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ForCarol

Contents

Listoffigures

Introduction:TheideaoftheWest1 Letbattlecommence2 Inequalityandfairness3 Democracyandtheartofself-entrapment4 SettingAmericastraightagain5 Britain,theirBritain6 Europeanparalysis7 TheJapanesepuzzle8 SwedishandSwissHoudinis9 Silverhairandsmartdrones10 Barbariansatthegate11 ThefateoftheWest

NotesandreferencesAcknowledgementsIndex

Figures

2.1 RatioofCEOpaytoaverageworker’spayatlistedcompanies,2011–123.1 PublicinvestmentandconsumptionintheWest,1980–20145.1 UKgeneralelections,1945–2015:turnoutandwinningparty’sshareofthe

vote6.1 WesternEuropeandUSunemploymentrate,1955–20156.2 EUproductivityrelativetotheUS,1950–20167.1 GrowthinrealGDPperhead,Japanandselectedcountries,1990–20157.2 Governmentdebtas%ofGDP,Japanandselectedcountries,20158.1 GrowthinrealGDPperhead,SwedenandOECD,1970–20148.2 Sweden,taxationandwelfarespendingas%ofGDP,1990–20149.1 Workingage(15–64)population,1950–20509.2 Employmentrateofover-65s,2015%9.3 France:lifeexpectancyandretirementage,1970–20149.4 Medianageofpopulation,1990–2050

THEFATEOFTHEWEST

Introduction:TheideaoftheWest

FORAS LONGASANYOFUSCANREMEMBER, to bemodern hasmeant to beWestern, and to beWestern has meant being at the forefront of pretty mucheverything–ofscience,ofsocialchange,ofculture,ofaffluence,ofinfluence,ofpowerinallitsforms.Noteveryonehaslikedthisstateofaffairs,eveninsideWestern countries themselves, but regardless of sour grapes or ideologicaldiscontentthisWesterndominanceofmodernityhasbecomesuchanestablishedfactthatwehavelostsightofquitewhyitisso.Wehavealsolostsightofquitewho we mean by “Westerners”, albeit for the benign reason that neithermodernity nor the features that bring it are any longer exclusively associatedwithgeography,anylongerexclusivelythepossessionofwesternEurope,NorthAmerica and those countries elsewhere that shared European origins throughcolonial histories. Japan, Taiwan, Slovenia and South Korea are now asintrinsicallymodernandWesternasareSweden,FranceandCanada.Forwhattheyshareisnotgeography,nothistory,butanidea.

Itisapowerfulidea,onethatmatters.Itmatters,mostobviously,becauseithas brought levels of prosperity, well-being, security, stability, peace andscientificprogressthatinpreviouseraswouldhavefeltsimplyinconceivable.Itmatters, right now, because it is under threat and under attack, not principallyfromoutsidetheWestbutfromwithin.Itisunderattackforthegoodreasonthatithasrecentlyfailedtodeliverenoughofwhatcitizenshavecometoexpectofit, notably fairness, prosperity and security, butwith thebad consequence thatpeople and forces that stand for distinctlyunWestern ideas, chief among themDonald Trump, have risen to prominence and power. Those ideas could, ifallowedtoprevailandbecomeentrenched,destroytheWestandmuchofwhatithasachieved.

Suchadefeatwouldbeatragedy,ofhistoricdimensions.FortheideaoftheWest has provided more freedom and opportunities to more people in everycountrythathasadoptedit,thananyotherwayoforganisingasocietyhaseverachievedbefore.Ittrulyhasbeentheworld’smostsuccessfulpoliticalidea,byfar. One reason why so many have liked it, and why others have beenconverging on it, is that when nurtured it brings a virtuous circle, by which

freedom and the widespread chance to create new things and lead relativelyunconstrained lives bring prosperity, stability and security, which in turnprovides the social trust and economic resources that make further progresspossible.

Weoftencallthisidea“liberalism”,or“liberaldemocracy”,butneithertermquite commands either the heart or the brain. The heart demurs because thewordssoundtootechnical,philosophicaloracademictostirthepassions.Theycan anyway confuse, as to someAmericans the term “liberal” has become aninsult connoting what they see as the excessive use of taxpayers’ money tocosset undeserving citizens and distort markets, while to others, especially inEurope,by adding theprefix “neo” the sameword can insult by connoting anadvocate of brutal market forces. The brain rebels at this confusion but alsodemursongroundsthat“liberaldemocracy”isatautology–howcouldtherebean “illiberal democracy”, since democracy is supposed to give power to thedemos,thepeople?–orthatinmodernusetheworddemocracymustcarrylittlemeaningbeyonddescribingamechanicalprocessthancanbeusedorabusedatwill.

Behindthosephrases,however, lietwoothercrucialwords–onecouldcallthem ideals or even lodestars. The first is openness, for the Latin liber orfreedom expressed through liberalism is both a desired outcome for theindividual and a statement of the condition of any society in which such acollectionoffreeindividualsresides.Suchasocietyisonethatistherebyopentonew ideas,newelites,newcircumstancesandnewopportunitieswhetheroftrade in goods and services or of culture and science. It is thus a society notdirectedbyacentralintelligencebutformedbythecollectivedesiresandactionsofitsmembers.Whichleadstothesecondidealorlodestar:equality.

Openness has required a steadily advancing notion of equality in order tomakeitsbracingwindsworkandbeacceptedbysocietyat largeoverthelongterm. Otherwise, conflicts inevitably arise between free individuals, with nomeans available to temper or resolve them, as some come to feel neglected,disadvantaged, powerless or left behind. This is exactly what has happenedrecently in the United States and in many countries of western Europe. Thefeelingofequalityhasbeenlost,neglectedorsimplyeroded.

Thisconflict-resolving,sociallysoothing“equality”isnotprincipallyoneofincome or wealth – though widening gaps between rich and poor can affectequality’s practical meaning, for good or ill – but rather of voice, rights andtreatment,ofhavinganequalsayandparticipationintheopennessthatisbeing

established.ItiswhatinancientGreekdemocracywascalledisonomia,equalityof political rights, which also crucially encompasses equality before the law.Thusinshorthandwecancallitcitizenship.

InancientGreeceisonomiahad,andhassincehad,variousextensionssuchasthe equal right to speak in a parliament, but such things represent particularchoicesmade by particular political systems. It is the principle of equality ofrightsandofvoiceforalladultcitizensthatconnectstogetherallcountriesthatoperate according to the rule of law, that protect freedom of speech andinformation,andthatchoose toprovidepoliticalaccountability throughregularfreeelectionsbasedonauniversaladultfranchise.

The sense of shared interest that such equality represents has furtherencouragedsocietiestochoosetomakecollectiveprovision,throughlawsortheuseof tax revenues, forsome“publicgoods” thataredeemed tobeofgeneralsocietal benefit, such as access to mandatory and state-financed education, toformsofsocialwelfareincaseofhardship,tobroadlyavailableandaffordablehealthcare,andtosecurityprovidedbyarmedforcesandpolice.ThatisonomiaisthesortofequalitythathasbeenenjoyedbyJapaneseandAmericans,FrenchandSwedes,AustraliansandBritishalike,evenifitspreciseformdiffersgreatlyfromplacetoplace,fromculturetoculture.

Weare, andalwayswill be,unequal in all sortsofways– income,wealth,talent, profession, personality, social status – but in principle in a Westernsocietyweare,orshouldbe,equal inourbasiccivicrightsandinthepoliticalvoice that this gives us. This equality of rights serves to flip the emphasis insociety away from central, dictatorial direction and towards a more organic,bottom-upcharacter.Itprovidestheprotectionofproperty,ideasandactionsthatallows or encourages us to take risks, create new things,make investments oftime andmoney. It represents, too, a fundamental humility, in contrast to theutopianarroganceofcommunismandfascismorofanydictatorclaimingtobeomniscientandomnipotent. It iswhatprovides thesocial trust, the legitimacy,thatallowsasocietytoabsorbandadapttotheshocksandtransformationsthatopennesshasbrought,andwillalwaysbring.

ThisWesternideahasbeenenormouslysuccessful.Now,however,theideaisintrouble,deeptrouble.AfeelingofdeclinehassetinintheWesternheartlandsoftheUnitedStatesofAmerica,Europeand–atrueWesternheartlandfromatleastthe1970sonwards–Japan.Thedeclinebeginswitheconomicfailureanddisappointment,andmovesontoageing,lessvigorousdemographicsandthentoa new sense of impotence in influencing world affairs. This feeling, and the

ailments that lie behind it, areproducingnewdivisionsbetween countries andwithinthem,creatingcracksinthestructuresof internationalcollaborationthatWesterncountriesbuiltduringthedecadesafter1945andwhichhelpedtoaddtoour collective strength and resilience. These are pessimistic times, times ofdisintegrationandoftherekindlingofoldnationalisms.Ourknowledgeofwheresuch forces led us during the first half of the 20th century rightly adds to ourpessimismandforeboding.EvenmanyofthosewhovotedforTrumporBrexitin2016mustnowsharethatforeboding.Theirvoteswerecriesofangerat theestablishment and the system they see as having failed them, not necessarilyendorsementsoftheideasthatherepresentsorthatBrexitwillbring.

Trump’s 2016 campaign, like the campaigns of other anti-establishmentpoliticalmovementsonbothsidesoftheAtlantic,wasrightinmanywaysabouttheproblemsfacedby,andfeltby,citizensofWesterncountries.Buttoberightabouttheproblemsdoesnotmakeyourightaboutthesolutions.Thethreemainsolutions that America’s president stands for are all deeply threatening to thefutureoftheWest:hehassaidhewillwithdrawfromfree-tradeagreementsanduseprotectionistmeasurestobenefitAmericancompaniesandpunishforeigners,anapproachnotusedsystematicallybyanyUSadministrationsincethe1930s;he has indicated that he does not consider the security alliances the US hasstruck since 1945 as any longer part of America’s essential national interest,castingdoubtevenonwhetherunderhispresidencytheUSwouldstickbythemutual defence obligation inwhat has been the country’smost important andstrongest postwar alliance, NATO; and he has set about seeking not only totightenupAmericancontrolofimmigration(asmanycountrieswishtodo)butalso to discriminate in immigration procedures according to country of originandbyimplicationreligion,whichwouldtakeUSimmigrationpolicyback,too,tothe1930s.

SuchsolutionsthreatentheWest,firstbecausetheywouldreplaceopennesson trade, anopennessgovernedby agreed international rules,with a reversionnot only to closure but to a system of commerce based on threats and brutepower. In such a system, the chosenmeasure of success is not the amount oftradenor itsbenefit toconsumers, ashasprevailed since1945,but the sizeoftradesurplusesanddeficits,aviewoftrademorecommoninauthoritariantimes.Secondly,itwouldthreatenbecauseitwouldincreasedivisionsamongcurrentlyliberal,open,friendlynations,reducingtheflowofideasbetweenthemaswell,crucially,astrust.Thirdly,itwouldthreatenbecausebycastingseriousdoubtonlong-standing alliance structures and commitments it would inevitably lead

countries to hedge their bets and form new relationships with non-westernnations, breaking a basic assumption that liberal nations aremore dependableandtrustworthyforeachotherthanareothercountries.

PeterThiel, aSiliconValleybillionairewho supportedTrump,has fosteredthe notion that while the new president’s voters took him seriously but notliterally, his criticsmade themistake of taking him literally but not seriously.Yetwhetherornothispolicyideasshouldbetakenliterally,what isseriousisthat they suggest he does not understand the problems he – or any westerngovernment–needstosolve.

Our current ailments can, and should, be blamed on the long aftermath ofwhatin2008wasthegreatestfinancialcalamitythatWesterncountrieshadseensince the 1930s, a calamity that had as its cause a devastating blend ofcomplacency,negligenceandcorruption inprecedingyears.Thatcalamityhadinequalityofpoliticalvoiceandpowerhighamongitsorigins,andthefailuretodealproperlyandfairlywithitsconsequencesisalsoasymptomofinequality.Asysteminwhichthebanksthatcreatedthecalamityhavebeensupported,andinwhichtheirpresentandpastexecutiveshavestayedrich,butinwhich15millionhomeownersintheUSsawtheirmortgagesforecloseduponin2008–12,isnotasystemlikelytofeelfair.

A rapid recovery in jobs and incomes from the 2008 calamitymight havequelledtheanger,whetherintheUS,theUK,France,Italyorelsewhere.Butitdidn’thappen.Nearlyadecadelatertoomanycitizensfeeltrappedindudjobs,dud circumstances, dud education. More deep-seated forces, includingtechnological change, the impact of ageing populations and growing incomeinequalityhadalreadybeencausingstrainsbefore2008,strainswhichcouldandshouldhavebeendealtwithbygovernmentshadtheybeenmoreattunedtotheequalityofcitizenshipandbetteratpreparingtheirsocietiesforthelongerterm.But theyhadnotbeenandwerenot,andthevastnessof thefinancialcalamitythenswampedeverything.

The result is that many of our societies have lost confidence in thecombination theyhaveenjoyedofopennessandequality,as theyhave lost theprosperity,security,stabilityandwell-beingthatthisblendhadbrought.Insteadof supporting each other, acting together as our lodestars, the principles ofopennessandequalityfindthemselvesinconflictwithoneanother,inmoreandmoreofoursocieties,makingvariousformsofclosednessincreasinglypopularaspotential solutionsand increasinglydemandedby thosewhosee themselvesashavingbeenleftbehindasunequalcitizens.

To understand this malaise and to overcome it we need to recognise that,powerfulandsuccessful though it is, theWestern ideacomeswithat leastoneimportantweakness,onethatneedstobeovercomeatregularintervals.Thisisthat theway inwhich aWestern societyworks is so free, sodecentralised, solackinginanyblueprintorfixedmannerofdoingthingsthatitsessentialvirtuesareeasytotakeforgrantedandeveneasiertoneglectordistort.Whichmeans,inturn,thatitiseasyforthatessencetobeunderminedandsubverted,notjustby ill-wishersoutsidebutby inadvertent, self-interestedandsometimesmaligninsiders.Openness, equality and their expression throughdemocracycan,overtime,servetoweaken,undermineandpotentiallydestroytheirownfoundations.

That,asthisbookwillseektoshow,iswhathashappenedintheUSandtheUK,inFranceandItaly,inJapanandGermany,mostdramaticallyintherun-upto2008.Forthatreason,theideaoftheWestandourunderstandingofwhatitmeansneedperiodicallytoberefreshedandreinvigoratedsothatthisweaknesscanbeovercome.Tostaymodern,Westerncountriesneedtojoltthemselvesoutoftheirinnatecomplacency,torevisittheessentialvaluesthathavemadethemso successful, and to revive and if necessary reinvent them.Yet to be able toachievesuchjolting,revivalandreinventiontheWestneedsatthesametimetowin the battle of ideas against those now arguing for solutions of closure, ofisolationism, of exclusionary nationalism. President Trump is nothing if not ajolt, but he is likely to be a jolt in thewrong direction.And his disregard forfactsandthetruth,shownrepeatedlyduringthecampaignandsince,threatenstokeepcitizensinignoranceormisleddenialratherthanwakingthemuptoreality.

Thereisalso,however,afundamentalmotiveforoptimismandforagreaterconfidence inourselves,one that isbasedon themost fundamentalstrengthoftheWesternidea.TheveryreasonWesternsocietieshavesurvivedandthrivedisthat with openness and equality has come a vital characteristic: the ability toevolve,inthefaceofnewthreatsandconditions,internallyandexternally.TheWesternidea,ifitisprotected,preservedandwhennecessaryrevived,containswithinitapowerofevolutionthathasprovedsuperiortothatofanyotherformofsocialorganisation.

Recent history gives us a simple but compelling example. In 1956 NikitaKhrushchevproclaimedtoagroupofWesternambassadors:“Whetheryoulikeit ornot, history isonour side.Wewill buryyou.”Aswenowknowhewasprovedwrong.ThereasonisthattheWesternsystemprovedfarmoreflexible,moreevolutionary,thanwastheSovietsystemoverwhichKhrushchevpresidedaspremier.

Itwasnotamatterofhavinghistoryonyourside.Itwasamatterofhavingtheabilitytoadaptandlearnnewstepswhilehistorywasleadingeveryoneonitsmerrydances.TheSovietUnion’sproblemwasthatitprovedrigidandclosed,unable to evolve as a system or as a society, so in the end it toppled over.Meanwhile,thecountriesweknowofastheWestadaptedandchanged,intheirdifferentways.LiketheircommunistrivalstheyfacedcrisesandsocialdisorderofvariousformsduringtheperiodoftheColdWar:the1968youthmovementsin Europe, civil rights and anti-war protests in the US, terrorism in Italy andGermany,strikesandseparatistviolenceintheUK,protestsandenvironmentaltroubles in Japan. They oftenmused during those troubles that the good daysmightbeover.Theywereoftendividedagainsteachother.Buttheyfoundwaystoadjustandtodealwiththesesortsofproblemsthroughevolutionratherthanrevolution.

The source of the West’s evolutionary power has been its openness, itsequalityof rights,andso itssocial trust.Levelsandformsof these ingredientshave varied between countries and continents, as well as over time. There isample room for debate about how open, equal and trusting societies can orshouldbe,onmanydimensions.Butallhaveshown–sofar–theabilitytorollwithhistory’spunches,toadapt,evolveandfindnewwaysofdoingthingsandnewthingstodo.Ourconcernnowmustbewhetherthatabilityremainsintactenough to be repaired, or whether it might now be or soon become fatallyweakened.

Such a concern is not new. When Oswald Spengler, a German historian,publishedhisepic two-volumebookDeclineof theWestat theendof thefirstworld war, he had in mind aWestern civilisation which he considered to beEuropean-American, andhehad a conceptof it thatwas less about ideas thanabout cultures.1 It is not surprising that, at the end of such a devastating andultimately pointless war, Spengler saw the European-American civilisation asbeinginitstwilightorsunsetperiod.Plentyofothersfeltsimilarlygloomy.Hisargumentwentfurther,however:hepositedthathistoryhadconsistedofaseriesof civilisations, of high cultures, each ofwhich passed through cycles of rise,maturityanddecline.ItwasnowtheturnoftheWestern,thatistheEuropean-Americanworld,toslipintodeclineand,ultimately,tobereplaced.

Since Spengler gave his civilisational cycles roughly 1,000 years each, weshouldperhapsnotbetooquicktoconsiderhimwronglessthan100yearslater.The second world war, culminating in the dropping of two atom bombs onJapanesecities,wasaprettyapocalypticevent,onewhichcouldhaveledtoeven

worsedestructionhadeitherGermanyorJapansucceededindevelopingnuclearweapons to compete with those of the US. Between the two world warsMahatma Gandhi is said (possibly apocryphally – no firm citation has beenfound)tohavebeenaskedwhathethoughtofWesterncivilisationandtohaverespondeddrily: “Itwouldbe a good idea.”Had the secondworldwar turnedmorewidelyatomic,itcouldhavebeenadeadidea.

It did not andwe have flourished, instead, formore than 70 years, addingmore andmore countries to the list of flourishingWesterners asmore nationsconvergedontheideasthatbringmodernity.Thequestionthatstandsbeforeusnow,waggingitsfingersandshakingitsheadatusinasomewhatSpenglerianmanner, iswhetheror not this periodof flourishinghas come to an end, or atleast is coming to an end. The West may no longer be definable in thecivilisational terms that Spengler deployed 100 years ago, nor is it simplyEuropean-American.Butplentyofpeoplethinkthatitisindecline.

Wearelivinginatimewhenopennessisunderchallenge,whenequalityofrights and treatment is under greater doubt than formany decades, andwhensocial trust is looking frayed.We seem to be losing faith in the idea that weourselves created, through a long process of trial and error, of how best toarrangeoursocieties.This lossof faith isputting indanger thevery thing thatmade us not just survive but also thrive: the ability to evolve, to adapt tochangingcircumstances,toovercomethreatsandpredators.

ThefateoftheWestnow,andinthedecadestocome,isinthehandsofthatevolutionary ability, and thus of our ability, as citizens ofWestern countries,first to resist attempts to closedoors, borders andminds, and then to identify,agreeuponandremovethemajorobstaclesthathavebuiltupandareblockingsuch evolutionary change. There is ample cause for optimism. Our record, asWestern countries, of confounding our own doubters and of dealing with ourowndemons,shouldgiveusconfidence thatonceagain this fightcanbewon.Butnothing,ofcourse,isinevitable.Thefightison.

IftheideaoftheWestistoprevail,wewillhavetofollowagainourlodestarsand keep this firmly in mind: without openness, the West cannot thrive; butwithoutequality,theWestcannotlast.

1Letbattlecommence

Aliberalisamantoobroadmindedtotakehisownsideinaquarrel.RobertFrost,1874–1963

SomuchofliberalisminitsclassicalsenseistakenforgrantedintheWesttodayandevendisrespected.Wetakefreedomforgranted,andbecauseofthiswedon’tunderstandhowincrediblyvulnerableitis.

NiallFerguson,TheObserver,2011

Thiscivilisationhasnotyetfullyrecoveredfromtheshockofitsbirth–thetransitionfromthetribalor“closedsociety”tothe“opensociety”thatsetsfreethecriticalpowersofman…theshockofthistransitionisoneofthefactorsthathasmadepossibletheriseofthosereactionarymovementswhichhavetried,andstilltry,tooverthrowcivilisationandreturntotribalism.

KarlPopper,TheOpenSocietyanditsEnemies,1945

THE REACTIONARYMOVEMENTS are trying again. Theymay not believe theywish to overthrow civilisation but are nevertheless leading us back towards aform of tribalism, one which will put civilisation at risk along with all thefreedoms that we take for granted. The claim by Marine Le Pen, leader ofFrance’s Front National, that today’s true political contest is one betweenglobalismandpatriotismisafirmlytribalone,eveniftheFrenchtribeislarge.So is the “America First” slogan of Donald Trump, the US president, whichechoes earlier nativist calls in his country during the 1920s, 1890s, 1850s and1840s thatdoors shouldbeclosed inorder to favour someestablishedcitizensagainst newcomers or immigrants. Theresa May, the UK’s post-Brexit primeminister,showedthatabattlewasraginginherownmindoveropennessandthe

politicsofnationalidentitywheninaspeechinOctober2016shestated:“Ifyoubelieveyouareacitizenoftheworld,you’reacitizenofnowhere.”Itisnotjustthatshewon’ttakeherownsideinthequarrel.Sheseemsunsurewhichsidesheison.

This battle, this clash between tribalism and openness, reflects feelings notonlyof fearbutalsoofdoubt.Doubtaboutourability in theopensocieties tocope with the many threats we see to our civilisation, threats to the way ofconducting domestic and international affairs that our advanced, wealthysocieties standby and try to live by.Doubt, even, about the rightness and thesustainabilityof theopensocietyitself inthefaceofall thethreatsoutsideourdoorsandof thefinancialcatastrophe that theUSandwesternEuropebroughtuponallofusfrom2008onwards.Suchworriesarenotunreasonable.Afterall,wehavemadequiteamessofthingsoflate.

Theexternal threatsarereal,for theinstinctsof tribalismremainstrongandalwayswill.Closedsocietiesofthesortadvocatedanddreamtofbyleadersofthe Islamic State,1 or by the violent jihadists of Osama bin Laden’s al-Qaedawho preceded them in instilling horror and fear inWestern hearts by killing2,996peopleintheUSonSeptember11th2001,orbythelikesofBokoHaramin Nigeria and equivalent organisations elsewhere in Africa and Asia, willalways have an emotional and spiritual appeal. This is why some tens ofthousandsofpeoplehaverunfrominsideopensocietiestowardsIslamicState’ssupposed“caliphate”inSyriaandIraq,lookingforasenseofbelonging,identityandpersonalor religiouspurpose,evenasmanymillionsmorehave runawayfromit,lookingforsafetyandfreedom.Suchtraitorstoopennesshavebroughtdeathanddestruction to theverycities inwhich theygrewupand lived, fromBrusselstoParis,fromSanBernardinotoNiceandBerlin.Thistribalismisnotransitionalphenomenon,evenifyoumeasuretransitionalintermsofmillennia.

Theworldstill,moreover,hasalargesupplyofdictators,eagertobullytheirpeoples, their neighbours and often us. For it remains abundantly clear thatclosingsocieties, imprisoningtherebythecriticalpowersofman,ispowerfullyattractive for any dictatorial ruler or ruling regime that wants to reinforce orentrench their authority and thinks they can get away with it. The idea thatauthoritarians can no longer do so, promoted in 1993 by that great capitalistautocratRupertMurdoch,whosaidtheninaspeechthatsatellitetelevisionandother telecommunications technology posed “an unambiguous threat tototalitarianregimeseverywhere”,2andfurtherfosteredbysuchcommentatorsastheNewYorkTimes’sThomasFriedmaninhis1999paeantoglobalisation,The

LexusandtheOliveTree,hassincebeendisprovedcomprehensively.Theycanstillgetawaywithitandoftendo.Thosewhorunclosedversions

ofmodern nation-states, including Russia, which purports to be a democracy,andChina,whichdoesn’t, still relish thedecision-making freedomandcontrolthatclosednessgivesthemandhaveplentyoftoolswithwhichtoconstraintheflow of information and ideas into and within their territories. Seeing theirsuccess in asserting such control, some other countries that had become openand fairlyWestern in their ideas, such as Turkey andHungary, have recentlybeen tempted to slide backwards and close some doors. The greater shock isseeingthattemptationtakeholdinwell-establishedWesternsocietiestoo.

Dictators’treatmentoftheirownpeopleisatragedybutonlyrarelyathreattoothers.However,theybecomeawiderthreatwhentheytrytounderminetherules and conventions by whichWestern societies have sought since 1945 tokeeptheworldpeaceful–or,atleast,morepeacefulthanitwouldotherwisebe.InthepastdecadetheleadersofRussiaandChinahavebothdecidedtosettheirown rules internationally, to lay their own facts on the ground,most recentlythrough the annexation or seizure of territory inUkraine and the SouthChinaSea respectively,where their actions have challenged accepted precepts aboutinternationalborders, theruleof lawand theUnitedNationsCharter, towhichboth countries were founding signatories in 1945 while under previousauthoritarianregimes.Powerpoliticsstilltrumpsinternationallaw.

The histories of the SovietUnion and of communistChina show that suchauthoritarian regimes can last for many decades and generations, and today’sRussia shows that even when they seem to have died they can resurrectthemselvesinanewform.TherecentuprisingsintheArabworldshowthatthedemiseofoneauthoritarianregimecanreadilyleadtoanother,oftenafteranall-too-short intermissionof openness.We shouldnot be surprisedby this – afterall, in 1917 the overthrow of Russia’s tsarist regime was followed by tworevolutions inside a year, the secondofwhich introduced totalitarianism–butweoftenare.Theageofauthoritarianismisfarfromover.

Sucharetheconstantrealitiesofdomesticandinternationalaffairs.Tosaysois not to diminish such potent threats and sources of dismay but rather to putthem into historical perspective. The much more important question is whatthosefortunateenoughtoliveinopensocietiesshouldthink,anddo,aboutthesethreats.Doestoday’sreappearanceofthoserealitiesmakeopennessunwiseandunsustainable? To protect ourselves, dowe need to let the authorities tap ourphones and e-mails, treat citizens unequally just in case they might be

dangerous,build fencesalongourborders asDonaldTrumphasadvocated,orbring in emergency powers as France has done? Should we withdraw frominternational institutions of shared sovereignty and collaboration such as theEuropeanUnion,to“takebackcontrol”astheUKvotedin2016todo?Arewenow so powerless to influence world affairs for the better that we had betterabandontryingtodoso,hidinginourdomesticfortressesinstead?

Currently,nervesarefrayingandconfidenceislow.Justashappenedinthe1920s and 1930s, siren calls are being heard about the inherent weakness ofdemocracies, about how openness makes you vulnerable, about how truepatriotism is at odds with the greatest current expression of openness:globalisation. Many anti-immigrant, pro-closure politicians, from France’s LePentotheUK’sNigelFarage,fromHungary’sViktorOrbantotheUS’sTrump,have been heard to comment admiringly about how decisive and effective isRussia’s leader,Vladimir Putin, in contrast to the constrained ditherers of theWest.TheimplicationthatprovedsodeadlyduringtheinterwaryearsinEurope,thatdemocracymightbeforwimpsorforlosers,iscreepingback.

Yetinresponsetothisweneedtoreflectharderonwhatarethetrueoriginsofourcurrentmalaise.Thetemptationtolookoutside,toblameforeignersanddarkexternalforces,isalwaysstrong,butthatdoesnotmakeitright.Whatisitthathasmadeuslessprosperousandfeellesssecure?Whatisitthatismakingsizeable parts of our societies feel that they have been left behind with suchunequalrightsandinsecuritythattheyarewillingtosupportradicalforcesthatwould throw away openness purportedly to restore their sense of equality orshoreuptheirsenseofidentity?

The answer to both of those questions lies chiefly at home. It is our ownfailures,withinoursocieties,thathavecreatedtheseproblemsandfeelings,andwhichposeabigger,morelastingdangertousthandoIslamicState,PresidentPutin,orChina,whetherpoliticallyoreconomically.Thesefailuresemanatenotfromany civilisational destinybut rather fromerrors, pressures and especiallyinterestgroups insideour societies andpolitical systems.Theycome fromourownformsoftribalismandfromthosetribes’eternaldesiretorecreatedivisionsanddestroysocialunity.Therightsloganisnot“AmericaFirst”,noristherightapproach a stop-the-world-I-want-to-get-off economic nationalism. Instead weneedtocleanupandrepairourdemocraticandeconomicsystems.Weneedtounderstand,and thendefeat, theenemies that liewithin.Wereallydoneed,asTrump has said, to “drain the swamp”. If, however, we just close the doors,raising barriers to trade and competition,wewillmerely increase the damage

being done by monopolists, cartels and those with excessive political power.Selfishness,andtheabilitytopursueit,willbecomegreater,notless.

Ironically, thoseselfishgroupsandpressures thathavebecome theenemiesof democracy and economic freedom are often the beneficiaries andconsequencesofopenness.Theyareoftenapparent friendsof theopensocietythat have, sometimes unknowingly, become its enemy by steadily eroding itsbasicfoundationsandundermining it,mostoftenby takingWesternvaluesforgrantedorbypursuingtheirowninterestsandexploiting thecomplacencythatlongperiodsofstabilitynaturallyengender.These“frenemies”and theireffecton the political and economic behaviour of open societies are the principalsubjectsof thisbook,becausetheyarethemost importantfoestodefeat.Theyare the true sources of the sense of inequality that is currently threatening theopenness thathasenabledus in theWest to flourish.Theyare theexplanationforTrump,forBrexit,forLePen.AstrongWesthasalwaysbeenabletocopewithaturbulentandtroublingworld.ItisthankstoourfrenemiesthatwhatwecurrentlyhaveisaweakWest.

*

Intheaffluent,developedcountriesofNorthAmerica,Europe,Japanandotherpartsof theWest, it is easy to forgethowneware thegenuinelyopen, liberalsocietiesthatweenjoytoday.Itiseasytotakethosesocieties,andthefreedomsandlivingstandardstheyhavebrought,forgranted.MargaretThatcherwasfondofsayingthat“whenpeoplearefreetochoose,theychoosefreedom”.3Wereshealive today shemight add “andwhen they have had freedom for a long time,they often forget how lucky they are”. She would have been aghast at thethoughtofaneconomicnationalist,anAmericaFirster,intheWhiteHouse.

WhenKarlPopper,anAustrian-bornphilosopher,wasdraftinghisbookTheOpen Society and its Enemies in the late 1930s and early 1940s, truly opensocietieswerenew,fewand ingravedangerofbecomingevenfewer. In1943Japan, Germany, Italy, Spain, Portugal, Brazil and Argentina, among others,weregovernedbydictatorshipswhichlimitedfreedomsofmanykinds.Tothatlist of thenclosedand suppressed societies canbe addedall the countries thatwere under the grip of European and Japanese colonial empires, of GermanwartimeoccupationandofRussia’scommunistempireoftheSovietUnion.

Inmanyofthosecountries,youngdemocracieshadbeenswiftlysnuffedoutinpreviousdecades,ratherastheyhaverecentlybeeninmanyofthecountries

ofthepost-2011Arabuprising.Thefirstworldwar,thecollapseoftheOttomanand some European empires, the burdens of post-war debt and then financialcollapse in the 1930s produced such severe economic weakness and such achronic sense of political despair that a search began for alternative formulas,chieflyofclosureandofcollectivism.ThatiswhythemaintargetsofPopper’sphilosophicalattackatthattimewerePlato,HegelandMarx,forinhisviewtheargumentsforcollectivismthattheselong-deadphilosophers’ideasfosteredandlegitimised lay behind the then fashion for totalitarian solutions, and took theworldtowarforasecondtimewithinageneration.

One of the earliest books by Peter Drucker, another Austrian, who laterbecamefamousasamanagementguru,wasentitledTheEndofEconomicMan.4Publishedin1939,itexplainedtheriseoftotalitarianisminEuropebyplacingitfirmly in thecontextof thesocialupheavalscausedby thefirstworldwarandthecollapseofempires,andofsubsequenteconomicfailure.Allofthisproducedaseverelossoftrustinpoliticalelites,whichresultedinmasssupportforleaderswhosechiefappealwasspiritual,magicalorevenprimevalratherthanrationalor intellectual. Today’s populist political leaders, from Le Pen to Trump, areseeking tomakeasimilarappeal,albeit in lesscatastrophic times.Theyare ineffect seeking to change the political subject, away from practical policysolutions they say have failed and towards a more emotional, nationalisticapproach.

Letus,however, fight thembychanging the subjectbackagain.The sevendecades since the second world war have seen an extraordinary flowering ofdemocracy, transforming theopensociety frombeing theworld’sexception tobeingalmost, thoughnotquite, the rule.This floweringhasbroughtwith it anextraordinary period of prosperity. The openness that the Western powerscreated, inculture, tradeand technology,hasbrought thatprosperityunder theprotection of an international order, the policing of which has been led by aUnitedStatesthathasseenglobalprosperityandpeaceasbeingpartandparcelof its national interest. What is in question now under President Trump iswhether the US is going to renounce that international order and global role,decidinginsteadtoadoptthefarnarrowerdefinitionofitsnationalinterestthatprevailed in its previous period of isolationism and protectionism from 1920until1941.

Todosowouldbetoputatriskaremarkablerunofprogress,thebenefitofwhich theUS has shared. In 2015, on themeasure approximating to politicalopenness and liberty that is usedby a respectedWashington,DC-based think-

tank,FreedomHouse,88of theworld’s195countrieswere ratedas“free”,or45% of the total, representing 40% of the world’s population.Meanwhile 48countries,or25%ofthetotal,representing35%ofworldpopulation,wereratedas“notfree”:theirnumberincludesRussia,ChinaandmostofthecountriesoftheMiddleEastandAfricainwhichIslamicStateandotherviolentgroupsareoperating. The remaining 30% of countries, 59 in all with 25% of worldpopulation,are“partlyfree”and thuscouldbedescribedasbeingupforgrabsbetweentheopenworldandtheclosed.

Duringthe1990s,theWesternassumptionwasthatthenumberofthe“partlyfree” would slowly decline as more and more people gained the choice, asThatcherput it,andsowouldchoosetojointhefreeandopenworld.Thatdidhappen during the 1990s, most notably in central and eastern Europe, andfreedom and democracy became solidly entrenched in bothTaiwan andSouthKorea.But themovementsincethenhasnotallbeenoneway.In thefirst twodecadesofthe21stcenturythenumbercountedasonly“partlyfree”hasgrownand a few countries have relapsed into the non-free category, most notablyRussia.Freedomandopennesshavereceded,alittle.

Thisisasetback,butnotonethatjustifiesthepessimismorself-flagellationthat often greets it. Looked at over the longer term since 1945 and especiallysincetheendofthecoldwarin1989–91,thetrendhasbeenmuchmoretowardsthefloweringofopennessandequalitythantheirfading.

Today’s affluent, mature democracies vary a great deal in their social andpoliticalinstitutionsandcultures.NoonecouldhonestlysaythatJapanandtheUS,AustraliaandFrance, IrelandandDenmark, theUKand Italy, topickbutfour pairs among the advanced open societies, are politically, socially,economically and culturally identical or even in close resemblance to oneanother.Theyarepointsonalongspectrum,ofcapitalism,ofdemocracy,evenin somewaysof openness itself.After all, theopen society is an invitation tocelebrateandencouragevarietyanddiversity.

Nevertheless, these pluralistic societies of the West share some importantcharacteristics, both positive and negative. For the current purpose, eight suchsharedcharacteristicscanbeidentified,oneswhichhelpclarifyourbasicvaluesaswell as showinghow it is that thosevalueshavecomeunder suchpressureandchallenge.

1Success

Thefirstsharedcharacteristicissimplythatallhaveseensuccess,ofasustainednature,acrosstheboard,fromeconomicstoculturetoscience,eventosport,asuccessthatisrelatedtotheiropenness,becausethenewideasandcompetitionthatopennesshasbroughthavethemselvesbroughtprosperityandachievement.Afewcountrieshavebeensuccessfulinthatwayforcenturies;therestnowfordecadesandgenerations,especiallyforthemorethan70yearsthathavepassedsince the end of the secondworldwar.Openness in some cases preceded fulldemocracy: the philosophical and scientific “Enlightenment” that occurred inEurope,principallyintheUK,France,GermanyandtheNetherlands,inthe18thcenturywas the product of a spirit of liberty, tolerance and thewelcoming ofnew ideasandelites thatblossomedevenunderstill-powerfulmonarchies,andthengainednew,especiallyeconomic, forcewith the industrial revolution thatwasledbytherelativelydemocraticUKinthelate18thandearly19thcenturies.

Opennesscanberelative,andmovesinsteps,notallofthemforwards.Still,the open societies, at all their stages of opening, have consistently been theworld’s leaders in everymajor field of development for at least the past 300years.5ManyhistoriansattributeChina’slossofitspre-eminence300–500yearsago to its imperial dynasties’ decision to close the country’s borders to mosttrade, and to restrict scientific and commercial enquiry.6 Today, there is nocountrythathasstayedforasustainedperiodamongtheworld’stop25intermsofoveralllivingstandards,asmeasuredbytheUNHumanDevelopmentIndex,that has not been open and thusWestern, except for HongKong, which as aformer,ratheropen,Britishcolonyisaspecialcase.Countriesspecialisinginoilproductionpopinandoutofthetop50astheoilpricerisesandfalls,butamongthemonlyopenNorwaymanagestostayinthetopranksforlong.

2Failure

Yeta second feature, sharedbyalmost all theadvancedopen societies, is thattheyhave recently seen failure, on a grand scale.Themain expressionof thatfailurehasbeenmassivefinancialcrashes,asinJapanandSwedenintheearly1990s,butaboveallintheUSandthewesternpartoftheEUin2008,acrashwhichhadglobalconsequences.Suchfailureshavehurtlivingstandards,pushedgovernments into huge debts, destroyed feelings of hope and opportunity forentiregenerations,andledtotoday’schallengestotheopensociety.

ThefinancialcalamitiesofJapanandSwedenin1990–92andoftheUSandwesternEuropeafter2008shouldnotbeseenasiftheywereexternalsurprises

somehowakintoasteroids,comingtoEarthfromouterspaceandcausinghugedamage. Nor, however, should they be seen as somehow inherent andunavoidable “crises of capitalism” that arise, as Karl Marx claimed, fromineluctable historical processes. They occurred thanks to some very terrestrialbutpowerfulforcesandpolicymistakes.

Theforcesresponsibleincludetheriseofformidablefinancialinterestgroupsamongbanksandbigcompanies.Letusnotminceourwordsaboutwhat tookplace. Those forces distorted or disarmed public policy as a result of theinterplay between those interests and politicians and policymakers, sometimesthroughcorruption,sometimes throughpersuasionanddelusion.A longperiodof success, known to economists as “the great moderation”, generated thecomplacency that left Western political systems open to such delusion andsubversion. A similar complacency and a similar diversion of political andpublic attention by interest groups took hold in Japan during the 1980s in therun-uptothatcountry’scrash.

All theseWesternsufferersarestrugglingtorecover,struggling to learn theright lessonsfromtheir failures.Acommonbutdamagingmistakehasbeen toconcludethatthesefailuresweresomehowtechnicalmatters,theresultsimplyoffaultypoliciesratherasthewrongsettingsonacomputermightmakeitcrashorthe wrong tuning of a racing-car engine couldmake it stall, so that once thesettingshavebeencorrectedbetterperformancewillfollow,giventime.Instead,they reflected a bigger phenomenon: the way in which democracy’s ownweaknessescanleadtodisaster,asinterestgroupswinthedemocraticgame,astherulesofthegamearesubvertedandasthegame’selectedcustodians–thatis,governments–havetheireyesdivertedawayfromwhatishappeningbythedesireforinstantpoliticalgratification.

3TheruleoflawandconstitutionallegalismSuch failures have occurred before. When they have done so, another vitalsharedcharacteristicofopensocietieshassoftenedtheimpactandlessenedthedegree towhich the failures have divided countries and destroyed institutions.Thisfeatureistheseparationofpowersamongpoliticalinstitutions,withchecksandbalancesbetweenthem,allwithinasystemoftheruleoflaw.Opensocietiesare notmadeopen and successful simply by virtue of holding elections.Theyhavesucceededandsurvivedthroughwhathasbeencalledtheir“constitutionallegalism”.7

Put simply, this means that open societies use laws to provide all their

citizens with equal rights, and then surround the processes of making andenforcing these lawswith structures set in constitutions so as to protect themfrom subversion or manipulation. Constitutions define the powers of politicalinstitutionsanddictatetheagreedmeansbywhichthosepowerscanbechangedin the future.Thosewhomake the laws are accountable bydemocraticmeansbutalsotothelaw.

In this regard the contrast is starkbetween theopen societies andcountriessuch as Russia or Venezuela where elections are winner-takes-all affairs inwhichlawsarearbitrarytoolsofpowerandconstitutionscanbechangedatwillor ignored. When in 2001 President Hugo Chavez of Venezuela was askedduring a visit to The Economist about recent constitutional changes in hiscountry,he respondedbrazenly: “Wehaveanexcellent constitution. Iwrote itmyself.”Reachingintohisjacketpockethepulledoutalittlebluebook,signeditandhandedhisconstitutionoverasagift.Hewasnot,safetosay,presidingoveranopensociety.

Thefaith,orat leastbelief, inconstitutionalismandequalitybefore the lawcanbedatedbackcenturies,totheMagnaCarta(inBritainin1215)ortoRomanlaw and the principles of civis romanus sum (“I am a Roman citizen”, amillennium or more earlier), or even as far as the Babylonian Code ofHammurabifromMesopotamiainaround1750BC,allwellbeforeelectionsonuniversal franchises were being held. Such documents were, however, widelydisregardedintheyears thatfollowed.Poweroftentrumpedthelaw,butbattlebetweenthetwohadatleastbeensetforth.

TheprovisionsoftheMagnaCartafortheruleoflawandequalitybeforeitwerenotwidelyhonouredinBritainforafurther500years,atbest.NeitherinBritain nor in the newly born United States of America did these principlesbecome firmlyestablisheduntil the19thcentury,whichwas theperiodduringwhich both countries made dramatic economic and social progress, progresswhichbroughtwith itawideningof thedemocratic franchise.Yet theUSstilldeniedequalcivilrightstomanyAfrican-Americansuntilthe1960sanddeniedwomen equal voting rights until 1920. The UK denied women equal votingrights until 1928, and maintained until the 1960s a colonial empire in whichequalitybefore the lawwaslargelydenied.Equalmarriagerightsforsame-sexcouples is the latest extension of this principle of equality before the law, anextensionthatremainsindisputeinmanycountriesandcultures.8

The fundamentals of open societies remainworks in progress.This iswhatmakesthemimpressive–theyevolveandimprove–butalsovulnerable.

4Socialtrust

One fundamental feature of the open societies has been thrown into particulardoubtby financial calamities and the ageingofpopulations.As alreadynoted,success has arisen from being open to trade, to ideas, to the entry of newgenerations of political, intellectual, cultural and commercial leaders – and,crucially,tobeingabletoacceptandabsorbchange,sometimesquitedisruptivechange,withoutsufferingmajorpoliticalorsocialdisorder.Thisacceptanceandabsorption has been achieved thanks to high levels of social trust, establishedthroughequalitybeforethelaw,throughtheuniversalfranchiseforelections,butalso through the provision of publicly fundedwelfare safety nets and old-agepensionsalongwithmorelong-standingpublicgoodssuchaseducation.

The way this has been achieved has varied from country to country, withextensive welfare provision more important in Europe and Scandinavia, highdegrees of job security more important in Japan and Italy, geographical andsocialmobilitymore important in theUnited States. Social trustwas built upslowly during the post-war decades, sometimes as the outcome of political orsocialconflictamidrapideconomicandtechnologicalchange.

Forexample,therewasmassmigrationfromruralareasintocitiesinJapan,Italyandelsewhereduringthe1950sand1960s,andpainfuldeindustrialisationduringthe1970sand1980sofregionsthathadtraditionallyspecialisedincoal,steel,shipbuildingorotherrustbeltsectors,intheUSMidwest,Germany’sRuhr,France’s Alsace-Lorraine, Belgium’s Wallonia, or the UK’s midlands, north-east, lowland Scotland and south Wales. Such change brought considerabletrouble and strife, but nowhere did that strife lead to a revolution. Whereparticularlynastyconflictoccurred,asinItalyduringthe1970s“yearsoflead”,9ortheUSwithitsmanyviolentprotestsinthe1960saboutrace,civilrightsandthewarsinIndochina,orFrancewithits“événements”of1968,orJapanwithitsstudent protests of the 1960s, such turmoil was in the end contained andmitigated without threatening the country’s political system as a whole. Attimes, though, conflict was ended by handing out welfare entitlements andspeciallegalrights,thepriceforwhichinpublicfinancesandeconomicrigidityisonlynowbeingpaid.

Public finances have been severely hurt by the 2008 financial crisis, andageing populations are putting further strains on public-pension and healthspending, as Chapter 9 will explore. This is casting doubt on the futureaffordability of welfare states and thus of the social trust that they buy or

reinforce.Oneofthemainproblemsis thatyesterday’spaymentstobuysocialtrustdonotnecessarilydealwith today’sor tomorrow’sproblems,but there isfierceresistancetoanycuttingofwhatgroupsconsidertobeentitlements.Thefarmerswhowereboughtoffwithsubsidiesduringrapidrural–urbanmigrationinthe1950sand1960snowblockthestreetswithmanureiftheirflowofpubliccashisthreatened.Coalminersandsteelworkersdidsimilarthingsinthe1970sand 1980s. Some progress has been made in Europe, the US and Japan inreducing such entitlements, though not enough. Today’s far more costlyequivalent to the farmers andminers are pensioners, not because they receivepublicpensions thataregenerous insizebutbecause theyreceive themforfartoomanyyears,asretirementageshavefallenandlifeexpectancyhasrisen.

The single largest contributor to public debts, beyond recession, is public-pension costs, and the single most important solution to those debts, beyondeconomicgrowth,willneedtobearadicalchangein thewayinwhichpeoplethinkabouttheirworkinglives.Withlifeexpectanciesrisingto80–100years,itmakes no sense for people to think of theirworking and thusmain taxpayinglives as making up less than half of that period. To do so violates the basicequalityofcitizenshipandparticipationthathasmadeWesternsocietiesworksowell. Economists’ term of art – “dependency ratio” – to indicate the balancebetweenthosewhopaytaxesbyworkingandthosewhoreceivetheminpublicpensionsgives thegameaway.Anopenandequalsocietycannotsurvivehigh“dependency ratios”, for that would institutionalise inequality and produceconflictbetweenpayersandreceivers.Therewillhavetobesometrade-offs ifsuch conflict is to be avoided: working for more years will have to becomeeasier than it is today, incentives for workers to retire and for companies topreferyoungeremployeeswillneedtobealtered,andpubliceducationwillhavetoberedirectedtofacilitateretraining.

Welfare statesarenotends in themselves.Theirpurpose isoneofenablingchange to take placewithout destroying security and a sense of belonging, ofachieving a sufficient sense of trust, fairness and social justice to enable thecountryasawholetocontinuetomakeprogress,balanceitsbooksandprovidewhateverotherpublicandprivategoodsaredesired.Wheneverthewelfarestatebecomesunfitforthatpurpose,itneedstoberethoughtandreinvented–butnotabandoned, except in the unlikely event that the purpose itself has becomeobsolete.

5Risinginequality

We live, by common consent, in an age of rising inequality. Technology,changing mores, weaker trade unions and less regulated economies sinceMargaretThatcherandRonaldReaganremovedbarrierstomarketforcesinthe1980shavereversedthetrendtowardsgreaterequalityofincomesandwealthinmostWesterncountriesthathadbeenseenduringthepreviouspost-wardecades,andmuchattentionhasbeengiven to this trend.Governments todayplace lessemphasisonusingtaxationandwelfarespendingtoredistribute,andsoequalise,incomes than they did in the 1960s and 1970s, although tax and spending arestill generally quite redistributive. Nevertheless, income inequality is not thebiggestprobleminWesternsocieties.

Themostproblematic sort of inequalitynow is the sort that generatesor isassociatedwithunequallegalandpoliticalrightsfordifferentgroupsofcitizens,becausesuchinequalityiscausingdivisionsandconflictsthatriskunderminingfaith in social and political systems themselves. This sort of inequalitymakespeople feelpowerlessandbreedsa senseof injustice.Pensionentitlementsareoneexample,thoughthedivisiontheycausebetweentheyoungandtheold,thetaxpayer and the recipient, has not yet become a noisy or hostile one. Morepainful is the inequality of legal rights that has spread in many countries –notablyJapan,FranceandItaly–amongemployeeswhoholddifferingformsofcontract, somepermanent and secure, others temporary and insecure,which isreflected also in the low wages and weak bargaining power of temporaryworkers. This in turn is making demand in those economies weaker and soharmingtheirabilitytocreatenew,moresecurejobs.

Mostproblematicofallistheinequalityofpoliticalvoiceandrightsthathascome most spectacularly and clearly from rises in the wealth of the richestfractions of society and of big corporations. This is the biggest reason whyincome inequalitymatters. If suchwealthbecomes soentrenched thatpoliticalinfluence is grosslydistorted andall hopeof socialmobility and advancementthrougheducationbecomesblocked,societieswillhaveceasedtobetrulyopen.If democracy simply means the best politics and policy that a billionaire, abanker or a technology monopolist can buy, democracy will soon die or beoverthrown.

6Immigration

Thereisafurtherquestionaboutequality,onethathasbecomeespeciallysalientoverthepastdecade:equalityforwhom?Or,putanotherway,aretherightsof

existingcitizensdilutedorotherwisemateriallyaffectedwhennewcitizensareaddedthroughimmigration,andifsoshouldthatdilutiongivecitizensarightofvetooverfurtherimmigration?Itisaneternalquestion,onethatprovokesmorexenophobic answers whenever two conditions apply: when unemployment ishighand/orincomesaredepressed;andwhenwarandotherdisorderinnearbycountriesincreasestheflowofwould-beimmigrantsfromatrickletoafloodorotherwiseaugmentsfeelingsofinsecurity.

It is not hard to grasp why immigration causes controversy. To stop theirpopulations from declining and to bring in youthful energy, all Westerncountries need immigration. But voters tend to disagree, since immigrants areforeigners,speakdifferentlanguages,comefromdifferentculturesandmight–especiallyinweakeconomictimes–competeforjobs.Refugeescanalsoseemdangerous,sincetheyarefleeingviolenceathomeandcanbereadilysuspectedofbringingthatviolencealongwiththem.

According to theUNPopulationDivision’s InternationalMigrationReport2015, refugees form a small if headline-grabbing part of the overallphenomenon:ofthe244millionpeopleworldwidewhowerelivinginacountryotherthantheonetheywerebornin(theUN’sdefinitionofmigrants),only8%,or19.5million,werecountedasrefugees.Thetotalstockofmigrantshasrisenfrom173millionin2000toitscurrent244million,a69million-strongpeoplemovement in the past 15 years,which is equivalent to the combined states ofCalifornia and Texas, or the whole population of the UK, upping sticks andmoving home. Migration is not a new phenomenon, and the rising absolutenumbers also reflect theworld’s growingpopulation.But the 2010–15growthrateofmigrationofabout1.9%ayear (downfrom3%in2005–10and2%in2000–05) has outpaced global population growth of 1.2% a year. Advanced,wealthy countries play host to more migrants (71%) than do developingcountries:nearlya fifthof theworld’s totalnumberofmigrants,or47millionpeople,resideintheUnitedStatesalone,whichtookinabout1millionmigrantsperyear,onaverage,between1990and2015.

Migration poses a genuine challenge to the idea of openness and to itsbedfellow,equality.Foritraisesthedifficultquestionofhowmuchistoomuch.Isitwhentheproportionofforeign-borninapopulationreaches24%,asithadin2014whentheSwissvotedinareferendumtoabandontheirtreatywiththeEUallowingfreemovementintoSwitzerlandofEUcitizens?Orthemuchlowerlevelof13.9%thatithadreachedintheUKin2016whentheBritishvotedtoleave the EU, partly on similar grounds? Is national identity threatened by

immigration, or is Britishness enriched by the fact that themayor of London,SadiqKhan,isthesonofaPakistaniimmigrant?

Atitspeakinthe1890s,theshareofforeign-bornintheUSreached14.8%,notfarabovecontemporarylevelsofaround13%,butinthepost-wareraitfellto a low of 4.7% in 1970. On paper, the argument for immigration isuncontestable, especially when you can point to incredibly successfulimmigrantssuchasSergeyBrinofGoogle,AndyGroveofIntelorSteliosHaji-Ioannou of easyJet. But in practice, the argument is hard to win, for long.Tribalismrunsdeep.

7Risingexpectations

Some things, however, do change. A seventh common feature is that thecitizenry’s expectations about democracy, the rule of law, living standards,political ethics, rightsof allkindsandeven socialmobilityhave risen steadilyduring thepost-wardecades.Thesehigherexpectationsarepartly the resultofculturalchangebutalsoofthebroadeningofpubliceducationandofrapidandcontinuing improvements in information and communications technology.Openness has played a big part too: the cost of travel has slumped relative toaverage incomes and the flow of ideas around the world has become easier.Westerners are farmore cosmopolitan in their habits and interests than at anytimeinthepast,eventhosewhoprofesstohaveagrudgeagainstglobalisation.Moreover,wecanvote insnake-oilsalesmensowesometimesdo–helpedbycomplacencyaboutourcivilandpoliticalliberties,amidthebeliefthatwewillalwaysbeabletoreverseourdecisionsnexttimewevote.

Therewas no golden age in theworkings ofWestern societies, or in theireconomicperformance.Democraciesdevelop,butsodoexpectationsofthem,ofwhattheycanandshoulddeliver,ofhowtheycanandshouldwork.Measuresofalienationordisillusionment,suchaselectoralturnoutorpollsshowingmistrustin government or politicians, are often interpreted as indicating a newdysfunctionality in democracy.Although, asChapter 3 argues, there is indeedevidenceofsomeformsofdysfunctionality,suchtrendsalsoneedtobeseeninthecontextofhigherexpectationsandgreatertransparency.And,onemightadd,the steady increase in the number of channels for our grumbles. Twitter andFacebookhavealottoanswerfor.

8Internationalcollaboration

Lastly,asdifferentastheymaybe,opensocietiescommonlybelieveinworkingtogether internationally in their shared interests. They have many more, andmoreextensive,allianceswitheachotherthandoclosedsocieties,asChapter10will show. All the advanced open societies have believed, even if to varyingdegreesandwithdifferingopinions,incollaborationtosolvecommonproblems,setcommonrulesandfightcommonenemies.

This belief is seen in the many collaborative military and politicalarrangementssetupsince1945,includingNATO,theEuropeanUnionandtheUS-JapanSecurityTreaty,andthemultilateralinstitutionsandtreatiestheWesthas initiated and developed, including the United Nations and its sisterorganisations the International Monetary Fund, the World Bank, theInternationalMaritimeOrganisationandtheWorldTradeOrganisation.Wecaneven includehereglobal sports associations such asFIFA for football and theInternationalOlympicCommittee.Manynon-opensocietiesalsobelongtosuchorganisations,buttheirgenesisliesintheopensocieties’beliefincollaborationwithoneanother,aswellasinthedesirabilityofextendingthedomesticvirtuesoftheruleoflawintointernationalaffairs.

This belief and practice is themain explanation for why the UK’s vote in2016toleavetheEUcameassuchablowinternationally:itrepresentedakickintheteethtosomeofthecountry’sclosestalliesandarenunciationofoneofthedeepestformsofinternationalcollaborationyetattempted.Itisprobablyalsowhy Trump liked the idea of Brexit, given that he too is a professed scepticaboutinternationalcollaboration.Since1945allianceshaveprovedlong-lasting,butthatdoesnotmakethempermanent.

*

Theseeightsharedcharacteristicsrepresentawayofdoingthings,oforganisingnational and indeed international affairs, that is resilient but under strain.Failures have ledmany to doubtwhether past success can be repeated. Socialtrusthasbeen lost thanks to inequality inpoliticalvoiceand rights, and to thefraying of welfare states. International collaboration has come to be seen asonerous, costly and even coercive. No wonder that theWest, along with theliberalorderitsetup,isincrisis.

Open societies often think they are in crisis, shortly before finding their

escaperoutefromit.Sometimestheperceivedcriseshaveconcernedaparticularset of the advanced countries, sometimes they have encompassed all of them.Often, like now, the pessimism has coincided with, or emanated from, aneconomic setback. For example, in 1975 the Trilateral Commission,10 a high-level think-tank-cum-conference-unit thathadbeen setup twoyears earlieronthe initiative of philanthropist David Rockefeller with the aim of bringingtogether the democracies of Japan, North America and western Europe,publishedabookcalled,guesswhat,TheCrisisofDemocracy.

Thatparticularepisodefeaturedanastyrecessionandhighinflationfollowingthe trebling in oil prices enforced by Arab producers in 1973, widespreadindustrialandsocialprotestsinmanycountries,AmericanfailureintheVietnamwar,andaprevailingpessimismaboutEast–Westrelations,thatis,thecoldwarbetween the West and the Soviet Union. The Trilateral Commission’s bookquotedWillyBrandt,chancellorofWestGermanyfrom1969to1974,ashavingsaidjustbeforeleavingoffice:

WesternEuropehasonly20or30moreyearsofdemocracyleftinit;afterthatitwillslide,enginelessandrudderless,underthesurroundingseaofdictatorship,andwhetherthedictationcomesfromapolitburoorjuntawillnotmakethatmuchdifference.

Brandtmighthavefeltgloomyaboutdemocracyfor reasonsclose tohome:his resignationwas forcedby thediscovery that aneastGermanspyhadbeenworking in his private office. Yet as we now know he underestimated twothings: first, the possibility that the surrounding sea would soon turnsubstantially democratic, with Portugal, Spain and Greece all losing theirdictators during the mid-1970s and with the eventual collapse of the Sovietempire in central and eastern Europe; and second, the adaptability ofdemocracies, their ability to learn from crises and other travails and either tomuddletheirwayoutofthemorinsomecases,suchastheUKunderThatcherinthe1980sandSwedeninthe1990s,toengageinquitefundamentalreforms.

DavidRunciman,aprofessorofpoliticsatCambridgeUniversity,describedinhisbookTheConfidenceTraphisviewofhowdemocracieshavedealtwithcrisesduringthepastcentury:

Democraciesareadaptable.Becausetheyareadaptable,theybuilduplong-termproblems,comfortedbytheknowledgethattheywilladapttomeetthem.Debtaccumulates;retrenchmentisdeferred…Democracy

becomesagameofchicken.Whenthingsgetreallybad,wewilladapt.Untiltheygetreallybad,weneednotadapt,becausedemocraciesareultimatelyadaptable.Bothsidesplaythisgame.Gamesofchickenareharmlessuntiltheygowrong,atwhichpointtheybecomelethal.

There’stherub,inRunciman’sview.Thegeniusofdemocracyisitsabilitytoevolve,toadapt.Thestupidityofdemocracyisitsfrequentpreferencefortakingthe easy life by deferring that adaptation, beyond the next election, the nexteconomic cycle, even the next generation. One day that stupidity might, heimplies,provedemocracy’sdownfall.

Although the advanced democracies do exhibit both overconfidence andcomplacency,theydonottherebyhaveacontrollingbrainthatistrulycapableofsuchpsychologicaltraits.Opensocietiesaretheproductofmillionsofopinionsand decisions by citizens, politicians, civil servants, companies, media,schoolteachers,academicsandmore,oftenwearingmorethanoneofthosehats,generallynot feelingdirectlyresponsiblefor theoutcomeofwhatever theydo.Such decentralised systems exhibit negligence more than overconfidence,carelessnessmorethancomplacency.

Moreover, Western democracies do not err simply by deferring harddecisions. They also, through their own processes, make such hard decisionsharder to take. It is theveryprocessofdemocratic competition forpower thatproducestherigiditiesanddistortionsthathamperadaptation.It isnotjust thatpoliticians seek power through short-term promises or measures, and avoidthinkingbeyond theelectoralcycle.Muchgreaterharmisdoneby thenatural,but selfish, behaviour of myriad private actors in seeking advantage in thedemocratic contest, and then succeeding in holding onto it. Success in ademocracyisaboutbecomingwinners,andaccruingpower,privileges,resourcesand rights as a result. Yet it is the winners that make democracy risk failurewhentheywintoowell.Thatmaysoundratherun-American,buttheUSisoneofthebiggestvictimsofsuchvictors’manipulation.

Classic political analysis of democracy has for centuries focused on one,albeit vital, aspect of this excessof success: how todealwith thedangerof atyranny of the majority. This problem continues today every time victoriousgoverningpartiesconcludethattheytherebyhaveamandatetodowhatevertheylikeandevento try toensurethat today’smajoritybecomespermanent,ashashappenedinHungarysince2010andinPolandsince2015.Buttheproblemismuchwiderandmoreinsidiousthanthis.Therigiditiesanddistortionsthatbuild

up indemocracies, throughactions fair and square aswell asunfair, aremorefrequently tyranniesbyminorities,bygroups thatsharean interest:bybankersand lawyers,by farmersand tradeunionists,bydoctors andpensioners,byoilcompanies,pharmaceuticalcompanies,carmakers,andmanymore.

GeorgeSoros,abillionaireinvestorandphilanthropist,whosetuphisOpenSociety Foundations to campaign for and support the establishment andextension of liberal democracy all over the world, most notably in his nativeHungaryandneighbouringcentralEurope,arguedinhisbookOpenSocietythattheenemywaswhathecalled“marketfundamentalism”.Althoughablind,oftennaivefaithinmarketsdidliebehindthehugepolicymistakesbycentralbankerssuchasAlanGreenspan(chairmanoftheUSFederalReserveBoardfrom1987to 2006) that led to the 2008 crash, Soros’s argument underplays the keyweakness, themost deadly trait of democracy: the ability of powerful specialinterests,someofthemcommercialandeven“marketfundamentalist”butmanynot, to capture and turn to their own advantage laws, regulations and publicresources.Itistheinterplayofprivateactorsandpublicpowersthatmostharms–andintheendthreatensthesurvivalof–theopensociety.

That these selfish interests are all minority groups ultimately makes itpossible,inprinciple,toformamajorityconsensustodealwiththem,oratleastsomeof them.Thereisnothingnewaboutspecial interests,nothingnewaboutdeclaringthemthepoliticalenemy.IntheUSthecryagainstspecialinterestshasbecomehabitual, even traditional, especiallywhen tied to a claim to represent“thepeople”against“Washington”.11WhenTrumppromisedin2016to“draintheswamp”,hewasfollowingthattradition.Noristhereanythingnewaboutthefact that success in defeating special interests is always partial at best.Whathappens, though, is that the rigidities and distortions accrete gradually, ratherlike barnacles on a ship’s hull. At first their accretion doesn’t seem to makemuchdifference. If allowed topersist and to accumulate, however, itmakes ahugedifference.

The power of evolution which open societies possess so magnificently isengagedinaneternalstrugglewiththebarnaclesthatbuildupontheirhullssoas to slow that evolution down. If those barnacles could only be regularlyscrubbedoff,democracywouldbe inamuchhealthierstate.That theyarenotroutinelyscrubbedoffisinpartbecauseofabasictraitofhumanity:thatwetakethings for granted, especially the good and even fundamental values that havebeenhandeddowntousbypreviousgenerations.

Freedomsofspeechandof information, the ruleof law,equalitybefore the

law,civillibertiesofallkinds,clean,uncorruptedgovernment,eventheproperworkingsofelectoraldemocracy: thesecometoseemnot justasgifts tousbyearliergenerationsthathadfoughtorworkedhardforthembutasfactsoflife,aspartofthesocialandpoliticallandscape,tobeignored,neglectedorattimesofstresstradedaway.

We are surrounded by seductive temptations to trade off freedoms andprinciples for more pragmatic goals. We are tempted to give up privacy andlibertytopermitpoliceandsecurityservicestosurveyallthatwedointhehopeofcatchingcriminalsorterrorists.Wearetemptedtoencouragepublicservantstogetintoclosercontactwithbusiness,eventoworkforprivatefirmsforlongperiods, so as to make them more commercially savvy, regardless of theresulting likelihood of favouritism and outright corruption.We are tempted tosubsidiseoneindustryorprotectabigfirmagainstforeigncompetitioninorderto preserve a particular set of jobs today, regardless of the consequencestomorrow. We are tempted to put constraints on the media and freedom ofinformation,ignoringthebenefitssuchconstraintsprovidetothoseinpoliticalorcorporatepower.Wearetemptedtoallowoursecurityauthoritiestolockuporconstrain people they may be suspicious of, dispensing with the normalrequirements of due process of law and fair trials, or order tomake ourselvesfeel safer, ignoring the possibility that such powersmight end up being usedagainstinnocentpeople,peoplelikeus.

Openness, in societies, is not a once-and-for-always condition. It requireswork,persuasionandvigilanceifitistobemaintainedand,crucially,ifitistocontinuetobesupportedbythepopulationatlarge.Itrequiresefforttoexplain,justify and defend the basic liberties and values thatwe trade away in such acavalierornegligent fashion.And it requiresanunderstandingofwhatare theself-harming tendenciesof ourdemocracies.PresidentBarackObamaput it intypically inspirationalwords inhisspeech to theDemocraticPartyConventioninsupportofHillaryClintoninJuly2016:

Democracyworks,America,butwegottawantit,notjustduringanelectionyear,butallthedaysinbetween.

We’ve also got to fight, at regular intervals, to dealwith democracy’s ownfrailties and to protect thereby the values and rights thatmake itwork.AdamSmithwrote in his 1776 bookTheWealth of Nations of how in economics aseemingly“invisiblehand”ofself-interestproducesoutcomesthataregenerally

ofpublicbenefit–butnotalways.Indemocracies,self-interestalsoworksasifbyaninvisiblehand,inopencompetition.Buttheoutcome,again,isnotalwaysto the public benefit.The public needs to realise this. It needs to be taught towatchoutforit.Mostimportant,itneedstoteachitselfsuchvigilance.Thepriceof liberty, runs a famousAmerican quotation sometimes attributed toThomasJefferson, is eternal vigilance. It is a vigilance that is required against internalthreatsaswellasagainstexternalones.Currently, thebiggest single sourceofsuchthreatsisinequality.Whichmakesitironicthatthelatestsupposedbattlerfor equality in the US is a self-proclaimed billionaire with a taste for glitzybuildingscarryinghisownnameinlargeletters.

3

Democracyandtheartofself-entrapment

DoIcontradictmyself?Verywell,thenIcontradictmyself,Iamlarge,Icontainmultitudes.

WaltWhitman,“SongofMyself”,1855

Libertydependsonthedivisionofpower.Democracytendstounityofpower.

LordActon,1882

“WETHEPEOPLE.”Itisacomfortingphrase,theonethatopensthepreambleto the constitution of the United States of America, the greatest democraticdocument ever written. It conveys a reassuring sense of a shared, collectiveinterest,of solidarity incitizenship,ofadesire indeed to“promote thegeneralwelfare” as the preamble goes on to say.After the great financial calamity of2008, that same idea laybehind theOccupymovement thatoriginated inNewYorkin2011anditssloganof“Wearethe99%”.Wethepeoplestandtogether,withasharedinterest,thesloganwassaying,assaultedbytheselfish,destructiveinterestsof“the1%”.Itisalovelyimage.Thetroubleisthatitisanaspirationandnot a fact.The effort to achieve such a shared interest lies at theheart ofwhat open societies are all about. The effort to thwart it, however, lies at theheart of what individuals in open societies are all about.We are competitivecreatures.

Democracy is supposed to be a counterweight to that individualism, amechanism by which we translate individual interests into a public interest,reconcilingourdifferences.Oftenitis.Butthatverymechanismalsofrequentlyworks against the ideaof the99%, against this ideal ofpromoting thegeneralwelfare.Indeed,“thepeople”conspireagainsttheveryideaofbeinga“we”,atleastonedefinedbythenation.Andnotjustthe1%or,inoldclass-warterms,thebourgeoisie:mostofthepeopledoso,mostofthetime,byseekingtheirself-interestinaspiritofcompetition,seekingtoachieveanunequalhearingfortheir

voice,oftenwithoutthinkingofitinthatway.Democracy,likemanypoliticalprinciples,isrifewithcontradictions.TheUS

DeclarationofIndependence,adoptedadozenyearsearlierthantheconstitution,stated:

Weholdthesetruthstobeself-evident,thatallmenarecreatedequal,thattheyareendowedbytheirCreatorwithcertainunalienableRights,thatamongtheseareLife,LibertyandthepursuitofHappiness.

Or, as it might have more accurately said had it been able to anticipate theworkingsofdemocracy,weallhave the right to life, libertyand thepursuitofvictoryinthedemocraticcontest.Theequalrighttotrytobecomeunequal–ifthatiswhatmakesyouhappy.Anditoftendoes.

This tension between equality of voice and the competition to make yourvoiceheardmorethanothers’isanessentialpartofanopensocietybutisalsothegreatestthreattoit.Forthatreason,anopensocietyalsorequiresaconstanteffort to push back in the other direction, by promoting and making morecredible thenotionof thegeneralwelfare,of equal rights, equal treatmentandequal voice, and shining a bright light on the harm that special interests andunequal voices do.Much of the time that battle happens naturally, out of thedemocratic battle of voices, but sometimes it needs extra help. The idealwillneverbeachieved,butitdefinestherightpath,onefromwhichdemocracyhasan inbuilt tendency tostray, thwartingas itdoesso thesuccessfulandsociallypeaceful process of evolution that is the great achievement of the idea of theWest.Basicliberalvalueshavetobedefendedbecausetheyaresoconstantlyindanger of being trampledon, not just by illiberalwould-be fascists but by theunseeingandunknowingherd–ourselves.

SuchidealismisexactlywhatdocumentssuchastheBritishBillofRightsof1689,theUSConstitutionof1788orFrance’sDeclarationoftheRightsofManin1789standfor.Theywerealleffortstomakesocietiesbetterthantheywere,politicalandsocialguidelinesorlodestarstotrytopullorpushsocietiestowardsthe rightpath,even though theauthorsknewfullwell that their societieswerefar from thatconditionandeven though theyhavestrayed from itmany timessince.Soweshouldnotbeshyorembarrassedaboutaimingforpoliticalideals,too, using political values rather as Christians do the Ten Commandments todeterusfromstrayingfromthetrue,sustainablepath.

Indeed,thatpathalsohelpsdefinethegreatopportunitythatbeckonsbefore

all the advanced open societies: success in clearing away the worst of suchdistortions,obstacles,inequalitiesandspecialinterestspromisesalwaystobringbackthedynamismandcreativeenergythathavesocharacterisedopensocietiesinthepastbyreleasingallsortsofunderusedandfrustratedassets.Oursocietiesarechock-fullof suchassets.Wewillnever releaseallof them.Butatcertaintimesthereisenoughpent-upfrustrationandangertoenableustoreleasesomeof them, to clear away some distortions. This is one of those times. At suchmoments, there is a great risk that the angerwill leadus further in thewrongdirection,anangerandadirectionepitomisedbyDonaldTrumpandMarineLePen.Butbehindthatriskliesalsogreatreward.

WhenPresidentsJohnF.KennedyandLyndonB.JohnsonforcedthroughtheCivilRightsAct of 1964, against fierce resistance,what theywere doingwastryingtoendaviolationofconstitutionalidealsthathadpersistedfornearlytwocenturies. And when Presidents Jimmy Carter and Ronald Reagan initiatedderegulation inmany sectors to eliminate cartels and revitalise competition inthe1970sand1980s,theywerealsotryingtomovebacktowardsanideal,andendsomeseriousdistortionsandfrustrationsthathadsetin.

MargaretThatcher’sbattlewithcoalminersandotherpowerful tradeunionsintheUKduringthe1980swasofthesamenature,aswereherdeterminationtobreak the cartel of the London Stock Exchange and her programme ofprivatisationofwhatwerethenstate-ownedmonopolies.Japan’sfailuretofindnewsourcesofvitalityfollowingitsfinancialcrashoftheearly1990shasbeenchieflyafailuretotakeonthissortofbattle,tofaceuptotherisksinsearchofthe rewards.Sohas the long stagnation in Italy,onceoneof theworld’smostdynamiccountries.Forwemaybelievewearetired,ageing,decliningsocietiesthathaveexhaustedourenergies,ourassets.Butintruthwhatwehavedoneistoblock those energies, to frustrate them,bybuildingobstacles to their use.Theconstructionof theseobstacleshasoccurredbyvirtueof theveryprocessesofdemocracythatweholddear.

The effort toget backon thepath towards equalityof voice and rights canalsobehamperedby itsowncontradictionsandhypocrisies.Themethods thatareneededtorestorethefluidity,dynamism,adaptabilityandindeedopennessoftheopensocietiesaregenerally formsof liberalisation, the removalofbarriersand protections that have created privileges and benefits for particular groups.This process is frequently described in ugly economics jargon as “structuralreforms”.Theprocesscanalsotakeonanuglyface,however,eitherbymistakeorbybeingcapturedandsubvertedbyothergroupsofbeneficiaries,suchasbig

businessortherich.Those who dislike such liberalisation have invented (or, more strictly,

commandeered)thelabelof“neoliberalism”asameansbywhichtodenigrateit.Settingmarketsfreedoes,asinanycompetition,createwinnersandlosers,andthesustainedriseininequalityofincomeandwealththathasbeenseeninalmostalltheadvancedopensocietiesoverthepast30yearshasbeenoneconsequenceof such efforts, though liberalisation is not inequality’s only cause. Higherinequalitymight, inprinciple,beapriceworthpaying if the resultwere risinglivingstandardsandexpandingopportunitiesforeveryone,aprocessknownas“trickle-down”by its critics,or “a rising tide liftingallboats”by its fans.Butthis requires trust, and over time such reforms are likely to be greeted withsuspicionifthepromisedhigherlivingstandardsdonottranspireandifreformsarenotaccompaniedbymeasurestotrytohelplosersadjust.

Moreover, there is further room for suspicion that arises from the directpoliticalconsequencesofrisinginequality:unchecked,itcanenablethewealthytogainanunequalpoliticalvoice,whichcanbeusedtocreatenewprivilegesforthemselves and to entrench their advantages. Chapter 2 showed that thisentrenching of political inequality is precisely what has happened in manyWesterncountriesbutespeciallyintheUS.

The war against unequal privileges and special interests is a never-endingseries of battles. And liberalisation alone – the “market fundamentalism”condemnedbyGeorgeSoros,ascitedinChapter1–isneverenough.Defeatingtheself-entrappinghabitofdemocracybyclearingawaytheunequalprotectionsand privileges that have been won and the obstacles that have been built isnecessary,butitneedstobeaccompaniedbyactionsofreassurance,directedatthemaintenanceofsocialtrust,byprovisionsofpublicgoodsandservicesthatserveto levelupthepoliticalandeconomiccompetition,actions thatmaketheequalityofvoiceandtreatmentatwhichliberalisationisaimedmorebelievable,morebroadlysupportable,moregenuine.

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Enemies are easiest to confront and defeatwhenwe can all recognisewho orwhattheyare.Currently,themostrecognisableenemiestohavebuiltuppoliticalpowerbydemocraticmeansinordertocreateprivilegesthatdamagethewiderpublic interest are – perhaps you have guessed – banks and other financial-servicesfirms.Takenasawhole,bankersandotherfinanciershaveinthepast

decade been the biggest single cause of rising inequality, distortion of publicpolicy,andgenerationofcollectiveeconomicpainandangerat“thesystem”.

Thereareplentyofotherenemiesofdemocracy,opennessandequalityinallWestern countries, though unlike bankers following the crash they are not soreadily recognisable. To name but a few, there are the Japan MedicalAssociation; lawyers and other professions in Italy andmany other countries;farmerseverywhere;tradeassociationsofallkinds;bigbusinessfederationsandevenmonopolies; tradeunions inmanycountries; lobbiessuchas theNationalRifle Association in the US; pensioners’ lobbies all over the globe; and, asChapter2explained,thetyrannousmajoritiesofemployeesincountriessuchasJapan,FranceandItaly that fight topreserve theirpermanent,highlyprotectedcontractsattheexpenseofoutsiders,especiallytheyoung,leavingthemtomakedowithprecarious temporarycontracts.Electedpoliticians lineup tohandoutfavours to all such groups, and groups spend their time lobbying formore, orelsefiercelydefendingtheirpastfavours.

Moreover, we must not forget the simple biases that are inherent indemocracy. The electoral cycle inevitably focuses attention on the short term,andpoliticiansbiddingtogetintopowercanreadilycompetebybribingvoterswithpromisesofadisproportionateshareoftaxpayers’ownmoney.Thisshort-termism has been exacerbated by the ageing populations of all the rich, opensocieties, which have steadily driven up spending on health care and publicpensionsandcrowdedoutotherusesforthecash.

Chapter 9 explores the political ramifications of ageing societies in moredetail,butforthepresentpurposeletusfocusonthebroadereffectratherthanthat particular cause.The effect canbe seenmost simply in theway inwhichpublicinvestment–thatis,spendingonlong-termassetssuchasinfrastructure–has gradually declined in theWest relative to other forms of public spending.Thisdeclinemaytosomeextentreflectmaturity–plentyofroadsandairportshave already been built. It may reflect changes in ownership, as what wouldonce have been counted as public investment by state-owned companies hasbeen privatised. But it is also a form of self-harm, one that rejects or defersprojects that will bring benefits to future generations in favour of rewardingsupporterswithpublicspendinginthehereandnow.

FIG3.1PublicinvestmentandconsumptionintheWest,1980–2014%ofGDP

Source:ThomsonReuters(originallyOECD)

AsFigure3.1shows, in1980 in theadvancedeconomiespublic investmentaveraged nearly 26% of GDP each year. By 2014 it was more than fivepercentagepointslowerat20.7%,whilepublicconsumptionclimbedfrom17%ofGDPin1980toapeakofnearly19%in2008beforefallingbackto17.5%underthepressureofrecessionandfiscalausterity.

In theUK the generations that are over 60 years old aremore prosperous,relativetotherestofthepopulation,thaneverbefore:theirpensionsarehigher,andthevalueoftheirassets,particularlyproperty,isconsiderable,especiallyforthoselivinginsouthernEngland.Yet,aswillbeexplainedfurtherinChapter9,evenduringthepost-2008periodwhenpressuresonpublicfinanceswereseveretheUKgovernmentgavepensionersprotectionsfromcutsintheirincomesthatit denied to public-sectorworkers and to the rest of the population.After all,pensionersaremorelikelytoturnouttovotethanareyoungpeople.

Thissortofbiasisnatural,unfortunately.Itiswhatyouwouldexpectinanysystem in which votes bring power and power brings the ability to hand outpublicmoneyandfavours.Itisdemocracyatwork.Thewinningmajoritiesthatbringgovernments topoweror throwincumbentsoutcomprisemanyinterests,manygroups,manyblocksofvotes,sometimeswiththesamevotersbelongingto more than one group. These interests often balance each other out. Theproblem is that there is no reliable mechanism of self-regulation in thedemocraticcontesteithertopreventexcessesortopreventtemporaryadvantagessecuredbyinterestgroupsfrombecomingpermanent.

Justasyoucandotoowellwhencompetinginamarketandsocancreateamonopoly,youcanalsodotoowellwhencompetinginademocracy.Thispoint

is better recognised in economics than it is in politics, but it is even moreconsequentialinthelatter–andnowintheUSespeciallythosecompaniesthatsucceed in building monopolies have learned that they can best protect thosedominantpositionsbydeploying their resources inpolitics, in lobbyingand incampaignfinance.Theresultsofdemocraticoverachievementbyinterestgroupscan be felt in a country’s economic performance, in the functioning of opensocieties’ political systems and in their social cohesion – or lack of it. As aresult, itcanevenaffectcountries’ internationalpower, influenceandprestige.Which is what has been happening to the open societies of the US, Europe,JapanandtherestoftheWestoverthepastcoupleofdecades.

Ineconomics,therehaslongbeenahealthydebateaboutmonopolies,cartelsandthethreattheyposetoopenmarketsandwelfare,andaboutthewisdomofgovernments using antitrust laws to combat them. Adam Smith, the father ofmodern economics,wrote a sentence in his 1776 bookTheWealth ofNationswhichhasbecomeoneofhismostquoted:

Peopleofthesametradeseldommeettogether,evenformerrimentanddiversion,buttheconversationendsinaconspiracyagainstthepublic,orinsomecontrivancetoraiseprices.

The high priest of self-interest and the invisible hand was identifying thedangers of selfishness going too far, of hands joining together in theirmutualbenefit.Onemightadaptthistopoliticsthus:

Peopleofasharedinterestseldommeettogether…oractinevenunknowingconcert…buttheconversationendsinaconspiracyagainsttherestofthepublic,orinsomecontrivancetodistortpublicpolicyandwinadisproportionateshareofresourcesorrights.

MiltonFriedman,aleadinglightofthegreatUniversityofChicagoschooloffree-market economists that emerged from the 1950s onwards, agreed withSmith in condemning cartels but was much more reluctant to condemnmonopolies, and was positively hostile to the antitrust laws that have beenmobilised against them since the late 19th century in the US and Europe.Friedman saw monopoly as an ultimate reward for business success andtherefore an ultimate incentive for risk-taking and hardwork. To damage thatincentivewoulditselfhavedamagingresults,hereasoned.Moreoftenthannot,heargued,thedevelopmentofaprofitablemonopolywouldinduecourselurein

new competitors and new ideas. Unless government collaborated with themonopolist to thwart the market through laws or the use of its own vastresources,themonopolywouldeventuallybeundermined.

Other economists argue that this is far too sanguine: monopoly power toooftenenablesacompanytouseitsprofitsandothermarketpowertoerecthighbarriersagainsttheentryofnewcompetitorswhichcanendureforlongperiods.In themeantime consumers lose out by payinghighprices, drawing resourcesawayfrommoreproductiveusesanddeterringinnovation.ThiswasessentiallythedebatethatsurroundedtheantitrustcasesbroughtagainstMicrosoftfirstbytheUSDepartmentofJusticein1998–2001andthentheEuropeanCommission,which were given added controversy by the fact that Bill Gates’s softwarecompanywasoperatinginafieldofrapidinnovation.

IflinchalittlewhenrecallingmymeetingswithGatesduringthatperiodinwhichhe,asaself-confesseddevotedreaderofTheEconomist,wouldberatethepublication’s then editor-in-chief for its support for the department’s antitrustactionagainsthimandhiscompany,demanding toknow“onwhatprinciples”webasedourstance.(Theyhadinfactbeenexplainedclearly,ashesurelyknewwell;hejustdidn’tagreewiththem.)Microsoftwasinconstantdangerof“beingreplaced”,heasserted: itdidnothaveadominantposition that it couldabuse.Withhindsight, it is truethatMicrosofthasnowindeedbeenreplacedinsomerespects.Butrecollectionofitshighpricesandprofitsoveralongperiod,andofitsdestructionofthesmallstart-upweb-browsercompanyNetscape–whichatthe time was as much a pioneering star of Silicon Valley as, say, Google,FacebookandTwitterbecameinthe2000s–tempersthememory.

Technology is ahighlycompetitive field.But regulation, includingantitrustregulation, can make a huge difference to a firm’s prospects and freedom ofmanoeuvre.Today’sequivalenttoMicrosoftasaholderofadominantpositionisGoogle,whichrenameditsparentcompanyasAlphabetin2015.Itscommandofdigitaladvertisingrevenuesclearlygivesitdominance,alongwiththeabilitytoseeoffpotentialcompetitors inall sortsofsubsidiaryor innovativemarketsratherasMicrosoftdidwithNetscape.ButnointerestwasshownbytheObamaadministration or the Department of Justice in any antitrust investigation ofGoogle.Only the EuropeanCommission’s competition department hasmovedonGoogle.Why?Sincethefirm’snameisnowAlphabet,wecanreadilyspellitout: according to the Centre for Responsive Politics, Google/Alphabet madepolitical donations to 162members of the USCongress in the 2014 electoralcycle;andaccordingtoanothernon-profitwatchdog,PublicCitizen,in2014and

2015 it spentmoremoney than any other corporation or trade association onfederal lobbying. The firm donates to campaigns through its own PoliticalAction Committee, which Public Citizen reports now donatesmore each yearthandoesGoldmanSachs,a financial-servicescompany,andseniorexecutivesalsomakepersonaldonations.

Googlemaynotalwayssucceed inavoidingantitrust scrutiny in theUnitedStates,butithasdonewellindoingsothusfar.IthasalsolobbiedUSofficialsto attack the EuropeanCommission’s investigation, denigrating it as being aneffortbyEuropetoweakenaforeigncompetitorratherthanreflectingagenuineantitrustconcern.

Googleisjustonepowerfulexample.Otherpoliticaloverachieversarehighlyvisibleasindividuals:thesearethemega-wealthywhoareabletobuypoliticalinfluencedirectlythroughcampaigndonations.Othersarelargeinterestgroupsthatgathertogetherpeopleandentities,whetherwealthyorofahumblernature,manyofwhichdefendtheirprivileges–suchaslowtaxes,orhighsubsidies,orin the case already cited of banks, “light-touch” regulation, or immunity fromdismissal,orprotectionfromcompetition–withrighteousindignationasiftheyhadarisenasdivinerights.

Such outcomes could in principle be considered to be simply rewards ofsuccess in legitimate political competition, much as Friedman viewed marketmonopolies.Ifanyturnouttobeabusiveorundesirable,theycouldintheorybeundone by debate, by legal challenge, by the next election. As with the freemarket,itispossibletoarguethatcompetitionandinnovationcanberelieduponto produce a better outcome in dealing with these outcomes than any sort ofgovernmental interference, especially in an environment inwhich there is notonly freedom of expression and information but also rapidly improvingtechnologies for the collation and dissemination of that information. Ademocracypowered by the internet and the smartphone – byGoogle, in otherwords–mightbeimaginedtoworkbetterandbetterallthetime,withaninbuiltmechanism for ensuring that oneman, one vote really does bring equality ofinfluence.Well,itisaniceidea,andperhapsonedayitwillhappen.Butforthetimebeing,thereisnosignofit.

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The reason interest groups develop and tend to succeed in open societies increatingsucheconomicandpoliticaldistortionswasexplainedmostclearlyby

anAmericaneconomist,MancurOlson,inaseriesofbookswrittenwellbeforetheinternetwasborn,beginningwithTheLogicofCollectiveActionin1965andcontinuing, most appropriately for the present purpose, with The Rise andDeclineofNationsin1982.Hisessentialpointwasthatwhileitisnoteasytogetpeopleandfirmstobandtogetherasaninterestgroup,theincentivetodosoisneverthelessmuchstrongerthantheincentivetofightagainst that interest.Thegainstofarmersfromgettingpublicsubsidies,ortodoctorsortaxidriversfromrestricting entry to the profession, or to Wall Street investment banks fromkeepingregulationsoft,publicsafetynetssecureandtaxeslowareofgreatvaluetoallofthoseintheinterestgroup,whereasthecostofthosegainsistypicallyspreadthinlyacrossthousandsormillionsofpeopleorentities.Agroupishardtoform,butonceformeditishardtobreak.

Asaneconomist,Olson’schiefinterestlayintheeconomicconsequencesofinterest groups. In his 1982 book he argues that those consequences can begrave,producingrigiditiesandmisallocationsofresourcesthatsaptheeconomicdynamism of a country. Olson, perhaps as befitted the pessimistic, somewhatdeclinistmoodofthe1970sandearly1980s,tookaviewofdistortedeconomiesandsocialrigiditiesthatwasequivalent–iflesswidelyreadandnoted–tothatof Oswald Spengler and his Decline of the West in 1918. On the Olsonianreading of things, Western economies and democracies were doomed. Asinterestgroupsinevitablybuiltupasthicklayersofbarnaclesonsocieties’hulls,sothesecountries’wouldfinditharderandhardertomakeprogress.

The rest of the 1980s and the 1990s must have given him some comfort(Olsondiedin1998).Thismaybewhyhislastbook,publishedposthumouslyin2000, had a more positive flavour: it was called Power and Prosperity:OutgrowingCommunistandCapitalistDictatorships.ThecollapseoftheSovietUnionanditscommunistsatellitesconfirmedthevitalimportanceofmarketsaspartofwhathelpssocietiesevolve.ThereformspromotedintheUKduringthe1980sbyMargaretThatcherandintheUSbyRonaldReaganshowedthatitwaspossible inamoderndemocracy todisruptanddismantle interest-grouppowerand tackle the economic sclerosis that such power had caused. Thatcher’sreforms to trade union law and her fight with the mineworkers’ union wereaimed at exactly that, as was Reagan’s defeat of the air-traffic controllers’organisation in 1981. Similarly, the retreat of governments around the worldfrom state ownership in the 1980s and 1990s had the benefit of not justintroducing more competition and greater efficiency but also reducing thenumberofopportunitiesforinterestgroupstocoercegovernments.

Inhisfinalbook,Olsonalsoobservedthatnocountryinthepost-warworldthathadsatisfiedtwosimpleconditionshadfailedtoprosper.Thefirstwastheexistence of secure andwell-defined individual rights.This is the rule of law,andequalityofrightswithinit,madeuniversalthroughoutasociety.Thesecondcondition “is simply the absence of predation of any kind”. By predation hemeant the arbitrary threats to persons and property that arise from war orauthoritarian,confiscatorygovernments,butalsothelobbyingandsubversionoflegislation by interest groups of all kinds that leave individual rights intact intheory but in practice prey upon those rights through legal and democraticmeans.Hewrote:“Ibelievethat[thisscleroticprocess]occursinalllong-stablesocieties.”

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Onelong-lastingformofstabilityintheUSandEuropefromroughly1993until2007waswhatisknownas“thegreatmoderation”:aperiodoflowinflationandsteadyeconomicgrowththatledpoliticiansandpunditstobelieveeventhattheeconomic cycle might have been conquered. It certainly had not been, but avastlypowerfulinterestgrouparosetoexploitthestability:thebanks,ortogivethemtheirwidername,thefinancial-servicesindustry.

TheOccupymovementchosebigfinanceasthechiefenemyofwhatitcalled“the99%”.The“1%”arenotonlyfinanciers.Butitwasnocoincidencethatthemost prominent occupation began inNewYorkCity’s Zuccotti Park in 2011,northatitwasemulatedbyamovementacrosstheAtlanticaimedattheCityofLondon.TheOccupymovementhadcorrectlyidentifiedthefactthatthesinglebiggest source of inequality of voice and treatment, of distortions of publicpolicy,inboththeUnitedStatesandwesternEurope,hasbeentherisingpowerofthefinancialindustryandofthosewholeadit.

Half adecade later, theOccupymovementhadnot succeeded in its aims–which were anyway somewhat inchoate. Rather than broad attacks simply on“capitalism”,which are rather like attacking “life”, those aims ought better tohavebeenthecuttingdowntosizeofthefinancialsectorandtheremovaloftheexorbitantprivileges thathaveenabledbanks tomakeprofitsat theexpenseoftherestofsocietyand that,after thecrisis, seemed togrant impunity toseniorbankers. If the movement’s aims had been that clear and straightforward, itmight have garnered widespread popular support – as was demonstrated fiveyears later by the strong backing for Senator Bernie Sanders in the 2015–16

Democratic primaries againstHillaryClinton, largely on the basis of his anti-WallStreetposition.

Whathasbeenseen,instead,hasbeenproofofthecontinuingpoliticalpowerof this financial-sector interest group, in both theUS andEurope, just aswasseeninJapanduringthe1990safterthatcountry’smarketcrash.Butthestoryisnotover.Thecaseforcuttingbankersdowntosizeremainsstrongerthanever.The popular mood against banks is, if anything, growing, especially in theUnitedStatesbutalsoinEurope.

Sometimeinthelate1990s,IrecallbeinginvitedtobreakfastinLondonwiththethenchiefexecutiveofGoldmanSachs,JonCorzine,duringoneofhisvisitsfromNewYork.1Tobreak the ice,or rather towindhimup, Iaskedhim“forhow long do you think the current period of excessive profits for investmentbankswill last?”Helookedatmeas if Iwasanalienfromanotherplanet.Hegenuinelycouldn’tunderstandthequestion.Whenhissuccessor-but-one,LloydBlankfein,madethemistakeofjokinginNovember2009toavisitingreporterfrom theSunday Times that he “was doingGod’swork”, hewas exhibiting asimilarsortofincomprehension.

Blankfein was also, however, probably responding to accusations byauthoritative, thoughtful observers such as Adair (now Lord) Turner, thenchairmanoftheUK’sFinancialServicesAuthority,thatmuchofwhatfinancialfirmslikeGoldmandois“sociallyuseless”.TurnerfirstmadethataccusationinSeptember 2009 in a roundtable discussion for Prospect magazine, “How totame global finance”, and then expanded upon it in a speech at London’sMansionHouseonSeptember22ndofthesameyear,inwhichheacknowledgedthat the private pursuit of profit generally produces good economic results,followedbyaresounding“But”:

Butit’spossibletosayallofthat,andalsorecognisethatnotallfinancialinnovationisvaluable,notalltradingplaysausefulrole,andthatabiggerfinancialsystemisnotnecessarilyabetterone.And,indeed,therearegoodreasonsforbelievingthatthefinancialindustry,morethananyothersectoroftheeconomy,hasanabilitytogenerateunnecessarydemandforitsownservices–thatmoretradingandmorefinancialinnovationcanundersomecircumstancescreateharmfulvolatilityagainstwhichcustomershavetohedge,creatingmoredemandfortradingliquidityandinnovativeproducts;thatpartsofthefinancialservicesindustryhaveauniqueabilitytoattracttothemselvesunnecessarilyhigh

returnsandcreateinstabilitywhichharmstherestofsociety.

PaulVolcker,ahighlyrespected,evenrevered,chairmanof theUSFederalReserveBoardwhoslewinflationduringhisterminofficein1979–87,wasalsotypicallybluntinaspeechinNewYorklaterthatsameyearasTurner’s.Thelastusefulpieceoffinancial innovationthathecouldremember,Volckersaid,wasthe ATM (automated teller machine). He told a story about being at anotherconferencelisteningtoahyperbolictalkfromayounginvestmentbankeraboutfinancialinnovation:2

IfoundmyselfsittingnexttooneoftheinventorsoffinancialengineeringwhoIdidnotknow,butIknewwhohewasandthathehadwonaNobelPrize,andInudgedhimandaskedwhatallthefinancialengineeringdoesfortheeconomyandwhatitdoesforproductivity.Muchtomysurpriseheleanedoverandwhisperedinmyearthatitdoesnothing.Iaskedhimwhatitdiddoandhesaidthatitmovesaroundtherentsinthefinancialsystemandbesidesthatitwasalotofintellectualfun.Now,Ihavenodoubtsthatitmovesaroundtherentsinthefinancial

system,butnotonlythisasitseemstohavevastlyincreasedthem.HowdoIrespondtoaCongressmanwhoasksifthefinancialsectorintheUnitedStatesissoimportantthatitgenerates40%ofalltheprofitsinthecountry,40%afterallofthebonusesandpay?Isitreallyatruereflectiononthefinancialsectorthatitrosefromtwo-and-a-halfpercentofvalueaddedaccordingtoGDPnumberstosix-and-a-halfpercentinthelastdecade?Isthatareflectionofallyourfinancialinnovationorisitjustareflectionofhowmuchyoupay?

Theseareexcellentquestions,towhichtherearenogoodanswers.Onethatmightinothercircumstancessufficecouldbe:sowhat?Wedonotworryaboutwhether other sorts of innovations – in dentistry, smartphones or consultancy,say–aresociallyuseful:wejustleaveittopeople,thatisthemarket,todecide.Nordowenormallyworryonanybutgroundsofmonopolyaboutwhetherornot profits are “excessive”. We think that if they are indeed excessive theneventuallyeithernewcompetitionwillarrive todrive themdown–whichwasthepointofmylate-1990sgibetoCorzine–orthatcustomerswillbealienatedandstopbuyingfromtheprofiteers,orthattheDepartmentofJustice,EuropeanCommissionorotherantitrustauthoritieswillstepin.Butthe“sowhat”questionnolongerworksinfinance,ifiteverdid.

We have seen where that innovation which Turner and Volcker werelamenting led: to thecreditcrunch thatbegan in thesummerof2007and thenthe full-scale financial collapse that was marked by the bankruptcy of theLehman Brothers investment bank in New York in September 2008. Mostimportant, what that calamity demonstrated was the true basis of the sector’ssuccess: itwas takingbiggerandbigger risks,confecting financialproductsofgreaterandgreatercomplexity(theprofitmarginsofwhichmaywellberelatedtothedifficultyforcustomersinunderstandingthem),whilebeingsupportedbyamassivepublicsafetynet–ineffect,asubsidy–consistingofofficialdepositinsurance and the sure knowledge that the bigger that financial institutionsbecame, themore thatgovernmentswouldconsider them“toobig to fail” andstepintorescuethemiftheyranintotrouble.Andthatisexactlywhattheydid,onbothsidesoftheAtlantic.

AsVolckersaid,therewasnocorrelationwithanygainsinproductivitywhilethiswas happening.But also, over roughly the decade leading up to the 2008crash, the entry of more competitors simply drove the “innovation” and theboom in the creation of complex credit instruments even crazier, rather thandrivingmarginsdown.Afterwardsthepublicsubsidystayedinplaceintheformofultra-cheaplendingbycentralbanks,andinmanycasesconsistedofpubliclyfunded or publicly underwritten schemes to remove dud assets from banks’books.

Nice (God’s)work if you can get it. How have bankers got awaywith it?Theyhavecombineddirectpoliticallobbying,aidedbylavishcampaign-financecontributions, with broader (and more legitimate) campaigns of publicpersuasion. And they have exploited the natural interest politicians in manycountries have had in the continued flowof tax revenues from financial firmsandintakingcreditforthosefirms’apparentcontributiontoeconomicgrowth.What the financial sector achieved now looks extraordinary: regulatorypermission to take bigger andbigger risks,while keepingmanyof those riskshidden from public view or even from the regulators themselves. Mostnotorious,intheUSatleast,wasthesuccessfullobbyingin1998byWallStreetofthetreasurysecretary,RobertRubin,andhisdeputy,LarrySummers,toblockregulation of the trading of complex derivatives products which had beenproposed by the then head of the Commodity Futures Trading Commission,BrooksleyBorn.3

TheUSwasnotaloneinfailingtodoanythingaboutthedangersoffinancialinnovation: neither did the UK and nor did Germany, whose banks became

amongthebiggestcustomersforthederivativesecuritiesthatitspawned.Whathas been even more extraordinary, however, is what has happened since thefinancialcalamityof2008:ineffect,notmuch.

Afterthecrashthefinancialsectoruseditslobbyingresources,alongwiththefear that unless bank lending was maintained, economic recovery would bethreatened, to avoid suffering any substantial penalties or tightening ofregulations.Certainly, there has been some stiffening of the rules surroundingfinanceinboththeUSandEurope,butithasnotmadeafundamentalchangetotheway banks and their executives are able to behave.4 There have also beenfinesincasesofevidentmalpractice,bornebyshareholdersthoughnotbybankexecutives themselves. The stiffening of rules, the levying of fines and thefuriousresponsefrombankersoneachoccasionhaslargelybeenShakespearean:“Atale…fullofsoundandfury,signifyingnothing.”

Thisisahugebutunfortunatelynotsurprisingfailure.Itmeansthatthebasiccauses of the worst financial collapse and economic slump the rich countrieshaveseeninmorethan80yearshavenotbeenremedied.Thesamethingcouldhappenagain,oncememoriesofthe2008collapsehavefaded.Therehavebeenmeasuresthatdealwithsymptoms,suchastaxesonbankprofits,orlimitstothesizeofbonuspaymentstobankersinEurope,andsomemeasuresthat increasecapitalrequirements,butnonethat trulymakethebankingsystemsignificantlysafer. Bank shareholders have suffered, but few bankers – themanagers whotooktherisksandcreatedthecrash–havedoneso,eitherfinanciallyorthroughthejusticesystem.

IntheUK,evenSirJohnVickers,amild-manneredacademiceconomistwhochairedan“IndependentCommissiononBanking”forthegovernmentin2010–11,displayedhisangeranddismayat thisfailure inanarticle in theFinancialTimesinearly2016.5HelamentedthefactthattheBankofEngland’sproposedcapitalrequirementsforUKbanksweremuchlowerandmorelenientthanthosehiscommissionhadrecommended,orthanthoserecommendedbyAnatAdmatiof StanfordUniversity andMartinHellwig of theMax Planck Institute in themostrespectedanalysisofthecrashsofarpublished,TheBankers’NewClothes.

The result is that banks remain vulnerable to potential shocks. Moreoverbanksarestillpermittedtoputatriskhugesumswhilebeingabletokeepmanyof those risks off their balance sheets, hidden from the view of regulators,shareholdersand,mostcrucially,counterparties,inbusinessesthatarerivenwithcomplexity. It was the evaporation of confidence between financialcounterparties, the vast global network of firms that lend to each other, that

brought about the 2008 crash. Dud subprime mortgages in the United Statesstartedthetrouble,butthereasonitbecamesocatastrophicallylargewasthelossofconfidencebetweenthosemanylayersofcounterparties.

One of themost devastating delusions during the decade that led up to the2008collapsewas thenotion thataprocesscalledsecuritisationwasspreadingriskaround,puttingitwhereitcouldmostefficientlyandsafelybeheld,makingthe global financial system less risky than in the past. Securitisation is theprocessbywhichpackagesofloans–mostnotoriouslysubprimemortgageloansto poor people in the US, but alsomany others – are assembled by financialfirms, often sliced up into their component parts, and sold on as so-called“derivativesecurities”(thatis,paperthatwasderivedfromanoriginaldebt)inmore andmore complex forms, supposedly so as tomake the slices of rightstherebyconcoctedmoreappropriateforparticularspeciesofbuyer.

Theconsequencesweretwofold.Manybuyershadlittleunderstandingoftherealnatureofwhattheywerebuying,justthatitsapparentyieldwashigherthanthe dull alternatives on offer in what was a disinflationary, low interest rateenvironment.Andmanybanksdecided,fatefully,thatratherthanpassingonallthesederivativestoothers–abusinessmodelthatwasknownas“originateanddistribute” – it would be more profitable to hold onto large bundles ofderivatives themselves, placing them out of regulators’ sight in special off-balance-sheetentities.Bytheseandothermeans,riskthatwassupposedlybeingspreadoutendedupbeingconcentrated.“Originateandhoard”wouldhavebeenabetter description.The reason thiswas able to takeplace, at suchultimatelydevastatingscale,wasthatmostofitwashiddenfromview.Noone,literallynoone,knewthefullpictureofwhatwasgoingon.

Intheaftermathofthecrash,thepressuretomaintainbanklendingwashardfor governments to resist: their economies were on life support, so makingradicalchangestobankregulationsatthattimecouldhaveriskedcuttingofftheflow of blood. The crash had been caused by toomuch credit, but what wasneededabovealltohelpeconomiessurvivewasmorecredit,chieflyprovidedbypublicborrowingbutalsobypersuadingbankstokeeponlendingtotheprivatesector.Nevertheless, itoughtsurely tohavebeeneasieranduncontroversial todealwiththelackoftransparencythatin2008hadprovedsocatastrophic.Thatobscurity, as captured by the term “shadow banking”, ought to have been arelativelystraightforwardtargetforimprovement.

Sevenyearsonfromthecrash,thechiefeconomistoftheBankofEngland,AndrewHaldane,madeaspeech inwhichheessentiallysaid that in finance it

was still true, to borrow an old Hollywood phrase, that “nobody knowsanything”:6

Evenamongtheworld’slargestbanks,dataontheirbilateralexposurestooneanotherremainspartialandpatchy,especiallyforoffbalancesheetpositionsandsecuritiesholdings.Thatmeanslargepartsofthecoreoftheinternationalbankingmapremain,essentially,unchartedterritory.Thesedatagapsareevenmoreacutewhenmovingbeyondthebankingsystem.Largepartsofthenon-banksectorremainintheshadowsfromadataperspective.

Sowhatevertherulesgoverningbanks’capital,theleveragetheyareallowedto deploy, or anything else, the fact remains that those whose job it is tosupervisethebanksbasicallyhavenoreal ideaofwhatisgoingonandnordoother financial institutions that are lending to them.Shadowbanking lives on,andtheshadowsareasdarkasever.

Onereasonwhythishashappenedisthatfinanceisglobal,whichmeansthatto change disclosure requirements in any meaningful way requires a wideinternationalagreement,sinceotherwiseoperationscouldjustbemovedtolessdemandingjurisdictions.Politics,however,islocal,sonationalgovernmentsareeasily persuadable to protect their banks’ interests. Another reason is thatgovernments have sometimes connived in keeping the true condition of bankssecret:notably,atexactlythetime(2010–12)wheninternationalnegotiationsonshadowbankingwereunderway,thecrisisintheeurozoneoversovereigndebt,muchof itheldbybanks,wasalsounderway,soneitherFrancenorGermanywas keen on clearing the fog surrounding their then rather precarious banks.Similar connivance in disguising banks’ true condition had occurred in Japanduringthe1990s.Butthethird,andoverarching,reasonissimplythatbanksareenormouslypowerfulpolitically.

Bankers’strongestargumentagainststifferregulationnolongerholdsmuchsway:neithertheUSnortheUKeconomiesareanylongeronlifesupport,andtheeuro-zoneeconomyisalsoinabitbettershapethanitwas.Countriesonbothsides of the Atlantic can now better afford the risk that reforming orrestructuring finance might in some way load costs on to other parts of theeconomy.Thisiswhatbanksandtheirlobbyistsclaimwouldhappen,thoughitisfarfromobviousthatitistrue.

AdmatiandHellwigsaythatthisargumentthattighterregulationwouldcome

at an economic price was always self-serving nonsense.We have learned thehardway that riskier banks come at a huge price, so safer banksmust surelycomeatalowerpricefromthepointofviewofaneconomyasawhole.Duringthe emergency conditions of 2008–12, the trade-offwas at best unclear, sincelendingwasfragile.Buttheemergencyhasnowpassed.TheUSandEuropeaneconomies, like Japan’s before them, still carry thewounds and scars of theirimmensecrash,butwhattheynowneedisnotemergencybloodtransfusionsbutdeeperfitnessregimes.

Curbing the financial sector, asMartinWolf, chief economicscommentatoroftheFinancialTimeshaswritten,7ought tobeavitalpartof thatnewfitnessregime,ratherlikecuttingoutaninjuriouslyfattypartofyourdiettoavoidtherecurrence of cardiac arrest. The fitness formula favoured by John Kay, adistinguishedBritisheconomist,aprofessorattheLondonSchoolofEconomicsand the author of a 2012 government review of theUK financial sector, is toreducecomplexitybystrippingdepositinsuranceandthepublicsafetynetfromall investment banking, retaining it only for retail banking and corporatewholesalebanking.8

Economists at theBank for International Settlements, known as the centralbankers’ central bank, have confirmed that such remedies would do nounderlyingeconomicharm: ina2012study theyshowedthatbeyondacertainpoint (one that advanced economies passed long ago) a larger financial sectorharmsbothproductivitygrowthandoveralleconomicgrowth.9Youcan,astheysay,havetoomuchofagoodthing.Itistime,toputitmorebluntly,tohavelessofthatbadthing.Not,unfortunately,thatAmerica’snewpresidentorhisteamattheTreasurywouldagree:theyfavourlooseningtheconstraintsonWallStreet,returning it even closer to the conditions that brought about the 2008 crash,ratherthancuttingitdowntosize.

5

Britain,theirBritain

ImustadmitIfindtheEnglishareextraordinarilydifficulttounderstand.

A.G.Macdonell,England,theirEngland,1933

Bestrong,Maggietoldusall.Geteducated.Getaway.That’swhatshesaid.Ilistened.

DamianBarr,Maggie&Me,2013

IFWELOOKBACKATBRITAINinthe1970sand1980s,thebigmigrationissuethen was what was known as “the brain drain” – the movement of talentedBritons chiefly to the US, but also to other European countries, Canada andAustralia. Tension over immigration to Britain was focused on arrivals fromCommonwealthcountries,formercoloniessuchasIndia,Pakistan,Bangladesh,the West Indies and parts of Africa. The Immigration Act of 1971 imposedtightercontrolsoninflowsfromtheCommonwealth.Membershipin1973oftheEuropeanEconomicCommunity,laterknownastheEuropeanUnion,producednoconcerninBritainaboutimmigrationfromotherEuropeancountries,fortheflowwaslargelyexpectedtogotheotherway.OnepopularTVcomedywasAufWiedersehen Pet,1 a series that from 1983 onwards depicted a group ofconstructionworkersfromnorth-eastEnglandwhogoofftoworkinGermany–thankstofreemovementundertheEUtreaties.Britainwasknowntobethesickman of Europe. Why would any educated, skilled European have wanted tomovetoacountryindecline,onesostuckinitspast?

Why indeed? But two decades later that is exactly what hundreds ofthousands were doing and by their choice they were identifying Britain as adynamic story of revival, a countrywith a future inwhich tomake their ownfutures.AccordingtotheMigrationObservatoryattheUniversityofOxford,thenumber of foreign-born people living in the UKmore than doubled from 3.8millionin1993toabout8.3millionin2014,makingup13.1%ofthepopulation.London alone had more than 3 million foreign-born residents among its

population of 8.7million. The newspaper headlines have focused onmigrantsfrom Poland and elsewhere in central and eastern Europe, that is, “Polishplumbers”andothersfromtheformercommunistcountriesthatjoinedtheEUin2004 and came when the UK joined Sweden and Ireland in being the onlycountries of the then 15 EUmember countries to permit immediate access tocomeandliveandwork,ratherthanimposingaseven-yeartransitionperiod.ButhundredsofthousandsalsocamefromIreland,Italy,Portugal,France,GermanyandothersduringthedecadeuptotheEUreferendum.TheUKwaswherethejobswere,where thebuzzwas,andwhere talented,oftenwell-educatedyoungEuropeanscouldmaketheirmark–andtheirmoney–muchmorequicklyandeasilythanathome.Thebraindrainhadbecomeabraingainaswellasabrawngain.

TheUK is a revival storywhich isnow inneedofanew revival thanks tonewobstaclesandanxieties,butwhichneverthelesscanbeseenasacauseforoptimism for the rest of the West. Following three decades of decline andindustrialstrifeafterthesecondworldwar,declinethatcoincidedwith(butwasnotprovokedby) thedismantlingof thevastBritishempire, thecountry in the1980sand1990stransformeditselfeconomically,socially,culturally,politicallyand in terms of its status in world affairs. The revival, which Tony Blair’ssupporterstermed“coolBritannia”whenhesweptintoofficein1997,lastedforsomethinglike20years,butthenfollowingthe2008globalfinancialcrisis thecountryfellintoanewsloughofdespond.

Withinthreeorfouryearsitagainseemedtoberecoveringfromthefinancialcrash anddeep recession as itwasby thenoutpacing itsEuropeanneighbourswhohadbecomemiredintheirowneuro-zonesovereign-debtcrisis.TheUK’srelatively smooth recovery – it had a banking crisis thanks to the City’sinternationalshenanigansbutnopropertycrash–enabledunemploymenttofallrapidlyandmaintainedthecountry’sattractivenesstoimmigrantsfromotherEUcountries, especially thosewith heavy sovereign-debt burdens.Yet neither theeconomicnorthesocialclimatewasaltogethersunny,sincewageshadtakenabighitintherecessionandfailedtoshowanyrealrevivaluntil2015.Sincethesupply of labour had increased through immigration, the belief that migrantswereoneofthecausesofdepressedincomeswashardtorefute.

And so it was that in 2016 the UK found itself in a fresh political andconstitutionalcrisisfollowingits51.9%to48.1%voteinanationalreferendumtobecomethefirstcountryevertoleavetheEU.Inatightlyfoughtcampaign,thepresenceintheUKofsomanyEUcitizens,willingastheyhadbeentosay

“aufwiedersehen,Mutti”or“arrivederci,tesoromio”inordertocometoalandofopportunityanddynamism,provedoneof thedecisiveissues, thoughitwasfarfromtheonlymotiveforvotingtoleave.Thiswasdespite thefact thatEUimmigrants are on average better educated than the average Briton and havemade a positive contribution to economic growth, tax revenues andentrepreneurship.

Nowonder that ArchieMacdonell, a Scot born in India, said in his 1930ssatire,England, their England, that he found the English hard to understand.NowtheEnglish,alongwiththeWelsh(wholikethemvotedtoleavetheEU)and the Scots andNorthern Irish (both ofwhom voted to stay), are finding ithardtounderstandwhereleavingtheEUisgoingtotakethemandwhatitwilldototheUnitedKingdomofGreatBritainandNorthernIreland.Aretheygoingto becomemore closed or more open, poorer or richer, safer or unsafer, lessinfluentialaround theworldormore?Allof thesequestionswill takeyears togainclearanswers.UnliketheelectionfivemonthslaterontheothersideoftheAtlanticofDonaldTrump,theBrexitvoteinJune2016wasnot,atleastinthemindsofmostofitsadvocates,avoteagainstopentradeorWesternliberalideasin general, but that does not preclude it from ending up thatway.And itwascertainlynotavoteforastable,predictablefuture.

*

The story of theUK’s unstable past, and its escape from that long post-1945declineanditsimageasEurope’ssickman,isasinspiringasitiswellknown.Duringthe1980sMargaretThatcher,theprimeministerdubbed“theIronLady”bytheSovietUnion,tookonanddefeatedaseriesofpowerfulinterestgroups,mostnotablycoalminersandothertradeunions,butalsoindustrialcartels,state-owned companies and theCity ofLondon. She also, however, simultaneouslymountedanattackontheUK’srecurrentproblemofinflationbyimposingtoughmonetary controls, budget cuts and high interest rates which, in inadvertentcollaborationwitha risingvalue for thepoundowing tohighoilpricesduringwhatwastheheydayofNorthSeaoilproduction,causedadeeprecessionandraisedunemploymenttothehighestlevelseenintheUKsincethe1930s.

American economistMancurOlsonwroteTheRise andDecline ofNations(1982)duringThatcher’s firstmonths ingovernment.This theorist of interest-groupsclerosisrecognisedclearlythenatureoftheBritishproblem:

[C]ountriesthathavehaddemocraticfreedomoforganisationwithout

upheavalorinvasionthelongestwillsufferthemostfromgrowth-repressingorganisationsandcombinations.ThishelpstoexplainwhyGreatBritain,themajornationwiththelongestimmunityfromdictatorship,invasionandrevolution,hashadinthiscenturyalowerrateofgrowththanotherlarge,developeddemocracies.Britainhaspreciselythepowerfulnetworkofspecial-interestorganisationsthattheargumentdevelopedherewouldleadustoexpect…Thenumberandpowerofitstradeunionsneednodescription.Thevenerabilityandpowerofitsprofessionalassociationsisalsostriking.Considerthedistinctionbetweensolicitorsandbarristers…Britainalsohasastrongfarmers’organisationandagreatmanytradeassociations.

The storyofwhat came tobecalledThatcherism is in largepart a storyofOlsonism,ofbreaking thepowerofsuchspecial-interestgroupsandreopeningBritish society and theBritish economy to new ideas, new freedoms and newentities.AshappenedatthesametimeintheUnitedStates,theUKalsodefeateditsoldenemyofinflation.Probablyitsbiggestachievementindoingsowastoreform the supply side of the economy, in other words to open up manyactivities to competition, through privatisation of state-owned monopolies,through deregulation of all sorts of industries, especially ones directly servingtheconsumer,andthroughreformstotradeunionlaw.

The slow response of producers whenever demand rose hadmade the UKmore prone to inflation during the 1970s than Germany or France. Producersrespondedslowlyinpartoutoffearofthefastresponseoftradeunions,strikingforhigherwages,whichmadenewinvestmentsandproductionexpansionrisky.Moreover,theimpactofclearingawayobstaclesandcreatingnewcompetition,new openness, to help speed up this response was not just an economic one.Thatcherismwasnotalwaysliked,butithadabigsocialimpact:oldgroups,oldloyalties,oldconventionsbecamefractured.Newfreedomscamealongwiththeendofoldcertainties.Therewasdestructionbutalsocreation,justnotalwaysinthesameplaces.

A Scottish writer, Damian Barr, described this especially eloquently in apersonalmemoir, published in 2013, about growing up inScotland during the1980s,whichhecalledMaggie&Me.Hisstory isof lifeasachild inasmallindustrial town in Scotland, near the hugeRavenscraig steelworks,whichwaseventuallyclosedin1992.Tohisbrokenfamilyandtothecommunityinwhichhegrewup,Thatcherwasakintothedevil.Yettohimshewasakindofhero,a

rolemodelnotinherpoliticalviewsbutinherattitudes,herwillingnesstostandup to people, to defend what she stood for, to fight as a woman beset byprejudicesandsurroundedbyenemies.TheyoungBarrplotshisescapefromthepoverty,squalor,prejudiceandself-defeatingattitudesheseesaroundhim,with“Maggie” as an inspiration. She fought prejudice as a woman, Barr as ahomosexual.Hewrites:

Yes,Maggie,youdidallthat[snatchedmilk,smashedtheminers,closedtheCraig,mademillionsunemployedthencuttheirbenefit]…Youalsosavedmylife.Youweredifferent,likeme,andyouhadtofighttobeyourself.Youweretheonlywomanamongallthosemen.Youfoughtwarsandwonthem,evenmanagingtocarryoffaheadscarfatthehelmofatank.Youledbyexample.Youmadeaherooftheindividual,acultofthestriverandIdidmyhomeworktoimpressyou…YouhatedwhereIwasfromandIdidtoosoyoumadeitOKformetorunawayandneverlookback.Youofferedmecertainty,howevergrim,whenIhadnoneathome.Youthrewmeanescapeladder.

How was the escape ladder thrown? The standard narrative is one of anational crisis in 1978–79 followed by the election of a heroic-cum-ruthlesspolitician who bulldozed her way through opposition in order to beat up theinterest groups andopenupBritish society.ThosewhodislikeThatcher adaptthenarrativetomakeitconsistofthemalicioustearingupofasupposed“1945settlement” betweenworkers and employers, and the heartless tearing apart ofcommunitiesintheareasthatsufferedmostfromherassaultoncoalminingtradeunions or from the assault of tight money and a strong pound on oldmanufacturingindustries–especiallyinScotlandandthenorthofEngland.

The truthabout1978–79 is thatsuchcrisisasdidoccurwaspolitical ratherthaneconomic.TheUKhadnobigfinancialcatastrophecomparable to thatofJapanin1990(seeChapter7)orofSwedenin1991(seeChapter8).Whatithadwasaseriesofstrikesduringlate1978andearly1979,chieflybypublic-sectortrade unions, includingmost embarrassingly by gravediggers inLiverpool andpartofManchesterandbyrefusecollectors,inresponsetoaneffortbythethenLabourgovernment to imposeamaximumannualpayriseof5%in thepublicsector so as to help curb inflation. This became known as “the winter ofdiscontent”,whichhelpedinMay1979tobringaboutageneralelectionvictoryfor Thatcher’s Conservative Party, in which she achieved the biggest swing

(5.2%)ofvotesaway from the incumbentgoverningpartyseen inanygeneralelectionsince1945.Itwasanimpressivevictoryeventhoughtheparliamentarymajority the Tories won – an overall margin of 44 seats – was far fromoverwhelming.PlentyofpoliticalpunditscouldbefoundwhobelievedthathadLabour’sprimeminister,JamesCallaghan,hadthegutstocallageneralelectionduring the previous year, before the winter became so Shakespearean in itsdiscontent,hemighthavewonandBritishhistorymighthavebeendifferent.

Inreality,however,what the1979electionrepresentedwas theculminationofnearly twodecadesofconstant strife,acrisis thatwasofgovernance ratherthanoffinance.Inthe1970stheUKdidhaveacoupleoffinancialdramas,buttheywerenotcathartic.Inone,in1973–75,asuddenplungeinhousepricessentmany smaller financial institutions, known in the parlance of the day as“secondary banks”, into near-bankruptcy, forcing theBank of England to bailout about 30 of them. The second was in June 1976 when the Labourgovernmenthadtoborrow£2.3billion(then$3.9billion)fromtheIMFtotideitselfoverandpreventaforceddevaluationofthepound.ItseemedhumiliatingatthetimeforthegovernmentofadevelopedcountrytohavetogototheIMF,buttheeurosovereign-debtdebacleinrecentyearsputsthisinaratherdifferentperspective.

The UK’s troubles were more like a long chronic illness, one that wassummed up best by the question that Thatcher’s predecessor as ConservativeParty leader,EdwardHeath,posedwhenasprimeministerhecalledageneralelectionin1974:“WhogovernsBritain?”Notyou,wasthevoters’answer.Theyhadsufferedthroughaseriesofindustrialconflicts,duringwhichlongstrikesbycoalminers had forced Heath’s 1970–74 government to impose a three-dayworking week for industry to curb electricity consumption and thus coaldemand, and had forced households to return to the candlelit era. So votersbrought backHaroldWilson’s Labour government instead, a government thathad in 1969 tried, and failed, to reform trade union law through a package ofproposals called “In Place of Strife”. The core proposal in that package, thatunionsberequiredtoholdaballotofmembersbeforeastrikecouldlegallybecalled, was eventually adopted by Thatcher’s Conservative government in its1984tradeunionlaw.Labourdidnotdaretoreintroducetheproposalduringits1974–79terminoffice,aperiodduringwhichtheproblemofhugenumbersofworkingdaysbeinglosttostrikesjustgotworseandworse.

The simplest way to depict the UK’s decline and recovery is through thestatisticsontheaveragenumberofworkingdayslosteachyearthroughstrikes.

During the 1950s, the annual average loss was 3.3 million days. During the1960s, the decade which led Labour to try to replace such strife, the annualaverageroseto3.6million.Butinthe1970s,underboththeConservativesandLabour,theannualaveragelosssoaredto12.9millionworkingdays,with1979aparticularlyextremeyear,with29.5millionworkingdayslost.

Then in 1984 Thatcher fought a long battle against the National Union ofMineworkers (NUM) that sheeventuallywon, thanks togoodpreparationand,by then, to having won a second general election fuelled by victory overArgentinaintheFalklandswar,thistimewithahugeparliamentarymajorityof144 seats. Industrial strife in 1984 and in some preceding years inflated thedecade’s annual average, but that average nevertheless dropped to 7.2millionworking days, thanks to the victory over the NUM and to Thatcher’s legalreforms,which introduced secret ballots for unionmembers and outlawed thedisruptivepracticeofsecondarypicketing,bywhichstrikesandblockadeswereextendedtocompaniesnotdirectlyinvolvedintheoriginaldispute.Inthe1990sthe annual average plunged to a mere 700,000 working days lost. Which iswhereithasstayed.Thisplacestheoncestrike-tornUKatamerehalfoftheEUaverage for strikes in that decade,whenmade proportionate to the size of theworkforce.

Some of this change can be attributed to a decline inmembership of tradeunions, from about 40% of theworkforce at the time of theminer’s strike of1984to25%now,whichinturnisrelatedtotheshrinkingroleofmanufacturingin the economy. The most unionised workforce now is in the public sector,where about 55% of employees aremembers of a union. Such declines have,however,alsooccurred inmostWesterncountries,oftenmoreprecipitately: inGermany, 18% of employees are in a union; in France, the figure is anastonishingly low 8%. Sweden is truly the outlier,with 70% of employees inunions,thougheventhathasdeclinedfromapeakof86%in1995.

Although manufacturing shrank considerably as a share of the Britisheconomy(from27%ofUKGDPin1970to10%in2013),oneparticularsectordemonstrates a more positive picture. In the 1970s, the British car industryrankedalongsidecoalandsteelasaheartlandofindustrialstrife.BritishLeylandwasthemainBritish-ownedcarcompany,theresultofamergerofold,famousnamesincludingAustin,Morris,JaguarandRover,butitwashitbyaseriesofstrikes in the early 1970s, many organised by a shop steward called DerekRobinson,aCommunistPartymemberwhobecameknowntothepressas“RedRobbo”.Thefirmwassavedfrombankruptcyonlybynationalisationin1975.It

accountedforabout40%oftheBritishcarmarket,ratherasFiatdominatedtheItalianmarketatthattime.NeitherBritishLeylandnorFiatwasinafitstatetocompete in an open market with either the increasingly competitive JapaneseimportsortheotherEuropeanmakers,againstwhichbothfirmswouldhavetobattleonmoreequaltermsoncetheEUbannedstatesubsidiesandthencreatedagenuinelysinglemarketincars,whichitdidafter1993.

YettheBritishcarindustryhassurvivedthatEuropeanchallengeratherbetterthantheItalianindustry.Intheearly1970sproductionofcarsandtrucksintheUKandItalywasatsimilarlevels,butin2014theUKproducedmorethantwiceasmanyvehicles(1.6million)asItaly(700,000).Themainreasonisthechangein British trade union law and in industrial relations, which in turn luredJapanesecarmakers toopen factories in theUKtoserve theEuropeanmarket,beginningwithNissannearSunderlandin1986,soontobefollowedbyToyotaandHonda. Japanese companies led theway in achieving higher productivity,higher quality and competitive costs in making cars in the UK for export,principally to elsewhere inEurope, andhavebeen followed in that successbyGermancompanies(BMW’spurchaseof theformerBritishLeylandMini)andIndia’s Tata Motors (Jaguar and Land Rover, also formerly part of BritishLeyland).Italyachievednosuchlabour-lawreformuntil2015,andhasattractednoforeigncarproducersatall.

Theendtoindustrialdisruptionrepresentedanendtotheabilityofrelativelysmallinterestgroupstoholdthecountrytoransom.ButtherewasalsoabrightersidetothetransformationoftheUKunder,andafter,theThatcherera.Ittoocanbesummedupbyastatistic:in2014theshareofannualBritishGDPthatcamefromwhattheDepartmentforCulture,MediaandSport(DCMS)definesas“thecreativeeconomy” reached8.2%,placing it aheadof financial services (whichsomemightcall“thecreativelydestructiveeconomy”)ataround8%,andnotfarbehindthewholeofmanufacturing,whichprovides10%.

TheDCMS’sdefinitionof thecreativeeconomyconsistsofa listofwhat itdeemsthecreativeindustries–design,software,IT,publishing,film,television,advertising,communications,architecture,musicandperformingarts–plusanestimate of the contribution of people in the same creative occupations butworking for other industries, that is, designers working directly for amanufacturer rather than selling it services from outside. Companies in thecreativeindustrieshavegrownfasterthaninotherbigEUcountriesandaccountforalargershareofemployment.AccordingtoCreativeEconomyEmploymentin theEU and theUK, a study byNesta,2 7.9% of employment in theUK in

2013,justover2.3millionpeople,wasinthecreativeindustries,comparedwith5.3%inthe28EUmembercountriesasawhole.Afurther2%ofemploymentconsisted of creative jobs embedded in other sectors, making 2.9 million, or9.9%,inall.

TheNestastudyshowedthattheEUcountryinwhichcreativeindustriesandtheembeddedcreativeeconomyaccountforthehighestshareofemploymentisSweden,at11.92%:asChapter8willdescribe,anotherrevivalstory.Secondonthat measure comes the Netherlands at 10.9% with the UK third at 9.9%. InGermanytheshare is thought tobe8%and inFrance7.5%.Toput this intoaglobalcontext,alaterstudy,CreativeEconomyEmploymentintheUS,Canadaand theUK, estimated theUS creative economy in 2013 to account for about9.75%ofitsemployment,andthatinCanadain2011anevenhigher12.9%.

Somuchfor the1970s imageof theUKasadrabcountry thathad lost themomentofcreativecelebrityithadbeengiveninthe1960sbytheBeatles,theRolling Stones and their sort. By the 1990s, the UK had become one of thecreativecentresoftheWesternworld.Thisisonereasonwhy,bythe2000s,itwas proving a magnet for hundreds of thousands of talented, well-educatedimmigrants from European countries previously thought of as much morecreative than the UK, including Italy, France and Spain. TateModern, whichopenedin2000inaconvertedpowerstationinLondon,hasbecomeoneofthemost visited contemporary art museums in the world, part of a nationwiderevival ofmuseums and art galleries. All that creativity is heavily centred onLondonandsouth-eastEngland,but isnotonly found there:Nestaproducedafurther study, The Geography of Creativity in the UK, showing how creativeemploymentisdistributedaroundtheUK.Itfoundthatsuchjobsandfirmsareprincipallyurban,thusinManchester,Leeds,Bristol,EdinburghandCardiffaswellasinLondon,butalsothatone-fifthofwhatitcalls“creativeclusters”aretobefoundinthenorthofEngland,withothersinScotland,WalesandNorthernIreland.

AnotableexampleofoneofthoseclustersisinManchester,andit isbasedon science rather than the arts or software. In 2010 a team of scientists atManchester University won the Nobel prize in physics for their discovery ofgraphene, a substance derived from carbon and popularly known as the newwondermaterial, as it is the strongest and thinnestmaterial ever known. Thisachievement has led to the creation atManchester University of the NationalGrapheneInstitute.Thediscovery,moreover,wasatypicalstoryofthemodern,open,post-ThatcherUK:itwasmadebyateamledbytwoimmigrantscientists

originally fromRussia,AndreGeim andKonstantinNovoselov, one ofwhomhadcometotheUKviaauniversityintheNetherlands.

*

ButdidtheUKreallyescapefromitslongandnotalwaysgenteelpost-imperialdecline?Thequestion isunavoidable, thanks to threebig,destabilisingevents.The first was the 2008 global financial crisis, which hit the British economyharder than anyother bigWestern economy, except for Italy.The secondwasthereferendumin2014onScottishindependencefromtheUnitedKingdom,inwhich although the status quowon by a ten-pointmargin, itwas neverthelessshockingthat44.7%ofvotersfavoureddeparturefromtheUK.Thisdoesnotfitwellwith thenotionofacountry thathas fully recovered itsdynamismand isfeeling good about itself as “TeamGB”, to use the name used for theBritishcontestants in the Olympic Games. Then in June 2016 there was the vote toleavetheEuropeanUnion.

Thatvote represented the rejection, albeitbyanarrowmargin,ofwhathadbeenthecentrepieceofBritishforeignpolicyformorethanhalfacentury.Itwasa rejection that was driven by many different, often contradictory, feelings.Although an “in–out” referendum might sound like a decision over a singleissue,theissueofmembershipofaninstitutionascomplexandmultifacetedasthe European Union inevitablymeant that the 33.5million people who votedmusthavemadetheirchoicesforawidevarietyofreasons.3Thecampaignwasadistinctlyunpleasantaffair, inwhich the“Leave”campaign reliedon itsopen-ended but smart slogan of “Take Back Control”, supported by a series ofdemonstrably false statements about the EU,4 while the “Remain” campaign’sslogan was a poorly argued claim of “Stronger In”, reinforced by ratherapocalyptic speculations of the economic consequences of Brexit. Suchspeculations relied in particular on a forecast from theTreasury that stretchedimplausibly forward to 2030 and purported to find that the average Britishhouseholdwould be £4,300 per yearworse off by then if the countrywere toleave theEU than if itwere tostay.Thiswasabsurdlyprecise,given that thiswasa14-yearforecastcomparingtwopotentialoutcomes,thenatureofbothofwhichwasunknowable.

In the end, though, polling analysis showed that the factor shared by thewidest number of voters was a desire to put limits on immigration, and oneunarguablefactwasthatundertheEU’streatiesitisnotpossibleforamember

to impose limits on the freedom of movement to their country of other EUcitizens.ThevotewasnotassucharejectionoftheBritishelite,sincetheelitethemselvesweresharplysplitbothoverimmigrationandovertheEU,especiallywithintheConservativePartybutalsointhetradeunions.Suchdeepdivisions,botheliteandpopular,andthevote’srejectionofmainstreampolicy,ofoneofthegreatinternationalinstitutionsofthepost-wareraandofimmigrationdonotsuggest a country at peacewith itself. Normay the vote leave the country atpeace:it,andtheprocessofleavingtheEU,couldleadtoallsortsofconflicts,social,regional,politicalandconstitutional.

Thedecisiontoleavehasshockedmanyofthecountry’sinternationalfriends,especially those likeJapanwhosecompanieshad invested in theUKasabasefromwhichtoserveEUmarketsunderaconsistentsetoflawsandregulations.Security relationships, inNATOandwith theUnitedStates,areunlikely tobemuch affected, unless the UK proves unable to afford to maintain its armedforcesatastrongenoughleveltomeetthecountry’sinternationalcommitments.Buttheeconomicwaterswillbechoppyforseveralyearstocome.

Nevertheless, it alsowouldn’tbe right to see thevoteas indicating that theUKis,behindthebonhomieandprosperityofLondon,anangry,alienatedplace.If it were, why would the country have re-elected David Cameron and hisConservativeParty togovernment in thegeneralelectionof2015,evengivinghimasurpriseabsolutemajorityinParliament,albeitononly36.9%ofthevote?Indeed,partofthenarrativethatwasusedtobackthecampaigntoleavetheEUwasadistinctlypositive,upbeat,confidentone.

AkeydifferencebetweentheUK’sfirstreferendumaboutEUmembershipin1975(whichwasalsothecountry’sfirstevernationalreferendum)andtheonein2016wasthatin1975theBritishfelteconomicallyweakanddefensive,andsaw themselves as having to choose whether or not to join their moreprosperous,moresuccessfulEuropeanneighboursaspartofaself-rescueplan.In2016,theEuropeanneighbourswereseenasrelativefailures,thankstotheirdebts, their slower economic growth and their struggle tomanage the flow ofrefugeesacrossandaroundtheMediterranean.Volublepro-Leavecampaignerssuch as Daniel Hannan, a Tory member of the European Parliament, andDouglasCarswell,theUKIndependenceParty’ssoleWestminsterMP,relishedeverychancetheyfoundtolikentheUK’sEUmembershiptobeing“shackledtoa corpse”. A key part of the Brexiteers’ psychology was one of a renewedconfidence in theUK’sability to standon itsown, just aspartof theScottishNationalParty’s argument for independence in2014wasoneof confidence in

Scotland’s resilience and its unity. Both the Scottish nationalists and the EUleaversmayhavebeenarrogantandevendeluded,buttheywerenotlackinginconfidence.

Therewas also, though, a sour side to both votes.The sournesswas partlyeconomic:inScotland’scasealingeringresentmentdatingbacktothe1980satthedemiseofold industries suchas coalminingand shipbuilding; in theUK’scase a legacy of stagnant or falling household incomes ever since the globalfinancialcrisisbeganin2008whichcouldnotbeblamedontheEUbutperhapscould be blamed on the elites that favoured EU membership. This nationallegacy can be traced both to the grossly negligent regulation of the City ofLondon that gave rise to the crash of 2008 and its costly and painfulconsequences, and to economic and social failures during the decades thatprecededitinsomeofthecountry’spoorerregions.

John Lanchester, an author, writing in London Review of Books after theBrexitreferendum,gavehisviewofBritain’sdivisionsandsourness:

TobeborninmanyplacesinBritainistosufferanirreversiblelifelongdefeat–atruncationofopportunity,ofeducation,ofaccesstopower,oflifeexpectancy…thevistainsteadisalandscapewherethereisoftenwork…butit’sunsatisfying,insecureandlowpaid.Thisnewworkdoesn’tdowhattheoldworkdid:itdoesn’tofferasenseofidentityorcommunityorself-worth…What,overthelastfewdecades,hasbeenthepolitical“offer”tothesepeople?Intruth,nothingmuch.

The Lanchester view, in other words, is that those like Damian Barr whoescape down Thatcher’s ladders from small industrial towns in Scotland areexceptions, not rules. His description of the geographical differences inperceptionsofopportunity,socialmobilityandhealthcould,rightlyorwrongly,be applied to a number of other Western countries too, certainly the UnitedStatesbutalsoFranceandsomeplacesinGermany,especiallyintheformerEastGermany. Most pertinently, however, his reference to the lack of a political“offer”goeson to imply that somethingelsemustbe rotten in the stateof theUKbeyondraweconomics,somethingthathelpstoexplainwhynotmuchofanoffer has been made, in the form of either mitigation of the blows dealt toincomes and economic prospects by industrial change, or concerted efforts toenablethereplacementofoldindustrieswithnewones.

Thislingeringresentmentattheinadequacyofthepoliticalofferisrelatedto

thesteady,long-termbreakdownoftheBritishelectoralsystem,andwithitthesense of a reasonable equality of political rights and voice across the wholenation.Whathadbeen,principally,atwo-partysystemthatcorrespondedchieflytoclassand incomehasbecomea fragmented,multi-party system,mademorecomplicatedbyregionalpartiesinScotland,WalesandNorthernIrelandbutalsofeaturing a decline in the old class identification with the Conservatives orLabour.Despitethis,theelectoralsystemunderwhichwinnerstakeallinfirst-past-the-postconstituencyvotingremainsonethatimplicitlyassumesthattherearetwodominantpoliticalparties.Intheolddays,therewasastrongincentivefor such parties tomake a political offer to poorer voters, as their voteswereneededforvictory.Thisismuchlesstruetoday.

In1970,theLabourandConservativepartiesbetweenthemcollected89.5%ofthevoteinthegeneralelectionheldinthatyear,anelectioninwhich72%oftheelectorateturnedouttovote.In2015,thecombinedshareofLabourandtheTories had fallen by 20 percentage points to 67.3%, and the Conservativesachieved aworkingmajority inParliamentwith just 36.9%of the vote, on anelectoral turnout of 66.1%.WhenThatcher came to power in 1979 she did sowith43.9%ofthevote,onaturnoutof76%(seeFigure5.1).

FIG5.1Britishgeneralelections,1945–2015Turnoutandwinningparty’sshareofthevote,%

Source:UKPoliticalInfo

Out of long historical habit and a liking for decisive, rapidly formedgovernments,theBritishstillpurporttofavoursingle-partyadministrationsovercoalitions, even though the fragmentation of the party system has made

coalitions the more logical and legitimate solution. A referendum in 2011 tomaketheelectoralsystemmoreproportionalwasdefeatedheavily.ThecoalitionbetweenConservatives andLiberalDemocrats thatgoverned theUK in2010–15,thecountry’sfirstformalcoalitiongovernmentsince1945,wasunloved,andin the 2015 election the smaller coalition partner was almost wiped out fromParliament, its share of the vote slumping from 23% to 7.9%. Yet coalitiongovernmentandamoreproportionalelectoralsystemlookincreasinglydesirablefrom the point of view of equality of political rights, as well as from that ofstability.It istheoldsystem,onethatin2015choseagovernmentthroughthevotesoflittlemorethanafifthoftheoverallelectorate,thatnowlooksunstable.

Asasystemfornationalelections,thecurrentonehaslonglookedunfairtotheScots,especiallyas theConservativeParty’srepresentationinScotlandhasdwindledtoalmostnothing,andgiventhattheScottishLabourPartytootookabeatinginthe2015elections.Thoseelectionshandedasingleparty,theScottishNational Party, 56 of the 59 Scottish seats atWestminster on a vote share of50%.Thebiggrievancebehindthe2014independencereferendumwasalreadyoneof another sortofpolitical inequality: abelief thatScottishvotershad toolittle voice over policies being decided in Westminster but implemented inScotland, despite the establishment of a devolved parliament (elected byproportional representation through what is called an “Additional MemberSystem”)andgovernmentin1999.Thisgrievanceislikelytogrow.

Someofthesamesentiment–dislikeofdecisionsbeingmadebypowersfaraway – lay behind the EU referendum vote. But so too did another set ofgrievancesaboutunequalpoliticalrights.PressureinsidetheConservativePartyforareferendumtobeheld,andthemovetocentre-stageofwhathadoncebeenafringe,single-issuemovement,theUKIndependenceParty(UKIP),reflectedafeeling that opinions against the EU and against immigrationwere finding nohearingthankstothefirst-past-the-postelectoralsystem.

TherewasaconstitutionalargumenttoofortheissueofEUmembershiptobedecidedby referendum,which is alsowhy the country’s first ever referendumtook place, the one in 1975 to confirm themembership towhich theUK hadsigned up two years earlier. As the UK has no written constitution, its soleconstitutionalprincipleisthesovereigntyofParliament.Butabasicprincipleofparliamentary, that is representative, government is thatwhile the people thusdelegate thepowerof decision-makingover laws toMPs, theydonot therebyempowerthoseMPstodecidetotransferthatlawmakingpowertoanyoneelse.In 1975 it was argued that to have legitimacy, a transfer of powers to the

EuropeanCommunityneededadirectmandatefromthepeople,andthatwastheunderlyingargumentfor2016too.

AnalysisoftheresultbyGeoffreyEvans,afellowinpoliticsandsociologyatNuffieldCollege,Oxfordandco-directoroftheBritishElectionStudy,suggeststhat the roots of theBrexit victory canbe found in the alienation ofworking-classvotersfromgeneralelectionssincethe1990s.5Theirturnoutlevels,whichhad previously been similar to those of middle-or upper-class citizens, hadplummeted: in 2015, Evans says, turnout among degree-level middle-classvoterswas83%;thatamonglowlyeducatedworking-classvoterswas48%.Tobecome electable in the first-past-the-post system, Labour had under Blair’sleadership (1994–2007) chosen more or less to ignore working-class voters’concerns and to focus on appealing to middle-class voters instead. It was asuccessful strategy –Labourwon three successive general elections – but onewith consequences. Moreover, many traditional working-class voters live inconstituencieswhicharesafeLabourseats,somayhavefelttheirvotesdidnotreally matter. They assuredly did not influence Blair’s policy of allowingcitizensofthenewEUmembercountriestobeginmigratingtotheUKin2004.But finally, on June 23rd 2016, those working-class votes counted. Turnoutamong such voters in the referendum was much higher than in the generalelectionayearearlier.

What those votes may also have reflected, however, is that in the UKperceptionsofbeing“workingclass”aredifferentfromthedefinitionsusedbysocio-economic analysis. Another study, the annual British Social Attitudesreport, which was released just after the referendum, revealed a surprisingfinding that 60% of British people consider themselves to be working class.Basedontheobjectivemeasuresofincome,expenditureandoccupationthatarenormallyusedbysocialresearchersthefigureis25%.Amongthose60%wereeven included 47% of those demonstrably in the professional andmanagerialclasses.

Thiscouldbedismissedasjustaculturalquirk,arelicofasocietythatwasonce sharply defined by class not just in perceptions but also on objectivemeasures.Thismaybe true,but itmatterspolitically in so faras itmaymeanthat working-class values – including suspicion of both immigration and ofcosmopolitanism – extendmorewidely in the electorate than general electionresultsandpoliticalparties’policiesmayhavesuggested.

One of the big questions for politics and government now is how far thisbalanceofviews,manifestedinthereferendum,canandshouldinfluencepublic

policies,partyprogrammesandeventheagendaforconstitutionalreform.MuchofthedebateintheUKoverthepastdecadehasbeenaboutincomeinequality,even though measured in the traditional way by the Gini coefficient6 familyincomesintheUKarefarmoreevenlydistributedthanintheUnitedStatesandinequalitylevelsaresimilartothoseinothercountriesinEurope.AccordingtoWorldBankresearch,theUKin2014hadaGinicoefficientof32.6,whilethatin the US was 41.1, in France 33.1, in Italy 35.2, in Sweden 27.3 and inSwitzerland31.6.Measuredinthisway,inequalityintheUKhasevendeclineda little since the 2008 financial crisis, though that fact has not made thecontinuedsuccessofthecountry’srichestcitizens,especiallybankers,anyeasierfor those on the left to stomach. But, as Chapter 2 argued for theWest as awhole, the inequality grievance is no longer simply amatter of incomes. It isnowmoreimportantlyamatteroftheinequalityofpoliticalvoiceandinfluenceoverpublicpolicythatbigdifferencesinwealthcanbring.

Politicalpartiescould,inprinciple,decidetoviewthereferendumashavingbeenaone-off,anexceptionnotanewrule.However,thehugegapitrevealedbetweenopinionsasexpressedinthe2015generalelectionandthoseinthe2016votewillbehard to ignore.Anygovernment, indeedanymajorpoliticalparty,thatdecidesthatthestrengthoffeelingagainstimmigrationshownin2016canbe taken lightly or even disregarded will be taking a big risk, especially asBritishpoliticsislookingmorevolatilethanformanyyears.

UKIP is heavily discriminated against by the electoral system, as 2015showedwhenitwon12.6%ofthevotebutjustoneseatinParliament.Researchby Evans and Jonathan Mellon (also from Nuffield College, Oxford) for theBritish Election Study, Are Leave Voters Mainly UKIP?, found that betweenFebruary2014andMay2016,35%of respondents to their surveyadmitted tohaving voted UKIP at least once at an election at some level, that is local,devolved,mayoral,nationalorEuropean.Havingachievedtheparty’sprincipalaimofBrexit,UKIPmightnowfadeaway.Butequally,itcouldbecomeahomefor any voters who end up feeling betrayed by post-Brexit policies or partyprogrammes. In a first-past-the-post electoral system, if that were to happenUKIP could even, in theory, suddenly jump from one seat in Parliament tobecomingthesecond-biggestparty,oreventoholdinganabsolutemajority.Thefearof thatprospectmight, alternatively, lead theConservativesorLabour,orboth,toadoptUKIP’sstanceagainstcosmopolitanismandimmigration.

Itoughtalsotomakethosetwoold,mainstreampartiestakeseriouslyatlast7thecasefortwobigpoliticalreforms.Thefirstiselectoralreform,tobringina

more proportional voting system, one that accommodates and provides aframework for the fragmentation of the party system rather than remaining indenialofit,asnow.Aproperlymulti-partysystem,withcoalitiongovernmentsthe norm, would have the merit of restoring a greater sense of equality ofpoliticalrightsandvoicetoalargershareofthepopulation.Suchreformwouldhavebeendesirable regardlessof theBrexitvote.Thecase for the secondhasbeen increasedbyBrexit:constitutional reform tomake thegovernmentof theUK formally federal, with either a separate English Parliament or severalEnglish regional assemblies, with devolved powers of both expenditure andtaxationarrangedfarmoreequallythannowacrossthewholeUK.Withoutthat,a new referendum for Scottish independence seems inevitable. It may comeanyway,ifthetermsforexitingtheEUfindenoughdisfavourinScotland.Butthe UK could survive such a vote, if the devolved, federal system couldmeanwhilebemademorecoherentandmoredurable.

BritainrevivedtheideaoftheWesttriumphantlyduringthe1980sand1990sbyrestoringopenness.Thishelpedcreatenewpersonalandsocialfreedoms,aswellasdefeatingtheselfishforcesthatwereharmingitsdemocracy.Butitpaidtoo high a price in terms of equality, developing a new inequality of politicalrights and voice, the consequences ofwhichwere seen especially in the 2008financial calamity and in the alienation that followed it. Now, in its time ofintrospection, it needs political reforms so as to recreate the isonomia, theequality of political rights. Such reforms need also to be accompanied by arenewed emphasis in public spending on education, to maintain the sense ofequality of opportunity, and on infrastructure, to reduce the wide gaps inproductivityandmodernitythatexistbetweenthewealthysouth-eastandtherestofthecountry.

ForBritaintoturninwardsfollowingBrexit,tocloseitsbordersandbecomeisolationist,feelsalmostasinconceivablegiventhecountry’shistoryandcultureasitwouldbeforasmallertradingnationsuchasSwedenorSwitzerland.Thisis acountry thathasaCanadiancitizenheading its centralbank,aPortuguesecitizen managing its most famous football team, Manchester United, andforeignersofcountlessnationalitiesrunningitsbiggestcompanies.Buttoremainopen,nowthatthecountrywillbeoutsidetheEUandoutsidealltheconstraintsthatmembership imposedon theprotectionist, subsidising instinctsofnationalpoliticians, Britain is going to have to restore equality of voice by giving itspoliticalsystematleastasbigashake-upasThatchergaveitseconomicsystem.Withoutthatequality,Britishopennesscannotlast.

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Notesandreferences

Introduction

Spengler,Oswald,DeclineoftheWest.InGermanthiswasDerUntergangdesAbendlandesor,morestrictly,TheDownfalloftheOccident.Itwaspublishedintwovolumes,in1918and1923.

1Letbattlecommence

NotesIslamicStateisalsoknownasDaesh,anArabicacronymfortheIraq-basedforerunnerofthegroup.Americanofficialsliketousethatname,asdoFrenchandBritishones,butthegroupitselfprefersIslamicStateasthattermcapturesitsessentialaspiration.Sincethataspiration,anditssuccessincommandingterritoryinSyriaandIraq,isalsothemainreasonthegroupposesaspecialthreattotoday’sworldorder,IslamicStateisthenameusedinthisbook.ThespeechwasinLondon,toadvertisers,inOctober1993,threemonthsafterMurdoch’sNewsCorporationacquiredStarTV,aHongKong-basedsatellitetelevisioncompany.Guardian,“MurdochandChina”,August24th2003.Foranexample,seewww.margaretthatcher.org/document/107821PeterDruckeremigratedfromAustriafirsttotheUKandthentotheUS,makinghisnametherewithaseminalmanagementwork,TheConceptoftheCorporation(1945),astudyofGeneralMotors.AsisoutlinedinIanMorris’sbookWhytheWestRules–ForNow:thePatternsofHistoryandwhattheyRevealabouttheFuture,ProfileBooks,2010.Forexample,inJohnKingFairbank,China:ANewHistory,HarvardUniversityPress,1992.Forexample,byFareedZakariainTheFutureofFreedom,W.W.Norton&Company,2003.WhenIputthewords“LetThemWed”onthecoverofTheEconomist(January4th1996)asitstheneditor,theweeklywasthefirstmainstreampublicationintheUKortheUStoadvocateequalmarriagerights.ProgresssincethenintheenactmentofsuchrightsinWesterncountriesallovertheworldhasbeenmuchfasterthanwecouldpossiblyhaveexpected.Annidipiombooryearsoflead,referringtotheleadinbulletsthatflewasterroristgroupsoftheextremerightandleftfoughteachotherandthestate.IwasamemberoftheTrilateralCommissionfor11yearsuntil2009.See,forexample,Rauch,Jonathan,Government’sEnd:WhyWashingtonStoppedWorking,PublicAffairs,1999,arevisedversionofabookfirstpublishedin1994underthetitleDemosclerosis.

ReferencesCrozier,Michel,Huntington,SamuelP.andWatanuki,Joji,TheCrisisofDemocracy:AReportonthe

GovernabilityofDemocracies,TheTrilateralCommissionandNewYorkUniversityPress,1975.

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FreedomHouse,“FreedomintheWorld2015”:https://freedomhouse.org/article/freedom-world-2015-freedom-declines-ninth-year

Friedman,ThomasL.,TheLexusandtheOliveTree:UnderstandingGlobalisation,Farrar,Straus&Giroux,1999.

Popper,Karl,TheOpenSocietyanditsEnemies,Routledge,1945.Runciman,David,TheConfidenceTrap:AHistoryofDemocracyinCrisisfromWorldWar1tothe

Present,PrincetonUniversityPress,2013.Soros,George,OpenSociety:ReformingGlobalCapitalism,Little,BrownandPublicAffairs,2000.UNDepartmentofEconomicandSocialAffairs,PopulationDivision,InternationalMigrationReport

2015.

2Inequalityandfairness

NotesTrumpbegantoraiseexternalfundsforthegeneralelectiononcehebecametheRepublicannomineeinJune2016.www.supremecourt.gov/opinions/09pdf/08-205.pdf;www.nytimes.com/2014/04/03/us/politics/supremecourt-ruling-on-campaign-contributions.html?_r=0LordAshcroft’sdonate-and-tellattackonDavidCameron,CallMeDave,waspublishedin2015byhisownaptlynamedpublishingfirm,Biteback;www.bitebackpublishing.com/books/call-me-davewww.telegraph.co.uk/news/politics/labour/3179770/Revealed-the-truth-about-TonyBlairs-role-in-the-Ecclestone-Affair.html;www.theguardian.com/politics/2008/oct/12/tonyblair-labourwww.investopedia.com/articles/investing/102515/carried-interest-loophole-americas-tax-code.aspSeealso“Admissionspreferencesgiventoalumnichildrendrawsfire”,WallStreetJournal,January15th2003:www.wsj.com/articles/SB1042580441793521864TheinitialenablinglawwastheTemporaryHelpBusinessActof1985,butthisrestrictedtheuseofnon-regularcontractstoalimitedlistofjobsandsectors.Itwastheexpansionofthatlistinthe1990sand2000sthatledtorapidgrowthinpart-timeandtemporaryemployment.Peet,John,“Somuchtodo,solittletime”,TheEconomistSpecialReportonFrance,November17th2012:www.economist.com/news/special-report/21566238-how-regain-competitiveness-doing-so-so“DecayofthepermanentjobasFrancebalksatlabourreform”,FinancialTimes,August11,2015.Machnig,MatthiasandSchmolke,Oliver,“DistributingtheFuture:WhyMoreEqualProspectsMatter”,PolicyNetwork,August2016.www.voxeu.org/article/flexicurity-danish-labour-market-model-great-recession.NotethatDenmarkisnotamemberoftheeurocurrencyunion,butpegstheDanishkronertightlytotheeuro.SounliketheUKandSweden,whicharealsooutsidetheeuro,itsufferednocurrencydevaluationagainsttheeuroduringthefinancialcrisis.

References“America’snewaristocracy”,TheEconomist,January24th2015.Keeley,Brian,“IncomeInequality:TheGapbetweenRichandPoor”,OECDInsights,OECDPublishing,

2015.Piketty,Thomas,CapitalintheTwenty-FirstCentury,HarvardUniversityPress,2014;firstpublishedasLe

capitalauXXIsiècle,EditionsduSeuil,2013.

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3Democracyandtheartofself-entrapment

NotesHavingmadeanestimated$400millionwhenGoldmanSachschangedfromapartnershiptoapubliccompanyin1999,afterhisdepartureasco-CEOinthatyearJonCorzineenteredpolitics,beingelectedasasenatorforNewJersey(2001–06)andgovernorofNewJersey(2006–10).HethenbecamechairmanofMFGlobal,abonddealer,in2010,whichwentbankruptinOctober2011,resultingincivilchargesagainstCorzinebytheCommoditiesFuturesTradingCommissionallegingmisuseofcustomerfunds.Thecaseisunderappeal.http://nypost.com/2009/12/13/the-only-thing-useful-banks-have-invented-in-20-years-is-the-atm/http://blogs.abcnews.com/politicalpunch/2010/04/clinton-rubin-and-summers-gave-me-wrong-advice-on-derivatives-and-i-was-wrong-to-take-it.htmlThebestaccountofwhythishashappenedandwhyitmatterscanbefoundinTheBankers’NewClothesbyAnatAdmatiofStanfordUniversityandMartinHellwigoftheMaxPlanckInstituteinBonn,PrincetonUniversityPress,2013.Vickers,SirJohn,“TheBankofEnglandmustthinkagainonsystemicrisk”:www.ft.com/cms/s/0/674b16b8-d184-11e5-831d-09f7778e7377.html#axzz40EImfRN0“Onmicroscopesandtelescopes”,March27th2015,attheLorentzcentreworkshoponsocio-economiccomplexity,Leiden,theNetherlands:www.bankofengland.co.uk/publications/Documents/speeches/2015/speech812.pdfSee,forexample,“Bringourelitesclosertothepeople”,FinancialTimes,February2nd2016:www.ft.com/cms/s/0/94176826-c8fc-11e5-be0b-b7ece4e953a0.html#axzz3z1yo9kLzKay,John,OtherPeople’sMoney,ProfileBooks,2015;TheKayReviewofUKEquityMarketsandLong-TermDecision-Making,July2012,commissionedbytheDepartmentforBusiness,InnovationandSkills.Cecchetti,StephenG.andKharoubi,Enisse,“ReassessingtheImpactofFinanceonGrowth”,BISWorkingPaper318,BankforInternationalSettlements,July2012:www.bis.org/publ/work381.pdf

ReferencesAdmati,AnatandHellwig,Martin,TheBankers’NewClothes:What’sWrongwithBankingandWhatto

DoaboutIt,PrincetonUniversityPress,2013.CentreforResponsivePolitics,OpenSecrets.org:www.opensecrets.org/pacs/pacgot.php?

cmte=C00428623&cycle=2016Olson,Mancur,PowerandProsperity:OutgrowingCommunistandCapitalistDictatorships,BasicBooks,

2000.Olson,Mancur,TheLogicofCollectiveAction:PublicGoodsandtheTheoryofGroups,Harvard

UniversityPress,1965.Olson,Mancur,TheRiseandDeclineofNations:EconomicGrowth,StagflationandSocialRigidities,Yale

UniversityPress,1982.PublicCitizen:www.citizen.org/google-political-spending-reportSmith,Adam,AnInquiryintotheNatureandCausesoftheWealthofNations,1776.Turner,Adair,“Howtotameglobalfinance”,Prospect,September2009:

www.prospectmagazine.co.uk/features/how-to-tame-global-financeTurner,Adair,TheCityBanquet,MansionHouse,September22nd2009:

www.fsa.gov.uk/pages/Library/Communication/Speeches/2009/0922_at.shtml

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4SettingAmericastraightagain

NotesSee“ToParis,USLooksLikeaHyperpower”,InternationalHeraldTribune,February5th1999.EvenbeforeGeorgeW.Bushhadbeenelected,FrancewasprotestingagainstAmerican“unilateralism”,arguingthatothercountriesneededtoresistthe“hyperpower”andpreservemultilateralism.OccupationalLicensing:AFrameworkforPolicymakers,TheWhiteHouse,July2015.ThereportwascompiledjointlybyofficialsfromtheTreasuryDepartment,theCouncilofEconomicAdvisersandtheDepartmentofLabor.Eberstadt,Nicholas,MenWithoutWork:America’sInvisibleCrisis,TempletonPress,2016.USlawdistinguishesbetween“felonies”,orseriouscrimespunishablebydeathorimprisonmentinexcessofoneyear,and“misdemeanours”byreferencetothemaximumsentencepossibleforthecrimeunderlaw,notthesentenceactuallyimposed.TheEconomisthasbeencampaigningfordruglegalisationeversincethelate1980s.See,notably,aspecialreportbyFrancesCairncross,StumblingintheDark,July26th2001.DatatakenfromareportbythechiefeconomistofGeneralElectric,MarcoAnnunziata,inSeptember2016:https://medium.com/@marcoannunziata/how-to-pave-the-way-for-stronger-u-s-growth-d1c1e305dbbe#.rwx22fuxiKluth,Andreas,“DemocracyinCalifornia:ThePeople’sWill”,TheEconomist,April20th2011.Gardels,Nathan,“TheThirdTurnofAmericanDemocracy”,unpublishedchapterforhisforthcomingbook,provisionallytitledTheGreatTransformation:GoverningintheAgeofTurmoil.

ReferencesEllwood,David,TheShockofAmerica:EuropeandtheChallengeoftheCentury,OxfordUniversityPress,

2012.Elwell,CraigK.,InflationandtheRealMinimumWage:AFactSheet,CongressionalResearchService,

January8th2014.Hamel,GaryandZanini,Michele,“ExcessManagementisCostingtheU.S.$3trillionPerYear”,Harvard

BusinessReview,September5th2016.Kleiner,MorrisM.,“WhyLicenseaFlorist”,NewYorkTimes,May28th2014.

5Britain,theirBritain

NotesSeeyousoon,Pet,“pet”beingacommontermofendearmentinnorth-eastEngland.Bornasapublicbody,theNationalEndowmentforScience,TechnologyandtheArtsin1998,Nestawasthusrenamedin2012andbecameanindependentcharityprovidingresearchandgrantstofosterinnovation.Theturnoutwas72%,whichishigherthaninanygeneralelectionsince1992,butwellbelowthe84.6%turnoutinScotlandforits2014referendum,whichitselftoppedthehighestpost-1945generalelectionturnoutof83.6%in1950.MostnotoriousamongthesewasaclaimpaintedonLeave’s“battlebus”thattheUKwassending£350millionaweektoBrusselsasitsbudgetarycontribution,afigurewhichtheUKStatisticsAuthorityrepeatedlypointedoutwasfalsesinceitfailedtotakeaccountofthe£100millionaweekdiscountthat

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hadoriginallybeennegotiatedbyMargaretThatcherinthe1980s.FirstpresentedataNuffieldSocietyseminaratEuropeHouse,London,onJune30th2016,chairedbymeandbroadcastonJuly2ndbytheBBCParliamentaryChannel,availableonBBCiPlayer.Anotherspeakerattheevent,VernonBogdanor,aprofessoratKingsCollege,London,stressedthepointaboutthespecialconstitutionalcaseforareferendumontheEU.UndertheGinicoefficient,aperfectlyequaldistributionwouldscore1.Sohigherscoresindicategreaterlevelsofinequality.Tounderstand“atlast”see“GuyFawkeswasright”,TheEconomist,November5th1977,whichmadethesameanalysisasthischapterofhowthewinner-takes-allsystemwasproducingunrepresentativegovernment,withthecombinedToryandLaboursharesofsupportdecliningsharply–40yearsago.

ReferencesBarr,Damian,Maggie&Me,Bloomsbury,2013.BritishSocialAttitudesReport33,BritainDivided?Publicattitudesaftersevenyearsofausterity,NatCen

SocialResearch,2016.Lanchester,John,“BrexitBlues”,LondonReviewofBooks,July28th2016.Mateos-Garcia,JuanandBakhshi,Hasan,TheGeographyofCreativityintheUK,Nesta,July2016.TheMigrationObservatory,MigrantsintheUK:AnOverview,UniversityofOxford,January28th2016.Nathan,Max,Kemeny,Tom,Pratt,AndyandSpencer,Greg,CreativeEconomyEmploymentintheUS,

CanadaandtheUK:AComparativeAnalysis,Nesta,March2016.Nathan,Max,Pratt,AndyandRincon-Aznar,Ana,CreativeEconomyEmploymentintheEUandtheUK:

AComparativeAnalysis,Nesta,December2015.Olson,Mancur,TheRiseandDeclineofNations:EconomicGrowth,StagflationandSocialRigidities,Yale

UniversityPress,1982.

6Europeanparalysis

NotesGreecemadeit12membersin2001,Slovenia,Cyprus,MaltaandSlovakiahadalljoinedbeforetheeuro-zonecrisiscommencedin2010–11,andtheywerefollowedbyEstonia,LatviaandLithuaniain2011–14.TheIMFalsoprovidedemergencyfundingforthreenoneuro-zoneEUcountries:Hungary(2008),Latvia(2008)andRomania(2009).ItdidnothoweverhavetoprovidelendingforSpain,whose2012bank-recapitalisationplanwasfundedbytheeuro-zone’sownEuropeanStabilityMechanism.Austria,Denmark,Germany,France,Poland,SwedenandNorway.AssigningNobelprizesbycountryistricky,giventhatintellectualsmovearoundbetweeninstitutions.Thefiguresinthetextsorttheprizes(includingeconomicsbutexcludingpeace)accordingtowinners’institutionalaffiliations,andifaprizeissharedbetweenmorethanonepersoncountsthatasoneprizeeach.Allocatedbythebirthplaceofthewinner,Europe’ssharewouldbehigherandthedeclinesharper,at43%inthe1980sand31%inboththe1990sand2000–16,butmanyEuropeanshavewontheirprizesforworkdoneatUS(orother)universities,andeventakeUSnationality,socountingbyaffiliationismoremeaningful.FrancoModigliani,forexample,whowontheeconomicsprizein1985,wasborninItalybutbecameaUScitizenin1948.Peel,Quentin,“Merkelwarnsoncostofwelfare”,FinancialTimes,December16th2012.Thedefinitionof“longer-serving”was45yearsormore,whichthereforemeantpeoplewhohadstarted

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workatage18,andsowerelikelytohavebeenmanualworkersofsomesort:“Germanyattackedoverplantocutretirementage”,FinancialTimes,April21st2014.Co-authoredwithdirectorandproducerAnnalisaPirasandmadebySpringshotProductions,thefilmwasbroadcastbytheBBCandbySkyItalia.2011figures,fromSocietyataGlance,OECDreport,2014.AsofDecember2015,theeuro-zonecountrieswithpublicdebtsexceeding100%ofGDPwereBelgium(106%),Cyprus(108.9%),Portugal(129%),Italy(132.7%)andGreece(176.9%).

ReferencesDraghi,Mario,“ItalyandtheWorldEconomy,1861–2011”,BankofItalyconference,October12th2011.Eurostat,TheEUintheworld,2015edition.Gill,IndermitS.andRaiser,Martin,GoldenGrowth:RestoringtheLustreoftheEuropeanEconomic

Model,WorldBankReportNo.68168,2012.Peet,John,“Somuchtodo,solittletime”,TheEconomistSpecialReportonFrance,November17th2012.WorldBankGroup,DoingBusiness2016:MeasuringRegulatoryQualityandEfficiency.

7TheJapanesepuzzle

NotesThetermwasusedasawarninginhisfarewelladdressbyPresidentDwightD.EisenhoweronJanuary17th1961.This“Nixonshock”,asitbecameknown,consistedofPresidentNixon’sdecisioninAugust1971unilaterallytowithdrawthedollarfromthesystemoffixedexchangeratesandconvertibilitytogoldthathadexistedsince1945.Thisforcedallothercurrenciestofindtheirvaluebyfloatingfreelyonforeign-exchangemarkets.ThePlazaaccord,namedafterthePlazaHotelinNewYorkCitywherethemeetingtookplace,wasanagreementbetweentheUS,theUK,France,JapanandWestGermanytointerveneincurrencymarketssoastomakethedollardepreciateinvalue.TheLouvreaccordtwoyearslater,agreedatameetingofthesamecountriesattheLouvremuseuminParis,aimedtohaltoratleastslowtheresultingdeclineofthedollarsoastorestorestability.InhisbookCapitalism,SocialismandDemocracy(1942),Schumpeterarguedthatitwastheinnovativeentryofnewentrepreneursandideastoreplace(thatisdestroy)oldonesthatmadecapitalismworkfarbetterthansocialismasaneconomicsystem.But,likeKarlMarx,hefearedthatcreativedestructionmightendupdestroyingcapitalismitself.DentsuwasinitiallyfoundedbyHoshiroMitsunagaastwoseparatebusinesses,oneinnewsandtheotherinadvertising,butthetwoweremergedin1906.Theyremainedcombineduntil1936,whenthenewsagencywassoldtoJapan’sImperialnewsagency,Domei.ShujitsuUniversity“GlocalForum”on“GlobalisationandCorporateManagement”,Okayama,April16th2016.ProfessorOnzo’spresentationwasentitled“GlobalisationandUniversityManagement”.AlthoughinitiallyonewhistleblowerpassedinformationforFACTA’sfirstarticle,subsequentlyothersourcespassedfurtherinformationforFACTA’slaterarticles.Thewhistleblowers’identitieshaveneverbeenrevealed,andtheyarestillbelievedtobeworkingforOlympus.“ImmigrationtoJapan:Anarrowpassage”,TheEconomist,August20th2016.

References

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Drucker,PeterF.,TheConceptoftheCorporation,JohnDay,1946.Emmott,Bill,TheSunAlsoSets:WhyJapanwillnotbeNumberOne,Simon&SchusterUK1989;Times

BooksUSA,1989;SoshishaJapan,1990.Kingston,Jeff,Japan’sQuietTransformation:SocialChangeandCivilSocietyin21stCenturyJapan,

Routledge,2004.Mikitani,HiroshiandMikitani,Ryoichi,ThePowertoCompete:AnEconomistandanEntrepreneuron

RevitalizingJapanintheGlobalEconomy,Wiley,2014.VanWolferen,Karel,TheEnigmaofJapanesePower:PeopleandPoliticsinaStatelessNation,Alfred

Knopf,1989.

8SwedishandSwissHoudinis

NotesAfterthesharpriseinoilpricesin1973,several,mainlyArab,oil-producingcountriesleapttotheworld’stopranksintermsofGDPperhead,astheysuddenlyhadvaluableGDPsbutfairlyfewheads.ThatiswhyfromthatdateonwardsitismorerelevantwhenevaluatingWesterncountriestolookatGDP-per-headrankingsamongtheOECDmembersratherthantheworldasawhole.AhelpfulchronologyofreformscanbefoundinanappendixtoIFNWorkingPaperNo.873,2011,fromtheResearchInstituteofIndustrialEconomics,“TheRise,FallandRevivaloftheSwedishWelfareState:WhatarethePolicyLessonsfromSweden”,byAndreasBergh.PISAisshortforProgrammeforInternationalStudentAssessment,underwhichtheOECDstudies15-year-oldstudents’scholasticabilitiesinscience,mathematicsandreading.In1970,manufacturingaccountedfor23%ofSwissGDP,24%ofUSGDPand27%ofUKGDP.Soatthattime,relativetotheUK,Switzerlandwasmorenotedforservices–the“gnomesofZurich”astheUK’sprimeminister,HaroldWilson,hadcalledSwissfinanciers–thanindustry.Thereverseisnowtrue.In2013comparablefigurestoSwitzerland’s19%were12%fortheUS,11%forFrance,10%fortheUK,15%forItaly,but19%forJapanand22%forGermany,accordingtotheUNConferenceonTradeandDevelopment(UNCTAD),citedinHouseofCommonsLibraryBriefingPaper05809,Manufacturing:InternationalComparisons,June18th2015.24%istheofficialSwissfigurefortheshareoftheresidentpopulationmadeupofforeigners.TheOECD’sfigureforthesharethatis“foreignborn”is28%.TheUKfigurewas13.1%in2014,upfrom7%in1993,accordingtotheMigrationObservatoryatOxfordUniversity.TheGermanfigurewas12.9%in2012,accordingtotheOECD.

ReferencesBooth,Michael,TheAlmostNearlyPerfectPeople:TheTruthabouttheNordicMiracle,JonathanCape,

2014.Gill,IndermitS.andRaiser,Martin,GoldenGrowth:RestoringtheLustreoftheEuropeanEconomic

Model,WorldBankReportNo.68168,2012.

9Silverhairandsmartdrones

NotesSeeEurostat,PeopleintheEU–statisticsondemographicchanges,June2015;andUNDepartmentof

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EconomicandSocialAffairs,WorldPopulationProspects:2015revision.Japan’s2015totalof60,000centenariansisalmostashighastheUS’s73,000despiteapopulationjustone-thirdthesize.TheUK’stotalis14,500.Moreaccurately,electricitywasdiscoveredratherthaninvented.SobythisismeanttheperiodofrapiddevelopmentofelectricalengineeringbyinventorssuchasThomasEdisoninthelate19thcentury.www.livescience.com/49711-japanese-robot-hotel.html“WelcometotheDroneAge”,TheEconomist,September26th2015.ProfessorLi’sbackgroundisatypicalStanfordandSiliconValleystory,confirmingthecontinuedappealoftheUSforthebestandbrightest:borninChina,shestudiedatPrincetonandCaliforniaInstituteofTechnologybeforejoiningStanford.TheOECD’sdefinitionoftheaverageeffectiveageofretirementlooksattheagewhenworkerswithdrawfromthelabourmarket.Statisticsarefor1970–2014fromtheOECD’sLiveLonger,WorkLongerreportonageingandemploymentpolicies.TheTemptationofEarlyRetirement,reportbyGavekalDragonomics,Beijing,August3rd2016.Datainthisparagraphfrom:Ipsos-Mori,“HowBritainvotedin2015”,August26th2015;UnitedStatesElectionsProject;JapanAssociationforPromotingFairElections.

ReferencesDrucker,Peter,“TheNextSociety”,TheEconomistSpecialReport,November1st2001.Ford,Martin,TheRiseoftheRobots:TechnologyandtheThreatofMassUnemployment,BasicBooks,

2015.Kurzweil,Ray,TheSingularityisNear:WhenHumansTranscendBiology,VikingPress,2005.Myrdal,Gunnar,AsianDrama:AnInquiryintothePovertyofNations,AllenLane,1968.Sundararajan,Arun,TheSharingEconomy:TheEndofEmploymentandtheRiseofCrowd-Based

Capitalism,MITPress,2016.

10Barbariansatthegate

NotesSeePinker,Steven,TheBetterAngelsofourNature:WhyViolencehasDeclined,Viking,2011.MostnotablyCharlesKrauthammer’sSeptember1990articleinForeignAffairs,“TheUnipolarMoment”:(www.foreignaffairs.com/articles/1991-02-01/unipolar-moment).AdecadelaterJosephNye,aprofessoratHarvard’sKennedySchoolofGovernment,wroteanessayinTheEconomistentitled“ThenewRomemeetsthenewbarbarians”,onMarch21st2002,reflectingontheimpactoftheSeptember11th2001attacksintheUSandarguingthatwhiletheUSwasdominantonmanymeasures,itcouldnotexpecttoachieveitsinternationalgoalswithoutalliesandabroadconsensus(www.economist.com/node/1045181).ThephrasewaspopularisedbyPaulKennedy,aBritishhistorianatYaleUniversity,inhisbookTheRiseandFalloftheGreatPowers:EconomicChangeandMilitaryConflictfrom1500to2000,RandomHouse,1987.Softpoweristheconcept,pioneeredbyNye,thatstatescangetotherstodowhattheywantthemtodothroughthepowerofideas,information,media,valuesandother“soft”means,allasanadjunctto“hard”militarypowerandtoeconomicorfinancialleverage.AseditorofTheEconomist,IsupportedtheinvasionofIraqthroughthatpublication’spages,basedonabeliefinthepresenceofweaponsofmassdestructionandthatthestatusquowastoodangerousto

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leaveunaltered.Isubsequentlywroteinavaledictoryeditorialin2006thatIstillfeltwehadtakentherightdecisiononthebasisofthe(evidentlybad)informationthatwehad,butthatwecouldandshouldhavebeenmorescepticalabouttheUS’sabilityandwillingnesstostabiliseandrebuildIraqafterthewar.ThesayingisgenerallyattributedtoWilliamMcChesneyMartin,chairmanoftheFederalReservefrom1951to1970.IwasatrusteeoftheInternationalInstituteforStrategicStudiesin2009–15andrejoinedtheboardoftrusteesinNovember2016.TransnistriaisastripoflandonMoldova’sborderwithUkrainewhichhasbeenan“autonomousprovince”,butdefactoindependent,sinceashortwarin1992.ItisnotrecognisedbytheUN.Noonewithaforeignspouse–herlatehusband,MichaelAris,wasaBritishacademicatOxfordUniversity–orchildrenisallowedtobepresident.ButfollowingAungSanSuuKyi’sparty’slandslidevictoryinthe2015electionsshewasallowedtonominatethepresident,HtinKyaw,andhasbeengivenanewtitleasstatecounsellor.SeeOstrovsky,Arkady,TheInventionofRussia:TheJourneyfromGorbachev’sFreedomtoPutin’sWar,AtlanticBooks,2015.Ostrovsky,aRussiancitizen,isRussiaandeasternEuropeeditorattheTheEconomist.

ReferencesAcheson,Dean,PresentattheCreation:MyYearsintheStateDepartment,W.W.NortonandCompany,

1969.Bilmes,LindaandStiglitz,Joseph,TheThreeTrillionDollarWar:TheTrueCostoftheIraqWar,W.W.

NortonandCompany,2008.Marx,Karl,“TheEighteenthBrumaireofLouisBonaparte”,essaypublishedin1852.PermanentCourtofArbitration,pressrelease,July12th2016:https://pca-cpa.org/wp-

content/uploads/sites/175/2016/07/PH-CN-20160712-Press-Release-No-11-English.pdfStiglitz,Joseph,2015interviewat

www.democracynow.org/2015/10/27/nobel_laureate_joseph_stiglitz_on_rewriting_the

11ThefateoftheWest

NotesUsedandpopularisedbyKarlMarxinhisCritiqueoftheGothaProgramme,1875,thoughapparentlyheborrowedthesloganfromearliersocialists.Asthe5thViscountRidley,hehassince2013beenaConservativepeerintheUK’sHouseofLords.Thefilmwasreleasedin1962.

ReferencesFukuyama,Francis,“TheEndofHistory”,TheNationalInterest,summer1989;followedbyhisbook,The

EndofHistoryandtheLastMan,TheFreePressandAllenLane,1992.Olson,Mancur,TheRiseandDeclineofNations:EconomicGrowth,StagflationandSocialRigidities,Yale

UniversityPress,1982.Ridley,Matt,TheRationalOptimist:HowProsperityEvolves,Harper2010.Zakaria,Fareed,ThePost-AmericanWorldandtheRiseoftheRest,W.W.Norton&Co,2008.

Acknowledgements

This book has been written while events were swirling all around it, mostrecentlytheBrexitreferendum,theelectionofDonaldTrump,terroristattacksinEuropean cities and the resignation ofMatteo Renzi as Italy’s primeministeraftervoters’rejectionofhisconstitutionalreforms.Soithasrequiredpublisherstoholdtheirnerveasthebookkeptonmutatingandthentoaccommodatequitelateamendments.Ihavebeenextremelyfortunatetohavehadthebackingofthestrong-nervedAndrewFranklinandStephenBroughatProfileBooksandClivePriddle at PublicAffairs inNewYork.All have been enthusiastic, supportiveand tolerant, while still providing the necessary discipline of the productionschedule.

Stephen Brough, as lead editor, made numerous helpful suggestions andcriticisms while working his way through successive drafts; Clive PriddleensuredthatreadersonbothsidesoftheAtlanticwerekeptfirmlyintheauthor’smind;andmylongstandingJapaneseagent,ManamiTamaoki,madeitpossibleforthefutureoftheWesttobeconsideredalsointhelandoftherisingsunbyrecruitingNikkeiBookstopublishinJapan.Iamalsogratefultomysuccessor-but-one in the editor’s chair at The Economist, Zanny Minton-Beddoes, forallowingthebooktoappearunderTheEconomistBooksimprint,andtoDanielFranklin, executive editor, for providing a very constructive critique of a latedraft.IamhonouredanddelightedtobebackunderTheEconomist’slogo.

Asforpreviousbooks,ChristopherWilsondugupthedataforthegraphsaswellasfact-checkingthefinaltextunderconsiderabletimepressure.PaulFortyatProfileshepherdedthebookthroughtheeditingandproductionprocesswithskill and precision, while Penny Williams copy-edited the text in severalversionswithgreatcareandefficiency.Allerrorsandomissionsremainhoweverentirelymyresponsibility.

IthinkofTheFateoftheWestasapersonalprojectofresearch,analysisandadvocacy that stands alongside the educational charity, The Wake UpFoundation,which I have set upwithmy friend and film-making collaboratorAnnalisaPiras.Thefoundation,whichisdedicatedtopubliceducationaboutthetrendsofdeclineanddivisioninwesternsocietiesdescribedhere,haspublishedin January2017anewstatistical indicator,TheWakeUp2050 Index,ofhowwellwestern countries are shaping up in the face of long-term trends such asdemography,globalisationandtechnologicalinnovation,whichcanalsoserveas

usefulsupplementarydatafor thisbook.Thefoundationhas,moreover,soughtto“WakeUpEurope”totheparalysisoutlinedinChapter6bygeneratingpublicevents around screenings of Annalisa’s documentary, The Great EuropeanDisaster Movie. We will now organise new events and debates around thethemes of this book, online, on social media and live. The battle to save theworld’smostsuccessfulpoliticalideaiswellandtrulyunderway,andweintendtocarryonthefight.

Index

Pagenumbersinitalicsreferspecificallytofigures.

9/11terrorattacks11,189–912008financialcrisisanalysis5,63–8,190–91

causes18,28,191inEurope111,163globalreach153legacyforUK93,103positiveeffect87sourceofgrievance32

AAbe,Shigeo147Abe,Shinzo136,151,219Acheson,Dean186,206Acton,Lord50,207Adams,John207adaptability(ofsociety)7,27–8,153Admati,Anat65,67adulteducation216AfghanTaliban200Afghanistan187,188,191Africa,populationgrowth168–9age,andemploymentinequality43ageingpopulations

analysis167–70,217demandforrobots175publicfinances21–2,54–5,120short-termismandself-interest182votingbehaviour180–81

al-Qaeda11,189AlphabetseeGoogleAmazondeliveries173“AmericaFirst”10,70–71Angelou,Maya31antitrustregulation57–8,82,215apprenticeships216Arabspring12,15,192,200Argentina15,98

Armenia199artificial-intelligence(AI)169–73Ashcroft,Lord38,226AsiaInfrastructureInvestmentBank(AIIB)198al-Assad,Bashar203AssociationofSouth-EastAsianNations(ASEAN)197assortativemating41Attali,Jacques124AufWiedersehenPet92AungSanSuuKyi201,235austerity,focuson114–15Australia,relationshipwithUS199Austria,pensions126authoritarianrule152automation(ofservices)seetechnologicalinnovation

Bal-Baghdadi,AbuBakr185–6ballotinitiativesseereferendumsBankforInternationalSettlements68BankofEngland191bankersandbanks54,58,60–64

bonuses35,65mega-banks76,82,215regulation76

TheBankers’NewClothes(AdmatiandHellwig)65Banzi,Massimo126Barr,Damian92,96Basho,Matsuo132,185Belarus199Belgium,easeofdoingbusiness127Berggruen,Nicolas88Berlusconi,Silvio127,219Berners-Lee,SirTim116bigdata82Bildt,Carl155Bilmes,Linda191binLaden,Osama200Blair,Tony38,93,106–7,222,226Blankfein,Lloyd61Bloomberg,Michael37BMW99BoKuangyi40BoXilai40BokoHaram11,205Booth,Michael156Born,Brooksley64

Bosnia188braindrain/gain92,93,155,165Brandt,Willy26–7Branson,SirRichard34Brazil15,200Brexitreferendum(UK,2016)13,24,214

campaign101–2,103,230internationalviewof26thevote94,230voters’reasoning94,102,106

Brin,Sergey24BritishLeyland99BritishSocialAttitudesreport107Brown,EdmundG.(Jerry)87–9Buffett,Warren42,69BurmaseeMyanmarBush,GeorgeH.W.188businessbureaucracy75–6,82,127,159businessfederations47,54,142

CCalifornia80,153

revival85–90Callaghan,James97Cambodia196,199Cameron,David102–3,181,226

pre-referendumrenegotiations113Canada100,209capital,freemovementof212–13CapitalintheTwenty-FirstCentury(ThomasPiketty)36capitalrequirements(bank)65,213carmanufacturingindustry99carriedinterest39Carroll,Lewis167Carswell,Douglas103Carter,Jimmy52CERN116Chavez,Hugo19Chechnya187chiefexecutive(CEO)pay35,36China

closedness16,17demographictrends169,178–9equality(ofrights)210globalpowerandinfluence197–8innovation116internationallawandinstitutions,attitudeto12,197

islandconstruction196manufacturingcompetition32medianageofpopulation179militaryaction189–90Nobelprizes115overseasmilitarybases198–9pensions179–80retirementages179–80SouthChinaSea189–90,195–7territorialdisputes194–7threattotheWest193–4,206

Chrétien,Jean209citizenship3,210,212,214–16,218Clinton,Bill32

internationalcollaboration188welfarereform79

Clinton,Hillary31,70,184,203closedsocieties11–12

collaboration25viability166seealsodictatorships;totalitarianism

coalminers21,52,94,97Cohen,Leonard185Colombia200commercialdisruption73–4,174competitiveedge,humansandrobots173complacency27,29TheConfidenceTrap(DavidRunciman)27constitutionallegalism19coolBritannia93Coolidge,Calvin72–3corruption29,39,81,218Corzine,Jon61,227creativedestruction140,232creativeeconomy100–101Crimea111,202–3TheCrisisofDemocracy(TrilateralCommission)26cyber-attacks203Cyprus231

sovereigndebtcrisis111

DDaeshseeIslamicStateDavis,Gray88DeclineoftheWest(OswaldSpengler)8,59,225defencespending222–3democracy2,13

contradictions50–51growthof15inherentbias54,56self-harmingtemptation29–30winnersin28seealsoevolution(ofsociety)

DemocraticRepublicofCongo187demographictrends119,168–9,176,178–9seealsoageingpopulations

Denmarkcurrency227doingbusiness,easeof127labourlawreform48

Dentsu140,142,232dependencyratios22depositguarantees63derivativesecurities65dictatorships11–12disruption,commercial73–4,174Djibouti199Draghi,Mario125drones171–2,173Drucker,Peter15,145,148,182–3,225drugstrade,narcotic80–81Durazo,MariaElena88Duterte,Rodrigo197

EEastAsianfinancialcrisis(1997–8)213Eberstadt,Nicholas78–9,177Ecclestone,Bernie38economicgrowth

Europe116–18incometax,topmarginalratesof39inheritancetax42andrisinginequality35–7sustainedmediocrity220–21

TheEconomist189,225California86druglegalisation229newaristocracystudy39–40

education3employmentinequality43olderpopulations182principleof216–17publicspendingon41,216–17andrisingexpectations25

wealth40–41,216West’sadvantage152seealsouniversities

educationalbias39–41Ek,Daniel34elections

campaignfinancing37–8campaignslogans31rigged31–2shorttermfocus54–5turnout25

Eliot,T.S.185elites31–2,49Ellwood,David72emotionalappeal11,15employment

creativeindustries100–101employmentcontracts43–7France44–5,124Germany45inequalityofrights23,43,46,54,215Italy44,77,127–8Japan43,78,145,150–51minimum-wagerates79–80,89,151,215over-65s177Switzerland78,164technologicalimpact175–7UK45,78unionisation98–9US45,76–80women’sparticipationinlabourforce176workingagepopulations176workinghours120

energyproduction73–4England,Brexitvote94Enlightenment17environmentalconcerns73,223equality2–4,9,210

age217–18constitutionallegalism19immigration23,153–4,214importanceforrevival152andopenness210–12principlesof214–16,217–18rights,freedomsandopportunities49seealsoinequality

establishment,the32seealsoelites

estatetaxseeinheritancetaxEU(EuropeanUnion)200

collaboration,needfor130–31decisionmaking113,129employmentprotection46enlargement117,214,231ExchangeRateMechanism125,220internationalinfluence190–91medianageofpopulation179migrantcrisis112Nobelprizes115productivity116–18,118publicdebt135regulationandredtape127riseandfallintodecline110–11Russia,economicsanctions112socialwelfarespending119statesubsidies99Switzerland,relationshipwith163–4,165–6UKaccession92UKBrexitvote13

eurocurrency110,113–14,123,227euro-zonedebtcrisis67,111,114–15,129–30,231Europe

Enlightenment17inequality,feelingsof3,4socialtrust20–21unemployment117seealsoEU(EuropeanUnion)

EuropeanCentralBank115,191EuropeanCommission,antitrustinvestigations57–8Evans,Geoffrey106,108evolution(ofsociety)7,27–8,153executivepay35,36expectations,citizens’24–5,33,122,212

FFACTAmagazine146–7seealsoOlympus

failedstates188fairness1,48–9,211–12,214–15Falklandswar98farming

farmers54subsidies21Switzerland163

FastRetailing149favouritismseecorruptionFederalReserve28,191

Ferguson,Niall10financialcrashes18

2008financialcrisisanalysis5,63–8,190–91causes18,28,191inEurope111,163globalreach153legacyforUK93,103positiveeffect87sourceofgrievance32

EastAsianfinancialcrisis(1997–8)213sovereigndebtcrisis67,111,114–15,129–30,231

financialservicesindustry54,58,60–64mega-banks76,82,215regulation76

FinancialTimes44,65,118,144Finland34FivePowerDefenceArrangements(FPDA)200flexicurity48Ford,Martin170FormulaOne,tobaccoadvertisingban38Foxconn116fracking73–4France

anti-EUfeelings122–3creativeeconomy100DeclarationoftheRightsofMan51doingbusiness,easeof127dynamismandinnovation123economy124,133employmentandlabourmarket44–5,124,177EnMarche128FrontNational123GDPgrowth133inheritancetax41–2lifeexpectancy177,178pensions126publicdebt119reform128retirementages121,177–8tradeunionmembership99

“free”countries16free-trade212

NorthAmericanFree-TradeAgreement82underPresidentTrump4Trans-PacificPartnership184,201

FreedomHouse16freedomofspeech

money37–8,84,215underPresidentTrump70,219

principleof218–20freedoms49frenemies14Friedman,Milton57Friedman,Thomas12Frost,Robert10Fukuyama,Francis208Funabashi,Yoichi136

GGadhafi,Muammar186Galapagoseffect148Gandhi,Mahatma8Gardels,Nathan86,88,89Gates,Bill34,42,57gayrights49GDP

global118growthperhead1970–2014154growthperhead1990–2015133

George,Ronald88Georgia111–12,192Germany15

creativeeconomy100employmentandlabourmarket45,177GDPgrowth133Hartzreforms45inequality34,46inheritancetax42migration233pensions127retirementages121tradeunionmembership98–9workingagepopulations176

Ghosn,Carlos144Ginsberg,Allen69GirlfriendinaComa(2013)124,126globalisation

damagingconsequenceof32,170,210–11growthof25

goldstandard191,232GoldmanSachs58,61,227Google39,58

AlphaGo172greatmoderation18,60Greece27

doingbusiness,easeof127

pensions126sovereigndebtcrisis110,111,114–15,120

grievances32Grillo,Beppe123Grove,Andy24GuantanamoBay,Cuba200Gulfwar,first187

HHaji-Ioannou,Stelios24Haldane,Andrew66Hamel,Gary75–6Hannan,Daniel103Hartz,Peter45healthcare3

costs54,217demandfordoctors,nursesandrobots175improvements168US34

Heath,Edward97hedgefunds39Hellwig,Martin65,67Honda99HongKong17Houdini,Harry152,153householdincomes124humanitarianintervention188,208Hungary28,231

IIBM,Watsoncomputer172Iceland112,129–30idealism51–2IMF

euro-zonebail-outs111,231fiscalausterityview115sterlingdevaluation(1976)97,111

immigrationBrexitvote94,102,214caseforandagainst23–4,213–14controlunderPresidentTrump4,69–70,211effectonequality(ofrights)23,153–4,214healthcaresector175illegal(undocumented)81oppositionto108,183

refugees23–4,112,161,203,205–6seealsomigration

incomeinequality3,5,22–3,33,34–7,107–8,174seealsowealth

incometaxrates39IndependentCommissiononBanking(UK)65India

internationalrelationships194,199,200nuclearcapability190population178

Indonesia187,213inequality

2008financialcrisis5dangerof30,53employability171andfairness33feelingsof3,4,13–14income3,5,33,34–7,107–8,174rising22–3seealsoequality

infrastructure,spendingon54–5,83,131inheritancetax41–2innovation57–8,73–4,116seealsotechnologicalinnovation

interestgroups,powerful13,18–19,28–9,53,56,58–60Japan139–40labourlawreform47underMargaretThatcher94–8

internationalcollaboration5,25–6European130–31financialregulation64–8,213increasingparticipants209institutionsandlaw,strengthof71,221–2NATO4,189,200post19454,25,186principleof221–3taxevasion215

InternationalCriminalCourt188InternationalCriminalTribunalfortheFormerYugoslavia188InternationalFederationofRobotics171InternationalInstituteforStrategicStudies195InternationalMigrationReport2015(UN)23–4internationaltrade4–5seealsofree-trade

intervention,choiceof188,208Iran186,190,204,206Iraq,USledinvasionof188,191–2,205Ireland

migration93,161sovereigndebtcrisis111,114

IslamicState16,185,204–5,225emotionalappeal11funding192

isonomia3Italy15

1992financialcrisis155anti-EUfeelings122–3carmanufacturingindustry99doingbusiness,easeof127dynamismandinnovation123economy123–6emigration(braindrain)155employmentandlabourmarket44,77,127–8,177familyties181FiveStarMovement123GDPgrowth133householdincome124obstructiontogrowth126pensions126publicdebt119–20reform47,127–8retirementages178socialtrust20–21,156stagnation52

JJapan15,132–4,136

1990sfinancialcrisis18,52,136–40,1552012generalelectionvotingprofile180–81China,relationshipwith204DemocraticPartyofJapan(DPJ)141demographictrends168,179,234disasters133,141economy134–6effectofBrexitvote102employmentandlabourmarket43,46,78,145,150,176–7,227GDPgrowth133immigration150imperativeforchange147–51incomeinequality34industryandbusiness138–9,146,147–50inequality,feelingsof4inheritancetax41–2interestgroups139–40internationalisation143,147–50Keidanren140,142–3labourlawreform47,150–51

LiberalDemocraticParty(LDP)141mediacommunications141–2,219medianageofpopulation179pensions127politics141publicdebt134,135publicspending156robots171,175Russia,relationshipwith204SenkakuIslands195socialtrust20–21,136,140,156,159start-upsandinnovation149universityeducation143US,relationshipwith199workingagepopulations176

JapanAssociationofNewEconomy143JapanMedicalAssociation54Johnson,LyndonB.52,85

KKay,John67–8Kazakhstan199Kennedy,JohnF.52,84–5Khan,Sadiq24Khrushchev,Nikita7Kingston,Jeff149–50Kleiner,Morris77Kuroda,Haruhiko134Kurzweil,Ray172Kushner,Jared40Kuwait187Kyrgyzstan199

Llabour-lawreformDenmark48

difficulties46–7France128Italy127–8occupationallicences76–8,82Japan47,150–51UK98–9

labourmarketsemploymentcontracts43–7France44–5,124Germany45

inequalityofrights23,43,46,54,215Italy44,77,127–8Japan43,78,145,150–51minimum-wagerates79–80,89,151,215occupationallicences76–8,82over-65s177Switzerland78,164technologicalimpact175–7UK45,78unionisation98–9US45,76–80women’sparticipation176workingagepopulations176workinghoursandlives120–21

Lampedusa,GiuseppeTomasidi110Lanchester,John103–4Laos196LatinAmerica115,200lawyers54,79LePen,Marine10,52,123,211leadership209,222Lean,David,(LawrenceofArabia)223legacypreference40legalrights23,42–3legitimatestatehood185–6,198LehmanBrothers63LeonardodaVinci170Letta,Enrico127LiFei-Fei172,234liberaldemocracy2liberalism2,53,211–12Liberia187Libya71,205,208Lincoln,Abraham69livingstandards

economicgrowth220–21andinequality53UNHumanDevelopmentIndex17

lobbyingfinancialservicesindustry64Google58politicaldonations37–9,58powerfulinterestgroups60UStaxation42

Louvreaccord(1987)139

M

Macdonell,A.G.92,94Macron,Emmanuel128MagnaCarta19–20,218Malaysia200mandates,election28manufacturingindustry,decline183marketfundamentalism28–9marriagerights20Martin,Paul209Marx,Karl18,189,232May,Theresa10–11McKinseyGlobalInstitute,PoorerthantheirParents?124McLuhan,Marshall219mediacommunications141–2,219–20mediocrity,principleof220–21Mellon,Jonathan108Merkel,Angela118,119,121Microsoft57,116migrantcrisis112migration

casefor213–14extentof24,161,164opennessto212UNdefinition24seealsoimmigration

Mikitani,Hiroshi136,143,148,151militaryinterventions70–71,167,188Mill,JohnStuart211Milligan,Spike31mineralandextractionrights73minimum-wagerates215

Japan151US79–80,89

Minitel116mistrust25,26seealsosocialtrust

Mitarai,Fujio140mobility,social33,46,48–9,89monopolies,economicandpolitical56–9seealsoantitrustregulation

Monti,Mario127mortgage-interesttaxbreaks41Murayama,Tomiichi141Murdoch,Rupert11–12Myanmar201,235Myrdal,Gunnar120,169

N

nationalidentity24NationalUnionofMineworkers(NUM)98NATO4,189,200neoliberalism53Nesta100–101,230Netherlands,creativeeconomy100NewZealand

doingbusiness,easeof127incomeinequality34US,relationshipwith199

nine-dashedline1959/11terrorattacks11,189–91Nintendo149Nissan99,144Nixon,Richard138,191,232Nobelprizes115,231Nokia116NorthAmericanFree-TradeAgreement82NorthKorea71,186,190,198,206NorthernIreland,Brexitvote94Norway17,112“notfree”countries16nuclearcapability8,190

OObama,Barack32,33–4

campaigndonations38ondemocracy30foreignpolicy71,221minimum-wagerates80Simpson–Bowlescommission91Trans-PacificPartnership201

occupationallicences76–8,82Occupymovement50,60–61OECD(OrganisationforEconomicCo-operationandDevelopment)34

GDP,growthperhead1970–2014154IncomeInequality:TheGapbetweenRichandPoor34PISAtests161,233retirementages178,234

oilprices74,138,191–2,233Olson,Mancur59–60,95,212Olympus144–6,232OneBeltOneRoad(OBOR)199opensocieties

citizenexpectations24–5early1940s14–15failure18–19

immigration23–4inequality22–3internationalcollaboration25–6ruleoflaw19–20socialtrust20–22success17threatsto12–13variationandspectrum16–17seealsoopenness

OpenSocietyFoundations28openness2,9

equality209–12principleof212–14revival152risingexpectations25threatsto11seealsoopensocieties

Orban,Viktor203,211Osborne,George39

PPakistan190,198

US,relationshipwith200Panama200“partlyfree”countries16pensions

ageingpopulations178costs21–2,217entitlements22–3,122publicfunding120,126

PermanentCourtofArbitration196Philippines196–7

US,relationshipwith199Piketty,Thomas36Plazaaccord232Poland28PolicyNetwork46politicaldonations37–9,58seealsolobbying

politicalvoice(rights)3,23,33UnitedKingdom104–7,108–9

PoorerthantheirParents?(McKinseyGlobalInstitute)124Popper,Karl10,14population153,179Portugal15,27

pensions126sovereigndebtcrisis111

powerseparation19ThePowertoCompete(HiroshiMikitani)148privateequityfirms39Prospectmagazine62prosperity,international15–16protectionism,underPresidentTrump4–5,69–70,184PublicCitizen58publicdebt21,135publicfinances21–2

conflictingpriorities180investmentandconsumption55

Putin,Vladimir13,189,203,206

RRakuten136,143Reagan,Ronald52,60,139RebuildJapanInitiativeFoundation135–6referendums85–6,88–9,165seealsoBrexitreferendum(UK,2016)

refugees23–4,112,161,203,205–6regulationandredtape,business75–6,127,159religiousdiscriminationinimmigrationcontrol4Renault144Renzi,Matteo47,127–8researchanddevelopmentspending116retirementages22,120–22,159,176–7,178,217

employmentrateofover-65s177Rice,Condoleezza88rich-poordivide3,34,36seealsoincomeinequality

Ridley,Matt,5thViscount212,236TheRiseoftheRobots(MartinFord)170Robinson,Derek(RedRobbo)99robotics169–75seealsotechnologicalinnovation

Rockefeller,David26Romney,Mitt39,86Roosevelt,FranklinD.84Roosevelt,Theodore84,90Rubin,Robert64ruleoflaw3,19–20,218Rūmi,Jalālad-DīnMuhammad152Runciman,David27Russia

closedness12,16internationallawandinstitutions,attitudeto12,111–12,189militaryinterventions202–4

oilindustry192overseasmilitarybases199Westernresponsetoactivities204

Rwanda188

SSaddamHussein186,187seealsoIraq,USledinvasionof

Sakakibara,Sadayuki140Salisbury,Lord110Sanders,Bernie31,38,39,61Sapin,Michel44SaudiArabia74,200,204Scandinavia20–21,166SchengenAgreement112Schmidt,Eric88Schulz,George88Schumpeter,Joseph140,232Schwarzenegger,Arnold85sclerosis

inpre-ThatcherBritain95pressureforchangeinUS85,90–91tendencytowards72,77

ScotlandBrexitvote94independence109referendum(2014)101,103,106,230

UKelectoralsystem105–6ScottishNationalParty106securitisation65–6securityalliances

effectofBrexitvote102underPresidentTrump4–5,70–71,186,201seealsointernationalcollaboration

securityconcerns3,218self-employment183self-interest28–30,50–51shadowbanking66Shangri-LaDialogue195TheSharingEconomy(ArunSundararajan)183Shinoda,Toko168SierraLeone187Singapore

doingbusiness,easeof127FivePowerDefenceArrangements200Shangri-LaDialogue195US,relationshipwith199

singularity172TheSingularityisNear(RayKurzweil)172Skype116smartphones173Smith,Adam30,56,211socialmedia25,219socialmobility33,46,48–9,89socialtrust20–22,53,121,129,210socialwelfare3,20–22,118,119–22Softbank149Solow,Robert170Somalia186,188Son,Masayoshi34,149Soros,George28SouthChinaSea189–90,195–7SouthKorea16

doingbusiness,easeof127employmentrateofover-65s177inheritancetax41US,relationshipwith199

sovereigndebtcrisis67,111,114–15,129–30,231SovietUnion7,15,27,60,117,188Spain15,27

doingbusiness,easeof127labourforce78propertymarketcollapse111sovereigndebtcrisis114

Spengler,Oswald167–8DeclineoftheWest8,59,225

sportsorganisations,global25–6Srebrenica188StanfordAILab(SAIL)172stateownership60statehood185steelworkers21Stevens,JusticeJohn-Paul84Stiglitz,Joseph191structuralreforms53Sturm,Jan-Egbert164subsidyentitlements21Summers,Larry64TheSunAlsoSets(Emmott,Bill)137Sundararajan,Arun183surveillance13,218Sweden

1980sreform157–91990sfinancialcrisis18,155,158creativeeconomy100doingbusiness,easeof127education161

employmentrateofover-65s177financialderegulation157–8GDPgrowth154–5immigration161–2incomeinequality34incometaxreform157inheritancetax42pensions157,161populationsize156privatisation157publicspending156,159–60SocialDemocrats155,156socialtrust155–6taxation42,160tradeunionmembership99welfarereform122,160welfarespending160

SwedenDemocrats161SwissPeople’sParty165,166Switzerland162–3

employmentandlabourmarket164EU,relationshipwith163–4,165–6immigration164,165–6,233labourforce78manufacturingindustry163,233migration24openness163researchanddevelopment164–5SchengenAgreement112

Syria199,203,205

TTaiwan16,194Tajikistan199TakedaPharmaceutical144TataMotors99TateModern100taxevasion215TaxFoundation41–2taxation39,41–2,89,119–20,215technologicalinnovation

artificialintelligence(AI)169–73capitalinvestment174impactoninequality174–5productivitygrowth170–71andrisingexpectations25robotics169–75

technologyindustry57–8terroristattacks112,186,188–91terroristgroups,challengeof193Thailand199Thatcher,Margaret14,52,60,94–8

Conservative1979electionvictory96–7,105DamianBarron96

Thiel,Peter5ThinkLongCommittee,California87,88ThucydidesTrap208Tibet194tobaccoadvertising38toobigtofail63totalitarianism15Toyota99trade

associations54international4–5NorthAmericanFree-TradeAgreement82opennessto212protectionism4–5,69–70,184Trans-PacificPartnership184,201

tradeunions54,60,98–9Trans-PacificPartnership184,201tribalism10–11TrilateralCommission26Trump,Donald1,6,52

2016campaign4–5,184“AmericaFirst”10financing37,84,226Russianinvolvement203voters’reasoning4,69–70

administrationappointments90advicefor82,222Brexit,viewof26communicationsandthemedia219elitesandspecialinterests29,31,84freedomofspeechandruleoflaw70,219immigration4,69–70,211internationalalliances4–5,70–71,186,201nationalinterest,dangersofnarrowfocus15–16opportunities90publicinfrastructureinvestment83taxreformpledges39,42tradeprotection4–5,69–70,184WallStreet68,90

trustseesocialtrusttruth,distortionandmanipulation219Turkey203Turner,Adair(nowLord)61–2

Tyson,Laura88

UUKIndependenceParty(UKIP)106,108,211Ukraine111–12,192,202–3UNConventionontheLawoftheSea(UNCLOS)196UNHumanDevelopmentIndex17unemployment48,81,116,117

causes171mass172andtechnologicalinnovation170–71seealsoemployment

unfairness1,48–9,211–12,214–15UnitedforaFairEconomy42UnitedKingdom

2008financialcrisis101AlternativeVotereferendum(2011)105BillofRights(1689)51

Brexitreferendum(2016)13,24,214campaign101–2,103,230internationalviewof26thevote94,230voters’reasoning94,102,106

carmanufacturingindustry99constitutionalreform,casefor108–9creativeeconomy100–101dayslostthroughstrikes98doingbusiness,easeof127economy99,100,133,220electoralsystem104–6,108employmentandlabourmarket45,78,177EUreferendum(1975)103,106GDPgrowth133immigration24,92–4,100,108ImmigrationAct(1971)92incomeinequality107–8IndependentCommissiononBanking65industrialunrestpre-Thatcher97–8labourlawreform98–9LiberalDemocrats105migration24,233MigrationObservatory93peerages38pensioners55politicaldonations38politicalvoice104–7,108–9propertypricesandwealth215

publicspending156ruleoflawandequality20

Scottishindependencereferendum(2014)101,103,106,230taxation39,41–2tradeunionmembership98turnarounds,past93–8votingprofiles180,181workingagepopulations176workingclass107

UnitedNations(UN)Charter12,186UnitedStates

2016presidentialelection70,90,184,203AffordableCareAct34ageingpopulation168,234asally71theAmericandream33antitrustregulation57–8,82,215bureaucracy75–6California80,85–90,153CivilRightsAct(1964)52,85constitution49,50,51CouncilofEconomicAdvisers79,81,82creativeeconomy100DeclarationofIndependence51dynamism74–5economicgrowthandinequality36employmentandlabourmarket45,75,76,78–82employmentrateofover-65s177energyindustry73–4enterpriseandinnovation73–4GDPgrowth83,133geographicmobility77globalreachofbusiness70illegaleconomy80–81immigrationcontrol4inequality,feelingsof3,4inheritancetax41–2internalmarketdominance74–5internationalcollaboration70internationalpowerandinfluence71,187–8,190–91,197–8internationaltrade4Iraqwar(2003)191–2,205medianageofpopulation179migrationto24militaryspending119Nobelprizes115occupationallicences76–8,82overseasmilitarybases199–200penalsystem78–81,86,229politicaldonations37–8,84

politicalsystem83–4productivity118publicdebt135ruleoflawandequality20sclerosisandimpetusforchange71–2,90–91securityalliances4Simpson–Bowlescommission91socialmobility20,33socialtrustandconflict20–21start-ups75,86SupremeCourt84,215Syria205turnarounds,past84–5unemployment117votingprofiles180welfarebenefits78–9West,criticalrolein69workingagepopulations176seealsoTrump,Donald

universitiesalumnidonationsandadmissionspolicies40freedomofspeech219publicfunding216seealsoeducation;educationalbias

VValls,Manuel128Védrine,Hubert72Venezuela19Vickers,SirJohn65Vietnam194,199

US,relationshipwith200Vietnamwar191Volcker,Paul62–3,139Volvo155

WWales,Brexitvote94warcrimes188Watson,ThomasJ.172wealth33

education40–41,216politicalinfluence53,215,218seealsopoliticaldonations

publicopinions34

taxation41TheWealthofNations(AdamSmith)30,56Weber,Christophe144Weber,Max185welfare,social3,20–22,118,119–22West

allies201–2declineof8ideaof1–6,207–8internalweaknesses209leadership209,222requiredstrategy206responsetoSyriaandrefugeecrisis205–6strengthof7weaknessof6,13–14

WhiteHouseCouncilofEconomicAdvisers,BenefitsofCompetitionandIndicatorsofMarketPower74Whitman,Walt50Wilson,Harold98winterofdiscontent97Wolf,Martin67Wolferen,Karelvan137–8women’srights20,49Woodford,Michael144,146WorldBank

DoingBusinessrankings127Ginicoefficients107,230GoldenGrowthreport116–17,119,120,158

YYeltsin,Boris189Yugoslavia187

ZZakaria,Fareed209Zanini,Michele75zero-hoursemploymentcontracts45Zoellick,Robert198

BillEmmottwastheeditor-in-chiefoftheEconomistfrom1993to 2006, and is now a writer and consultant on internationalaffairs. He is a regular contributor to the Financial Times inLondon, La Stampa in Italy, Nikkei Business in Japan, and forProjectSyndicateworldwide.Heisa trusteeof theInternationalInstitute for Strategic Studies, a Visiting Professor at ShujitsuUniversity,andglobaleconomicadviserforStonehengeFlemingFamily&Partners.He is the authorof severalbooks, including20:21Vision, Rivals, andGood Italy, Bad Italy.He is also thenarrator and co-author, with Annalisa Piras, of a documentaryaboutItaly,GirlfriendinaComa.In2015,heproducedTheGreatEuropeanDisasterMovie,whichhasnowbeenseenby2,500,000peopleintwelvecountriesandtranslatedintotenlanguages.