An alternative perspective

25 November 2016

Left, Right, In, Out? The New Global Dilemma

Dr Bob Swarup, Founder of Camdor Global

Left, Right, In, Out? The New Global Dilemma

“Right wing (definition): As with the left wing, half the propulsive force of a flightless bird.”

Richard Summerbell

“What’s going on in this country? Unions stand against those trends. We’ve got to somehow insulate the robust American economy from this global economy that seems to want to devour our standard of living.”

James P. Hoffa, General President of the International Brotherhood of Teamsters labour union

“The only thing worth globalising is dissent.”

Arundhati Roy. 

An economy never exists in isolation. Rather, it has political and social dimensions by virtue of the fact that its actors are humans and its stage is a society. Its development influences and is influenced by these in a constant feedback mechanism that gives us the economic cycles of growth and disruption we observe, most notably in recent times, in the cycle of globalisation and deglobalisation that we discussed in last quarter’s guest article “Deglobalisation 2.0”.

To ignore these facets as we navigate turbulent times for the global economy is akin to driving down the motorway gazing only at the satellite navigation and not ahead or around. There is movement and progress – for a while – but it all too soon comes to a sudden and unexpected jarring halt, because you ignored all those other people, traffic lights and hazards. 

Nowhere has that been clearer than in the emerging populist response to the ‘Great Financial Crisis’ of 2007-2009. Quantitative easing and monetary policy may have saved the system but the inability to understand the impact on people and the social mood, the lack of accompanying structural or political reforms, and the unequal distribution of outcomes have combined to create a wave of global discontent and a move towards once fringe parties.

To typify this as transient populist claptrap from the extreme left or right is to miss the point. This is not a battle of conventional political ideologies of left wing and right wing, sharpened by economic disaffection. This is now a battle of outward versus inward, of autarky against openness, of globalisation against nationalism. In this battle, we are no longer left or right, only in the world or out of it.

The Political Möbius Spectrum

As humans, we like shortcuts. They allow us to reduce a complex world to simpler buckets, and make decisions more quickly. Credit ratings are an example. The political spectrum is another. 

For that, we have the French Revolution to thank. Though a short-lived experiment, it produced many lasting legacies. One of the lesser known ones is that it gave the world the political notions of left wing and right wing.
The terms first appeared in its immediate aftermath to differentiate the members of the National Assembly from those who supported the revolution (and sat to the left of the president) and those who supported the king (and sat to the right). The term soon caught on. Future assemblies introduced moderates who gathered in the centre and further hair-split the groups by introducing labels such as extreme left, radical left, extreme right, centre-left and centre-right to capture where they sat both in the assembly and ideologically.

By the early twentieth century, the labels had become shorthand for political leanings across the globe. The traditional view has these as a linear continuum with communism at the left extreme end giving way to socialists, democrats, republicans and finally fascists at the extreme right.

But the distinctions are far more fluid and, much like credit ratings, they fail to capture the evolution of the underlying constituents over time. What worked for corporate bonds changed as financial institutions rose in prevalence, capital structures grew more complex, and as new structures began to slice and dice credit risk as well as cash flows. The inability to realise and allow for this was a large part of why fingers were so badly burnt in 2007.

Politics is the same and the underlying actors evolve all the time. In the nineteenth century, republican was a label attached to the left-wing. Today, they have migrated to the right. In today’s global world, ideas, technology and capital travel freely, people less so. We remain largely bound by geography, social ties and our local environment.

The continuum is not linear as much as it is circular, with opposite ends twisting and converging to form a fluid uninterrupted surface, much like a Möbius ring. In other words, the distinction between left and right becomes meaningless at some point. At their extremes, whether communism or fascism, both represent a desire for external authority and a dissatisfaction with the current direction of society. Both prioritise the state above the individual, co-opting the latter towards allegedly better outcomes for society. Both believe in benign dictatorship and often a one-party system. Outside of semantics and slogans, what is the difference?

A person may easily start off at the centre and migrate incrementally around our Möbius ring, eventually towards once extreme positions, as they respond to changing circumstances. Once outward facing, society rapidly turns inwards without its leaders even realising. Research bears this out, particularly when it comes to globalisation.

Global Erosion

Political parties respond both to voters and to external markets. The two are often in tension. For example, Italy today grapples with social dissent over a dysfunctioning economy versus securing international support to bail out its banks. While elections motivate parties to respond to public opinion, economic interdependence distracts them away from their voters and towards financial markets and external bodies.

In other words, globalisation makes political parties less sensitive to voters. If we take one measure of globalisation as cross-border economic flows and the lack of restrictive measures, then research indicates that as a country’s measure of economic globalisation increases, political parties become less responsive to public opinion. As this has iterated over the last quarter of a century, we have ended up with a political centre and economic elite that are globalist and a population that has migrated unbeknownst around the Möbius ring to become nationalist. The rise of populist parties was inevitable as they proved sensitive to socio-economic concerns at a time when mainstream parties were not. That is the nature of representative democracy.

Now the pendulum is swinging, as politicians wake up to this changed paradigm globally. The rise of UKIP and Brexit is but one example, where the Labour Party saw its base erode in the North of England as immigration and economic concerns trumped whether voters were left-leaning or right.  In response, Theresa May’s government has taken a far harder tone on Brexit that has emphasised the primacy of domestic concerns and espoused nativism over multilateralism. Workers are important; capitalism needs to do more and pay more; foreigners are ‘personae non gratae’. 

In Europe, the ideological creed of free movement and the European project is under threat from its own members, and the spectre of upcoming elections has focused politicians on their populace first. Parties such as the far-right Jobbik and the left-wing Syriza are more united in their economic policies, autarkic mentality and opposition to perceived unaccountable elites than they are different.

In the US, Donald Trump found limpet-like support (despite innumerable gaffes and rows) and eventual victory with his brand of anti-government and protectionist rhetoric. Hillary Clinton in the meantime remained plagued with a trust deficit and too late, and to no avail, moved away from globalisation (and supporting free trade agreements) towards a more redistributionist stance in response to both Trump and Bernie Sanders. Both agree the American worker needs to be protected and capitalism needs to serve society. If they differ, it is only in instrument and process. 

Today, the battle is between openness and autarky, between open societies and closed ones, between globalisation and nationalism. It is no longer a choice between traditional demarcations of left and right. The landscape is more complex. For example, countries in the developed world are trending towards autarky while cities remain global, both driven by their different experiences, as with the UK and London for example.

We need to analyse, not demonise, or else we will fail to address this and risk repeating the experience of the 1920s. Much like then, this clash threatens to define both the coming decades of economic growth and the future geographies of countries. 

Bob Swarup is the Founder of Camdor Global, an advisory firm focused on macro trends, investment strategy, risk management and regulation. He is a Fellow at the Institute of Economic Affairs and author of the critically acclaimed book ‘Money Mania’, which examines 25 centuries of financial crises.

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