2018: Trouble is brewing between Germany and Italy and between China and the US

Prediction is a mug’s game; you are more likely to miss something important than demonstrate insight. And yet it is the only good way to put your insights to the test. Science may be mostly about gathering and reviewing evidence, but the true test of its worth is prediction. And so, in line with tradition for this time of year, I feel I must have a go.

When I started to think about it, my feelings about 2018 were anticlimactic. The British political deadlock will continue: there will be no election and no change of PM. The Brexit negotiations will somehow manage to put off the more difficult problems yet again, probably through a transition deal that will look very like staying in the Single Market. The investigation into the Trump’s campaign’s connections to Russia may snare members of his team but not the man himself; he will stay in office. The Democrats may take the House of Representatives, but they won’t manage to retake the Senate. And so on. Things will limp on much as they are now.

But none of that is very brave. It just guessable, keep-your-head-down fare that does not put my understanding of the world under any real stress. And yet proposing something more exciting is a matter of luck, especially if I am confining my predictions to a twelve month period. I need to look at things another way. Where do I see trouble brewing, even if the chances of something breaking in 2018 is less than 50%?

Let’s start with the world financial system. There is something unstable about it, even if it does not look as dangerous as it did in 2007 – it is more like the tech bubble of 2001. Asset prices look too high, largely because there is more saving than than the system is able or willing to convert into productive investment. This applies to the West, where too many assets are piling up in the hands of businesses and rich individuals, while many forms of investment are commercially unattractive to most people. And it applies to China, where there is something not right about the volume of money invested, especially through state owned businesses; a lot of useless assets don’t seem to have been written off.  But what will be the proximate cause of a financial crisis? A Chinese banking breakdown? Inflation breaking out in the US? A panic in the property markets? And when will the crisis strike? Personally I feel that government bonds are a better bet than other asset classes in the medium term, though that would not be the case if inflation got going. But that is more of a threat in America than it is in Europe or Japan.

And there is something not right with the capitalist system. Technology has changed the way it works, and our political systems have not caught up – rather like the mid 19th Century world in which Marx wrote Das Kapital. Most conventional economists really haven’t grasped this or it implications. The answer will be political change, but what? Without answers, political pressures will build up, and not just in the developed world. It is fashionable to suggest that liberal democracy is in danger, but the situation in the autocracies of China, Russia and Turkey, to name but three, don’t actually look any less tractable. But where will the political system crack? Governments have become better at repression. And there is no convincing alternative to sell. Yet.

What of Britain? The Conservatives look to be in deep disarray, but they have a lot of strengths – especially the widespread fear of the alternative, and the substantial funding that could unlock. We need to remember how close Theresa May came to a triumph, with the coherent ideology of Nick Timothy behind her – she might have destroyed Labour’s working class base. Their introversion did for them in the end. Can a new leadership revive their fortunes? I see similar strengths and weaknesses in Labour. Are they peddling new or old wine in their old bottles? I suspect more new than their critics give them credit for, which will make them a much stronger proposition. But there is an introversion too. The leadership is not sharing its thinking about what to do with this country; it just wants disparate people to project their hopes onto their vague pronouncements, so that they can gain power; only then might they share their real thinking with us. Meanwhile, the tensions within British society – the stagnation of the left-behind places, the squeezed funding for public services and benefits – will serve to increase frustration. Something spectacular could break the deadlock. But what and when?

And Europe? This looks like another deadlock. The populist xenophobes may have stalled a bit in 2017, but they are alive and well. It is striking that Poland’s ruling party remains very much in control, in spite of the fact that many Poles do not share their paranoia – their economic policies, which involve widespread cash handouts, are popular, and may not be as disastrous for the economy as many critics suggest. Economics is at the heart of politics – and politics is at the heart of economics. But the biggest threat to European stability comes from Italy, where elections are to be held in 2018. We might well get a strong pushback from that country against the way the Eurozone is run, at a time when German politics is being pushed in the direction of more conservatism on the Euro, and not putting Germany’s savings surplus to constructive work across the zone. That conflict could cause the system to break. But maybe the French can intermediate to give the Italians what they want while making the Germans feel they have won?

In America I see a strange mix of euphoria and anger. The tax reforms passed before Christmas were a big win for the Republicans, and it will give them real momentum. While the Administration, and the tax reforms, are generally unpopular, relentless propaganda from the many rich winners may baffle floating voters for a bit. That could be good for the Republicans in the congressional elections. It is a tall order for the Democrats to take either house, especially the Senate, where Republicans have plenty of opportunity to win back seats lost at Barack Obama’s high point. But the Administration’s malign neglect of the healthcare system could bite back.

Perhaps more significant for the world as a whole is the thought that China and the USA are on a collision course. Donald Trump is itching to start a trade war with China, to reverse what he sees as America being ripped off. China’s ambitions are increasingly global. At the moment the two have come to an uneasy accommodation, with North Korea a joint focus of attention. But this looks unsustainable; China will not stop North Korea from developing nuclear weapons, as only a military intervention of some kind will achieve that, and China surely does not have the appetite for that. But a trade war between China and the USA would be an attack on one of the central economic and political pillars of the early 21st Century world. It would be extremely destabilising economically and politically. China still needs exports to the US to sustain its economy; the US still requires to be bankrolled by Chinese money. This is surely the most likely source of a financial crisis.

And then there is the risk of war. North Korea is determined to develop a genuine nuclear threat to America, and this is a huge provocation. It’s not a happy situation when we seem to be relying on military men to provide the restraint on the President.

So to summarise: the two critical developments to watch are a clash between Germany and Italy over the economic management of the Eurozone, and a clash between the US and China over trade. Either or both could precipitate a global financial crisis resulting in a substantial reduction in asset values and the banking woes that would follow from that. I am cautiously optimistic that the problems of the first of these will be contained; I am not at all optimistic on the second.

Moral outrage against Trump is distracting people from his incompetence

Featured on Liberal Democrat Voice

Donald Trump has made a whirlwind start to his presidency, acting much as he did on campaign. This has provoked predictable moral outrage from liberals across the globe. This leaves me with foreboding. It will not stop Mr Trump, or the political movement he represents.

As a Briton I feel a sense of deja-vu. It reminds me of 2010 when the Coalition government took power and launched an aggressive austerity programme, cutting many public sector jobs, benefits and grants to NGOs. There was moral outrage on the left. I remember screaming protestors at the Liberal Democrat conferences in Liverpool and Sheffield in the year that followed. The Lib Dems were particular victims: they were nearly wiped out at the subsequent General Election, and are only just starting to recover, thanks to the distraction of Brexit.

But all that fury came to nothing. The beneficiaries of the Lib Dem meltdown were their Conservative coalition partners, who gained a parliamentary majority as a result. This led to redoubled austerity and Brexit. The left’s response was then to move into even more extreme outrage, by selecting Jeremy Corbyn as Labour’s leader. This has only made the Tories look even more entrenched. For all its outrage the left has lost the argument amongst floating voters.

The left was convinced that the people were behind them in their anger. And, critically, they thought that they did not have to win over conservative floating voters. They dreamt of two things: attracting disillusioned Lib Dem voters; and getting people out to vote who had not voted before. Both strategies failed. Labour did manage to convert large numbers of Lib Dem voters – but in the process they weakened the party so much that many Lib Dem voters switched to the Tories to keep Labour out. And, anyway, since most Lib Dem seats were Conservative facing, weakening the party tended to benefit the Tories. And inasmuch as new voters were found, it was not Labour that benefited. Instead many disaffected voters turned out for the populism of Ukip, and then to vote for Brexit in the 2016 referendum. There is no army of left-wing non-voters waiting to be mobilised.

The hard lesson from this is that in politics passion cannot substitute for savvy. And it is no use just talking to people who agree with you already. That may boost your own feelings of self-confidence, but it will not help persuade the people who need persuading. Interestingly, this is not symmetric. The populist right have succeeded by stoking up anger, and loathing for “liberal elites” – and not attempting to persuade liberals. Such tactics in reverse are ineffective on the left.

I fear liberals in America are making the same mistake with Trump as the left did with the Coalition. Their outrage at Mr Trump’s actions is certainly justified. But to Mr Trump’s voters, many of them former Democrats, what he is doing must look like a breath of fresh air. A politician fulfilling campaign promises! Urgent action on trade and immigration! That there is a lot of outrage and not a little confusion will not concern them. On campaign Mr Trump was repeatedly outrageous, and that harmed his standing not at all. It doesn’t matter if liberals hate him.

And it will be hard for liberals to win the propaganda war.  There will be successes for Trump. Look at how the motor companies are changing their tune about jobs in the US; and NATO countries are talking more about their defence budgets; the economy looks just fine. And failures can readily be blamed on the usual suspects. Likewise some distinctly questionable handling of conflicts of interest will arouse shrugs: people sort of knew that would happen when they voted for him.

The smart people in all this are the mainstream Republicans, who control both houses of Congress. They are keeping their heads down and taking the credit as much as they can. It is by no means clear that Mr Trump will last the course. He is old for a first-term president; he is not grounded in the ups and downs of politics; an implosion of some sort cannot be ruled out. But the Republicans, and especially with Vice President Mike Pence, will be there to pick up the pieces, and create a more sustainable version of the Mr Trump’s politics that will lock the liberals out of power.

You can’t, and shouldn’t, stop people being angry of course. But opposition also needs to do two things. First is to avoid personal attacks, on Mr Trump or his supporters. Jokes about the size of Mr trump’s hands, or accusations that those that voted for him were bigots or idiots, need to be toned down and reserved for private conversation. Second, which follows, is that the conversation needs to be about competence rather than morals. The Trump administration (unlike the Coalition, by and large) is astonishingly incompetent at actual policy, as opposed to messaging.  To give this criticism credibility it means acknowledging the government’s successes when they occur.

Remember George W Bush. He was the target of a torrent of sneering attacks from liberals – but his power only grew. But when he appeared utterly incompetent in the face of Hurricane Katrina, and then Iraq,that’s when his popularity fell off a cliff. And yet his incompetence had been evident for years before that. I have read a similar account of Italy’s Silvio Berlusconi. Personal attacks did not harm him; scrutiny of his policies did.

So far, opposition to Mr Trump has failed these tests. The president’s executive orders have been badly drafted and are leading to muddle and injustice. But he is able to shrug all this off while liberals indulge in ill-directed anger. While liberals congratulate themselves on the size and noise of their protest marches, Mr Trump’s relationship with his base is intact.

What the left lacks is leadership, both here in Britain and in America. A liberal fightback can be successful. Demographics are in their favour. But they must rally around a clear and competent alternative. Alas none is in sight.

Making America small again. Trump’s victory marks the decline of the USA

“Make America Great Again.” That was the slogan of Donald Trump’s insurgent campaign to take the US presidency. It resonated with many Americans. They felt that the US had been subject to serial humiliations in its international dealings, and that Mr Trump’s more robust and confrontational leadership would help to reverse it.

But politics is full of paradox. To exercise power is to diminish it. Power accumulates to those who understand restraint. In Britain English and Welsh voters took to heart the slogan of “Take Back Control” and voted for Brexit. The country is now basking in the thrill of exercising direct power in its relations with its fellow European neighbours. And yet the result will be a medium-sized power adrift in a friendless world, seeking to trade freely when everybody else is becoming more protectionist It will be more rather than less subject to the whims of foreign powers. Britons may prefer it that way, but they will come to understand that the keys to “taking back control” actually lie in Westminster and their local council chambers, rather than in Brussels.

So it is in America. Mr Trump’s supporters will revel in the assertion their country’s direct power. And yet he will exercise this assertiveness in order to carry out a retreat. The result can only be diminishment, relegating the US to the middle part of a medium-sized continent.

Let’s look at some specifics. Consider the Trans Pacific Partnership (TPP): the multinational trade deal put together by President Obama. This was a central element of his Asian diplomatic strategy, designed to collect a number of Asian countries into America’s orbit in trading terms, conspicuously excluding China. Mr Trump (along with many Democrats) denounces this as a bad deal and will scrap it. That leaves a vacuum into which China is ready to pounce. It plans its own version of a free trade area, involving most of the same countries. Mr Trump has also questioned the value of America’s military alliances in the region. The clear message to countries there is that they must acquiesce with China’s increasingly imperial ambitions. The Philippines’ President Duterte looks a little less eccentric in his pivot to China. The USA is suddenly a much less important country.

Mr Trump’s promised assertiveness in trade relations with China makes little sense either. It comes at an important moment in the evolution of China as a nation. It has built its economy on international integration, especially with the US, and developed a large trade surplus in the process. But there is nothing particularly beneficial in a trade surplus – it implies that a country’s citizens are consuming less than they could – an act of self-denial. A trade surplus has political advantages – it makes you less beholden to foreign creditors – but China is already powerful enough for this not to matter much. So it is in the process of carrying out an economic pivot to  develop its consumer economy, and away from integration with developed economies – though the scope for integration with less developed economies remains. An economic model where it exports less to America and integrates more with other Asian countries, and even African ones, suits it just fine strategically. Mr Trump means to hurry it along, but it will disrupt the US economy more than the Chinese one.

In Europe the issue is not so much trade. The proposed trade deal between the US and the European Union, TTIP, looks dead in the water without any help from Mr Trump. The main issue for Europeans is military and diplomatic support for the European countries against Russia in particular. Mr Trump has said that the current balance involves America in a disproportionate level of commitment. He has a point. If America steps back from its military commitments, and caves in to pressure from Vladimir Putin to create and extend a Russian sphere of influence, then it will put European countries in a very tough position. It is not very clear where this will lead – but one thing is very clear: America will be less important to Europe. This is not necessarily a bad thing for Europe, but it will be very uncomfortable.

And then there is economics. We are still guessing what will emerge from Mr Trump’s presidency – but there could well be a short-term lift for America. Some form of fiscal stimulus is in the offing. Mr Trump and his advisers hope to lure in US corporate profits that are stacked offshore for tax reasons, and to use the proceeds to fund infrastructure investment. Unlike many of his Republican colleagues, Mr Trump will be reluctant to cut state handouts, like pensions or healthcare – though health insurance is under threat. This could give a short term lift to the US economy . And, as this week’s Economist points out, much of this gain will be at the cost of other world economies.

That should please Mr Trump’s supporters. But the problems will start quickly. The stimulus is badly timed. In many aspects the US economy is running at close to potential output. All the stimulus might do is suck in imports and push up prices. But there may well be a lot of hidden potential in the US economy – more workers could be drawn into the workforce, and other workers could be made to work more productively. But if Mr Trump is serious about rolling back free trade and driving out foreign workers, then he will cut the capacity of the US economy when it needs to be increased. A financial crisis is in the offing.

The truth about the American economy is that, far from being taken for a ride and funding lavish lifestyles of foreigners, American consumption is being supported from abroad. This is what a trade deficit means. A transition to a more self-sufficient economy, as wished for by Mr Trump’s supporters, will entail economic shrinkage. Americans may rail at the loss of jobs in many industries, but they exchanged these for cheaper products, made abroad or with automated technologies, or both. Reversing that means reducing living standards.

Except that most Americans could still end up better off. If the country can share out income more evenly, with lower profits and higher wages, and more of those wages paid to middle and lower level employees and less to the top layer, then this shrinkage need not be painful to the majority. But what chance is there of a Republican administration, run by senior businessmen, achieving that? To Mr Trump exploitation is simply good business practice, and profits are reward for enterprise. There is no sign of a mindset that wants a different distribution of the fruits of economic success.

America and the world is in for a rough ride. But strategically it has been clear for a long time that American power, relative to the rest of the world, is in decline. That is not such a bad thing  – it results from a fairer distribution of the world’s wealth. After the diminishment of Europe, it is now America’s turn. Mr Trump’s victory marks a big step along that journey. But it should surprise no follower of politics that he is claiming to do the opposite.

The centre collapses. What should liberals do?

Unlike on 23rd June (the day of the British referendum on the EU) I went to bed with a sense of quiet foreboding on Tuesday night. And that foreboding was confirmed by the shocking news of Donald Trump’s victory in the US presidential election.

It is a bad year for liberals. Some liberals did support the British vote to leave the EU, of course, and persist in saying this was a good thing. Well, maybe, but the campaign was not fought from the liberal centre, it was fought and won by those who persuaded the illiberal to vote in their masses – which is similar to Mr Trump. Meanwhile, illiberal governments face no serious challenge in Hungary and Poland, and in Turkey President Erdogan is crushing all forms of opposition, liberal and otherwise, following the example of President Putin in Russia. It does not seem so far-fetched to imagine that Marine Le Pen will take the French presidency next year. There are major populist uprisings in the Netherlands and Italy.

All this points to a collapse in the political centre. What do I mean by that? The centre is a set of political assumptions about the way the world should be run which has become the conventional wisdom of our governing classes, and which is shared by many political groupings. Those who did not support this centre used to be branded as extremists and pushed to the margins. Or sometimes parties would talk as if they were challenging the centre, but quickly adopted its principles once in power – France’s François Hollande comes to mind. Centrist principles incorporate free trade, free movement of capital and free movement of workers – an unmistakably liberal combination. Globalisation, and the economic growth that went with it, were embraced. Social liberalism ran alongside these principles, with the promotion of diversity at all levels of society. In Britain, Tony Blair’s enthusiastic embrace of these centrist values was the key to his taking the Labour Party to three election victories in 1997, 2001 and 2005. The Conservative victory in 2015 largely came about because it persuaded electors Labour had turned away from the centre – though, in a portent, the avowedly centrist Liberal Democrats were crushed in the process.

But Mr Trump’s campaign was based precisely on a rejection of the centre. He painted a picture of a politically corrupt and complacent elite who had let people down, and imposed social liberalism onto unwilling subjects. This brought previously apathetic voters out of the woodwork, and persuaded many who had voted for the left in the past – blue collar workers in particular – to change allegiance. By comparison Hillary Clinton struggled to raise enthusiasm for her campaign; this apathy may actually have been more important than enthusiasm for the insurgents. It would be wrong to blame that on her personally. She was in fact a strong candidate, but she represented a ruling philosophy that people have lost faith in. President Obama may be more charismatic, but his intervention seemed to have little impact. He seemed to be part of the problem.

Could the left have achieved a similar success with its own anti-establishment campaign? This is what Democratic contender Bernie Sanders attempted; and it is what Britain’s Jeremy Corbyn seeks to achieve. Like all counterfactuals this is impossible to prove. Many of the criticisms against Messrs Sanders and Corbyn – their lack of so-called “credibility” – seemed to positively benefit Mr Trump. But I think the rebellion is about more than changing personalities and attacking the political elite. There are overlaps in policy; Mr Sanders wanted to clamp down on free trade and attack big business – just as Mr Trump  does. But he also stood for big government and social liberalism. These do not resonate with the disaffected. It might rally a lot of younger, urban people – but not the white working class. It would not have been hard for the Republicans to paint Mr Sanders as in fact being part of the liberal elite, who would bring with him socially liberal values, more interference in people’s daily lives, and higher taxes.

But for all that, the liberal left shares a disillusionment of the conventional centre with the conservative insurgents. They see the economic gains going to a lucky minority, while working class, and many middle class, people face increased insecurity – especially if they are young. The trouble is that the left lacks a convincing policy agenda to address it. Their solutions have a lot of the “same old” about them. And in particular they lack ideas on how to promote a thriving business environment, beyond more active demand management through fiscal policy, also promoted by Mr Trump, it has to be said.

So how to respond? Of course Mr Trump and his associates equally lack a convincing policy agenda to address the concerns of the left-behind. They will throw them some socially conservative red meat, but it is hard to see their economic policies making them better off. Meanwhile many social benefits, starting with health insurance, will come under threat. This gives the left the raw ingredients for a fightback. The developed world is becoming more socially liberal, so liberals must hold their nerve. And as conservative economic and foreign policies fail to gain traction, there will be more sticks to beat the conservatives with. Competence may come back into fashion.

But the left still needs a convincing policy agenda of its own. The old centrist agenda needs to be picked apart and put back together again. In my view this means a strengthening of local communities. Somehow a flourishing global economy needs to cohabit with flourishing local economies. Our hope must be that as Mr Trump as his conservative allies test their economic ideas to destruction, it will open people’s minds to fresh ideas. But those fresh ideas need to be fleshed out.

 

The Oregon protest shows how different America is from Europe

What if a group of armed citizens seized a bird reserve in the Lake District and proclaimed their right to cut down trees and graze cattle on public land for free? It is actually unthinkable, on so many levels. And yet this is more or less what has happened as a militia group led by Ammon Bundy seized the Malheur National Wildlife Refuge in Oregon on 2 January. They’re still there, as the law enforcement agencies deal with them gently, letting pressure from local residents undermine the occupiers’ resolve. Such incidents are rare in the US, but not unthinkable, and that reveals a lot about the difference between our nations.

Of course Oregon is not like the Lake District. In the US West the Federal government owns huge tracts of land, and regulates, and charges for, its use by farmers and loggers and many others. In our National Parks the government places onerous regulations on private landowners. But that is even worse, probably, from the point of view of the Oregon protesters. They are building their case on an American idea that citizens should be self-sufficient, and that government agencies are violation of basic rights and freedoms.

That idea, of course, comes from America’s frontier history. Back in the 19th Century, and earlier, the settlers mostly did have to be self sufficient. The whole appeal of film dramas such as Westerns builds on this.  These frontiers have only formed a minority of the American nation, of course, and yet they command a special place in the American soul, for those of European (i.e. white) heritage. We may imagine how those of native American or African, and even Hispanic heritage work on a different version of how America came to be what it is. The European settlers came out to America to be free of oppressive governments. It is hardly a coincidence that movements like the Oregon protestors are white, and tend to have racist tinge.

Descendents of the Europeans who stayed behind have an utterly different outlook – though that racist tinge is there too, overlaid by an often intense nationalism, which has been subsumed by American nationalism in their descendents. For us government is part of our everyday lives. For some it represents the democratic will of the people; for others it a perhaps regrettable necessity. But we crave the order governments create, and feel that such things as welfare safety nets are part of what it means to be civilised.

And this is as true of the English as it is of their French and German cousins. Some English like to think that they are culturally apart from the rest of Europe (a delusion that their Scots compatriots in Britain tend not to share). We hear talk about common law and Anglo Saxon freedoms. And it is true that the English and British are different in many ways from other Europeans. But then so are the French, the Germans, the Danes, the Spanish, the Czechs, and so on. The idea that the British are uniquely different is a misconception. And a huge amount of history and culture binds us together as Europeans, and separates us from the United States in particular. Our attitude to the role of the state demonstrates that more clearly than anything else. Remember that many Americans feel that free ownership of military weapons is a fundamental right, and a vital protection. Europeans think that’s nuts.

That gulf between Europe and the US is clearly seen in US politics. Republican politicians only have point to Europe or Canada (which follows many European attitudes) to scare their supporters. To them these places are self evidently awful places to live in. Which puzzles, Europeans and Canadians profoundly. What is so wrong which lower levels of poverty, better health outcomes, longer holidays, and a lower chance of dying a violent death? We (and they) just don’t get it.

But two notes of caution for Europeans. First is that the US is not monolithic. I have already pointed out that many Americans do not share this anti-state vision – and the proportion of non-whites in the country is rising. That, perhaps, explains much of the violent polarisation in the country’s politics at present. Most Americans think that the Oregon protestors are crazies; that includes most people who live near Malheur. It’s always a good rule to avoid national generalisations; that is as true of Americans as it is of anybody else.

The second note of caution is that there is a positive side to this American idea of self-sufficiency, alongside its delusional aspect. It makes Americans more entrepreneurial and innovative. Americans can rightly point to their extraordinarily strong economic performance. And I think it helps to question what state agencies do and what they are for – though, I should add, I don’t think that US government agencies are any less inefficient than European ones.  Closer scrutiny does not necessarily lead to improved performance.

But personally, I am very comfortable in my European skin, much as I admire so much about America. And those Oregon protestors sum it up why quite nicely.

The slow suicide of Britain’s two party system. Only AV might have saved it

Two-party politics used to be the norm for developed democracies. Most countries’ politics were divided between tribal blocks based on the urban working class and on the aspirant middle classes. But the dominance of these two blocks has faded in most countries. There are two interesting exceptions: the USA and Australia. Here in Britain two-party politics looked as if it would triumph with the demise of the Liberal Democrat,s and the No vote in the referendum on the Alternative Vote (AV) in 2011. But now the system is its death throes.

It is worth considering the architecture of two party politics for a moment. Electoral politics is dominated by two political parties, each of which may govern on its own, without the need for support from smaller parties in coalitions or pacts. Each of these parties has a tribal character, defining themselves as much in opposition to the other as by their own core values. But there is an undeniable class base two. This divides the country into heartlands, where one or other of the parties dominates to the exclusion of all others, and marginal territory, contested by both parties, where elections are won and loss. Many, if not most, politicians build their own careers in the heartlands, where advancement depends on internal party politics, rather than winning over marginal voters. This leads to the system’s major flaw – the political classes are more worried about their own backyard and internal politics than in appealing to the electorate at large. Or they worry about marginal voters to the exclusion of the heartlands. Distance between voters and politicians grows.

The breakdown of this system follows the weakening of class loyalties from the 1960s onwards. New parties have emerged, from the liberal centre, from populist anti-political movements, from environmentalists, and from parties based on regional identity. In much of Europe coalitions became commonplace. Electoral systems played an important role. Those with proportional representation (PR) were the first to find that one party could not govern on its own. But in countries with single member constituencies one party could still aspire to win on its own. France’s two-round system promoted pacts and alliances between parties, and the major blocks split into separate parties – before the whole system started to be challenged by the populist Front National. Countries with First Past the Post (FPTP) systems have placed a greater role on party solidarity. But in New Zealand disillusion with two-party politics led to the introduction of PR; in Canada each of the two party blocks suffered existential crises that allowed more modern alternatives to replace them, at least in part. Australia’s AV system seems to have entrenched the two party system there, however. I will come back to that.

In the biggest and oldest developed-world democracy of them all, however, the two party system remains completely dominant. In the USA there is no alternative to the Republicans or Democrats, although the occasional challenge comes and goes – even as more and more voters self-describe as Independent. But the US system of democracy is unique. Apart from the widespread use of FPTP (some states use a two round system – which is why the Louisiana Senate race is not yet over after this month’s nationwide election), I think there are three, inter-related factors: primary elections, decentralised  power, and direct executive elections. Each party’s candidates are selected using primary elections which include much more than official party members. Such elections are part of the formal, state electoral process. Voters may register as Democrat or Republican. This allows them to take part in publicly-run primaries; in some states primaries are open – any voter can take part. That makes heartland elections competitive – and not a matter of manipulating small groups of insiders to secure your party’s nomination. It helps that each party’s national leadership is weak – so wheeler-dealing in Washington will not help a political career by much. This is a function of a system where much of the power is wielded at state level. One of the factors that keeps party functionaries weak is the prominence of direct executive elections, notably for President and state governors. In these cases personality often matters more than tribal allegiance.

It is an interesting paradox – for the two party system to be robust, the party leaderships must not be too strong. This allows the primary system to flourish, and gives outsiders a chance to break into politics. But party solidarity is important enough for those in power to rig the system to provide incumbent politicians with electorally safe seats through the gerrymandering of boundaries. A diminishing proportion of seats in the House of Representatives are competitive between the two blocks. A large proportion of the important politics is now in the tribal heartlands, and not in marginal territory. As a result of this, it would not be right to describe the state of politics in the USA as healthy. There is increasing polarisation, which is causing deadlock and the prospect of extremist policies. Most Americans seem fed up with the state of politics in their country, though not necessarily with the system itself.

Another case study in the survival of two-party politics is Australia. Politics is divided between two long-standing political blocks: Labor and the Liberal party, though the latter is a coalition of state parties (some of which refer to themselves as National or Country). There have been challenges to this duopoly over the years, but these have not made headway. No doubt there a number of factors that have contributed to this – but I think one factor is critical. And this is the AV electoral system. The legislature comprises single-member constituencies, and there is a single election day. Voters are asked to rank candidates in order of preference. If one candidate does not achieve more than 50% of the votes casts, the lower ranking candidates are eliminated and their votes redistributed. This is a bit like the French two round run-off system, except that with a single election day there is little scope for political deal making over second preferences. It is so important for candidates to maximise first preferences that it best not to talk too much about second preferences.

This makes it very hard for challengers to win seats. First their first preferences have to overhaul one or other of the two main parties. But to do so they cannot say “vote for me to keep the other guy out”, because that is an argument for second preference votes, not first. Second preference votes are useless without sufficient first preferences. And then, of course, you must have sufficient first and second preference votes to get a majority. In marginal seats challengers will be beaten by the lack of first preferences; in heartland seats there will be lack of second preference votes. As a result almost all seats go to one or other of the blocks. In 2013 in order to turn out a lacklustre Labor government, voters opted for a Liberal one that is now pushing forward a series of extremist policies on the environment and immigration.

So what of Britain? For a long time the main challenge to the two party system came from the Liberal Democrats, based in the liberal centre. It was skilful in winning seats under FPTP by establishing a local base, and then winning tactical votes from the weaker of the two blocks. This allowed it to win a substantial block of parliamentary seats in 1997, but not the balance of power until 2010. It then entered coalition with the Conservatives. And then disaster struck – the transition from a protest party to one of government was too much for the voters, and its poll ratings collapsed. Labour and Tory politicians breathed a sigh of relief – normal two-party politics could be resumed.

Ironically, in view of the Australian experience, the Lib Dems placed some hope by proposing to change Britain’s FPTP system to AV. This would have helped the party in the short term, where it had built up a sufficient local base to win second place in first preference votes. Both major parties agreed with the Lib Dem analysis, and for that reason opposed the change (Labour through faint praise rather than explicit opposition). In a referendum on the change in 2011 an overwhelming majority opposed AV. This seemed to secure the future of two-party politics.

But unlike the US, Britain’s politics is highly centralised. Party managers in Westminster like to keep a tight grip on their parties. And, again unlike the US, executives are elected indirectly, and candidates must master the internal politics of their own party in order to progress to high office. The idea of primary elections has not been allowed to gain traction. The Tories have moved small steps towards it, but without being able to harness state resources. The public has no way to channel its disillusion with politics than to vote for insurgent parties – since they are denied a role in the main party elections. And this they have been doing by supporting the populist Ukip in England and the SNP in Scotland.

Unlike the Lib Dem challenge, these insurgencies have affected the main parties’ heartland voters. They are creating unbearable pressures with both party blocks. The Conservative and Labour leaders try both to fend off the insurgent challenge, and to retain the political centre – and as a result both appear weak, driven by events rather than leading them. This is creating unbearable strains and it seems likely both will fracture, especially if they have to endure the pressures of being in government. Labour face calamity in Scotland, as the SNP overturn their heartlands. In England Labour are a fragile coalition of public sector unions, liberal centrists and heartland machine politicians; each’s expectations of the party seems completely incompatible. The Tories look likely to fracture over Europe.

Ironically, if both parties had embraced AV, they would have been in a stronger position to fend off the insurgents and maintain party solidarity. And yet this is just another face of a bigger problem that both party’s face. their obsession with winning the next election has meant a loss of strategic focus. The demise of the two party system looks alarming, as fringe parties gain prominence. But in the long term it is to be welcomed. As the USA and Australia shows, a two-party system is too easily captured by political extremes.

 

Can the Republican tide in the US be reversed? Maybe not.

I hate to comment on the politics of other countries. I know more than most British about the US political scene, but I’m no expert. Still, wider lessons about the process of politics can be seen from the US. And they are rather worrying.

As a liberal I root for the Democrats in the US elections – though their record on some issues, such as business regulation and education is not good. So the scale of their defeat in this year’s mid-terms was a shock: not just in the Senate, but in state gubernatorial contests too. I had subscribed to a rather optimistic theory: that where California goes, so the rest of the US follows. In California the Republicans did very well, until, one day they didn’t. And then it was all over. They were overwhelmed by demographic trends – especially the rise of the Hispanic population. They had so misused their period in power that they had damaged their brand beyond repair to those outside their diminishing band of natural supporters.

So perhaps 2014 is their high water mark, as was the Pete Wilson governorship in California , which ended in 1999? Alas I fear not: Republican strategy and tactics seem far to solid for that. These elections were revealing. Republican success was largely driven by low turnout. Younger voters, and those from minority groups, failed to turn up to vote. That seems to be the cornerstone of the Republican strategy. This is achieved through relentless negative campaigning that has poisoned the political process. Their opponents go in for negative campaigns too, but they lose more from the diminishing reputation of politicians as a whole. Republican politicians are not well regarded by the US public. They just keep winning.

The insidious thing is that the Republicans are using their short-term successes to rig the democratic process in their favour. This is conspicuous in three ways. First, Republican governors have gerrymandered Congressional districts so that they can win comfortably in the House of Representatives even if they lose the popular vote – as happened in 2012. Second, Republican sympathising justices in the Supreme Court have destroyed attempts to regulate campaign finance – in the guise of supporting free speech. This includes the ludicrous proposition that corporations have the same free speech rights as individuals. This unlocks the door to vast quantities of money from billionaires, like the Koch brothers, who want to impose their rather bizarre world view on voters, and to fund all that negative campaigning. There is already well-funded right wing news media. Third, they are trying to make it more difficult for people to vote, in the guise of limiting electoral fraud. This is aimed especially at blacks. These ratchet up a series of advantages for the right. There is no sign that they might be reversed.

Of course, the success of the right is not just because of the malign influence of shadowy billionaires corrupting the political process. They have a well-motivated core group of supporters, who hold to a strong series of myths about the American way. This core, with strong conservative religious attitudes, a hatred of central government and taxes, and a belief in American exceptionalism, make American politics a very strange place to Europeans, including us British. This core support can’t be taken for granted by political leaders, as the “Tea Party” rebellion has shown – but there is no equivalent on the left or liberal wing of US politics.

So it does not take a huge amount of paranoia to picture a Republican strategy. The rising anti-Republican demographic groups find it more difficult to vote, or find that their vote affects the outcome little. They grow frustrated, but generalise their frustration to the entire political process and political class, and this leads to political apathy. Meanwhile the right consolidates its control over the whole process.

What can go wrong? Over-reach by the right can lead to a backlash, which in turn leads to electoral upsets in areas that are less easy to rig – such as the Presidency and the Senate. This happened under the Presidency of George Bush Junior – when many Republicans thought that they had won for good, and the feeding frenzy of their corporate friends became so conspicuous that the public were motivated to vote against it. Republicans may lack the discipline to avoid that mistake again. In due course the left might reform itself into a more coherent and robust political movement that will overcome the increasingly rigged electoral system and media.

Does it matter? The irony is that the conventional wisdom on the political economy is shifting steadily leftwards. The ideology of laissez-faire and small government that took off in the 1980s has run its course. Increasingly it seems that a healthy economy needs more taxes and a bigger role for government. Republicans want to take their country in the opposite direction. This will simply feed the crisis of capitalism, not resolve it. The American economy will start to fall apart. Also the tendency of Americans to use world politics as an extension of domestic politics will only get worse. American bullying plays well at home, but is counterproductive in its actual effects. A properly engaged, constructive role for the world’s only superpower is less likely. And climate-change denial seems to be one of the core beliefs of the right – this will make global progress harder – though a failing US economy will offset this somewhat. Ultimately, this attempt by the right to reverse the tide of history is the most likely cause of its failure in the long term – but it could take a decade or more.

Are their further political lessons? The American political system is unique. Two party politics is deeply entrenched, and the electoral system promotes it. But it can lead to what amounts to minority government, and it can be captured by extremes. In Australia we have seen this too: disappointment with a lacklustre left of centre administration has led to the capture of the government by the wayward right.

Britain may escape this fate. The wayward right is progressively taking over the Conservative Party. But many of the wayward millionaires that are behind this trend have lost patience, and are supporting the Ukip insurgency instead. This is ruining the chances of a takeover of the right – though a weak Labour leadership means that we can’t rule this out. Ironically the rejection by the right of electoral reform in the shape of the Alternative Vote (the system in Australia) is probably a shot in the foot. This naturally tends to push politics into a duopoly, as the Australian experience shows. Now electoral chaos is likely to discredit First Past the Post, and any reform is likely to towards proportional representation.

The multi-party, proportional model of politics has its faults. But increasingly it seems to be a better direction to take – it is less open to capture by the extremes. I hope that Britain will follow that path.

 

 

The US election -why does the world hate the Republicans?

I do not advise citizens of other countries how to vote.  It’s very bad manners.  But there’s something very striking about viewing today’s US elections from outside that country: how few foreigners support the Republicans.

This is unsurprising amongst my own contacts and Facebook friends – they are largely Liberal Democrats, with the odd Labour supporter.  In the US these would be well within the Democrat family, with an outlok that largely fits the American understanding of the term “liberal”, a dirty word to Republicans.  But a number of opinion polls show that support for the Democrats is widespread right across the world.  In this instance Britain is very much at one with the rest of Europe, rather than part of some Anglo-Saxon block that some Britons suppose exists.

It is not immediately obvious why this should be so.  It is true that Republicans are generally more socially conservative that those outisde America, or those that are politically aware, anyway…but that really is the Americans’ own private business.  Mitt Romney is a perfectly intelligent and plausible presidential candidate, when looked at objectively, with much much more experience in getting things done than has Barack Obama, in the public sphere as well as in business.  Furthermore, the Republicans believe in strong U.S. armed forces, something that the rest of the world has been free-riding off for a long time, though we might not like to admit it.

So what’s the problem? Perhaps it is economics.  The Republican attitude to the US financial state defies mathematics – to think that its massive fiscal deficit and national debt can be tackled without rasing taxes.  But I’m not sure how much people in other countries understand this debate.  Something deeper does lie behind it though: the belief that the state should provide a minimal social safety net if anything.  The idea of a welfare state is pretty much consensus in Europe, so this is a clash.  Republican Americans are convinced that Europe is a basket case as a result – though things look different to us.  To the extent that we think about the US, we would worry about the breakdown of social cohesion as a proportion of the population gets stuck in an underclass.  But I don’t know how troubled Europeans are about this really.  And non-Europeans may well be more sympathetic to the Republican view on this.

I think there is soemthing bigger going on.  We associate the Republicans with a particular world view that combines a sense that the US has a wider mission in the world with an almost wilful ignorance of what is actually going on.  Many Americans feel that it has carte blanche to interfere in other countries’ affairs to protect their interests and advance their view of civilisation.  But that does not seem to imply making any attempt to understand the complexities of what is happening in the rest of the world: simply dividing the world into good guys and bad guys. Everybody will have some example of how this paradox has led to injustice and suffering.  It might be George Bush’s “War on Terror”, or the Iraq war and, especially, its aftermath.  Or else it is an unquestioning support for Israeli government policies, on little more than the idea that they are “people like us”…a situation that is drawing the world ever closer to a war with Iran.

Democrats get credit for trying a bit harder to understand to understand and respect the rest of the world.  Bill Clinton and Mr Obama stand in clear contrast to George Bush Junior.  Mr Romney’s campaign has not reassured non-Americans that he is any better than Mr Bush – though I personally believe he is head and shoulders above him.

There is an asymmetry about all this.  America appears on our TV screesn and cinemas every day.  American news is world news.  A lot of people outside America feel that they know about America, even if they actually know a lot less than they think.  But it is not true the other way around.  Few Americans seem to care about the world outside their country, except to the extent that it is a nest of vipers posing a threat to their wellbeing.  Fewer still will care what the rest of the world thinks about their election.

And yes, I too hope that Mr Obama will win, though I’m not as scared as many are of Mr Romney.  I also hope that the Democrats will hang on to the Senate, and do well in the House of Representatives.  Except that a small part of me wants the Republicans to win all three elections, and so have nowhere to hide from the impossibility of their policies, so that a t last America can start to move on.