Author: Edward Luce

Adam Smith, the great theorist of free trade economics, is revered for his The Wealth of Nations. His companion work, The Theory of Moral Sentiments, is mostly forgotten. Yet it is the more important of the two. In it, Smith sets out why capitalism works best in societies where there are high levels of trust between its participants. When social trust falls, the cost of doing business rises. Even in the late eighteenth century, at the dawn of modern growth, Smith grasped the psychological importance of possessing faith in a better future.

From the book The Retreat of Western Liberalism

In the newly created Germany, Otto von Bismarck set up the world’s first social insurance system for the working classes in the late nineteenth century. Britian followed suit under Lloyd George in the early twentieth century. America distributed small parcels of freeholdings to first-comers in the feverish westwards push that came after the Civil War. Had America instead chosen to auction the undivided land to the highest bidders, the US would now have a Latin America-style hacienda economy. The railroad barons would have gobbled up most of the land and converted it into vast estates. America also made public land grants to set up new universities across its rapidly opening landscape. Each of the big Western countries consciously opted to spread skills and assets to its poor. For the first time in history, governments exended public education, moving the school leaving age upwards as the factory clock supplanted the farm day as the timekeeper of the new age. The gilded age was an era of spectacular new wealth. It was also a time of conscious improvement for the masses. They were no longer unlettered. As China and India are discovering, the rise of mass literacy changes everything. Though the Towntrees and the Carnegies became richer than God, their workers could read and write.

From the book The Retreat of Western Liberalism

Governments of all types – democratic and authoritarian, small states and superpowers – are losing their ability to anticipate events. They are thus losing the means to shape them. The days when national leaders could peer around the corner and head off coming dangers are receding. The best foreigh policy is conducted by calm minds in possession of the facts – and shielded from the pressure to broadcast instant moral absolutes. The more time leaders have to weigh up their options the likelier they are to choose the right ones. The speed of technological change is working against them.

From the book The Retreat of Western Liberalism

The golden decades of the post-war era bore out the theory of declining inequality. But over the last thirty years that has gone into reverse. During those decades, the share of the US economic pie divided between labour and capital was roughly 70:30. Capital’s share – the flows taken up by returns on financial assets rather than wages and salaries – has since risen to a level not seen since the days of The Great Gatsby. The gap between the pay of the average chief executive and their employees has risen tenfold since the lat 1970s to around four hundred. Europe has seen varying rates of rising inequality, with Britain and Spain recording the fastest-rising Gini coefficient – the measure of inequality – and Germany and Scandinavia the least. But all have been moving in the same way. In contrast to the industrial era, however, today’s inequality is accompanied by vanishing mobility. It is not just that people are staying physically put. They are also likelier to stay trapped in the same income group. America, in particular, which had traditionally shown the highest class mobility of any Western country, now has the lowest. Today it is rarer for a poor American to become rich than a poor Briton, which means the American dream is less likely to be realized in America. The meritocratic society has given way to a hereditary meritocracy. The children of the rich are overwhelmingly likely to stay rich.

From the book The Retreat of Western Liberalism

But I have grave doubts about history’s long arc. History is not some self-driving car taking humanity to a pre-set destination. Whichever human is behind the wheel must ensure the others stay in the car. Telling some of the passengers they have no business in the driver’s seat because they are clueless about the destination will sooner or later result in a crash. ‘Take back control’ was the chant of Brexiteers and Trump voters alike. It is the war cry of populist backlashes across the Western world.

From the book The Retreat of Western Liberalism

We are taught to think our democracies are held together by values. Our faith in history fuels that myth. But liberal democracy’s strongest glue is economic growth. When groups fight over the fruits of growth, the rules of the political game are relatively easy to uphold. When those fruits disappear, or are monopolised by a fortunate few, things turn nasty. History should have taught us that. The losers seek scapegoats. The politics of interest group management turn into a zero-sum battle over declining resources. The past also tells us to beware of the West at times of stark and growing inequality. It rarely ends well.

From the book The Retreat of Western Liberalism

Lawrence Summers complained of ‘the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered’. By 2016, he was warning that the public’s tolerance for expert solutions ‘appears to have been exhausted’. He advised a new ‘responsible nationalism’, which would ‘begin from the idea that the basic responsibility of government is to maximize the welfare of its citizens, not to pursue some abstract concept of the global good’. The global elites, in other words, need to catch up with how most people view the world – not the other way round.

From the book The Retreat of Western Liberalism

What would a new social compact look like? Since our crisis is political, the solutions must stretch far beyond economics. My own views do not always fit into twentieth-century pigeonholes. But I believe that protecting society’s weakest from arbitrary misfortune is the ultimate test of our civilisational worth. It seems blindingly obvious that universal healthcare ought to be a basic shield against the vicissitudes of an increasingly volatile labour market. Humane immigration laws should be enforced, and the link between public benefits and citizenship restored. Ours is an age of lawyers and accountants. Micro-regulation of the workplace ought to be replaced with broad guideines; free speech, in whatever form it takes, must be upheld on campuses and in the media; the tax system should be ruthlessly simplified; governments must tax bad things, such as carbon, rather than good things, like jobs; companies should be taxed where they conduct their business. Governments must launch Marshall Plans to retrain their middle classes. The nature of representative democracy should be re-imagined. Above all, money’s stranglehold on the legistlative process has to be broken.

From the book The Retreat of Western Liberalism

If we write off half of society as deplorable we forfeit claims on their attention. We also endanger liberal democracy.

From the book The Retreat of Western Liberalism

Writing in the 1950s, Daniel Bell, the great American sociologist, said ‘economic growth has become the secular religion of advancing industrial societies’. He was right. It follows that in its absence, many people lapse into the equivalent of atheism. That sense of listlessness shows up in many ways. In the labour market, it means falling rates of workforce participation. Much as the desire to worship falls in agnostic societies, the yen to work drops in flat economies. In the last decade, America’s share of people in full-time jobs has dropped to European levels, which used to be written off as a sclerotic consequence of the continent’s over-regulated labour markets. Now the US rate is bang on the European average. In some respects it is worse. There is now a higher share of French males in full-time jobs than Americans – a statistic that reflects poorly on America, rather than well on France.

From the book The Retreat of Western Liberalism