Un Prospectiv

January 21, 2014

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Failing elites threaten our future
MARTIN WOLF

Leaders richly rewarded for mediocrity cannot be relied upon when things go wrong In 2014, Europeans commmorate the 100th anniversary of the start of the first world war. This calamity launched three decades of savagery and stupidity, destroying most of what was good in the European civilisation of the beginning of the 20th century. In the end, as Churchill foretold in June 1940, “the New World, with all its power and might”, had to step “forth to the rescue and the liberation of the old”.

The failures of Europe’s political, economic and intellectual elites created the disaster that befell their peoples between 1914 and 1945. It was their ignorance and prejudices that allowed catastrophe: false ideas and bad values were at work. These included the atavistic belief, not just that empires were magnificent and profitable, but that war was glorious and controllable. It was as if a will to collective suicide seized the leaders of great nations.

Complex societies rely on their elites to get things, if not right, at least not grotesquely wrong. When elites fail, the political order is likely to collapse, as happened to the defeated powers after first world war. The Russian, German and Austrian empires vanished, bequeathing weak successors succeeded by despotism. The first world war also destroyed the foundations of the 19th century economy: free trade and the gold standard. Attempts to restore it produced more elite failures, this time of Americans as much as Europeans. The Great Depression did much to create the political conditions for the second world war. The cold war, a conflict of democracies with a dictatorship sired by the first world war, followed.

The dire results of elite failures are not surprising. An implicit deal exists between elites and the people: the former obtain the privileges and perquisites of power and property; the latter, in return, obtain security and, in modern times, a measure of prosperity. If elites fail, they risk being replaced. The replacement of failed economic, bureaucratic and intellectual elites is always fraught. But, in a democracy, replacement of political elites at least is swift and clean. In a despotism, it will usually be slow and almost always bloody.

This is not just history. It remains true today. If one looks for direct lessons from the first world war for our world, we see them not in contemporary Europe but in the Middle East, on the borders of India and Pakistan and in the vexed relationships between a rising China and its neighbours. The possibilities of lethal miscalculation exist in all these cases, though the ideologies of militarism and imperialism are, happily, far less prevalent than a century ago. Today, powerful states accept the idea that peace is more conducive to prosperity than the illusory spoils of war. Yet this does not, alas, mean the west is immune to elite failures. On the contrary, it is living with them. But its failures are of mismanaged peace, not war.

Here are three visible failures.

First, the economic, financial, intellectual and political elites mostly misunderstood the consequences of headlong financial liberalisation. Lulled by fantasies of self-stabilising financial markets, they not only permitted but encouraged a huge and, for the financial sector, profitable bet on the expansion of debt. The policy making elite failed to appreciate the incentives at work and, above all, the risks of a systemic breakdown. When it came, the fruits of that breakdown were disastrous on several dimensions: economies collapsed; unemployment jumped; and public debt exploded. The policy making elite was discredited by its failure to prevent disaster. The financial elite was discredited by needing to be rescued. The political elite was discredited by willingness to finance the rescue. The intellectual elite — the economists — was discredited by its failure to anticipate a crisis or agree on what to do after it had struck. The rescue was necessary. But the belief that the powerful sacrificed taxpayers to the interests of the guilty is correct.

Second, in the past three decades we have seen the emergence of a globalised economic and financial elite. Its members have become ever more detached from the countries that produced them. In the process, the glue that binds any democracy — the notion of citizenship — has weakened. The narrow distribution of the gains of economic growth greatly enhances this development. This, then, is ever more a plutocracy. A degree of plutocracy is inevitable in democracies built, as they must be, on market economies. But it is always a matter of degree. If the mass of the people view their economic elite as richly rewarded for mediocre performance and interested only in themselves, yet expecting rescue when things go badly, the bonds snap. We may be just at the beginning of this long-term decay.

Third, in creating the euro, the Europeans took their project beyond the practical into something far more important to people: the fate of their money. Nothing was more likely than frictions among Europeans over how their money was beingmanaged or mismanaged. The probably inevitable financial crisis has now spawned a host of still unresolved difficulties. The economic difficulties of crisis-hit economies are evident: huge recessions, extraordinarily high unemployment, mass emigration and heavy debt overhangs. This is all well known. Yet it is the constitutional disorder of the eurozone that is least emphasised. Within the eurozone, power is now concentrated in the hands of the governments of the creditor countries, principally Germany, and a trio of unelected bureaucracies – the European Commission, the European Central Bank and the International Monetary Fund. The peoples of adversely affected countries have no influence upon them. The politicians who are accountable to them are powerless. This divorce between accountability and power strikes at the heart of any notion of democratic governance. The eurozone crisis is not just economic. It is also constitutional.

None of these failures matches in any way the follies of 1914. But they are big enough to cause doubts about our elites. The result is the birth of angry populism throughout the west, mostly the xenophobic populism of the right. The characteristic of rightwing populists is that they kick down. If elites continue to fail, we will go on watching the rise of angry populists. The elites need to do better. If they do not, rage may overwhelm us all.

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Acest articol a fost publicat in Financial Times din 15 ianuarie, 2014. Autorul este: "Martin Wolf, CBE is a British journalist, widely considered to be one of the world's most influential writers on economics. He is the associate editor and chief economics commentator at the Financial Times."

Martin Wolf - Wikipedia, the free encyclopedia

Martin Wolf, CBE (born 1946) is a Britishjournalist, widely considered to be one of the world's most influential writers on economics. He is the associate editor and chief economics commentator at the...

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  Un Prospectiv .
  One of the most important issues facing the world is the growing vulnerability of political elites. This problem makes effective public and private leadership much more difficult, which is why the World Economic Forum’s Global Agenda Council on Geopolitical Risk has selected it as a focus for 2014. 
  
  As the dust of the global financial crisis finally settles, it might appear that things have begun to normalize. The United States is finding its economic footing with a return to modest growth. The eurozone has put existential threats behind it. Emerging markets such as Brazil, China, India, Turkey and others continue to rise, although at a slower pace.
  
  At the same time, however, political elites face formidable new challenges as citizens use new tools to make new demands, coordinate protest, and pool their collective power. Governments of all kinds are scrambling for short-term solutions to help them through to the next business cycle, the next election, the next political transition. The result is a global crisis of legitimacy.
  
  In the United States, gerrymandered congressional districts and interest groups with an increasingly narrow set of economic and ideological interests have driven intense partisanship. A growing number of Americans tell pollsters that too many of their elected leaders do not represent their interests or their values. In Europe, many citizens complain that crucial policy decisions are made by unaccountable officials who govern from beyond national borders. In emerging-market democracies such as Brazil, India, South Africa, and Turkey, leaders face expanding and restive middle classes even as slowing growth constrains their ability to spend their way out of political trouble. In authoritarian states such as China and Russia, demonstrations over economic and environmental issues, or the corruption and incompetence of local officials, risk spilling over into broader outpourings of dissatisfaction.
  
  The leaders of all these states suffer from a “deficit of legitimacy.” Those who would pull their countries toward recovery or through the next delicate stages of development find themselves with a shortage of good options. The problem is not limited to political leaders; corporate decision-makers face their own sets of risks as the companies they head face new scrutiny from both consumers empowered by new communications tools and from increasingly embattled political officials.
  
  The first point of pressure, particularly for political leaders of emerging-market countries, is the rise of increasingly demanding middle classes. Growth has slowed for most of these countries, and policymakers now face the dangerous combination of more modest economic prospects, rising public expectation for higher standards of living, and tougher economic tradeoffs than they have faced in many years. Volatile protests in 2013 in Turkey and Brazil were triggered by local events -- an aggressive police response to demonstrations against a plan to cut down a grove of sycamore trees in central Istanbul and a nine-cent fare increase for public bus service in São Paulo -- but they ignited a broader response from citizens who feel entitled to a more accountable government and higher-quality public services. In both cases, a noteworthy number of the protesters were members of their countries’ newly expanded middle classes. It is also clear that the increasingly broad availability of modern communications tools makes it easier for frustrated citizens to share their anger and organize protests. To manage that vulnerability, some political leaders will try to divert public fury toward other targets. 
  
  Leaders in developed states, meanwhile, are also finding themselves under pressure from nonstate actors with the tools to enforce a greater degree of transparency than the political leaders themselves might like. Leaks by Edward Snowden, the former National Security Agency contractor, have badly undermined U.S. credibility with many of its allies. The transparency organization WikiLeaks closed the year by leaking negotiated draft text of the Trans-Pacific Partnership, an enormous trade deal involving a dozen Pacific Rim countries including the United States. Given the ease with which information is now shared, and the difficulty of plugging every leak, the number of world leaders who will face these sorts of challenges will only grow. Governments, companies, even large media organizations, are ill-equipped to handle the “tyranny of real time.” More than ever, knowledge is power -- and more than ever, knowledge has been democratized.
  
  This trend extends to China, which, traditionally, has had a more opaque government. China’s citizens cannot yet directly elect their country’s senior political leaders, but they have other means of exerting pressure for change and greater transparency. When a highway accident in northern China in 2012 left 36 people dead, Yang Dacai, the head of the Shaanxi Provincial Bureau of Work Safety, was the first to arrive to survey the damage. An image of him smiling at the scene of the accident went viral.
  
  China’s so-called human-flesh search engine, a collection of Chinese Internet users dedicated to embarrassing corrupt or incompetent officials, then found and began to disseminate photos of Yang attending public functions wearing a variety of expensive wrist watches that were well beyond the financial means of a provincial safety official. Yang was dubbed “Brother Watch,” and, in September 2013, was sentenced to 14 years in prison for graft. A half decade ago, it is unlikely that anyone outside his office would ever have heard his name.
  
  In short, political leaders around the world now face extraordinary pressures that will both increase their accountability and limit their room to maneuver. In addition, coordination among political leaders of different countries is now more transparent, and therefore more challenging, than ever before. As a result, the world’s increasing problems without borders -- from climate change, financial market vulnerabilities, and cyber-risks to global terrorism, weapons proliferation, and traditional competition for power -- are less likely than ever to be successfully resolved.
  
  La povestea asta asa adauga si scaderea legitimitatii elitelor din democratii odata cu renuntarea acestora la contractul social. 
  
  http://www.foreignaffairs.com/.../ian.../lost-legitimacy...

  

  Lost Legitimacy | Foreign Affairs

  One of the most important issues facing the world is the growing vulnerability of political elites. This problem...

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