Populism Versus Prosperity – for Project Syndicate

LONDON – Marine Le Pen, the leader of France’s far-right National Front, claims that the twenty-first century’s defining battle will be between patriotism and globalism. US President Donald Trump appears to believe that it will be between “the very fake news media” and himself, backed by “the people” he claims to represent. They are both wrong.

 
The battle that will actually define this century will pit long-term thinking against short-term thinking. The politicians and governments that plan for the long term will defeat those that fail – or simply refuse – to look beyond the current election cycle.

 
China is famed for its supposed long-term thinking, but we do not have to resort to dictatorships to test the point. Some Western democracies have also done the work needed to manage the powerful forces of globalization, technology, and demography – and they have been rewarded with stable economies and political systems largely unchallenged by populists. Others have remained fixated on the short term, and suffered considerably as a result.

 
To map this distinction, I have developed a new composite statistical indicator for my educational charity, the Wake Up Foundation, called the Wake Up 2050 Index. Unlike, say, the World Economic Forum’s Global Competitiveness Index, the Wake Up 2050 Index looks beyond statistics covering past and current performance to detect clues about countries’ future burdens and the likely productiveness of their main assets, especially their own citizens.

 
Based on 25 measures, the Wake Up 2050 Index ranks the 35 mainly advanced-country members of the OECD according to their preparedness in five areas: demography, the knowledge society, technological innovation, globalization, and resilience in the face of unexpected shocks. The results are striking.

 
Switzerland tops the index as the Western country best prepared for the known trends and forces shaping the twenty-first century. The country’s populists are a single-issue brigade – with that issue being immigration – and have far too little support to enter government. What backing the far-right Swiss People’s Party has attracted emerged only after the number of foreign-born migrants reached one-quarter of the Swiss population, almost double the level in the United States or the United Kingdom.
Switzerland’s four neighbors languish far lower on the list – Germany in 15th place; Austria in 17th; France in 20th; and Italy in 32nd – despite their close cultural, historical, and commercial ties to Switzerland. In Austria and France, Euroskeptic, anti-immigrant populist parties have gained enough support to have a real chance of winning power, as has Italy’s more left-wing Five Star Movement. Even in Germany, the populist influence is rising.

 
Given Switzerland’s reputation for being wealthy, well educated, innovative, and resilient, its success in the index may not seem surprising. But with wage levels among the world’s highest and 19% of its GDP coming from manufacturing (compared with 12% in the US and 10% in the UK), it should, in theory, be highly vulnerable to Chinese competition and job-destroying automation. Yet it has largely shrugged off these challenges.

 
The same cannot be said of Italy. Though its manufacturing sector accounts for a smaller share of GDP than Switzerland’s – 15%, to be precise – it has suffered far more from Chinese competition. The reason is simple: Italy is producing less sophisticated and innovative goods.

 
This reflects a serious mistake that Italy, along with France, is making. By over-spending on public pensions to buy off voters in the short term, both countries’ governments have severely limited their ability to invest in education and scientific research. No country can compete effectively in an increasingly knowledge-based, technology-driven global economy, if its government doesn’t devote sufficient resources to fostering the right skills and capabilities among its labor force.

 
Success also requires a regulatory environment and corporate culture that enable citizens to make productive use of the knowledge they have acquired. In this sense, countries with low female labor-force participation (like Italy) or where the most experienced workers, those over age 65, no longer work (like Italy and France) are at a distinct disadvantage.

 
The value of long-term planning is perhaps most apparent in Japan. Despite being the advanced economy experiencing the fastest population aging, Japan scores rather well on demography in the Wake Up 2050 Index. One major reason is that, anticipating the demographic shift it would undergo, the country has kept more than 20% of over-65s in the workforce, compared to just 2.9% in France.

 
The US scores worse than expected on both innovation and knowledge. Poor performance among secondary schools and a low overall labor-force participation rate mean that the advanced technologies the US develops are not used to their full potential. That is a major reason why Trump was elected president – and a bad sign for America’s future prosperity.

 
To “Make America Great Again,” as Trump has pledged to do, policymakers must think beyond the current election cycle. The same goes for all of the Western democracies. Yet many critics have begun to doubt whether Western policymakers are even capable of such long-term thinking anymore.

 
But the critics could be proved wrong. Immigration, one of the most contentious questions in today’s political debates, is fundamentally a long-term issue. And while voters in the US have come out against openness, the UK promises to remain open after Brexit, except to immigration from the EU. Elsewhere, openness is still being staunchly defended.

 
In France, the question of openness is the main battleground of the upcoming election. Le Pen, like Trump and the Brexiteers, claims that openness has been a disaster. But Le Pen’s two main rivals – the independent centrist Emmanuel Macron and the center-right Republican François Fillon – both argue for more openness and freer markets. Who comes out on top will determine the trajectory not just of France, but of Europe as a whole. Switzerland, for one, is more than a little nervous.

This article first appeared in Project Syndicate 09/03/17