Remaking a World on Fire

Notre Dame – a sign of the times?

It has been an eventful year for me, but the most striking moment was witnessing the fire at Notre Dame cathedral. Having run towards it, I was unprepared for the extent of the conflagration, green and orange flames bellowing out of the church as the sun blazed angrily in the background. It was a traumatic evening, where thousands of onlookers were silenced by the significance of what they saw.

At the same time, it would be wrong of me to try to draw a parallel between such an apocalyptic event and the state of our fracturing world, though that thought is at the back of my head, not least given the way in which the ‘old’ world order is increasingly vandalized by politicians, not to mention the outbreak of protests around the world.

A better parallel, as supersized cranes moved around Notre Dame this week, is that the time it will take to rebuild and remake the church, some five or more years, will also be the period of time required to put the era of globalization behind us and have the makings of the ‘next world order’.

The roadmap towards this ‘order’ will look something like this – economically the world will grapple with the ‘next recession’ which will be more severe in indebted economic sectors (China’s economy, corporate USA and some emerging countries), and will eventually culminate in some form of world debt conference. Once this is accomplished, the quest for a model of organic economic growth will begin.

Politically, I hope that we will see more independent, bottom up efforts by individuals and new groups/parties to rethink what the contract between people and those who govern for them will look like. Then in terms of geopolitics, the world will be increasingly dominated by the ways in which the three great ‘powers’ – the EU, USA and China pursue different paths on issues like the internet, democracy, human development and finance. This is a limited, big picture sketch, the rest is of course in the Levelling.

Forecasting – really more a form of ‘macrotainment’ than a science – is easier on a five year view, but given it is the end of the year, I also want to offer up a few pointers on at least two events over the next few months.

First, I expect economic and political headlines to be first driven by the unravelling of China’s credit boom – we will hear more about defaults of indebted Chinese companies and resulting pressure on its banks. Expect ‘China is Spain’ to be a headline we see a lot. The policy task for China’s leaders will be complicated by ongoing protests in Hong Kong and importantly, the result of Presidential elections in Taiwan on January 11th. My guess is that one result will be a drop in Chinese interest rates in 2020.

Second, impeachment will deepen America’s divides. With the process now started, it looks for right or wrong, that the Senate will not vote to impeach President Trump. The trial itself, especially if likes of Mick Mulvaney and John Bolton are called as witnesses, will prove a spectacle.

If we bear in mind that Bill Clinton responded to his impeachment with airstrikes on Iraq, then Trump’s emotional letter to Senators is mild by comparison. He may try other means of weaponizing impeachment – link it to the stock market (Trump has sent 21 tweets about the stock market in the last 30 days, the most since 2018), trade policy with Europe or immigration.

The immediate political implication of the Senate not impeaching the President is that the Democrats lose their ‘silver bullet’ against Trump, and with it the sense that morality, the law and institutions are powerful buttresses against bad behavior. In turn, this will colour the Democratic Presidential selection process. The Democratic candidate will need to have a very clear policy message, an ability to scrap with Trump in the political gutter (see my October 13 blog ‘Don the Robber’, https://thelevelling.blog/2019/10/13/donthe-robber/). So far, none of the leading Democratic candidates is strong on these points (someone like Mike Duggan of Detroit could fit this bill in my view).

For Trump, and his supporters, a failed impeachment will open up the road to the acceleration of his policies on immigration, trade (EU) and on identity-based politics. Mounting, structural risks like climate damage and indebtedness will get worse. The next election will be driven by identity, race and values, and there is a very good chance that Trump could win.

So, enjoy this Christmas, there is plenty of disruption to come in 2020!

I am back in touch on January 12.

With best wishes, Mike

Demonstration contagion

Is this the beginning or end ?

In last week’s missive (link), I discussed the role of rising food prices as a trigger for public protest and I suspect, as a cause of future geopolitical strife. It is not a very happy topic but one that deserves some further analysis given that in recent weeks there has been a remarkable outbreak of protests across a range of countries – from riots in Honduras, to ongoing tension in Hong Kong to climate related demonstrations in India.

Were I one of the many apocalyptic writers who seize upon every misfortune as confirmation of their worldview I would tell you that this is the start of ‘The Levelling’, and that the ‘end’ will follow shortly.

Though I will spare my readers such a gloomy outlook, there is nonetheless a ‘Levelling’ like narrative that unites the motivation for the many international protests in the sense that most of them are provoked by factors that are associated with globalization (though in reality not usually caused by it).

For example, climate change has spurred Extinction Rebellion movements in Europe and environmental protesters in India. Factors that are associated with a lack of what I call ‘country strength’, such as corruption and weak institutions have been amongst the triggers for protests in Lebanon and Iraq, whilst the cost of living and rising fuel costs have brought people out onto the streets in Chile, Egypt, Ecuador and France. Inequality is also a driver, especially so in Chile, Mexico and Turkey.

Together these protests (by the way the number of Google searches on the world ‘protest’ is at a five year high) point to a world where there is limited patience for policy negligence and it negative socio-economic effects. I’ve had a look across the IMF and World Bank databases to find countries that are exposed to corruption, indebtedness, inequality and climate change. Many ‘candidates’ if I can put it like that are in Africa. One country worth watching – where inequality and indebtedness are high (as high as Jamaica), and where climate change is having a growing impact, is the US.  It still has strong institutions but consider what might happen in the context of a deep recession (with no fiscal buffer).

While there is no sense that the various protest movements are in anyway coordinated, they may still be contagious within and across countries.

Within countries, social media makes protests easier to organize at short notice, easier to spread (dis)information and easier to bring to the attention of the wider public. It was no surprise that in the aftermath of the Arab Spring, protestors faced massive social media and cyber counterattacks from the Egyptian and Syrian authorities.

Protests are contagious across countries to the extent that social media can heighten sensitivity to issues and spread the ‘methodology’ of either violent or peaceful protest. For example, one image that crops up in protests around the world is the clenched fist of the Serbian peaceful protest group Otpor. There is also increasing contagion in financial markets in the sense that in emerging markets at least investors are reacting negatively to signs of political strife.

The troubling thought for the outlook is that the economic stresses underlying these protests will not go away anytime soon – inequality takes time to tackle, most governments are fiscally constrained, and many have high debt levels (i.e. Lebanon). To make matters worse, climate change points towards a more radically stressed environment.

However, the positive reading from all of this, at a time when it should be said that the quality of democracy and the rule of law internationally are deteriorating (according to the latest Freedom House ‘Freedom in the World’ report and the Rule of Law indicators in the World Justice Project dataset) is that people want less corruption, more equal societies and better balanced growth.

In that context, what is to be done? There are specific actions that can help, such as the relocation of the World Bank to Africa to act as an anchor against corruption and to spread best practice in institution building.

More broadly, I see a lot of space opening up for new political parties and movements, some that are interlinked across countries and others that are connected by their political methodology (i.e. use of social media). Then, eventually I see the such protests leading to efforts to remake social and political contracts along the lines of the Levellers’ Agreement of the People’, at least in democratic countries, so that policy issues such as climate change, inequality and corruption are more formally recognized and curbed at a policy level.

It will be a bumpy road politically, but the flourishing of protests around the world shows that something profound is occurring.

Have a great week ahead,

Mike