if Merkel supports him. He cannot do that on his own, but he could get an enhanced collective public investment program that could be convincing enough to the French public to allow them to accept at least some employment reforms.

TadokoroLet’s talk about the long-term future, which is related to your latest book The Fate of the West. In the first place, I am very glad to find in the book that Japan is counted as a member of the West, whatever it means. Our problems are that liberal democracy not only stimulates innovation and economic growth but also creates social inequality and undermines the sense of fairness among the people.

EmmottI believe that open democratic countries have recurrent crises, for the natural competitive process in our democracies produce inequalities, concentration of power, and policy mistakes. The biggest example is the 2008 financial crisis. That was an absolute catastrophe which reflected the disproportionate influence of the financial sector in the politics of many countries. And it was the latest and largest sign of how interest-group politics can distort the way a democracy works. But our democracies always have to confront this interest group problem, and we also periodically have a problem of equality because of the disruptive nature of globalization. We have so far shown the ability to respond to our crises by extending mass public education, the vote, and the welfare state. Now we need to deal with some of the social fragmentation, while also tackling, as much as we can, some of the interest-group sclerosis that we see taking hold. I think the great strength of liberal democracies is the evolutionary ability to bounce back from mistakes and adapt in a stealthy way, not with a top-down Five-Year Plan.

TadokoroYou mean a built-in mechanism for reshuffling.

EmmottYes, we have a built-in mechanism to get out of the crisis as well as built-in reasons why we make mistakes. The question is how long it takes to get out of it. And my answer is that if we can focus on restoring a sense of fairness, while also restoring some openness in areas that have become sclerotic because of the interest groups, then we can keep it short. I think you could call what I am asking for a neo-neoliberalism, or perhaps an inclusive liberalism. We need liberal, but we have to make it inclusive.

TadokoroIn your book, the sense of fairness is defined mainly in terms of economy, namely, income distribution; but it may not be the whole story. For example, if a big-name athlete makes a mass income, nobody complains that is unfair; on the other hand, if a board member of a large investment bank gets a mega-salary while creating a financial mess, everybody feels it unfair. In other words, the sense of fairness does not necessarily fade out solely due to the growing income disparity. In fact, there exists an enormous inequality in Japan, which takes place mostly between generations, and between regions, too. Nevertheless, the Japanese have managed to cope with it for the last two decades without any major social disruption. How do you think of such gradual decline of the Japanese society?

EmmottI think inequality is a big and developing problem in Japan. If you have to be rich to get your children into a good university, whereas thirty years ago it was more meritocratic, that may well produce a steady sense of anger and perhaps a belief in some corruption of the system. So, there are tensions and difficulties underneath that could force Japanese politics to be more ambitiously reform-oriented than has been the case in recent years. As the landslide for the DPJ in 2009 demonstrated, there has been a kind of receptiveness to something new in this country. Thus, I think a quiet transformation is the likeliest positive outcome for Japan.

TadokoroMy final question is in what respects the nature of the current crisis is different from earlier ones in the West. I think the first difference is that we now face the economically energetic, non-liberal world – namely, China and, less importantly, Russia. In the Cold War era, the two camps were completely isolated economically. We have never experienced to have such a tightly economically dependent country as China as a strategic rival. Secondly, there is no major ideological confrontation which is comparable to the Cold War era. While the Chinese are obviously not a part of us, there is no such thing as the so-called Beijing Consensus. They are creating parallel institutions like the AIIB, and at the same time, they are taking advantage of the post-World War II international institutions such as the UN, WTO and IMF. Generally speaking, the challenge in our time is how the liberal countries can deal with the rising non-liberal world in a liberal way.

EmmottFirst of all, we should recognize that there is now only one really challenging illiberal country: that is China. The question is how long it remains genuinely illiberal. My expectation is that China will become more liberal because – this is my Western or liberal prejudice, by the way – I don’t believe that without any political reform China can really escape from its current economic and social difficulties. Environment, substantial inequality, corruption, monopoly of power, state-owned enterprises, and the aging population... How does China deal with these problems without some form of democratization? The less the Communist Party of China deals with the loss of fairness among people, then the Party’s strength cannot be sustained. We may be in a ten- or twenty-year era in which China moves to some form of accountable government. It may be a moderately autocratic, one-party state like Singapore. But if they fail through an economic crisis and social disorder, then, of course, they can stay illiberal.

TadokoroAnd now the Japanese may see a large number of illegal immigrants from China, and we are going to have the same problems as Europeans.

EmmottExactly. Thus, we have to take a long-term view of pushing China towards at least some more accountable government.

Photo by H. Endo
Edited by Kazuki Fujiyama, Seito Hayasaki, Noboyoshi Ito and Ryuzo Kawanami


Masayuki Tadokoro photo

Dr. Masayuki Tadokoro
Professor of International Relations at Keio University, Tokyo, Japan. His primary field is international political economy, but he works also on Japanese foreign and security policy. His publications include International Political Economy (Nagoya University Press); The Dollar goes beyond “America” (Chuokoron Shinsha). He also edited with David Welch and Yoshihide Soeya, Japan as a 'Normal Country'? (Toronto U.P.)

Bill Emmott

Bill Emmott
An independent writer, lecturer and consultant on international affairs, based in Oxford and Somerset, write columns for La Stampa in Italy, Nikkei Business in Japan and Project Syndicate worldwide. He was Editor of “The Economist” from 1993 until 2006. He is now the Chairman of The Wake Up Foundation, a charity dedicated to public education about the dangers of decline in western, liberal societies, the UK's communications regulator. His book "The Sun Also Sets: the limits to Japan's economic power" was a bestseller in Japanese, with more than 300,000 copies sold. His new book, "The Fate of the West", will be published in May 2017 by Public Affairs in the US and in July in Japanese translation by Nikkei Books.