Tuesday, December 06, 2016

The Dangers of Disruption

Credit Mike McQuade
This is an article from Turning Points, a magazine that explores what critical moments from this year might mean for the year ahead.

Turning Point: Britain votes to exit the European Union, sending shock waves throughout the world.

In Silicon Valley, where I live, the word “disruption” has an overwhelmingly positive valence: Thousands of smart, young people arrive here every year hoping to disrupt established ways of doing business — and become very rich in the process.

For almost everyone else, however, disruption is a bad thing. By nature, human beings prize stability and order. We learn to be adults by accumulating predictable habits, and we bond by memorializing our ancestors and traditions. So it should not be surprising that in today’s globalized world, many people are upset that vast technological and social forces constantly disrupt established social practices, even if they are better off materially.

Of course, globalization has produced enormous benefits. From 1970 to the 2008 financial crisis, global output quadrupled, and the benefits did not flow exclusively to the rich. According to the economist Steven Radelet, the number of people living in extreme poverty in developing countries fell from 42 percent in 1993 to 17 percent in 2011, while the percentage of children born in developing countries who died before their fifth birthday declined from 22 percent in 1960 to less than 5 percent by 2016.
 
Yet statistics like these do not reflect the lived experience of many people. The shift of manufacturing from the West to low labor-cost regions has meant that Asia’s rising middle classes have grown at the expense of rich countries’ working-class communities. And from a cultural standpoint, the huge movement of ideas, people and goods across national borders has disrupted traditional communities and ways of doing business. For some this has presented tremendous opportunity, but for others it is a threat.
Photo
A mural in the Lithuanian capital of Vilnius reflected uneasiness about Donald Trump’s overt admiration for Russian President Vladimir Putin’s leadership style. Credit Petras Malukas/Agence France-Presse — Getty Images
This disruption has been closely associated with the growth of American power and the liberal world order that the United States has shaped since the end of World War II. Understandably, there has been blowback, both against the United States and within the nation.

Modern political systems are labeled liberal democracies because they unite two disparate principles. Liberalism is based on a rule of law that maintains a level playing field for all citizens, particularly the right to private property, which is critical for economic growth and prosperity. The democratic part, political choice, is the enforcer of communal choices and accountable to the citizenry as a whole.

Over the past few years, we’ve witnessed revolts around the world of the democratic part of this equation against the liberal one, underlined most strikingly two years ago by Hungary’s Prime Minister Viktor Orbán when he asserted that his country sought to be an “illiberal state.” In 2014, his Fidesz party won most of the popular vote and a supermajority in Parliament and began modifying the Constitution to centralize power in Mr. Orbán’s hands. Orbán subsequently cracked down on critical media outlets and nongovernmental organizations that he did not control.

In doing so, Mr. Orbán was imitating Vladimir Putin, perhaps the world’s chief practitioner of illiberal democracy. Mr. Putin has become very popular in Russia, particularly since his annexation of Crimea in 2014. He does not feel bound by law: Mr. Putin and his cronies use political power to enrich themselves and business wealth to guarantee their hold on power.

In nearby Turkey, Recep Tayyip Erdogan, the country’s president and long-dominant political leader, also received a strong democratic mandate from voters in 2014. An attempted coup two years later became an excuse for him to target thousands of civil servants, military officers, journalists and academics whom he suspected of disloyalty.

Mr. Orbán, Mr. Putin and Mr. Erdogan all came to power in countries with an electorate polarized between a more liberal, cosmopolitan urban elite — whether in Budapest, Moscow or Istanbul — and a less-educated rural voter base. This social division is similar to the one that drove the Brexit vote in Britain and Donald Trump’s rise in the United States..

Mr. Trump’s ascent poses a unique challenge to the American system because he fits comfortably into the trend toward illiberal democracy. He validated himself through popular support, but his entire career has been spent trying to bypass inconvenient rules — like the requirement to pay his own subcontractors. Much of his popularity rested heavily on his willingness to break existing customs about political correctness. This seemed politically bracing at first, but quickly became worrisome when Mr. Trump suggested that as president, he would “open up our libel laws” to initiate civil suits against his media critics. His pitch to the American voter was “I alone” can fix the country’s problems through sheer force of personality, and not through a reform of the country’s institutions.

That Mr. Trump expressed admiration for Mr. Putin, and that Mr. Putin returned the favor, should come as no surprise. Like Mr. Putin, Mr. Trump seems to want to use a democratic mandate to undermine the checks and balances that characterize a genuine liberal democracy. He will be an oligarch in the Russian mold: a rich man who used his wealth to gain political power and who would use political power to enrich himself once in office. And like Mr. Putin, Mr. Trump was able to create alternative narratives that often went unchallenged by his supporters.

But the balance between liberalism and democracy has been shifting in other nations as well. The citizens of India and Japan have elected nationalist leaders who many say they believe champion a more closed form of identity than their predecessors. While these leaders have observed the principles of liberalism more scrupulously than the Orbáns or Erdogans of the world, their critics suspect that they are quietly fostering intolerance among their supporters.

How far will this trend toward illiberal democracy go? Are we headed for a period like that of the early 20th century, in which global politics sank into conflict over closed and aggressive nationalism? The outcome will depend on several critical factors, particularly the way global elites respond to the backlash they have engendered. In America and Europe, elites made huge policy blunders in recent years that hurt ordinary people more than themselves. 

Deregulation of financial markets laid the groundwork for the subprime crisis in the United States, while a badly designed euro contributed to the debt crisis in Greece, and the Schengen system of open borders made it difficult to control the flood of refugees in Europe. Elites must acknowledge their roles in creating these situations.

What is surprising is not that there is populism today, but that the populist upsurge took as long as it did to materialize. Now it’s up to the elites to fix damaged institutions and to better buffer those segments of their own societies that have not benefited from globalization to the same extent.
Above all, it is important to keep in mind that reversing the existing liberal world order would likely make things worse for everyone, including those left behind by globalization. The fundamental driver of job loss in the developed world, after all, is not immigration or trade, but technological change. The American manufacturing sector has seen something of a rebirth over the past decade, even as it has shed jobs in its highly automated factories.

We need better systems for buffering people against disruption, even as we recognize that disruption is inevitable. The alternative is to end up with the worst of both worlds, in which a closed and collapsing system of global trade breeds even more inequality.

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