How Britain can address the end of globalization – today’s Times

Moving on through the end of globalization

Note this oped was published in today’s Times, https://www.thetimes.co.uk/edition/business/britain-needs-to-find-its-place-in-the-era-of-post-globalisation-f20sjksvn

Most Britons have had enough of Brexit, many will think it can’t get any worse. They may be wrong. Once the Tory leadership contest is over the Brexit circus will start over again. When it does, the risk is that any forbearance the EU showed Theresa May evaporates, and that it takes a tougher line on financial services for example. This will come as little comfort to business people, workers and the Treasury.

There is a glimmer of hope however, which is that in the Dante’s inferno that is world politics, Britain is not alone. Many other countries are suffering political or even democratic recessions, and a good number of others are at the wrong end of an accelerated cycle in the rise and fall of nations. In this context, Brexit is not an event, or the event, but rather part of a global process.  

This ‘levelling’ process is the end phase of the period of globalization that has carried so much with it over the past thirty years, and the fallow period that will follow as a new ‘order’ is built up. It is no surprise that the most acute political debates today relate to aspects of globalization – wealth inequality, migration and the role of technology in our societies for instance.

Neither is it a surprise that the two countries that have delivered the most significant political shocks in recent years (Brexit and the election of Donald Trump) are those that have been in the vanguard of globalization.  

In this respect Westminster, and much of the British media, need to look up and string together the many strands of change occurring in economics, foreign policy and politics around the world. Brexit has allowed many politicians a ‘policy holiday’ in that it has permitted them to engage in parlour games while neglecting both domestic policy and what can be described as a paradigm shift in world affairs.

This paradigm shift may offer some avenues for a post-Brexit Britain, though it may well be that the next generation of politicians, rather than the current one, makes this journey. Several trends are worth flagging.

One is that globalization is ceding to a multipolar world, made up of three large regions – the US, EU and China each of whom have increasingly distinct approaches to things like technology, democracy, war, economics and politics. These ‘poles’ will increasingly do business with each other, to the detriment of twentieth century institutions like the IMF and World Trade organization. The opportunity for mid-sized nations like Britain is to first arbitrage the differences between these large regions in say law and finance, and to become more distinctive in terms of national identity.

A second trend relates to economics. The world is replete with economic imbalances like record indebtedness, very high inequality and inordinately powerful central banks. Like climate change these represent growing, though unchallenged risks in terms of the policy response. There is a potential advantage to countries who tackle these issues early rather than in the midst of a crisis. Britain should act here, and where possible lead other countries.

The other aspect of economics that is vital is the need for countries like Britain, most of Europe and increasingly the emerging world, to rediscover the ingredients of organic growth. In the last decade economic growth has become heavily financialized, and this creates obvious risks. The majority of the non-London UK economy is in bad need of a framework that will focus on increasingly Britain’s economic potential, and coherently drawing together areas like taxation, education and finance. This is the kind of response that Brexit requires.

Michael O’Sullivan is the author of The Levelling (PublicAffairs),

What Boris should say on Hong Kong

St Mary’s, Putney – site of the Putney Debates

I spent much of last week in London where in between meetings and torrential rain I managed to get down to Putney to pay homage to St Mary’s Church. Those of you who have read ‘The Levelling’ will at this stage know that the nave of St Mary’s is adorned with the following quote ‘For really I thinke that the poorest he that is in England hath a life to live as the greatest he.” It comes from Colonel Thomas Rainsborough, an officer and military hero in Oliver Cromwell’s New Model Army and a leading member of a group called the Levellers.

The Levellers were a prominent mid 17th century group who created the first popular representation of constitutional democracy in the form of their Agreements of the People. Standing in front of St Mary’s I wondered what the Levellers might think of today’s world and its bizarre goings on.

In particular two political events, or rather processes, might interest them – the election of the next Tory leader and by extension British Prime Minister, and protests in Hong Kong, both of which are watershed moments.

To start in Westminister, where Boris Johnson has taken the lead in the Tory leadership race, and with Jeremy Hunt or, my wildcard bet Rory Stewart, as the likely challenger to a Boris centric No. 10. The Levellers liked their politicians to be modest and honest as the following quote shows ‘by woefull experience found the prevalence of corrupt interests powerfully inclining most men once entrusted with authority’. In that respect they would eschew the cult of personality that has infected the Westminster circus.

The Levellers, being a practical lot, would also scratch their heads at the lack of really concrete policy proposals from the major candidates. They would also worry that the spectacle of Brexit has distracted so many in politics from the business of government and that as a result there has been a policy holiday whilst elected officials have engaged in three years of parlour games. This lack of policy leadership is now showing in infrastructure, crime and social cohesion and is an underlying risk for the UK in general.

In that respect most Britons have had enough of Brexit, many will think it can’t get any worse. They may be wrong. Once the Tory leadership contest is over the Brexit circus will start over again. When it does, the risk is that any forbearance the EU showed Theresa May evaporates, and that it takes a tougher line on financial services for example. This will come as little comfort to business people, workers and the Treasury.

One last thought on Brexit, which is that in my view Brexit is really a national crisis of identity that happens to have been channelled towards European politics. One sign of this crisis of identity is the lack of voice and diplomatic clout that Britain has with regard to the situation in Hong Kong.

I recall the television pictures of bowed head of Chris Patten at the handover ceremony in 1997, an image that perhaps said more about Britain’s place in the world than that of China (incidentally one of the interesting elements of the handover was a memorandum that Prince Charles authored on it – there are not many copies in circulation but worth a read if you can find one!).

Indeed, few of the Tory leadership candidates are willing to speak forcefully about the situation in Hong Kong at a time when many natives of the city regard the current protest as a vital test and perhaps the decisive one at that. For those in Hong Kong that I have spoken with, the culture, way of life and public life of Hong Kong are at risk of being subsumed.

From a markets point of view the reaction to protests in Hong Kong has been relatively muted and should remain so given that the extradition Bill has been delayed.  In the event that tensions rise again, the risks are high given that Hong Kong is the fifth largest stock exchange in the world, has probably the most overvalued property market and a currency peg. One might well argue that the economic and sentiment impact of Hong Kong being subsumed by China should be comparable to those of Britain leaving the EU.

Against this background, one news item to watch, beyond the US-China trade dispute, is a speech on US foreign policy (vis a vis China) by Vice President Mike Pence on June 24 at the Wilson Centre in Washington. The last such speech by Pence in October 2018 at the Hudson Institute was I felt, breath taking in its hostility to China, and there is a risk that ahead of the G20, we get a repeat of this.

As a last word, my sense at this juncture is that markets are vulnerable to a resetting of very dovish rate expectations by the Fed, to the realisation that the trade dispute between the US and China is a schism rather than a tiff, and that the earnings season sees recent macro weakness played out in profit and loss statements. Safe assets are very well bid – look at bunds and gold – risky assets are looking complacent.

Have a great week ahead

Mike