Will the political recovery be U, V or L shaped?

Collecting votes in Ireland

The term ‘paradigm shift, rather like ‘black swan’, is often misused and overemployed. However, the increasingly fractured world order is beginning to throw up more and more examples of genuine paradigm shifts, such as the result of the recent Irish election and the turmoil at the heart of German politics.

Both correspond to the broad terms of a paradigm shift – the crumbling of a long-established order, a fallow interregnum marked by disorder and questioning, followed by the making of a new way of doing things.

In the case of Ireland, the aftershock of its financial crisis has seen Fianna Fail slip from a period of multi-decade political dominance, Fine Gael’s failure to supplant Fianna Fail, the rise of many independent TD’s (members of the Dáil, the Irish parliament) and new parties, and now the sudden rise of Sinn Fein. When the dust settles, the Irish political spectrum will likely follow more traditional lines, Sinn Fein leading the left, Fine Gael to the right with Fianna Fail disintegrating towards both the left and right.

In Germany, Angela Merkel’s decision to welcome over a million refugees into Germany was her ‘poll tax’ moment, and this set in train the rupture with the stability that stretched back to Helmut Kohl. German politics is now in the disordered interregnum, where parties of the centre are trying to adjust to new issues (climate change, immigration, geopolitical shift), as those of the fringe attack the old consensus. The easy populist solution would before a centrist politician to spend some of Germany’s budget surplus, though this may not resolve the identity crisis in German politics and society.

The cases of Ireland and Germany can be added to a heap of plausible examples of paradigm shift – Brexit and Trump obviously, the role of central banks in markets and the impact of technology on our lives. As such, many people no longer push back on the idea that we live in a ‘world upside down’.

To come back to politics, US academic Larry Diamond has written of a democratic ‘recession’, and political theorists might, as economists did then years ago, debate whether the political recovery will be U, V and L shaped.

In that respect, what is of interest for politicians in Ireland, Germany and the likes of Spain, is to see how other ‘paradigm shifts’ are evolving.

In Europe, Emmanuel Macron’s playbook (perhaps I should say ‘stratégie’ or Grand Plan) has been to capture and hold the political centre, which in my view makes a great deal of sense. He has also aligned the apparatus of state, in that most institutions willingly work to his agenda (the same would not be true if say Jeremy Corbyn had become British Prime Minster). Given the economic and political tasks he is taking on in France and Europe respectively, his performance is easy to criticize, and many take advantage (as the Griveaux incident shows).

Viewed from Cork or Dublin though, he has two blindspots. One is to make the style of government more human and grass roots driven. The other is to take credit for the sharp fall in French unemployment. If unemployment in France falls below 7% by the end of this year it will have a wholly underestimated, positive effect on state finances, on ‘happiness’, human development and on the integration of immigrants. Macron should acclaim this achievement more.

One politician who would not be shy of doing so is Donald Trump, who while not consciously holding the centre, is using the prospect of rising financial wealth, a strong economy and his willingness to harry economic competitors as an inducement to Americans to tolerate ‘four more years’. Unless the Democrats can reverse the shift to the left that most of their candidates have taken, they risk being perceived to demand that middle America commits to an uncertain economic future.

This sense of the unknown was what finished Labour in the UK. However, instead of cementing his political capital at the centre of UK politics, Boris Johnson, by shedding the services of so many capable Tory MP’s and ministers (Julian Smith the former Northern Ireland Secretary was voted politician of the year by the Spectator) is drifting towards the touchline of British politics.

A person to person comparison with say the macron government, or even with the cabinets of John Major and Tony Blair, shows the new Johnson cabinet in a poor light. This makes me think that the paradigm shift in UK politics is by no means over. The centre is being deserted and there is an opportunity for Labour, or more likely in my view, a new party, to fill it.

Have a great week ahead,



Technology meets politics

About twelve years ago, I accompanied an American friend to a Democratic Party fundraising event in London. The main speaker at the event was Michelle Obama, and once she had delivered her eloquent and rousing address, I was tempted to think that the Democrats had opted for the wrong Obama.

Michele Obama might yet have her chance to run for president. There are rumours that in the wake of the technological fiasco of the Democratic primary in Iowa, and the failure of a clear Democratic leadership candidate to emerge, the Democrats may opt to choose someone with the brand recognition of Michelle Obama.

This is yet a wild-card scenario, though it does underline the meshing of politics and celebrity, and in the case of Iowa, the complications that technology is introducing to politics.

In common with many companies, a political party’s ability to use social media is now one of the defining metrics of its success (in much the same way that radio impacted politics in the 1920’s and tv did so from the 1960’s onwards).

The Arab Spring was the first event to demonstrate the power of social media in political activism. Donald Trump’s campaign team used social media to great effect in 2016, as did Dominic Cumming’s Brexit referendum campaign, from which he excluded MP’s and instead loaded up on data scientists.

Having written on the Chinese Communist Party last week (‘Humanity and Adversity’), one social media news story to keep an eye on is the reaction across China to the death of Li Wenliang, the doctor who courageously warned of the virus in late December. Sympathy for him and anger at attempts to suppress his warnings may be the making of an unexpected but powerful backlash against the CCP.  

More broadly, as social media has permeated mainstream politics, its effects have become much less unambiguously positive. In some respects they have amplified extreme views. For instance, in the European Parliament, the two groups at the respective left- and right-wing extremes have close to 12 percent of seats but over 40 percent of Twitter followers. In this way, social media is excellent for mobilizing voters, though perhaps less so in representing them.

Social media is having a more profound impact on policy making. It raises the tempo of politics such that political decisions end up being made too quickly and sometimes on Twitter.

Another issue at the intersection of politics and technology is simply ‘truth’ or fake news. I won’t rehash the debate on the verifiability of the claims of more populist politicians, but will remark that bad ideas seem to travel faster and further than good ideas (this is the fault of humans and not robots).

There is however another, positive side to the impingement of social media on democracy that I want to highlight, partly because I had not suspected it existed (through my own ignorance) and because I have lately stumbled upon it.

One of the topics in ‘The Levelling’ is the idea of a modern ‘Agreement of the People’, a template that would express what people wanted from politics in concrete terms. I had hoped, and still do, to harness social media to produce a ‘mass’ version of this. In my efforts to do this I have come across a range of projects that I can recommend readers dig into, if only to give them faith that social media can play a constructive role in politics.

The most significant project I have come across is the NYU Governance Lab (Govlab) where they pursue approaches such as ‘crowdlaw’ that captures the power of crowd thinking to improve the quality of lawmaking, or the use of social media in improving trust in public institutions, or the use of data and social media to enable city managers solve urban problems (something that will become a science of its own with the advent of 5G telecoms technology).

Another port of call is the Oxford Internet Institute, where there is a great deal of work for instance on the role of online petitioning for social and political causes, and also on the design of direct democracy apps for use in German cities. I will let readers delve into the web sites of these and other (MIT is another) institutions, as there are two further political/social media trends worth watching.

The first is the extent to which politicians either try to coopt large social media and data intensive companies, or to heavily restrict their reach, at least as politics is concerned. The move in some countries to treat social media content as if it were equivalent to newspaper content (this would make social media companies liable for the views expressed on their platforms), is part of this trend, and there will surely be more debate on the need to break up large social media/internet driven companies – at least in the West.

The other intriguing possibility is the entry of technology to politics as a political issue or cause. To date there are very few parties who have a prominent, well thought out policy on social media in the sense of how it impacts our lives.

I expect this to change and can imagine that in the future we might see political party that is driven by the role of technology in our lives, it could be called the ‘Governance Party’ – it wants to use block- chain in health-care and social welfare systems, it preaches that technology should not be feared and should be actively used by government, it believes in codes of conduct in public life, society, and business and that these can be overseen through technology,  citizenry is closely tied to electronic-based identity systems so that nearly all forms of behavior—consumption, voting, contribution to pension plans, to name a few—can be monitored and optimized.  

To many this will sound alarming, but such ideas are being embraced in countries like Estonia, Romania and China. It makes Iowa look rather tame though.

Have a great week ahead,


Humanity and Adversity

Change to come for the CCP?

Adversity for some often breeds humanity in others. It was not the case last week when US Commerce Secretary suggested that the coronavirus sweeping China would help bring manufacturing jobs back to the US, and in doing so would further reset the trade relationship between the US and China.

The virus is the first major domestic crisis that the Chinese authorities have faced since perhaps, the mini economic crisis brought on by the side-effects of the global financial crisis. As such it is a policy test, and a watershed moment in the relationship between the Chinese Communist Party and the people it governs. In this respect, China may join other large countries or regions where the social contract between the people and those who govern them is being severely stressed.

In the UK, the social contract has been left in tatters by Brexit, in the US the idea of the ‘American Dream’ is undercut by falling human development rates and stark inequality, while in Europe there is general confusion on the part of the grass-roots as to what ‘European values’ are in a tangible sense. So far, Asian countries have done better here, Japan is an example.

China’s social contract, which uncharitably could be referred to as a Leviathan one, is simply put, an exchange of liberty for prosperity. It has held over the past thirty years, largely due to the prosperity and startling physical infrastructure development that the CCP have engineered and very tight political control. To date, most policy challenges have been met with success, to the extent that a long article in the New York Times in 2019 referred to China as the ‘land that failed to fail’.

Given the tragic human cost and the consternation that the coronavirus is causing, there are reasons to think of this as a watershed of sorts for policy in China.

One is that the spread of the virus may highlight the limits of high economic growth in China. The intensive movement of people within the country, urbanization and a hyper connected transport network are economic assets, but also pose risks. In his book ‘How Nature Works’ the Danish physicist Per Bak likens socio-economic systems to piles of sand.

The sand piles can continue to build until, upon the addition of a marginal amount of sand, they collapse. Similarly, cities and nations grow until that growth produces side-effects (the health scares in the rapidly urbanizing London of the mid 19th century that gave us the engineering genius of Joseph Bazalgette, are another example).

There will be many side-effects of the virus crisis. One may be an economic stimulus program that is focused on upgrading healthcare infrastructure and health related education in China.

Another aspect is diet. One of the first thematic investment notes I put together (some ten years ago) was on the topic of ‘Feeding Asia’, or rather how diet in countries like China would come to resemble that in the West and as a result how demand for dairy products, fruit, meat would go parabolic (it did for a while).

This particular crisis may see another step change in diet in China, toward – and I am speculating – synthetic meats, a stronger tendency towards organic foods, greater demand for seafood related foodstuffs and for vitamins/food supplements generally.

Two other related areas are worth thinking about. The first is how this crisis reflects on China’s ‘Leviathan’ approach to government. Has technologically enabled central control of society allowed the authorities to prevent the spread of the virus? Or will this episode begin to sow doubts in the minds of Chinese in the government’s ability to safeguard them. Relatedly, China’s social media networks have both spread alarming scare stories, whilst at the same time served to coordinate people and facilitate remote family get-togethers over the holiday period.

Concomitantly, the crisis will serve the interests of those factions within the Communist Party who on one hand argue for greater central control of Chinese society, versus those on the other who argue that the next phase in China’s development is, like the USA in the 1930’s, to deepen its social welfare system. As such, it will deepen the numerus rivalries and factions within the Party.

Finally, more broadly, a few weeks ago (‘Peak Markets, Peak Trump’, 12 January) I wrote about markets ability to coldly appraise the financial impact of events. They are doing so again now with the coronavirus crisis, though it seems to me that markets are primarily pricing the cost of firm’s reactions to the crisis (i.e. cancelled flights, disrupted supply chains).

Economically sensitive assets – government bonds, copper, oil are all much weaker, and in particular emerging market currencies look vulnerable. I suspect that volatility will continue to spill over to stocks, at least till we are in mid February. ‘Peak Markets’ ay have been the right headline after all, I still wonder about ‘Peak Trump’.

Have a great week ahead,