The Fate of the West: The Battle to Save the World’s Most Successful Political Idea

by Bill Emmott

This lingering resentment at the inadequacy of the political offer is related to the steady, long-term breakdown of the British electoral system, and with it the sense of a reasonable equality of political rights and voice across the whole nation.

Out of long historical habit and a liking for decisive, rapidly formed governments, the British still purport to favour single-party administrations over coalitions, even though the fragmentation of the party system has made coalitions the more logical and legitimate solution.

Some of the same sentiment – dislike of decisions being made by powers far away – lay behind the EU referendum vote.

Analysis of the result by Geoffrey Evans, a fellow in politics and sociology at Nuffield College, Oxford and co-director of the British Election Study, suggests that the roots of the Brexit victory can be found in the alienation of working-class voters from general elections since the 1990s.5 Their turnout levels, which had previously been similar to those of middle- or upper-class citizens, had plummeted: in 2015, Evans says, turnout among degree-level middle-class voters was 83%; that among lowly educated working-class voters was 48%.

To become electable in the first-past-the-post system, Labour had under Blair’s leadership (1994–2007) chosen more or less to ignore working-class voters’ concerns and to focus on appealing to middle-class voters instead.

This may be true, but it matters politically in so far as it may mean that working-class values – including suspicion of both immigration and of cosmopolitanism – extend more widely in the electorate than general election results and political parties’ policies may have suggested.

Measured in this way, inequality in the UK has even declined a little since the 2008 financial crisis, though that fact has not made the continued success of the country’s richest citizens, especially bankers, any easier for those on the left to stomach. But, as Chapter 2 argued for the West as a whole, the inequality grievance is no longer simply a matter of incomes. It is now more importantly a matter of the inequality of political voice and influence over public policy that big differences in wealth can bring.

In a first-past-the-post electoral system, if that were to happen UKIP could even, in theory, suddenly jump from one seat in Parliament to becoming the second-biggest party, or even to holding an absolute majority. The fear of that prospect might, alternatively, lead the Conservatives or Labour, or both, to adopt UKIP’s stance against cosmopolitanism and immigration. It ought also to make those two old, mainstream parties take seriously at last7 the case for two big political reforms. The first is electoral reform, to bring in a more proportional voting system, one that accommodates and provides a framework for the fragmentation of the party system rather than remaining in denial of it, as now.

A properly multi-party system, with coalition governments the norm, would have the merit of restoring a greater sense of equality of political rights and voice to a larger share of the population. Such reform would have been desirable regardless of the Brexit vote.

The case for the second has been increased by Brexit: constitutional reform to make the government of the UK formally federal, with either a separate English Parliament or several English regional assemblies, with devolved powers of both expenditure a...

Such reforms need also to be accompanied by a renewed emphasis in public spending on education, to maintain the sense of equality of opportunity, and on infrastructure, to reduce the wide gaps in productivity and modernity that exist between the wealthy south-east and the rest of the country.

Britain is going to have to restore equality of voice by giving its political system at least as big a shake-up as Thatcher gave its economic system. Without that equality, British openness cannot last.

In truth, the magic had long gone. What the Brexit vote made clear was that countries are members of the EU out of self-interest, and their views of how their interests are best served can change, rightly or wrongly.

forbidding. For much of the past decade, European governments have been wriggling desperately in the grip of successive, sometimes simultaneous dramas and panics, of which Brexit is just the latest, though the most directly institution-shattering. The 2008 global financial crash was the first, a crash which originated in the US but which quickly exposed the fragility of many European banks,

Then two years later it emerged as a second crisis, a full-blown sovereign-debt panic in the euro zone, with several mainly southern European countries struggling to avoid insolvency.

Russia’s annexation of Crimea in 2014 and fostering of conflict in Ukraine was the third drama, though it was a story that had long been foretold by the Russian-Georgian war of 2008,

EU countries did at least achieve a quite impressive unity from 2014 onwards over the imposition of economic sanctions on Russia, a unity that they signally failed to achieve over the fourth and most politically destabilising challenge, the flow of millions of refugees and economic migrants into the EU fleeing from wars in the Middle East and North Africa, and from poverty or discontent further afield.

Unnervingly, this fourth challenge coincided with and became inevitably conflated with a fifth, that of terrorism in European cities, an outgrowth of the civil wars in Syria and Iraq from which the migrants have been fleeing.

Above all, the migrant crisis has made Europe look feeble and dysfunctional and given back respectability to the idea of controlling your own borders and your own immigration policy.

It would be the latest and most powerful of the long series of EU or intergovernmental tools that acted to make countries more open, less rigid and more dynamic than they would be if left to their own devices. Unfortunately it didn’t.

If anything, it did the reverse, by making it much cheaper for people, companies and governments in previously inflation-prone and economically unstable countries such as Ireland, Spain and Greece to borrow, cutting their interest rates to German levels and creating artificial economic booms. In highly indebted Italy, euro membership lowered the cost to the taxpayer of servicing public debt and so reduced the pressure to control or repay it. There was less discipline, not more. Then, when the credit bubble burst after 2008, EU countries’ underlying economic weaknesses and rigidities were laid bare.

Some say this insistence on fiscal austerity was unavoidable because financial markets had become too spooked by the spectre of sovereign defaults among the euro zone’s biggest debtors. Others believe that it reflects a German misdiagnosis of the currency area’s sickness as being one of public profligacy rather than private excesses (including notably by Germany’s own banks).

On its analysis, creditor countries, essentially northern European ones including Germany, should have been following a more expansionary fiscal policy in order to maintain demand, even as the bankrupts made their necessary cuts. The IMF also believes that the most unsustainable sovereign debts – essentially those of Greece – need to be written off and/or restructured rather than refinanced, just as they were for Latin American debtors during that continent’s sovereign-debt troubles of the 1980s and early 1990s.

This slide in technology is reflected in broader data: the EU as a whole devotes 1.9% of GDP to spending on research and development, both private and public, compared with 2.9% in the US and 3.3% in Japan. In 2000, innovators in the EU registered 12% of the world’s new patents; a decade later their share of new registrations had fallen to 5%. China’s had risen from 2.5% to 17.3% in that period, three times that in the EU.

It is not that western Europe’s overall economic performance has been dire: looked at over the course of the past two decades, and measured by GDP per head rather than simple GDP growth so as to reflect population changes, it has not been all that much different from that in the US. But it needed to be better in Europe, for two big reasons: to reduce western Europe’s chronically high levels of unemployment, which threaten social division; and to finance European welfare spending, which is so much higher than in the US.

Thanks to the rapid growth of China and other emerging economies, the share of both the EU and the US has long been falling. Just a decade earlier, in 2003, the EU-28’s share had been 30.7% and that of the United States 29.7%. In that ten-year period China’s share nearly trebled, from 4.3% to 12.1% in 2013. Such trends are inevitable and not particularly worrying as long as the global pie is itself growing.

Similarly, between 1960 and 2013 the EU-28’s share of world population fell from 13.4% to 7.1% and that of the US from 6% to 4.4%, as EU and US birth rates declined a lot faster than those in poorer parts of the world.

we should note that democracy’s habit of self-entrapment is particularly strong with this sort of public spending, for once flows of welfare benefits have been captured by a group of voters, that group will resist fiercely any attempt to reduce their payments and politicians will be loath to force them to. This is why such welfare payments have become known as “entitlements”.

There are two ways in which this economic trap can be set. One arises when high levels of taxation have to be imposed to finance the welfare spending. This could in the past have been described as the Swedish problem until that country’s reforms in the 1990s (see Chapter 8). Now it might be termed the French problem, with public spending in France at over 55% of GDP, more than five percentage points higher than in Sweden and ten higher than in Germany. France has run a budget deficit continuously since 1974, so this is also why its public debt keeps on rising and is now nearly 94% of GDP. Italy created its own public-debt problem by running a budget deficit averaging nearly 10% a year from 1973 to 1995, spending the money in particular on public pensions. Which is why Italy’s public debt to GDP ratio is now more than 130%, second only in the euro zone to Greece (175%). It does not leave much room for manoeuvre.

Some countries are more willing than others to accept high levels of taxation in return for public services such as welfare, depending principally on whether citizens believe the money will be well spent. Yet even in such countries, of which Sweden is one, there is a cost, for high taxes have some disincentive effect on work and on entrepreneur...

A nation of tax-evaders typically becomes a nation in which the burden of taxation is increasingly borne chiefly by those unable to evade it,

Unemployment insurance can have a disincentive effect of its own if the level is set too high, discouraging some people from working.

these days the much more important impact comes from publicly funded pensions. Not only are these more and more costly to the public purse as the proportion of the population that is elderly increases, but also the rules of eligibility and of retirement ages are having a bigger and bigger impact on people’s choices about whether to work or retire.

So western European countries have set a trap for themselves. To afford the welfare spending to which they have become accustomed and which is an important contributor to social trust, they need people to work more productively and for longer proportions of their lives, but the welfare spending and associated labour rules are leading Europeans to work less and for fewer years.

South Korea and Japan have become pioneers in the continued employment of the elderly, with proportions of the over-65s in their labour forces often four or five times higher than in western European countries. If Europe could successfully match Japan in that regard, its social spending would quickly look a lot more affordable.

the EU’s Exchange Rate Mechanism, the precursor to the euro.

In the Venice of the sixteenth century or the Amsterdam of the seventeenth, societies that were then rich, a long period of great dynamism was followed by the weakening of the commitment to compete, to innovate. The forces once directed at the pursuit of growth became redirected towards the defence of small or big privileges that had been acquired by various organised social groups. In a stagnant economy, these defensive mechanisms and the promotion of special interests become reinforced.

a slogan that would more truthfully sum up the country would be “Obstructed in Italy”. For this is a country full of strengths, ideas and excellence, many of which are obstructed by regulatory barriers imposed by local and central government, by professional and trade associations and cartels, by trade unions, by a slow-moving and dysfunctional justice system, by political interference and by organised crime.

This is the vicious circle in which Italy has caught itself. It needs innovation, investment and growth if it is to afford the nearly 16% of GDP that it is currently spending every year on public pensions. Yet to release that innovation and investment requires privileges and protections to be given up by all sorts of companies, professions and groups that have been made more determined to hang on to their entitlements by the years of stagnation.

Italy is not alone in facing this sort of self-imposed trap. As public spending on pensions is the single best measure of the burden of welfare entitlements and the impact they have on the public finances, it is worth listing the top five countries in the OECD on this measure.8 At the top is Italy (15.8% of GDP), followed by Greece (14.5%), France (13.8%), Austria (13.2%) and Portugal (13%). All the top 10 countries in the OECD in terms of public spending on pensions are EU members, but these five stand out as having a particular problem.

The best international assessment of the rigidity or fluency of countries’ regulatory systems is the World Bank’s annual “Doing Business” rankings, which measure how easy it is to start a business, pay taxes, enforce contracts, get connected to electricity and information technology, acquire land and so forth. In other words, how easy it is to do business. The top-ranking countries are not laisser-faire, free-for-a...

There is no reason in principle why countries like France and Italy should not be able to emulate them and get their public-pension spending under control. The question is whether either of these things can be done, politically.

The second problem for the EU is that it has become harder for 28 governments to agree on collective actions than it was for 15, and that was hard enough.

What could and should have been better was the policy response by euro-zone countries. Compared with the US and the UK they were slow to intervene to shore up and then shake up banks. And the universal rule of fiscal austerity imposed in 2012 has made the recession deeper and much longer than it needed to have been.

“More Europe” is simply anathema to most voters in virtually every EU country, since they already blame the EU for many of their problems, rightly or wrongly. They want less of it, not more. The better approach would be not “more Europe” but “more European collaboration” directed at creating the sort of virtuous cycle of growth and restored political confidence that will make national reforms easier. This should mean relaxing the fiscal restraints to permit co-ordinated public spending, ideally on capital projects, to help boost demand in the whole euro zone.

The pressure of refugees and of terrorism makes it essential that it does. Europe needs to feel stronger and more positive. The main way in which European collaboration could assist that positive feeling would be by building electricity grids, roads, railways or broadband networks together, creating connectivity and sharing of capacity, but also creating jobs.

Instead of centralising power, EU countries can and should pool their borrowing capacity to finance a big co-ordinated programme of public investment in infrastructure, both digital and physical, a modern version of the post-war Marshall Plan that the United States financed.

but Germany would have to lead it. The EU, on the basis of its current trajectory and policies, is heading towards disintegration and eventual demise. It needs to change direction, which means its member countries need to change direction. Slow growth, high unemployment and high levels of immigration from the Middle East and North Africa are a deadly combination. Such migration is largely outside the control of either the EU or European countries. Slow growth and high unemployment are not. The main solutions are domestic, but collaborative public spending could help. There is little time to spare.

The fundamental problems in the Japanese economy are weak demand, depressed incomes and a shortage of the sort of entrepreneurship or corporate investment that might be capable of producing new wealth and large numbers of well-paid jobs.

Japan became a case study not in success but in stagnation, conservatism and rigidity. This applies not just in business and economics but in politics too.