Donald Trump, defying all expectations and polling, is now the President-elect of the USA. In a remarkable turn that no one saw coming, he squeezed out a victory in crucial battleground states in America's Midwest and made his way to the White House. Trump's election provoked a reaction hitherto unseen — social and mainstream media did not hide their shock and in many commentaries that I read and heard the following morning, there was a note of despondency and dejection.
A lot of criticism and hand-wringing post the election has focused on Hillary Clinton's limitations as a candidate but also on the large backlash from the White working class which formed the core of Trump's vote base in the Midwest states. There was the familiar criticism of liberals and urban folks not being in touch with those on the fringes and left behind by the economic progress of the last two decades.
Trump and Brexit tapped into genuine grievances, and what should worry mainstream politicians and policymakers is that these are not the exclusive complaints of the Left or the Right.
Trump's win, though, points to larger, global and more disturbing trends. As many post-mortems have analysed, there were dots scattered all across the world, waiting to be connected. Europe is increasingly facing a backlash against immigration and turning to ultra-nationalist voices. Britain, which became the largest empire in the world on the back of its willingness to explore untested lands and waters, voted to leave the European Union earlier this year. Trump going to the White House was preceded by multiple signs that there was something wrong in the conventional world order.
The Bretton-Woods institutional consensus that drove much of the global economic and social fabric post World War II has now collapsed. Since 1945, political and economic structures in the West were based on following key promises:
The government's role is to provide national security, avoid conflicts, create just enough regulation to allow markets to work and promote trade that would bring benefits generated by one country to others.
Business and markets were meant to utilise capital as they saw fit, generate jobs and wages, and drive overall prosperity in the economy, pulling people out of poverty and giving them the power to consume.
For those who were the net losers in this structure, there was the social safety net —government covered health benefits, unemployment insurance, tax breaks and subsidised housing/education to ensure that absolute poverty was a thing of the past in the Western world.
This was a structure that both the Right and the Left had bought into, since at a macro level it offered something to everyone. It is this consensus now that has fallen apart, driven by the competing pressures of globalisation, technological innovations and governments facing an unprecedented fiscal squeeze. While capital is liquid and easily flows to its next best use, labour does not. It is geographically constrained, takes months if not years to reorient its skills and, often, is too old to learn new tricks. The hammer blow fell on labour in three successive stages:
As trade became more global, capital chased efficiencies and it was no longer optimal for business to employ labour in high-cost countries when the same work could be performed at a fraction of the cost overseas.
Technological advancements drove productivity levels to an all-time high, resulting in less time and less labour being required for the same tasks.
Post 2000 and the great recession of 2008, governments realised there was only so much their budgets could afford. Western societies are ageing and as the share of the population that requires to be paid benefits grows, governments are increasingly facing large budget deficits. Spending needs to be cut and the easiest avenue is to exercise austerity in social benefits. Programmes such as strengthening community colleges and retraining of workers are expendable since the benefits are not immediate and the policy hard to explain.
The only thing that now carries appeal is hyper-nationalism from the Right or the populist promises of the Left. Between these two poles lies a graveyard of sensible policymaking...
The first two reasons above squeezed employment in the West and gave rise to ghost industrial towns — places whose whole economy was shattered by jobs and industries moving overseas to low-cost locations. The third reason meant that there was no political consensus to address those who lost out. Across the Midwest of the US and north-east of England, people saw populations moving out, incomes falling or becoming stagnant and cities and urban centres flourishing with capital and technology. Even if you are highly skilled in this new economy, the real benefits accrue to those who control capital and get returns from it. Capital funds politics and gets a bigger hearing in the political process than the disaffected labour. Labour was left with just one asset — its massive numbers in the polling booth ... and it has used that to devastating effect.
Trump and Brexit tapped into genuine grievances, and what should worry mainstream politicians and policymakers is that these are not the exclusive complaints of the Left or the Right. What has collapsed is the Centre of policymaking. Trade is now seen as nefarious and job-stealing. Immigration, meant to tide over ageing in economies and address skills gaps (high and low), is now seen as a national security threat. Taxes are untouchable, while benefits are expendable. Voters are making choices that signal an intent to blow up a system they feel has benefited few at the expense of many. The only thing that now carries appeal is hyper-nationalism from the Right (the "take our country back" theme of Trump and Brexit) or the populist promises of the Left (the Bernie Sanders wave of free college, universal healthcare etc.). Between these two poles lies a graveyard of sensible policymaking which looks unlikely to be revisited soon.
The elites have the means to take care of themselves. The ones who get singed are those who carry the torches to burn the house down.
Nothing is permanent in politics. Personalities can be short-lived and transcendental. Trump may not last in the White House beyond the first term, but the shock to the system is not ephemeral. The global economic structure needs to address its imbalances — whether it be in the form of massive investments in worker training, taxing capital to pay for expanded social programmes, wresting the trade narrative and articulating its positives and speaking up to the benefits of immigrations and not its threats.
A new global economic order needs to be shaped, one that is driven by technology, marked by rapid movement of capital and lack of permanence in jobs — but one that is also able to recognise where the per-capita losses fall most heavily and able to address that through newer, more imaginative, safety nets. This is not a battle of the Left or the Right but one where the mainstream Centre needs to rebuild itself by clearing and forcefully capturing the narrative and the mantle of policymaking. Showing the middle finger to the elites releases anger, but seldom addresses structural faults. The elites have the means to take care of themselves. The ones who get singed are those who carry the torches to burn the house down.
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