The tumultuous events in the U.S. and Europe over the past few days have highlighted a sad reality – political paralysis has become a primary hurdle to solving the West’s economic woes. In the U.S., the unsightly and embarrassing squabble in Washington over an arrangement to raise the government debt ceiling exposed American politicians as being too worried about personal political gain and ideological talking points than actually strengthening the sagging U.S. economy. The threat of a national default, and potentially global economic chaos, was enough to force a compromise only as the seconds counted down to disaster. Meanwhile, in Europe, the failure of the euro zone’s leaders was put on grim display yet again as borrowing costs for Italy and Spain surged to new euro-era highs – and levels close to which Greece, Ireland and Portugal had to seek EU rescues. The zone’s latest attempt to save the euro – the second bailout of Greece – has quickly proven to be yet another short-sighted effort, unable to calm short-term uncertainty let alone resolve Europe’s destabilizing debt crisis. If Spain and Italy require similar bailout programs, we’d really have to question if the monetary union could survive. The world’s investors showed how all of this inaction and uncertainty is clouding the outlook for the global economy by dumping stocks from Tokyo to Wall Street.
The core of the political problem on both sides of the Atlantic is the same – the demands of electoral politics in a modern democracy. In the U.S., both Republicans and Democrats took positions in the debt debate aimed at protecting their loyal voters. For the Republicans, that meant resisting tax increases on their rich supporters; for the Democrats, rescuing middle-class entitlement programs and welfare spending from Tea Party budget butchers. In Europe, political leaders like German Chancellor Angela Merkel make decisions on how to fight the euro crisis with one eye on voters back home. In other words, the politicians of the West are choosing the narrow interests of electoral victories over the greater, long-term good of their nations. Rather than focusing on closing deficits, improving economic competitiveness or forwarding the dream of European integration, they’re looking no further than the next vote count.
The result is a dangerous inaction where real problems and real decisions just get kicked down the road. In the U.S., the true task of shoring up national finances was left generally unresolved in this week’s debt deal, to be debated and debated again another day. In Europe, the hard choices needed to save the euro – sacrificing more sovereignty in a quest for a functioning union – are restricted to a bunch of paper pronouncements, not real, active policy. The countries of the West run the risk of losing out to up-and-coming emerging markets like China and India if they don’t take bold action towards solving their economic woes now. But there are few signs such action is going to happen.
Democracy isn’t supposed to work this way. The turmoil in the global economy raises a serious and troubling question: Is modern democracy failing to provde a political mechanism for solving modern-day problems?
Such a question is not something most in the West even like to consider. We are wedded to our democracies, and that’s not going to change. Yet at the same time, we do have to concede that democratic politics are not working to solve our problems. Rather than tackling unemployment, rebuilding infrastructure or supporting future competitiveness, U.S. politicians are too afraid to alienate their voting base to reach any substantive agreement on anything. So the U.S. continues to suffer from joblessness, a decrepit airport and rail system and declining education standards. Special interests — Wall Street banks, labor unions, professional associations, religious groups, and so on – have corrupted a system meant to serve the greater needs of society, not the myopic concerns of campaign donors. The result is that democracies are becoming increasingly unfair. They are becoming systems that give rich Americans and oil companies tax breaks while the unemployed suffer, or that continue to protect unproductive Greek government employees while stifling hard-working entrepreneurs. So much for government by the people and for the people.
And the problem isn’t confined to the West. Look at Japan, another country where democratic politics have been unable to produce sound economic policy despite two decades of meager growth. In the emerging world, there have for decades been critics who claim democracy simply cannot create rapid economic development. The political divisions it generates, they contend, foster a lack of national focus that stifles sound policymaking. Look at the Philippines compared to China, for example.
But that thinking is horribly wrong. Don’t think authoritarian regimes perform any better than democracies. Despite the view of many pundits that Chinese policymakers magically solve every economic problem that floats their way, the reality of the state of China’s economy tells us they, too, are hamstrung by politics. Beijing, like Washington, is showing signs of political paralysis, unable to take the hard decisions to fight inflation, stamp out corruption or rebalance the nation’s sources of growth, even though all of that reform would help the economy in the long-term. China, like the U.S., has seen a potentially dangerous build-up of government debt due to Beijing’s efforts to keep the economy growing, incomes rising and people employed. Even dictators – or at least those who wish to stay dictators – have to respond to public opinion.
We have to remember that there is nothing inherently flawed about democracies that undermines economic management. The U.S., after all, became the dominate economy on the planet as a democracy. In the developing world today, democratic India and Brazil are matching success for success with authoritarian China. Nor is there anything particularly new about the degree of bitter conflict plaguing Washington politics today. Go back and read about the battles between founders Thomas Jefferson and Alexander Hamilton in the 1790s, a contest as vicious and ideological as anything we’ve seen in modern times. Many of the issues were the same as well – the role of government in the country and economy, for example. In other words, America has been here before, and got through it. If you believe in democracy, you believe its conflicts, contests and compromises eventually produce the best solution for all.
Yet none of that means the democratic systems of the West don’t need some fixing. I’m not going to pretend I can solve the West’s political problems in a blog post. But since I’m out here in Hong Kong, I’ll note a bit of Chinese philosophical wisdom. Confucius, China’s great sage and one of history’s most influential political thinkers, believed governments should be run by gentlemen-scholars who were capable of setting aside their own personal interests and passions in a quest for the greater good. That’s unrealistic, of course. But the spirit is correct. Eventually, if the U.S. and Europe are to resolve their debt problems and compete in the global economy decades from now, our political leaders are going to have to make the tough decisions they have been avoiding. That may mean selling the right policies to their constituents rather than allowing their constituents to dictate policy. Our politicians have to awaken to the truth that the purpose of holding public office is not to perpetuate holding public office. The goal (as Confucius would say) is to do the right thing, whatever the consequences. If we voters toss out those wise men and women acting in the greater interests of our future, then our democracy is truly flawed.