Democracy’s Depression

Last week’s note (‘The Roaring ‘20s’) I invoked the possibility that maybe in 2021 the world might party with an end to the coronavirus crisis in sight, and that a range of new, positive trends may also take hold. For the time being, partying is off the cards as governments respond to the second wave in COVID with new restrictions. For instance, Ireland is unfortunately now entering a six-week lockdown.

One of the threads to have been made very clear by the crisis is the importance of civic society, competent government and the way in which different political systems have dealt with the crisis in disparate ways. In this light, an excellent piece of research by Cambridge University’s Bennett Institute for the Future of Democracy caught my eye.

Their contribution has been to build a panel of data on citizen views of democracy (which they take to be the functioning of political systems) going back to 1973. To this end they have time series data that allow them to map satisfaction (or not) with democracy across countries.

In the context of a world turned upon its head, it is not a surprise that dissatisfaction with ‘democracy (political systems)’ is at an all time high (58%), with that dissatisfaction prominent in developed countries like the US and UK. The Cambridge figures confirm the view of political scientist Larry Diamond that we are in a global political recession.

Some developed countries – notably small advanced countries like Norway, Denmark, the Netherlands and Switzerland do not suffer from this and have near record levels of satisfaction with political systems (as noted in ‘Micro-powers’, 26 September) – they however are the peak of the democratic pyramid here, accounting for only 2% of the world’s population.

Parts of Eastern Europe and Asia are also ‘happy’ with their political systems. In time it may be that political systems in larger countries need to devolve power – in France to its regions, in the UK through Scottish independence and perhaps even more to its regions as politicians such as Andy Burnham are stressing.

There is a lot to dig into beyond these results – the apparent demise of democracy hand in hand with that of globalization, the growing perception that the Anglo-Saxon countries and their political economic model are failing (i.e. inequality), and the allure of less or un-democratic political systems that marry social control with economic growth, notably in China.

My own ‘Levelling’ view is that the end of globalization, the diminished credibility of some political systems, falling productivity, rising indebtedness and climate damage are closely linked causes and effects (they feed off each other) of the end of an era in world affairs. Righting them will require a hugely ambitious program of investment in human development.

What is more curious is the response to disenchantment with political systems. It is easy to think that populism is the beneficiary of dissatisfaction with political systems, though the coronavirus crisis must now surely have disabused populists of the view that government is easy (dissatisfaction with politics is at an all time high in ‘populist’ countries – US, UK, Mexico and Brazil). What is surprising is that there has not been a counteraction to populism (even in the US with a crucial election in view, turnover will still fall below 60%).

One reason is supply of labour. Participating in political life is physically demanding, vexacious in terms of trial by media and often frustrating in terms of what one can achieve. My sense is that countries that want to attract new blood into politics will require less strident media, better political financing laws and more ‘decorum’ in political debate.

At the present time, this is a tough ask, and for me the key trend to watch is the evolution in the relationship of ‘big tech’ with public life, a titanic struggle that has been expertly laid out in Shoshana Zuboff’s book ‘The Age of Surveillance Capitalism’.

Better policing of social media content, more reliable internet user identity checks and improved filtering of facts should make social media richer, and a better platform for discussion. This is one policy task of a potential Biden administration, where they may well work closely with the European Commission.

Another important job will be to limit the apparent ease with which other states can financially influence political figures, and more so, curb their advance in ‘information wars’. I am not quite sure how this is to be done, and the absence of free and fair elections in countries like Russia and China makes any retaliation harder.

A final point. One development that, in the two Anglo-Saxon countries (US, UK) has surprised me in the light of record levels of dissatisfaction with political systems is the persistent of two party systems, and in particular of their parties (Republicans and Democrats, Tories and Labour). My overly rationale view of politics is that the failure of these parties to address the deep seated issues facing their countries might result in their extinction (like Pasok in Greece, Socialists and Republicans in France). Instead these hoary old vessels remain unbroken. Young aspiring politicians still see them as obvious channels to power.

In that respect, and in the light of my ‘Roaring 20’s’ thesis, the challenge is either for the Millennial generation (and younger) to seize one of these parties as a vehicle that can represent the issues they worry about (high asset prices, inequality, climate change, mental health) or to successfully establish a new party that does this. The Cambridge survey showed that 55% of Millennials (as opposed to 45% of Generation X) are dissatisfied with political systems. Let’s see if Millennials have a revolutionary spirit.

Have a great week ahead,


The Roaring 20’s

Let’s avoid Gatsby this time

The parties were bigger. The pace was faster. The shows were broader. The buildings were higher, the morals were looser and the liquor was cheaper’

This quote from F Scott Fitzgerald’s ‘Great Gatsby’ is the antithesis of the COVID stricken world, though might also describe what many now yearn for. And, despite the onset of more severe lockdowns, a new, maybe more sober, roaring 20’s could be upon us.  

We need to first get through the US presidential election. One underestimated gift a Biden victory can give is calm, a diminution in political noise that allows the contours of a post-COVID world to become clearer and that potentially helps to channel the enormous frustration and stress that billions have experienced into something positive.

When, together with Barack Obama, Joe Biden left the White House just less than four years ago, globalization was alive but ebbing, democracy had its integrity and America was troubled though still widely respected.

Today, these ‘pillars’ of the last thirty years are cleaven down, and the rhyme between the world of today and previous, similar periods in history (i.e. 1910’s) is deepening. The lack of collaboration between governments during the coronavirus crisis is a particular cause for concern here.

We should not however lose sight of the fact that this great trial of humanity has also given cause for optimism and that it will have exciting consequences, not unlike the ‘roaring 1920’s’. Many of the innovations of the 1920’s happened in human areas – culture, media, the role of women in society. In the 2020’s the great innovations may occur in ethics, values based policy making, mental health and finance – all areas to have been stress tested by the coronavirus crisis.

For example, the health sector is ripe for a revolution in at least three respects. Economically, it is enormous – for example health spending accounts for 18% of US GDP. Yet, the coronavirus crisis has uncovered a wide variance in the quality of health care systems, though a resulting universally held admiration for health workers. In 2021, governments – aided perhaps by the OECD – should perform a post mortem on the policy aspects of the coronavirus crisis and the lessons to be learnt, especially for health.

One outcome is that the delivery of health care can be changed in radical ways. Another lesson that may become manifest in 2021 is the importance of mental health, and the need to uncover the links between stress, life cycle events such as retirement and conditions like heart disease and incorporate this better into health practice. Health may be further revolutionized by virtue of having attracted the attention of capital markets during the crisis, and it may well be that we see the reemergence of a biotech bubble, and that health care stocks edge out IT companies in quality growth portfolios.

The intersection of healthcare, technology and finance shows how fields are increasingly overlapping. One such overlap is the novel encroachment of values into policy making. The EU is an example – during the period of globalization it was a creature of economics and geography (it added 14 new members since 2004, most of whom are in Eastern Europe).

Now Europe is slowly and so far unconvincingly embarking on a values based approach whereby aid to the likes of Hungary is tied to that country’s respect for values such as democracy, the rule of law and the role of the LGBTQ community in society. In time, a values based approach to politics will give the EU more coherence and the focus to become a leader in environmentally friendly technologies.

Another way values based policy making can be expressed is through taxation, where initiatives on corporation and digital taxes suggest a tax revolution is building. Part of this might incorporate an approach to tax workers according to the social contribution of their role, reflecting one of the lessons of the coronavirus crisis.  In that way the taxation system may adapt to a changing age.

Similarly, we may find that ethics, philosophy and new laws need to spring up to marshal the impact of social media on politics, of genetic editing on society and to better police ‘total’ forms of conflict between nations.

One presumption of a ‘roaring 2020’s’ outlook is that all of the change takes place in Berlin, New York and Shanghai. This time it might be different. The countries with greatest potential in terms of large, growing populations and scope to build economies and societies are the likes of Indonesia, Ethiopia, Nigeria and Brazil.

The challenges they face – sustaining economic productivity, designing urbanization and building household wealth are well known, and the best way to face them is to focus policy around human development. The decisive factor for governments in these countries is the extent to which they create societies that like Europe are free or that like China, are controlled.

Back to F Scott Fitzgerald. The Great Gatsby ends badly, with the American Dream and Gatsby himself tarnished. It may well be that near record indebtedness and climate damage might do the same for the 2020’s, but the great surprise may be that longevity, political entrepreneurship and the blossoming of large emerging societies are what end up distinguishing the 2020’s.

Have a great week ahead,


In the LongRun

Tylers are still going

The Long Run

Two weeks ago, Lyon Tyler Jr. passed away in Tennessee, aged 95. He is survived by his brother Harrison, aged 92. The two Tyler brothers are remarkable because they are the grandsons of John Tyler, US President from 1841-1845. When President Tyler was 63 (in 1853) he conceived Lyon Tyler, the fourth son of his fifteen children. Then, in 1925, Lyon at the relatively ripe age of 72, fathered Lyon Tyler Jr, and then Harrison Tyler in 1928.

President Tyler is generally seen as occupying a low rank in the league table of great Presidents. His Presidency was not a success – his nickname was ‘His Accidency’. He took over the role in 1841 when President William Harrison died, only 31 days into the start of his term (Tyler was his Vice President).

Given then that Tyler’s Presidency is synonymous with Presidential ill health and poor stewardship, and of course longevity, his example echoes today in the light of the US Presidential election. It also serves to show how relatively young America is and we might also draw the conclusion that one firm trend through the lives of the two generations of Tylers above, the USA has generally seen steady upward progress, something that may now be running out of steam.

At this stage – and granted we have already had a couple of October surprises – it looks highly likely that Joe Biden will be President. In a recent note (July 18,, I have predicted that his Presidency will be a ‘restorative’ one – re-establishing order in government and allowing capable people back in control of the likes of the State Department. It is however doubtful that a Biden Presidency will automatically reset the damage done by President Trump, notably in relations with Europe, though Russia will come under much greater pressure.

In other parts of the world, the reality on the ground has changed. For instance, Turkey is emboldened, nurturing a growing arms manufacturing sector and replacing its former foreign policy maxim of ‘no trouble with neighbours’ with ‘trouble in the neighbourhood’. More importantly, China has grown its navy and has become manifestly more belligerent with its neighbours, especially those that like Australia and India are democracies.

In the eyes of Europeans and surely many Americans, the risk is that Biden merely slows the forces acting to pull America apart (Trump accelerated them) and that in four year’s time, they manifest themselves – in speculatively, a more extreme election contest between a hard right Republican ticket of Tom Cotton and Josh Hawley, versus an Elizabeth Warren/AOC (Alexandria Ocasio Cortez) ticket.

For now, the best that Biden can give the world is calm. A sense that we will no longer be disturbed by tweets, that violent extremists will no longer be egged on from the White House, that diplomatic relations will no longer be torn asunder on a whim and that greed and corruption will no longer be rewarded.

More broadly, Biden’s potential role, and I feel I am exaggerating a bit here, is as a Gandalf type President, who can take the new, younger generation (people in their 60’s?) to the start of a new path. If his presidency is to be remembered as one that will have a long run appeal, he can perhaps do at least three things.

The first is to delve beyond the idea of a ‘Green New Deal’ and craft a long-term policy program that targets a sustained improvement in human development (healthcare, education and civil society). A ‘New American’ rather than ‘new deal’ program may well touch a chord with the lives and problems of Americans and would help reverse the deterioration in human development that has been witnessed across the US in recent years and that clearly, has produced political dislocation.

A second theme might be to launch a strategic competition with China (and Europe) on reversing climate damage and investing in transformative environmental technologies. Framing the race to repair the climate vis a vis China (whose commitment to be carbon neutral by 2060 has perhaps not got enough attention) will help build momentum and coherence to the US’s commitment on climate change.

A third way in which a Biden presidency can have a long lasting impact is to reclaim its geo-political hinterland. For many years now, Latin America has been the ‘Forgotten Relationship’ in terms of the relative lack of attention that American politicians and policy makers have paid to Latin America. Washington needs to refresh its engagement and relationship with Latin America, from an economic, security and political point of view. The region is crucial in terms of food security, demographics, and the encroachment of China’s Belt and Road strategy and deserves greater policy energy from the next occupant of the White House.

Given expectations that a Biden presidency might only be an ‘interregnum’ the challenge to him is to sow the seeds of policies and structures that will carry America through the next fifty years.

Have a great week ahead


God’s Work?

A little misunderstanding

One of the more interesting events of the past week was the sacking of Cardinal Giovanni Becciu, who amongst other duties was responsible for the Vatican’s ‘sainthoods and beatification department’. He was, as a circuit court judge might put it ‘no saint himself’, and despite his pleadings of innocence that it was all ‘a misunderstanding’, his involvement in a number of dubious property transactions was enough to end his career.

This is not the first financial scandal in the Vatican to put it mildly, and in general the relationship between finance and religion is usually not a close one (relatedly German academics have found an inverse relationship between trustworthiness and willingness to work in the financial services industry).

Apart from the pronouncement by the former chief executive of Goldman Sachs that the bank was doing ‘God’s work’ there are few people who think religion and finance go hand in hand. One exception was Sir John Templeton, whom I had the honour to meet a number of times.

However, the idea that finance can do good, and shape the world in a progressive way has gained some credence with the rise of ESG (Environmental, Social and Governance) investing. Together with the fast growing ETF (Exchange Traded Fund) industry, ESG is now one of the hottest areas in investment management (ESG ETF’s are therefore very hot).

The premise of ESG investing is to better direct capital away from ‘sinning’ companies (e.g. tobacco companies, miners, weapons manufacturers) and towards those who behave in a socially responsible way. In practice, investors use ESG ratings to score companies according to their ESG contribution, and in most cases avoid companies with poor ratings. In reality however, this does not work that well.

First, ‘sin’ companies tend to have a very good performance track record. The work of academics Elroy Dimson, Paul Marsh and Mike Staunton shows that the tobacco and alcohol stocks are amongst the very best performers over the past one hundred years. Secondly, many companies are adapting to ESG ratings and in some cases, can appear superficially ‘ESG’ friendly whilst their underlying instincts do not change much.

Thirdly, the age of QE (quantitative easing) has lowered the cost of capital for companies, so that in a market climate of plentiful liquidity, there is arguably less of a penalizing effect from ESG active investors. Facebook for example, does not have a good ESG rating, but as a mega sized social media company with high expected earnings growth, it is in the ‘fashionable’ part of the stock market.

So, if finance is to steer capital in the right or ‘good’ direction, ESG as an investment style needs to acquire ‘teeth’ or real impact. There are several emerging avenues here.

One relatively strict approach is to forgo the prospect of decent returns on ‘sin’ stocks and restrict the universe of stocks in a portfolio according to certain criteria. Islamic Sharia based portfolios do this, as do portfolios owned by various branches (i.e. Germany) of the Catholic Church. Practically these portfolios would exclude stocks in sectors like weapons, mining, alcohol etc.

Another approach that is slowly on the rise is ESG activism, where an activist fund will take a position in the security of a company with the aim of campaigning to make its business better in terms of governance, less environmentally unfriendly and more socially responsible. If and where these activists are sincere about improving corporate behaviour, there is scope to find mechanisms where passive investors can pledge the voting rights of shares they hold to be voted in an ‘ESG friendly manner’, especially in areas like executive compensation.  

A third more telling reform, would be for central banks to adopt a very strict ESG approach to their asset purchases, in the manner of the ‘Quid Pro Quo’ this note had discussed in March (

In the light of the finding by the US Select Subcommittee on the Coronavirus Crisis found that that ‘383 companies whose bonds were bought by the Fed paid dividends to their shareholders, including 95 that also conducted layoffs, and 227 companies had been accused of illegal conduct sometime in the past three years’, central banks in general and the Fed in particular have room to make a significant impact on corporate social responsibility by only buying assets of firms who have credible ESG credentials.

If they were to do so, and technically there is no reason why not if they follow clear data based ESG frameworks, it would be a corporate game changer. In reality many regulators are well behind the curve here, if the behavior of BaFin (German financial regulator) in the face of egregious corporate governance breaches at Wirecard is anything to go by.

So, there is an enormous public policy opportunity, which is to make finance more values based. There are already echoes of this in the debate amongst EU countries to tie aid to member states to their adherence to its values (notably in the case of Hungary and Poland). If such a trend does materialize, then it will be one of the positive changes in the post globalized world order.

Have a great week ahead,