The Retreat of Western Liberalism: A Conversation with Edward Luce

Photo courtesy of Edward Luce.

Edward Luce is the Washington bureau chief and widely-read commentator for the Financial Times, which he joined in 1995, and the author of three books: In Spite of the Gods: The Rise of Modern India (2008), Time to Start Thinking (2013), and The Retreat of Western Liberalism (2017). Before his current role as the Washington bureau chief for the Financial Times, Luce was the Capital Markets editor and South Asian bureau chief for the same newspaper. Before joining his current paper, Luce was a correspondent for The Guardian.

Luce also served as a speechwriter for Larry Summers, while the latter was U.S. Treasury Secretary. He has a degree from Oxford as well as a post-graduate diploma in newspaper journalism from City University, London.

In his most recent book, Luce argues that the Western liberal order is in danger of slipping towards irrelevance because of the changing global landscape and the former middle class of advanced economies being left behind.

In this interview, Luce discusses his new book with us, sharing some of the causes of the retreat of Western liberalism as well as solutions.

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Photo courtesy of Edward Luce.

EW: Forgive me for being simplistic, but perhaps we could start by laying a foundation. How do you define the concept Western liberalism, because it’s critical to understanding your argument?

EL: I make a very clear distinction with the American use of the word liberal, which has confused one or two people. I’m not talking about tribal politics or loyalties in America. I mean Western liberalism in the classical sense of the term for the political institutions that grew out of the Enlightenment, namely the independence of the judiciary, the rise of civil society, the right to free expression and speech, and so forth that we associate with democracy nowadays and that actually precede the rise of majority voting.

Western liberalism is meant in the very broad sense of the political system that grew out of the Enlightenment.

EW: I think at the very beginning of the book you show what is known as the ‘elephant curve,’ which I think first appeared in a paper a couple of years back, but which simply shows the income level of people around the world on one axis and the recent change in income on the other. Of course, what you see is that everyone in the world – from the very poor to the super rich – have benefited from economic globalization except the middle class in the rich world. What do you think the causes of that are? Is it the simple fact that globalization has meant more people are in competition with each other?

The “Elephant curve.” Source: The American Prospect.

EL: I think it’s a combination of technology and globalization, but also the failure of politics in the West, because there’s nothing preordained that tells you that middle skilled people in the wealthiest countries, and those are the ones being affected, there’s nothing preordained that tells you that they need to have their incomes squeezed and their employment contracts made more tenuous. But, that is what has happened.

I don’t think the rise of the “rest,” which has been enabled by technology, is something that should be taking us by surprise or cause a shock to our policymaking elites, but they have failed particularly in the English speaking countries, mostly the United States and Britain, and also other parts of the West. They have failed to equip the middles classes with the skills necessary to adapt to these deep structural pressures coming from the rise of automation and the rise of China and other parts of the world.

I wouldn’t single out one particular factor here. These are deep, structural forces that are causing ruptures in the middle classes of the West and to which our policymakers are yet to come up with a satisfactory policy response. To me, that’s a scandal because there are many policies that would make sense. They’re not difficult to imagine, and yet our failure of imagination as democracies remains glaring and in some ways is getting worse.

EW: Do you think part or all of that failure can be attributed to how ideological we’ve become? Not to make more confusion of the term liberal, but there’s been a rise in neo-liberalism in the United States and Great Britain that’s paralleled globalization. Neo-liberalism here meaning, a return to classical, laissez-faire economics. The kind of economics that Adam Smith championed. So, because of this it is very hard for many to part with the ideology that says any assistance to a group or individual is a non-starter.

EL: Yes, I think we’ve been captured by ideology. As I said, particularly the English speaking economies during the Reagan-Thatcher revolutions. I understand why those Reagan-Thatcher reforms happened. The United States and Britain were becoming very heavily regulated by the 1970s and there was an understandable correction. But, I would argue that it was an overcorrection. You mentioned Adam Smith and Adam Smith also wrote about social trust, stating that social trust considerably lowers transaction costs. That’s the glue that binds together a thriving free exchange economy.

One of the most enduring, but insidious, concepts is the “greed is good” philosophy that grew out of the 1980s and it’s symbolic of the destruction of trust and disappearance, or at least dramatic refashioning, of the idea that we’re all in this together. The corrosion of that idea has actually inhibited our growth model. I could talk a lot more on that subject, but for now I would just agree very strongly with the premise of your question. We have an ideological problem.

EW: I don’t want to put any words in your mouth, so please correct me if I do, but I definitely got the impression from sections of your book that you feel that we like to believe that the liberal order is built on idealism and our own desire for good in the world, but really its continuation depends on how well the system can take care of the needs of the people living under it. So, I think a part of your thesis is that if we’re not able to solve these problems, then the liberal order is in peril.

EL: Yes, I feel that very strongly. I described it in the book a little bit as a bedtime story. We have a slightly fabulous fairy tale of democracy and we tell ourselves we have evolved to higher human sensibilities about mutual decency and values. And I do think that’s true, I don’t wish to be cynical here. There is a strong element of that and it’s become part of our culture.

But, I think we overlook the degree to which a liberal capitalist democracy has succeeded for the most part because its managed to lift most people in society into higher income levels and give them confidence that their children will be better off than we are. That sort of collective delivery mechanism of rising incomes across a very broad base has broken down in the last generation across the Western world. This is particularly true for middle income males.

I don’t want to indulge in too much gender generalization, but men do tend to vent their frustration politically perhaps more readily than women do. Men are also raised with higher expectations than women and therefore are likely to feel the frustration of the big squeeze that they have on their earnings potential and self-respect in the labor market. That puts a dagger at the throat of democracy because if we don’t have a system that can constrain people, they can use that power at the ballot box to express what they think of that system. That’s very dangerous and it’s essentially an accounting of why we are where we are.

EW: I believe this was in the book, although maybe I saw it in your Financial Times column, I enjoyed reading about your travel to East Berlin in 1989 to witness the Berlin Wall come down. What I enjoyed most was how optimistic everyone was at that point, which maybe extended into the time of the Gulf War. There seemed to be a belief that liberal democracy had triumphed. How much of our situation today is tangible and how much is psychological because we don’t experience moments like the Berlin Wall coming down or at least we don’t feel as though the liberal order is triumphing over competing systems in the world?

EL: A great deal. I think we underestimate, or we forget, the power of events like that. How old are you?

EW: I’m 33.

EL: OK, so you were too young to remember, we’re talking when you were a child when the wall came down. And you certainly don’t have vivid memories of the Cold War. But, I was 21 and I had come of age during the concluding years of the Cold War. I remember in 1986 when Reagan famously met Gorbachev in Iceland and they talked about eliminating nuclear weapons, and up to that point the shadow of nuclear war was ever present. We forget just how tangible a part of our psychology that fear had been.

The fall of the Berlin Wall, 1989. Edward Luce is on the right. Photo courtesy of Edward Luce.

So, there was an enormous and completely justifiable sense of relief when the Berlin Wall came down and then later the Soviet Union dissolved. It was an understandable moment of triumph. What we forget is that in a funny way the Cold War kept us honest because we were in ideological competition with a system that claimed to be for the people, for the ordinary man and woman. Now, of course in practice it didn’t deliver that, but that’s what the ideology claimed to represent. So, we had to deliver rising standards of living to ordinary people to demonstrate that our system was better than theirs. We forget the pressure from that ideological competition. It made the elites in the West much more sensible and sensitive to the demands of the masses than they have been since then.

So, while there was this champagne moment that came at the end of the ‘80s and early ‘90s, the old debate was now over and a feeling emerged that we just needed to go on cruise control essentially. Now it’s coming back to bite us.

EW: I wanted to read one paragraph from something you wrote in your column and this has to do with the most recent election in the United States and then I’d like to get your thoughts on it. You said:

“For my part, having lived in America on and off since the end of the past century, this is the year when democracy’s sense of restraint seemed to vanish. The glue of mutual respect that is so vital to any free society came unstuck. People no longer bother trying to persuade each other. They simply shove their vows – or the mere fact of their identity – in your face. Or else they just insult you. The more retweets the better.”

Has the advent of social media made the decline of the liberal order a greater reality or just showcased what was always underneath the surface?

EL: I think we tend to believe, or used to tend to believe, that prejudices were slipping away and that discrimination was becoming a thing of the past and that the tendency to scapegoat groups was fading into history. That was wrong even before social media came on stream. Humans are always a funny bundle of social solidarity, insecurity, and anxiety. There is always going to be conflict between humans.

What I think social media has done is brought that out and given it a megaphone. It’s also helped accelerate a new kind of disintermediation of politics. People often ask, “Where is Walter Cronkite now?” and Cronkite was before my time, not just before yours, but he was someone who was seen as neutral and trustworthy. There is no possibility of a Walter Cronkite today and you could have said that before the rise of Facebook and Twitter. The gatekeepers in the media and the political parties have basically been made redundant. The level of trust has plummeted to all-time lows in all kinds of institutions – politics, media, business, and so forth.

Social media brought out things that were always there and always will be there, but by giving them a megaphone it has also had a horribly destructive effect on our ability to have civil debates. It’s a major amplifier, but not the cause of these problems.

EW: So, it’s ended our mirage that we’re more sophisticated than we actually are?

EL: I think that’s right. Not enough work has been done on this – on the link between democracy and social media technology.

I would like to give some pause, if I may, or put up a caveat on my thesis of the retreat of Western liberalism. I’d like to point to countries like the Philippines and India, which are democracies, but which are very different kinds of democracies in that they have middle classes that are getting more and more prosperous. Yet, we’re seeing similar signs there as we are in the West. So, clearly technology is a big factor here. The President of the Philippines uses it to assassinate opponents. There is as much trolling there and anonymous character assassinations and poisoning of the climate going on in the Philippines as there is in America. So, I think you’ve identified a very important factor which I don’t delve into enough in my book.

EW: I wanted to ask you a little about countries like the Philippines. I don’t know that I would have associated the Philippines in the past with the “liberal order,” but there does seem to be voter rebellion about the “establishment” everywhere you look. Not just Duterte being elected there, but in Colombia, you saw a vote against the peace process that was endorsed by the sitting government and almost every international organization. India has become much more nationalistic. Is this a separate phenomenon in these emerging countries, or is it in some way tied to the decline of the liberal order as well?

EL: I very much hope that it’s a separate phenomenon, but I can’t say that for sure. I’ve done something which is pretty arrogant even by the standards of a columnist, which is I’ve tried to provide a unified field theory of what’s going wrong with Western democracy. But, every now and then I’ve got to convey some intellectual humility, which I do feel in trying to think through your question.

I think the West is going through a prolonged laboratory experiment to see how deeply rooted our values are. But, it’s easier in India and hopefully at some point in China to stick to democracy when you’ve got galloping growth. That said, this deep sea change going on in the way we make decisions and the pressure on all leaders, democratically elected or not, to respond quickly and get out ahead of the rapidly appearing and disappearing social media is changing something fundamental about government in general and I can’t put my finger on how hard or easy it will be to get control of this.

It’s a subject I don’t understand fully enough and I’m still waiting on that really brilliant New Yorker or Atlantic or Foreign Affairs piece to provide some ways of looking at this.

EW: I think the French election happened after your book was published. I was curious to get your thoughts on that. Macron not only won the Presidency, but it looks like he’s going to have a majority in the legislature. Do you think that’s a one-off? Or is there a chance that parts of the liberal order are stronger than they’ve appeared?

EL: I had a debate with my publishers. They wanted my book to be called “The Collapse of Western Liberalism.” Fortunately, I won the debate. Retreat is something that implies the ability to regroup. I have to say that we are seeing a regrouping in Macron’s France, and it strikes a very positive contrast to what we’re seeing in the English speaking world, primarily Britain and America.

I would say it’s too early to definitively tell what the French election will mean. Macron looks likely to win control of the French Assembly, which is good news. In one sense, it’s consistent with the anti-establishment feeling going on across the Western world, because his party didn’t exist a year ago. Now it’s the majority. In another sense it’s very inconsistent with that feeling because he’s a centrist technocrat. He won on the basis of a very skillful political campaign that managed to promise all things to all people and you can’t govern like that.

There’s a very strong, perhaps necessary, Thatcherite labor market reform plank in his program which will test the French tolerance for structural reform. They are very reluctant to give up their work week and job security. I’ll be watching with interest and hope, but not with much expectation, knowing that if he doesn’t fair well Marine Le Pen is well placed to pick up the pieces. Although, I must stress that right now the glass of champagne is out and this is a good event and I don’t wish to sound like a pessimist on every question.

EW: You don’t at all.

I have another question for which you may not have an answer, but in looking at the English-speaking world, obviously we’ve already discussed the upheavals in the United States and Great Britain, but it doesn’t appear as if they have occurred to such an extent in places like Canada and Australia. Have they done things better? Or have their systems been more adaptable to the modern world?

EL: That’s a good question. There was a very good study on this about the middle class co-authored by Larry Summers and Ed Balls, Britain’s former shadow Chancellor of the Exchequer. It looked at the Canada and Australia exception because these were the only two Western countries that have continued to have a rise in median incomes since the beginning of the century. But, that has started to slow down with the commodity super cycle. Remember that these are very resource-based economies that export all kinds of energy and other resources and agricultural commodities. That boom is now starting to fade, but it explains why the politics in Canada has been so different to what we’ve seen south of the border and why you’ve got another Macron type figure in the form of Justin Trudeau and my former colleague at the Financial Times, Chrystia Freeland, who’s Canada’s trade and foreign minister. It explains why you’ve got a relatively constructive program now being carried out in Ottawa – there is fiscal stimulus, some job training, and worker investment. You have the kind of politics enabled by this middle-class growth that can actually minimize the chances of Canadian democracy going off the rails.

Australia is slightly different, and we can talk about that if you like.

EW: Would you say that Australia’s long record of recent prosperity is tied to trade with China more than anything else?

EL: That’s a very good question and I think it’s a hugely important factor. The level of Chinese foreign direct investment and the number of Chinese students traveling and living in Australia is enormous. The degree of civil society integration is a really interesting phenomenon, which is posing many foreign policy questions. There’s a debate going on right now about whether Australia should distance itself from Transamerica and be more equidistant between China and the United States.

But, Chinese FDI in Australia is a big deal and of course Australian exports to a hungry Chinese commodity machine has been a big factor. The politics there, though, don’t quite mirror Canada. The immigration debate, for example, has soured a lot more there than in Canada and I’m not entirely sure why.

EW: I don’t know either.

I was actually just in Canada, in Toronto a couple of weeks ago and the city is certainly what New York was a hundred years ago in terms of the foreign population. It’s unbelievable.

EL: The late British actor Peter Ustinov described Toronto as New York governed by the Swiss.

EW: (Laughter.)

What’s your take on potential solutions to the problems we’re facing? For example, a lot of historians would view FDR’s going against the grain of ideological capitalism during the Great Depression as ironically saving capitalism. In order to save liberal democracy, what we think of as capitalism today, is the solution a more Scandinavian style system that protects those left behind?

EL: I’m wary of citing too much examples like Norway or Singapore. I understand that America is a country with 320 million people and an extraordinary mix of races and other monocultures have limited applicability here. It is just much easier for those countries to push things through than it is in a place like the United States.

That said there are a couple of things that are really important that the Scandinavians in particular, and also the Germans, do very much better than the British and Americans. They have a better social safety net, and not necessarily welfare. The safety net in those countries is not a stigma. They are cushions to tide people from one economic transition point to the next. It’s social insurance that covers the population and I think it’s very interesting to find that people are much less anti-trade in Germany and Sweden precisely because they do have some kind social insurance that whatever happens to their jobs they’ll be OK and they’ll have the funds to retrain for new kinds of jobs.

By contrast in America and in the United Kingdom we have very badly designed and poorly funded schemes for victims of trade competition. The trade adjustment assistance fund in Washington is depleted, but it’s also illogical. Why single out people who lost jobs because of trade? What makes them special compared to those who lost jobs due to technology or any other reason? What we need is a wholesale rethinking of the New Deal. You mentioned FDR and we need a rethinking of what the gig economy is and what challenges it poses that we didn’t have to contend with previously.

Just to underline this: I don’t see the problem as a lack of solutions. We have plenty of solutions available. I’ve used the phrase “Marshall Plan for the middle class.” This is an investment that would have a very high return. The problem isn’t the lack of ideas. The problem is getting to a political situation where there’s any chance those ideas are going to be put into practice.

EW: So, if there was a genie that appeared and said, “Edward Luce, you can implement three political changes that you want.” Would you focus on the structural, underlying issues of the political system – like gerrymandering and campaign finance – or would you seek some of these specific solutions that are floating around?

EL: That would be first on my list. I would be putting redistricting into nonprofit hands. That’s a very important part of it.

If there was a genie and I had a magic wand I would also have a two stage presidential election like the French. I’ve always believed that that’s a superior model because I believe that people have a cooling off period between round one and round two that enables them to reflect on their choice. Secondly, that system incentivizes candidates to reach out to the middle and make alliances with smaller parties so that they can win in round two. Therefore, it pushes the conversation back to the center.

EW: But, in order to do that wouldn’t you have to find some way of dismantling the two party structure? If there are only two parties, then there’s really no chance of a runoff.

EL: Well, the whole point of the first round is that anybody can run.

EW: I see. You’re suggesting that this would replace the primary system and you would have multiple candidates from each party in the first round.

EL: Yes, get rid of the primaries and as many Republicans and Democrats can run.

You can spin this many different ways, but it would change the whole incentive structure. The parties may break up because of this, or they may realign. That would be hard to predict.

EW: It would potentially encourage more coalition building in Congress as well.

EL: Indeed, and at the state level I think over time it would have a very positive and dramatic effect.

EW: As someone who’s British you must think it’s mad that politicians in this country draw their own political districts. I cannot imagine anybody else in the world thinking that that’s a good system.

EL: I’d like to say something really polite, but it really is mad. The voters don’t choose the politicians, the politicians choose the voters.

EW: For good reason, economists like to focus on things they can measure. But, I was struck by some comments in your book about the human aspects of the situation. Perhaps we have an empathy deficit as well. I think you used a phrase like “arrogance towards the losers.” If you go back a century, one of the important things that needed to happen in order to have any social progress was to dispel this myth that poverty or homelessness was due to a character defect. It seems like that thinking has come back. How do we get past that?

EL: We focus a lot on the so called “deplorables,” the sort of negative, nasty human elements in the Trump base. But, we don’t appreciate the degree to which the elites have made their own bed here and they’re being forced to lie in it. There is a tendency among those who do well to believe it’s entirely through their own talents and that’s a complete misreading in so many cases of the role in which the social system around us enables people to make wealth and the degree to which luck sometimes plays a very strong part in it.

So, we’ve got this sort of hereditary meritocracy where the children of those fortunate are being given all kinds of special advantages that simply aren’t available to those who aren’t born fortunate.

One of the principal targets of my book is the elites themselves to try and understand the role they played in bringing about this mess that we’re in. It’s hard to legislate for change of mind amongst people, though. We are all going to do the best we can for our own children, it’s natural and a moral thing to do and it’s a positive. But, collectively the outcome is that we become what Richard Reeves of the Brookings Institution called “opportunity hoarders.” I don’t have that much optimism that we’re going to unilaterally disarm on this front and it is one strand of my pessimism, because history tells us that it takes a great shock for the elites to change their ways. As extraordinary as it may be, the election of Trump doesn’t seem yet to qualify as such a shock.

EW: Do you think the Presidency of Donald Trump has wandered back to a typical Republican administration, perhaps just overlaid with some random tweets?

EL: Domestically, yes. It’s becoming a Paul Ryan agenda very incompetently executed. Globally, no, there’s nothing traditional about it. This is the point where the wheels start flying off the U.S. led global order. If you keep letting allies down and undermining the idea of mutual security, then those allies will take steps to insure against that and it will be very hard to return to the status quo after Trump.

The world’s principal source of rules and stability has been Washington, and now it has become a net exporter of instability. History will look at this as a very big sea change.

EW: How do you think the world will look in twenty or thirty years if we don’t make some of the adjustments that we’ve discussed?

EL: That’s probably too long a prognostication for me to give you, but I think the natural order of things even if Trump hadn’t been elected and Hillary Clinton was would have continued shifting. There is a relative shift of economic weight in the world and therefore political power towards the East. That’s been happening anyway for twenty or twenty-five years now and will continue. I see Trump as committing an unforced error and accelerating that trend, which is potentially very dangerous and quite unnecessary.

EW: The last question for you has to do with competing structures to the Western liberal order. Certainly Asian systems seem to be more of a Confucian model of state capitalism and not quite democratic in the way the West has been, in Russia you have a return of nationalism – a kind of neo-fascism, and then in various parts of Africa and Latin America you have a kind of kleptocracy where corruption permeates transactions.

In the past, it’s been perceived that the Western model was the correct way to run a country. Are we now in a phase of history where it’s more ambiguous and there are simply going to be multiple philosophies at the heart of the nation-state?

EL: We already have competing systems and we’re coming to terms with that. I don’t think we’ve yet come up with a less bad system of governing than representative democracy. And I stress the word representative here rather than direct plebiscite.

We’re at a stage of human history where more people are being lifted out of poverty around the world, outside of the West, than at any previous time ever. In one sense, the very positive momentum allowing for that has been a kind of Pax-Americana, ironically, by the system of global public goods supplied from the United States. So, it’s a very dangerous moment for Americans to walk away from that and it will do enormous damage to representative democracy as a model.

My last point would be that there is no real logical competitor to democracies as a managerial alternative except the authoritarian China model. It’s hard to know what the alternatives are. I guess we’ll leave it at that and we’ll have to see how the future unfolds.

EW: Mr. Luce, I sincerely appreciate your time and for a fascinating conversation. I really enjoyed your book and I’m sure will continue enjoying your columns in the Financial Times.