Is Populist Democracy an erosion of Democratic Values

Democracy is a given in the Western World – or is it? There is so much debate in recent times about democratic rights of various factions my head is spinning trying to comprehend how this word is being used – or abused.

If we go back to the fundamental meaning of democracy, we need to consider nation States where civil liberties and fundamental political freedoms are not only respected but also reinforced by a political culture based on democratic principles. If we consider the characteristics that should define a democracy, we will see freely elected government representation, respect of civil liberties, an independent judiciary, organised and elected opposition, all enshrined within the Rule of Law.

Being a member of Chatham House I was invited to participate in a session entitled ‘The Pandemic, Populism and the Democratic Recession’ during which Professor Larry Diamond from Stanford University in the USA outlined his argument that, especially during the past 20-years, democracy as we understand it is on the decline as Nation States throughout the World labelled as democracies remove ever more powers from and/or impose more authority over the people, currently Hungary and Poland within the EU. Whereas I fundamentally disagreed with his understanding of both the UK and the EU, both politically and economically, his view that democracy is in recession resonated. I also agreed that the rise of Modern Populism is a major factor in degraded political governance. But what is driving this degradation?

As a Christmas treat in 2004 I took my then 14-year old daughter to Boston and New York City in an attempt to give her some feel for life in the USA using the more sedate and conservative Boston as a marker against the cut and thrust of New York City. Whilst in New York we passed the CBS Building more commonly known as Black Rock. In the window there was a large screen stating, ‘United States of America – the oldest surviving democracy in the World’. This statement, for me, encapsulates the problems encountered by Americans throughout the World. I question whether the USA can consider itself a democracy when I see President Trump with connivance of the Republican led Senate impose their choice of person in the form of Amy Coney Barrett as a Supreme Court Judge for life. This can only be described as political stuffing of the Judiciary where such body is defined as independent within a democracy. Furthermore the turbulence over recent years where the whole Government apparatus becomes stagnant because the Senate and House of Representatives cannot agree a budget suggests the Political System in the USA is in need of structural reform to redefine and enhance democracy to better serve all the people before preaching their form of democracy to others. During my teenage years, segregation was still rife in the USA, and recent events stirring the Black Lives Matter upheaval suggests problems still exist.

Having close ties with Switzerland since the late 1970s I recall earlier this millennium being asked by a former Federal Counsellor of Switzerland to review their speech to an upcoming gathering of EU ministers considering the further integration into the EU of the former satellite states of the former USSR. There was a section in this speech lauding democracy, declaring Switzerland as a glowing example of a stable democracy. I could not help but point out that, in Switzerland, the Executive has total control over the judiciary with several recent occasions where the Federal Council has overridden judicial review to protect their own interests. I consider Switzerland as a Police State where people are declared guilty until they prove themselves innocent – hardly democratic. And they clearly have difficulties trying to govern in four different languages and associated cultures.

Countries such as Russia and China are accepted as undemocratic. We have witnessed both Vladimir Putin and Xi Jinping engineer their longevity in leadership amending constitutional rules as needed to secure their positions. Opposition is summarily dismissed even using horrendous methods such as Novichok agent with apparent impunity. China’s reversal of democracy in Hongkong with its latest dictum that MPs in Hongkong must be patriotic to Beijing if they want to serve demonstrates blatant disregard for the democratic freedoms afforded the people of Hongkong under the hand-over Treaty with the UK.

The recent elections in Belarus demonstrate that power corrupts leaving most of the former socialist States, even those classified as democratic, revealing the flaws in their leadership determined to retain authoritarian power by any means as the people become more aware of the rights they should enjoy as citizens. And, of course, we should not ignore the corrupt Governments in Africa whose leaders will use any level of guile and oppression to retain their corrupt power.

The citizens of the World are becoming more aware of the concept of democracy and seek to exert their rights within the accepted democratic framework. Authoritarian leaders who cannot easily apply direct oppression are seeking other means to retain their power. Knowing that many people have very little if any understanding of politics or economics they use Modern Populism as a powerful aphrodisiac. Knowing the affection of the people for pop artists and movie stars authoritarian leaders personify themselves as superstars worthy of the embrace of the people. Such charismatic leaders manipulate receptive voters by promising outrageous utopia whilst vilifying opponents using the ever-increasing wealth gap to decry the corruption and self-interest cronyism of the elite. Unfortunately, this works for enough voters to swing elections from capable Government into governments in name only. The star-struck voters get what they deserve, only realising their error when it is too late for 4 – 5 years, or as we are witnessing in countries such as China and Russia, for life of the leader holding the power. Constitutions are revised to cement the power base; democracy becoming no more than a word of convenient political rhetoric. This herald back to kingdoms where the leader has absolute power for life – no matter what.

The recent Brexit debacle in the UK sheds interesting light into this discussion. After the first Brexit Referendum the so-called Remainers – the voters who wanted the UK to remain part of the EU – made many outrageous claims that the Brexiteers were duped by Populism, being too uneducated to understand the issues. This view carried into Parliament where MPs from constituencies who clearly voted to leave the EU chose to ignore their local constituency vote instead voting to stifle the process. It took two further elections and the loss of a number of seasoned politicians and some younger opportunistic politicians to give Boris Johnson a mandate to leave the EU but many Remainers still argue that voters were casting their vote to prevent Jeremy Corbyn from leading a Government, not to leave the EU. Thus, we have a perplexing problem of voters not considered capable of casting a reasoned vote thus voting a Populist ticket, and the losers not accepting the outcome yielding a breakdown in credibility of the democratic system.

An alternate way of reading the last General Election in the UK is that Boris Johnson saw the opportunity to use the voters to disguise the Brexit issue within the Jeremy Corbyn ultra-left-wing Modern Populism and rely on the voters to see reason that the outrageous promises to the voters by a Jeremy Corbyn led Government would condemn the UK to the Dark Ages again. The results tend to suggest even in the more depressed, typically Labour stronghold constituencies of the UK the voters were savvy enough to know what they didn’t want both in Corbyn and the EU.  

One of the long-held complaints with the EU is the unelected but powerful European Commission. How can the EU declare itself founded upon democratic principles? The agenda of the EU is clear to ever more of its citizens. The UK has responded. Who’s next?

The current Presidential election in the USA could be described as Modern Populism versus Pragmatism but look how close the popular vote. If we apply the argument that many voters are not capable of understanding the debate one would expect the vote to be more pronounced in favour of Populism or Pragmatism. I don’t envy President elect Joe Biden who must repair such a polarised nation not least because of no clear Republican or Democrat majority in either House likely creating stagnation in policy agenda. And the losing voters will consider themselves robbed of victory especially if led by Donald Trump when his legal challenges fail.

Why is democracy failing when so many oppressed people in the World crave the liberty and freedoms it promises? I grew up in the aftermath of WWII where people relied on resourcefulness and resilience to survive and thrive. Communities worked together to rebuild their lives. Life was not idyllic, far from it, but an attitude was instilled that essentially meant that if you wanted to achieve you are responsible to make it happen. This attitude accelerated during what I call the Youth Revolution – the period between the 1966 World Cup and the landing of Neil Armstrong on the moon in 1969. Resilience and resourcefulness built in prior years now could be expressed in ways which changed the UK from an essentially conservative Government to a more liberal approach. Much wealth creation during this period across the spectrum of voters – class boundaries fracturing. People felt liberated and empowered to determine their own destiny in the World and demanded a more liberal framework by Governments.

This empowerment led to the people looking to exert their rights to whatever they could get for their votes building a now overburdened welfare state where an attitude of entitlement overshadows the need for resourcefulness among the poorer sectors. For example, could a political party now get elected on a ticket of much needed scale back and structural reform of the NHS to reflect need over want? Resourcefulness has morphed into indoctrinated entitlement. Resilience has morphed into insecurity with a new lexicon of mental disorders amongst younger people. Instead of the resilience to cope, people crumble. Having observed the depressing inability of people to cope with Covid-19 lockdown goodness knows what would happen if the lights went out for any length of time. Today there are still many families who have members who survived some 6 years of WWII in the shadow of bombing raids, losing loved ones, coping with rationing, and extreme workload to support the war effort. Has what I would term as Modern Socialist Populism created a complacency that quietly forgets the price paid for the freedoms they enjoy? Thank goodness for the emergence of heroes like Capt. Tom whose positive resilience injected a much-needed dose of reflection and goodwill.

However, we digress. Or have we? Creating unaffordable expectations among the masses in the pursuit of votes is destined towards a reality check. Corporate taxation at uneconomic levels, and personal taxes at levels significantly affecting quality of life are a formula for disillusionment, recrimination and ill-will towards the Government. Modern Populism hits the buffers. The Government coffers are empty. The people are disillusioned with Liberal Democracy and must pay for their sins with a period of Conservatism to rebuild the economy and reset voter expectations.

Is there not a note of déjà vu in this progression? I remember in the 1970s living under a widespread social engineering period by Labour Governments to support its popularity essentially bankrupting the country in the process requiring some 18 years of Conservative resets to prosperity. Then in 1997 Tony Blair and Gordon Brown emerged with New Labour on a Populist ticket spending a further 10-years of cradle-to-grave social entitlement engineering finally leaving the Government coffers empty in 2007 and so many young people disillusioned with their new but worthless university degrees and massive student debt. Another reset to Conservatism, austerity, and realism. The banking crisis did not help but the coffers were empty in any event. And, just as prosperity and the freedom from the EU were set to propel the UK into a new period of accelerated growth, we are hit with Covid-19. Should China have the moral fortitude to inject $2-3Trillion into the global economy to compensate for its failure to contain this virus we will most certainly see the UK thrive and prosper post-Covid-19 before the next General Election thus thwarting the Populists who will certainly make hay if recovery is still slow. In the event that China fails to stimulate the global markets but seeks to exploit the global economic weakness resulting from Covid-19 I would expect the West to reinvigorate the Marshall Plan along with a healthy dislocation from China from where three serious viruses have emerged in the past twenty years.

So what is different today? Before social media and the degradation of conventional press reporting to satisfy 24-hour news channels using their own brand of sensationalism to compete with online social media, voters could only derive information from a limited number of outlets. Social media has completely changed the dissemination of information; good, bad, or downright false or misleading. Unscrupulous entities from individuals, organisations, and even foreign powers can, in minutes, pollute social media platforms with lies, misrepresentation and complete fabrication intended to sway receptive victims to a desired outcome. I overheard a journalist from a broadsheet newspaper declare that the demand on her for articles each day meant that she had no time to fully research and validate her stories. But who, today, reads the second page corrections if indeed any are printed?

An analysis of which degradation came first would take another essay. But what is clear is we have a collision of culture and belief where national boundaries are blurred by new global organised activism built on conspiracy theories. We experience truth decay where facts no longer matter, and people lie with impunity, some merely to seek their 15-minutes of fame, but others with a more cynical intent. We observe more authoritarian countries attempt to curb access to social media. We also observe Western countries trying to marshal content but with little effect to date. One observation of this proliferation of false or il-considered content is the need of people to feel involved in this new-found freedom of expression which requires instant gratification regardless of consideration lest they be left behind. How many celebrities take the view that they need to be connected until the vitriol received causes them to retreat?

Thus, Populists and their cohorts can exploit the lack of any integrity in published works on any platform. If voters are not happy with what is, they can easily be swayed to the promised land. How such interference in democracy can be regulated will be debated relentlessly with little or no consensus throughout the World. Democracy could well become as toothless as the UN.

I put it to my readers that the degradation of integrity in politics has created a mistrust of democracy. This is a breakdown of social cohesion that amplifies by clever manipulators through social media platforms creating false impression, disenchantment, and social discourse. History repeats itself regarding the few people needed to stoke people into war with insane losses before sanity prevails. Does democracy need to follow the same cyclic course before people understand its values and limitations. It was Winston Churchill who remarked that democracy is the worst form of Government, except for all the others. Is it time to revisit the pillars of democracy, ensure that they are relevant, fully understood and implemented, and then guarded against abuse?

Has Democracy As A System of Government Run Its Course?

 

In a speech in the House of Commons on 11 November 1947, Winston Churchill said: No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time. Since then democracy has shown itself as a far from perfect system in that the inherent assumptions are that every voter has the capability to understand the issues, and the people elected to deal with the issues have the appropriate experience and wisdom to conduct the majority view of the people. Recent elections throughout the World demonstrate that neither assumption is reasonable. The result is a range of governments derived from populist to unwitting authoritarian.

My attention was drawn to the breakdown in democracy in Europe during the ratification of the Maastricht Treaty, and later the Lisbon and Nice treaties, where various EU member Governments were unable to achieve ratification of these treaties on a free vote but were instructed by the Brussels apparatchik to continue to poll until they achieved the required result, i.e. undemocratic attrition.

In the UK we have two clear examples. The BREXIT referendum attracted the largest turnout of any election in recent times by percentage of votes, and numbers who voted, thus should be deemed to be compliant with the fundamental principle of democracy. Using the fundamental principles of democracy the outcome should be accepted by all, and the Parliament of the day thus mandated by the people to conclude the exit process. Yet the remainers, or remoaners as I prefer to call them, are so vehemently opposed to the democratic result that they continue to attempt to thwart the BREXIT process without any consideration of the damage that they inflict on achieving a good divorce settlement for both the UK and the EU. To these people I say that you have no regard for democracy, the history and future of the UK, and the turnout for this important vote, but are instead far too consumed with blinkered argument with little concern regarding the damaging consequences for the people who voted, and subsequently respected the outcome of the referendum. I can assure these people that if this referendum were to rerun the vote would be more overwhelming.

Who are these people who cannot accept a democratic majority, and why do they think that they can abandon the principles of democracy in favour of a minority? I noted during the Andrew Marr show last Sunday that Labour MP, Chuka Umunna, was stating that BREXIT is so important that it should ride above party politics or personal ambition of Government members but every sentence he uttered was both party political and promotion of his own ambitions. During this week he has furthered both by stating that Parliament should have a legally binding vote on the BREXIT deal before it can be ratified – yet another attempt to thwart the process, and thus the will of the people. What a hypocrite. For balance I can also identify a Conservative MP, Anna Soubry who caused eyes to roll on the Conservative benches in the House of Commons this past Monday when she continued to vent her vehement attack on BREXIT and her party leaders. If she does not understand the principles of democracy why is she in Government?

Then we have the devastating miscalculation of the recent General Election. Short-sighted and blinkered arrogance in the extreme.  My thoughts on reading the Conservative Party (latterly described as Presidential) Election Manifesto are already published. Why did no one with political clout in the Conservative Party face down Teresa May and alert her to the inevitable consequences of such a poorly considered manifesto? I can suggest that study of the ‘Art of War’ by Sun Tzu is required study by her in future campaigns.

Of course, Jeremy Corbyn understood such consequences and saw an opportunity to seize power. He used the rise of a populist vote, especially with younger voters more consumed in their smart phones than in the real world. He promised them anything for their vote even though it was clear from the outset that none of these promises were remotely deliverable, as per populist socialist governments in South America and Africa. His was a particularly exaggerated socialist agenda that had none of the subtle argument proposed by the likes of Tony Blair. This was blatant abuse of process with the certain outcome of bankrupting UK plc. But why did these voters not see the inevitable outcome?

Today Jeremy Corbyn sees himself as the socialist saviour and although verbally supporting the BREXIT outcome he is using it as a party-political football in an attempt to unseat the Conservatives to seize power for himself. For the remoaners who think that BREXIT will be bad for the UK economy I ask them to consider the devastating consequences of a Corbyn led Government. The centre left government under Tony Blair left the Treasury coffers empty (as with all previous Labour Governments since WWII) – but this will be nothing compared with bankruptcy as Corbyn pursues a left socialist agenda. Perhaps his followers should consider the irony in my past blog ‘General Election 2015 – A Sorry Tale’.

The BREXIT campaign was bruising but, from my dialogue with people, they understood why they wanted to vote as they did irrespective of the blindingly aggressive rhetoric from both sides. My view is that the politicians were so outrageous that their words became an incoherent noise. The doom-and-gloom merchants such as David Cameron and George Osborne hid behind rigged outpourings from the likes of OECD and IMF clearly geared to frighten voters, but subsequently found to be completely false and unfounded. The UK economy has prospered post-BREXIT, and the EU is beginning to understand that THE UK is not about to bail out Europe for the third time in the past one hundred years. Teresa May has offered what the International Court of Arbitration would likely deem as legally obligated under the Lisbon Treaty. Any more requires valuable reciprocity from the EU. The second largest contributor to the EU is obviously a real loss to them, but they had the opportunity to address the needs of the UK people, but chose in their blind arrogance, to ignore such needs. Now they want to put valuable trade for both parties at risk to continue to prop up a failed system which is blatantly undemocratic. My instinct tells me that there will be substantial turmoil within the EU countries if trade is not maintained with the UK. The interview with the Foreign Minister of Spain, Alphonso Dastis, by Andrew Marr last Sunday was very revealing as he clearly stated that the close relationship between the UK and Spain pre-dates the EU. He argued that seventeen million UK visitors to Spain each year plus some 750k of UK citizens choosing to retire in Spain is not something they intend to put at risk.

So, what does all this say about our current form of democracy. We have politicians who choose the ignore the majority will of the people. We now have far too many career politicians who clearly lack the experience and wisdom needed to execute their office. We have an unelected powerhouse in Brussels who have no regard for the will of the people when it does not concur with their agenda. We have multiparty systems in many countries that govern by painful compromise (rather than strong leadership). We have too many politicians who have little regard for the ability of people to think for themselves and thus govern by fear tactics. And we have an electorate who feel disconnected from the process and thus disinterested. Instead of democratically thinking about an issue in the interest of all, they concern themselves with what matters only to themselves. Is democracy about to implode, and what phoenix will rise from the ashes?

 

 

A View on post-BREXIT not yet discussed

univestA View on post-BREXIT not yet discussed

In general I tend to agree that the economic data banded around from both sides of the EU Referendum argument to be irrelevant, not least because such data will be skewed by undeclared terms of reference, and vested interests. However, there are referendum issues not being addressed, and a likely outcome scenario not even discussed.

We invariably hear both Cameron and Corbyn declare that we should remain in a REFORMED EU, but has any political commentator asked what they mean by REFORMED, and how they intend to achieve such reform? Not to my knowledge. This is a very important point as I would suggest that the deal that Cameron produced at the start of the referendum is little better in the medium to long-term than the agreement waved at the people by Chamberlain just before WWII.

As a seasoned player in real-world geo-politics and geo-economics for over 35 years I would like to suggest a likely outcome of a BREXIT vote. Certainly there will be much hostile media posturing by EU mandarins, not least to try to prevent a rush to the exit by other member States. However, behind closed doors the mood will be far more sober as Germany almost certainly cannot sustain the EU without the UK. It is reasonably certain that free trade will continue as the German Government could not sustain the wrath of its corporate giants who export much to the UK, and we are well versed in the way that French farmers will bring the French Government into line. What I expect to happen is a call between Berlin (not Brussels) and London to determine what reforms would change the view of the British people. Thus the period following BREXIT would more likely be Treaty reform to put to the UK to keep the UK in. The UK Referendum result is not legally binding on the UK Government so a vote in the House of Commons to accept a revised (reformed) EU Treaty with a General Election in sight would likely keep us in the EU. The BREXIT would merely accelerate the reforms that are generally accepted as needed throughout most member States, with the full support of most member States. Thus a BREXIT vote could see us as a good citizen of Europe.

Another important factor in this debate is the supremacy of English Law, especially in trade and finance. The reason that the City of London is the financial centre of the world is the global confidence in English Law over all others relating to trade, capital markets, and insurance. If this is diluted by EU supremacy then the resulting instability will be felt globally, as well as UK GDP. During my career Frankfurt has attempted on two occasions to steal part of this valuable asset, and France continues to dream of doing the same. Retaining the supremacy of English Law in this EU arena is vital to UK prosperity.

As for the global impact of BREXIT there is no doubt that there will be a short period of volatility but I would suggest that such volatility will pale against the global impact of the recent adjustment in China and its continued economic slowdown, and a Trump victory in November. Unfortunately, we live in times of a new breed of unscrupulous large blocks of wealth that avariciously feed on volatility purely for greed, and they have the wealth to exaggerate such volatility to maximise their profit. When will the G7 address this global instability?

BREXIT – What Deal?

univestBREXIT – What Deal?

When David Cameron elected to engage in a referendum regarding UK membership of the EU his pronouncement was that he would seek much needed fundamental reform to the EU, or support an ‘out’ vote. These reforms included substantial issues such as curtailing the role of the European Court of Human Rights in UK determinations, to scrap the Human Rights Act, reclaiming sovereignty for both our parliament and our judicial system, and to have sanction over immigration into the UK.

What he achieved is zero reform; only some tweaking at the fringes which, until written into Treaty are no more than what the Courts call mitigating circumstances in determinations, the existing Treaty being the fundamental basis on which they will make determinations. Few, if any of the EU leaders who agreed this tweaking will be in office when the next Treaty is discussed, and the European Parliament can most certainly vote down any, if not all of the concessions. Thus why the ‘deal’ is already in the dim past of the EU referendum debate.

As a trained negotiator I have an unease about the lack of any substance to the ‘deal’ as Germany most certainly needs to keep us within. Did Cameron not have the heart for such a negotiation? Is there a deal behind the scenes regarding the future of Cameron? Was he the wrong man to negotiate? History may tell us the answer, but until then we must accept that the ‘deal’ does not remotely meet with the initial basis of the referendum.

I am not going to debase my discussion by using speculative monetary values, or the use and abuse of statistics. As it is clear to see in the media the business and financial community are divided on opinion based on their specific vested interests – thus irrelevant. As argued in previous blogs this debate is about the future of the people in the UK. All of the economic and political arguments pale against the right outcome for the British way of life. Business and finance will continue regardless of the choice made in June. As one dear lady so elegantly put it in a Jeremy Vine interview last week, ‘so-called experts built the Titanic, but not the Ark’.

I do not believe the people of the UK will engage with the current political and business debate. So let us bring the argument down to a reasonable comparator argument that anyone can understand. Our base will be a recently new golf club where the charter debenture holders (the people who essentially financed the building of the club) sought preferential treatment as part of their contribution. This creates a two-tiered system of membership even though much of their initial investment has been redeemed through subsequent debenture sales. What will happen over time is policy committee members will change, and privileges of the charter members will become fuzzy, and erode, until they have no more privileges than any other member, i.e. harmonising rights to all members. This is what will most certainly happen in the EU. Fuzzy memberships such as Norway, the UK, and Switzerland will be tolerated in the short-term, but over time the boundaries will be eroded until they are eradicated. In Political Risk parlance this is called creeping expropriation. If the UK elects to remain an EU member it will most certainly not retain any special status over time.

The generally accepted current situation of the EU is fragile, and in need of serious reform. So what is the future if the UK votes to remain within – uncertainty. What is the future if the UK votes to leave the EU – uncertainty. So what is the difference – control of the uncertainty. The UK is not a Switzerland or a Norway. The UK is the 5th largest economy in the world – and carries much power and influence in the world in its own right (as endorsed by the German Foreign Minister on Radio 4).

Let us look at uncertainty, again in an easily understandable form. Uncertainty is as much part of life as day and night. The obvious relevant examples are life-changing decisions to get married, have children, or God forbid – divorce. They all require uncertain adaptability, but are all undertaken with the hope to a better future. For a while they can be a struggle, but the outcome is generally worth it. Ask any woman who has gone through labour, but yielded a healthy baby – the pain of labour is soon forgotten. A BREXIT includes a 2 year ‘grandfather clause’ where all of our existing relationships with the EU continue giving time to agree alternatives such as free trade agreements. The UK will see some immediate benefits in that the irksome elements of the Human Rights Act can be ignored, immigration can be brought under control, and our transport infrastructure can quickly progress without the interminable interference of Brussels. Therefore, our uncertainty has a short-term safety net which negates the scaremonger argument that the short-term will be turbulent; but does have some valuable upsides. The UK successfully recovered from 2 World wars without help, so a relatively simple exit from the EU should be a breeze. I would suggest that most people will not feel any immediate difference.

There is one element of the uncertainty that I have yet to see any comment. What is likely to happen to the EU without the UK as a member. There are a number of relevant uncertainties. Other net contributor countries could see the UK exit as a sign that the current EU model is really broke, and thus elect to do the same – especially as the EU will have to increase contributions of other member States to fill the vacuum left by the considerable contribution by the UK. The right-wing elements of France could rise and depose the French Government. France has much to lose by a UK exit. Where were these concerns in the deal negotiations – or wasn’t the threat of the UK leaving a serious consideration?

If Germany can find the means to support the Eurozone then it will more rapidly consolidate its hold over the Euro countries – and the people of the UK will be thankful that they departed. Of course we still have the Greek issue which will most certainly be a thorn in the side of Germany – will this lead to conflict within the Eurozone? We have seen that the poor response by Germany to the economic situation in the Eurozone when they refused quantitative easing some 4 years ago. The too little – too late plan by the ECB yesterday was greeted with derision by the markets.

The UK has a proud history as the banking centre of the world boasting excellence in financial capability (even when Labour are in Government), and the ability of the UK to rise from both the irresponsible spending of the last Labour Government and the financial crisis lays testimony to the intelligent and speedy response to such events. Should this be sacrificed to the incapable Eurozone mandarins who clearly do not have the experience, or the global market understanding?

In summary BREXIT will yield uncertainty whichever way it goes. Therefore, the issue is whether or not the people of the UK want control over such uncertainty, or do they want to surrender decisions to Brussels – unaccountable to the people of the UK, and not so interested in preserving the British way of life.

 

 

A New Multilateralism – Realisable or Wishful Thinking?

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A New Multilateralism – Realisable or Wishful Thinking?

I listened to the Richard Dimbleby Lecture on Monday evening with expectation of some new thinking on the way forward. The lecture was called ‘A New Multilateralism for the 21st Century’ and was presented by Christine Lagarde, incumbent MD of the IMF. My initial reaction was that it presented some interesting ideas, but I couldn’t quite put my finger on the relevance of these ideas. So, on Tuesday, I printed off the transcript of her speech from the IMF website. Having now studied this speech in some detail I find it endorses my view that the multilateral institutions of which she leads the IMF are essentially out of touch with the real problems that we face in the 21st century.

Back in the 1970’s, during the oil boom, individuals in the Middle East were accumulating vast amounts of US Dollars in cash because Western banks did not want it. Indeed I remember Swiss banks charging up to 3% p.a. to take these deposits. I actually walked into a room in a palace and saw a pile of US Dollars, and was told that this pile amounted to USD 1 billion. In an attempt to give some visual impression of this pile I am reliably informed that a standard 40ft sea container will hold USD 1 billion in fresh print USD 100 denomination bills. This money was not participating in any economic benefit whatsoever, and there was no possibility that the owner could reasonably consume these funds in their lifetime. Yet just one mile away there were ordinary working people struggling to find the money for their next meal. It occurred to me that if these funds were deposited with SAMA, and used productively producing even a nominal return, such return could be used productively to provide food for these people without any degradation to the original money. Yet the owner had no interest in such a proposition, and was content to accumulate yet more piles to look at.

Unfortunately this sorry tale has since increased in propensity, and as we saw a few weeks ago, Oxfam calculated that the 85 richest people have the same wealth as the bottom half of the World’s population. Christine Lagarde added that the richest 1% in the USA captured 95% of all income gains since 2009, yet the number of people in the USA needing food parcels to survive is now reaching pandemic proportions. She further states that in India the net worth of the billionaire community increased 12 fold in the past 15 years, enough to eliminate the poverty of that country twice over. So why has she not rationalised this into the real threat to the World Order in the 21st century?

We have seen so many billionaires created out of emerging economies such as the former Soviet Union, China, and India, sapping vast amounts of sovereign assets. The rapid nature of such wealth creation should arouse suspicion. However the point that I make is that somehow a few own wealth beyond any reasonable expectation of spending throughout their life. Many will say that they invest much of their wealth, but this only increases their existing wealth. Having met a number of these oligarchs their primary objective is to continue to increase their wealth, usually at the expense of others.

What about if each billionaire set aside USD 1 billion for investment and applied just the income to relieving poverty.

In 2013 an investment return of 15%+ was easily achievable. This would provide in excess of USD 150 million from each billion invested. The billionaire has not lost their capital, but much could be achieved with the income stream. Of course a few of these billionaires are already philanthropic and names like Bill Gates easily come to mind, and who clearly understands that he does not need such vast wealth, so uses his business judgement to make every dollar count in his selected beneficial projects.

Having brushed along with the World Bank, the IMF, and the UN for over 30 years I would suggest that they are political institutions populated by political appointees and academics who have no idea about the real world. I have witnessed a number of World Bank projects which did no more for the recipient country than to provide work for a donor country corporate, create an inappropriate monster that, within 5 years, was derelict leaving the recipient with sovereign debt but with no value to show for it. I have also seen appropriate solutions costing a fraction of the price of the expensive inappropriate concrete alternative discarded because the amount of the appropriate solution did not warrant World Bank intervention. It is interesting that Christine Lagarde acknowledges that it was the fast response of the G20 that stopped the world descending into meltdown 5 years ago rather than the institutions such as the World Bank and IMF founded to deal with such events. I think that this is a good template to use in stating that the current multilateral institutions are not good at delivering effectively solutions.

Although I am clearly in support of the outcome of Bretton Woods, we should also remember that not enough people there were visionary enough to accept all of the ideas of Keynes, and which were subsequently quickly adopted as catastrophe loomed, e.g. removal of the gold standard. Other than those wearing rose tinted spectacles no-one would suggest that the institutions that emerged remotely fulfil their ambitious mandates. I have already mentioned the lack of effectiveness of the World Bank and the IMF, and the UN is little more than a toothless talking shop today – Bosnia being a classic failure.

Christine Legrande suggests that the multilateral outcome of Bretton Woods produced ‘unprecedented economic and financial stability …. Disease eradication, conflict diminished, child mortality reduced, life expectancy increased, and hundreds of millions lifted out of poverty’.

Do we not count Korea, Vietnam, Congo, Sudan, Yugoslavia, Israel, Egypt, Lebanon, Iraq, Afghanistan, Syria …….etc as conflicts? All consumed the lives of many thousands of people including Western soldiers, left chaos and destruction in their wake, and they are still very much in our minds today. When was the last time that the USA was conclusively successful in any serious military conflict? Therefore Europe and the USA may have seen peace and prosperity since Bretton Woods but how many thousands of American and European soldiers and civilians have died in the name of preserving this peace?

To suggest that Europe has been conflict free is also short-sighted. In the past 6 years Europe has been involved in an economic war. Not too many people killed with bullets and bombs, but many have become disenfranchised, lost everything, displaced, and descended into poverty. Is this not symptomatic of a conventional war? When the vision of a European Union was first put to the people the rhetoric promised peace and prosperity for all citizens. I accept that the banking crisis made a bad situation worse, but how many European politicians in France, Greece, Spain, Italy, Ireland and the UK breathed a sigh of relief that they could hide their failure to create a credible EU behind the banking crisis?

Let us examine the two reference dates that she used, i.e. 1914 and 1944. She suggests that prior to 1914 the birth of the modern industrial society brought about massive dislocation between protectionist nations, and inequality between the ‘haves’ and ‘have-nots’. Take away the country boundaries, essentially the impact of the digital age, and what is different today?

So where do I see the powder kegs of the 21st Century? Perhaps controversially I do not see the North-South Conflict as a major threat. An implosion within the Islamic community is more likely with primarily Sunni against Shi’a. If you think about it, most of the current conflicts involve the Islamic nations, and are driven by extreme religious division. The intervention by the West in some of these conflicts in the name of protecting the West has no logical outcome. These people have no regard for Western democratic values, or of secular tolerance.

At one end of the spectrum we have the blatant inequality of the distribution of wealth. We are experiencing 2 critical phenomena, both of which are counterproductive to a peaceful, all inclusive world. We have individuals and corporates accumulating vast wealth to the point where the resulting power exceeds that of some major nations. Albeit a few of these have taken a philanthropic stance we should note that such philanthropists are mostly from Western countries. Many of the new billionaires are from emerging or developing economies where democracy does not really mean very much, and a market society is the norm, i.e. everything has a price, even social and civic values. All we need is a charismatic megalomaniac, as depicted by the Carver character in the James Bond movie, ‘Tomorrow Never Dies’, to cause chaos and suffering for many throughout the world. Unfortunately Western civilisation has degraded over the past couple of decades towards a market society thus adding a significant sting to the ever increasing differential between the ‘haves’ and ‘have nots’. For example diminish the rights of the ‘have nots’ to education, justice, political influence, and healthcare because they have no money and you have a significant pool of would-be terrorists for our megalomaniac to exploit because they have nothing else, and nothing to lose.

Then we have corporate greed. So what can the people see? During the past 6 years the people have become very aware that their corporate executives have suppressed the salaries of the workers (the value drivers) to below inflation levels whilst increasing their own already attractive remuneration by some 40% average, and which has been allowed by investors because dividends have been maintained to these investors. So the people at the top have handsomely profited whilst real income to the workers has diminished. So much for sharing the pain. In addition these executives are immune to any accountability should they fail. Have any of the avaricious people who profited from the banking crisis been prosecuted, or had their ill-gotten gains repossessed? The banks themselves are being penalised by regulators who should have been more alert to the problems in the first place, and some of these funds do go to Government coffers. But these large fines diminish the capital of the banks, and thus inhibit their capability to finance the very enterprise we need to re-energise the employment market, i.e. they inadvertently stifle recovery, increasing disenfranchised young entrepreneurs.

At a micro scale we can look at the fate of RBS under Fred Goodwin. He was a megalomaniac trying to build the biggest bank in the world. Everyone I spoke to in the City of London at the time leading up to the acquisition of ABN Amro agreed that the terms of that deal, at twice the price that anyone else was prepared to consider, was insane. Yet no-one stepped in to stop him. How much pain, and destroyed lives has RBS caused to many thousands of people. But Fred Goodwin is made for life financially; so well in fact that sticks and stones may break his bones, but he will not lose a night’s sleep over the names that he is called.

At the other end of the spectrum we have the demographic issue. We have already seen a growing view amongst the young generation of workers that their taxes should not be funding the pensions and healthcare of the graying generation. The younger generation see that they have to pay taxes to support the pensions of an ever increasing graying population, and being told that they also have to contribute a significant proportion of their disposable income to their own pension provisions as State pensions will slowly but surely phase out by the time they retire. All of this at a time when real incomes are diminishing in real purchase power terms. Rightly the graying population state that they have paid their taxes, in the form of a special National Insurance tax specifically for the right to a State pension and healthcare, throughout their working lives and thus their State pension is rightfully theirs. The problem is that successive Governments have not ring-fenced these contributions over the years, preferring to spend it in the hope that future generations with continue to fund the requirement; a little like a Ponzi scheme. Add to this the migration of young labour where they have no historic interest in the local graying population, and expect to be able to send money home to support their own aging family, and we have potential serious discourse and unrest. Bring both of the above phenomena together and we have a powder keg just looking for a fuse.

So from where can our fuse emerge? Our fuse already exists in the form of the global internet, social networking, and twitter. Christine Lagarde is right in that the Arab Spring was fuelled by the galvanising of the people through media such as Twitter and social media. But likewise these facilities can also be used to fuel discontent and confusion. Great philosophers such as Aristotle, Kent and Hume have all commented on the importance of gossip to the masses, and our lesser quality media thrives on this obsession. So the touch paper is a disenfranchised charismatic individual or group exploiting the power of gossip through Twitter and social networks. We have seen the impact of disenfranchised ‘have nots’ in riots in many cities over recent years. It is when all of these groups can be galvanised together that we need to be concerned.

Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

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Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

The brinkmanship demonstrated over recent weeks between the Executive, House of Representatives and the Senate reveals a total disregard for how a few ultra-right wing politicians can cause great concern in the international markets. I argued in my blog, EU/Eurozone – Start Again or Plod On – A New Government, that having the upper and lower houses in a democratic system both elected, especially at different times in the economic and political cycle, can result in stagnation of the governmental process.  This has to be a flaw in the democratic system, especially when just a few people can hold the World economy to ransom. The USA has shown time and time again that, in any global issue, their own interests are most certainly the top priority. Albeit that, if my calculations are correct, this stand-off stagnation has occurred 18 times during the past 30 years does this fact make the global uncertainty created any more palatable? As USA debt reaches levels that are unassailable in terms of any hope of repayment is it time to seriously look at this problem?

The debate that I think is needed is related to the introspective nature of the USA, as provider of the global reserve currency. Only some 15% of USA citizens have passports, very little is taught in their schools regarding the World at large, they are taught that America is the best place in the World, they are the biggest and the best at everything (they have a World Series in a sport that is only played in the USA), and very few can indicate on a map of the World where major countries are located, let alone cities. Indeed I took my teenage daughter to the USA some years ago where she was told that a nominal relief in Boston was the largest relief in the World, and when we walked past the CBS building in New York there was a screen proclaiming ‘America, the oldest surviving democracy in the World’. Is such a culture to be trusted with the broader obligations of the holder of the global reserve currency?

Up until recently one of the fears within the political circles of the USA was their increasing dependence of the greater World for strategic resources such as oil & gas. This did provide a more tempered approach to how they dealt with international issues. However they have now become energy self-sufficient so will this change attitude to international issues as they recede into their natural state of introspection?

The other side of the debate is what is the alternative? Forget the Euro or Renminbi replacing the USD as the global reserve currency as neither is remotely qualified to assume this role. However it was not so long ago that the USD, and thus the World economy, was linked to the Gold Standard, and this was removed overnight; driven by the UK. Can we devise an alternative that can both commands the level of confidence required by the World markets to be acceptable, and disconnected from the introspective political wrangling that artificially impacts it credibility, and thus stability.

I am reminded of structures in the past such as a basket of currencies, e.g. Special Drawing Rights (SDR’s) but these can be unduly influenced by stronger participants, albeit more dampened than the impact of the USD as a sole reserve currency.

My thoughts are that there is a lateral solution out there, and long overdue. I also suggest that recent events make a solution to this problem ever more urgent as I do not see the USA reforming its political system to prevent the stagnation we have seen over recent weeks.

Egypt – a legitimate coup to restore democracy?

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Egypt – a legitimate coup to restore democracy?

There has been much over the weekend about the problems in Egypt, and whether deposing Mohammed Morsi was a ‘coup’. It might be useful to step away from conventional thinking and consider this problem as a possible crude template for the future. Over many years in banking I have met a number of political leaders who gained power on a specific mandate, and once in power abandoned the mandate and pursued a completely different unpopular, oppressive, suppressive, etc agenda. If we consider Egypt and look at the basis of the revolution against Mubarak the fundamental cry of the people was for a secular democracy. This cry was echoed throughout the election process which Morsi won with just a little over 50% of the popular vote. It can be argued therefore that whoever became President the new constitution must follow the lines of a secular democracy. What Morsi then produced was a constitution for an Islamist state which was rejected by the secular ministers involved who felt so strongly that this was an abuse of the mandate of the people that they refused to participate. Morsi then seized even more power to enforce his will, again against the mandate of his office. This abuse of office ultimately led to his removal from office by the army.

Democracy would suggest that such removal should be via the ballot box. But how many times in the past has the remaining term of office for such a political leader given them the space to radically change enough of the state to impose much distress and oppression to the people. Is this a flaw in our current understanding of democracy? How many times in the past would it have been in the interests of the people to have a political despot removed from office? Do we need to look at this situation and use it as basis for global discussion on a means to safeguard democracy from abuse?

A possible solution would be an International body, such as the UN, that had the power of oversight on the actions of political leaders, and have the right of intervention in the event that it was agreed that a political leader was in direct violation of the mandate of the people via the ballot box. Clearly such a body could not be other political leaders – the UN Security Council clearly demonstrates that this would not work. But we also have the International Criminal Court in The Hague which, today, only deals with after the event issues, i.e. long after many people have suffered. What about another council within the UN that comprises the heads of the judiciary from countries where there is clear independence of the judiciary from the executive – a pillar of democracy. Call it the Judicial Council of the UN. This council would have oversight of the behaviour of leaders throughout the World to ensure that clear mandates are observed and that constitutions comply with accepted basic human rights. The head of the judiciary of any state would have access to this council in the event that it was deemed that a new leader was attempting to violate either their mandate or the constitution. Such council would need the authority to suspend a government until reparations, or ultimately depose the leader. In this case what happened in Egypt would be deemed a ‘coup to restore democracy’ and thus a more accurate description, and legitimate response in the eyes of the World. I commend this view to the wider audience for comment.