In a speech at West Point the NATO affairs adviser to the US President declared that Britain had ‘lost an empire and had not found a role’, he also said that ‘Britain’s attempt to play a separate power role – that is, a role apart from Europe, a role based on a ‘special relationship’ with the United States is about played out’. The President in question was Jack Kennedy, the adviser was former Secretary of State Dean Acheson and the year 1962. While it is reassuring to see that some ‘traditions’ do not change, it is surely time for Britain to move on.

That time may now be upon us.

Brexit has proven the most vexacious political project of recent time. It is, to quote Churchill (his view on Russian foreign policy) a riddle, wrapped in a mystery, inside an enigma. We have never known what Brexit really was or where it was going, and the most confused of all were its promotors. The tortuous path to a deal of sorts is now close to an end, for better or worse.

I don’t want to go into the detail of any deal that may soon materialize or whether it will hold (it will become law!) but I do want to stress that Brexit is highly significant to our age because it is both the faultline and crucible of so many issues of our time. With the year ahead upon us, it is time to take stock of these.

Brexit was the first significant fracture in the globalized world order. Britain led globalization in the 19^th century and London was arguably its epicentre in the 20^th and early 21^st centuries. That this phase of Brexit is now closing suggests that the process towards a new world order is underway (as per my TED Talk), but equally the fact that Brexit has taken so long suggest that the process towards ‘something else’ will take a long time.

There are many other fractures in the globalized world order to come and to speculate, I can think of Turkey’s exit from NATO, China’s scramble for Africa, the Emirates and India becoming a new ‘power’, the growing impact on geopolitics of climate damage, and the even deeper irrelevance of bodies like the WTO (World Trade Organisation).

Brexit has also fractured history closer to home. On hearing that the vote in the north east of England had turned for Brexit in the early hours of that fateful vote, my first thought was that the long history of the United Kingdom and Ireland had been smashed.

Scotland will most likely become independent, and the lesson of Brexit is that this process should happen in such a way that bolsters Scotland’s economy, and preserves close and open ties to England, Wales and in particular Northern Ireland. In turn, there is now much talk about a united Ireland, though if referenda on this question are to take place, then at very least this needs to be preceded by much greater interlinking infrastructure between Ireland and the North, and most importantly a Marshall style plan for Northern Ireland’s economy and society.

One of the errors in the immediate aftermath of Brexit was the failure of European leaders to grasp the import of Britain’s vote and the possibility that the factors that motivated Brexit might

ripple across Europe. The past five years saw the rise of radical politics across Europe, though this has largely been contained by the centre.

With cyber wars being waged above, below or around us, Europe is still behind the US and China in terms of what Emmanuel Macron calls ‘strategic autonomy’ (effectively the need to be self sufficient in AI, cyber capabilities, 5G and so on), but the Brexit process has shown and burnished its strengths in two respects. One is the formidable heft and expertise of European technocracy as exemplified by Michel Barnier (who surely deserves a knighthood) and more importantly by the rise of the concept of solidarity, where the EU has at nearly all times spoken with one voice on Brexit. Like the crisis management lessons learned during the euro-zone crisis, the lesson of solidarity is something that needs to be diffused across EU foreign policy.

On a somewhat related note, Brexit could have been cast as a struggle between populists and technocrats, both in the sense of the struggle between Whitehall and Westminster, and London and Brussels. It recalls Yeats’ line in ‘The Second Coming’ that ‘the best lack all conviction while the worst are full of passionate intensity’. This has been a major theme of our times – laws, science and democracy under attack from morally free wheeling populists. The failure of Donald Trump to be re-elected and the many failures of Brexit, suggest that the ‘brave’ are regaining their conviction, and that the ‘worst’ need more than intensity.

In this context, my final thought is what happens to the Brexit Dream? There is some comfort to be had in the fact that Britain is good at reinventing itself, especially it seems after wars with the French! It is likely however, that the task of filling out the template of Global Britain will fall to a new generation of politicians, and potentially activists from outside politics. It is telling that one of the most socially impactful public figures in the UK this year is the footballer Marcus Rashford whose literacy and school meals program have repaired the shortfalls in government spending. Professional politicians should take notice.

Theresa May often stated ‘Brexit means Brexit’. At first, it appears a meaningless comment, but the longer Brexit has gone on and become its own (il)logical universe, the wiser ‘Brexit means Brexit’ sounds. It is however, time to move on.  

Have a great week ahead,

Mike

Around about this time last year I was lucky to get a call from TED – as in TED Talks. It was somewhat unexpected and flattering as I enjoy watching TED Talks. The topic I was proposed to speak on was the impending end of globalization and a sense of what might possibly come after it.

Globalization ends

Little did I know at the time that globalization would be dealt a fatal blow by the coronavirus. Not only has it begun to produce severe self-limiting side effects such as indebtedness and climate damage, but trade, travel and the flow of ideas have been decisively changed in the last year. Furthermore, what is worrying is that in past international crises – most of them economic or geopolitical, there has usually, ultimately been a sense of a committee to save the world – that leaders and leading nations would come together. This time, uniquely, there has been little collaboration.

In the end, the chaos and tragedy wrought by the coronavirus meant that my Talk changed several times, but in the end the thesis that globalization is dead and is giving away to a multipolar world is still clear, in my view.

Emerging world

One element of the debate on the new world order, and what happens after COVID-19 that worries me is that we spend far too much time talking about the US, Europe and China – especially when there is a huge amount of exciting things going on in fast growing emerging economies – Nigeria, Ethiopia, Bangladesh, Indonesia, Mexico and Brazil for example. Economically and socially they are also stressed by what has happened through 2020, and in most cases do not have large, powerful central banks to cushion the financial blow.

With 2021 in mind, the question for them in the new world order is what model do they follow and what alliances do they build?Most of these countries – during the age of globalization – were used to being told what to do, by the likes of the IMF – but the age of condescension is over now.

 Age of condesension is over

The tangible opportunity in a less uniform, more values driven world is that countries have a greater choice in the path to follow. Arguably, they also face greater pressure to get it right.

 So, should Belarus and Lebanon follow Ireland’s model, that of Dubai? Does Nigeria still feel it has some shared values with the Commonwealth or is it better allying its large, growing population to China and its model…and think of one of the few female leaders in Africa Sahle-Work Zewde, President of Ethiopia, how she might inspired by Jacinda Arden and Nicola Sturgeon of Scotland’s approach and how tangibly, she might implement their approach in Ethiopia.

 It may also be that in the post globalized world, countries like Kenya, Indonesia and Egypt decide to go their own way, and build out their own value systems and economic infrastructure.

2021 challenge

In this way, the arrangements, institutions of the future won’t be crafted in Washington or Beijing, but rather by countries like Tunisia, Cambodia and Brazil swapping notes on how to curb corruption, build healthcare and education systems for exploding demographics and ensure that their voices are represented on the world stage.

 As globalization ends, and chaos seems to reign, these countries and their young populations, the scope they have to grow and shape their societies, are the future and the promise of the next world order. That’s the great challenge for 2021 and beyond!

JK Galbraith was a wise man. To anyone looking for relevant, timeless texts on economics to read over the holidays I can recommend ‘The Great Crash’ and ‘The Affluent Society’. One quote from Galbraith that sticks in my mind at this time of year is that ‘the only function of economic forecasting is to make astrology look respectable’.

To a large extent, the events and ruptures of the past few years have made forecasting redundant. Forecasting is supposed to identify incremental changes or potential turning points, but as either an art or science is not well equipped to encapsulate the ripping apart of the order of things (history is a better guide). The coronavirus crisis has stretched reference points (for GDP, policy action, market stress and tragedy).

A further complication is that forecasting the direction of economies and markets is contradictory in the sense that there is no correlation between them. The best example I can find is that on Thursday the death rate across US hospitals sadly hit 3,000 per day, whilst the Nasdaq reached an all-time high. Morally, this is increasingly problematic.

Now, into this vast analytical chasm are thrown bundles of year ahead prognostics by banks, consultancies and journalists, at I am sure huge expense. There are at least two follies here One is the expectation that end of the calendar year wipes the slate clean in terms of the trends that have driven 2020, and that the world will change in January 2021.  The other is that economic size of the forecasting body is inversely proportional to the skew of the forecast.

Large banks for example, who want to try to preserve an air of respectability and who have armies of editors, compliance officers and marketing teams to denude documents of any intellectual colour, tend to produce very safe and slick year ahead document. Note that Galbraith also said that ‘It is far, far safer to be wrong with the majority than to be right alone’. Smaller outfits, and struggling writers, often adopt the opposite approach – the radical and improbable view might succeed by generating notoriety. I am glad I am not in the forecasting game.

Looking ahead and, certainly not forecasting the next four months will be dominated by the deepening of the coronavirus crisis into and through Christmas, followed by efforts to launch vaccines and then the unleashing of pent up demand for consumption, travel and business, the noise of which will produce an uptick in inflation. From there on, the outlook is unclear.

One approach I want to emphasise is to draw together the strands of new trends and events that have occurred this year, and that have already been mentioned in this missive – such as the notion of a ‘Quid Pro Quo’ (https://thelevelling.blog/2020/03/22/quid-pro-quo/) where stimulus measures from governments and central banks are balanced by changes in economic models (this has not happened), or the Biden Restoration (https://thelevelling.blog/2020/11/29/they-speak-french/) , and the prospect of the Roaring 20’s (https://thelevelling.blog/2020/10/17/the-roaring-20s/) .

They and other forces point to a range of new themes, four of which I want to quickly highlight here.

The first is what I call ‘empire builders’. In the aftermath of the Black Death in 14^th century England, over 40% of the land changed ownership, a phenomenon that reminds us that after great economic dislocations and pandemics, the bankruptcy and asset cycle intensifies. Those with cash and access to capital (spectacularly so with SPACS (special acquisition vehicles) can build new ‘empires’ in the sense that they can put together new constellations of businesses and private asset portfolios, often cheaply.

The second theme is the rise of new financial eco-systems and assets. It is speculative to say so, but when at times 40% of US stock market trading is driven by retail investors, the real excitement in markets will centre around new, rising eco-systems – the crypto currency ecosystem, cyber security ecosystem (e.g. Palantir), the e-commerce ecosystem (e.g. PayPal) and the ESG ecosystem. As these eco-systems grow and thrive, the sectors they once inhabited such as the large banks, will continue to shrink.  

Then thirdly is what I call the Sisyphean economy. Sisyphus was a figure of Greek mythology, whose audacity was punished by the Gods through Sisyphus being condemned to push a boulder up a hill, only to have it roll down again. The (much overused) image of Sisyphus in economics is still apt in the sense that it describes the self-correcting tendencies of the many imbalances in our world such as the rivalry between the US and China, the over presence of central banks in markets and the huge load of debt in economies.

Consider for example if inflation rose, and some central banks started to debate monetary tightening – the high sensitivity of debt prices to this would produce a spike in market volatility, and potential halt in investment. This is how the financial system is supposed to work, but today it is spring loaded.

The last trend I wanted to mention, with the prospect of a post COVID ‘fresh start’ in mind, is the evolving new world order, but you will have to wait for next week for that.

Have a great week ahead,

Mike