Why We Need a Win-Win View of Difference to Tackle Populism

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Too many people are struggling economically despite seemingly positive numbers on the economy, notes this opinion piece by Wharton dean Geoffrey Garrett. The reason: The vast majority of the gains continue to go to those at the pinnacle of the income scale. That has led many people underneath to become more isolationist on economic and social issues. A better approach, he writes, would be to boost economic growth and “to make the economy work better for more people.”


The current wave of populism in the Western world is driving America and Europe in directions that are not only anti-establishment and anti-elite, not only anti-trade, anti-immigrant, and anti-global, but also anti-difference — in all its forms.

Since at least the 1960s, the broad trajectory in the West has been to embrace and promote ever more difference in society, politics, and the economy; to view difference as an opportunity to be leveraged, not a threat to be defended against. Difference has been the ultimate win-win: So long as we exchange and share ideas, efforts, and products, everyone will be better off. The more difference, the better.

Today, this win-win view of difference is increasingly under siege from a win-lose mentality.

For me to win, you must lose. If you win, I lose. This mentality views difference as a threat, not an opportunity. And to “win” means pushing back against trade, immigration, multiculturalism, cosmopolitanism — all manifestations of difference.

The rhetoric of Donald Trump exemplifies this perspective. Making America great again is all about winning. And winning means beating others, not looking for win-wins. Trump has taken the kill or be killed, sharp-elbowed world of New York real estate — where there are real winners and losers — and turned it into a political worldview: The way for America to be great again is to win again, to protect Americans from losing to migrants, foreign companies and foreign governments, or to people at home who look, act, and see the world differently.

But most of life isn’t like a tennis match in which only one player can win and the other must lose. In fact, I believe essentially everything that is good in life is about win-wins — searching for them, working to realize them, and benefiting from them. And win-wins are all about leveraging the power of difference.

The Rise of Populism

The problem today is that many people are giving up on the notion of win-wins because they feel they are losing, that their lives are getting worse instead of better. They feel they are losing at the expense of the big winners — not only Wall Street, the City of London, and tech whiz kids from Silicon Valley to Tel Aviv, but also undocumented migrants from Mexico, refugees from Syria, and factory workers in China.

Below is a stunning graph from a new book by Bridgewater Associates’ Ray Dalio, A Template for Understanding Big Debt Crises, that makes exactly this point. Inequality, or more precisely a breathtaking separation of the people at the very top of the income distribution from everybody else, is an increasingly dominant reality of our times. And there is a clear correlation between the emergence of the super rich and the rise of populism. The high point of populism today coincides with an income distribution in which the total wealth of the top 0.1% of Americans is almost as big as the total wealth of the bottom 90%.

Inequality is a relative term. But it should not conceal that too many people are doing worse in absolute terms as well. McKinsey estimates that two-thirds of the population in the advanced economies experienced flat or falling incomes in the decade around the 2008 financial crisis.
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No wonder so many people are angry – at government, at big business, at foreigners and foreign countries. I think this is at the center of the rise of populism. And it amounts to a frontal attack on the pro-difference consensus that has dominated the Western world for 50 years or more.

Here are two pieces of evidence of this frontal attack, concerning immigration and borders.

The first is from a 24-country Ipsos survey, showing that roughly twice as many people are opposed to immigration as support it. This is remarkable given the vital roles of migrants woven into the cultural and historical fabric of the success stories of America and so many other Western countries, now dating back hundreds of years.
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The second piece of evidence concerns the hardening of borders, via a dramatic shot of the world from space using GIS technology in new work by my Penn colleague Beth Simmons. The map shows that despite all the talk about how technology and globalization have created an ever more “borderless” world, physical boundaries protecting and managing entry into the U.S. and in Western Europe of people and goods from often much poorer neighbors are a pervasive feature of the contemporary world.

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For those of us who believe difference is the ultimate win-win, what should we do? It is clearly not enough to assert that trade, immigration, and globalism are good for society as a whole.

Rather we need to recognize and then address the root issues driving today’s populism, nativism, and nationalism.

Reversing the Damage

To do so requires not only real empathy with people who feel they are losing but also real solutions to the problems so many people face. Here is a simple three-part action plan for reversing the damaging trajectory that threatens much of what the West has stood for, not only since the 1960s but in fact since the golden age of political liberalism in the 19th century.

First, we need to generate more economic growth. The 1990s was the decade when globalization and the internet really took off. But the push back against them was really quite muted. Why?

One obvious reason is that economic growth was strong: 3.3% average growth in the U.S. GDP each year for the whole decade, 2.8% for all high-income countries.

Since 2000, average annual economic growth in the U.S. has been 1.8%; 1.7% for all high-income economies. Growth is not everything, but it really matters. I suspect all of today’s rancor and division would be muted were economic growth stronger.

Second, we need growth to be more inclusive. Globalization and technology are key drivers of economic growth. But they have also been narrowing. Smaller and smaller portions of the population have contributed more and more to growth. We need to reverse that trend.

Third, that means finding better jobs for more people. No surprise for someone in higher education, I believe increasing skills in society to take advantage of globalization and technology, rather than trying to protect against them, is the right way to go.

And here a lot of the news is not nearly as dire as is often portrayed. Rather than a shortage of good jobs, we live in a world where not enough people have the skills needed to do the jobs of today. Techhire, for example, estimates there are more than half a million unfilled jobs in tech in America today.

Karl Marx famously believed that our labor alienated us from who we are. For many today, what we do defines who we are. A lot of the disquiet in our world comes from deep dissatisfaction in the way the economy is affecting lives. If we can make the economy work better for more people, I believe we can get back to the place where we recognize difference is a source of strength in our society, not a threat to our well-being. And a place where we focus on win-wins instead of worrying about losing out to others.


The Coral Sea: The Mirror Image of the South China Sea

Australia, like China, is militarizing the waters off its eastern coast.

By Jacob L. Shapiro         


Australia and China possess profoundly different geographies, but in one key way, they are similar: The bulk of the wealth and populations of both countries is concentrated on eastern-facing coasts. These coasts, in turn, face seas containing small islands that, if held by a hostile power, could be used to block Chinese or Australian ships from entering the greater Pacific and engaging in global trade – in effect, crippling their economies. China, of course, is facing the South and East China seas. Australia is next to the less-discussed Coral Sea (the Tasman Sea being virtually secure already). China’s imperative to solidify its grip over the South and East China seas is mirrored by Australia’s recent push to solidify its control over the Coral Sea. The difference is how each goes about doing it.
China’s militarization of the South China Sea in recent years has been well publicized, but there is nothing recent about Chinese territorial claims in the South and East China seas. (That “China” is in both names is an indicator of the country’s long-standing presence in these maritime domains.) China – that is, the Republic of China – first published a map delineating its maritime claims in the South China Sea in 1912. The number of dashes used and the precise claims on this line have changed slightly over time, but overall, China’s territorial claims were essentially the same under Mao as under Chiang – and remain so under Xi today. The same is true of the East China Sea, though until recently China’s naval capabilities precluded any attempt at challenging Japanese control over the Senkaku Islands, which China has claimed as its own since the 14th century.

 

In this sense, Chinese militarization of the South and East China seas can legitimately be described as centuries-old. What has ebbed and flowed over time was China’s ability to project power in these seas – a capability it has only just begun to redevelop. The beginning of the current territorial disputes in the South and East China seas can be located in two dates: Jan. 19, 1974, when the Chinese navy fought off an attempt by the South Vietnamese navy to take the Paracel Islands in the South China Sea, establishing de facto Chinese control, and Nov. 24, 1971, when the Japanese Diet ratified a deal transferring control of the Senkakus from the United States to Japan – in effect, putting Chinese maritime trading lanes in the hands of a country that had committed the Rape of Nanking 33 years prior.


 



Since the 1970s, China has used a combination of economic incentives, political pressure, military force and diplomatic niceties to ensure its continued control of these vital maritime domains. In recent years, it has relied more on military force to do so, a reflection of the Chinese navy’s rising power. It’s hard to pinpoint exactly when China began establishing military installations on islands in the South China Sea – in 1990, for example, China built a runway and airport on Woody Island, but it deployed surface-to-air missiles and fighter jets on the island only in 2016. Suffice to say, China has been doing so for decades, even if opposition has become vocal only in recent years. As for the Senkakus, Chinese naval ships occasionally enter Japanese territorial waters to make their presence known, but the frequency of such assertion of navigation acts has increased since 2016. China also offers development aid and economic incentives to countries willing to recognize its claims or overlook its island-making in the South China Sea, with its recent courting of the Philippines being the most prominent example.
Australia and its fellow English-speaking countries (New Zealand, the U.K. and the U.S., primarily), as well as Japan, have taken note of the slow and steady rise of Chinese power in the South China Sea and its desire for power in the East China Sea. At issue is not so much what China has done – in the unlikely event of war, the military installations on South China Sea islands could be destroyed and their resupply could be fairly easily curbed – but what the continued slow conquering of these regions might portend. There has been no serious attempt to stop China beyond the occasional freedom of navigation operation, mostly because for the countries powerful enough to stop China, control over the reefs, atolls and islands in the South China Sea are not worth fighting for. What concerns Australia (and New Zealand) more is the way China has been using a similar strategy in the Coral Sea. Though China has no historical claim to ownership of the various island nations of the South Pacific, everything else in its toolkit is fair game.


Australia has responded by essentially mimicking China’s strategy in the South China Sea – though with extremely different tactics. This is in part by necessity. China, after all, is the oldest civilization in world history, and many of the islands it wants to control are uninhabited; some aren’t even islands. Australia, by comparison, is a relatively recent creation of the British Empire, and the sun has set on the imperial rule of the South Pacific by white Anglo-Saxon Protestants. In addition, many of the island nations with which Australia needs strategic relationships are not uninhabited. What works for China in the South and East China seas cannot work for Australia in the Coral Sea – Australia has to be far more solicitous of its would-be partners. If Australia is too heavy-handed, it only serves to drive South Pacific countries into the waiting arms of China, which, despite its expansionist ambitions, is roughly 3,000 miles (4,800 kilometers) away, making it a potentially very attractive partner for South Pacific countries.
Australia has greatly accelerated its execution of this strategy in 2018. Whether by signing a new bilateral security treaty with Vanuatu, increasing its aid and development projects throughout the region, or spearheading a new security framework for the Pacific Islands Forum, Australia is trying to ensure that it is the dominant power of the Coral Sea. Last month, it blocked China from funding a major regional military base in Fiji by not just outbidding Beijing but, as Fiji’s military chief of staff told The Australian, by offering a more “holistic” partnership rather than simply trading yuan for influence. Australia also completed upgrading infrastructure at Papua New Guinea’s Lombrum Naval Base on Manus Island last month, and it is reportedly negotiating with PNG to establish a permanent Australian naval presence at the base (the official agreement is expected in mid-November). Australian broadcaster ABC also reported last month that Australian soldiers might begin regular troop rotations in Papua New Guinea in the near future.
It would not be an exaggeration to say that Australia is “militarizing” the Coral Sea. It is renovating naval facilities to be able to host Australian and presumably U.S. naval assets; signing new, beefed-up security agreements with neighboring countries; deploying troops in the region; providing neighbors with naval assets (Australia plans to provide 21 Guardian-class vessels to 12 Pacific nations and East Timor by 2023); and spending money on development projects like undersea high-speed internet cables for the Solomon Islands – among other things. The goal is simple: Make sure that no foreign power hostile to Australia’s interests can use these countries to block trade in and out of Australia, or in a worst-case scenario, as a springboard for invasion.
China can no more prevent Australia from securing control over the Coral Sea than Australia can prevent China from securing control over the South China Sea. (As for the East China Sea, that will remain in Japanese hands for as long as the Japanese navy outclasses the Chinese, and for as long as Japan remains a stalwart U.S. ally – in other words, for quite a long time.) Nor does either have an imperative to conquer the other’s backyard. In effect, what both China and Australia are doing is clearly drawing their defensive lines – and there is a great deal of water and land between the lines being drawn. Indeed, there are three buffer states of particular import between China and Australia: Indonesia, Malaysia and the Philippines. It is in these three countries that the real battle for supremacy in the Pacific will primarily be fought in the coming decades. That competition, however, is still in its infancy. For now, two regional powers are shoring up their greatest weaknesses from external threats, and Australia, with fewer obstacles to overcome, has a head start.


Banks Are Getting Squeezed by the Fight Against Dirty Money

As governments make them the front-line defense against financial fraud, banks have to be more cautious. That’s hurting returns.

By Paul J. Davies

Photo: F. Martin Ramin/The Wall Street Journal 


Every few months it seems some bank is nailed in a multi-billion dollar money-laundering scandal. The latest is Danske Bank , DNKEY -6.85%▲ which may win the prize for sheer audacity, with more than $230 billion of potentially suspicious cash flowing through a tiny branch.

The banks pay fines, promise to behave and the scandal is generally forgotten. But investors are wrong to ignore the long-term impact. Governments have made banks the front-line defense against a range of crimes. Combined with the weight of post-financial crisis regulations, the pressure to spot wrongdoing among clients adds costs and acts as a brake on the entrepreneurial spirits of business-winning bankers. The result is lower returns to investors.




This rise in scandals has its roots in the globalization of finance since the 1990s and in a political and regulatory push to make banks responsible for policing criminal and terror-related money flows.

Banks can’t complain: Many of these cases could have been avoided if they had better controlled their people and processes, especially those far from headquarters taken on through acquisitions, and if they had been more careful in choosing clients.

It may be that they grew too fast. Since the mid 1990s, the cross-border financial assets and liabilities of advanced economies surged from 130% of their combined GDP to more than 570% last year, according to the Bank for International Settlements. Banks helped drive this through deal making: Cross-border acquisitions by banks from the U.S. and Western Europe into new and emerging markets surged in the late 1990s and peaked in the mid-2000s, according to Dealogic.



This expansion helped banks bolster revenues and profits after the dot-com crash and again after the financial crisis. But it took them into less-developed markets and resource-rich countries where governments or organized crime can play a greater economic role. Banks didn’t understand or ignored the increased risks of exposure to corruption and laundering.

There is no good measure to show whether dodgy transactions grew in line with global finance: Launderers tend not to file tax returns. What is certain is that banks were given increasing responsibility for catching them. Before 1986, money laundering wasn’t even a federal crime in the U.S. The real change began in 2001—starting with the Patriot Act in response to the Sept. 11 terrorist attacks, and with Europe’s third anti-money laundering directive in 2005. Banks were increasingly required to report suspicious transactions and identify dubious customers.

This is a problem for bankers at the front line of winning new clients and transactions. They want to be entrepreneurs, convincing a client to act, promising support from their bank’s services or balance sheet, closing their deal and getting paid. What they don’t want is to be slowed down in making good on their promises, or worse being stopped from fulfilling them.

Danske is perhaps the most surprising case yet: Huge flows passing through a tiny foreign branch, where many of the clients were not even residents, failed to arouse suspicions higher up. But plenty of others have also tripped up on branches or individuals that had too much freedom: Think of HSBC ’sMexican scandal and Deutsche Bank ’smirror trades in Russia, or Goldman Sachs ’sbond deals for a corruption-ridden government fund in Malaysia.

Banks need to be more cautious: In the same month the true scale of Danske’s case emerged, Dutch Bank ING was hit with €775 million ($893 million) in penalties and Credit Suissewas rebuked for lax procedures although it paid no fine. The Department of Justice is now looking at Danske, which could make its fine much larger than these.

But restraints on bankers’ spirits is about more than tackling laundering, or even sanctions breaches, for which BNP Paribaswas hit with $9 billion in penalties by U.S. authorities in 2014, by far the largest for any such failure. It is about fraud and risk control generally. Many banks have rightly centralized management, beefed up monitoring of their clients and their own people and cut their appetite for risk. 
This can cause problems: When bankers feel too shackled by reporting and approval committees they may walk away. More cautious banks may react slowly to opportunities and lose out to less scrupulous, or less regulated, rivals. The balance is hard to strike for global banks.




Yet high returns today at the cost of fines or penalties tomorrow is a fool’s business model.

More restrained bankers pursuing profits more prudently is the right approach. It is another reason that investors will have to get used to lower returns from the industry. But it is a very good reason.


Human Nature and the Ethical Life

Massimo Pigliucci  

seneca the younger


NEW YORK – Does human nature exist? The answer has implications for anyone concerned about ethics. In an era defined by amoral political leadership and eroding social values, thinking about the essence of humanity has never been more important.

The philosophical concept of “human nature” has a long history. In Western culture, its study began with Socrates in the fifth century BCE, but it was Aristotle who argued that human nature was characterized by unique attributes – particularly, people’s need to socialize and our ability to reason. For the Stoics of Hellenistic Greece, human nature was what gave life meaning and contributed to their embrace of cosmopolitanism and equality.

Ancient Chinese philosophers like Confucius and Mencius believed human nature was innately good, while Xunzi thought it was evil and lacked a moral compass. In the Judeo-Christian-Islamic traditions, human nature is fundamentally corrupted by sin, but can be redeemed by embracing God, in whose image we have been created.

Modern Western philosophers, writing in the seventeenth and eighteenth centuries, expanded on these ideas. The English philosopher Thomas Hobbes argued that our natural state leads to a life that is “solitary, poor, nasty, brutish, and short,” which is why we need a strong, centralized political authority (the so-called Leviathan).

By contrast, Jean-Jacques Rousseau believed that human nature is malleable, but that our original state was one without reason, language, or community. He concluded that the mismatch between our early condition and modern civilization is at the root of our unhappiness, advocating a literal return to nature. David Hume, always sensible and moderate, proposed that humans are characterized by a combination of altruism and selfishness, and that such a combination can be partially molded for the better (or worse) by culture.

Charles Darwin’s work in the mid-1800s made many of the early “essentialist” views of human nature untenable. The idea that humans had a small set of characteristics that only humans possess was at odds with the slow, gradual pace of Darwinian evolution. While Homo sapiens evolved as a particular species of primate, there are no clean breaks between our biology and that of other species.

So the philosophical debate over human nature rages on, updated with the findings of biology. Today, some philosophers interpret Rousseau and Darwin to mean that human nature itself is nonexistent, and that while biology may constrain the body, it does not restrict our minds or our volition.

Evolutionary psychologists and even some neuroscientists say that is nonsense. The message they take from Darwin (and partly from Rousseau) is that we are maladaptive in a modern context – basically, Pleistocene apes who find themselves equipped with mobile phones and nuclear weapons.

As an evolutionary biologist and philosopher of science, my view is that human nature certainly exists, but that it is not based on an “essence” of any kind. Rather, our species, just like any other biological species, is characterized by a dynamic and evolving set of traits that are statistically typical for our lineage but neither present in every member nor absent from every other species.

Why does any of this matter to someone who is not a scientist or a philosopher? There are at least two good reasons that I can think of. One is personal; the other is political.

First, how we interpret human nature has broad implications for ethics, in the ancient Greco-Roman sense of the study of how we should live our lives. Someone who holds a Judeo-Christian-Islamic view of human nature is naturally going to worship God and follow the guidance of religious commandments. By contrast, someone adopting an existentialist philosophy along the lines of Jean-Paul Sartre or Simone de Beauvoir might believe that because “existence precedes essence,” we are radically free to shape our lives according to our own choices, and do not need God to help us along.

Moreover, views on human nature affect views on ethics. And today, our ethics are a mess. One recent study in the United States called Donald Trump’s presidency the “most unethical” in American history, while Gallup’s annual survey of US attitudes toward morality suggests a steady erosion of social mores. If we all took a moment to consider where we stood on the debate about human nature, we might gain valuable insight into our own beliefs – and by extension, the beliefs of others.

Personally, I lean toward the naturalistic ethics of the Stoics, for whom human nature constrains and suggests – but does not rigidly determine – what we can and should do. But regardless of one’s religious or philosophical leanings, reflecting on who we are – biologically and otherwise – is a good way to take more ownership of our actions. Needless to say, there are many among us who could benefit from such an exercise.


Massimo Pigliucci is the K.D. Irani Professor of Philosophy at the City College of New York. He is the author of How to Be a Stoic: Using Ancient Philosophy to Live a Modern Life. He blogs at patreon.com/PlatoFootnotes.