The Deadly Cocktail

Nationalism, Populism, and Inequality

ByJoergen Oerstroem Moeller

This article is based upon a paper presented at the GAC/WFS Board meeting on July 10,2011, in Vancouver, Canada. The current political system and economic model are both in deep crisis. The political system is rapidly losing its last shreds of public confidence, while the economic model continually demonstrates impotence in dealing with a crisis brought about by flaws in its design. None of this should come as a surprise. Any political system and economic model respond to the challenge of the dominating worldview in the given era or age of civilization. Industrialization gave birth to liberal democracy and Americanstyle capitalism. As industrialization now fades away, the accompanying political system and economic model do so, too. We are now living amid the transition to a future system, one whose outline we may just discern in the distance. That transition could be a highly turbulent one, due to three strong and unpleasant dangers: nationalism, populism, and inequalities.

The explanation is found in globalization's creation of uncertainties about jobs. Former British Minister and former Member of the European Commission Peter Mandelson puts it like this: "Opportunities for many, uncertainty for most." Fundamentally, people shy away from sharing jobs, income, and wealth with others outside the circle of common culture and shared values. Growing immigration in countries that used to be uni-cultural but now see several, sometimes non-congruent cultures inside their borders, accentuates what is fast becoming an identity problem. Under pressure from economic uncertainty and clashes between cultures, many people seek refuge in nationalism, blaming "foreigners" for the problems that they themselves encounter in their daily lives. This trend poses a danger to the future of globalization for two reasons. First, it lures politicians into pandering to nationalist-minded voters and gradually eroding the postwar gains made by free trade, international investment, and more flexible rules governing immigration. The international division of labor does not look so secure anymore. Second, the only way to solidify the ever-deepening international supply chain is through economic integrationwhich means

Nationalism
Nationalism is growing in most nation-states.

Joergen Oerstroem Moeller received a Master of Science in Economics from the University of Copenhagen, and served from 1968 to 2005 in the Royal Danish Foreign Ministry at a variety of posts, including State Secretary (1989 to 1997) and Ambassador in Asia (1997-2005). Since his retirement in 2005, he has been a visiting senior research fellow at the Institute of Southeast Asian Studies, Singapore, and an adjunct professor at Singapore Management University & Copenhagen Business School. His latest book, published in 2011, is How Asia can Shape the World (Institute of Southeast Asian Studies). E-mail jcormol@iseas.edu.

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transferring some political decision making from the national to the international level. But is this possible when people mistrust persons from other countries? The dialogue between politicians and populations breaks down under the weight of mutual distrust. Gradually countries are becoming ungovernable and must rely more and more on international institutions, international communities, and other countries to bail them out. Such actions serve as proof in the eyes of a large part of a country's population that foreigners are indeed to blame for the nation's troubles. Any attempt to shift the political decisionmaking process onto the same level as the economic and industrial phenomena that it is designed to control runs into nationalism as a barrier. Often, the result is an implacable dichotomy between global economy and national decision-making. The system thus remains impotent.

are now demanding painful adjustments. People react by accusing politicians of having reneged on their promises. Politicians, in their turn, attempt to make good on those promises by going ever further down the drainusing future income and hiking up deficits and debts. Second, the nationalistic card is brought into play. The angry public is told that their problems are due to foreigners or the outside world or to globalization, thus adding petrol to the already burning fires of nationalism. Whenever politicians fail to explain complicated problems, the whole idea of representative democracy is jeopardized. People have never been expected to fully understand such issues, but formerly there was a higher degree of trust between politicians and populations. The great majority may not have fully understood the issues, but they trusted politicians' saying that such-and-such would be beneficial for society overall despite the cost. But no longer. The panoply of new instruments of communication constantly undermines the trustworthiness of politicians and, more important still, it blurs the distinction between politicians and experts. Who is to be believed? The average person ends up believing no one and embraces simple solutions that are often populist. This can be seen in the U.S. with the Tea Party and with various right-wing parties in Europe and, to a certain extent, in Asia. The result is that "hard" decisions become even more difficult to make. And, even once they have been made by governments and endorsed by parliament, forces outside the parliamentary system quickly move in to delegitimize the measures and reap the resulting harvest of confusion and discontent. Outside forces, very often populist in nature, use the new communication instruments faster and more effectively than the governing establishment to market simple answers appealing to the public, who may never realize that the wool has been pulled over their eyes. The political system is forced into a defen-

Populism
The long period of a steadily rising living standards has convinced many people that they have an absolute right to get more every year. Unfortunately, we are now moving into an era where there appears to be less to distribute, at least relatively. Politicians know they depend upon a mandate given by the peoplemore clearly so in democracies than in other systems, but basically all political systems need the support of the people. They therefore shy away from presenting unwelcome truths, even though they know them, to the people. And so the merry-go-round starts. Politicians attempt to circumvent the hard facts by doing two things. First, they encroach upon the future by running up deficits and debts, which we have seen over the last decades. This shifts to future generations the burden of paying for the present one's chronic overconsumption. It buys some time, but the birds let loose come home to roost very soon. Our built-up deficits and debts

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sive role. It has to respond to all kinds of criticism, claims, and loose allegations that often lack any supporting evidence but nonetheless convey the impression the system is hiding something. As the perception that the political system cannot be relied upon gradually gains ground, government's effectiveness crumbles. It is impossible for the established political culture to guess or foresee where and how the next attack will fall because the public is often guided by emotions, while the machinery of government depends upon reason and logic. Eormerly, the debate was steered by political parties. Now it is often dominated by unknown sources, each with its own agenda but without any responsibility for governing the country. It is almost comparable to a military superpower fighting a guerrilla war. One side has all the power to win but does not know where to apply it.

Add to this that we have seen that Americanstyle capitalism has unquestionably negative sideeffects on the environment and wastes resources even at a time when resources are becoming scarcer and more costly. This adds to inequality in its own way, as many of those who suffer from income inequality will also be harmed by environmental pollution, low labor standards, and use of hazardous substances. Those left behind in the rush to maximize profits feel aggrieved and angry. .They constitute an invitingfieldfor recruitment by nationalist and populist extremists. In fact, it seems increasingly likely that such people form the core of the backlash against globalization. Thus far, the upper segment of income earners have been unwilling to give up the privileges they enjoyprivileges which they often grant themselves, and which often appear undeserved. Their intransigence further deepens the feeling that the capitalist model of globalization is biased and lopsided. Humankind is transiting from one era to another. Some would say that it is moving from the era of mass consumption to the era of "mess communication." Others say that the transition is from the era of plenty to the era of scarcities. Whatever its label, this transition calls for firm leadership, determination, and vision. Nothing of the kind is forthcoming. Instead, the system appears paralyzed by inactivity and long, drawn-out negotiations to make even incremental changes. The political parties are baffled, and people smell this when reading vacuous statements. Even worse, many political parties vie for votes by calling for change, but then continue to pursue the same old policies once they are voted into office, thus depriving people of the hope that a change of government will improve their lives. It doesn't. The current political system and economic model built up their roles over the last 200 years as the sole service providers to citizens of physical security, economic welfare, and employment.

Inequalities
Few dispute that economic globalization in the form of American-style capitalism delivers higher economic growth than any other imaginable model. The problem is that the flow of benefits it generates are not distributed evenly. The Gini coefficient used to measure inequality has gone up for almost all countries in recent decades. In the U.S., the income share now going to the top 1% of the population is 20%, up from 8% in 1973. Simultaneously, the top 1% owned 33% of weahh, while the bottom 80% owned a mere 15%. For China, the Gini coefficient rose from 32% in 1978 to 50% in 2006. Note that the threshold for raising the red flag is about 40%. Many people say American-style capitalism is great so long as high growth continues. But everyone expects to share in that growth. If they begin to feel excluded, why should they continue to support the model? Maybe they would be better off with a system that generates lower growth, but where benefits are more evenly distributed.

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In the past industrial age, people linked their identities to the nation-state based on economicsstandard of living, employment, etc. Being part of a nation-state secured access to the international division of labor. Without such access, growth would be lower, and merely regional and/ or local communities could not successfully compete. A person would trade in some of his or her identity to achieve economic gains. This is no longer so. A number of players regional economic organizations, like the EU; multinational corporations (or let us use the label "supranational corporations"); and even the old sub-national regions, like Bavaria in Germany, Scotland in the U.K, and Catalonia in Spainare now able to use the shifting architecture of the marketplace to take part in economic globalization circumventing the nation-state. Instead of economics, people now look more to culture, values, norms, and ethics as the anchors for their identities, and they find them by joining groups inside the nation-state and beyond national borders. Migration, global mass communication, the disappearance of national media, and monopolies for transport and public services are among the elements explaining this trend. An increasing number of people are choosing multi-identities. They see themselves not merely as citizens of a nation-state, but as belonging to regions, supranational corporations, and non-governmental organizations, to mention a few. Some of these deliver economic services, others human security, and still others make people comfortable being together with others who embrace similar cultural values. In the industrial age, a public that was dissatisfied with the services provided changed the service provider by voting another party into office. In the future, a discontented public will seek better service providers from anywhere on earth.

peopleperhaps the majoritytrends towards nationalism. They adopt a more and more populist political agenda and table promises that cannot be fulfilled. In such an environment, inequality goes up, further aggravating social problems and undermining social coherence. People look for strong social capital as the foundation for daily life. If the nation-state cannot deliver this, they seek it within groups, either national or international. This complicates the prospect of moving geographically or socially, because their individual identities are linked to the group and risk being lost if they move. Consequently, members of that part of the population tend to stay where they are. A decade ago, one out offiveAmericans moved every year. Now it is one out of 10. A nation-state's intellectual and business elites tend to be increasingly international. They feel little common ground with the majority of the population, but identify instead with likeminded people in other nation-states. As a result, they become more and more mobile. Thus we have on one hand the majority anchored in the nation-state, and on the other hand the minority elite going international and global. Supranational corporations and international non-governmental groups act as boosters for this growing dichotomy.

Conclusion and Suggestions

What can be done to "unmix" this potentially deadly cocktail of nationalism, populism, and inequality? First, a stronger global governanceone that establishes links between the police makers and those affected by policy measures, even if they find themselves in different nation-statesmust be set up. We have economic globalization, but as yet no global economic policy. The regional integration agencies (EU, NAFTA, ASEAN, etc.) can be used as building blocks and gradually merged to make possible global governance. The advantage of beginning with regionalism is that we start

The Clash
Inside the nation-state, a large number of

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at a point where confidence and trust are easier to achieve than on the global level. Second, bring the new playersmultinational companies, regions, nongovernmental organizations, and others with strong influence on policies and politicsinside the global economic system. Until now, and particularly in representative democracies, such groups have been classified as outsiders and relegated to lobbying to promote their special interests. This makes them automatically critical of the system, and prone to attack it and look for its flaws. The recent financial crisis has revealed not only fundamental flaws in both corporate leadership and governance, but has drawn attention to the fact that they both operate without reciprocal support, fending for themselves often as antagonists. To bridge the gap, a redefinition of corporate governance is needed. The basic idea of business is not to make money, but to deliver goods and services to society. Money or profit serves in this context as an indicator of how well this task is performed. Those who are successful do make money, but their profits function merely as a traffic light, not an end in itself The borderline between private and public enterprises has shifted over the last 30 years in favor of private enterprises. Now it should be redrawn, with much more thought given to which enterprises are private and which ought to be public. In addition, remuneration of the elite should be brought into line with how well that the elite serves the interests of society as a whole and calibrated less to the profits that their enterprises garner. Competition must be restored by breaking up enterprises that are "too big to fail." It is, in fact, quite simple. If an enterprise is too big to fail, it is too big to accommodate and should be replaced by a number of smaller enterprises competing freely with each other. This opens the door for those who do not serve society well to failand properly so.

Third, establish much better feedback among citizens, business, and the political system. The politicians must be better able to analyze and understand people's reactions to events and the reasons behind their dwindling confidence in governance and their growing sense of uncertainty and insecurity. These problems need to be addressed and not just brushed away. And the political system must do a better job of setting the agenda. That agenda is now too often set by outsiders who criticize the system, forcing it to waste its breath defending itself and frequently conveying the impression that the system is fatally flawed or broken. Representative democracy as we know it has run its course. It was based upon the assumption that people voted according to where they belonged in the industrial society (worker, farmer, civil servants, etc.) and on public confidence in their representatives' ability to represent their interest when voting. Average citizens were not expected to understand the complicated issues; otherwise, the system would not have been labeled a representative democracy. But today, information and communication technology has turned the tables. Now many peopleand in some countries perhaps a majority of the people follow closely what is going on and do not need to influence events indirectly through a representative. This does not mean that democracy is on its way out. Looking around the globe, there is little doubt that fundamental rights and individual freedoms carry tremendous weight. A growing number of people today take active interest in how their community and/or country is governed. What many of them feel is that representative democracy no longer offers a channel to better exercise their influence, but instead constitutes a barrier. More and more are saying "I can do it much better myself via ICT." And in fact, they can!

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