Check against delivery

 Institute of International and European Affairs

17 January 2019

Thank you very much for inviting me here today.

It’s always a pleasure to return to and speak at the Institute of International and European Affairs.

The current series of lectures is very timely.

In beginning my comments I want to say that I will not be focusing on the immediate consequences of the vote on Tuesday evening in the House of Commons.

 I have addressed this elsewhere but am happy to respond to any questions or comments on it.

My address focuses on the longer term causes, consequences and responses to many of the challenges associated with Brexit.

The populist wave that crested in 2016 has spread across the shore of global politics with openly populist governments now in office in both developed and developing countries.

Unlike in 2016, when the great age of populism was largely prospective and amounted to a series of electoral shocks we have now learned a considerable amount about the governing method of populist parties.

So we must update our understanding, analysis and response to the populist project.

So today in addition to sharing with you my reflections on populism and the liberal order I would also like to offer some thoughts on the impact of populism in government, what we can learn from it and how we might respond to it.

I will address four different themes.

First, I will offer definitions of each of these concepts, of populism and the liberal economic order.

Second, I will focus on how some elements of the liberal offering created the environment for the development of populism.

Third, based on this I will argue that Ireland is well placed to respond to the challenges that others are now facing – but that we have no reason for complacency.

Finally, I will briefly ask what of ‘post populism’, of the risk of a populist double dip.

I make all of these points, as a public servant, who believes in the political centre, believes in it in Ireland but believes that it is not a question of the centre holding.

Stasis does not hold in a dynamic world – the centre must always be renewed and must always regenerate.

DEFINING POPULISM

When it comes to defining populism the most persuasive analysis that I have read is by the Princeton academic Jan-Werner Müller.

According to Werner Müller, a populist will always set themselves against a supposed elite by framing themselves as representing the “real people”.

So the populist revolt is against not just the elites but also the people who are insufficiently supportive of the revolt. Populism opposes pluralism.

The second key feature of Müller’s definition is that the institutions of the state are themselves biased against the populists.

Any defeat of the populist is a defeat of the people.

Institutions stand in the way of the will of the people.

Any defeat can be blamed on flawed institutions. And democracy is proven to be flawed in that ‘the people’ didn’t win. 

THE LIBERAL ORDER

So let us look at the key features of the liberal order.

The liberal international order that emerged in the wake of the Second World War had four distinctive features:

First, an increasingly open international economy and a belief in the mutual benefit of global trade.

Second a commitment to rules and institutions, both national institutions such as politically independent judiciaries, and independent media as well as supranational institutions such as the EU and the U.N.

Third, a belief in democracy and open societies as the optimal domestic political system.

Finally, America as the system’s underwriter and guarantor.

Underpinning these individual features was a fundamental belief that the arc of human progress always tilted towards the ascent.

These features shaped not just the liberal democracies that espoused them but the rest of the world as well. Ultimately this order created globalization.

That integrated network of global trade, immigration, communication, and the financial system, has pulled more people out of poverty than any other force in the history of the world.

Its achievements are extraordinary. But it has changed the context for the liberal proposition. It created forces that have undermined, for too many, core features of the liberal offering.

HAS THE LIBERAL ORDER FUELED THE GROWTH OF POPULISM?

I believe that we can identify three promises of liberalism to help understand the growth in populism – the promise of equality of opportunity, the commitment to redistribution and the consequences of interdependence.

Equality of opportunity has become a defining feature of social justice in liberal societies.

Prime Minister Gordon Brown in 1996 stated that “Equality of opportunity should not be a one-off, pass-fail, life-defining event but a continuing opportunity for everyone to have the chance to realise their potential to the full.”

 American leaders, over many generations articulated the same world-view. For example President Barack Obama’s observation, “Now, as a nation, we don’t promise equal outcomes, but we were founded on the idea everybody should have an equal opportunity to succeed. No matter who you are, what you look like, where you come from, you can make it. That’s an essential promise of America. Where you start should not determine where you end up.”

Louis D. Brandeis was typical of the founding fathers of American New Deal liberalism in contending that “Democracy rests upon two pillars: one, the principle that all men are equally entitled to life, liberty and the pursuit of happiness; and the other, the conviction that such equal opportunity will most advance civilization.“

This became a central policy goal of most parties on the centre-left and centre-right. Equality of opportunity means a level playing field. A chance for someone to achieve the most they can with the capabilities they have.

Amartya Sen, who won the Nobel Prize for Economics, offered a more complex definition. He suggested that equality of opportunity should be understood to include an individual’s capacities.

It is not enough to simply create opportunities, a person must be supported in such a way that they can avail of those opportunities.

This more nuanced definition of equality of opportunity opens a deeper exploration of the consequences of not delivering this agenda. 

Social mobility became a crucial metric of understanding whether this agenda of equality of opportunity was delivered.

Research into social mobility often refers to the so-called “Great Gatsby Curve”, which takes its name from the inequality and class distinctions in America during the Roaring 20s.

In simple terms, it demonstrates a clear negative relationship between inequality at a point in time and intergenerational social mobility –more unequal societies are less mobile.

It is much harder to climb the ladder when the rungs are very far apart.

Nearly a century from the era of the Great Gatsby social mobility continues to atrophy in many western societies. However it is different from the inequality that drove the lack of social mobility in that era.

The OECD has found evidence of a middle-class divide between the lower and the upper middle classes since the 1990s and fewer chances for people moving from the middle-income to the top income quintiles in many democracies.

Today’s global story of winners and losers has been hugely beneficial for the middle classes in developing economies and the super-rich.

This is illustrated in another famous curve, this time the ‘elephant curve’ which shows very significant gains for the emerging middle class in the developing world whereas the established middle class in the developed world have seen relative decline.

At the same time, the very wealthiest have made exponential gains. It is unsurprising that a powerful political reaction has ensued.

So if the core commitment of the liberal order to ensure consistent progress and improvement in living standards is not met whose fault is it? 

That has become a common enough question for seeking to understand the growth of populism.

But if equality of outcome is not reconcilable with the aspiration, incentives and capacity of a market economy, then the opportunity agenda becomes, as I have argued, central. Personal capacities have become part of this definition.

So the reaction to failure becomes even more personal.

This is compounded by changes in the nature of capital.

Since the 19th century, the concept of comparative advantage has been used to argue that international trade could be more than a zero sum game.

For most citizens in the developed and developing nations the benefits of growing international trade were clear for the second half of the twentieth century.

However popular perceptions of this have changed.

Now globalisation is seen by many as something which, far from addressing inequality, exacerbates it.

I have just spoken about the income and social mobility consequences of this.

However the changing nature of capital is also crucial in understanding this perception.

A major challenge to this redistributive role and capability is the changing nature of wealth, of assets and of capital. The changes are increasingly clear.

First – capital is absorbing a growing share of national and global income.

Second – the returns on capital are exceeding the return on labour, or to state the latter more plainly, the income that citizens receive from their work.

Third – the nature of capital is profoundly changing. Intangible capital absorbs a growing share of national and company capital.

A noteworthy example of this is a recent analysis of a leading technology company, which estimated that the traditional assets of plant and equipment equated to only 1 per cent of the company’s market value.

The texture of economies has profoundly changed, and quickly. Capital is more valuable, more invisible and more mobile.

Sources of wealth are harder to understand and literally harder to see. The traditional tools of redistribution have to work harder.

One of the key features of the liberal economic order has been ever increasing national and international economic interdependence.

This interdependence was seen as a prudent diversification which would protect our economies, our financial systems and our banks.

Diversified risk, we were told, was reduced risk.

The global financial crisis seemed to argue the opposite.

Such a tsunami of instability, a contagion borne out of mutual economic and political interdependence threatened the very foundations of our economies.

One of the key features of the political liberal order was the sharing of sovereignty between national and supranational institutions.

This is perceived by some to have reduced freedom where it is needed – for example to determine national budgets exclusively – while at the same time increasing freedom where it is harmful – for example perceived uncontrolled migration due to freedom of movement of people.

Populists have found fertile ground in this fear.

They have sought to reclaim the middle ground by portraying the economically rational as ‘ideological globalists’.

Institutions that are meant to symbolise mutually beneficial interdependence such as the EU have become lightning rods for populist anger and dissatisfaction. 

IRISH CONTEXT

Ireland is fortunate to have only a few minority viewpoints that echo the worst of populist movements elsewhere.

But we should not comfort ourselves with complacency or delude ourselves that we are somehow immune from the populist reaction to liberal democracy.

The political centre must respond to this.

Confident in making the case for what has been achieved.

But equally confident in challenging our underlying assumptions and policy approach.

With regard to equality of opportunity Ireland has had positive income growth over many decades which has transformed living standards across the country.

While we dropped from fifth in 2008 to eleventh in 2013 in the UN’s Human Development Index, we have since recovered and in 2018 were placed fourth in the world.

However we are not doing as well in social mobility as this performance might suggest.

The OECD has demonstrated that it is on average five generations before a person in the lowest rung will have an opportunity for their descendants to rise.

Ireland is very much mid-table in terms of mobility – ahead of much of the Anglosphere, but considerably behind the best performers in the Nordic countries.

As the OECD has noted that insofar as there is a silver bullet that Governments can apply it is education.

We are well placed to make this case, and must build upon it.

We continue to have one of the best education systems in the world with excellent mathematics and reading performance at primary and second level and high participation and progression rates at third level.

We can see the impact of this in the labour market, with strong demand for skilled Irish graduates and sustainable wage growth across the economy.

However many challenges remain, not least the levels of young people not in employment, education or training , the imperative to  increase participation rates at third level from people with disabilities and from disadvantaged backgrounds and the related requirement to maintain our commitment to redress the historic under-investment and policy emphasis on early childhood education. 

In responding to these obstacles to greater social mobility, the Government has prioritised increased levels of lifelong learning and participation in apprenticeships and traineeships in our ‘Future Jobs’ plan.

Meanwhile, in recognition of the very high social return on investment in early years, we recently commenced our ‘First 5’ strategy which will double investment in early education over the next decade integrate it far more closely to our primary school system.

Our work in the North East Inner City is an example of a new approach by government to old and difficult challenges.

When it comes to redistribution the last number of years have seen significant challenges in Ireland as we continue to deal with the consequences of the financial crisis.

This Government has worked hard to create a positive work and jobs environment which has facilitated significant and continued improvements in standards of living for the vulnerable in our society.

The crisis highlighted the critical importance of redistribution to our economy and our society. When unemployment peaked at nearly 16% in 2011 that safety net gave so many people, so many families, critical support.

Our redistribution policies and systems are effective. Even today in markedly changed times our social welfare and redistribution system continues to perform strongly to support improved outcomes.

The latest figures show just under one third of the population was the at-risk-of-poverty before social transfers, a number that was almost halved after social transfers.

The effectiveness of our system of redistribution system means that Ireland continues to be one of the best performing EU countries in reducing poverty through social transfers.

However we need to supplement the success of our performance in redistribution with a renewed emphasis on policies that seek to tackle income inequality before redistribution.

A large part of this work involves making markets function better in the public interest – what the US political scientist Steven K. Vogel calls “marketcraft.” 

Rather than to minimise government intervention in the market, we should instead optimise the manner in which we craft markets to work in the public interest.

Equally we must have the intellectual honesty to recognise where markets do not work and a clear and robust understanding of their limits.

In addition to inequality of market income, an unequal distribution in the ownership of assets is a distinctive feature of the contemporary political economy.

This is why the Government is prioritising two key areas that seek to enhance the pre-tax allocation of economic gains. 

Firstly housing, where initiatives such as the Land Development Agency, which are modeled on best practice in Germany and the Netherlands, will intervene within the market to improve the supply and affordability of housing in important locations.  

Second pensions, where the introduction of auto-enrolment will provide greater economic security for the many workers who currently do not have a supplementary pension.

This policy agenda tackles access to assets, not just access to income.

And then interdependence.

Ireland that sees the benefits of interdependence through the prism of our membership of the European Union.

When the president of the European Commission addressed the Dail in June he said that Ireland stood at the heart of Europe.

This is a national sovereignty that is shared, not lost.

Membership of the EU has brought Ireland great benefits. Being part of the Single Market and the Customs Union have been key pillars of our economic development. It has allowed access to a market of over half a billion people and has helped us cultivate a capacity which has allowed us to trade globally.

We have been empowered by our membership of the EU.

It has allowed us to take different journeys than our friends in the UK and to have a very different relationship with the concept of the EU.  

But cannot allow our membership of the EU to be defined by Brexit.

As a small open economy we are dependent on our European partners to deliver action and progress on a whole range of issues that have a very tangible impact on every Irish citizen.

Most people understand that to address climate change, to protect data privacy or to address terrorism we need European collaboration and community.

So we need to continue to maintain the breadth of our engagement in the European project.

Whether this be on banking union, making the case for an open Europe or the nature of European engagement in Africa – our engagement in Europe will not be defined by the decision of any country to leave the European project.

Populists in Government & the ‘Double Dip’

As I stated at the start, the big difference in the analysis of populism in 2019 is that it is now as much a method of governing as opposing.

Some have warned that populists in government will corrupt public institutions and cling to power, undermining democratic norms in the process.

Others have suggested that populist governments are usually so incompetent that they prove short-lived.

Yet others, including the political theorist Chantal Mouffe, have talked up the positive potential of left populism, and implied that critics of these movements are simply defenders of the failed status quo.

Given the variety of such views, consider a potential ‘double dip’ of populism, either or both could happen:

The first dip is that a populist agenda achieves either government or power but cannot achieve the objectives of a defining project.

Who is left to blame? 

As a thought experiment, imagine the very hardest of Brexit consciously occurs in line with the agenda of the hardest Brexiteers.

But the consequences include a significant reduction in living standards across the UK and there is limited scope to achieve big trade deals without further impacting on the living standards and working conditions of the UK population.

Who is left to blame? None of the answers to this question are good.

A second dip would be the role of institutions.

Markets co-exist with institutions within the liberal order.

Markets can deliver better outcomes for citizens (not just shareholders) when institutions perform their roles well.

But what happens if populism undermines the ability of institutions to perform this role?

Say the EU that cannot complete banking union or a Central Bank that cannot fulfill its mandate due to lack of implicit political support.

Imagine if market outcomes actually got worse? Again the question is who gets blamed and again there are no good answers.

The new narrative that develops on foot of this double dip is one of betrayal. In the process, the well of public debate and political engagement becomes ever more poisoned.

Conclusion

That is the scale of our challenge.

However, let us also recall the extraordinary progress the liberal order has achieved;

States who adhered to its norms respected the rights of their citizens, a free press and democratic debate.

Poverty reduced and living standards improved.

The demons of tribalism, nationalism and racism that nearly destroyed Europe on two occasions in the twentieth century were largely vanquished.

And co-operation and multi-lateralism replaced the Hobbesian conception of a war of all against all that characterised the previous international order of inter-state competition.

So we cannot and should not retreat from the central principles of that liberal order.

That doesn’t mean that we step back from the challenges populism poses.

What it does mean is that we, centrist politicians, need to do better at explaining what is done well and countering the populist narratives that say there is an easy fix if only we blamed someone else.

What it does mean is that we, moderate voters, need to challenge our politicians to do better and accept that in a liberal democracy effective Government requires compromise.

What it does mean is that we, Irish citizens, need to rage against the claim of the dying of the light and strengthen the liberal order against the tides of populism that can sometimes seem pervasive.

But the liberal order of today cannot be the same as that of yesterday. That is not a recipe for stasis, it is the inevitable slippery glide to stagnation.

Ireland can do this.

From early years’ intervention to increased ownership of assets such as pensions, this thinking is underway.

We need to make this case and continue to renew and reiterate it.

In Europe the heart of our challenge lies in the need to better connect the profound vision of the founding treaties of the European Union with the daily reality of the lives of our citizens.

In part this means a better functioning Eurozone and stronger economic performance.

However, we should also seek to go further by embedding a greater public purpose in the political and institutional dimensions of the European Union.

The forthcoming European Parliament elections offer those of us who want to align Europe closer with the aspirations of its citizens the ideal platform to make this case.

A case must be made for the European liberal order, in this week of all weeks.

I want to make it and thank you all for the opportunity to do so today.

ENDS