West­ern pol­i­tics’ lo­cust years

Financial Mirror (Cyprus) - - FRONT PAGE -

Since my teenage years, I have been fas­ci­nated by the per­mu­ta­tions and machi­na­tions of na­tional pol­i­tics. To­day, I find my­self fo­cus­ing on broader po­lit­i­cal trends that also help to ex­plain global eco­nomic is­sues.

One such trend is the po­lit­i­cal frag­men­ta­tion and po­lar­i­sa­tion ev­i­dent in West­ern democ­ra­cies. Fringe move­ments, some op­er­at­ing within es­tab­lished po­lit­i­cal struc­tures, and oth­ers seek­ing to cre­ate new ones, are plac­ing pres­sure on tra­di­tional par­ties, mak­ing it dif­fi­cult for them to mo­bilise their sup­port­ers, and, in some cases, caus­ing them real dam­age. Des­per­ate not to ap­pear weak, long-es­tab­lished par­ties have be­come wary of co­op­er­at­ing across the aisle.

The re­sult­ing re­fusal to work to­gether on the ma­jor is­sues of the day has had a dra­matic im­pact on eco­nomic poli­cies. Once for­mu­lated through ne­go­ti­a­tions con­ducted at the po­lit­i­cal cen­tre, where West­ern democ­ra­cies have long been an­chored, pol­i­cy­mak­ing is in­creas­ingly shaped by stub­born forces on the ex­treme left and right.

This ap­proach has, it must be said, yielded the oc­ca­sional break­through – some­times good, some­times bad. But the over­all re­sult has been pol­icy paral­y­sis, with even the most ba­sic el­e­ments of eco­nomic gov­er­nance (such as ac­tively pass­ing a bud­get in the United States) suf­fer­ing as a re­sult. Need­less to say, the greater the gov­er­nance and pol­icy chal­lenges at home, the more dif­fi­cult re­gional and global co­op­er­a­tion be­comes.

The Tea Party in the US is a case in point. Af­ter its suc­cess on the na­tional stage in the 2010 midterm con­gres­sional elec­tion, many Repub­li­can law­mak­ers be­came so con­cerned about se­cur­ing their party’s “base” for fu­ture re-elec­tion bids that they no longer felt com­fort­able pur­su­ing the type of bi­par­ti­san co­op­er­a­tion that un­der­pin ef­fec­tive eco­nomic pol­i­cy­mak­ing.

But the Tea Party’s im­pact did not end there. By con­tribut­ing to a shut­down of fed­eral-gov­ern­ment op­er­a­tions and re­peat­edly rais­ing the threat of a tech­ni­cal de­fault, it risked un­der­min­ing an al­readyfrag­ile US eco­nomic re­cov­ery. While the move­ment has evolved and no longer threat­ens to hold the econ­omy hostage, it con­tin­ues to con­trib­ute to over­all pol­icy paral­y­sis.

Europe now seems to be headed down a sim­i­lar path, as non-tra­di­tional par­ties – many of them driven by sin­gle is­sues – be­come in­creas­ingly in­flu­en­tial. Move­ments like France’s anti-im­mi­gra­tion Na­tional Front are mak­ing lead­ing main­stream par­ties more likely to pan­der to ex­trem­ists in or­der to pre­serve their sup­port.

Of course, their fear is not ir­ra­tional, as Pasok, a long-es­tab­lished left-wing party in Greece, found out when the far-left, an­ti­aus­ter­ity Syriza Party surged to victory in Jan­uary. But that does not change the fact that par­ties’ need to ad­dress their elec­toral fears is caus­ing se­ri­ous dam­age to na­tional pol­i­cy­mak­ing.

In­deed, most

es­tab­lished

par­ties

are so busy play­ing de­fense that they have lit­tle in­cli­na­tion to en­gage in the type of for­ward­look­ing strate­gic think­ing that is needed to re-en­er­gise ex­hausted growth mod­els, an­chor fi­nan­cial sta­bil­ity, and en­sure that tech­no­log­i­cal in­no­va­tion en­ables broad­based pros­per­ity. As a re­sult, West­ern economies are run­ning chron­i­cally be­low their po­ten­tial – and risk un­der­min­ing their fu­ture po­ten­tial.

That is why fu­ture gen­er­a­tions will likely re­mem­ber this as a time of lost eco­nomic op­por­tu­ni­ties. In­stead of bow­ing to po­lar­i­sa­tion and paral­y­sis, pol­i­cy­mak­ers should be pro­mot­ing growth- and pro­duc­tiv­ity-en­hanc­ing in­fra­struc­ture in­vest­ments, funded at ex­cep­tion­ally low in­ter­est rates, scal­ing up la­bor-mar­ket re­forms, and work­ing to ad­dress the grow­ing in­come and wealth in­equal­ity that is in­creas­ingly lim­it­ing ac­cess to eco­nomic op­por­tu­nity.

Like­wise, pol­i­cy­mak­ers should be re­vamp­ing in­co­her­ent and in­con­sis­tent tax struc­tures that are rid­dled with un­fair ex­emp­tions. And they should be pur­su­ing im­mi­gra­tion re­form to over­haul a sys­tem that pe­nalises tal­ent, en­cour­ages malfea­sance, and, as il­lus­trated by the thou­sands of mi­grants who have drowned in the Mediter­ranean Sea in re­cent years while try­ing to reach Europe, of­ten leads to hu­man tragedy.

De­spite wide­spread dis­sat­is­fac­tion with po­lit­i­cal in­sti­tu­tions in many West­ern coun­tries – the US Congress, for ex­am­ple, has very low ap­proval rat­ings – it is dif­fi­cult to see what will break the cur­rent log­jam. Within es­tab­lished par­ties, forces pro­mot­ing re­ju­ve­na­tion are weak and un­even. Add to that an in­creas­ingly po­larised and quasi- tribal news me­dia, which can am­plify di­vi­sions in so­ci­ety, and the scope for col­lab­o­ra­tive trans­for­ma­tion is ex­tremely limited.

For their part, many of the fringe par­ties, de­spite their ris­ing pop­u­lar­ity, are strug­gling to achieve power, a chal­lenge il­lus­trated in the re­cent Bri­tish elec­tion. And those that suc­ceed, such as Syriza, quickly be­come frus­trated by the largely im­mov­able sys­tems in which they must op­er­ate – a sit­u­a­tion that their lack of gov­ern­ing ex­pe­ri­ence makes all the more dif­fi­cult.

Over time, West­ern po­lit­i­cal sys­tems will evolve to meet the needs of their economies. But, in the in­terim, the vast ma­jor­ity of com­pa­nies and house­holds will have to cope with sys­tems that do rel­a­tively less to help them reach their po­ten­tial, plac­ing them at a dis­ad­van­tage vis-à-vis com­peti­tors op­er­at­ing in more sup­port­ive sys­tems.

To some ex­tent, tech­no­log­i­cal in­no­va­tion will pick up the slack, as it em­pow­ers in­di­vid­u­als and com­pa­nies to live more self­di­rected lives, cre­at­ing pock­ets of ex­cel­lence and well­be­ing. But, while this is good news for some, it is in­ad­e­quate to ar­rest the ris­ing in­equal­ity of in­come, wealth, and op­por­tu­nity – or to un­leash the in­clu­sive pros­per­ity that West­ern economies can and should be gen­er­at­ing.

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