In Times Of Brexit And Trump, The Wests Great Task Is Resetting Without Leaving Anyone Behind

The following piece is adapted from Peter Mandelson’s recent speech to the Chicago Council on Global Affairs.

We have seen in history how popular revolts become too powerful to ignore. The center has to react and business, too.

When I was Britain’s trade secretary after Tony Blair came to power in 1997, globalization was mostly an intellectual concept of “free movement,” about which the political mainstream spoke approvingly and confidently. We underplayed the impact on people and their neighborhoods, how the gains would be distributed and who was carrying the burden of adjustment.

Yes, we introduced a national minimum wage and in-work income supplements and boosted investment in cities, infrastructure, education, training and health services. But the modern global economy was changing at breakneck speed.

By the time I was Europe’s trade commissioner in the 2000s, I saw resistance growing from the other side of the trade equation: producer interests in advanced economies less able to compete, and workers seeing the playing field tilt against them. 

U.S. President George W. Bush talked to me in the White House at the time of how rising protectionism, nationalism and “nativism” in America were eating into mainstream politics.  

We see how this playbook has ended. So what do we in the West  in the United States, Europe and Britain do about it? How do we adapt our economic model so as to restore faith in it?

A Reset

We need a reset. For too long the political center has been paralyzed in its thinking and action. We cannot allow those who shout loudest to have it all their way. Some growth and modest redistribution will not suffice. Recent elections in the U.S. and Europe have shown that tweaking the policy dial is not effective against insurgent political forces. 

Bluntly, we need to go a lot further in order to achieve a realignment of politics that will reclaim the swing voters who the center lost to the extremists.

We have reinvented ourselves in the past, when our system of liberal democracy has been under pressure. In the 1930s, when the U.S. economy was being buffeted by depression, President Franklin D. Roosevelt established the radical idea now widely accepted  that the state has a significant role in managing the economic cycle and coming to the rescue of those whose jobs and livelihoods are being destroyed.

The creation of the Bretton Woods system of global institutions and the application of Keynesian social democracy in Europe, supported by the Marshall Plan , made it impossible for the “populism” of that time red communism to gain a meaningful hold in the U.S. or Western Europe.

We saw a further reset of liberalism led by U.S. President Lyndon B. Johnson in the 1960s the Great Society and the establishment of civil rights and racial equality that could no longer be deferred. It was not easy to bring the southern states around, but the center was strong enough to do so.

We saw a different sort of reset in the 1980s, when U.S. President Ronald Reagan and British Prime Minister Thatcher argued that a system managed by “corporatist insiders” and vested interests was hampering enterprise and failing to offer opportunity to those with aspiration. This was controversial because it emphasized faster growth at the expense of cohesion in society.

A response to this in Europe at the time, incidentally, was the creation of the highly ambitious single regulated market for goods and services, still growing today, which promoted high labor market standards and protections against social dumping in exchange for liberalizing trade.

We saw a further reset in the 1990s, when the New Democrats and New Labour, responding to deepening divisions in society, again realigned the center ground of politics to balance economic dynamism more explicitly with social justice.  

In each case, politicians of the center listened to concerns of voters, recognized that the status quo was unsustainable and offered realistic and practical alternatives. And in doing so they marginalized the more extreme voices who ultimately could only offer anger and criticism.

We have to do this again. But it’s not simple. It requires a radical rethinking of how to achieve our goals. And it requires building a new base of support, modernizing our use of communications to do so.

We should draw inspiration from that most radical of rethinks, the New Deal and the “American dream” it gave rise to. But we should not underestimate the challenge we face.

The public is being fed easy answers based on identity politics rather than ideology, and a technological revolution is further expanding the pool of footloose and uncertain voters whose allegiance we are competing for.

Slogans like “Take Back Control” for Brexit, or “In the Name of the People” for the Front National in France, or even “America First ” are designed to avoid hard policy choices and will ultimately fail.

But waiting for that to happen is not good enough we must also offer a positive alternative. And there is some encouragement.

In Britain, it’s true that the prime minister, Theresa May, in lockdown over Brexit, is pursuing a series of strategic misjudgments which could result in Britain crashing out of the EU without a deal on trade, investment, cross border policing or defense. This would be calamitous for the U.K.’s future prosperity and security.

But May, recognizing that our model relies too heavily on insecurity for individuals to deliver profits, says she wants to build a new center ground that “improve[s] the security and rights of ordinary working people ...[in] a country and an economy that works for everyone, not just the privileged few.”

And she has definitively buried Margaret Thatcher’s approach towards manufacturing by launching an explicit “industrial strategy .”

In France, presidential candidate Emmanuel Macron has gone further, arguing traditional party politics is dead and that a more flexible “movement” between the center-left and center-right is needed to overhaul France.

His policy program is still under development, but it promises protection  for example cracking down on antisocial behavior, taking a robust approach to trade defense and opportunity, with a state investment program and more equal treatment of workers outside traditional bargaining structures.

In the European Union institutions, European Commission President Jean-Claude Juncker has recognized that “irreversible momentum” towards integration has stalled and has started a debate about how the EU can be strengthened through reform.  

The purpose of the EU as a source of power to protect European interests and project our values is as valid now as it was to create peace, reunify east and west and to generate unprecedented prosperity in the past.

The eurozone and its currency are not threatened. But nonetheless profound questions of political identity, solidarity and legitimacy need to be addressed in Europe and no amount of institutional redesign will substitute for tangible policy evidence of the EU’s value in the years to come.

Inevitably this will include examination of the contribution and responsibilities of businesses. There is still a consensus on the center-left and center-right that politics must harness the energy and disciplines of the market and the technology that comes from business innovation.

But this consensus is more fragile than at any time in the last 40 years. Business has either to become part of the solution to the problems I have talked about, or it will be in the line of fire. So what does this necessary rethink of policy mean for business?

It will mean new challenges for companies, particularly those operating across borders.

It will lead to higher expectations of how they treat workers, a questioning of models based on “self-employment,” without a fair balance of rights and responsibilities for workers.

It will mean fewer opportunities to “optimize” or avoid tax, with calculations of liabilities based on the sources of revenue as well as the nominal location of “profits.”

Technological “disruption” will continue, but for many this translates poorly outside Silicon Valley and its impact needs to be managed in farseeing ways.

Honesty and transparency are needed about how customer and employee data is used including where control of data creates unfair market power, and where there is already dangerous pressure for the state to micromanage the market in this area.

And we already see examples of how these pressures can translate into poorly designed policy, such as border adjustment taxes or forced data localization. 

But the largest challenges will be for countries to continue to work together to align regulation, to reduce friction at borders and allow skilled people to move around to provide services, as the EU and to a lesser extent the World Trade Organization do presently.

The biggest risk in the current political debate is that we move from the undeniable truth that globalization could work better to the false conclusion that we are better off without it.

In the case of Brexit, if the U.K. and the EU can find the right ways to secure trade between them, designing and enforcing new rules and winning public support for significant compromises to do so, this will generate confidence internationally.

Perhaps the costs of abject failure have to be brought home to the U.K. and EU before this happens, including the huge economic burden of having to duplicate functions and activities in the U.K. and in the EU27 and to comply with different market rules.

This will limit the ability of European and British firms to grow and innovate, passing opportunities to global competitors, American as well as Asian ones, to eat our lunch.

Indeed many speculate that the greatest beneficiaries of cutting off London’s financial sector from mainland Europe will not be any European financial center but rather New York, Singapore or Shanghai.

Tony Blair has argued that global cooperation and global institutions such as NATO were necessary and indeed had a duty to protect human rights, adapting to new threats and new opponents.

We face a similar challenge today to adapt and renew the case for our economic cooperation and the international institutions that promote this.

Is the West capable of such resolve or are we inevitably in decline?

My answer is no, we are not entering a post-Western world, because our people, our businesses, our rule of law and our capacity for innovation continue to succeed and shape the world.

But will we experience continued political risk without significant reform? Absolutely. And this applies across the waterfront of public policy whether in respect of tax and social security, education and skills and health care. 

That’s why we need to act with equal amounts of humility and determination, offering hope instead of cynicism and progress instead of fracture.

We need a competition of ideas between the center-left and the center-right. But first we must deal with this nonsense that what matters most is bringing back an idealized past.

As someone who has been through dark days for progressives before, I know the importance of first understanding why we are where we are. Why voters are where they are. And to draw inspiration for the hard work ahead.

We in the West can only move forward, as economies and societies, but we must also make sure we travel together, with no one left behind.