The forces of darkness are weaker than they seem

The fall of the Berlin Wall in 1989 was not predicted.
Picture:Raphaël Thiémard from Belgium., CC BY-SA 2.0, via Wikimedia Commons

My last post was a bit gloomy – and indeed there is a lot to be gloomy about at the end of 2023. But you can overdo it, as amid the darkness there is hope. That hope does seem rather remote, but we must hold onto it.

What I want to reflect on today is something that I will call liberal capitalism, a system that is often referred to as liberal democracy – but I wish to emphasise that capitalism is at its heart. It is a system based on democracy, tolerance, respect for individual rights, a system of law and justice separated from political control, freedom of speech and news media, free commerce, and the private ownership of capital in a mixed economy. The system is often referred to as Western, but there is nothing inherently Western about it – and indeed Japan, South Korea and Taiwan have all found their own versions.

Liberal capitalism is under siege. The Chinese and Russian political leaderships in particular, having started an embrace of the system, are turning hostile. They point to the hypocrisy of Western governments and politicians, and resent the way that they, or we, espouse universal values and seek to undermine systems that are perceived to be corrupt or oppressive. Chinese leaders point to the chaotic ways and allegedly short-termist policies of democratic systems. Russian ones prefer to talk about the erosion of traditional values – by which they mean the advance of such things as gay rights, feminism and multiculturalism – although the Chinese leadership has similar views.

The Chinese and Russian leaderships are not alone; there is also an Islamist line of attack – though there is nothing inherently un-Islamic about liberal capitalism, once you have resolved the issue of debt and interest (where, incidentally, I have much sympathy with Islamic scholars – they have spotted a real moral problem). Iran is the leading state to push this line of thinking, as do a number of violent, and some non-violent, non-state movements. It differs from the Chinese and Russian critiques in propounding universal values, and very much seeking to interfere in the political systems of others (including those of Russia and China, as it happens). Beyond China, Russia and Iran, there are any number of states who reject critical aspects of the liberal capitalist systems, leading to criticism and worse from Western states.

And there is opposition to liberal capitalism from within liberal capitalist states. I frequently read from leftist authors that capitalism has failed, and needs to be replaced; others equate liberal capitalism with colonialism. And on the right populists say that the superstructure of democracy and the independent judiciary is simply a plot by liberal “elites” to impose their values on an unwilling majority. These populists have an admiration for the Russian system, with its espousal of traditional values, buttressed by a corrupt elite (though they aren’t explicit about the corruption, of course).

Often it seems as if the forces of opposition are winning. This partly stems from the way democracy and a free press works. Threats and danger make for more saleable publicity than optimism, which in any case reeks of complacency. Right up to the fall of the Berlin Wall you could read commentary that the USSR was winning the Cold War because Western democracies didn’t have the spine to resist. Even after the fall of the Wall, many westerners could not believe that the USSR was so rotten that it was fated to collapse under its own weight. But in 2023 there are indeed many worrying developments, and liberal capitalism seems to be on the retreat in many places. Across the world many accept Russia’s assault on Ukraine with a shrug; anti-democratic coups are becoming the norm in Africa; China’s diplomatic influence has grown immensely; populists (though not leftists) are doing well electorally in liberal capitalist systems.

But look again at the forces of darkness. What is it that they are offering? China and Russia celebrated the fall of the Western-backed regime in Afghanistan. But have they offered to replace the flow of Western aid? And as American interests come under threat in the Middle East, China and Russia are mere onlookers, their recent diplomatic advances proving to be weightless. Many states have welcomed the political neutrality of Chinese aid, but find this is linked to the use of Chinese contractors, and that Chinese creditors are less flexible than Western ones when things start to go awry. Debt forgiveness in developing countries has now become almost impossible due to Chinese obstruction. Russia extracts a heavy price for its aid, with ruling elites required to pay off the support of Russian thuggery with corrupt contracts for natural resources. Russia and Iran do not look like good places to live, though better than North Korea. China offers something a bit more appealing, but the costs are becoming increasingly apparent, as the state has to expend more and more effort in suppressing dissent, while managing a faltering economy and a shrinking workforce. And a closer examination of the Chinese system reveals striking degrees of racism, and at the fringes of its empire, such as in Inner Mongolia, Tibet and Xinjiang, it looks distinctly colonialist – not that you will hear Western leftists complaining.

Also on closer examination, ideas of political non-interference proposed by China and Russia turn out to be not quite what they seem. Russia has a very flexible idea of what the boundaries of its state actually are. The Chinese are slightly better, but not much. The idea of self-determination for the peoples of the empire’s further reaches is treasonous – even though these places were once outside its borders; the country has laid claim to the South China Sea without any internationally recognised legal basis. And there is Taiwan. Neither China nor Russia hesitates to interfere in other states’ affairs if they feel their interests can be advanced that way. Their covert operations are massive. For them it is simply enough to deny anything that is inconvenient. Western states may not be good at respecting the truth in their pronouncements; non-Western ones are much worse.

Liberal capitalism’s internal critics are no better. They are better at stoking feelings of victimhood than of offering constructive alternatives. Leftists may claim that capitalism has failed, but their alternative ideas are weak at best. On the few occasions they have been tried in practice, they have collapsed into economic weakness and political despotism, and, eventually to cronyism. The right evokes an unachievable past golden age; the closer they get to actual power, the weaker their ideas look.

Against all this the liberal capitalist system has much to offer. No other economic system has produced such serious advances in popular wellbeing, or driven back poverty so far. China’s highly impressive impressive economic achievements precisely follow its adoption of liberal capitalist policies. As it turns against those policies, its advances flag. Supporters of liberal capitalism say that you can’t cherry-pick aspects of it and expect to succeed in the long term. China has sought to contradict this by adopting the economic side of liberal capitalism, while standing against tis political one. This is at last being tested. Russia has also shown some economic success from its adoption of liberal capitalist economics, although the exploitation of natural resources has an added dimension there. It has a largely capitalist economic system, but it has institutionalised cronyism and corruption. This may prove attractive to other country’s ruling elites, such as in Victor Orban’s Hungary, but this system only works as long as there is enough meat on the carcass to go round. It does not maximise economic efficiency and is doomed to eventual decline.

Liberal capitalism does face important challenges though. Charges of hypocrisy made by its critics are often well-founded. But for these critics, or the state ones anyway, their point is that we are all hypocrites, so let us be openly cynical in the way we advance our interests; that is not a message of hope. They may complain that Western support for Israel is inconsistent with its attitude to Ukraine – but nobody else is offering more than token support to the Palestinians, who will receive more external aid from Western countries than they ever will from China, Russia or Iran – though the Gulf Arabs will hopefully contribute even more. The rationale for when Western states intervene militarily, or with military aid, and when they don’t is far from clear. The comparison of Ukraine with Palestine is a deeply flawed one; that with Iraq in 2003 is less so. The West’s universalist rhetoric is tying it in knots (non-Western liberal capitalists tend not to make this mistake). I believe this needs to be tempered with a proximity principle, which shows why Ukraine is different from Syria, say. Alas that invites many questions of definition.

There are more substantive challenges. One is economic. Liberal capitalism was once associated with high economic growth, but in the more developed countries this has come to an end. This is not a failure of the system, as some suggest, but a feature. Liberal capitalism delivers to its people what they want as revealed by their consumer and democratic choices. These choices now favour lower growth, and that is exactly what the system is delivering. The priority now is to advance wellbeing through the use of technology and scientific knowledge without this being tied to ever-increasing consumption. Liberal capitalism can do this, though its political leaders have for the most part failed to see how the game has changed. Environmental sustainability, including the need to be carbon-negative, is another, more widely recognised challenge. Migration and cultural integration is also widely recognised as an issue. In less developed countries adopting the system, law and order and the rise of gang culture is a further challenge for the restrained systems of law-enforcement associated with liberal capitalism.

But in the end people will recognise that liberal capitalism offers the only real path to achieving a better world – the sort of place in which most people want to live. Because they can’t deliver this, its opponents are weaker than they look – like the USSR in the Cold War.

A second Nakba looms for the Palestinians

As 2024 draws to a close I’m not in an optimistic mood. Britain is stuck a low-growth rut, with crumbling public services and with politicians and public unable to face up to the difficult choices needed to climb out. Western support is crumbling for Ukraine, meaning that the war will degenerate into a never-ending frozen conflict until the Putin regime collapses, and probably long after that. Necessary steps to save the world from ecological and climate catastrophe are subject to endless push-back. Western paranoia over China, compounded by China’s own victim mentality, makes things worse. And then there is the Gaza war.

My thoughts on this topic have been crystallised by two recent articles. The first was in The Economist exploring the two-state solution, suggesting that it is the only solution to the conflict, because all the others are impossible. The second was by Janan Ganesh in the Financial Times, in which he suggests that the British prime minister Rishi Sunak’s business background leaves him unprepared to deal with extremists, who don’t compromise and don’t stick to any deal they might appear to accept.

I have commented a few times on the Israel-Palestine conflict here. I have much more sympathy with the Israeli side than many. Indeed I am instinctively closer to liberal Israelis than I am to any other faction in the conflict. But I have always been troubled by the influence of Israeli extremists – to the extent that I have sometimes upset liberal Jewish supporters of Israel. These maintain that the extremists are a minority who will not dictate Israeli policy in the long term. And yet these liberals remind me of the one-nation Conservatives in Britain’s parliament (or “wets” as they are often known), who may be passionate in their defence of decency and international law, but cave in rather than press a confrontation with their party’s extremists – in the hope that they will win through on another day. The trouble with Tory wets, as Guardian columnist Polly Toynbee has said, is that they are wet (or I think it was her – I can’t find the reference). Mr Ganesh makes his point well. Tory wets are often businessmen (and women) who assume that there is always a deal to be done, and can rely on any deal being ultimately enforceable. Political extremists are playing a different game.

The Economist suggests that there are two alternatives to the two-state solution. One is the one-state solution, where the two communities co-habit with full rights in a single state; the other is apartheid and ethnic cleansing. It describes both of these as “non-starters”. They are right about the one-state solution, which has few serious sponsors anywhere. Apartheid and/or ethnic cleansing are simply dismissed as “abhorrent”. And yet this is the approach advocated by the Israeli extremists, and they are working towards it much as Brexiteers worked towards Brexit in Britain against a hostile establishment. This solution is also advocated by Palestinian extremists (“from the river to the sea, Palestine shall be free”) and their supporters on the western political left. These latter extremists have nowhere near enough power to make their wishes come true, but they do help build the conditions in which the Israeli extremists can have a prospect of success.

The Hamas-led attacks of 7 October, and the appalling atrocities they perpetrated, are an excellent example of this. Israelis are united in horror, and quickly agreed that military action was required both in vengeance, and to destroy the perpetrators to prevent future attacks. The government framed the objective of military action as the destruction of Hamas, to make it incapable of holding power in the future. All Israelis could agree on that, and so military operations started. But there the agreement ends. The world has been shocked by the level of violence and the number of civilian casualties resulting from Israeli action. The Israeli government and military have responded with a combination of denial and obfuscation, and constant reference back to the original atrocities. It is true that their tactics are less indiscriminate those used by Russian-sponsored forces in the various Middle Eastern civil wars, which specifically targeted hospitals, for example. But the level of destructive power available to them is much higher. I have followed military matters since boyhood, and I would certainly question whether such destructive tactics are militarily all that effective. It is in fact easier to defend rubble than intact buildings, where defenders suffer a constant risk of being cut off and trapped. Having said that, the Israeli military, which doesn’t seem to controlled by extremists, are leading this, and military men usually have a predilection for blowing things up. What is clear is that the political leadership is not holding them back. The soldiers don’t see it as their job to give serious thought to how to manage the civilian needs.

The result of this is not just high civilian casualties, but a wider disaster beckoning, due lack of food, water and medical faculties, to say nothing of protection from the elements. The Israeli government seem to think it is enough to let a few extra lorry-loads of aid through the controlled border. Meanwhile the Hamas fighters will simply follow their usual tactic of hiding amongst the civilian masses, wherever they might be. The logic seems to be that the population of Gaza, or a substantial proportion of it, will be forced to flee into Egypt, whether the Egyptian government likes it or not. The Israeli government is not offering an alternative Hamas-free civilian infrastructure within the territory as an alternative. What is clear to everybody is if Gazans escape to Egypt, they will not be allowed back.

Because that is what happened after the 1948 Nakba, or catastrophe, when Arab refugees fled their homes into neighbouring territories, for what they thought would be a temporary respite. This is what the Israeli extremists want, and nobody else will stop them. More liberal Israelis may not want to admit this explicitly, but they are worried about their future security. The 7th October attacks fell particularly severely on liberal Israeli families.

Israeli extremists have particular power because they form part of the current government, and the prime minister, Benjamin Netanyahu has made it his life’s mission to covertly ally with them. That’s perhaps a bit too strong – Mr Netanyahu has always undermined anything resembling a long-term solution, and simply let Israel’s control of the territory it occupies expand incrementally, and the rights of their non-Israeli inhabitants to be marginalised. But recently he has been in hoc to extremists because he needs their help to block court cases against him.

Mr Netanyahu’s political career will end eventually, and the extremist parties may be ejected from power – they have never had majority support. But the extremists are armed and very determined to advance their agenda. They are strong in settler communities in the West Bank. If a two-state solution is to be implemented, many of them will have to be forcibly removed. This could spark a civil war. But, if my understanding of the Israeli psychology is right, that is unthinkable. Ultimately the country survives through a strong sense of solidarity. Turning on each other to advance the interests of Arab inhabitants and refugees is beyond imagination. Enforcement of laws against unruly settler communities is at best half-hearted as it is because of this sense of solidarity. It is much easier to blame the Arabs for their difficulties. Especially when they behave as Hamas have done.

Perhaps I’m wrong about the second Nakba. Perhaps the Israeli government will be able to allow a stable civilian infrastructure to support Palestinians resident in the Gaza Strip. But there is no two-state solution, just as there is no one-state solution. There is either catastrophe or a never-ending semi-frozen conflict. And that adds to my depression over political affairs at the end of 2024.

The three narratives of Israel-Palestine offer no prospect of resolution

Flowers in Kibbutz Be’eri By Maqluba2023 – Phot: Own work, CC BY-SA 4.0,

I don’t make a point of listening to BBC’s The Today Podcast as I don’t need extra things to listen to. But I caught some it on the radio last night while brushing my teeth. In it Nick Robinson and Amol Rajan talked about the Gaza war – and Nick (as the BBC like to refer to him) explained how there were three incompatible narratives to the history of the Israel-Palestine troubles. It is a very good way of making sense of what is going one here, even if it offers no hope of how it might eventually resolve.

I have had a special interest in Israel since I volunteered on a kibbutz in the summer of 1979 between graduating (it was organised through the university) and starting my training as a Chartered Accountant. It was at Kibbutz Be’eri on the Gaza border. I was there for about six weeks. The kibbutz organisers soon decided that I had limited value as a worker and had me doing duties in the communal kitchen, cleaning floors, etc. – after starting off in agricultural work. Our stay included a tour of Israel organised by the kibbutz. I and one one of the other volunteers then did our own bit of tourism, based in Jerusalem, but including an organised trip to Sinai, then under Israel control. In the course of this I met a wide variety of people: our Israeli hosts, Palestinians both in Gaza and elsewhere, and American Jewish tourists. This was inevitably light on the Palestinian side of things, but a group of us volunteers did walk into Gaza one day, and all the way to the beach, before getting a taxi back. Back in 1979 the Gaza’s were quite open an friendly – they simply wanted the rest of the world to know how things were. To the kibbutzim, though, Gaza was just Other, and they feared to go over the border. Security was ever present. 44 years later Be’eri was overrun by Hamas terrorists, and over 100 people were murdered, with others, I presume, kidnapped. Things had moved on in the intervening period after my stay, but not in a good way.

The first of Mr Robinson’s three narratives is that of Israelis. The establishment of the Israeli homeland in the original land of Zion was a response to many centuries of persecution, where a pattern was repeated. After their dispersal by the Romans in the first century AD, Jewish communities became minority communities spread across the world (reaching as far as China), maintaining their faith and distinctive customs. A pattern was generally repeated: the community would try to fit with their host community, with a greater or lesser level of commercial interaction and with a generally passive approach. This would work fine for a while, but sooner or later the hosts would turn on them, expelling them or massacring them. In the 18th and 19th Century in Europe many Jews integrated with the newly liberal middle class in Europe, even taking up the Christian religion. And yet this simply provoked an even more violent backlash, culminating in the Holocaust. Even outside the Nazi empire, prejudice was rife. In Britain, France and America Jews were still Other. Many were appalled at Nazi policy towards Jews, but in a rather detached sense and they lifted hardly a finger to help. Few refugees were accepted, even as the persecution became more extreme. Zionists decided that they could only be secure in their own community, and so Zionism took off, leading eventually to the foundation of Israel.

How does this narrative deal with the Palestinians? They were a problem because they violently tried to stop the establishment of the Israeli state, leading to the war of independence in 1948. It is central to the idea of Zionism that the Jewish people be able to match violence with force, and they must not compromise on the idea of controlling their own fate. If that meant establishing their state using terrorist tactics against the British, or deleting Arab villages, then so be it. What struck me back in 1979 when visiting Yad Vashem (and also meeting those American Jews) was how much Israelis were treating non-Jews as Other. Gentiles were divided into friends of the Jews and Enemies. You cheered on your friends, and fought your enemies. Since 1948, according to this narrative, Palestinians have been given every opportunity to peacefully coexist with Israeli, but instead have used those opportunities to attack. The Hamas assault on 7 October is only the latest example of using freedoms allowed by Israeli to plot against it.

Next comes the Palestinian narrative. After the dispersal of the Jews the land of Palestine was populated by tribes that were local to the area and shared it with them. We refer to Palestinians as “Arabs” but this is a misnomer – they, or only a few of them, did not originate from Arabia. The Bible provides us with a series of names – notably Canaanites and, of course, Philistines, after whom Palestine is named. They adopted Arabic language following the Muslim invasions, and the Islamic religion, a faith which draws heavily on Jewish traditions, and has adopted Jerusalem as holy site. These peoples have a strong historical right to this land. More so, perhaps, than the Saxon and Norse English have to England. While some Jewish people living in Palestine have deep historical roots there, the influx over the last last century amounts to an alien invasion. Palestinians were violently displaced from their land in 1948, with further displacement taking place ever since. This is a historic wrong that can only be righted through active resistance. Israeli occupation and rule increasingly resembles Apartheid South Africa, with the natives forced to occupy depleted homelands with only nominal sovereignty, if that.

And third there is the Western liberal narrative. If only the Israelis and Palestinians could sit down to talk, and learn to live together peacefully, in two states, or even one! Various opportunities have been presented to do this, but repeatedly thwarted by weak leadership and the influence of hotheads.

Each of these narratives has more than an element of truth to it. The Western liberal one may look very weak, but it is the only one that looks towards a resolution.

When looking at the terrible mess, most commentators respond along the lines of “I wouldn’t start from here”. Various people are blamed for moving the parties to this wrong place, but in the end blaming people doesn’t offer any kind of solution. Each of the two principal narratives has its own strong, grinding logic. History offers no encouraging precedents. India went for partition, which led to mass murder and ethnic cleansing. The German diaspora in east Europe was likewise settled with population transfer, only thinkable after a devastating war. Yugoslavia collapsed in a vicious civil war. It is hard to see Switzerland offering much of an example to follow.

I would like to offer hope in this gloom. I won’t take sides. Israel has suffered an appalling atrocity whose scale it is hard to take on. But the Palestinians have suffered more. 

Why The Economist is wrong about the global economy

The Economist print edition was published before Hamas’s shocking attack from Gaza, and led on one its own stories. I will stick with that story today. This blog isn’t meant for instant reactions and the dust is a long way from settling. All I will say is that I was a volunteer at one of the kibbutzes (Be’eri) attacked on Saturday back in 1979 – long ago but it still adds depth to my reaction.

The Economist‘s lead is a challenge to “homeland economics” – the rejection of globalisation in developed economies, with the rise of protectionism and massive state subsidies to locate manufacturing in home country. The case is made by an extended essay (“special report”) on the world economy by Callum Williams, senior economics writer. This in turn is fronted by a leading article, Are free markets history?, which frames the issue as a challenge by politicians to the ideas of free market economics, which will lead to bad things. “Governments are jettisoning the principles that made the world rich,” it says. Having free market instincts myself, I find much to agree with in this critique. Most of the justifications offered for the increase in protectionism and extended government programmes don’t add up. But the newspaper’s writers are making three mistakes. They are taking the political narrative at face value without trying to understand the forces that shape it. They underestimate how much free markets themselves are driving the changes to the economic system. And they don’t know what they want. “The task for classical liberals is to prepare…a new consensus that adapts their ideas to a more dangerous, inter connected and fractious world.” Yes, but what on earth does that look like? It may turn out to be surprisingly close to what the world is doing now, but in slightly different clothes.

I see things differently – while at the same time using classical liberal economics as my basis. The expansion of global trade has been one of the most critical aspects of the development of the world economy since the Second World War. At first the main beneficiaries were the Western European and American economies – but this started to run out of steam in the 1960s – as the war-damaged economies of Europe recovered. Then Asia burst onto the scene, in three distinct phases – first Japan, then the “tiger economies” of South Korea, Taiwan, Hong Kong and Singapore – and finally and most dramatically with China – with India, Vietnam, Thailand, Indonesia, Malaysia and Bangladesh playing a significant role too. This last phase, from the mid 1990s up to the financial crash of 2007-09, was the most dramatic of them all and was given the monicker of “Globalisation”. The impact was dramatic – many scores of millions were lifted out of poverty; China rose to be a superpower; and living standards in the developed world (now including Japan) steadily advanced as falling prices of manufactured goods fed through. These advances had three critical ingredients: free trade, technology and comparative advantage. The weakness of The Economist‘s argument is that it concentrates on the first part of this holy trinity without appreciating the impact of the other two.

Let’s consider technology. The first critical development was the rise of manufactured consumer goods. Technological developments from the Second World War – from manufacturing technology to the use of plastics – saw a massive rise in the production of cheap goods from cars to washing-up liquid which came to occupy a dominant position in the economy. Advancing agricultural technology also led to huge agricultural surpluses in some countries. These goods are readily tradable and thus gave rise to a huge opportunity for trade. The second critical development was the advance of information technology in 1980s and onward, which allowed the development of long, global supply chains and the relocation of manufacturing and other economic activity, sometimes to the other side of the world. This again greatly expanded the scope for increased trade.

Then there is comparative advantage. This classical piece of economics has been well understood for two centuries and more. It gets taught in basic economics courses (“Economics 101”) as a wonderful illustration of the power of counterintuitive thinking. Then, after Economics 101, it quietly gets forgotten by trained economists. While its strategic impact is obvious, it is very hard to incorporate it into the mathematical and computer models that are at the heart of professional economics. That is unfortunate, because its dynamics are critical to understanding patterns of trade. It suggests that benefits from trade exist when two economies have structural differences that lead to different opportunity costs for different economic goods and services – for illustration the amount of wheat production that must be foregone by redeploying resources (typically labour) to make a car, say, or vice versa. In an undeveloped economy, like China in 1990, agricultural productivity is very low and you don’t have to forego much wheat to make a car. In America, agricultural productivity is sky-high, and the amount of wheat forgone to make that extra car is much higher, even allowing for much higher manufacturing productivity. So China is said to have a comparative advantage in car production, and America in wheat production – even if America is much more efficient at car production. So if China redeployed labour from the farms to factories and imported wheat from America to make up the shortfall, it could make more cars than the Americans would forego to redeploy labour to produce the extra wheat. Of course, that specific example is flawed: America can’t simply send workers to the countryside and expect that to raise agricultural production. But the general principle stands: export where you have comparative advantage; import where you don’t – and everybody should be better off. Exchange rates gravitate to levels that make the exchange beneficial to both sides, allowing for the differences in absolute productivity. This is one of the main reasons that exchange rates do not follow purchasing power parity.

Now the point that isn’t made in most Economics 101 courses, and fails to be fully appreciated by even trained economists, is that these gains from trade arise from differences in the structure of economies. If two national economies are identical, there will be no gain. And, in principle the more economies differ, the bigger the potential gains. Sometimes these differences arise from geography – if one country can drill oil in its jurisdiction it will certainly have a comparative advantage in oil over one that doesn’t – and production of oil will tend to drive out production of other goods (one reason why British de-industrialisation was particularly acute when North Sea oil was plentiful). But other differences are less rooted. The main difference that drove globalisation was the state of development – and in particular a vast, unproductive agricultural workforce compared in developing countries compared to a fully mechanised one in advanced ones. This did not necessarily drive agricultural trade, which is often subject to heavy protectionism, but led to low manufacturing wages, and thus an advantage in lower-tech manufacturing. But as these economies developed, starting with Japan, and moving on to China, they converged with the developed world. Manufacturing wages rose and the exchange rate of the developing nations appreciated. The gains from trade were based on much more subtle differences, and there were generally less of them. Outsourcing manufacturing from America to China is a much more nuanced economic proposition now, even without all the political baggage.

The role of technology in trade has changed too. Manufacturing technology has advanced to the point of being so productive that its role in the overall economy is much less dominant than it was. Indeed The Economist points out that one of the issues with relocating it “back home’ is that it doesn’t bring many jobs with it – it will not be recreating the good old days of plentiful mid-level jobs in the 1970s. Technology itself continues to evolve at a rapid pace, but it is far from clear that it is doing so in a way that opens opportunities for trade. It may even be doing the reverse by making it easier for economies to be self-sufficient after paying due homage to the technological giants that control so much of it. And the tech giants do not employ all that many people.

So it’s not at all surprising that the bottom is falling out of globalisation. There are just fewer opportunities to make profits. And with this tightness comes political sensitivity. It is much more likely that government policies will affect trade patterns because it takes less effort to turn the tables. And other issues such as resilience and security weigh more heavily. In particular China’s unsubtle effort to tilt economic advantage its ways in particular economic sectors, and use economic leverage to bully (countering, no doubt they would suggest, the American propensity to do the same) is drawing an understandable political reaction.

Where The Economist is right is to suggest that the new developments in structure of the world economy will yield disappointing results, especially in the developed world. The loss of gains from trade as a result of convergence adversely impacts the world economy. By and large they result from increased productivity in developing nations, who are able to offset the loss of trade gains by banking the extra productivity. The developed world can’t offset the loss in the same way. The costs of imported goods rise relative to domestic goods and this amounts to a headwind against living standards. A tailwind turns into a headwind for economic growth, to be added to other headwinds such as adverse demographic changes.

These are, funnily enough, the problems of success. Globalisation has done a huge amount to advance human development, but we’ve reached the top of the escalator (leaving aside, for now, the issue of what happens to the remaining less developed economies, in Africa for example). Much the same can be said of developments to manufacturing technology. We must look in a different direction to make future advances.

That different direction may include market economics, and surely it includes a trade in ideas – but physical trade will play a lesser role. Restoration of the environment, a better appreciation of human psychological needs, and a rethink of public services will be the critical elements. We can’t look to the recent past as our guide.

Understanding the genius of Donald Trump

Everybody is talking about him. How the New Yorker is covering THAT mugshot

It’s unwise to bet against Donald Trump. Last autumn he hit a low point when candidates he backed performed badly in the US mid-term elections. But to see how effortlessly he is leaving his Republican rivals for the presidency in his wake leaves me gasping in a sort of admiration. He does this by breaking every piece of advice and common sense that crowds my feed on LinkedIn. Any person who seeks to be effective in politics, or management, needs to understand why Mr Trump is so effective at self-promotion – even as he is so ineffective at pretty much anything else.

As I was pondering this, I read an article on “The truth behind emotional intelligence”, by FT columnist Janan Ganesh. A lot of what clogs my LinkedIn feed is promotion of emotional intelligence. Mr Ganesh complains that people are muddling emotional intelligence with niceness. In fact many nice people have little understanding of the emotional dynamics of the situations they are in and are consequently ineffective – while many nasty people are extremely good at manipulation, which is founded on strong emotional intelligence. He uses as his example Shakespeare’s villain Iago in Othello.

I agree. I first encountered the idea of emotional intelligence on a residential management course in about the year 2000. It was profoundly influential for me. Our trainers were about promoting management effectiveness, not niceness. On the one hand I found the course very reassuring. I proved extremely good at understanding emotional dynamics at work. I was a good listener. As Mr Ganesh points out, emotional intelligence requires listening, and quiet people are usually better at it than the noisy ones who trumpet their emotional understanding. And I was, and I still am, a quiet person – often painfully so. But, and my trainer was clear about this, that quietness got in the way of my effectiveness as a manager. It held me back from being as assertive as I sometimes needed to be. This summed up my professional career very well. While my quietness somewhat typecast me as being very clever in an introverted, geekish way – a large part of my effectiveness actually derived from listening skills and ability to navigate the emotional chess of office politics. But on the other hand I lacked something big and important, and that held my career back. I flourished best when I worked among a small (ish) team of people who worked well together. After we were taken over by a large multi-national bank I quickly started to fade, and took voluntary redundancy.

But what has that got to do with Donald Trump? Well the first point is that Mr Trump is pretty much everything that I am not. That assertiveness that I lacked is overwhelming in him. He is not good at empathy. And yet Mr Trump succeeds like no other politician in forging an emotional connection with his supporters. A recent poll suggested that 71% said that what Mr Trump told them was likely to be true, compared to 63% for friends and family, and just 43% for religious leaders. That, presumably, is because Mr Trump understands what they think the truth is, and feeds it back to them. Those ratings would collapse if he got up and said that, for example, warnings about carbon emissions were well-founded and that all coal mining in the US should cease. But what gives Mr Trump that understanding? Clearly listening of some sort is happening. In the past I have called this right-brained genius – building on the idea that the left side of our brain is our rationale side, and the right our intuitive side. Advocates of this idea suggest that in the West we overdo left-brain thinking, and we should be more in touch with our right brains. But the right brain has its dark side – Mr Trump is very in touch with his.

But that explanation only takes you so far. His Republican rivals listen to the same people and pick up the same messages. Mr Trump builds on his understanding in his public presentation. This is rambling and incoherent (to an extent you would not appreciate if all you heard was edited sound bites), but delivered with a sly sense of humour. This comes over as authentic – no speechwriter could deliver the the same effect – and he makes his audience feel that they are insiders. All the attacks on him, he says, are attacks on you. The more he is attacked, the more his supporters like him. He uses his recent legal troubles to boost a collective sense of victimhood – most recently in his recent use of his Georgia mugshot. He is able to channel all his audience’s frustrations with the world. It is, once again, very right-brained. Even the best paid political consultants cannot coach their clients into achieving something similar – anyway he got there first, which adds to the authenticity. And the more outrageous he is, the more newsworthy – and the more people are talking about him and only him. Meanwhile others who entered politics to achieve serious things, and spend time trying to understand the world, are most unlikely to have the right head-space for that type of behaviour.

There is an evil to Mr Trump’s evil. It is entirely about self-promotion. Naturally he thinks that the world would be a much better place with him in charge, because nobody understands the world like he does. But he is fundamentally un-serious about government and his ego undermines any attempt to implement serious policy. In power he might do some good things, but overall it would be a major step back for the world.

Will he win the presidency? His campaign is better organised and more savvy than in 2016 when he first won. He is running rings around his Republican rivals, even those who are much more capable and qualified than he is. But his challenge will be to reach out to beyond those who worship him – to those who have a better grasp of his weaknesses. That will be hard but it isn’t hopeless. Many have little faith in the Democrats, and their likely candidate, President Biden, has weaknesses of his own. If Mr Trump wins his party’s nomination he will have momentum. His odds of success are better than they should be.

What is the message for the rest of us? Understanding of the emotional side of life is critical to success, whether or not you call it emotional intelligence. But those who possess it are often less effective in other ways, because listening is demanding work and can come at the cost of assertiveness. For some people intuitive emotional connection can substitute for this. But that brings its own dangers.

A lot is staked on Ukraine’s counteroffensive

By Viewsridge – Own work, derivate of Russo-Ukraine Conflict (2014-2021).svg by Rr016Territorial control sources:Template:Russo-Ukrainian War detailed map / Template:Russo-Ukrainian War detailed relief mapISW, CC BY-SA 4.0,

I haven’t commented on the Ukraine war since January, when the world was waiting for a new Russian offensive. That has come and gone, and now all the talk is of a Ukrainian offensive. First I want to look at the shape of things on the battlefield. Then I will take a step back and consider the situation strategically, before trying to probe how this war could end.

That Russian offensive turned out to be a damp squib. It was a series of attacks mainly in Donbas, and especially around the town of Bakhmut, the strategic value of which has been much argued over. The Russians made use of “human wave” attacks – a tactic with a long Russian history, but which led to massive casualties. Ukrainian casualties were quite heavy too, especially from relentless artillery fire. I was somehow expecting something more – the whole thing bespeaks of poor quality military leadership – apparently at all levels. What captured a lot of attention was politicking between Yevgeny Prigozhin and his Wagner Group mercenaries, and the regular military. Mr Prigozhin’s troops did much of the heavy lifting around Bakhmut, using poorly-trained recruits from prisons, and he sought to make political capital out of this. Gradually the Russian effort has fizzled out, as they moved to a more defensive stance, though they still seek to complete the conquest of Bakhmut.

Which leads to the Ukrainian offensive. This is much talked about, including by Russian military commentators. Ukraine has been preparing a number of units for this task, and equipping them with advanced weapons supplied from the West. It is hard to tell what the real game is here. The Ukrainian leadership would clearly like to keep the Russians guessing as to where the blow will fall and when – but that is hard. The talk now is of whether the effort has already started, with some attacks north and south of Bakhmut. There is a game of bluff and double-bluff, and from this distance I can’t tell what is going on.

When it comes, the big question will be how tough and resilient will be the Russian troops on the receiving end. They are poorly trained and led, but their leadership is trying hard to steep them into the tough no-surrender traditions of the historic Russian military. If successful, even poorly-trained men will slow the Ukrainians down. Still, even though he Russian army is large by 21st Century standards, they have a lot of ground to cover, so they must be spread quite thinly. Another imponderable is ammunition supply. The Russian way of war is to use ammunition prolifically – and there are clear shortages. But ammunition supply is a major issue for Ukraine too. The Western powers’ ability to maintain stocks of ammunition for the weapons they are supplying is in question. Probably the reason for the regular waves of Russian missile and drone attacks is to run down Ukraine’s stocks of anti-aircraft munitions – especially since American intelligence leaks indicated that these were running low.

One area that Ukraine has been pressurising its allies on is the supply of advanced fighter aircraft like the American-made F-16 (though these aren’t top of the range weapons in the most advanced arsenals, they will out-perform the Soviet era equipment Ukraine has been using to date). The allies appear reluctant – as these aircraft require substantial logistical support, and any bases would become a natural Russian target that would be hard to move. The Economist points out that Sweden’s Viggen aircraft would be much more appropriate, as it doesn’t need big bases – but there aren’t enough of these around. A significant force of F-16s would undoubtedly give Ukraine more options, however, but they clearly cannot arrive before their offensive gets under way.

Which brings me to strategy. There is something rather curious about this war: the Russian don’t refer to it as a “Special Military Operation” for nothing: it is important to them to minimise its impact on the daily life of Russian citizens. This is a far cry from the total war idea we saw in the Second World War – but it is very much the way the Western powers have tried to conduct their wars, from Korea to Vietnam to Iraq. Ukraine is having to play along with this, and restrain their attacks on Russian territory, and even on Crimea, which is widely recognised as theirs. They have more to lose from an escalation. And so we have a paradox at the heart of the Russian strategy – the conflict is claimed to be an existential battle with the West for Russian values, and yet the Russian commitment to it is restrained. The Russians hesitate to mobilise further troops, or force their population to endure major shortages as more economic heft is devoted to the war. The Russian leadership has, in fact, been remarkably successful in insulating their public. But it limits any attempts to overwhelm Ukraine – and is ceding the initiative on the ground.

Vladimir Putin, the Russian president, apparently feels that he has long-term advantages. Ukraine is dependent on Western succour, and this cannot last indefinitely. The leading Republican presidential candidates in America, Donald Trump and Ron DeSantis, seem reluctant to maintain American commitment – and the presidential election is only next year. European commitment can be seen as a glass half-full or half-empty, like so much of what Europeans do. Meanwhile China might start to come through as an ally, providing vital logistical support. Furthermore there are questions about how the Western powers can keep the supply of munitions going in the long term – it is hard to ramp up production volumes. So the Russian strategy looks to be to weather the storm from the upcoming Ukrainian offensive, and then slowly take the initiative back, until America in particular wilts.

Will this work? It is rather of the nature of war that the leaders of each side tend to under-estimate their opponents – and both sides in this war have been guilty of that. I think Mr Putin is here. But neither should we underestimate his grip on power in Russia, and nor his ability to keep the Russian war effort going. All of which is a grim prospect.

How might things end? The signs are that Russia could settle for keeping most of their territorial gains. They are likely to choose to do this through a ceasefire, followed by a frozen conflict, of the sort already ongoing before the 2022 assault (or those in Georgia and Azerbaijan – or Korea). Of course there would be talks toward a longer term settlement, but these would get nowhere. The conflict might then be reignited later if the balance of power shifted. Ukraine’s ambiguous status would prevent it from entering NATO. This seems to be more or less the sort of resolution China wants to achieve.

It is obvious enough why the Ukrainian government wants to avoid this outcome. They would lose much territory permanently, and the threat of re-ignition of the conflict would be constant. And yet it is difficult to see that the war will end in any other way. The Russian regime cannot admit that the war is over and that they have lost. Even if Mr Putin is replaced, it is highly unlikely that any replacement will renounce his expansionist narrative. The regime is tapping into widespread popular beliefs. This means that Ukraine must retake as much territory as possible before a ceasefire is forced on them.

This would put a priority on territory south of the Dnieper river up to the Sea of Azov. This forms a land bridge between Russia and the Crimean peninsula. This is, naturally, where Russian defences appear to be thickest. As the offensive moves from advance to stalemate, the Ukrainian leadership will then come under huge pressure to settle for a ceasefire accompanied by peace talks.

Once we get to a ceasefire and move to a frozen conflict, the pace of changes slows. This can go in roughly two directions. The worst case scenario is that Russia follows North Korea, and is gripped by a totalitarian regime that is an economic failure, but where the regime’s grip is secure. The alternative is that we follow the Cold War, where the Russian leadership’s economic and other failings lead to a loss of confidence and political implosion… and ultimately a new settlement with the West. Ukraine, meanwhile, embraces the West and the European Union, and enjoys economic success as it rebuilds. Such rebuilding efforts usually surpass outside expectation – and the manner Ukraine’s military and civic success in beating off the Russians bodes well for its economic development, just as the Russian security elite’s tightening grip bodes ill for Russia’s.

But first this summer’s events will shape who controls the ground. Alas that means that there will be many thousands more deaths before we can approach some kind of resolution.

Guest post: AUKUS – more than just submarines

US Virginia class nuclear submarine.
Picture: By U.S. Navy photo by General Dynamics Electric Boat – This image was released by the United States Navy with the ID 040730-N-1234E-002 (next).

By Cllr Noel Hadjimichael

More than 100 years ago, Liberals were often the party challenging military spending, security and defence of the realm. We took Britain into the First World War in defence of an invaded Belgium and served in the 1940s Churchill Government. We got defence and voters knew it.

In the Cold War, we were champions of pluralism, liberty, decolonisation and western values. This was in opposition to USSR state centralism so loved by many current day dictators. We were, and remain, realists: radical but responsible.

This week’s announcement on a tripartite (Australian, American and British) submarine deal is not the subject of this blog. However, the framework, context and geopolitics behind the announcement is. Progressives, social democrats and liberals should take notice. 

What has made three of the Five Eyes [also including Canada and New Zealand] turn so purposefully and publicly in this direction? The answer: defence science, capacity building, capital investment and operational structures. Realigned, tweaked and reinforced for today’s threats.

It is more than just the behaviour of Russia, China or Iran. It is a breakdown of the liberal world order that has positioned Britain poorly in this post Brexit era. There is a new global security setting that was unleashed by the pandemic: rogue states undermining democracy, leading to peer to peer warfare. 

Neither the Conservatives nor Labour have a monopoly on patriotism. Serving personnel and their families (as well as veterans) are a sizeable demographic in many constituencies. Not just the South West shires, Norfolk, the Midlands or natural cities like Portsmouth. In every region of the United Kingdom, there is an increase in voter concern about our security (food, logistics, technology or military). 

The war in Ukraine has heightened our focus. But so has the poisoning in Salisbury and the cyber attacks on our critical infrastructure. 

The AUKUS framework is a long term and strategic pressure point to revisit our defence stance. We should ask ourselves: how do we protect our people, communities and institutions? 

We don’t do borders well. Just ask the Government about its frustrating failures on Ireland or the Channel. 

We don’t have the luxury of being the dominant global leader. But we still rank highly in critical capabilities: soft power, science and technology. 

Our people are universally respected for professionalism, training and creativity. They deserve our resolve to get the politics correct.

Our new aircraft carriers have effective and demonstrable reach to the western hemisphere, the Straits of Hormuz, the Asia Pacific and beyond. Our airpower is critical to NATO and the European friends and allies many of us yearn to be closer to. Our Army is still seen as having the punch needed in the field. It has also offered Ukraine best in class training. We count. We matter in this space.

Understanding the new challenges and being the adults in the room come naturally to LibDems. We think, talk and debate. 

We also often come down on the side of evidence, experts and the engaged voter. 

Conference at York this weekend will deal with the nuclear deterrent. A sensible and suitable proposal. Those serving deserve our thanks and gratitude for their commitment. We as active party members must also play our part. We should reassure millions of LibDem voters that we understand the current global landscape.

As it is. Not as we may want it to be. 

AUKUS is part of that landscape, as is an effective and continuous at sea deterrent. 

Question it, challenge it but don’t ignore it. It is the same with our Conference. A liberal Britain is worth defending.

More on this can be found on

Noel is Chair of the Defence & Security Circe of the National Liberal Club London. He is also a Liberal Democrat councillor on the London Borough of Kingston-upon-Thames

No end in sight for the war in Ukraine

Viewsridge, CC BY-SA 4.0, via Wikimedia Commons

My reviews of the war in Ukraine are becoming less frequent. Thee war just goes on. At the start I spent quite a bit of energy thinking about how it might end. And yet the prospect of an ending is receding. We must resign ourselves to several more months of death and destruction, and probably many more after that. What will happen in that time?

It is hard enough to tell what is happening now. Both sides are wary of releasing information, and it’s always for a purpose. The Institute for the Study of War (ISW), which is one of my main sources, now has extensive commentary on Russian attempts to manipulate what it calls “the information space”, both internally and in the wider world. Interesting as this may be, it reminds me of the story of the blind man looking for his keys under the street lamp: not because that is where he dropped them, but because that is where the light is. Beyond that there are formulaic reports of clashes along the three or four hotspots, which may be nothing more than aggressive patrolling, along with the endless artillery pounding. The Ukrainians are anxious to put out the story that the Russians are gearing up for a major offensive, using troops mobilised last autumn, along with, perhaps, a fresh mobilisation. The Russians seem to be dropping hints of this too, so it is probably true. Stories that Ukraine is preparing an offensive of its own come and go.

Much of the media kerfuffle in recent days has been over the supply of (relatively) advanced “main battle” tanks to Ukraine by its Western supporters. What to make of this? At the start of the war, Russia suffered desperate casualties amongst its armoured vehicles, and the idea that such things were obsolete in the age of drones and hand-portable antitank missiles Tok hold. After this came a gruelling war of artillery, and the usefulness such vehicles became more apparent. But their use seems to be a world away from the Second World War, which still shapes how many people view warfare. The Ukrainians clearly decided that they needed these tanks. Equally important, I suspect, are lighter “infantry fighting vehicles”, such as the US Bradley, which can transport troops – a cross between an tank and an armoured personnel carrier – a concept first developed by the Russians in the Cold War. These were promised to Ukraine by several countries (not including Britain, whose IFV is a bit of a failure) without much fuss before the tank row blew up. There is a lot more symbolism in the tanks, evidently. The whole episode was portrayed in the media as a show of disunity amongst the Western allies, and dithering by Germany. Well, there was certainly dithering – but such time the taken over important symbolic acts often makes them more solid. It is of the nature of alliances that they have arguments over strategy, as each participant has its own objectives. But often this helps improve the quality of decisions. It is possible to look on Germany as a foot-dragger – but it is the lynch pin of the alliance and has shown astonishing resolution, in spite of having much bigger problems thrown at it than the other allies.

Will these weapons transform Ukraine’s prospects, as the BBC seems to be reporting as fact? That is very hard to tell. A lot depends on logistics and finding the right tactics. The weapons were designed for a different type of war – but they are more capable than anything the Russians have. The Ukrainians have shown facility at both tactics and logistics, so we can expect them to make a difference. Still, transformative sounds too much.

What of the coming Russian offensive? They have refreshed their manpower, and will be able to employ large numbers, by modern standards (but not by mid-20th century standards), at the pressure point. This is likely to be in the Donbas region, where the biggest political imperative lies, as well as the easiest logistics. The Russians have learnt a lot from their earlier mishaps, and have developed much more effective tactics. Still, they face three considerable obstacles. Firstly, the Ukrainian forces are much better prepared than they have been. We’ve heard a lot about how Russia has superior numbers, but this is misleading. Russia has huge manpower potential, but Ukraine can dig deeper on its resources, and has been doing so for the last year, building up and training large forces. Second, the supply of Russian munitions is not as plentiful as it was. The Ukrainians report that Russian artillery fire has slackened recently; doubtless this is because they are conserving stocks for the offensive – but it indicates that there are limits – and artillery is central to current Russian tactics. And third, Russia lacks experienced officers and cadres to lead its freshly mobilised forces. This is usually regarded as central to the effectiveness of any army. Still, the Russians have surely thought all this through, and there may be surprises.

And the Ukrainian offensive? If the new Western supplied armour is to be part of it, it does not look as if they will be able to pre-empt the Russian one. It will have to come later, assuming that the Ukrainians have the strength left. There is some rather wild talk of seeking to recapture Crimea (for example in The Economist). Militarily this is not quite as absurd as it sounds – if Ukraine can advance south of the Dnipro River, then that would put it in a position to isolate the peninsula. Politically, it sounds like a bad idea, though. Russian claims that Crimea is somehow more historically Russian than Ukrainian is their usual nonsense. But in 2014 it had a substantial population that looked to Russia, and many anti-Russian elements (such as the Tatars) have doubtless largely left. Ukraine would acquire a grumpy province that would be hard to secure, as well as delivering a massive humiliation to Russia.

But that opens up the question of how on earth this war is supposed end. It looks as if Russia will talk about it if the annexation of Ukrainian territory is on the agenda. That would obviously include keeping Crimea, but surely also large parts of the four oblasts that they formally annexed last September and now partially occupy. That is so far inconceivable to Ukraine – the war has cost them so much that they want more to show for it. We might objectively argue that such a deal would not be so bad – Ukraine has consolidated its moral hold on the rest of its territory, and its place in the “West”, including as this expression does such countries as Finland, Poland and Bulgaria – but this is far from the psyche of the men doing the fighting, and the citizens enduring Russian bombardment. What would be decisive is the withdrawal of American support from the country. If that comes it will be seen as a huge betrayal. We will certainly have to see how the bloody events of this spring and summer play out first. I don’t think Joe Biden’s hopes of being re-elected as president in 2024 would survive such a retreat.

Could Russia’s resolve weaken? There have been plenty of examples of despots hanging on for years while their countries go to the dogs (look at Syria or Venezuela). Russia has already endured massive losses. A big test will be if the regime goes for a further wave of mobilisation, of which there is already much talk. Last autumn’s wave was clearly politically costly. Meanwhile the economy weakens, as war priorities take over, and many men are conscripted or have fled the country to avoid that fate. But economic hardship will not weaken its leader, Vladimir Putin, who sees his mission in terms of historic destiny, and who has so much personally tied up in the war. His war has failed its original objectives, but he cannot afford to admit defeat. Perhaps a coup will carry him away. But this would be done by Kremlin insiders, who are also committed to the war – there would be limits as to how much such people could concede. Mass unrest that would cause the collapse of Russia’s internal security apparatus looks vanishingly unlikely – though it is conceivable that another wave of mobilisation could provoke it.

The outlook is very gloomy indeed. The war presents as clearly as ever the main lesson of war: never start one. But there was plenty of evidence for that before this misadventure began.

The Economist advocates turning the clock back on trade

Last week’s Economist led on the dangers of changing political attitudes to world trade. The paper suggested that the rise of “zero-sum thinking” threatens capitalism, liberal democracy and the livelihoods of many. But we live in a world were the conventional wisdom of economists is being challenged – from inflation to interest rates to economic growth. The conventional wisdom on trade needs to be challenged too: not because the economics is wrong, but because the context has changed.

There are two central foundations to economists’ understanding of the benefits of trade. One is the logic of comparative advantage, one of the first insights of modern economics when it got going more than two centuries ago. What matters when resources are constrained (as they almost always are) is opportunity costs, and not absolute costs. It is more efficient for for a less productive supplier to produce goods, if the more efficient one is better able to produce other goods that are in short supply. It is one of the first things economics students are taught, and one of the most important challenges to “zero-sum thinking”, which suggests that imports are bad because they put local people out of work. Those people can be redeployed to make things things more productively in world terms, meaning that everybody can benefit.

The second foundation for the economic benefits of trade is economies of scale and the benefits of specialisation (or economies of scope). Industries may not have critical mass in their own market – but through trade they can access bigger markets, benefiting everybody. This idea can work alongside comparative advantage (the concentration of watchmakers in Switzerland presents economies of scope and scale, which in turn leads to comparative advantage, for example). That makes them easy to muddle. Economies of scale and scope do not necessarily lead to comparative advantage, and you can have comparative advantage in a particular area without economies of scale or scope. This needs to be picked through with care – which alas The Economist seldom does. Now let’s step back and look at how world trade has evolved in the last 40 years or so.

The massive explosion in global trade in the 1990s and 2000s is mainly explained by comparative advantage. The thing to understand about comparative advantage is that it is driven by differences in economic structure, which create differences in opportunity costs: it is a function of difference. China, the largest driver of this surge in global trade, was a very different place to the developed countries it traded with in 1990. A vast number of people were still employed on the land, in highly inefficient agriculture; in the developed world the agricultural workforce was nearly insignificant, while producing much more food than it could consume. By shifting workers from agriculture to manufacturing in China, a lot more manufacturing goods could be produced, with any shortfalls in agricultural production made up for by developed world production with a negligible increase in workforce. This meant that Chinese manufactured goods were dirt cheap, while its agricultural produce was expensive – a colossal opportunity for world trade, even if Chinese manufacturing productivity was much lower than in the developed world. The process worked something like this: low agricultural productivity ensured low wages; low wages meant cheap manufacturing products, even with low manufacturing productivity. The picture was a lot more complicated than this – it wasn’t actually a case of China importing grain while exporting washing machines (they imported more capital goods than food) – but comparative advantage was the driver.

That is all Economics 101. But while economists understand how comparative advantage works in principle, they are surprisingly ignorant of how it works in practice. It has improved impossible to model the dynamics of comparative advantage in a way that produces the detailed results and predictions that are most economists’ day job. So, after they have completed their undergraduate studies, few economists think much about it. If they did they would me more alive to the issue of convergence. The Chinese economy, like the Japanese and South Korean economies before it, did not stand still. Productivity shot up, especially in agriculture, and the agricultural workforce rapidly diminished, while that of manufacturing and services rose. Convergence with the developed world happened at astonishing speed, and as that happened the differences that drove comparative advantage diminished. Developed countries started to find Chinese products becoming more expensive. The incentives for long range trade between China and the rest of the world diminished. This hurt developed countries much more than it did the Chinese – as the Chinese benefited directly from increased productivity and rising wages. It is, I believe, one of the reasons for sluggish growth in the developed world since the great financial crisis of 2007-09, though it is almost never mentioned as a factor (and certainly not by The Economist), in spite of the great economist Paul Samuelson drawing attention to it.

This is where the second factor can come into play – economies of scale and scope. In Europe, for example, the leading economies converged in the late 19th and early to mid-20th centuries. Comparative advantage diminished. But, after the Second World War, trade within the continent flourished, so clearly something else was behind it. Why, for example, did Germany, France, Britain and Italy all have substantial car industries, all with a lot of cross-border trade? This shouldn’t happen under comparative advantage, unless the cars each country made were somehow very different from each other. In fact the economics of motor manufacture meant consolidation into larger and larger firms was required to be competitive. Cross-border trade gave consumers more choice, and the other benefits of competition, if their own country only had room for one or two car firms. As Europe developed its single market, economic benefits flowed – but on nothing on scale that flows between more diverse economies. There are two sorts of benefit here. The first is that the benefits of economies of scale lifting productivity; this can work in quite a similar way to comparative advantage, with some countries specialising and others happy to have cheaper products (the aero industry is a bit like this). The second derives from good old fashioned competition between businesses in different countries. This is very different, as this only works if multiple countries are making similar products. We must also bear in mind that as the gains or more limited, it requires a level playing field to work; if one country suffers a systemic disadvantage, such as high transport costs because they two oceans away, then the benefits of trade diminish. That is one reason that Europe had to develop detailed rules for free trade, while the Asian economies’ rise was based on much cruder arrangements, such as World Trade Organisation (WTO) rules.

The important thing to realise about economies of scale and scope is that they are dependent on technology and not any iron logic of economics, as is the case for comparative advantage, although you wouldn’t think it from the way many executives from large businesses talk. And technology changes with time. The late 20th Century was particularly good for economies of scale, but that is changing. And that is for two reasons. The first is the rise of technologies that diminish the costs of short production runs and individualisation (indeed the same edition of The Economist featured this in its business section – a new theory of the firm – one of the articles featured on the cover). The second is the diminishing importance of manufactured products in the economy as whole, compared to services, such as healthcare, which are largely untradeable. All this points to reduced benefits from trade, especially between big geographical blocks like America, Europe and East Asia, as opposed to within them.

Where does that leave the current debate on trade? The first point is that I don’t think the benefits of trade are diminishing because of political obstacles; I think those political obstacles are arising because the benefits of trade are diminishing. The second thing is that, for developed economies, there is no great box of goodies that can be unlocked through trade liberalisation to help flagging growth along. Doubtless there are further benefits to be had – and especially with less developed countries if done in the right way, but not on the scale that saw the economic transformation of the 1990s and 2000s.

Now let’s look at biggest specific issue bothering The Economist – the problem of US government subsidies for green industries. Europeans are worried that this will make their own industries uncompetitive. That is a legitimate worry, but if Europeans match those subsidies with their own, the damage will be limited – and, indeed, it might hasten the transition to clean technology, with the benefits that will flow from that. The Economist worries that it will lead to inefficiency and, horror, duplication. And yet duplication is a prerequisite of competition.

Still, trade remains integral to the modern way of life and deserves continued political attention. For some things, the importance of both comparative advantage and economies of scale and scope remain undiminished. Only a few countries have direct access to metals such as cobalt and lithium, which play a critical role modern industries. And serious economies of scale or scope remain in others, such as the mining of iron ore (Australia has unmatched scale economies), or the manufacture of advanced microchips (Taiwan leads in scope economies). But the key the issue is not just economic costs, it is the potential for serious dislocation if supplies are interrupted. The modern economy contains many bottlenecks. We have to balance the benefits of short term cost savings with the risks of natural disaster and conflict. Alas the solutions are likely to make manufactured products yet more expensive.

The reason for the rise of “zero-sum thinking” is that the economics of trade is moving in that direction too, though the benefits of free trade remain substantial. It is not surprising that other issues loom larger than trade freedom, such as security of supply and the need to accelerate the transition to clean energy. It is easy to understand why The Economist wants to turn the clock back to the days of easy trade gains and steady economic growth – but it does not help prepare its readers for the hard choices ahead.

The BBC’s questionable coverage of the US elections

Photo: USCapitol, Public domain, via Wikimedia Commons

The British political class is obsessed with US politics. The right wish to emulate US culture wars and attack “wokeism”. The left (rather more successfully) pick up on the Black Lives Matter movement, never mind our very different racial history. So perhaps it was inevitable that the BBC would cover the US mid-term elections so heavily. But in doing so they have posed deeper issues about the institution.

I try to resist the temptation to comment on other countries’ politics. I last commented directly on US politics in 2021, when I praised the progress being made by President Joe Biden. That quickly became a very unfashionable view, especially after the Afghanistan debacle. I still think he is underestimated – but then I thought that of Jimmy Carter when he was president – another deeply unfashionable view. But want I want to look at this time is not US politics itself, but how the BBC in particular covered it.

News coverage of the US midterm elections was extensive, and especially on the BBC – my leading source of daily news. A Danish general election came and went without comment – in a country with a close cultural affinity with England, if the not the rest of Britain – while reporting on the 10 O’clock TV News from America was almost daily.

The first striking thing abut this coverage was the BBC’s claim that these elections were hugely consequential, a view widely repeated in Britain. They explained how if the Democrats lost control over Congress, then the presidential agenda would be halted. And yet this usually happens in the US midterms, and life goes on. Mr Biden has fought hard to get as much of his legislative agenda as possible achieved before these elections; he always expected his party would lose them. BBC correspondents eventually seemed to realise that this argument wasn’t strong enough to support the trope that these were the most important midterms ever (how sick I get when this claim is made of elections, as it always is). So they said that democracy itself was at stake. The basis of this claim was the number of Republican supporters of Donald Trump, who claimed that the presidential election of 2020 was stolen by Mr Biden. And some of them sought to take control over state electoral processes, so that they could ensure the right outcome next time. This is indeed an interesting aspect of current US politics. But were the BBC following the Democrats’ line a bit too uncritically? I don’t mind their reporters repeatedly saying that Mr Trump’s claims are false – his supporters have been unable to produce evidence that can be tested in court – perjury is a serious matter, after all. But the endangerment of the electoral process in some states is only one issue that American voters have to weigh up.

But this marks a more general Democrat bias to the BBC coverage – a prejudice which, to be fair, is pretty prevalent in Britain. They are careful to present Republican views in their interviews with politicians and in vox pops. But we are left thinking that most Republican supporters are nutters – repeating those election fraud allegations, for example. If this were all there was to it, then it raises the question of why the Republicans are doing so well. Surely Americans aren’t all that stupid? There is clearly something else going on. And that something else seems to be the perceived extremism of many Democrats, which clearly annoys many Americans, and not just less-educated white ones. We will struggle to get any idea of what lies behind this fear from watching BBC coverage – or I suspect that of most other British news outlets. In the end the story of American conspiracy theorists, and the ramblings of Mr Trump, are the more entertaining story, and that dominates our coverage.

Funnily enough, after all the hype of the run-up, coverage of the election results has been very muted. They were almost exactly in line with the more considered predictions (published by The Economist, for example), but probably a bit worse for the Republicans in the House of Representatives. But they still won there – and there will be significant consequences arising from that. Mr Trump seems to have had a measurable negative impact on his party’s performance, but I haven’t seen that story through on the mainstream reporting. We’re now onto the World Cup and COP27. And there is quite a bit of domestic news to be digested too.

All of this is making me think harder about the role of the BBC in news. It remains a trusted brand, and we are lucky to have it in place of the more partisan free for all that dominates the US. But, as a public service organisation committed to balanced coverage, it faces tricky decisions. Not so long ago it got into trouble by “balancing” scientists warning us about carbon emissions with unqualified s**t-stirrers like Nigel Lawson. They have moved on from that, and it is good to see that they are not giving credibility to Mr Trump’s lies about the 2020 election in the name of balance. But, in general, the BBC feels it must follow the news agenda set by others, in which Britain’s diminishing print media have an outsize role. Since this media is dominated by organisations with a right-wing agenda, this causes much wailing and gnashing of teeth amongst people in the left. But there are bigger problems.

The first is the choice of which stories to cover, or not – what makes an important story in the news media is not necessarily all that important in the great scheme of things. We saw this in the coverage of the death of the Queen. This was a big news story, of course, but the BBC followed other media in excluding all other news reporting in the weeks after, until other media outlets started to let other stories in. The BBC wouldn’t devote so much as a minute to “other news” in extended news broadcasts, and instead went round in circles in with interviews with royal correspondents, there being little actual news to report. The BBC could and should have shown a bit of leadership here – five minutes of other news in a 60-minute programme was surely not have been too brave? The time given to US politics is another example, with European politics being neglected by comparison – in spite of the fact that the latter might have a more immediate impact on the country. That Danish general election was quite an interesting story. And then there is the bias towards covering elections before they happen, and neglecting the hard news of the actual results. Even The Economist does this, though. That is the difference between journalism and “the first draft of history”, I guess. Speculation is more fun than facts.

But what about the accusation of liberal bias that is so often levelled at the BBC – and which its coverage of the US election seems to illustrate? This is more complicated than it looks. Another example is racism and antisemitism. A few on the right might grumble about the apparently uncompromising stand that the BBC takes on these issues. But dig down a bit and you find problems. Racists and antisemites are portrayed as nutters that it is easy to dis-associate from. I have seen a couple of television dramas portraying far-right activism, along with its racist and antisemitic tropes. But these activists are cardboard cut-outs – poorly educated white people with a soft spot for Hitler and Naziism. There is much more to racism and antisemitism than this. Will there ever be a drama covering antisemitism in the far left? To say nothing of the muddle between antisemitism and criticism of Israel and Zionism? Of course not. It is too controversial. But this bias annoys both left and right. The right is annoyed by the persistent portrayal of racism as being confined tot he political right. The left complains that discussion of Israel is heavily constrained.

This is all rather depressing. There seem to be two types of news media: the partisan and the dumbed-down. The partisan media thrives on controversy and isn’t afraid to air conspiracy theories and nonsense tropes – and is consequently useless as a source of information. But the “balanced” media are too scared that controversy will damage their reputation for objectivity – and anyway tend to follow the pack in their coverage of stories. Perhaps there is an inevitability about this – but at least the BBC could try a bit harder to be more informative in its news coverage.