The Continuing Crisis of Liberal Democracies

A Series of correspondence between Mr. Bill Emmott, a former editor of the Economist, and Professor Masayuki Tadokoro, the Chair of Asteion Editorial Committee.

Masayuki Tadokoro > Bill Emmott
It was good to see you here last summer. I am writing this while listening to Trump’s State of the Union Address. We had a bumpy and worrisome year after his inauguration. There is no sign of the “normalization” of Donald Trump, and American politics remains confused. Other countries in the West are not in such good shape, either. In the UK, the whole country still seems to be very much divided over how to handle Brexit. In continental Europe, mainstream political parties continue to be under challenge from populist political movements. Even in Germany, which was for long a stable anchor of the EU, a government has not been formed over the last four months since the general election last September.

But so far things have not turned out to be as catastrophic as many had feared. Certainly the worst may be yet to come. We can easily imagine many horrific scenarios and crises. As Trump so triumphantly claimed in his State of the Union Address, we are witnessing an unusually impressive economic performance under his presidency. Although we can always complain about unequal distribution, the lack of real income growth for people in the street and the declining quality of jobs, it is hard to dismiss the many favourable macro-economic indicators throughout the world in early 2018. I cannot help asking you what this odd combination of bad politics and good economicsmeans. Is the economy picking up despite the bad politics, or regardless of the bad politics? Or is it even because of the bad politics? Trump’s economic policy reminds me somewhat of the early period under Reagan: tax cuts, deregulation and massive government spending, though when it comes to international trade, his insistence on bilateralism marks a sharp difference.

More importantly, what does the good economy imply for the political climate of the West? Will the Trump administration get the credit for that, and will their “America First” posture gain even stronger momentum? Will Brexiteers take advantage of the development to discredit Remainers that “they cried wolf”? Or perhaps the economic recovery could soften the anger of those who have been left behind by the globalized economy, and make it easier to reduce tensions within societies. If so, it could increase the chance of political compromise and facilitate necessary reforms. Will you tell me your assessment?

Bill Emmott > Masayuki Tadokoro
You are quite right that the improved global economic data seems somewhat in contradiction to the sense of political crisis, or at least extreme volatility, amid the rise of nationalistic forms of populism. However I do not think we should take very much comfort from this development, at least not unless it lasts for several more years and has a significant impact on the living standards of a large proportion of our fellow citizens.

Why do I say this? Well, for two main reasons. The first is that we must remember that Donald Trump was elected in what was in fact already the sixth year of America's economic recovery, one in which unemployment was falling fast. Indeed, the pace of creation of new jobs, net of those disappearing in the normal cycle of economic evolution, has been slower in President Trump's first year in office than in President Obama's final years. Although it is understandable that Trump should want to claim the US is in some sort of boom thanks to his presence in the White House, this is entirely wrong. But in any case, the fundamental point is that economic growth, measured simply by overall expansion in GDP, is not sufficient to change the politics, whether in America or in Europe.

In continental Europe GDP growth really is accelerating after a longer and bumpier recession than in America, but we still have strong support for nationalist-populist parties all over the continent. And, as you say, Chancellor Merkel, Europe’s longest-serving and in many ways most respected leader, has struggled to form a government in Germany, even though that country has low unemployment and a prosperous economy. The point is that populism has arisen thanks to the growing sense of inequality both in incomes and in terms of security of all kinds that has arisen especially since 2008, but was already developing before then. Better economic growth may improve the mood, but it does so mainly for the already rich and secure. At present, it is having too little impact on the life chances and sense of vulnerability of the sort of working class citizens who switched from the Democrats to vote for Trump, or the people of working and middle classes who in Italy feel they or their children have little chance to get a good job or a mortgage or even get married.

The second reason is that economic motives are not the only ones that have fueled nationalist populism. There is also concern about immigration, which is of course partly economic, thanks to perceived competition for jobs or welfare benefits, but is also about culture, about identity and about fears of terrorism. It is this issue which has most weakened Chancellor Merkel, as well as strengthening the more nationalist parties in countries such as Sweden, Austria and Italy. And it is immigration which was the single most powerful reason why Britain voted for Brexit in 2016.

We British are in probably the worst political mess of all. We have voted, quite narrowly (52% vs 48%), to leave the European Union after 43 years of membership. But our political leaders, even those who advocated that we should leave, are finding it extremely hard to resolve the contradictions between different forms of Brexit, i.e. different forms of future relationship with our European neighbours, especially Ireland. Britain is committed by a treaty signed with Ireland in 1998 to maintain close economic co-operation between Northern Ireland, which of course remains part of the UK, and the Republic of Ireland. No one, either in Dublin, London or Belfast, wants border controls to have to be reinstated between the North and the South, because they could become targets for renewed terrorism and spark a revival of the civil war that killed more than 3000 people in the 1970s and 1980s. But if Britain wants to use its freedom from EU membership to have a sharply different trade policy from the EU, and to use deregulation to try to stimulate business, then border checks are going to be needed.

If we don’t differentiate ourselves on trade and regulation, then why bother to leave the EU? You might think our politicians could have thought about this more deeply before the referendum, and you would be right. But they didn’t, and the resulting uncertainty surrounding Britain’s future is harming our economy. While the rest of Europe is enjoying accelerating growth, ours has slowed. It hasn’t collapsed, but we are definitely proving unable to exploit the upswing in global growth that you rightly mentioned, because businesses are proving unwilling to invest in the UK amid all this uncertainty. Yet although public opinion is quite critical of the pro-Brexit politicians over this chaos and indecision, it has not yet swung sharply in favour of staying in the EU. Why not? The main answer is immigration. People know that if we stay in the EU, we will not be allowed to limit immigration from other EU countries. Now, I would argue that immigration by Europeans has benefited Britain, because the vast majority of such immigrants are well educated. It is a “brain gain” for the UK, and a “brain drain” for the countries such as Italy, Spain and Poland from where most of the immigrants come. But it is politically sensitive. This is why the opposition Labour Party has not sought yet to exploit the Conservative government’s disarray over Brexit by opposing it: they fear that many of their working class supporters want to limit immigration from the EU, so that they could lose support if they started to advocate a new referendum to stay in. Labour is keen to remember Britain’s “forgotten men and women” who voted for Brexit.

Masayuki Tadokoro > Bill Emmott
Talking about the “forgotten men and women”, over the last year or so, we have been fascinated by Donald Trump. Indeed he keeps surprising and thrilling us with many reckless and blunt tweets. The startling inside stories of the White House, described in Fire and Fury by Michael Wolff, may not be all true. But the White House portrayed in the book is like a medieval royal court where an erratic and egoistic king was surrounded by courtiers who try hard to coax him like a child. I do not blame the media for being fascinated by such a president. But we need to pay more attention to those who voted for Trump rather than Trump himself. In fact, I am worried that the “forgotten men and women” are still forgotten. Criticizing Trump is fine, but unless “liberal elites” take seriously the frustration and dissatisfaction of those who feel alienated and so much let down by a competitive economy, we will see Trumpism without Donald Trump.

Last summer, you mentioned self-correcting mechanisms build into liberal democracy. Do you see any serious efforts to rectify the grievances of “forgotten men and women”? You might have read Jonathan’s article in the Atlantic, “The Conservative Case for Unions.” He is hoping for innovation of trade unions so that they could restore their function to give working class people not only a social safety net but also self-esteem and a sense of belonging.

In many ways, traditional intermediary groups like unions represented vested interests, and held back dynamic development and innovation. However, many feel too isolated and vulnerable, helplessly exposed to, and at the mercy of volatile global market competition. It is always difficult to strike the right balance between stability and innovation. But we may have weakened intermediary groups too much and tried to rely too much on market and states for their traditional functions.

This does not mean simply supporting old-fashioned unions and local communities、which will not work anyway. Like business corporations need innovation to survive, intermediary groups also need their own innovation to match contemporary socio-economic conditions. I am not sure if the British Labour Party led by Jeremy Corbyn represents an innovative movement of trade unions. But I am wondering how you see the possible constructive role of unions and other social groups that could offer a cushion between individuals on one hand and the market and the state on the other.

Bill Emmott > Masayuki Tadokoro
I think the political pendulum is swinging back in favour of policies and institutions to respond to the grievances of “the forgotten,” but not yet decisively or clearly. I do think there is new interest in mechanisms such as raising statutory minimum wages (Britain has done this, quite sharply; US states such as California, Oregon and New York have done it, but the federal government has not; Japan has raised minimum wage rates slightly faster than inflation, though not yet very dramatically), and progressive taxation aimed at redistributing income is favoured more than it was during the 1990s or 2000s, though not really in America. In Europe, President Emmanuel Macron in France has promised to build and finance new institutional mechanisms to support people when they have to find new jobs and learn new skills. Such mechanisms are most effectively implemented in Scandinavian countries such as Denmark and Sweden.

While I do have sympathy with Jonathan Rauch’s proposal, I tend to feel that trade unions are generally too inflexible to be able to respond to the sorts of changing technological and economic environment that we now have to learn to adapt to. They do inevitably become vested interests, not just in the cause of higher incomes for their members but also in obstructing economic and technological change. So I doubt if they really can be re-established as innovative institutions. Admittedly, trade unions in Sweden seem to have succeeded in adapting themselves, and continue to represent the majority of employees, while in countries such as Britain, France or the United States only a small percentage of employees are now members of unions.

To me, the biggest obstacle to dealing with the legitimate grievances of “forgotten” men and women is financial. With public debts in most Western countries now at 100% of GDP or more, chiefly thanks to the impact of 2008 but also to the rising costs of health care and pensions in our ageing societies, governments feel they have little room for manoeuvre. Most remedies for the grievances that lie behind populism need public money, whether it is for welfare schemes such as Macron’s or better access to education at all levels, or infrastructure investment to help geographically disadvantaged areas. And unless economic growth increases for a long period to provide higher tax revenues, most of that public money would have to be taken from somewhere else – and the biggest potential source of savings lies in public pensions. That is why populist parties tend to make promises either to protect or even enhance pensions, because they know mainstream parties are vulnerable to criticism for trying to save money in that area so as to spend it on younger and poorer people. One big reason why Britain’s prime minister, Theresa May, had such a disastrous general election last year is because she suddenly unveiled a proposal, in the middle of the election campaign, to make old people pay more for their health care out of their savings which they would otherwise pass on to their children when they die. It became known as “the dementia tax,” and although in principle it was a sensible idea, it was politically disastrous.

Masayuki Tadokoro > Bill Emmott
When it comes to running an aged society with huge public debt, we in Japan are a precursor of the challenge. We have the most aged population while our public debt is even larger than other Western countries. It is an interesting puzzle that so far we have not seen successful rises of organized populist political movements comparable to other Western countries.

But let’s turn to international issues. While Trump is taking credit for economic growth speaking before Congress, I notice Theresa May is in China with a number of British business leaders to solicit economic deals with China. While our liberal democracies are all in trouble, China seems to be the only country with strong (illiberal) political leadership and a consistent global strategy. Their state capitalist model, namely a combination of an undemocratic state coupled with a highly competitive market economy, seems to be outperforming ours. When we briefly discussed that last summer, you said that the system would not be sustainable unless they implement major reforms. That is exactly what I had thought. Without the rule of law and accountable government, I myself find it difficult to imagine how to provide the legitimate and transparent governance needed for the market economy. But so far, strong economic performance has been satisfying the Chinese population. They are already a real major geopolitical threat to my country, and the void American confusion has created seems to give them lucrative opportunities to steadily expand their influence all over the world.

For most Europeans, China represents simply growing economic opportunities with little geo-political concern. Particularly for the British, China can be regarded as even more important after Brexit, as you need to cultivate more actively the global market for trade and financial business. Will you tell me your views on Sino-UK relations, particularly in the context of Brexit?

While trans-Atlantic relations are in trouble, the “West” has become much less coherent and a less meaningful political group in the global politico-economic arena. But as Chinese influence grows globally, perhaps even Europeans may become somewhat more sensitive to the political implications posed by economic relations with China. I read an article on China’s “Sharp Power” in a recent issue of the Economist. Quite contrary to what we had hoped shortly after the end of the Cold War, China’s economic success, which Japan had strongly supported providing massive economic assistance, has placed it in a position to influence the West rather than the other way around. China has been successfully shaping our national interests and limiting our policy options by carefully controlling access to their growing market. Recent notable examples of Chinese economic statecraft include their embargo of rare earth mineral exports to Japan in 2010, and their bullying of Korean businesses after South Korea’s decision to introduce the THAAD missile defense system. In this connection, I am wondering how the growing influence of China through their One Belt One Road looks in the eyes of Europeans.

Bill Emmott > Masayuki Tadokoro
I think British and continental European leaders have become quite wary of China, its demands and its influence. Only a few years ago, our then prime minister, David Cameron, spoke of a “golden era” in UK-China relations, and shocked the USA and Japan by jumping in to join the new Chinese-led Asia Infrastructure Investment Bank. Now our current prime minister, Theresa May, has been rather more reluctant to use such hyperbolic language about our ties with China. Following the AIIB case, the present pressure both from China and from UK business groups keen on contracts from China has been for the UK government to make a formal statement of support for the One Belt One Road programme, but so far PM May has refused to do this. The arguments from UK business on the side of endorsement are similar to those for the AIIB, namely that by getting formally involved it will be possible to push China to adopt global standards in its One Belt One Road (OBOR) investments. But unlike with the AIIB, the likelihood of another country having any real or sustained influence over many OBOR projects is very small, so I think the UK would be wise to steer clear.

In general, I would say that there has been a widespread state of concern about Chinese influence and interference, which can be seen most clearly in Australia but also is echoed in European capitals. Even Britain, which is traditionally highly liberal concerning foreign investments by countries all over the world, is moving to set up formal review procedures for major Chinese investments in the UK.

I also would add that while it is true that UK and European businesses continue to see the Chinese market as attractive, there has been some more reality and caution entering the debate in our part of the world. Compared with 10 years ago, it seems to me that there is more skepticism about companies’ ability truly to prosper in China, given the prevalence of the theft of technology and the difficulty of having reliable relationships with state regulators. The 2014 case involving our huge global pharmaceutical company, GlaxoSmithKline, came as something of a shock to multinational businesses of all kinds: Glaxo was fined $500m for paying bribes to doctors, which was clearly illegal, but which the company seems to have believed was a way of doing business that had been approved by the authorities. Amid President Xi Jinping’s crackdown on corruption of many kinds, such practices by multinationals were also targeted. This increased the level of uncertainty facing foreign businesses operating in China, just at a time when economic growth in that country was slowing down. How far it slowed down is unknown, since official Chinese statistics have been proven to be especially unreliable during periods of bumpier or slower growth. But it has become clear that even the now slower rates of economic growth of 6-7% per annum (whether accurate in the data or not) have depended on a big rise in levels of corporate and individual debt. It may well still be possible for China to sustain good growth, but these high levels of debt represent a risk to the country’s public finances. Given that the banking system is largely state-owned, any form of debt crisis requiring writedowns or other forms of restructuring will place a high cost on the Treasury. This may not be disastrous, but it would place a strain on the country just at the time when its population is beginning to age quite rapidly. So, although it is true that there is no sign of major popular discontent with the actions and policies of the Chinese Communist Party, we must also note that not everything in the Chinese garden is blooming.

Masayuki Tadokoro > Bill Emmott
Today’s discourses about China remind me of what was talked about Japan some 30 years ago, when exaggerated images of Japanese economic might was widely shared in the West. Bill, it was you that first demystified the “enigma” of Japanese successes. Your points are well taken. We need to take pay attention to vulnerabilities of China as well as challenges its rising power is posing us.

As Europeans can afford being somewhat irresponsible regarding security affairs in East Asia, so are we on the Middle East. There is no shortage of risks and problems in the region. Even after ISIS has been defeated, Syria is far from stable, while many players with conflicting interests, including Russia and Turkey, are actively involved in local processes. A durable settlement seems to be hard to achieve in the near future. It is easy to understand why you are deeply concerned about regional instability, which would undermine European security in the form of unregulated inflows of refugees and terrorist attacks committed by radical Islamists, including some European nationals who joined ISIS. As things are so remote and complicated for us in Japan, will you enlighten us by sharing your assessment of the situations and its implications for Europeans?

Bill Emmott > Masayuki Tadokoro
We Europeans feel we are right on the front lines of several major conflicts going on simultaneously in the Middle East and North Africa: the war in Syria, the continued civil conflict in Libya, the battle between Turkey and the Kurdish peoples of Syria and Iraq, and, last but not least, the broad confrontation between Saudi Arabia and Iran.

Now, actually I should add that in 2018 we in Europe feel that some of these conflicts are looking a bit less bad and less dangerous than before. The flow of migrants across and around the Mediterranean has slowed, somewhat, thanks to Turkey’s co-operation in keeping refugees in camps inside Turkey, and thanks to co-operation between European navies and coastguards with the Libyan coastguard. But both of these situations look fragile, so nobody in Europe feels complacent about it. And we cannot avoid noting that the confrontation that could prove far more significant in terms of global geopolitics and stability, that between Saudi Arabia as the leader of Sunni Muslims and Iran as the Shia leader, is looking somewhat more dangerous than before. It is mostly being fought out through the proxy wars in Yemen and Syria, but there must be some risk of that conflict spreading and becoming a more direct, head-to-head confrontation, especially as the young Saudi Crown Prince, Mohammed bin Salman, seems to be acting a lot more boldly than his predecessors, both in internal politics and in international relations.

The real difficulty in evaluating the Middle East lies in separating the really important events from those that while tragic may not nevertheless have any wider impact. Our biggest concern in recent years has always been the flow of refugees and other migrants, with terrorism in second place. But we and America share a common concern over what could become a much larger issue: the future of Turkey, its relationship with Russia, and its conduct across its borders with Syria and Iraq. The point is that we have all relied on Turkey for decades during the Cold War as a key member of NATO. But the rapprochement between Presidents Erdogan and Putin puts that role into doubt, especially as Turkey has begun to buy weapons systems from both Russia and the US in a way that might put some NATO secrets at risk. Doubt also arises from Turkey’s frequent keenness to fight the Kurdish forces in Syria that have been armed by the United States and Europe. We can hope that these tendencies prove to be minor irritants rather than major changes of direction, but I am not sure that we can rely on that judgment. If so, then Turkey’s role as a buffer against migrant flows could quite suddenly collapse, and we might in that event find ourselves having to contemplate the extremely drastic step of expelling or suspending Turkey from NATO. I’d be willing to predict that the EU will be able to endure the withdrawal of Britain quite easily, without a major impact on geopolitics or security co-operation, but Turkey’s departure from NATO could be a much more destabilizing and dramatic occurrence.


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.