Secrets of leadership – vision and ‘glue’

The Levelling is published on this coming Tuesday (in the US). As an author who has to sell books, I should perhaps say that differently, something like ‘Globalization is dead, the Levelling is coming’.

In the very last part of the book I wrote that I finished the final edits whilst on holiday in Corsica, and that I had noted that such was the volatile state of world affairs, that I wished nothing too dramatic would happen until the book was published lest it upset the thesis of The Levelling.

What is strange is that while the last seven months have been very volatile in terms of financial market action and economic performance, relatively little has occurred in terms of what Harold Wilson called ‘events’. The one traumatic, unexpected event I witnessed during that time was the fire in Notre Dame, while the event that has yet to happen, is Brexit.

Elsewhere, President Trump has been busy prosecuting the end of the American century and the beginnings of a multipolar world, and unbeknownst to him, the onset of the ‘Levelling’. His actions have sidelined the institutions of the 20th century, many of whom are defunct. He is squandering American soft power at a moment when it arguably most needs it – in Latin America for instance, and he is vandalizing the wiring of the global economy.

Here, when economists and commentators address the issue of the trade war, they tend to focus on high level indicators such as the impact of tariffs on growth and inflation. What will be far more telling, but not yet obvious are the disruptive changes that tariffs and tough trade rhetoric do to corporate supply chains and to investment plans. There are already signs that corporate spending across Asia and the US is dropping, and we should expect that in many cases cross border investment flows will slow.

Arguably, uncertainty for corporates might be lower were there a vision for a post trade war international economic order. None exists, not in the White House and not in bodies like the World Trade Organisation (WTO). If anything, the White House is reacting against the vision offered by the concept of the Chinese Dream or Made in China 2025.

The notion that vision is important, leads me, by a tangent to the question of leadership. There are thousands of books on the topic – from the points of view of management studies, military experts, sports people and so on. Many writers have poured forth on the secret sauce of leadership, on ingredient of which must be ‘vision’ or more aptly the ‘vision thing’ as. Ronald Reagan had it in a very broad sense, George H Bush mulled what he called ‘the vision thing’ and Bill Clinton worked hard to enunciate his vision. Theresa May had none.

The reason that leadership is on my mind is that once the dust clears on the European Parliamentary elections, the haggling over the runners and riders in the next EU executive will take place. Here the most notable change will not be the entry of any particular character, but the exit of Mario Draghi from the European Central Bank. Europe and the euro-zone will and should miss him.

It is my personal view that Draghi is perhaps the only true European leader of recent years. He has had vision – and has demonstrated another key quality of leadership – that of binding people together in difficult circumstances. At a time when the shortcomings of the euro-zone system were laid bare, and there was a risk that the entire apparatus might pull asunder, his political skills acted as a glue to hold it together.

In the style of much of the leadership literature, Mr Draghi’s leadership skills are probably transferable to other domains – he might as easily take the reins at Barcelona FC or Juventus. It may well be more fun than becoming the next Italian Prime Minister or President. For its part, the EU will have to replace the Draghi ‘glue’ with an overhaul of the machinery of the euro-zone system.

Finally, again, in contrast Theresa May had no leadership ‘glue’ with which to bind the many factions in the Tory Party together. My sense is that whomever succeeds her, will need that ‘glue’ to help colleagues accept the reality of the Brexit deal on offer from the EU, and to face into the challenge of piloting Britain’s new, lonely furrow in world affairs.

Have a great week ahead

Mike

From the Banquet at Hongmen to Hong Kong

…as I was saying…regular readers of the Sunday letter will know that I have taken a break from it in recent weeks to recast the note around my forthcoming book ‘The Levelling’, and I hope that some will be happy it is back.

For those of you who are new to my list (please let me know if I should not have you on the list, or if you have colleagues or friends who would like to join it) I will send out a letter each Sunday morning (the one time people have a chance to read something) that mixes history, politics, markets, geopolitics and economics.

Given the intersection of these factors a good place to start this week is the Banquet at Hongmen, which occurred in China in 206 BC. In an age that is in Game of Thrones overdrive the story of Hongmen will appeal to many (indeed there is already a film about it called White Vengeance (2012)). In China, the tale is short-hand for duplicity and assassination and it featured in the Chinese press last week as part of the more popular response to President Trump’s tariff increase on China.

As an anchor point, ‘Hongmen’ serves a number of purposes that of course effortlessly dovetail into the themes of The Levelling. The first is that internal politics matter – Hongmen occurred at a time when the Qin and Han dynasties were contesting power. In this regard, for all that we hear today about the 2020 Presidential election campaign, we hear equally little about political debate within the Communist Party on topics like trade and relations with the USA.

Second, the cycles of the rise and fall of nations matter a lot. China has had many such cycles and America has effectively to complete a full cycle. Some may feel that this comes across in the bravoura of America’s interaction with other countries, but we should also bear in mind the context and patience that China’s history affords its leadership.

A third related point here is that China’s long history has given it a deep culture and sense of civilization. This is lost on some. Kiron Skinner a State Department official has recently tried to cast US-China relations as a ‘Clash of Civilisations’.  This is a lazy use of Samuel Huntington’s work. A better parsing of the situation is multipolarity, where the world moves away from globalization towards a system driven by three large regions (US, EU and China) who do things in distinctly different ways.

In this context, the trade dispute is a marker of China’s rise and the belated realization of America’s elite as to how it should curb this. Tariffs are not at all the apt tool. There are better avenues. For example, America is extremely powerful financially, in terms of the usage of the dollar, depth and centrality of its markets and the power of its banks. Indeed, one could argue that the US is more hegemonic in finance than it is militarily.

Another avenue is leadership in international rules and standards. Many new fields such as artificial intelligence, genetic editing and cyber war have grown so quickly that they have bypassed international laws, philosophies and norms regarding them. One challenge for the US is to take the lead in outlining new standards and laws in these areas. Unfortunately this is something it does not appear prepared to do, especially in areas like climate change. If anything the US is ceding soft power to China.

To jump to finance, the market view of the trade dispute is that some form of resolution will be forthcoming. The drop in volatility on Friday suggested that US markets are moving from being positioned for a risky outcome, to one that is more sanguine. Other Asia centric ones like the KOSPI index South Korea and the Australian dollar will need to strengthen in order to give the all clear.

If a trade deal is struck, it will mark the beginning of a formal rivalry between the US and China, the start of more ‘nation first’ patterns in consumption and corporate investment and the end of bodies like the World Trade Organisation. There may be many more flash points.

Here, many tend to focus on great naval battles of the future in the South China Sea. In my view, one looming touchpoint is Hong Kong, where there is a fierce debate ongoing around a proposal to permit the imprisonment in China of those sentenced by courts in Hong Kong. For a city-state with a very expensive housing market, dollar currency peg and large stock market, this may be one area where geopolitics again ripples through markets.  

Have a great week ahead,

Mike