POLITICIANS ARE PAYING BILL FOR THE CRASH / THE FINANCIAL TIMES COMMENT & ANALYSIS

Politicians are paying bill for the crash

Philip Stephens

Economies may be limping back to health, but the political elites are still reeling

 

 

 

In the world’s rich democracies, the word that captures the temper of the times is insecurity. The bogey is globalisation. Fragmenting allegiances, populism, xenophobia — the rise almost everywhere of the “antis” — are all one way or another a reaction to fears that states are no longer reliable guardians of the security of their citizens.

 

This week the US Federal Reserve raised interest rates for the first time since 2006. The talk was of the world economy turning a page. The rise brought down the curtain on the exceptional period in global financial affairs that followed the 2008 crash. True, growth in many parts of the world remains anaemic. And yes, the European Central Bank may be heading in the other direction. But the Fed move marked a step back to normality.

 

Economists can argue as to whether such a judgment is premature. What it misses is the profound effect that the crisis has had on the political fabric. Economies may be limping back to health, but the political elites are still reeling. Ask those up against Donald Trump in the US and Marine Le Pen in France or facing rising xenophobia in Europe’s formerly communist states. Politics looks anything but normal.

 

The crash and the subsequent depression broke the confidence of a generation of political leaders. All the guff they had learnt about a new financial capitalism, self-equilibrating markets and the end of boom and bust was shown to be, well, guff. Seven years on, bankers are once again clinking champagne glasses. By and large, they got off scot free. Not so politicians who believed their own propaganda and embraced the laissez faire Washington Consensus as the end of history. Capitalism survived the crash, but at the expense of a collapse of trust in ruling elites.

The Pew Research Center in the US reports that fewer than a fifth of Americans trust the government in Washington to “do the right thing” all or most of the time. When Pew first asked the question in 1958 three-quarters put their faith in the politicians. The shrivelling of confidence has been most marked among Republican-leaning voters. There lies most of the explanation for the otherwise inexplicable appeal of someone like Mr Trump.

Europeans have always been more inclined than their American cousins to put faith in government, but the proportion in the EU who “tend to trust” their national leaders and parliaments stands at less than a third. Put another way, the regular Eurobarometer surveys show more than two-thirds are sceptical, many deeply so, of what they hear from the established political class. Politics has splintered, putting centrist parties under pressure.

Perhaps because they are seen as the more competent managers of the market economy, those on the centre right have fared somewhat better than those leaning left.

Globalisation has long been a source of rising inequality. Its rewards have accrued disproportionately to the top 1 per cent. Middling incomes on both sides of the Atlantic have been stagnating since the 1980s. Politically, bankers making millions from socially useless transactions and corporate executives paying themselves whatever they liked was bearable while economies were booming. The crash stripped away the mysteries to show that, for most people, anything-goes-globalisation is a source of acute insecurity.

 

In Europe, the stresses have been amplified by the failure to strike a balance between austerity and solidarity within the half-finished project of economic union and, more recently, by the tide of refugees fleeing the horrors of the Middle East. The terrorist outrages in Paris have played to the same fears. No one should be surprised that populists of left and right have a receptive audience when they promise to slam the doors against the outside world.

 

The xenophobia of Ms Le Pen and her like is no less obnoxious for that. Nor are the promised remedies anything but snake oil. Even the most powerful states cannot be sole masters of the economic and physical security of their citizens. It is striking though how deep the hostility has penetrated. Lefties are not alone in railing against the claimed iniquities of globalisation. Right-leaning eurosceptics who want Britain to leave the EU say they are fighting against “big business, big banks and big politics”.

Angela Merkel has learnt there is not much of a market for courageous realism. The German chancellor is the only leader of stature in Europe. But her invocation of European values in welcoming Syrian refugees has brought plotting rather than plaudits among her Christian Democrat colleagues.

 

Most establishment leaders are crossing their fingers in hope that a return of sustained growth and falling unemployment will eventually see economics and politics fall back into rough alignment. Rising living standards would certainly help. But the disaffection runs deeper.

Politicians have still to explain how economic interdependence can be made to work for the middle classes. Nationalism is thriving on the uncertainty.

Back in the middle of the 19th century when Karl Marx and Friedrich Engels sat down to write the Communist Manifesto they too had high hopes of globalisation. The dismantling of national frontiers, they imagined, would open the way to world revolution. They were sorely disappointed.

Globalisation can just as likely serve as the midwife to nationalism.